Mark Green: Louisville Regional Airport authority does not receive local or state money and self-funds the operations of Louisville Muhammad Ali International Airport (SDF) and Bowman Field (LOU) with revenue from a variety of user fees. What are fees levied on and what revenues do they generate?
Dan Mann: Airports, particularly of our size, are generally self-sufficient. We run like a business. Users of the aviation system and airport pay for the operation of the airport, and that comes in many forms. The government piece of this is the (federal) Airport Improvement Program (AIP): People buy airline tickets and pay a fee or tax that goes into the entitlement fund. When we have to put in a project – say, an infrastructure upgrade – then we apply for grants out of the AIP fund. Only users of the aviation system fund that.
More locally you’ve got landing fees. UPS pays a fee based on the landed weight of its airplanes; the (passenger) airlines pay the same thing. The rental car fee is usually the second largest source of revenue. The No. 1 source of revenue at airports is almost always parking: the parking garage, parking service. So parking, rental cars, and then your aviation users, the landing fees, terminal rents – all those pieces come together for us to generate our budget of $106 million.
The fees generate enough money to pay our utility bills, police department, water, sewer lines and maintain 17 miles of roadway, taxiways and runways. It’s almost like a city complex with police, fire, water lines, sewer lines, electric and facilities our tenants use. That’s where the money comes from. We’re nonprofit, so that money goes back into the facility, so we can have infrastructure for carriers to take off on and generate more economic impact for the region.
MG: What’s the number of employees right now?
DM: We are right around 150 Airport Authority employees. With all the businesses and tenants that pay to be here at the airport, around 51,000 people work on this 1,500-acre footprint. Those are TSA, air traffic control, the fixed-base operators, the guys that pump gas. UPS Worldport, obviously, they’re behemoths as it relates to job creation and job development. You’ve got the concessions, the restaurants, the gift shops, rental cars, parking lots, Air National Guard, all the things that are associated with running an airport are here. A lot of those are really good paying jobs. It is a really strong piece of the economic engine for Louisville.
MG: Are the budget and airport authority employee numbers up or down?
DM: Those numbers are actually down. When I got here a year ago we had 186 employees; it was always in that 185-195 range in the past. We are smaller today. My philosophy has always been having a smaller group of personnel. I strive to have a core group of people and augment the staff with outside professional help: contractors, whether that be HVAC guys, electrical guys, engineers. We’re down about 35 employees; 150 is probably where we’re going to be.
MG: The most recent economic impact report from 2014 states the two Louisville airports – Muhammad Ali International and Bowman Field – generated recurring impacts of almost 70,000 jobs, $2.6 billion in payroll, $8.1 billion in economic activity and almost $350 million in state and local taxes. Is there an updated best guess of what those numbers might be now?
DM: No, but we know all our activity is up. In 2014, the airport industry was still slow to recover from the Great Recession. The corporate aviation side of things was slow. The airlines had constricted dramatically and were down. We think we’re going to have some pretty good gains from the 2014 numbers
Regarding the economic impact, when you look at our model of being self-sufficient and not taking money out of the tax system, to have the employment here creating $348 million in tax revenues is pretty significant and is going to the benefit of the state. Whether it be schools, roads, police, it really is an important number. And when you put our number in with the Lexington airport’s number and Northern Kentucky’s number, it really does help the state economy. It is an important asset, not only for the citizens and the tax revenue, but for economic development, the jobs that are created, the businesses that move to an area because of what an airport has to offer.
MG: How much general aviation activity is there at the two airports?
DM: Atlantic Aviation is our fix-based operator. They handle primarily business aircraft, but they fuel the airlines. Bowman is what we call a reliever airport – the smaller, piston-engine aircrafts, small jet aircraft; the corporate general aviation business aviators use Bowman Field. We couldn’t operate the way we do here at SDF with high-speed aircraft coming in if it wasn’t for Bowman. Bowman pulls off the slower, smaller aircraft and frees up the airspace, so Bowman is very important.
