Sunday, December 13, 2009

"Turn on the lights"

Trib has a thorough retrospective on the economic savior that was to be the USAirways hub at the airport that is really worth a read.

I guess it comes with getting old, but it's amazing to me how much people have forgotten how much focus, effort and sheer $$ went into the idea that airport was to be the economic generator to save the region.  The thing that I never understood, and which I would explain to everyone who asked, was that there was no academic research out there connecting causally support for an airline hub and economic growth. See comments here from 2004, by which time I was just tired of questions from folks on how big the economic impact was of the USAirways hub and even more tired more of people getting peeved when they heard I was not giving out the party line. It's one of those things that people just think should be the case. Indeed there might be.. almost certainly is, a correlation between increase flights and growth.   But as best anyone really has shown, the causality is the other way which would have a lot of implications for money invested on the 'effect'. Some of the greatest policy failures come from folks doing what you try to get introductory stats students to stop doing which is confusing correlation with causality. 

The great irony is that Pittsburgh's great revitalization story has only come into full bloom in the years since USAirways has virtualy eliminated it's hub operation. If one were to draw superficial connections, what would you  conclude from that?   It's been some years now, but for years everyone tried to tie the entire future of Pittsburgh's commercial competitiveness to the number of flights originating here.  Well, those flight counts have collapsed. Should we all shut down our business and complete the diaspora?   It is a good time to go back and look at all the prognostications of doom and gloom for Pittsburgh (in a relative sense) for Pittsburgh if we lost flights.   Maybe there is a reason research can't find the causality everyone just knew was out there.

I am not sure the story is over with. I mentioned recently that my direct, if anecdotal, observation was that bookings on the Pittsburgh to Paris flight are not the greatest. One flight to Paris I was on recently had 83 passengers total (I asked the crew) which made it about a third full. That and it was a pretty reasonable fare as well. That and the recent cancellation of the summer flights Continental had from Cleveland to the UK is a strong indicaton all is not well in the (greater, greater) Pittsburgh market.

Any coincidence there was both this oped in the PG in last Sunday's and this story in the Trib last Monday? Now there is this follow up from the AP out of Cleveland.   The Sunday PG oped makes the argument that 'we' (the royal we?) need to use the Pittsburgh to Paris flight or risk losing it.  No doubt.  Yet the argument to 'buy local' rarely works for any product (steel, agriculture...  your choice) these days whether.  The Trib article is interesting as well and focuses on more marketing $$ being put into the flight. 

The target of opportunity being the loss of Cleveland's flight. Note that Cleveland's flight was a seasonal one so it's cancellation probbaly can't produce too too much additonal demand for a flight out of Pittsburgh.  Peak summer flights are likely satiated no matter, its the off season that will make or break the Pittsburgh to Paris flight, IMHO of course.  But the Trib article has an ominous line that is new to the debate.  It acknowledges generally that:  "officials have said a bad first year likely would result in Delta pulling the plug on the route." That is a gloomier perspective than I have seen in print as yet over all of this. Which goes back to the recent oped in the PG. 

I dunno what it all means in the end.  Economic development is a lot harder that it seems.  The last couple sections of the Trib piece are best.  Folks mad at USAirways?  Yet beyond the name, the USAirways that made anyone any promises is gone... any legal promises washed away by multiple bankruptcies.  The fault is not with companies which if you believe in capitalism have to have the freedom to fail.  The failure was in those who took those promises at face value and didn't come up with any meaningful way to place risks where they should be placed.  In economic development vague 'promises' can't mean anything in the long run, that's why we hire all those expensive lawyers.

We all tend to glom onto the answers that we can focus on and the airport was an awfully concrete thing, literally.  I'm sure we all would like lots of flights and cheap fares. If one assumes there is a tradeoff.. which is what the market really wants?   The airport parking lots are awfully full these days and it probably isn't a coincidence that the county is now considering selling the parking lots.  One little irony is that back in hub days, the local parking was probably not as full and the value of selling the parking would not have been as much as it is now potentially.  Second order effects all around?


