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County disputes airline’s figures

A US Airways report that touts its economic significance to the region is “unrealistic and not credible,” according to Allegheny County’s rebuttal.

The response to the airline’s economic impact report comes as state and county leaders are looking to restructure the $673 million in debt at Pittsburgh International Airport. Lowering the airport’s debt would reduce US Airways’ cost to do business there and entice the airline to keep its local hub.

County Chief Executive Jim Roddey provided the rebuttal to the Pittsburgh Tribune-Review on Tuesday. Roddey said he is “not at liberty” to discuss who wrote the response. He said it’s not the county’s official response to US Airways, but it’s “a very good answer.”

Kent George, executive director of the Allegheny County Airport Authority, which runs the airport for the county, referred questions to Roddey.

The US Airways report states that the regional economy will lose nearly $2 billion and thousands of jobs if it closes its Pittsburgh hub.

The county’s rebuttal suggests that US Airways has drastically overstated the economic impact because it values the economic contribution of connecting passengers — who do not leave the airport — the same as it does visitors who rent cars, stay in hotels, eat in restaurants and do other business in the area.

The county analysis states that the decline in passengers may not be as steep as US Airways predicts because the county believes other low-cost airlines would enter the Pittsburgh market, bringing with them lower fares and increased passenger demand in the markets they serve.

The US Airways report does not take into consideration the negative impact that the airline’s high fares have on passengers who find it cheaper to drive to another city to get lower air fares. The airline’s report also does not address the negative impact the closure of the hub would have on US Airways, the county report states.

Gov. Ed Rendell said yesterday he is not considering tapping his proposed $2 billion economic stimulus package to lower the airport’s debt, which the airline wants slashed by $500 million.

“Not at this time,” Rendell said.

Rather, Rendell is looking at other plans, which he said includes “long-term restructuring of the debt — things like that.”

Rendell declined to clarify what form of restructuring he is considering. The governor’s options include the state borrowing money to pay off the airport bonds, which would lower annual debt payments by extending the repayment period.

Rendell and Roddey have ruled out using direct tax revenue to satisfy the airline, which has threatened to shut down its Pittsburgh International hub on Jan. 5 if a new, cheaper lease deal is not reached. They also say US Airways must guarantee jobs and flight levels at Pittsburgh International before a deal can be struck. So far, the airline has declined to offer a guarantee.

A debt reduction would benefit US Airways because it would lower the amount the airline contributes each year to pay off the bonds sold to build the Findlay airport. US Airways now pays about $50 million a year. It renounced that deal with the airport authority just before it emerged from Chapter 11 bankruptcy protection on March 31.

The airline’s demand for a $500 million debt reduction was made on Sept. 17 during a six-hour negotiating session in Harrisburg. It came in response to Rendell’s offer of $263.9 million in incentives and improvements at two of its hubs — Pittsburgh International and Philadelphia International airports.

The airline’s private counteroffer includes various ways the state and county could generate the $500 million to lower the airport debt. It also includes the publicly released economic impact analysis done for the carrier by the Campbell-Hill Aviation Group of Alexandria, Va.

The study determined that if the airline closes its Pittsburgh International hub, it will cost the region’s economy $1.8 billion a year. Job losses would total 17,000, the airline said.

Overall, the study concludes the hub contributes $3.1 billion a year to the region’s economy and is responsible for 33,000 jobs, including the airline’s 7,292. The airline accounts for nearly 80 percent of the flights at Pittsburgh International.

“We all recognize that the US Airways hub contributes significantly to the greater Pittsburgh economy, which is exactly why the (airport) authority continues to work to find ways to help US Airways,” the county rebuttal states.

However, the rebuttal adds, “Many of the specific conclusions of the report are unrealistic and not credible.”

Brian Campbell, of the Campbell-Hill Aviation Group, defends the study.

“We used an awful lot of Pennsylvania-based data for our analysis,” Campbell said. “The model is a widely accepted approach and even recommended by the (Federal Aviation Administration).”

The two-page county report, titled “Observations Regarding Campbell-Hill Study of US Airways Economic Impact,” lists 10 ways in which the airline’s report supposedly is flawed.

County response to US Airways

These are the flaws in the US Airways report on the economic impact of its Pittsburgh International Airport hub, according to an Allegheny County analysis provided to the Pittsburgh Tribune-Review by county Chief Executive Jim Roddey.

  • The report values the economic contribution of connecting passengers the same way that it values the economic contribution of passengers who are actually visiting Pittsburgh. By doing so, the report drastically overstates the economic impact that would result from US Airways’ hub closure. In reality, connecting passengers contribute much less to the local economy because they do not rent cars, stay in hotels, or otherwise participate in the local economy.

  • The report’s overall conclusions regarding the level of passenger traffic following the US Airways’ hub closure are based on the assumption that not a single low-cost airline will initiate or expand service to Pittsburgh following US Airways’ downsizing. That conclusion is not credible.

