Southwest Lifting Airport’s Business : Burbank Facility’s Once-Sagging Traffic, Revenue Are Taking Off, Led by the Airline’s Recent Boom
Southwest Airlines’ money-making operations have put the rest of the troubled airline industry to shame. But Burbank Airport couldn’t be happier.
Thanks to the no-frills, low-cost shuttle operator, which began service at Burbank four years ago, the airport’s once-declining traffic has boomed and its revenues are at a record high.
Southwest started at Burbank Airport with 16 daily round-trip flights to Oakland and Las Vegas, and that’s since grown to 48 flights a day to five cities--more than any of the other half-dozen carriers left at Burbank. Last year about 2.7 million people flew Southwest at Burbank, accounting for nearly two out of every three passengers at the airport.
Overall, Burbank Airport’s passenger count totaled 4.3 million in 1993, up 60% from 1989--a higher percentage increase than any other commercial airport in the Los Angeles area. Southwest’s traffic has helped fill up Burbank Airport’s parking spaces and boosted sales of hot dogs and beer, as well as the landing fees the airport gets from airlines every time their planes touch down at Burbank. As a result, the airport’s revenue was $21 million in its fiscal year that ended June 30, 1993--up from about $15 million four years earlier--and revenue is up again this year.
Remarkably, this boom came during the state’s recession. “I can only fathom what would have happened if we had been in a bullish economy,” said Thomas Greer, executive director of the airport, formally known as the Burbank-Glendale-Pasadena Airport.
Greer’s glee, though, is tempered by the fact that there are risks in relying too much on one customer. For 30 years Burbank Airport depended heavily on PSA, like Southwest, a commuter airline. But in 1987, amid the turbulent era of deregulation and fare wars, USAir bought PSA and then began to retrench at Burbank Airport, beginning a slowdown at Burbank that only stopped with Southwest’s arrival.
Relying so much on one airline could make it tougher for Burbank Airport to get bond financing for its long-delayed $200-million project to build a bigger terminal. “If you’re in the hands of a single airliner, it does make you a little nervous,” said Dick Mudge, president of Apogee Research, a Maryland firm that consults on airport economics.
Still, Greer isn’t worried. Though Southwest won’t comment, Greer thinks the carrier is more likely to expand than contract at Burbank. The Dallas-based company is the industry’s most profitable airline, last year having earned $154 million on revenue of $2.3 billion. And in its 23-year history, Southwest has pulled out of only two airports--Beaumont, Tex., because of a lack of traffic, and Denver’s Stapleton because weather delays were expensive.
But even if Southwest abandoned Burbank, Greer is betting that some other carrier would take its place. Burbank Airport is easier to get in and out of than Los Angeles International Airport, Greer says, and there are 2.5 million people who live within a 15-mile radius of the 64-year-old Burbank Airport. “The market is there.”
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Perhaps. But it took a low-cost airline like Southwest to tap that market.
Victor Gill, Burbank Airport’s public relations director, vividly recalls Southwest’s inaugural flight to Oakland on April 16, 1990. The mood was festive inside Southwest’s familiar burnt-orange Boeing 737, as Southwest Chairman Herb Kelleher, dressed in the airline’s new beige uniform, passed out bags of peanuts to a full aircraft. But what Gill remembers most was Southwest’s fare: $59 for an unrestricted one-way ticket to Oakland, compared with $180 for other airlines then serving that route. “That was a clear indicator of what was going to happen,” Gill said.
Overnight, demand for travel surged at Burbank from passengers like Michael Ernst, a Fremont businessman who says he doubled his trips between Oakland and Burbank, to twice a month, after Southwest arrived.
“I pay half as much so I can fly twice as much,” he said. Ernst also likes it that Southwest has 13 daily shuttles from Burbank to Oakland, and his unrestricted ticket (now $69 one-way) allows him to take any one of them if seats are open. “If I finish a meeting early, I can hop an earlier flight,” he said on a recent afternoon at Burbank Airport.
Southwest’s arrival at Burbank forced other carriers to slash their prices. But the pressure was too much for some airlines. In May, 1991, USAir withdrew completely from Burbank, giving up its 15 flights and the Northern California market to Southwest. “It was strictly economics,” says Bryan Enarson, USAir’s director of airport affairs. USAir is loaded with the highest operating costs of any major U. S. carrier. “Routes from Burbank weren’t profitable,” Enarson said. “And Southwest just continued that effect.”
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Delta, another major carrier that is now in the process of laying off 15,000 employees, abandoned Burbank Airport last year, and others have slimmed down since Southwest muscled in. American Airlines dropped all six of its flights from Burbank to San Jose, United Airlines halted flights to Oakland, and America West reduced the number of shuttles to Las Vegas.
“We have some disadvantages versus Southwest,” admitted Joe Hopkins, a spokesman for United, currently the second-largest carrier at Burbank Airport with 12 daily flights to its two major hubs, San Francisco and Denver. “Southwest has had an impact on our business.”
