raffy
Oct 19, 01, 6:04 am
Buffeted by rising costs and falling passenger traffic, San Francisco International Airport will fall up to $100 million short in revenue at the end of this fiscal year.
To deal with those problems, the airport is scaling back capital projects, looking at possible layoffs, revamping leases for its beleaguered tenants and joining other airports to lobby Congress for a bailout package.
In an interview with The Chronicle, airport director John Martin said SFO's passenger traffic, already reeling due to the weak economy and drop in business travel, fell to just 50 percent of normal in the week after the Sept. 11 terrorist attack.
"In the past week and a half, it's come up to 75 percent of normal. Domestic traffic is 70 percent of last year. It's doing a little better on the international side: 80 to 85 percent of normal," Martin said.
SFO, which handled 40.2 million passengers last year, is the Bay Area's busiest airport and the ninth busiest in the world. It spent nearly $1 billion to open a sparkling new International Terminal last year and is in the midst of an ambitious $2.4 billion expansion program to meet what had been rapidly rising demand.
But the unprecedented revenue shortfall means that portions of that agenda will have to be put on hold in the short term, Martin said. SFO is freezing development of a planned airport hotel, renovation of the now-closed former International Terminal and installation of new landscaping. The new airport BART station and AirTrain people-mover systems will proceed as planned, as will all security programs, Martin said.
Martin said he is confident the airport will make payments on its revenue bonds as scheduled and that "any budget deficit could be carried over into the next year."
CREDIT RATING LOWERED
On Monday, New York credit rating agency Fitch Inc. changed SFO's rating for long-term outlook from "evolving" to "negative." The director of Fitch's San Francisco office, Jessica Stolz, said the move reflected SFO's loss of business travel and traffic from Asia, as well as the slump in the Bay Area's high-technology industry.
Still, Fitch, which rates 64 airports across the country, maintained SFO's rating of AA-, for now, pending SFO's final numbers for the fiscal year, which ends June 30. At that time, Fitch will review just how well management handles the challenges.
Stolz noted that other major U.S. airports are in a similar fix. "Airports nationally have been expanding to meet demand, but falling traffic is impacting their revenues," she said.
Consequently, Martin said, he and other airport executives have petitioned Congress for a benefits package, although passage is uncertain.
That $1 billion to $2 billion package would be used to pay for federally mandated security, said Steve Van Bedk, senior vice president for corporate communications at the Airport Council International, a trade organization that represents 185 major airports.
Additionally, Van Bedk said, the nation's airports are lobbying the Federal Aviation Authority for permission to tap funds now earmarked for infrastructure, such as terminals and runways, and redirect it to cover costs of improving security.
"Our goal is to get funding for mandated security that airports put on. Some of these costs are extraordinarily high, chiefly for local law enforcement officers. Presently, Congress doesn't pay for that. Yet, this is a time of substantial lost revenue at airports."
SHRINKING REVENUE
SFO's anticipated $100 million shortfall comes in three main areas: a $31 million to $37 million shortfall in landing fees from the airlines; $21 million to $25 million in parking revenue; and $30 million to $40 million shortfall in rent from retailers and restaurant operators.
"People are spending more time to pass through security and get to their gate, so they're not spending as much time and money," Martin said.
Fewer travelers and shoppers mean less money from leaseholders. Business at the SFMOMA MuseumStore in the International Terminal is only half of projections, according to an SFMOMA spokeswoman. Other leaseholders said they are in a similar predicatement.
The fall in concession revenue is worrisome to airport officials, given that SFO is mandated by law to funnel 15 percent of its concession revenue into the general fund of the city of San Francisco, which owns the airport. Martin said this year's payment to the city could be as low as $20 million, down from the $28.5 million that SFO expected.
BUSINESSES GET A BREAK
"Their rents in some cases exceeded their revenue," Martin said of concessionaires. "We usually require a fixed maximum annual guarantee from leaseholders, but we've suspended that and are having them pay 15 to 20 percent of their gross revenues on a month-to-month basis. We knew if we held fast to the leases, they'd have to go into bankruptcy and we wouldn't have the essential passenger services."
The change in the payment schedule, Martin said, is temporary until business picks up.
