NYTimes.com Article: Denver's Idle Gates Draw Covetous Eyes

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Denver's Idle Gates Draw Covetous Eyes

August 5, 2003
 By EDWARD WONG






DENVER - From the control tower of Denver International
Airport, Tim Thornton stared down more than 300 feet at the
white gates that snaked like tentacles from Concourse A.

Mr. Thornton, director of Frontier Airlines' operations
here, pointed to his company's 10 gates to the left of the
tower. In a half-hour, at 4 p.m., the airline would use six
of those to funnel passengers to flights.

Then Mr. Thornton waved a hand to his right, at the eight
gates used by United Airlines to load regional jets. In a
half-hour, only two planes would be parked there. That was
the way it always was, Mr. Thornton said: Frontier's planes
constantly taxiing in and out of the terminal, and United's
presence barely noticeable.

"They're not using the gates to their fullest," Mr.
Thornton said. "We could do better."

Mr. Thornton's insistence that United give up its gates is
one part of a three-way struggle among United, which is
reorganizing its business in bankruptcy court; Frontier, a
growing low-cost airline that is United's main rival here;
and the city of Denver, which owns and operates this
sprawling airport that was completed in 1995 at a cost of
$5 billion.

Perhaps more than any other airport, Denver International,
on the plains east of the Rocky Mountains, is at the center
of trends roiling the airline industry. It is caught
between the needs of an ambitious low-fare airline and its
biggest customer, a traditional airline that is threatened
by the growth of the less-expensive rival and wants to keep
a tight grip on its gates.

Like airports in St. Louis (an American Airlines hub) and
Pittsburgh (a US Airways hub), Denver finds itself
financially vulnerable as its major customer struggles to
restructure itself during the industry's worst downturn -
as vulnerable in many ways as labor unions and aircraft
lessors.

Adding to the acrimony in Denver are a dash of political
wrangling between the recently departed airport director
and the new mayor, and increasingly harsh criticism from
many residents here, who say that United is trying to
manhandle the city by making absurd demands.

"Now you've got an airport that's in total chaos," said
Michael Boyd, president of the Boyd Group, an airline
consulting firm based in Evergreen, Colo. "Put music to
this and you have a soap opera."

Last month, United, the world's second-largest airline
after American, sent the city a list of demands that
included building a $65 million regional jet terminal with
38 gates and reimbursing the airline for up to $20 million
in costs related to a faulty baggage-handling system.

Denver International's fortunes are closely tied to United:
the airline accounted for more than half of the 3.02
million passengers who came through here in May and 65
percent of the airport's $305 million in income last year
from airline rents, fees and charges.

United is cutting back on service, but says it wants to
hold onto the eight gates on Concourse A for future
expansion - despite Frontier's claim that it can
immediately put half of those gates to more productive use.
Frontier says it may have to start a second hub somewhere
if it is not given more space soon, especially since it
announced last week that it would buy 15 Airbus A319's and
lease up to 14 more.

United wields a bit of leverage in all this jockeying - the
bankruptcy judge has given the airline until Dec. 15 to
decide whether to reject its 30-year airport lease.
Denver's former mayor, Wellington Webb, refused to play
ball: he ripped up United's list of demands at a news
conference on July 15, shortly before leaving office. A
week later, John Huggins, transition director for the new
mayor, John Hickenlooper, struck a more conciliatory tone,
saying that the city wanted a "comprehensive settlement"
that "also meets our needs to keep the airport healthy and
allow competitors to grow." After a couple of weeks of
silence, airport officials met with United for three hours
yesterday morning.

On July 18, in the middle of this imbroglio, Mayor
Hickenlooper accepted the resignation of Bruce Baumgartner,
the airport director. An official in the mayor's office
said that Mayor Hickenlooper was upset with Mr. Baumgartner
for announcing several days earlier that the airport would
build a $300 million, 16-gate extension to Concourse A that
would largely benefit Frontier - without first telling the
mayor.

Conflicts such as the one here at Denver could change the
way airports deal with carriers. Having learned a difficult
lesson, airports might want to hedge their bets by wooing
several airlines instead of relying on just one for a huge
chunk of revenue, industry experts said. To smooth out the
gate issue, especially where expanding low-cost airlines
compete with a big network carrier, airports could include
stricter productivity demands in airlines' leases.

