Larry Krauter came to Spokane nearly five years ago to lead Spokane Airports, which includes Spokane International Airport, Felts Field, and the Spokane International Airport Business Park. Since then, Krauter has become a key figure in the Spokane business community.
Talking the day after the Nov. 17 windstorm, during which the airport never lost power nor had to rely on its backup generators, Krauter explained the organization’s health, its upcoming projects, and the changing ways in which airlines do business.
Journal: I think the place I’d like to start today is talking about the current financial status of the airport and general health of the organization.
Krauter: We’re doing really well financially. Right now, we expect to end the year about 4 percent over budgeted revenue and probably somewhere around 6 percent below budgeted expenses. This is a trend we’ve maintained for a long period of time.
Journal: Why are revenues up?
Krauter: We’ve had some success this year with the marketing of our parking products, and we’ve seen a really nice response from customers to our parking lots, particularly our north shuttle economy lot. Our parking revenue is going to run 6 to 8 percent higher than we had budgeted for this year.
There are a number of different metrics that we track. If you look at similarly sized airports and you look at our debt per enplaned passenger, we’re the lowest in our cohort. We have very low debt.
The other measurement factor that the industry looks at is cost per enplanement. We have been slightly above or slightly below $5, and most airports are above $5. We are really nicely in the midpoint of that, so we’re comfortable with that.
We’ve been steady on employment. We have about 121 FTE (full-time equivalent employees). We’ll probably add modestly to that in a few of the line departments.
The thing that surprises people about our sources of revenue is that we get most of our revenue from parking. A lot of readers may think we get most of our revenue from the airlines, but that’s not true. Parking and ground transportation revenue, based on our 2016 budget, we’re forecasting to be at about 30 percent of our revenue. If you look at terminal and landing fees, they’re going to be somewhere combined at about 29 percent. The other big areas are building rents and car-rental income. And then we have some revenue from our vendor relationships.
Our operating budget in 2016 is going to be about $34 million.
Journal: That’s Spokane Airports, right? Not just Spokane International Airport?
Krauter: Yes, that’s consolidated, so that’s Spokane International Airport, Felts Field, and the business park.
We have a project capital program of about $24.5 million. The capital program fluctuates on any given year, depending on the level of projects we’re working on. It can be as high as $34 million or $35 million or it can be lower than what we have for next year.
We’ve just finished up a series of large projects on the airfield here and we’ve been under construction on the airfield for the past six years, almost nonstop. These projects we’ve finished up are what we call safety-and-standards projects, which were to realign taxiway intersections with the runway, and last year, we built high-speed exit taxiways. Prior to that, we rehabilitated the runway, which took a couple of construction seasons. We’re really excited, because we’ve ended that cycle of disruption on the airfield for now.
The total budget is a little over $58 million, for capital and operating budget.
Journal: What are some of the upcoming projects?
Krauter: One of the things you probably noticed is that when we built the car wash. We also made some improvements to the exit plaza and kind of blended the two from a color perspective. We’re just getting ready to open a new parking operations building, which is right next to the parking toll area, so they are right on top of the operations.
One of the projects we’re going to do in 2016 is add a large garage to the parking operations building, so that will house our fleet of shuttle vehicles, the various snow-removal vehicles, as well as the other daily-operational vehicles. That will get all of those indoors.
That’s going to help us, because we haven’t been able to store them indoors. We’ve been putting block heaters in and trying to keep the snow and ice off of them. This is going to help us become a lot more efficient.
We’re going to do a number of projects related to passenger, airfield, and terminal security. Gates, fences, IT, surveillance equipment, cameras, elevator upgrades.
And then the convenience store, which is huge. One of the big missing elements of the airport is a c-store. We hear that a lot from the customers. They’ll come out with a rental car and think they’ll fill up at the airport, and oh my goodness, there’s no gas station out here. Local people know you could drive into Airway Heights or go to the Geiger interchange, but the out-of-town person is not going to do that. A, they probably haven’t left themselves enough time, and B, they aren’t going to leave the airport road area.
What we want to do in 2016 is put in the infrastructure to support a gas station/c-store. Ideally, we’d like to see the private sector come in and build the c-store and gas station and operate it. Our intention is to build the utility infrastructure, the roadway infrastructure, and get it ready for somebody to come in and install the gas station and c-store.
Journal: Where would the convenience store be located?
Krauter: It would be located near the economy lot. That way, whether you’re outbound or inbound, you can access it.
I gave a ride to the parking lot to some customers a couple of months ago, and I was asking them, ‘Where are you from? And where are you headed?’ Some of them were from Montana, and they had driven from Montana to Coeur d’Alene, stayed with relatives, then combined a trip. They had a long drive back. I asked, ‘Would it be great if you had a place to fuel up and grab a cup of coffee before you got on the highway?’ They said, ‘Oh, that’d be awesome.’ I said, ‘Good, because we’re working on that.’
It’s a need that’s been identified for a long time, and I’m looking forward to being in a position to deliver that in the next couple of years.
Journal: Anything else?
Krauter: The other thing we’re doing is reconstructing a parking apron in the corporate area of the airport. This is related to a customs facility. We have business charters that need to clear customs. The area over there is very deteriorated asphalt. We’re going to tear all of that out and replace it. We think it’s going to be a $5 million project.
In the airport business park, we’re going to continue to do roadway projects, rehabilitating some of those roads, because some of them are leftover vestiges from roads that were installed there by the Air Force when it was a military installation. We’re looking at, what roads are we going to remove and what roads are we going to improve.
