PIT - A Dose of Reality

This past week, Bradley Penrod was ousted as President and Chief Strategy Office of the Allegheny County Airport Authority which is, primarily, Greater Pittsburgh International Airport.  [Though let me add that from my years in corporate America and having grown up below the flight path to Allegheny County Airport, every major city needs at least one general purpose airport to accommodate the wealthy and powerful who don’t care to endure the current state of air travel like the rest of us do.  Thank goodness Allegheny County exists and seems to thrive in its arena.]  Much has been made about what Mr. Penrod did or didn’t do for PIT during his tenure.  And I note that no one in the Pittsburgh media has really been kind to him.  This is despite differing opinions reported from airline analysts outside of Pittsburgh.  Allow me to come to Mr. Penrod’s defense on this account as well.  My bottom line is that PIT is a fine airport.  It’s not Atlanta or Chicago and thank the good Lord above for that.  As a frequent flyer and a million-miler on one airline, I can tell you I go out of my way to avoid the so-called fortress hubs.

My support for Mr. Penrod comes here in the form of a series of questions that I cannot answer but I hope those at the Airport Authority are at least are studying.  But first here are a couple facts that stand out boldly when discussing PIT’s standing among other big, and not so big, city airports.  Pittsburgh is relatively small.  I love the fact that Pittsburghers believe they should measure themselves against New York, Chicago and San Francisco.  So shall it ever be and that kind of thinking has benefits longer term.  But the cold, hard fact is that a market area of about 2.5 million people cannot sustain the same kind of O&D [origin and destination traffic] that those cities and even Philly or Denver or Seattle can.

Airlines are very opportunistic from a business perspective.  If there is demand between any city pair, one of them will offer a route.  Air travel produces some of the best marketing data available.  Every airline knows exactly where every flier is headed.  There is no need for a market study; it’s all in the reservation system.  If PIT suddenly had 2,000 fliers a day traveling to Europe or Asia via connecting hub cities, there would be more than just Delta offering a seasonal flight to Paris.  Austin’s new non-stop service to London on British Airways is testament to that: a relatively small mid-continent US city gains a non-stop overseas.  Mr. Penrod can offer all kind of incentives short of paying the bills of an air carrier and none of that matters as much as O&D traffic between destinations.

And PIT, domestic US airports, and every US-based carrier are facing even stronger headwinds than is being reported by the popular media in the US: the growth of international mega-hubs.  Longer range jets and the super sized jumbos like the A380 favor the new mega hubs such as Dubai, Qatar and Seoul.  These places make Atlanta and Chicago look like …St. Louis and Cincinnati and Pittsburgh.  Even America’s largest airport, Atlanta, will find it hard to compete as these new hubs and their primary carriers are government financed.  Allegheny County does not have a rich sugar daddy oil chieftain to subsidize rates.

Now to my questions:

-       Why is it that PIT’s passenger traffic has continued to fall almost every month for the last two years when airline traffic in general is growing post-9/11?

-       Is this mostly attributable to USAirways continued pullback?  If so, is PIT reaching some sort of equilibrium?

-       Why do Pittsburghers complain about an airport that is not overly crowded, pleasant to negotiate, and with more than adequate traveler amenities and services?  Gosh golly when I land at ATL or LGA I have to physically steel myself for the assault on my senses, not to mention my legs as I have to dodge the great unwashed INfrequent flying public.

-       Has PIT tried for more cargo service?  OK, admittedly cargo service also follows demand and Pittsburgh itself is not a regional transportation hub like Atlanta, Charlotte or Dallas, where interstate highway convergence lends itself to multi-modal transport.  But, cargo carriers are always looking for a better deal and doesn’t the local Chamber of Commerce always tout Pittsburgh’s being within 500 miles of most of the planet’s population, or something close to that?  What gives?

-       I asked the above question because cargo can lead to airline service.  Witness EVA Air and Taipei.  EVA Air is mostly a cargo carrier for the Republic of China [Taiwan].  They fly jumbo jets only and started out with just cargo.  But they discovered that with only some modifications, every cargo plane could carry some passengers as well; and they do.  An EVA Air, or similar airline, could bring an overseas connection to Pittsburgh not totally dependent on passenger volume.