  • The report’s overall conclusions regarding the decline in the number of originating Pittsburgh passengers following the US Airways’ hub closure are based on the underlying assumption that Pittsburgh’s already high air fares will actually increase following the loss of the hub instead of decreasing. In fact, the opposite would occur. Low-cost airlines would enter the Pittsburgh market, bringing with them lower fares and increased passenger demand in the markets they serve.

  • The report concludes that the US Airways hub would mean the loss of all nonstop service to the West Coast. Given the large size of the Los Angeles, San Francisco and other West Coast markets, that conclusion is not credible.

  • The report concludes that the loss of the US Airways hub would mean that the major East Coast markets, such as New York, Boston and Washington, would receive nonstop service only with regional jets or turboprops. That conclusion is not credible.

  • The report does not address the negative impact of US Airways’ current high fare structure on the Pittsburgh community, particularly with regard to the high business fares currently charged to major markets. The report does not consider the potential benefits to the community that would result from US Airways’ hub closure in that the closure would help open the Pittsburgh market to low-cost carriers, charging significantly lower fares.

  • The report assumes that the US Airways hub will remain at its current size. In fact, however, the hub has been shrinking steadily and a high percentage of flights are now operated with turboprop aircraft. Because those aircraft do not provide a competitive product, much connecting traffic has already been lost.

  • Finally, the report’s estimated rent and landing fee cost of $25 per enplaned passenger is approximately double the more realistic worst-case cost estimate provided by the airport and its financial advisers in the event US Airways closes its hub. In addition, the airport’s cost estimate reflects the worst case in the short-term period following a US Airways hub closure and will steadily improve.

  • Note also that US Airways has yet to discuss how the draw-down of the Pittsburgh hub would affect US Airways’ economic viability. What revenue would US Airways lose from closing the hub• How effective would the company’s remaining route network be• Where, if anywhere, would the large number of aircraft be redeployed• The lack of any discussion of these issues casts further doubt on the already very incomplete picture presented by the Campbell-Hill Aviation Group study. Additional Information:

    County response to US Airways

    These are the flaws in the US Airways report on the economic impact of its Pittsburgh International Airport hub, according to an Allegheny County analysis provided to the Pittsburgh Tribune-Review by county Chief Executive Jim Roddey.

  • The report values the economic contribution of connecting passengers the same way that it values the economic contribution of passengers who are actually visiting Pittsburgh. By doing so, the report drastically overstates the economic impact that would result from US Airways’ hub closure. In reality, connecting passengers contribute much less to the local economy because they do not rent cars, stay in hotels, or otherwise participate in the local economy.

  • The report’s overall conclusions regarding the level of passenger traffic following the US Airways’ hub closure are based on the assumption that not a single low-cost airline will initiate or expand service to Pittsburgh following US Airways’ downsizing. That conclusion is not credible.

  • The report’s overall conclusions regarding the decline in the number of originating Pittsburgh passengers following the US Airways’ hub closure are based on the underlying assumption that Pittsburgh’s already high air fares will actually increase following the loss of the hub instead of decreasing. In fact, the opposite would occur. Low-cost airlines would enter the Pittsburgh market, bringing with them lower fares and increased passenger demand in the markets they serve.

  • The report concludes that the US Airways hub would mean the loss of all nonstop service to the West Coast. Given the large size of the Los Angeles, San Francisco and other West Coast markets, that conclusion is not credible.

  • The report concludes that the loss of the US Airways hub would mean that the major East Coast markets, such as New York, Boston and Washington, would receive nonstop service only with regional jets or turboprops. That conclusion is not credible.

  • The report does not address the negative impact of US Airways’ current high fare structure on the Pittsburgh community, particularly with regard to the high business fares currently charged to major markets. The report does not consider the potential benefits to the community that would result from US Airways’ hub closure in that the closure would help open the Pittsburgh market to low-cost carriers, charging significantly lower fares.

  • The report assumes that the US Airways hub will remain at its current size. In fact, however, the hub has been shrinking steadily and a high percentage of flights are now operated with turboprop aircraft. Because those aircraft do not provide a competitive product, much connecting traffic has already been lost.

  • Finally, the report’s estimated rent and landing fee cost of $25 per enplaned passenger is approximately double the more realistic worst-case cost estimate provided by the airport and its financial advisers in the event US Airways closes its hub. In addition, the airport’s cost estimate reflects the worst case in the short-term period following a US Airways hub closure and will steadily improve.

  • Note also that US Airways has yet to discuss how the draw-down of the Pittsburgh hub would affect US Airways’ economic viability. What revenue would US Airways lose from closing the hub• How effective would the company’s remaining route network be• Where, if anywhere, would the large number of aircraft be redeployed• The lack of any discussion of these issues casts further doubt on the already very incomplete picture presented by the Campbell-Hill Aviation Group study.


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