What a difference a deal makes. Even one that might never happen.

When word emerged that Delta Air Lines was exploring merger talks with Northwest and United airlines, local chatter about the Cincinnati/Northern Kentucky International Airport (CVG) lurched from the angry “Do something about these sky-high airfares!” to a scared “Save the hub!”

At first, industry experts said a merger with Northwest could dismantle Delta’s “fortress hub” operations here — Delta’s second-largest in its network — and perhaps end direct international flights. Politicians who have said little about CVG’s high airfares  rushed to the merger-hub issue. Governors of Kentucky and Ohio (newly elected Steve Beshear and Ted Strickland) issued concerned statements about potential economic harm. Federal lawmakers on both sides of the river called for hearings based on anti-trust concerns.

As a possible Delta-Northwest agreement became more apparent in February, Delta CEO Richard Anderson tried to calm the jitters. “We intend to continue serving Cincinnati and Northern Kentucky with our hub,” he wrote in response to a letter from the CEOs of the Cincinnati and Northern Kentucky chambers of commerce.

Delta and its subsidiaries, including Comair, dominate commercial air traffic at CVG to a greater extent than any airline at any airport in the nation: 90 percent of passenger travel. Together, Delta and CVG employ more than 9,000 people here. A Delta-Northwest merger would create the largest U.S. airline. Even if the companies reach agreement, however, a merger would be subject to federal government review that could take months.

Anderson also noted that Delta “is currently studying several options for industry consolidation.” The former CEO of Northwest is known as a strong advocate of the view that all of the current major airlines cannot survive on their own. Experts say such consolidation could result in new definitions of what an airline hub is, here and elsewhere.

In other words, there’s still much more speculation than certainty about how Delta’s and CVG’s operations will look like a year or more from now.
 
FROM ONE CRISIS TO ANOTHER

This is the latest in a string of challenges to confront CVG. The airport itself consistently earns high marks in customer surveys for ease of access, the quality of facilities and overall operations. But the airline industry is driven by forces beyond any airport’s control.

Since the federal government deregulated that industry in 1978, and the subsequent growth of Delta’s hub, the airport shared in the growth of Delta and Comair, culminating in the sprawling Terminal 3 opening in 1994. But from the September 11 terrorist attacks to today’s record-setting fuel prices, the major carriers have struggled with annual losses, which led Delta into bankruptcy. That in turn has caused reductions in CVG flights, operations and jobs.

Airline cutbacks in personnel, along with pressure to lower wages and benefits for employees, have industry observers predicting more worker strikes in the near future.

As for mergers, Delta and Continental Airlines explored the possibilities in the late 1990s, and last year Delta rebuffed a hostile takeover attempt by US Airways.

All of these factors lead to a logical question: How will CVG leaders — the airport administration and the Kenton County Airport Board — deal with challenges that lie ahead, or try to prepare for them?

At this stage, that leadership is being tight-lipped.

Ted Bushelman, director of communications, has been the official voice of the airport for 31 years. Whenever he is pressed about Delta’s sky-high fares, his typical response can be summed up as “Get over it.” Bushelman consistently asserts that this is the price Tristate flyers have to pay for having a Delta hub and all those direct flights (now 120 daily) and destinations, along with the jobs and the regional economic impact the hub produces — estimated at $4.5 billion annually in a 2005 University of Cincinnati study. Bushelman also notes that some top corporations were influenced to locate or stay here because of the hub service.

Although few people in Greater Cincinnati could name the director of aviation at CVG, Robert F. Holscher, he has the post for 23 of the 37 years he has worked there. We sought to ask him how the airport might rethink its future strategies and master planning in light of industry changes.

The airport admnistration reply: No one could talk to us except Bushelman. This de facto gag order extends to members of the Kenton County Airport Board, which sets airport operating policies.

So, we asked Bushelman.

“We’re not talking about the outlook,” he replied. “We don’t know what Delta’s going to do or the Justice Department’s going to do. We don’t know that. You want us to assume certain things are going to happen. We’re not assuming anything.

“Sure, we’re concerned about it,” he continued. “This just isn’t the way to negotiate. We’re worried about what’s best for the community.”
Bushelman says the airport has nothing to gain by commenting on a possible merger. “We’re not making a statement on that. If it looks like we’re fighting Delta and they stay, they’ll hate us.”

He emphasizes that the process could take a year or longer, noting that the possible merger has been questioned by everyone from the governor of Florida to the head of the U.S. Senate’s aviation committee.

