BWI's big bet pays off

Gambling on Southwest leads to thriving terminal

June 04, 2006|By MEREDITH COHN | MEREDITH COHN,SUN REPORTER

Now a year old, the terminal built for Southwest Airlines at Baltimore-Washington International Thurgood Marshall Airport appears to be running well -- a model of planning, and a little luck, in a turbulent industry where choosing the right airline partner makes a world of difference.

The airline's passengers enjoy the terminal's vast lobby and new choices of restaurants and stores.

After an initial glitch that caused some mishandling of luggage, the terminal's automated conveyor-belt system is helping security agents and baggage handlers get the airplanes off on-time and loaded with the right bags.

"The facility seems to be operating as planned," said Timothy L. Campbell, who became BWI's new chief about six months ago.

FOR THE RECORD - An article in Sunday's Business section about Pittsburgh International Airport incorrectly said the airport had filed for bankruptcy. US Airways, not the airport, filed for bankruptcy twice.
The Sun regrets the errors.

All airport administrators would love to be able to repeat those simple eight words, especially since the Sept. 11 terrorist attacks made the airline business so volatile.

The decision to build a $264 million terminal to benefit Southwest -- the airport's dominant carrier and the nation's most profitable airline -- may seem obvious.

But aviation experts note that much can go wrong when a public airport makes expensive capital plans years in advance. This is because airlines are known to change course with each shift in gas price and passenger mood.

Take, for example, Pittsburgh International Airport. Pittsburgh spent $800 million in 1992 to open a model terminal for US Airways, which in its heyday controlled 80 percent of the regional market. The airport later filed twice for bankruptcy protection and cut more than two-thirds of the airport's 560 daily flights.

Pittsburgh has won plaudits recently for cutting its costs and luring healthy low-fare carriers to fill some of the partially moth-balled US Airways terminal. Even so, passenger traffic at the airport remains at about a third of capacity.

Airports in today's environment are having a hard time finding the right balance to keep growing, make money and please customers. They're competing more intensely for record numbers of travelers who are better able to shop for airfares on the Internet, at a time when cash-strapped airlines are balking at contributing to pricey new terminals.

For a time, the two facilities in Pittsburgh and Baltimore were in the same position, both dominated by US Airways. BWI always had a higher percentage of local traffic, a steadier business than at Pittsburgh, which historically served as a hub destination.

US Airways first retrenched in Baltimore, losing its top position in 1999, about the same time the airport decided to build the Southwest terminal.

The decision was part of a strategy to become a regional discount airport, providing something that rival Washington airports weren't offering.

The planners had no way to know that low-cost carriers would become so popular and relatively profitable, when compared with traditional airlines.

"They were ahead of the curve," said Stephen D. Van Beek, executive vice president of Airports Council International, a trade group representing airports. "They re-branded themselves. Now, they're as well-positioned as they can be."

BWI is now partnered with an airline that earned $61 million in the first three months of the year, while most other airlines lost money because of fuel costs.

Southwest may not always be immune from rising fuel prices, analysts said. The airline was able to beat rivals because of an extensive hedging program that gave it cheaper fuel. But the percentage of fuel being hedged is declining, adding more to its costs each year.

For now, the new BWI terminal appears to be helping the carrier and the airport. Additional shops and restaurants has meant more income for the airport, which has meant it could keep rent and landing fees low and appeal to airlines considering an expansion, Van Beek said.

The money from the airlines, along with concessions, parking and passenger charges on tickets, go to pay off the bonds that helped finance the $1.2 billion for the terminal and other improvements.

Airline payments to the airport typically are measured in cost per passenger. At BWI, each airline pays the state-owned airport $6.48. This is cheaper than the industry average of $6.55, as well as the rate at Pittsburgh ($11.03), Philadelphia International ($9.09) and Washington Dulles International and Reagan National airports ($12.54), according to Moody's Investors Service.

BWI embarked on its expansion in 1999, with the Southwest terminal as the cornerstone. It gave Southwest more gates immediately and room to expand.

The terminal was designed before the 2001 attacks, but there was time to modify the plans to accommodate extra security. The basics of the terminal remained the same.

The terminal has a wide curb outside, although a portion of it is still blocked by construction that continues this year, and an expanded ticket counter inside.

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