October 21, 2014
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What's cost-benefit of longer runway?

To the Editor:

Why is March 1 a critical date for the Rhode Island Airport Corporation's initiative to extend the runway at T.F. Green Airport?

Because its the deadline for the Rhode Island Airport Corporation to ask the Federal Aviation Administration (FAA) for short-term funding to start construction on the proposed runway extension. The Airport Corporation wants the FAA to kick in $27 million to pay the interest on a construction loan to extend a T.F. Green runway and for other improvements.

Not one dollar of this $27 million would go to actual construction. There are other potential grants for that. And the Airport Corporation needs to borrow over $100 million in a short-term loan to help fund the airport expansion project. That's what the $27 million is for to pay the interest on that construction loan.

A benefit cost analysis (BCA) is required to get the $27 million. To be successful, this analysis needs to show that the airlines and/or the airport itself will see more dollars coming in resulting from this project than there are costs going out. Airport Corporation management points out that the benefit of the longer runway is that airlines would be able to fill up planes headed nonstop for the West Coast from Green on hot days rather than leave a few seats empty.

That is the only benefit that can be put in the BCA, according to the FAA review criteria. How much would that lone benefit generate? Probably a few thousand dollars per year.

What about the costs to the airlines? If the runway is extended, then every flight landing from the south or taking off to the north would require more ground time to taxi around the airport. This is because the runway would be longer. Time is money, and these ground maneuvers by the planes eat up any potential benefit. For the next 30 years, all the airlines would incur higher costs to taxi around the airport.

The Greater Providence Chamber of Commerce has been touting the runway extension as an economic boon to our regional economy. This is called a multiplier effect. But the FAA does not allow multipliers in the BCA report. Filling up hotels in the local area is not a benefit that can be counted. Generating tourism dollars for Newport cannot be included.

The governor has asked the General Assembly for its approval of a $170 million debt program to build the extension and make other improvements at T.F. Green Airport. Given the Airport Corporation's average bond ratings with downgrade warnings, this debt could generate as much as $300 million in paybacks to bondholders over 30 years. Downgraded bond ratings spin off more bond interest payments to the investors. The resulting debt service adds up to $10 million per year, or $27,000 per day over the next 30 years.

The fact is, Southwest Airlines does not need a Green runway extension because it uses a ridged hub-and-spoke system. Southwest uses T.F. Green as a spoke, feeding passengers to its Baltimore hub. Then it fills its California flights in Baltimore, taking passengers from Green, Boston, Manchester, Hartford, and Albany. They are all spokes. Don't forget, Southwest is a low-cost airline. That's how it keeps its costs down, through hubs and spokes.

Southwest's $13,000-per-day share of the cost for the proposed extension generates no benefits for it. Nor would JetBlue need an extension, should it decide to fly from Green. Its airplanes are designed for short runways. JetBlue operates off of Logan Airport's 7,000-foot runway during normal wind conditions.

Here is another problem. The General Assembly would have to approve the governor's Capital Budget in time for the Airport Corporation to add that variable to the required analysis. There is no way the General Assembly can turn around a $170 million request for additional borrowing by March 1, 2012. The general treasurer would have to give her blessing before March 1 to get the ball rolling. The General Assembly would need to hold a hearing and then a floor vote. The timing is simply too tight.

Given these many requirements and indisputable considerations, the Airport Corporation Board cannot scapegoat the Warwick City Council for this debacle. The Airport Corporation can only blame itself for its naivety in thinking that the FAA would pour millions into this project without a sound Benefit Cost Analysis in place, not to mention General Assembly approval for the borrowing plan.

Richard Langseth
Warwick


Comments
6 comments on this item

“The fact is, Southwest Airlines...uses a ridged hub-and-spoke system.” No they don’t. They use a system of heavily utilized focus cities. They serve ten destinations with over 100 daily departures, yet none see more than 240 (as of December 2011). The vast majority of Southwest's passengers are origin and destination, not connections. Houston Hobby International was (I'm not sure if it still is) the Southwest destination with the highest percentage of connecting passengers in their route network: approximately 30%. Contrast that with Atlanta's connecting percentage of 69%, Dallas' 62%, and Chicago's 57% according to the 2006 Airport Benchmarking Report from the Air Transport Research Society. The legacy carriers use hub-and-spoke systems. Delta serves seven destinations with over 100 departures per day. However, that number would have been four had not three of those been placed under Delta’s control because of their merger with Northwest. Delta’s three largest hubs see 967, 478 and 433 peak day departures. Two of the remaining four see more than 250 daily departures. The exact same type of operation is utilized by American, United and US Airways in order to build massive economies of scale and reduce the number of needed daily flight operations.

“Don't forget, Southwest is a low-cost airline. That's how it keeps its costs down, through hubs and spokes.” The first statement is somewhat true, although it becomes quite evident at times that Southwest does not offer the lowest fares in some route segments. However, Southwest has one of the highest cost structures in the industry. Legacy carriers have undercut Southwest in numerous aspects thanks to cost-cutting measures over the past decade. For example, Southwest pilots earn the highest average salary in the industry. As of 2009 their first-year minimum was $49,572. Entry pilots that same year working for US Airways earned a minimum $21,600. The airline’s cost savings come in other forms, such as fleet commonality, fuel-hedging (the impact of which has drastically shrunk), high aircraft utilization rates, historically flying to secondary airports, and the outsourcing of maintenance. Cost savings do not come from hub-and-spoke operations.