What if a merger goes nowhere, but Delta decides to further cut service here or close the hub anyway? Is the airport’s position to wait and see what happens, then react? “Yes, that’s the best way to approach it,” Bushelman replied.

Elaborating, Bushelman says the airport is letting politicians and business organizations act publicly. “We’re letting chambers do it, taking the lead on that,” he added.

THE CHAMBERS’ ROLE

The two big players representing the interests of businesses and economic development — the Cincinnati USA Regional Chamber and the Northern Kentucky Chamber — have been pinned between the proverbial rock and a hard place when it comes to the airport and Delta Air Lines.

Chamber leaders won’t admit so publicly, but the situation is confirmed by numerous sources. A sizeable chunk of the chambers’ budgets come from the largest Tristate corporations. Many of those companies find high airfares an acceptable tradeoff for the level of direct flights, numerous destinations and select international routes the hub offers. And high fares don’t pinch some of the big corporations anyway, because they can negotiate discounts with Delta, sources say.

But the biggest part of chamber membership consists of small and medium businesses, and those dependent on air travel have been literally screaming about paying the highest fares in the nation. Yes, many of those smaller companies are now sending their road warriors to other area airports such as Dayton, Columbus, Indianapolis and Louisville to save money, but four-hour round trips on the road costs employee time and productivity, and can take a toll on workers’ morale.

The chambers’ position has been shifting, however. Last September, leaders of the two chambers asked Delta’s Anderson to meet with them to discuss, among other matters, airfare relief for business travelers. Months crept by without a reply. Anderson’s recent letter of reassurance came in response to a Jan. 28 letter from Ellen van der Horst, CEO of the Cincinnati USA group, and Steven Stevens, CEO of the Northern Kentucky chamber, saying the business climate of the region offers “a compelling case for the maintenance of a significant level of service at CVG.”

What about the long-term airport outlook and the chamber leadership that Bushelman alluded to? “We need to step up and take a fresh look at this,” van der Horst told us. “The world in terms of aviation and the airline industry is changing rapidly. That’s not news. But it does mean that all of us have to be interested in aviation.”

She cites the letter to Anderson — call it a plea — as an example of what the chambers have to do.

“I don’t know what will happen with Delta and the hub, but I do know what we have and what we have to offer,” she remarks. “I’m a big believer in being a master of your destiny, and I am a big believer in a unified voice.”

Airfares are still an issue, she adds. “I think the business community understands the logic of paying a premium for a hub, but the premium has become so out of line.” Now it’s becoming a problem for businesses large and small. “The interests [of large and smaller businesses] are more aligned than different now.”

Kentucky chamber leader Stevens agrees. “We’re trying to preserve service above all else, but not irrespective of fares. There’s a gag factor where, at some point, the fares become unacceptable.”

It would be wise to look at the bigger picture, Stevens says. He suggested talking to Richard Robinson, an attorney with Graydon Head & Ritchey who chairs the Northern Kentucky chamber board and is a voting member on the airport board. Robinson, however, says he’s in a situation where, as an airport board member, he usually defers questions to the CVG communications office.
A LEADERSHIP VACUUM?

There are Greater Cincinnati business and political leaders who say it’s time to take a closer look at the airport management and governance: Not just the way it’s structured, but the individuals holding key decision-making positions. Their tone suggests it’s time for a transition at CVG, but most will not go public with their views.

One exception is Hamilton County Commissioner Todd Portune. He and County Auditor Dusty Rhodes have been openly critical of airport management, but largely have been disregarded by others. When this magazine published a series about CVG operations in 2006, Kenton County Judge Executive Ralph Drees — who appoints voting members to the airport board — said Rhodes “doesn’t care about jobs. He just pisses and moans, but there’s not a damn new thing new about him.”

Not so, Portune says. Two ideas he and Rhodes advocated are a shuttle service to other area airports with cheaper fares, such as Dayton, and building a fixed-rail connection between downtown and the airport.

Portune says the way the airport is reacting now reinforces what he and Rhodes have said all along.

“The airport board is not planning or preparing for the operational management of the airport in ways that are looking out for the long-term interests of the community it serves,” Portune asserts. “Instead, they’re little more than a pawn on behalf of the airline that has monopolized use of the airport and run it in ways that primarily benefit the profit motives of that airline.

“The primary focus for everyone should be getting effective management in place at the airport,” he says. “Get that and this region will survive whatever happens with the merger talks.

“There’s a total vacuum of leadership on the airport,” Portune adds. “Where does that leave us? In a very precarious position.” Portune says that is why he urged fellow county commissioners last year to appoint James Miceli, a former air traffic controller, as the Hamilton County advisory representative on the airport board. “I asked him to help develop a new management plan for the airport, if for no other reason than to get the conversation going.”