The overall malaise at the airport has also affected staffing, Martin said. Even before Sept. 11, SFO allowed its authorized staffing level of 1,900 to shrink by 18 percent through attrition. "After Sept. 11, we also canceled hires for 60 positions that we wanted to fill."
So far, SFO, which employs 1,550 people, has not cut any jobs. But Peter Nardoza, the airport's deputy director for public affairs, said job cuts are being discussed.
At the same time revenues are falling, SFO's operational costs are rising, due in part to intensified security requirements.
HIGH SECURITY STANDARDS
Martin said that SFO meets and often exceeds security standards put in place by the FAA and that the airport moved on its own before Sept. 11 to step up security.
Unlike some major airports, he said, "We have every airline pilot and flight attendant pass through screening devices. We have 'rebadged' every airport employee. We do more-extensive background checks on people with access to the runway. A year and a half ago, we increased pay and benefits for screeners at security checkpoints and gave them more training."
Martin said airport screeners at SFO make $10 pern hour with benefits and $11 per hour without, compared with a national average of $8 per hour. Better pay and benefits, he said, have reduced annual turnover from 100 percent to 15 percent.
The screeners are employed by private contractors, an arrangement Martin says works well. There's no need, he believes, to federalize the screeners.
MORE LUGGAGE X-RAYING
Martin said he also wants to acquire more screening devices that can detect plastic explosives. One such machine was used during yesterday's bomb scare and partial evacuation of Terminal 3.
"I want to X-ray every bag in the belly of airplanes and every carry-on bag," he said, adding that more use of top-level screening machines will require federal funding.
Although the airport is going through a tough time now, Martin says he expects normality to return sometime, and with it, increasing passenger traffic.
That means new runways, a controversial item that Martin says is badly needed to reduce flight delays and enhance safety. Environmentalists oppose the $2 billion to $3 billion project, which would require extensive bay fill to replace present runways that are located too close together.
"We still believe we need the runways," he said. "They're very much on the table."
--------------------------------------------------------------------------------
Problems at San Francisco International Airport:
-- Passenger traffic just 70 percent of normal
-- Increased security costs
-- $100 million revenue shortfall expected this year from airport retailers,
parking garages and landing fees
What SFO is doing to address its problems:
-- Lobbying Congress for a payout
-- Reducing rents for concession lease holders
-- Hiring freeze with possible layoffs
To deal with those problems, the airport is scaling back capital projects, looking at possible layoffs, revamping leases for its beleaguered tenants and joining other airports to lobby Congress for a bailout package.
In an interview with The Chronicle, airport director John Martin said SFO's passenger traffic, already reeling due to the weak economy and drop in business travel, fell to just 50 percent of normal in the week after the Sept. 11 terrorist attack.
"In the past week and a half, it's come up to 75 percent of normal. Domestic traffic is 70 percent of last year. It's doing a little better on the international side: 80 to 85 percent of normal," Martin said.
SFO, which handled 40.2 million passengers last year, is the Bay Area's busiest airport and the ninth busiest in the world. It spent nearly $1 billion to open a sparkling new International Terminal last year and is in the midst of an ambitious $2.4 billion expansion program to meet what had been rapidly rising demand.
But the unprecedented revenue shortfall means that portions of that agenda will have to be put on hold in the short term, Martin said. SFO is freezing development of a planned airport hotel, renovation of the now-closed former International Terminal and installation of new landscaping. The new airport BART station and AirTrain people-mover systems will proceed as planned, as will all security programs, Martin said.
Martin said he is confident the airport will make payments on its revenue bonds as scheduled and that "any budget deficit could be carried over into the next year."
CREDIT RATING LOWERED
On Monday, New York credit rating agency Fitch Inc. changed SFO's rating for long-term outlook from "evolving" to "negative." The director of Fitch's San Francisco office, Jessica Stolz, said the move reflected SFO's loss of business travel and traffic from Asia, as well as the slump in the Bay Area's high-technology industry.
Still, Fitch, which rates 64 airports across the country, maintained SFO's rating of AA-, for now, pending SFO's final numbers for the fiscal year, which ends June 30. At that time, Fitch will review just how well management handles the challenges.
Stolz noted that other major U.S. airports are in a similar fix. "Airports nationally have been expanding to meet demand, but falling traffic is impacting their revenues," she said.
Consequently, Martin said, he and other airport executives have petitioned Congress for a benefits package, although passage is uncertain.