It’s the busiest general aviation airport in the state. There are 217 T-hangars (T-shaped to accommodate plane’s wings) there, and they’re pretty much full. Bowman is very active. There are 200-plus aircraft based at Bowman Field. There are two fix-based operators fixing airplanes, storing aircraft, selling fuel. We have a mix of recreation and business. All of the 217 T-hangar aircraft are privately owned. And then the corporate hangars are business aircraft, primarily jets and some props.
MG: Are there any commercial schedule flights at Bowman?
DM: No. When you have major events like Breeder’s Cup and Derby, you’ll have large corporate aircraft, the Gulfstream Vs, come in here at SDF. The smaller, privately owned aircraft go to Bowman. During Derby there’ll be hundreds of transient aircraft for people who come in for that. In 2018, SDF handled 749 aircraft from Thursday to Sunday on Derby weekend and sold 215,149 gallons of JetA fuel; there were 344 aircraft on the ground at post time. Derby attendance was 157,813. When you think about how many people and aircraft are coming in just for this event and the amount of money they’re spending to get here, the fuel they buy, and they’re going downtown and spending the night, it’s phenomenal.
MG: How many passenger flights does SDF have now?
DM: We have 33 nonstop destinations, up from 21 nonstop destinations in 2016. Last year, we had nearly 1.94 million departing passengers, up about 11 percent. There are about 400 commercial service airports in the country; that 1.94 million number puts us around 70th. 2018 was the second busiest year in the history of the airport measured by the number of planes and passengers and the last four months of 2018 were the best four months ever.
There were a total of 27,048 scheduled departures in 2018. This averages nearly 74 departures per day but during peak periods it could be as high as 87 departures per day. During the past 12 months, the airlines added an additional 195,000 seats to Louisville’s flight schedule, which was an 8.5 percent increase.
The number that’s really phenomenal is the operations by UPS. It is a flight every minute and a half or something like that (at night). In 2018, there were a total of 44,243 cargo landings, and UPS accounted for nearly 91 percent of all cargo operations in 2018 with 40,601 landings. That averages to be slightly more than 111 landings each day.
As we look forward to 2019, our scheduled capacity is up over 10 percent. And we think 2019 will be the best year ever, surpassing 2000, which was the busiest year the airport had ever had.
MG: The 11 percent jump in 2018 was big. How did that happen?
DM: We added 10 nonstop destinations; ultra-low cost carriers were a big piece of that. But we also had Southwest add service, and American Airlines. The legacy carriers added service, but the ultra-low cost carriers – Allegiant, Frontier – added destinations and boarding capacity.
Our Louisville market is growing; the economy’s strong. There’s a renewed interest in the tourism aspect. You have a college town, and that provides folks looking for ultra-low cost service. The airlines are making money now, so they’re looking for ways to expand.
The last piece is our team making a business case, having the right message to the airlines. We’ve been able to make a case that this is a place they should be expanding. Capacity’s up, numbers are up, forecast capacity is up. The cycle we’re in right now is really positive.
MG: What are the key data points airlines look at when they decide to come in with a new flight?
DM: We look at data for our unserved markets or markets where we have a high load factor (a metric that measures how much of an airline’s passenger carrying capacity is used). We collect that data and what the average airfare is in our market compared to other markets.
Let’s talk about the Los Angeles market that had not been served from Louisville. We’re getting a nonstop service to LAX starting April 3. We were able to make the case that while this is somewhat a small market and LAX is a long-distance service, the numbers are there; this is probably sustainable.
The other part of it is Louisville Regional Airlift Development (LRAD), the private group of business folks that raised money to offer a minimum revenue guarantee, what I call an insurance policy. So, American Airlines decided to try it.
That level of detail goes into every market we look at, every time we want to expand a route: passenger demand, our load factor, the revenue being generated for the airline. Telling airlines how they can make money in our market is key to the whole process.