One change is for certain. CVG’s Holscher has been there 37 years, and Bushelman for 31. The airport board will have to look for new executive leadership in the near future no matter what Delta does.

But What About Those Airfares?
 
As community focus shifted to talks of a Delta Air Lines merger and possible loss of the Delta hub here, CVG airport spokesman Ted Bushelman commented, “As someone said to me yesterday, they ain’t worried about fares now.”

Well, that depends on who you talk to. Chat with people in the business community, listen to talk radio and check out the blogosphere, and you’ll still find plenty of anger over Delta airfares at CVG. In January, another transportation report showed Cincinnati still No. 1 by far in rankings of most expensive U.S. airfares, with an average roundtrip ticket hitting $576. And ticket prices here again rose faster than any other airport in the third quarter of 2007, jumping 12.6 percent.

There are key factors that inflate plane ticket prices here:

• Competition brings down fares, and getting low-cost competitors to prosper here has been nearly impossible. As The Wall Street Journal reported in December (“The Most Expensive City to Leave: Cincinnati”), fares dropped at other “fortress hubs” — Denver, Philadelphia, St. Louis and Salt Lake City — where competition has increased.

• Yet, the decision was made years ago that having Delta Air Lines establish a hub here was worth the potential price of a monopolized airport. Politicians were enthused about new Delta and Comair jobs, and the spinoff economic impact. Business leaders, especially those of the biggest corporations, valued the convenience of more destinations, flights (especially direct connections) and international service.

• Our airport is unique among those “fortress hubs,” where a single airline has more than 90 percent of total traffic. Although the Tristate metro area totals more than 2 million in population, it doesn’t feed nearly as many local passengers as other hubs do. Low-cost competitor airlines such as Southwest and Jet Blue need a solid local passenger base to enter a market.

• The fact that Greater Cincinnati has five metro airports within a two-house driving distance is another disincentive for low-cost carriers to try competing directly with Delta here. Instead, they fly out of Dayton, Columbus, Indianapolis, Louisville and Lexington, attracting local passengers and drawing ones from Greater Cincinnati seeking better bargains. This is why Salt Lake City, a smaller Delta hub, has lower fares than CVG. Delta competitors can make it there because travelers don’t have other choices two hours away.

• Smaller, discount airlines know that if they try to challenge Delta here on the most lucrative routes, Delta will temporarily slash fares on those routes to drive the competitor out. It has happened before.

• Competition in many other markets is one reason why Cincinnati bears so much of the cost of running the Delta hub. Cutting fares here could require raising them in markets where passengers will switch to another airline just to save $20.

Airport spokesman Ted Bushelman reiterates that CVG talks to other airlines at least once a year, “and some of the smaller ones three to four times a year. If Delta would leave, they’d rush in. But instead of 120 direct flights a day we might be looking at about 30 a day, just like Columbus, Louisville and Indianapolis.”

Steve Stevens, president of the Northern Kentucky Chamber of Commerce, admits the situation puts him and his organization in a difficult position. “For the bulk of chamber members, it’s difficult to explain the premium paid for a hub. Many don’t get it or appreciate it. They’re concerned about their bottom line.”

Doug Moorman, director of economic development for the Cincinnati USA chamber, has become more vocal in recent months about the need for air travel relief. Delta did cut some leisure fares in 2007, but Moorman was lobbying for the interests of small and medium business travelers. He believes there may be a “price point” where Delta could recapture passengers going to other airports, and that increase in local passenger volume would offset the fare reductions. Moorman notes local passenger volume increased when Delta experimented with its SimpliFare model in 2004, but the airline dropped those discounts as it entered into bankruptcy.

In what appears to be a remarkable shift in economic marketing strategy, area chamber leaders are now pointing to other regional airports as an asset for Greater Cincinnati. The pitch goes like this: Travelers who are willing to pay more for convenience can choose CVG, and those who want to save money can reach five other airports within two hours, which in many parts of the country is close to a common commute time to a major airport.

“Certainly CVG is a tremendous asset, but it’s the big gem in a crown,” is how Moorman describes it.

Ellen van der Horst, president of the Cincinnati USA chamber, says this situation “ironically gives us the best of both worlds”: CVG convenience and price points “that are a little less convenient.” At the same time, she adds, this situation “is one of the things that make it difficult to attract a low-cost carrier” to CVG.