That $1 billion to $2 billion package would be used to pay for federally mandated security, said Steve Van Bedk, senior vice president for corporate communications at the Airport Council International, a trade organization that represents 185 major airports.
Additionally, Van Bedk said, the nation's airports are lobbying the Federal Aviation Authority for permission to tap funds now earmarked for infrastructure, such as terminals and runways, and redirect it to cover costs of improving security.
"Our goal is to get funding for mandated security that airports put on. Some of these costs are extraordinarily high, chiefly for local law enforcement officers. Presently, Congress doesn't pay for that. Yet, this is a time of substantial lost revenue at airports."
SHRINKING REVENUE
SFO's anticipated $100 million shortfall comes in three main areas: a $31 million to $37 million shortfall in landing fees from the airlines; $21 million to $25 million in parking revenue; and $30 million to $40 million shortfall in rent from retailers and restaurant operators.
"People are spending more time to pass through security and get to their gate, so they're not spending as much time and money," Martin said.
Fewer travelers and shoppers mean less money from leaseholders. Business at the SFMOMA MuseumStore in the International Terminal is only half of projections, according to an SFMOMA spokeswoman. Other leaseholders said they are in a similar predicatement.
The fall in concession revenue is worrisome to airport officials, given that SFO is mandated by law to funnel 15 percent of its concession revenue into the general fund of the city of San Francisco, which owns the airport. Martin said this year's payment to the city could be as low as $20 million, down from the $28.5 million that SFO expected.
BUSINESSES GET A BREAK
"Their rents in some cases exceeded their revenue," Martin said of concessionaires. "We usually require a fixed maximum annual guarantee from leaseholders, but we've suspended that and are having them pay 15 to 20 percent of their gross revenues on a month-to-month basis. We knew if we held fast to the leases, they'd have to go into bankruptcy and we wouldn't have the essential passenger services."
The change in the payment schedule, Martin said, is temporary until business picks up.
The overall malaise at the airport has also affected staffing, Martin said. Even before Sept. 11, SFO allowed its authorized staffing level of 1,900 to shrink by 18 percent through attrition. "After Sept. 11, we also canceled hires for 60 positions that we wanted to fill."
So far, SFO, which employs 1,550 people, has not cut any jobs. But Peter Nardoza, the airport's deputy director for public affairs, said job cuts are being discussed.
At the same time revenues are falling, SFO's operational costs are rising, due in part to intensified security requirements.
HIGH SECURITY STANDARDS
Martin said that SFO meets and often exceeds security standards put in place by the FAA and that the airport moved on its own before Sept. 11 to step up security.
Unlike some major airports, he said, "We have every airline pilot and flight attendant pass through screening devices. We have 'rebadged' every airport employee. We do more-extensive background checks on people with access to the runway. A year and a half ago, we increased pay and benefits for screeners at security checkpoints and gave them more training."
Martin said airport screeners at SFO make $10 pern hour with benefits and $11 per hour without, compared with a national average of $8 per hour. Better pay and benefits, he said, have reduced annual turnover from 100 percent to 15 percent.
The screeners are employed by private contractors, an arrangement Martin says works well. There's no need, he believes, to federalize the screeners.
MORE LUGGAGE X-RAYING
Martin said he also wants to acquire more screening devices that can detect plastic explosives. One such machine was used during yesterday's bomb scare and partial evacuation of Terminal 3.
"I want to X-ray every bag in the belly of airplanes and every carry-on bag," he said, adding that more use of top-level screening machines will require federal funding.
Although the airport is going through a tough time now, Martin says he expects normality to return sometime, and with it, increasing passenger traffic.
That means new runways, a controversial item that Martin says is badly needed to reduce flight delays and enhance safety. Environmentalists oppose the $2 billion to $3 billion project, which would require extensive bay fill to replace present runways that are located too close together.
"We still believe we need the runways," he said. "They're very much on the table."
--------------------------------------------------------------------------------
Problems at San Francisco International Airport:
-- Passenger traffic just 70 percent of normal
-- Increased security costs
-- $100 million revenue shortfall expected this year from airport retailers,
parking garages and landing fees
What SFO is doing to address its problems:
-- Lobbying Congress for a payout
-- Reducing rents for concession lease holders
-- Hiring freeze with possible layoffs