At Felts Field, we’ve invested a considerable amount of money over the past four years on pavement rehabilitation and catching up on deferred maintenance there. We have a project there over the next two years to continue to replace pavement. If you look at the investment at Felts Field over the past four years and in the next two years, we’re looking in the neighborhood of $14 to $16 million.
We had a groundbreaking in April for a private development of hangars at Felts Field, and that is nearing completion as well.
Journal: When you were talking about the budget, you mentioned a decrease in expenses? Where did that decrease come from?
Krauter: Most of the decrease in expenses came from having a mild winter. We budget for some sort of midpoint winter condition, so if we have a mild winter, we’re saving on hours of staff and materials related to de-icing.
Journal: So, the majority of that savings came in the first quarter of 2015?
Krauter: More or less.
Journal: What are the trends in terms of passenger counts?
Krauter: The trends in passenger counts have been very encouraging. We tend to look at month over month and year to date. September tends to be one of the lower activity months, and if you talk to airlines, they say, ‘If we could take September out of the calendar, we would be really happy.’ But our September, ’14 over ’15, was up 9.2 percent. And year to date, our passenger count is up 5 percent, so that’s a very encouraging trend.
Journal: What had been the trend prior to this year?
Krauter: What we saw was, as we went deeper into the recession, airlines cut smaller communities like ours very significantly. They actually cut medium-sized cities harder than some of the smaller-sized cities.
Journal: And an example of a medium-sized city is?
Krauter: Columbus, Ohio, is a great example. Portland is another. Some of those cities got cut more than we did, but we got cut, obviously, fairly hard.
What we saw is, at about 2013, it kind of bottomed out. In 2014 and 2015, we’ve seen above-average gains in seats from airlines. This year, we’ve added new seats to Boise, but this year, what’s been the big story is what we call the battle for Seattle, between Delta and Alaska airlines. Delta came in about this time last year and started flying more in and out of Seattle and increased significantly the amounts of seats to Seattle. That’s put a lot more choice in the marketplace, and it has had a positive effect on fares for consumers.
Journal: When we see increases in passenger counts, is that usually due to increases in seats?
Krauter: Yes. One of the things we’ve been able to show the airlines is, if you put seats in our market, we will fill them up.
But it gets a little nuanced in the tortured world of airline economics. All of us think in linear terms. Your experience may be, you get on an airplane and it’s full, and you think that the airline must be doing well. That’s how people think. That’s not how the airlines think.
Despite the fact that you have a full airplane, if the airline hasn’t been able to get the fare they’re after, then it’s not successful for them and they aren’t meeting their revenue targets.
It’s no longer an issue of whether a community has demand, because all communities—especially our size—are underserved.
It’s a matter of whether you can make a case to the airline to take those airplanes and those seats and put them in your market, and that they will make more money than putting them in another market.
It’s a significant shift in how airlines do business. They used to fly for market share. Now, they fly for profitability. Two very different strategies. Now, what we have to do when we approach airlines—and we do this a lot—is we come in with a significant amount of revenue-based data and forecasts that show them they will hit or exceed revenue forecasts for a flight. We are in competition with other communities who are trying to make the same case. It’s an issue of retaining what we have and building new air service.
The dichotomy is, if you’re the consumer, having competition and low fares are good things. If you’re an airline, it’s bad.
What’s interesting for an airport is playing in between those two forces. On the one hand, we like competition and like having low fares for our citizens. On the other hand, that’s a dangerous place to be, because most airlines don’t want competition in smaller markets. They want to carve out monopoly routes, then they want to charge what the market will bear and maximize their profits, maximize their yield on that flight.
Those are the forces that pull us in two opposite directions when we’re dealing with the airlines.
It’s getting really cutthroat. For communities that want to retain air service they have or get new air service, it’s taking outside-of-the-box thinking. One of the things we’ve done this year, we’ve had a series of discussions with community leaders to help them understand the business and how it’s changed. And that we will ultimately have to have support from the community for incentives.
Journal: What kinds of incentives?
Krauter: What are the things that are going to make Spokane move to the top of the pile? When we went to American Airlines last year, American said, ‘We really understand your numbers, and they’re not bad. But we have 385 opportunities. So, if there is something you can do in your community to differentiate yourselves from those other 385, that would be helpful.’
What they’re saying, effectively, is that you need to come in with some kind of incentive package. That’s usually in the form of some kind of marketing assistance. In some cases, it’s letters from businesses saying, if you put this service in, we’ll put people on those airplanes.
There are many communities that are getting aggressive with incentives. The airport does have some limitations on how far we can go with that. In some communities, the chambers of commerce and the conventions and visitors bureaus oftentimes will get together and say, ‘We really need a flight from A to B. How are we going to get it?’ They’ll put together marketing incentives, and that’s the way it works. That’s why we’ve been talking to the community, because that’s not something that’s been common for our community.
If you look at our fare trends, we’ve followed the national trend, but continue to be consistently lower than the national average. Again, if you’re the consumer, that’s great, but when we go to the airline headquarters, they beat us up about this stuff. That’s the tough part.
What are the trends in cargo?
Krauter: Cargo grew pretty aggressively, believe it or not, during the recession.
We believe that had to do, for the most part, with mail contracts that were consolidated into Spokane as they closed smaller facilities and relied more heavily on the regional sort facility here.
Journal: Are we talking literally about U.S. Postal Service, not FedEx or UPS?
Krauter: In this case, we’re talking about U.S. Postal Service contracts. But it’s slowed down a little bit now. It’s leveled off. The good news is, it doesn’t portend any significant changes one way or the other. It’s a very stable outlook for the existing cargo service that we have.
Subscribe today to our free E-Newsletters!SUBSCRIBE