T.F. Green Airport targets <br>improved cost efficiency

The airline industry has clearly hit some severe turbulence. As the economy slows, fewer people are flying. Business travel is off, as is leisure travel. Meanwhile, the cost of jet fuel is skyrocketing and the airlines are talking about grounding some jets and hiking airfares. Against that backdrop, Kevin A. Dillon, the R.I. Airport Corporation’s president and CEO, forges ahead in the never-ending effort to get more people to use T.F. Green Airport (PVD) in Warwick. He’s got some challenges ahead.

PBN: What kind of affect does the rising cost of jet fuel and the sagging economy have on T.F. Green Airport itself?
DILLON: The reality is [that] airfares are going to rise to cover the airlines’ actual cost of providing their service. As that happens, the impact on airports is profound. The economy has a profound effect. Typically most airports make the majority of their revenue through passenger services. In other words, here at [Green], we make about 30 percent of our revenue from airline fees – landing fees and terminal rentals. The other 70 percent comes from the fees that we get from concessions, people shopping in the concessions, parking fees. Our business does rely on passenger counts. We need to generate increases in passengers to generate increased revenue. So as you have a drop in passenger traffic, naturally, airports are impacted financially. The only other alternative we have now, because a good portion of our costs are fixed costs, [those costs get] transferred onto the airlines to pay, and that further deteriorates the overall problem.

PBN: How do you avoid increasing charges to the airlines and driving them away?
DILLON: I’m very focused on cost structure. We have to get ourselves to the position where this airport is the best bargain in New England, not only for the airlines but for air passengers. If we can continue to reduce our costs, that will encourage the airlines to make investments into this airport. If we’re cost-effective for them, in comparison to other airports, they’re going to continue to invest here.
We’re focused on cost structure to the consumer. We want our parking rates to be a very good bargain as compared to the rates at Logan [International Airport in Boston], for example. People will factor that in as to which airport they use.

PBN: But with the airlines talking about parking planes nationwide and reducing the number of available seats, is your focus on the cost structure going to be enough to increase or even maintain the number of passengers flying out of Green?
DILLON: The airlines are trying to consolidate. They’ve taken a lot of capacity out of the system in an effort to increase the load factors on individual flights. And that is going to continue as they try to become more efficient. Unfortunately, that’s going to continue this drop in seats. But that’s why I feel all the more that those airports that position themselves well from a cost standpoint are the airports that in the long run will succeed. The airlines are going to go to the most cost-effective airport. That’s why I’ve set a goal here for T.F. Green that our cost per enplanement – which is the measurement that airlines use – be half of what Logan’s is. Cost per enplanement is a fairly simple calculation: the total of the amount of revenue that airlines pay to us through landing fees and terminal rentals divided by the number of departing passengers. That’s a measurement that airlines look at to see how efficient an airport is.

PBN: What is the “cost per enplanement” at Logan and Green right now?
DILLON: Logan is a little bit over $13 and we are a little over $9. I have an effort in place now to try to shrink our costs down so we can maintain a healthy differential.

PBN: Where are you looking to “shrink” that $9 per departing passenger?
DILLON: It’s a combination of not only cutting expenses, but also increasing non-airline revenues. One of the efforts we have under way is to add an awful lot of concession space here at the airport because we want to bring variety. That’s a good customer service. But we also want people to spend more of their discretionary dollars here. So we’re anticipating a significant increase in our concession revenues simply by increasing the variety and the number of concessions that we have. It’s also being very judicious in terms of our expenses – looking at contracts, where we can save in terms of utilization of outside contractors. It’s keeping our personnel costs in check.

PBN: Have you looked into attracting international flights?
DILLON: The international market represents some real exciting potential for us. About a year ago, Ryan Air [an airline based in Ireland] actually named Providence as a potential location that they would like to start service to when they get into the transatlantic business. It’s a discount European carrier that had great success in Europe and, if they start this service, that would be a prime catch to bring that service here to Green.
We’re going after other international carriers right now. I think service to the U.K. is a real potential for us. I also think the leisure charter market, [which] also serves international locations – primarily the Caribbean – is a good opportunity for us. One of the things we do have a leg up over other regional airports is our federal inspection services are built into the terminal here. We have a customs-inspections hall in this terminal. That’s opposed to what’s [at Manchester Airport in New Hampshire], where you have the limited ability to handle international passengers. It’d be an inconvenient operation at Manchester. •
interview: Kevin A. Dillon
POSITION: President and CEO of the R.I. Airport Corporation and director of RIAC’s T.F. Green International Airport (PVD) in Warwick.
BACKGROUND: Before joining RIAC early this year (READ MORE), Dillon had served as deputy director at the Greater Orlando Aviation Authority for a year. Before that, he was director of Manchester Airport in New Hampshire from 1999 to 2007. He also served as director of aviation operations for MassPort from 1996 to 1999. Dillon started his career at the Port Authority of New York & New Jersey in 1975, leaving in 1996 as acting general manager of LaGuardia Airport.
EDUCATION: Associate’s degree in criminal justice, 1977, State University of New York, Farmington, B.S. in business administration, 1980, Delphi University, Garden City, N.Y.
RESIDENCE: Warwick
AGE: 52