MG: How full does a flight need to be for an airline to make a profit?
DM: It really depends on what type of airline. An ultra-low-cost carrier selling the airfares really cheap has to have a 95, 96, 97 percent load factor. Because it’s all leisure, it’s all low fare; they have to fill the plane up.
A business market – New York City, Chicago – will have much higher airfares. They can count on some of it being international traffic. Generally, if they’re running around 75, 76 percent load factor, they’re making money. When you’re getting up to an 82, 83 percent load factor, you can then go to the airline and say hey, the planes are full, we could probably add capacity, because at some point these passengers are going somewhere else or taking another options.
MG: What are your other target markets right now?
DM: Priority one is making sure our existing routes are viable and profitable. We’re doing a lot to make sure there’s awareness for that LAX service and that it is successful for the long run. LAX being successful changes the conversation we have with our airline partners because the airlines look at you differently. If we make LAX work, they’ll quickly pivot.
We’re already working on Boston, and Boston is a big market. When we look at the analysis of which markets do not have nonstop (Boston) service, we’re in the top five that should have (the necessary) demand, population, business connections.
We think the Toronto market opens up some European travel, or at least some European travel competition, which will stimulate airfares. So Toronto is probably No. 2. After those two, as it relates to a business, the legacy business market is probably Seattle and San Francisco.
As for the ultra-low-cost carriers, we’d love to have Spirit Airlines in our market, more Allegiant flights, more Frontier flights. The more low-cost carriers we have, the better the airfares get, the more options people have, the more people who don’t travel at all will have reason to travel. The folks who are traveling out of state or to other larger airports will be able to use our market.
That growth creates more activity. And when you’re self-sufficient, more activity means more people parking, more people renting cars, more people spending money in the concession, all those things that drive our revenue.
MG: What capital projects did you do last year and what is planned?
DM: Last year was basically pavement maintenance; it was $8.5 million. We have our CAPA (corrective and preventive action) improvement program. It generally runs $15 million a year for pavement infrastructure-type needs. That is ongoing with the operations we have with UPS at night and passenger carriers during the day. We have to schedule those runway projects very carefully; taxiway projects happen every year and it’s pretty routine. Moving forward though, we have what is probably a $350 million CAPA improvement program.
A $100 million number you might have heard about is our terminal renovation program that is in the design phase right now. The first construction phase will happen probably this summer, and then we’ll go through five to seven years of nonstop terminal improvements. It includes things like replacing all 24 jet bridges – they’re all 20-plus years old and need to be replaced. They come in at about $1 million a pop, so you’re talking $20 million in jet bridges.
Our terminal walkways, escalators, elevators are all very old and need to be replaced; it’s hard to get parts for them and sometimes we have to actually manufacture parts and have the walkway and connectors down for 30, 60 days. All that is going to be replaced. That’s $15 million.
Our last terminal renovation was two years ago – a beautiful job on a lot of cosmetic improvements. But some of the core things behind the walls did not get fixed: mechanical systems, the controls of the heating and air conditioning, the boiler systems. All that is going to be touched as part of this project. That’s probably $40 or $45 million. That, the customer won’t see.
What they will see is something for the rental car customers, which is our second largest piece of revenue. We are going to move them to the lower level of the parking deck so they’ll have cover. We’d like to put a seven-acre solar farm on top of the parking deck to cover it. We’re studying that right now. The rental car change is a major upgrade that will require a road reconfiguration, which will clean up some of the other logistics issues we have with our terminal roadway.
So that’s the $100 million program. We probably could do it in five years but to cash flow this and make sure we don’t have to borrow money, we may have to extend that out to the seven-year mark.
MG: You mentioned a $300 million capital plan in the works. What’s the rest of it?