If Southwest does not operate hubs and spokes, why do most flights from the East Coast to the West Coast include stops at Baltimore, Midway, Denver, or LasVagas? Many Florida flights stop at Baltimore. I don't get your comment. I hope you are wrong about US Airways pilots earning $21,600 per year. That kind of shakes my confidence in that airline.

"If Southwest does not operate hubs and spokes, why do most flights from the East Coast to the West Coast include stops at Baltimore, Midway, Denver, or LasVagas?" Because that's how Southwest has shaped their business plan. Shorter segments, high aircraft utilization, better yields. Aircraft routings on flights from Green to Orlando will often take the aircraft from Providence to Orlando to New Orleans to Houston. Or Providence to Orlando to Birmingham to Dallas. These are not hub-to-spoke flights, or vice versa. Transcon flying is the exact same thing. They'd rather route the aircraft Providence to Baltimore to St. Louis to San Diego than Providence to San Diego nonstop. If the market will support Providence to San Diego nonstop, they might approach that opportunity. As a note, before JetBlue came to Boston, Green had higher numbers of O&D passengers going to Los Angeles than Boston did. And although transcon flying is not their MO, they may be heading down that road more often in the future as they take over Air Tran's routes. Keep in mind their Providence - Las Vegas route is the longest in their network. My whole comment was based around your implied definition of "hub" which, from you letter, I took to mean pretty much anywhere an airline has large numbers of operations, particularly when phrased "ridged hub-and-spoke" and applied to Southwest. I won't deny Southwest is moving more towards this type of system, but their operations remain largely point-to-point, especially when compared to the operations at fortress hubs such as Dallas, Atlanta, and Houston.

The US Airways number was not a reflection of their mainline operations. It reflected the minimum entry salary for a new pilot at one of their regional affiliates, such as Air Wisconsin, where US Airways new-hires begin their careers with the company (albeit in 2009 and reported by the Wall Street Journal). This is one state of today's airline industry that directly comes as a result of a decade of cost cutting. On one front, the consumer has partially benefited from this as the national average airfare has decreased almost 16% compared to 1995, when taking inflation into account. However, the same benefits translate into 70+ hour work weeks and low starting salaries for new-hire pilots.

Kyle: I just counted them. Southwest has 48 different non-stop destinations from Baltimore against 7 different non-stops from Green. If Baltimore is not a hub in your mind how about Midway with its 60+ non-stop destinations verses Minneapolis with 5 different non-stops including Midway.

As far as I know, Air Wisconsin has nothing to do with USAirways except that it has a contract with USAirways to fly for them. And Air Wisconsin does not have 70 hour workweeks for its pilots. The new FAA rule is a max of 45 hours per week.

Do you really believe that Warwick NOT PROVIDENCE had more passengers headed for the West Coast than Logan even during the height of the boom in 2005? That makes no sense at all. That would mean something like one percent of Boston passengers were headed for the West Coast rather than the five percent or so found at Green. Duh.

I'm not arguing that some airports have more destinations than others. It wouldn't make sense for Southwest not to have stations with large numbers of operations. I'm debating your definition of the word "hub." I will not deny that Southwest has large operations at sites such as Chicago, Las Vegas and Baltimore. I'm saying the term "hub" needs to be put into perspective. You mention the number of destinations served from Baltimore and Chicago. That's nothing compared to the fortress hubs I mentioned. Dallas Ft. Worth serves 191, Atlanta over 230, Chicago O'Hare 222. I will state it again: Southwest's services remain largely point-to-point.

"The new FAA rule is a max of 45 hours per week." Yes I know this, I'm a pilot as well. I was making an overall point about how the industry has changed.

"Do you really believe that Warwick NOT PROVIDENCE had more passengers headed for the West Coast than Logan even during the height of the boom in 2005? That makes no sense at all." Yes it does, because I've seen the numbers. And I said nothing about "the West Coast." I said Los Angeles. Southwest's stimulation of fare competition during the end of the 90's and early 00's dramatically drove down ticket prices for the Providence catchment region, leading to a large amount of leakage from Boston to Providence. This impacted fares to Los Angeles and many other airports in addition to the destinations Southwest served from Green. When JetBlue entered Boston with their lower fares this leakeage effectively stopped and was reversed. This continues today at a very high level.

Thank you, guys, for presenting a rare example of dialogue. It is a refreshing change from hollow comments like: "Just build it!", or "You knew the airport was there when you bought your house!", or "We need jobs!" There remains a lot of detail to consider before committing extraordinary money on projects that apparently were not studied in depth. I, for one, am keenly aware of significant concerns that were raised, but never given due consideration during the pre-planning phase of this federal process. Some of these concerns may have resulted in steps needing to be taken prior to entering into an Environmental Impact Statement (EIS) process. The planners knew of these concerns, and blatantly refused to consider them. A cost-benefit analysis was at the heart of this matter, and apparently it still is. That is why I support a federal review of the Record of Decision. I cannot see rushing into approval for a project which may have federal flaws. I do not see this as being something that a governor, mayor, secretary of state, special interest group, local FAA office, or any other local entity could rule on. This is best left to the federal courts to determine. My position is reinforced by the fact that this is not a frivolous lawsuit, but an option within the federal airport planning process specifically for cases of this nature.

Again, my thanks for your example of the kind of discourse we've needed all along to clarify some of the technical issues and terminology that we lay-people need to get a handle on to understand the real issues before us.

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