Wednesday, June 3, 2009

The New CIB? New Airport Operating at $15 Million Deficit

Hmm, this sounds familiar. A grand, opulent facility is built, much larger than the previous one. The board running it underestimates the operating cost of the facility. There is not enough business for the facility. It is losing millions, quickly drawing down reserves. Sound like the CIB? Nope the Airport Board. The Indianapolis Star reports:

A decrease in flights and passengers blamed on the sagging economy, as well as soaring costs associated with a new terminal, has Indianapolis International Airport officials preparing for a shortfall in their budget projections for the year.

New airport chief executive officer John Clark said Tuesday that he is considering a range of cost-cutting measures such as turning off lights and escalators when they aren't needed. He said layoffs and tapping into the airport's $200 million reserves -- most of which are restricted -- would be last resorts but were not off the table.

"If we look back at projections of growth and the number of flights and passengers, clearly we're way off," Clark said in a meeting with The Indianapolis Star editorial board. "The challenge is to look at our business model and see how we can become more efficient."

Clark told the editorial board that the airport faced a deficit of $15 million and provided other budget numbers that an airport spokeswoman later said were errors.

The spokeswoman, Susan Sullivan, said the airport projects revenue to be $15 million less than expected but still expects to have more revenue than

Instead of ending 2009 with $68 million in operating cash, Sullivan said, the airport now expects to end up with $53 million. She said that would still be $4 million more than at the start of this year.

Clark acknowledged late Tuesday that he miscommunicated the airport's financial situation to the editorial board.

The immediate hurdle is that fixed debt-service costs account for about $100 million of an operating budget of about $170 million. That leaves roughly $70 million within the control of Clark and the airport board.

Making a $15 million reduction will be "a challenge," Clark said.

Clark said he is confident that the costs could be managed and the airport could stay within its budget this year. But he conceded that the outlook for the aviation industry is not promising, and it has lagged behind past economic recoveries.

Air traffic is down nearly 10 percent from the same time last year. The terminal that opened in November is about twice the size of the former facility.

We're not in a state of panic," Clark told the editorial board. "But I can't say we have an answer today. We're starting the process. We're working on a five-to-seven-year strategic plan."

He said the airport board has been so focused on opening the new terminal that it only now is creating a long-range plan for operations goals. Board members could not be reached for comment late Tuesday.

Tax increases -- such as those proposed to help the cash-strapped Capital Improvement Board, which also built a bigger facility -- are not an option, Clark said.

The airport also must find new ways to boost revenue, such as selling unnecessary land for development. Clark said he plans to hire a consultant by the end of this year to study the best reuse opportunities for the former terminal.

To increase flight traffic and income from passenger fees, which are the major revenue sources for the airport, Clark said he would like to cut fees the airport charges airlines. He said rates of nearly $10 per passenger should be reduced to less than $8 for a "secondary hub airport" to be competitive.


Parking and concession services, which depend on air traffic, also have seen revenues fall below projections. None of the 50 restaurants and other retailers that opened with the new terminal has closed, said Clark, but many are doing less business than expected.

Clark said the authority may have to grant retailers concessions, such as extended payback options for their spaces, to help them stay open.

"It would send the wrong message if we had businesses go dark in the airport," he said.


"We always like to see more volume, but we are not disappointed by any means," he said.

James said he and other airport retailers think the new terminal holds too many businesses for the volume of traffic the terminal is seeing.

"(The new terminal) is absolutely gorgeous," he said. "It's a great way to position Indianapolis, but way overdone with its (retailing) options, considering the volume coming through."

I have to give the Airport Board credit though. After they initially raised them, now they're talking about lowering fees to try to increase business and raising revenue that way. The only thing Mayor Greg Ballard can seem to come up with is raising taxes in order to bail out the CIB, supposedly to protect the hospitality/convention business in Indianapolis. Outside of certain Democrats, I'm not sure of many people who think that increasing taxes on something is a way to get more of it.


Downtown Indy said...

The library, City Market, Lucas Oil, Conseco and now the airport. We're batting 1.000.

I know said...

Remember the Super Bowl!!!!!