Posted: Jul 5, 2008, 2:07 PM
Join Date: Aug 2006
Interesting article from the Vancouver Sun related to this:
Flying in the face of industry
What's driving the demand for airport expansions across Canada?
Gordon Isfeld and Helen Morris, Canwest News Service
Published: Friday, July 04, 2008
These are turbulent times for air travel.
Profits at the major carriers are being threatened by soaring fuel prices and passengers are being hit by higher fares and surcharges to cover those additional costs.
At the same time, there's a growing awareness - among consumers and corporate leaders - of the environmental impact of carbon emissions and concerns over how to reduce them.
Larry Berg, president and CEO of the Vancouver International Airport Authority, presided in 2007 over the opening of YVR's international terminal expansion that featured a stream running between leafy banks, a 114,000-litre aquarium and a sculpture over the aquarium titled Orca Chief and the Kelp Forest.View Larger Image View Larger Image
Larry Berg, president and CEO of the Vancouver International Airport Authority, presided in 2007 over the opening of YVR's international terminal expansion that featured a stream running between leafy banks, a 114,000-litre aquarium and a sculpture over the aquarium titled Orca Chief and the Kelp Forest.
But take a closer look - on the ground - and you'll see signs of business as usual, and a lot more, as airports across Canada undergo major expansion and improvements.
So, what's driving this apparent demand, who's footing the bills and are growth projections for the industry realistic or driven by "edifice complex," as some critics argue?
Over the next dozen or so years, more than $7 billion will be plowed into airport infrastructure projects - from adding and upgrading amenities, to wholesale reconstruction.
Most of the money for these projects is coming from airport improvement fees collected from passengers and the issuance of bonds by individual airport authorities.
Canadian airports have already invested in excess of $9.5 billion in infrastructure improvements over the past 15 years, according to the Canadian Airports Council (CAC), which represents about 180 airports.
Much of the planning and budgeting for this expansion was done before the burst of the technology bubble and the Sept. 11 terrorist attacks in the United States.
Since then, the airline industry has been struggling to regain the six per cent annual growth it had enjoyed for the previous quarter of a century, says Joseph D'Cruz, professor of strategic management at the University of Toronto's Rotman School of Business.
"So, we've lost seven or eight years of growth," he says.
Record-high oil prices only steepened the industry's climb back to recovery. Major airlines have hiked fuel surcharges and added baggage fees to cushion the increased costs. Others have also slashed jobs and services. Last month, Air Canada - the country's largest airline - announced 2,000 staff cuts and a seven-per-cent reduction in its routes, followed this week with a decision by its regional carrier Jazz to eliminate 270 positions and trim its flights by five per cent.
"We're entering a stage where environmental consciousness [about carbon-emitting airplanes] and high prices will deter air travel," says D'Cruz.
All this as another wave of airport expansion is underway.
"The difficulty is that the airlines are on a different time horizon than the airports," says Paul Dempsey, director of the Institute of Air and Space Law at McGill University.
"Airport infrastructure has to be planned and financed years ahead of time in order to meet the capacity demands of the future," he said. "The airlines are faced with immediate problems of profitability and for them, at the moment, this is not the time to expand. The difficulty is that building a terminal or building a runway or adding a runway requires a much longer time horizon."
This dichotomy between supply and demand is not lost on some passengers. At the Winnipeg International Airport, for example, it was not entirely certain why a new terminal was being built in the first place.
"I'm through the airport about six times a year and it never seems to be busy compared to the Toronto airport," said Paul Hurley, a Toronto software sales executive. "I don't really see the demand for a new terminal."
But demand is indeed there, according to the airports, with record passenger levels being recorded across the country.
Daniel-Robert Gooch, the CAC's communications director, says passenger numbers have now "passed the pre-2001 level" and airports are well-positioned to handle the increase in traffic. "We knew this was coming so airports had to invest in their infrastructure programs," he says, adding that between 1991 and 2006 passenger levels have risen by 50 per cent.
To fund these expansion projects, most airport operators have imposed fees on passengers and raised money in the bond markets - this, says D'Cruz, with the "implicit guarantee" of governments because of the operators' status as privatized not-for-profit or "corporatized" entities. As a result, he says, they have "an excessive amount of debt" on their books.
"It's clear that the corporatization of the Canadian airports has led to an exorbitant amount of gold plating," says Dempsey. "They are increasingly beautiful but they are increasingly expensive."
"Building beautiful terminal facilities with lots of stone and waterfalls may facilitate the pleasure of the experience of the people who walk through the airport but it's a cost that has to be incurred ultimately by the airlines and their passengers."
Adds D'Cruz: "This is called the edifice complex."
The flip side, according to the CAC, is that airport authorities are much more than money collectors with big ambitions - they also contribute to the local economies, especially in the area of tourism, which is the main engine that is expected to power growth in the industry.
The CAC says airports also give, not just take - together paying nearly $300 million a year to the federal government in airport rent.
Personally, in the case of the Ottawa Airport, expansion was immediately necessary thanks to years of neglect on the part of Transport Canada (I suspect this was the case of pretty much every airport authority in Canada when they took their airport over). The second expansion was justified on the costs of operating the old terminal. Now they have a nicer airport, with lower annual costs.