Anonymous johnnyg said...

I mostly agree with what is a well-reasoned post. But, your Doctor Doom persona is showing. Delta uses a 172 seat 757, not the approximately 240 seat 767 used by USAirways, to Paris. 83 passengers is approximately half full (48.26 percent), not "about a third full". And, without knowing the percentage of those in Business Class (and, therefore paying higher fares), you really can't evaluate the flight at all.

Sunday, December 13, 2009 9:56:00 AM  
Anonymous johnnyg said...

Your very good point is that the parking lots at PIT tend to be full--many times, mid-week covered parking in the garage is hard to secure. That's because, while overall passenger boardings at PIT are down, origin and destination traffic (people who begin or end their trip here) is at an all time high. Maybe the airport is not generating jobs directly, but it seems to be permitting more locals to fly for business or vacation.

And, as for the lose it or use it comment, I think that it has a point. I understand that there are studies by the Conference which still show that there is plenty of trans-atlantic traffic departing PIT every week--enough to easily support the flight. This message wasn't meant for you and me, but for corporate travel managers. Corporate travel managers have the power to direct traffic to certain airlines. My guess is that there is still a hangover USAirways default choice, from banked miles to credit cards. Corporate policies could change that.

Sunday, December 13, 2009 10:13:00 AM  
Blogger C. Briem said...

yippee... 48%. My perception probably comes from the fact that I and all around me were stretched 3 across sleeping the whole flight.

Though that all knowing source wikipedia says of the 757: "Passenger versions of the 757 can carry between 186 and 279 passengers". But I will take your word for it on the configuration. Seatguru lists Delta 757 configs from 176-184 I think.

and I forgot to mention.. points for anyone who gets the quote used as a title. Hard to think of things that google does not make super easy.

Sunday, December 13, 2009 10:53:00 AM  
Anonymous Anonymous said...

I wonder how much of the hub strategy was a ploy to get public investment into the airlines? By moving to hubs, airlines created a limited pool of direct flight options. By then selling the idea that direct flights were the key to economic growth, regions like Pittsburgh would be competing not only for airline traffic, but for economic growth.

Any studies on how that has worked out? Atlanta and Charlotte have boomed. But so has San Antonio, and it's awfully difficult to get a direct flight out of there.

Monday, December 14, 2009 9:09:00 AM  
Anonymous Anonymous said...

Flight growth is tied directly to economic growth. Atlanta, Charlotte, SA are all low tax, low regulation regions with a "business first" mindset. That's why they are boomtowns. Pittsburgh could not be less business friendly. That's why air service is declining and shows no real sign of improving. Change the business mindset and you will ultimately positively change the flight service. But make no mistake - economic growth drives flight availability, not visa versa

Monday, December 14, 2009 11:24:00 AM  
Anonymous Kristen said...

I am not sure (it may be quite a stretch) but I took the title as referring to an old billboard in the Seattle area (in the 80's I think) asking 'the last one to leave please turn out the lights.' This billboard was in place during a big Boeing downturn. I never saw it but keep hearing about it especially in these recessionist times. I lived in the Seattle area until recently returning to Pittsburgh (grew up here), although I still work for a Seattle company. And my career is in travel, so that is why this post is even more interesting to me. I didn't even use google, so if my answer makes no sense that is why!

Monday, December 14, 2009 12:21:00 PM  
Blogger Ken Zapinski said...

Always good to see folks paying attention to the air service issue. A couple of points to add to the debate:

1. Don’t know where the Trib came up with idea that there would not be a second year if there was a “bad” first year. Not true. The flight will be here until at least May 2011. There’s no reason for it not to be. The best measure of the success of the flight will be whether or not the flight is still in service in June 2011 when the risk-sharing agreement with the Allegheny Conference expires.