-       Finally, a metaphysical question: what is unique about the Pittsburgh economy that a now growing economy, serving almost 2.5 million people, has an airport that is continuing to lag passenger numbers in similarly, and smaller, regions?  Is it demographics?

To that last question, here’s an anecdote from the recent past.  When British Airways operated a direct flight from PIT to Heathrow, it was typically close to sold out.  I flew it once and in coach class, it was sold out and hard to get a reservation. But that’s the important detail: coach class was sold out, first class was not, and hardly ever was.  A friend of mine who served on a local government airport commission at the time relayed that BA specifically pulled that route because it was a money loser.  “But how could that be when you practically could not get a reservation?”, I asked.  Because the difference between making money on an overseas route and losing it depends on first class capacity, he replied.  In these days of corporate penny pinching, I fear even fewer first class seats can be sold out of our static corporate center in western Pa.

As I said, a dose of reality is in order and Bradley Penrod deserves a break for his efforts on behalf of the airport.  Good luck to his successor.

Things Are Looking Up

Things in Pittsburgh have been looking up for quite some time now.  But I note that a few somewhat lightly reported items from around the news sites indicate a nice growth trajectory in the Steel City.

Access roads work continues in the area of the possible Shell cracker plant.  While new heavy industrial facilities in the Pittsburgh area are viewed by many with uneasiness, the economic benefits of this facility are undeniably huge.  And in an age of general corporate and political acceptance of environmental regulations, a state-of-the-art cracker plant should have the best environmental safeguards available.  From a historical perspective, I believe it puts Pittsburgh back into the league of cities not immediately associated with heavy industry but where oil and gas still plays a major role: New York, Los Angeles, Houston, the Bay Area and Philadelphia.  Anything that moves Pittsburgh back to that playing field is good.

Pittsburgh’s food scene is booming.  In the last couple months, Pittsburgh’s food scene has garnered stellar mentions in “Food & Wine” magazine, the New York Times, USA Today, not to mention all the broadcast media coverage for Kevin Sousa’s Superior Motors successful Kickstarter campaign.  For better or for worse, food in America involves public relations, perceptions, media coverage, and a little glitz & glam.  So run with it, Pittsburgh; that’s the way the game is played.  Analogous to the tendency to “hate” Starbucks and “like” local coffee purveyors, if that’s what it takes to develop an appreciation of more sophisticated alternatives, then so be it.  Don’t hate the methods; love the results.  A recognized food “scene” has innumerable side economic benefits as well.

There’s a growing influx of “out of towners”.  Not so much the actual numbers but the quality and diversity of newcomers in areas of commerce and culture where Pittsburgh is attracting out of town names, both corporate and individual, is noticeably growing.  Dynamic places thrive on that: people and companies move in and some move out.  It keeps the ecosystem fresh.  But it’s been a number of decades since Pittsburgh has experienced that and boo yah it’s happening again.  One hurdle to overcome is to grow the number of non-US immigrants [I despise the term “foreigner”] but that aside, the new-arrivals lists is getting much better.  Real estate investors, retail stores, restaurants, hotels, law firms, service firms ancillary to oil and gas extraction, and of primal importance, oil and gas firms themselves, both regional offices and actual headquarters.  While Shell Oil undergoes a corporate realignment that may indefinitely delay spending billions on a cracker plant, the possibility of it putting an Eastern Region office in Pittsburgh is strong.  As is the probability that Chevron will have its regional HQ up and running in a couple years.  [How ironic it would be for the company that took Gulf Oil out of Pittsburgh to come back with net more jobs than it removed.]

All in all, the uptick is there for anyone to see who reads the business, entertainment or lifestyle section of your favorite daily, with more praise for Pittsburgh being a medium size city with TWO general circulation newspapers.  Now all that we need is stronger belief by Pittsburghers themselves that things are looking up and the out of towners will be more willing to invest sensing that local enthusiasm.