=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/06/26/n= ational0616EDT0482.DTL ---------------------------------------------------------------------- Thursday, June 26, 2003 (AP) Many airports struggling to adjust as aviation industry restructures BRAD FOSS, AP Business Writer (06-26) 03:16 PDT WEYERS CAVE, Va. (AP) -- In the airline industry food chain, Shenandoah Valley Regional Airport is a small and vulnerable fish. Sitting in the foothills of the Blue Ridge mountains about 150 miles west of Washington, the single-runway airport has been hit hard by the 2-year-old airline industry crisis. It has been reduced to just one airline, US Airways, that flies in and out four times a day. United pulled out in December 2001. "We're just downstream of some overall industry trends," airport director Greg Campbell said recently, overlooking a half-empty parking lot that once overflowed. Airline schedules were reduced in the aftermath of the Sept. 11 attacks, business travel is down because of the weak economy, and airports of all sizes are facing the "the Southwest effect" -- a term used to describe the willingness of travelers to go to more distant airports served by low-cost airlines such as Southwest, AirTran and JetBlue. Shenandoah Valley Regional is a case in point: A study it commissioned found that 90 percent of fliers living within 30 miles of Weyers Cave are using airports in Washington, Baltimore and Richmond, Va. Shenandoah's problems are not as bad as some. More than two dozen airpor= ts have lost commercial air service in the past two years. Some other airports have not fared so badly. For example, small airports in extremely remote locations have generally kept their routes, because travelers have few alternatives. Airlines, as a result, can simply charge higher fares. "We do not see the peaks and valleys that your normal regional market might see and it's mainly because we have vast geographic distances to deal with," said Cynthia Schultz, airport director of Montana's Great Falls International Airport, which has five airlines to choose from and an average of 18 round-trip flights per day. Airports served by the low-cost airlines also have weathered the crisis well -- the upside of the Southwest effect. They include Manchester Airport in New Hampshire, which is served by Southwest, and Newport News-Williamsburg International Airport in Virginia, which is served by AirTran. By and large, airports have not suffered nearly as much as the airlines, because their revenue is not directly linked to airfares. The airlines, to boost sagging demand, have cut ticket prices, and that has magnified their revenue problem. Airports, on the other hand, are affected by how many people travel through their gates, not by how much those passengers pay to fly. Only 50 percent of airport revenue, on average, comes from the airlines, in the form of landing fees and terminal rent. The rest comes from parking lots, rental car companies and airport-based stores. Further, many airport lease agreements have contingencies that say any shortfall in non-airline revenue has to be partially made up by the airlines, according to Dan Champeau, managing director for Fitch Ratings, the credit rating agency. Champeau said some of the country's largest airports have come under gre= at financial pressure in the past two years and have been forced to lay people off, defer or cancel improvement projects and pay higher borrowing costs as a result of lower credit ratings. The larger airports are suffering in part because of the downturn in international travel as a result of war, terrorism fears and SARS. San Francisco International Airport is considered by many analysts as the poster child for what can go wrong in a major market, with Pittsburgh International Airport not far behind. San Francisco, an important hub for air traffic between Asia and the United States, has suffered because of its close affiliation with bankrupt United Airlines, which controls roughly 50 percent of the market; its proximity to Oakland International Airport, which is served by JetBlue; the dot-com crash, which devastated business travel in the region; and fears of SARS, which kept many passengers from traveling to Asia this past spring. Fitch Ratings expects the airport to report its third straight year of reduced activity, bringing the number of passengers in 2003 below 15 million, down from 20 million in 2000. Pittsburgh is a major connecting hub for US Airways, which emerged from Chapter 11 bankruptcy three months ago as a much smaller airline and has cut back service. Worst off, though, are the hundreds of tiny airports near mid-size and large cities. A study by Back Aviation Solutions found that 27 communities lost commercial air service between August 2001 and April 2003, including Belleville, Ill.; Hickory, N.C.; Utica, N.Y.; and Worcester, Mass. The Southwest effect is one reason for the trend. Another is that short flights are less in demand as travelers hop in cars to save money and to avoid the hassles of tighter airport security. =20 ---------------------------------------------------------------------- Copyright 2003 AP