2. I wasn’t around for the debate over the building of the new terminal, but much of the current discussion misses what is to me the most salient point – the construction money wasn’t public money, but the airlines’ own dollars. Most of the airport mortgage payments used to come from US Airways, now the annual debt service is more evenly split among the dozen or so airlines that are signatories to the airport master lease (British Airways is still paying the airport even though they no longer fly here.) The airport is an enterprise fund that until very recently, was self-supporting from fees paid by airlines and others who do business there. As a result of the US Airways bankruptcy, and to prevent the remaining airlines from having to pay too much (and perhaps drive them away), the state is chipping in some casino revenue.

3. The question about the value of air service is an interesting one and some important nuances can get lost when you just look at daily flights totals, or the number of nonstop destinations.

When the Regional Air Service Partnership was formed in late 2003 to cope with the turmoil in the airline industry, the policy focus was to ensure a minimum of twice-daily nonstop service to the 30 US destinations most important to SW PA businesses. Those destinations represent roughly ¾ of all business traffic. Even as US Airways has shed flights and destinations, the airport and the community has been successful in maintaining robust service to most of those destinations.

4. More importantly, service at PIT has improved for many of the key destinations. Of the six most important business destinations – New York, Philadelphia, Chicago, Boston, DC, and Atlanta – five have low-cost carriers competing on the routes which have brought down ticket prices tremendously. There are far more businesses whose key destinations are NY, Chicago, and Atlanta than those who need to get to someplace like Spartanburg, SC. For those businesses, PIT may be doing a better job than a decade ago. Interestingly, those service improvements (competition, increased service, lower fares to the most important business destinations) really took off as Pittsburgh’s revitalization story has come into full bloom, since the demise of the US Airways hub

5. The op-ed in the Sunday PG is just a different way of restating the provocative question you’ve thrown out here – Is air service (at least to key destinations) vital to the region’s success? As the piece makes clear, the market is going to answer that question, one way or another. We know that hundreds of people fly every day from PIT to the West Coast and Europe. If nonstop service to those destinations is vital to the businesses in the region, then ticket sales will demonstrate it. If it’s not essential – if business people and others are booking connecting service for whatever reason (price, miles, schedule) – then the market will have demonstrated that it is not.

Monday, December 14, 2009 3:18:00 PM  
Blogger C. Briem said...

I actually like the Seattle metaphor better than what is in my head. We’ve talked about the Seattle economic history and that billboard in particular here in the past. My thoughts usually have a naval reference. Maybe the lurking admiral will get it?

Ken, I’ll do my best and not be snarky with the argument that service is better these days. But seriously? I'm taking a picture of that flight board next time I am out there and posting it. They really ought to take down some of the CRT's just because it's so embarassing to have almost all of them blank.

On the bigger topic it’s an even curiouser argument that somehow the market will decide. Curious in that the ‘experiment’ as it were is being conducted by implementing a very non-market incentive. Gets more problematic when you read what is going on in Cincinnati where they have talked about the agreement here as a model to help their efforts attract and retain international flights. The result of the risk sharing agreement as you call it may be a chase into a very non-market paradigm where such agreements become the norm in the industry. Will we someday be reading journal articles explaining how the industry changed to this pay-per-route model as being a Pittsburgh innovation?

It’s just curious how the arguments for all of this change. Anyone else remember all the spin about how Germany was the natural place for a Pittsburgh flight because of all of the German business connections here. One of my points is that it is fun not note how the ‘low cost’ of flights was not argued as a positive thing back when policy was supporting a greater hub operation here. The argument was always that business competitiveness was all about the number of flights not the costs. Now it’s a good thing. But never mind that. Just getting old I suppose.

