San Francisco Airport Hit by Bay Area Economic Tailspin

A devastating one-two punch of jittery post-Sept. 11 air travelers and the Bay Area’s economic tailspin has prompted officials to roll back their ambitious expansion plans at San Francisco International, the nation’s sixth-busiest airport.

Airport commissioners voted recently to trim operating costs by 23%, approving a $570-million budget they say will translate into a host of belt-tightening measures--including postponement of the construction of a new hotel and renovating an aging terminal.

Like airports nationwide, San Francisco International has suffered a significant drop in air travel following the terrorist attacks. Last year, the airport saw a 5.4 million decline in the number of passengers from the previous year. Also driven by the wholesale collapse of technology sector firms, the slump has brought a drastic cut in airport revenues: Sales at concourse shops, restaurants and bars are down a whopping $60 million--20% from a year ago.

But city officials say the airport has long operated without proper scrutiny and that operators have made decisions--such as opening a new international terminal in 2000 and spending millions to research the costly construction of a new runway--that have helped put the facility in financial jeopardy.

With revenues down, the airport is projected to send about $21 million to City Hall, down from the $30-million annual average.

Calling the airport’s newest budget “a warning light on the dashboard,” Supervisor Aaron Peskin recently called for an independent audit of the airport’s finances, the first in 30 years. The Board of Supervisors, which has final say on the facility’s budget, has yet to vote on the matter, but Peskin is not prepared to rubber-stamp the newest request.

“This airport has always operated as an autonomous city within a city--as long as they sent their check to City Hall every year, the idea was ‘Don’t question them,’” said Peskin, chairman of the board’s finance committee. “Well, I think it’s time to rein them in, go over their budget with a fine-toothed comb, to send in a team to do an audit and not just accept what it is they’re bringing every year--ideas like a new international terminal.”

He called the airport one of the region’s key economic engines. “And it’s hurting,” Peskin said. “I want to be sure we wake up in two years and see its fiscal health restored.”

Airport officials bristled at Peskin’s tone.

“It’s troubling that it appears we’re not trustworthy, but our books are open,” said airport spokesman Ron Wilson. “This airport is certainly not going broke. We are not an Enron. But we know we have to be very responsible in operating this airport with our reduced amount of cash flow.”

Wilson acknowledged that much has changed since officials opened the international terminal, a cavernous gem designed to capitalize on the new rush of Pacific Rim travelers, whose numbers had soared 10% annually in recent years.

Then the sky fell. In 2001, total flights dropped nearly 10%, from 429,000 to 387,000. Passengers also fell from 40 million to 34.6 million.

“We were flying high then but now things are different,” Wilson said. “Still, this airport isn’t responsible for international events.”

Nonetheless, airport officials have launched what Wilson calls an ambitious plan to rein in costs.

While stressing they have made no cutbacks in passenger screening, officials have reduced parking rates to attract more customers. They have frozen hiring and cut back on equipment purchases and the hiring of expensive consultants.

Airport operators have also renegotiated rents with most of the 137 concessionaires who run businesses in the various concourses in an attempt to help them through hard financial times. Most have seen business plummet with new security rules that forbid visitors beyond perimeter checkpoints.

Instead of a minimum annual guarantee, rents for concessions are now based on a percentage of their gross sales--a rate officials say will remain for the foreseeable future.

Before the change, business owners were paying as much as 60% of gross sales for rent. Several businesses have also closed.

Much of the financial suffering has come at the international terminal, which some concessionaires have described as a passenger ghost town.

“Sometimes you feel like you have the entire terminal to yourself,” said Mark Thornton, a managing partner of the San Francisco Golf shop. “We have these huge gaps in the day with absolutely no customers.”

But Peskin said unregulated spending has put the airport in a serious financial hole. He pointed out that the airport is $4.1 billion in debt from its international terminal and other projects. Half of the 2002 budget--or some $300 million--will go solely to pay the interest on those loans.

“One problem is that these airport expansion plans have been phenomenally predetermined,” he said.

Peskin pointed to a controversial new runway airport officials say is needed to keep pace with the region’s growth--a project he called the largest local use of public funds since the building of the Golden Gate Bridge nearly 70 years ago.

Officials are studying whether to fill 300 to 700 acres of San Francisco Bay for a new runway and have conducted what they call an unprecedented four-year, $66-million study of the plan’s environmental effects on the fragile bay.

They are also investigating several mitigation plans that include restoring a vast swath of wetlands in Sonoma County.

Airport spokeswoman Kandace Bender said that the leaner budget would not delay the ongoing environmental studies, which officials hope to finish by year’s end.

But with the air traffic slowdown since September--and the speculation about when passengers will return to the skies--Peskin says it’s time to reconsider the need for such a project.

“We have to ask the question ‘if,’ not ‘when,’” he said of the runway project. “They’re talking of spending billions of dollars on this project. It’s not just throwing a couple of spadefuls of dirt in the water. If started, this thing would take a decade to finish.

“Meanwhile, things change. For a politician watching out for the public’s tax dollars, not to ask these kind of questions would be folly.”

Bender said officials can’t decide on the project’s future until all the studies are done.

“I don’t believe a single San Francisco supervisor can decide whether the modernization of a critical airport can go forward,” she said. “That has to be made collectively by the region.”