Southwest, the nation’s eighth-largest carrier, makes money where its rivals can’t because of its low operating costs. A Southwest pilot, for example, flies 70 hours a month versus 50 hours for a United pilot, and Southwest uses fewer employees per aircraft, while carrying more passengers, according to a recent Commercial Aviation Report.
By specializing in short haul flights, Southwest avoids the huge expense of maintaining expensive hub systems, and keeps its planes in the air more often because it has few connecting flights. Southwest doesn’t serve meals and gives no advanced seating assignments. In the 1990s, Southwest has been the only major American airline to turn a profit.
In Southern California, Southwest flies out of eight airports, including LAX, and it is the dominant carrier at Ontario Airport, with about 40% of the market there. Later this month, the airline will begin service at John Wayne Airport in Orange County, with 15 daily flights to Oakland and San Jose.
Southwest’s start-up at John Wayne could cut into some of Burbank Airport’s business, just as Burbank has lured travelers from LAX through Southwest’s cut-rate fares. From 1989 to 1993, as Burbank Airport’s passengers surged by 60%, or 1.6 million people, in that same period, the number of LAX’s domestic passengers remained flat.
As in other markets Southwest has entered, Burbank Airport has seen a surge in demand for leisure travel. Jerry Hernandez of Santa Paula says that he had always driven five hours across the desert to visit Las Vegas. But on a recent afternoon, Hernandez was waiting for a Southwest flight to Las Vegas at Burbank Airport. Why? A round-trip ticket to Las Vegas for $65 under a Southwest special two-for-one deal. “It just makes more sense,” Hernandez said.
Southwest won’t talk about future plans at Burbank, but airport officials hope the airline will soon add flights to Tucson, Albuquerque and Salt Lake City. Last year Southwest bought Salt Lake City-based Morris Air, another low-cost carrier, giving it entry into the Pacific Northwest market. “Who knows where else we’ll open up?” says Robin Cobb, Southwest’s station manager at Burbank Airport.
Southwest’s reticence makes Robert Garcin, president of the Burbank Airport Authority, which owns the airport, a bit uneasy, given that so much is riding with Southwest, including plans to build a new terminal.
Garcin and other airport officials have long dreamed about a new terminal building that would replace the current one that, under new federal standards, is too close to the runways. But concerns about airport noise and contamination on a proposed site have stalled the project. Airport officials still say the terminal will be opened in 1998.
The new terminal will probably cost at least $200 million. The airport now has about $20 million in cash, but the bulk of the funding is expected to come from a revenue bond issue. And that will depend on Burbank Airport’s ability to generate sufficient passenger traffic and revenue, which will be boosted this fall when the airport will probably start imposing a $3 “passenger facility charge” on airline tickets of all outbound passengers.
Garcin worries that the airport’s reliance on Southwest could backfire when it comes to issuing bonds. “If I were a bond buyer, I’d like to have more than one carrier,” he says. “We’ve put an awful lot of eggs in one basket, and it’s a problem we’ll have to face.”
But for now, Burbank has little choice. Garcin and others at the airport have been trying hard to woo new carriers to Burbank and encourage others already at the airport to expand. But with most other airlines struggling and afraid to go head to head with Southwest, airport officials admit they’re not having much luck. The one carrier that Burbank Airport was close to attracting was Morris Air, but then Southwest bought it.
“Expansion at Burbank isn’t in the cards,” said Al Becker, a spokesman at American Airlines, which is down to just three daily flights from Burbank, all of them to its major hub in Dallas. “It’s perfectly understandable that Burbank Airport wants diversification,” he said. “But there’s just no way we can compete” with Southwest for the California market.
Other rivals, including United, Delta and Continental, are trying to launch low-cost, short-haul clones of Southwest. But it’s far from clear when and whether they would be able to challenge Southwest.
Greer, the airport’s director, says he wishes Burbank had more competition. “Yes, it bothers me that Southwest dominates the airport,” he said, only to quickly add: “But it is Southwest. If we’re going to have a dominant player, we’re lucky we have the one that’s making money.”
BURBANK AIRPORT’S GROWTH
Since its inaugural flight at Burbank Airport in April, 1990, Southwest Airlines has become the dominant carrier at this regional airport. In four years the profitable, low-cost, shuttle operator has quadrupled its passenger traffic at Burbank to more than 2.7 million. Southwest’s success at Burbank has filled up the airport’s parking spaces and concession stands, and has meant more fees that Burbank Airport gets from airlines every time they land, all of which has helped lift the airport’s once-flagging revenues to a record high.
SOUTHWEST AIRLINES’ BOOM AT BURBANK AIRPORT ...
No. of Daily Flights 1990: 20 1991: 25 1992: 37 1993: 48
Total Paid Passengers (in thousands) 1990: 643 1991: 1,198 1992: 1,856 1993: 2,742
... HAS HELPED THE AIRPORT’S FORTUNES RISE
Revenue* (in millions) 1990: $15.9 1991: $19.0 1992: $20.7 1993: $20.8 * For fiscal years ended June 30.
Source: Burbank-Glendale-Pasadena Airport Authority