Anyway. USAirways rejected all of its original commitments to the Terminal Lease Agreement n’est-ce pas? Are you saying BA took up a larger share as a result. You imply that they are, but I don’t think you mean to. Not mentioned is why BA is caught up in that. I presume it’s because the Gatwick flight was operating then. Third time is a charm we hope. That or I’m still waiting for that KLM flight to Amsterdam which I am sure you are working on diligently.

Monday, December 14, 2009 4:42:00 PM  
Blogger n'at said...

For whatever reason GPIA is the new Union Station: that intermodal hub between local and worldly travel within our region. If not, then why must, Skybus, Turnpike, Maglev, West Busway or high speed rail connect to it - torpedoes be damned?

Monday, December 14, 2009 6:32:00 PM  
Anonymous johnnyg said...

(1) My understanding is that the KLM/NWA flight to Amsterdam is the Delta/Air France to CDG flight. The plane is an old NWA 757 (repainted and refurbished). Air France now owns KLM and operates it as a subsidiary (as Delta does with NWA). In this recession, AF has been shifting traffic to CDG to maximize its hub there.

(2) You need to see the boards earlier in the day. They are pretty much full then--flights drop off as the day goes on. There are fewer flights period, true. But the empty space you refer to appears to be an issue only in the late afternoon.

(3) I do see Ken's point, sorta. I do believe that we have as good, if not better, service to many places that Pittsburghers actualy want to go. I miss the Dayton, Harrisburg and Wilkes-Barre flights personally. But they weren't full when the place was a hub. For example, we now have excellent, cheap service to Florida. A place where many Pittsburghers travel regularly, especially given our older-skewing demographics.

You can't ignore the fact that origin and destination traffic at PIT is at an all-time high. If there wasn't some truth in what Ken is saying, O/D traffic would have fallen along with transfer traffic.

(4) I also think that there is probably some evidence to support a tie between economic growth and air service--if you are a tourist destination. I'm sure that some of Orlando, Phoenix and Las Vegas' growth (and Salt Lake and Denver in the winter) is tied to how many people can get there. In region's like ours, probably not so much.

Tuesday, December 15, 2009 10:48:00 AM  
Blogger Ken Zapinski said...

I think you're right about the imprecision of my wording, Chris. British Airways is still making lease payments on its old lounge space, but I don't know if they are signatories to the airport's master lease that makes them liable for the debt payments.

As for your other comments, I didn't say PIT had better service overall. I said it had better service to some locations, and many of those locations happen to be the most important business destinations. Case in point -- we now have twice the traffic and twice the flights to Philly with roundtrip tickets at about half of what they used to be. And as johnnyg pointed out, O&D traffic was (pre-recession) at record levels, so the new PIT business model is working out for some people.

And yes, Frankfurt was originally the target, partly because it was convenient for Pittsburgh companies with ties to the Dusseldorf area, but primarily because it was a hub for Lufthansa, an Star Alliance partner with US Airways.

But the primary objective was to get a nonstop flight to a workable European hub, from which travelers from Pittsburgh could reach their final destinations across Europe, India, the Middle East, etc.

That's why, even though London is our single biggest market, a flight to Gatwick would not have worked because the connections are not sufficient there. Heathrow would have been great, but that wasn't feasible.

Hub airports are tied to specific airlines. When Lufthansa, for a variety of equipment and business model reasons, rejected PIT, we needed to find another willing airline with the right hub. We thought NW/KLM service to Amsterdam was the answer, as Schiphol is a great connecting airport. After NW was purchased by Delta, the airline's attention shifted to Paris, where Delta/Air France maintained their hub. We surveyed the business community to see whether Paris would work, we were encouraged by what we heard, so we moved ahead with that opportunity.

You know: improvise, adapt, and overcome.

Tuesday, December 15, 2009 12:19:00 PM  
Blogger C. Briem said...

Naval references Ken... I didn't say Marine references. Ugh.

and I want a merit badge if/when I get up to using the Paris flight 5 times. :-)

Tuesday, December 15, 2009 4:39:00 PM  

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