"Before, at a hub dominated by a carrier, a community could
make a decision that working for the interest of the
carrier was working for the interest of the community,"
said Steve Van Beek, a senior vice president of Airports
Council International-North America, the industry's main
trade group in this country. "You're willing to say, `I see
why the interests of US Air or the interests of United are
congruent with my interests.' But when you get into
bankruptcy, you create a new dynamic and a new skepticism
in those communities."

United declined to make any executives at its headquarters
in Chicago or in Denver available for interviews. Jeff
Green, a United spokesman, said the airline's demands are
intended to force Denver to meet obligations in the current
lease agreement.

Chuck Cannon, a spokesman for Denver International, said
United was meeting the minimum requirement for gate use
stipulated in its lease - three jet turnovers per day
averaged across all of the airline's gates. United uses its
gates on Concourse B, its main terminal, much more often
than the eight in dispute on Concourse A.

United's share of passengers in Denver has dwindled over
the last three years, but the airport has given it more
gates. In December 1999, United's main jet service had 65.6
percent of the market and its regional jet services had 8.8
percent, according to airport statistics. The company used
43 gates. Last December, United's main jet operations had
shrunk to 53.1 percent of the market while its regional jet
service had risen to 9.2 percent. As its total market share
dropped, the number of gates allotted to the airline rose
more than 18 percent, to 51.

Over the same three years, Frontier's market share more
than doubled, to 13.3 percent from 5.6 percent, while the
number of gates assigned to it rose at about half that
rate, to 10 from 6.

Frontier said that was not enough. Jeff S. Potter,
Frontier's chief executive, said the airline needed more
gates to operate more efficiently. He said the airline was
unable to time its flights as well as it would like because
of the lack of gate space.

"We think we should be a little bit more aggressive in
making sure those gates are fully utilized," he said of
Concourse A.

Frontier welcomed the decision by Mr. Baumgartner, the
former airport director, to add 16 gates to Concourse A.
But the gates would take two years or so to build. Frontier
said it needed at least four gates immediately.

Furthermore, Mr. Baumgartner said in an interview that the
airport did not have all the money for the expansion, and
it would be hard to sell bonds to raise cash while United
is in bankruptcy.

In any case, the question of financing could be moot. Vicki
Braunagel, one of the two new airport managers, said the
expansion was no longer a sure thing and was being
reviewed.

"We recognize that Frontier has some capacity issues, and
we want to get them the gates they need to operate, but in
the most cost-effective way," she said. "We want to get
United what they need to operate, but also in the most
cost-effective way. That's a balancing act."

Mr. Boyd, the industry consultant, said that United's
demands of the airport made sense from the company's
perspective - it should use whatever leverage it gets under
bankruptcy protection to cut its costs. At the same time,
he pointed out, United might not have as much negotiating
power as it would like because there was little chance that
the airline would abandon Denver, its second-largest hub.

"United's demands are outrageous, yes," Mr. Boyd said. "But
they're in bankruptcy, so they've got to do it."

The city's negotiating position is not helped by the fact
that it has to pay off enormous debt related to the
airport's construction. The airport has to set its fees
high enough to pay its debts and maintain its operations,
but not so high that it alienates United, its most
lucrative customer.

Other cities that operate hub airports are finding
themselves in similar jams. US Airways, which emerged from
bankruptcy court in March and is still struggling
financially, said it could shut down its Pittsburgh hub.
Gov. Edward G. Rendell of Pennsylvania and other state
officials have offered an incentive package worth $263.9
million to upgrade facilities and reduce operating costs,
among other things.

On July 16, American Airlines said it would considerably
shrink its hub in St. Louis. That means cutting many
flights, laying off 1,650 workers at the airport and
closing a reservations office in the city that employs 540
people. American acquired the hub in 2001 when it bought
Trans World Airlines, but the company has had a tough time
making its operations there profitable.

Here in Denver, government officials and business leaders
do not want to look as if they are being abused by United,
but they also do not want to alienate the airline.

"You don't like unhappy customers, and United is a customer
of ours," said Tom Clark, executive vice president of the
Denver Metro Chamber of Commerce. "Our hope is that the
efforts between the airport and United will be successful.
Our goal is more on the success of the airport than a
carrier, however."

http://www.nytimes.com/2003/08/05/business/05GATE.html?ex=1061090442&ei=1&en=8bd9aa1e8e77fdeb


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