Experts handicap RDU Airport's chances of landing new international flights
Triangle Business Journal, March 10, 2015
[photo caption] Pictured left to right are Joe Milazzo II, PE. RTA Executive Director, Dr. Peter Belobaba, principal research scientist, Massachusetts Institute of Technology, John Heimlich, vice president and cheif economist, Airlines of America and Michael Landguth, president and CEO, Raleigh-Durham Airport Authority, sit for a Q&A session for the Raleigh Transportation Alliance's, RTA 2015 Transportation Breakfast: The Economics of Expanding Air Service, which was hosted at the Umstead Hotel, March 10.
Carriers want more international flights. Raleigh-Durham International Airport executives want more international flights.
So why isn't it happening?
It was the topic of a lengthy discussion at a Regional Transportation Alliance-sponsored forum Tuesday morning at the Umstead Hotel and Spa Tuesday.
Legacy carriers have been focusing much of their expansion efforts internationally, says Peter Belobaba, principal research scientist at Massachusetts Institute of Technology.
"The motivation there is really economic in that the higher yield international traffic can contribute more revenues to the network," Belobaba explains.
But the numbers have to add up, he says, using a "hypothetical flight to Paris" as an example. To figure out the feasibility, he starts by looking at what traffic RDU is already pumping into Paris.
On a typical day, 29.4 passengers start their trip in Raleigh Durham and end their day in Paris, according to his research.
So, assuming a 204-seat direct flight was added, would there be enough demand? It's a question he walked the crowd through, with a series of complicated numbers, everything from demand to administration costs.
"The real issue is, who is going to be on that airplane," he says.
He's guessing 34 local passengers a day, "not nearly enough," which means connecting fliers are essential to making the math work for carriers. That's flights connecting at RDU and passengers whose final destination is another European location.
"With these guesses, I get 133 passengers a day on this new RDU-Paris flight," he says.
He predicts an annual revenue of $63.8 million - ("and the estimated profit might be too high," he warns. "Am I overestimating the connecting flight potential?") operating costs of $62.6 million when you factor in all of the costs. And that means a profit of only $1.3 million.
"That's just over break-even," he points out.
But John Heimlich, vice president and chief economist for Airlines for America, says the environment is ripe for growth, that international seats are at an all-time high. "Everyone is growing," he say.
The most rapid growth, he points out, is happening with carriers such as Spirit, Frontier and Allegiant, the latter being recently announced as the ninth carrier at RDU. The average among all carriers is 5.6 percent.
"But even though everyone is growing, they're looking for the next best opportunity," Heimlich says. "You really have to compete to make yourselves that next best opportunity."
An FAA analysis puts the aviation impact at $14 billion a year in North Carolina, which puts the state in 12th place. "The local population is large enough to connect the community as a spoke to their hubs," Heimlich points out, adding that Delta has labeled RDU as a "focus city."
Air carriers look at population, airport costs and asset opportunities when deciding to grow at a particular airport. RDU ranks at number 38 in terms of local traffic, about 12,000 passengers a day each way.
But they don't just judge an airport by local traffic. He uses the perspective of Air France as an example.
"I'm not just looking at RDU to Paris... It's other opportunities to use that aircraft to Paris and then to any other part of the world," Heimlich says. "You would need the right size airplane to serve any given route successfully, especially in a market where there's not enough local activity."
Success depends on connecting traffic at the end of the route. RDU's most attractive nonstop links will be airline hubs or large origin-and-destination markets, he adds.
Heimlich adds foreign flag carriers with airplanes that are not too large relative to the amount of demand in the market, including any connecting traffic carried via the foreign hub, is RDU's best bet for a new international flight.
But the end, it's all about revenues versus costs. Some would argue, however, that the community benefit outweighs the minuscule margins.
According to a recent study by North Carolina State University economist Michael Walden, adding one international flight boosts the GDP by $1.4 billion over a 25-year period, adds 14,000 new jobs and adds $272 million in additional public money.
But adding a flight isn't as easy as ordering a pizza, Michael Landguth, president and CEO of Raleigh-Durham Airport Authority, explains to the crowd.
It takes time and money – and, with the margins being so small, tax policy can make a big difference – as can community support. And that's where the Research Triangle Area Air Service Advancement Project comes in, an initiative out of RTA to create a $500,000 regional investment fund to supplement the RDU Airport Authority's $500,000 commitment to recruiting and marketing international air service.
Poll: Should we cater our tax policy toward attracting international flights?
RDU currently has an $8 billion economic impact and supports 20,600 jobs.
International flights have been a consistent part of RDU, particularly a decades-old non-stop route to London's Heathrow, points out Belobaba.
But it's not the local travelers that are keeping that route in service year after year.
"That flight continues to be successful... because of the tremendous connection support," he says, adding that only about 60 of its passengers have London as their final destinations. "That just illustrates the importance of a hub structure."
RDU used to be a hub for American Airlines – used to be, that is, until 1995 when the Dallas-Fort Worth-based carrier dropped the hub status. Midway Airlines took over as hub operator in the mid 1990s. The carrier later filed for bankruptcy and liquidated thereafter.