DM: There will be a taxiway reconfiguration. About $12 million over at Bowman fixing some things there. But the bulk of it is going to be on the airfield – $200-plus million. Taxiway G alone we project to be a $55 million project. Some of these projects will require some infrastructure dollars to come out of the Airport Improvement Program.
UPS Airlines is taking shipment of the (wide-body, lengthened fuselage) Boeing 747-8, the new cargo model. They say there are going to be 21 of them. To handle a 747 you have to have wider taxiways, a different configuration to accommodate it.
MG: Have you had to meet more demand from UPS in recent years as a result of ecommerce? Do you anticipate that to grow?
DM: Oh yes, absolutely. We think that demand curve growth is going to be steep. Even with things like Amazon starting up its airline (Prime Air, based at Cincinnati-Northern Kentucky International Airport), we think the demand will remain strong for several years.
MG: There is an effort to create cooperation among the Louisville, Lexington and Northern Kentucky airports. How did that come about and what goals are you pursuing?
DM: It’s not the revenue piece of it, it’s the regulatory piece of it. We all operate the way we do. There are some inefficiencies that are building with regulations, some state statutes, some federal statutes. Our goal is agreeing on four, five regulations or statues that make it difficult for us to operate like a business. Where the three of us agree, we want to have an impact. Several things out there impede our ability to respond to business.
On the federal level, a pilot shortage was created by the 2009 Colgan Air Flight 3407 crash where (the Airline Safety and Federal Aviation Administrative Extension Act of 2010) changed the number of hours (of flight experience) to get in the cockpit to 1,500, so there are fewer pilots in the pipeline. And pilots are retiring, so what can we do on a regulatory basis to change the training focus to skills more than an arbitrary number of hours? The passenger facility charge should have flexibility. Airline ticket PFC (passenger facility charge) fees come back to the airports to spend on fixing terminals but things we know we have to fix are not eligible for PFCs, so we’re saying we need flexibility.
Some of the regulations lump us in like we’re a pure government entity and we are quasi-government. We’re not on tax rolls, but we have to operate like a business; we’re hiring private-sector folks and need more flexibility. Any regulation we identify that impedes our ability to do things to expand land, to procure, to move quicker and respond to business is something we’re going to work on with the state legislature.
MG: Can you describe the Airport Authority board structure and the role it plays?
DM: There 11 board members, and they can have two four-year terms. The mayor is one of the board members, and he gets to appoint seven others. And the governor gets three appointees. They are a policy-setting board. We meet as needed, but about eight times a year.
This is the fifth airport where I’ve been an airport director. It’s a professional board and they work well together. They all are here for the airport, and what’s good for the airport is good for the region and the state.
MG: In January, the airport adopted a new name, Louisville Muhammad Ali International Airport. What is the significance of making this name change?
DM: It pre-dates me. With the overwhelming amount of attention that came to Louisville when Muhammad Ali passed away in 2016, the airport board decided we ought to take a look at this. They put a working group together to study if it made sense. It’s much broader than the airport, which is a gateway to the community, a first impression. We did a study to ask what people thought or knew about Louisville, and there’s not a great deal of awareness. People said, I know Louisville, but I don’t know that much about Louisville. When you ask the same question about Muhammad Ali, it’s off the charts. Everybody knows Muhammad Ali, not just nationally but internationally – in fact, internationally probably more so. But people didn’t realize this internationally known figure is from Louisville. From a message perspective, we want people to be more aware of Louisville and we want people to think about why they would go to Louisville. We thought Ali’s name having more awareness and its connection to Louisville was important. Anything that creates awareness for the region is ultimately going to be good for the airport. This initiative was really important to the board. I’m new to the area so I wasn’t aware of the connection between Muhammad Ali and Louisville until he passed away in 2016, and my family’s from Kentucky. There’s a lot of communication that can be built around this. There’s a lot about Louisville that is unknown and it’s a pretty neat city. ■
Mark Green is executive editor of The Lane Report. He can be reached at [email protected].