Stevens echoes the Cincinnati chamber’s view: “We can say no person will spend more than they’re willing to pay on an airline ticket. That’s really correct, if you think about it. You may have to pay $750 to get to [Washington] D.C. from here, but you can drive an hour and a half and get a ticket for $250.” Some business travelers are willing to do that, but for others “it’s an issue of time, energy and convenience,” he adds.
Why In Kentucky?
 
It’s the question Greater Cincinnatians hear over and over from out-of-town guests: Why is the “Cincinnati airport” in Kentucky?
And sometimes the local folks from both sides of the Ohio River are at a loss for the right answer.

Lunken Airport went through a series of private owners until 1928, when the City of Cincinnati passed a bond issue to purchase it. By the 1930s, Lunken served 30,000 flights annually.

Political wrangling and neighborhood opposition dampened ideas of Lunken expansion. In 1946, the Big 3 of American, Delta and TWA airlines, frustrated by constant fogging and floods — especially the 1937 disaster — pulled their operations out of “Sunken Lunken” and moved to the new, relatively modest-sized airfield in Boone County.

Blue Ash Airport was founded in 1921 to obtain lucrative federal airmail routes. It was sold to Cincinnati in 1946. Political opposition over expanding the Blue Ash airport lasted for decades. Several bond issues to support expansion failed. Then nearby suburban development all but assured there would be no space to add or lengthen runways.

Back in the 1940s, the Army Air Force built a 928-acre facility in Boone County to train B-17 bomber pilots. When the property was put up for sale in 1945, mostly rural Boone County was not prepared to seize the opportunity. Neighboring Kenton County grabbed it.

The Kenton County Airport Board was created by a resolution of the Fiscal Court of Kenton County. The airport in Boone County that is owned by Kenton County was named CVG after the City of Covington.

Seven board members with full voting privileges, and six advisory members (who can vote in committee meetings but not on board resolutions), are appointed by Kenton County Judge Executive Ralph Drees. Cincinnati has one advisory member, Hamilton County Coroner O’Dell Owens. Hamilton County’s one advisory member, James A. Miceli, is a retired air traffic controller.

—Felix Winternitz
 
Experts: Could CVG Survive Without the Hub?
 
Long-time airline industry analysts and observers all agree that the local airport leadership finds itself in a unique position as compared with other facilities nationally. No other so-called “fortress hub” has as many competing airports (five) within such a close proximity, all with low-cost competition.

“It also has the singular distinction of having the highest fares in the country, and that in turn is attributable to being the single most monopolized airport as well,” says Miami University economics professor James Brock.

And those experts also agree that if Delta were to merge with either United or Northwest, the hub at CVG would most likely be dismantled. Northwest already runs a state-of-the art and updated hub in Detroit, while United’s headquarters are in Chicago, also that airline’s largest hub. Both cities are considered too close in airline economics to make sense to keep CVG active as a hub as well.

“The airlines also say that they need a large origination and destination (local) market to subsidize the hub, which is very expensive to operate,” says Eric Smith, co-chair of the aviation group for Philadelphia-based law firm Schnader Harrison Segal and Lewis. “We have to expect that with airline consolidation, we will have a reduction in the number of hubs — probably about 24 months after the merger is consumated.”

But there are differing views on the potential impacts. Those like Smith and Carnegie Mellon University business professor Ilker Baybars warn that such a pull-out could be economically disastrous, with Baybars pointing to the 2003 closure of the U.S. Airways hub in his hometown of Pittsburgh.

“In the heyday, there were about 540 direct flights out of here to all over the country and even overseas, and that went down to about 60 today,” says Baybars, assistant dean of the Carnegie Mellon business school. “And the economy took a huge hit.”

But Miami’s Brock points to the example of Nashville, which lost an American hub over the course of two years in the mid-1990s, but rebounded and attracted Southwest Airlines. Now the city has as much or more air service as before, and Nashville is one of the fastest growing regions in Tennessee.

“Conventional wisdom has always held that losing a hub is horrible for economic development, but conventional wisdom may be wrong,” Brock says. “I might be wrong as well, but it may not be the catastrophe that so many think it may be.

“It could be that if three, four, or five carriers came here or stepped up operations to replace Delta, the jobs could be filled. And businesses may choose to fly more and locate here more because of the lower fares that would come here.”

Brock and others also say that the airport should reconsider its current policy of not providing incentives for new entrants. (CVG’s current agreements with tenant airlines requires that any break given to one carrier is offered to all.)

For example, in 2005, the authority overseeing Dallas-Fort Worth International Airport offered up to $21 million in incentives to new carriers willing to come in and fill the void left by Delta when it closed its hub there.

“I believe in competition, and that should be allowed to thrive, and the market will take care of itself,” notes Baybars.
James Pilcher covered the CVG airport as a reporter for the Enquirer for six years.
Enterepreneurial Spirit Drives Charlotte Airport
 
The Charlotte/Douglas International Airport has a story to tell.

The North Carolina facility is the country’s fastest growing airport, and that’s attracted the attention of everyone from industry analysts to a delegation of Cincinnati USA Regional Chamber officials, who took a day to visit the airport on a fact-finding mission last October.
What’s driving the growth? Lower fares have attracted more local passengers to fly from Charlotte rather than driving to airports in outlying cities such as Greensboro or Spartanburg, which is across the border in South Carolina. Even US Airways, which operates a hub at Charlotte, offers reduced fares.

The Charlotte airport — which is owned by the city — handled 9,300 additional passengers a day on average in the past six months, representing a 13 percent increase. Since 2002, passenger traffic is up 46.5 percent, totaling 29.5 million a year. In the same time period, the average fare has dropped 23 percent, to $372.61 for the 640 daily departures.

More than a dozen different air carriers are available to Charlotte passengers: Air-Tran, Continental, American, JetBlue, Delta, Midwest, Northwest and United, along with Air Canada and Lufthansa, and regional airlines such as American Eagle and Comair.

“Booming is an understatement” is how Jerry Orr describes it. Orr — the aviation director who has been with the airport for three decades — is described in words such as “entrepreneurial” (by The New York Times) and “visionary.” The airport is now embarked on a $150-million terminal expansion.

Orr maintains a very public face, bopping around the state as a member of a dozen community organizations, from the Charlotte Chamber Aviation Committee to the North Carolina Trade Association. The chamber recently awarded him its annual Richard Vinroot Achievement Award.

Orr championed a business-valet service that has doubled its revenue and traffic in the past year, and even includes a car wash. Other unusual projects include public art displays and luring a NASCAR shop into the main terminal. Orr even placed oak rocking chairs at the waiting gates: To ease travelers’ aching backs and promote the state’s furniture makers.

Doug Moorman, economic development director for the Cincinnati USA Regional Chamber, was impressed by what the chamber’s delegation learned during its Charlotte visit. Orr has an entrepreneurial spirit, Moorman says, noting how he advocates for regional intermodal transportation. Orr talks with other leaders about integrating coastal ports, rail lines, highways and aviation in ways that builds Charlotte’s position as one of the leading distribution centers in the nation.

Like CVG, the Charlotte airport has an advisory committee representing two states. Unlike CVG, this committee casts a wide net, including representatives from chambers of commerce, city and township officials from both states, and even airline pilots.

— Felix Winternitz
 
Some Airports Take Bigger Aim
 
Greater Cincinnati is not the only metro region that has faced airport and aviation challenges.

Airfares at the airport in Charleston, S.C., for example, ranked among the highest in the nation. As The Wall Street Journal reported in December, the high fares were hurting tourism. Community leaders marshaled forces and assembled incentives including $150,000 for marketing, which attracted AirTran Airways to begin flights from Charleston to Atlanta. The result? Other airlines there lowered prices, and passenger volume has risen.

At CVG, lease agreements with Delta Air Lines tie the airport’s hands. No benefits can be offered other airlines that are not offered to Delta. It’s not clear whether that would be a barrier to the kind of independent initiative taken in Charleston.

Other cities have taken a big-picture approach to transportation in general and aviation in particular. Portland created a Regional Air Transportation Demand Task Force. Partnering with Portland State University, the group recommended a fresh review of the airport master planning process.

The Hampton Roads-Norfolk Airport Task Force was a private sector effort to assist the Norfolk Airport Authority in enhancing commercial air service. The task force includes business leaders throughout the Norfolk metro area.

The Hampton Roads initiative was based on the success of the Washington Airports Task Force, a non-profit, non-partisan corporation that works to enhance and promote aviation services in the Washington, D.C., metro area. That task force was formed in 1982 because of concerns about Dulles Airport being under-utilized. According to the WATF, “Doing something about Dulles” changed Washington’s air service “from being among the worst in the nation to being among the best, and enabled significant regional economic development.”

Another model that might be worth examining is the Port Authority of New York and New Jersey. A duel-state agency, the Port Authority was originally charged in the 1920s with managing the shared harbor, bridges, marine terminals, tunnels and waterways. In the late 1940s, both states extended the authority’s power to the region’s airports: Newark, LaGuardia and an infant airport that would become John F. Kennedy
International.

— Felix Winternitz and Greg Loomis