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Airline meltdown creates minimal impact - so far: But potential route cutbacks a concern at airport

April 28, 2008

Two airlines that filed bankruptcy this month might cost creditor Indianapolis International Airport $1 million, airport financial records indicate. And high jet fuel prices that helped doom ATA Airlines and sent Frontier Airlines restructuring this month could become a bigger blip on Indianapolis' radar later, if airline dominoes keep falling.

The health of airlines that fly here bears watching because Indianapolis needs to sustain strong revenue streams from airline rents and fees to cover the cost of the $1.2 billion midfield terminal to open this fall.

As it is, analysts see the potential of additional bankruptcies for the weakest airlines and route cutbacks nationwide for healthier carriers.

So far, the damage is negligible at Indianapolis International. Denver-based Frontier continued flying as usual in Indianapolis after its Chapter 11 filing April 10. It carries nearly 4 percent of Indianapolis' 8.3 million passengers, with four daily flights between the city and Denver.

Earlier this year, Frontier struck a deal with Indianapolis-based Republic Airways Holdings to provide one of the daily flights. However, on April 23, Republic and Frontier terminated their agreement, under which Republic was flying 12 Embraer 170 jets for the carrier on various U.S. routes. That deal generated revenue of $6 million a month for Republic, which said it plans to file a $260 million damage claim against Frontier in bankruptcy court.

This year, Frontier is to pay the Indianapolis Airport Authority more than $900,000 for ticket counter, gate and other leased space. Payments owed before bankruptcy are on hold until a settlement is reached in court, although it wasn't immediately clear how much may yet be owed the authority.

Frontier also generated more than $370,000 in landing fee revenue for the airport in 2007.

Airport Director Robert Duncan said the airport authority is under the impression that Indianapolis remains a key market for Frontier and won't be impacted by the reorganization.

"Every flight Frontier has added from Indianapolis to their hub in Denver has been well-supported," Duncan said.

The airport will take a more certain hit from the demise of Indianapolis-based ATA.

ATA's April 2 bankruptcy filing to liquidate operations was minimized by the fact that it ceased all scheduled service in Indianapolis about two years ago. Until its first bankruptcy filing, in 2004, it had been the busiest carrier at Indianapolis International.

By contrast, ATA charter flights during spring break last year brought in just $6,500 in landing fees.

The airport will be dinged mainly on lost lease income. ATA paid the airport $583,000 a year to lease more than 126,000 square feet of office space. The lease ran through August 2010. Airport officials are on the lookout for a new tenant or tenants at the 16-acre site.

Even if financial losses from Frontier and ATA amounted to a few million dollars, it's still a drop in the bucket for an airport authority with more than $95 million in annual operating revenue.

But further fallout in the struggling airline industry could be material.

The busiest carrier in Indianapolis, Minneapolis-based Northwest Airlines, with 24 percent of passengers, said this month it is merging with Delta Air Lines, which has 8 percent of the traffic here.

Airport officials are downplaying the impact, saying the airlines have little overlap here. Delta's routes tend to be geared toward the eastern United States while Northwest serves a number of Midwest cities.

Regardless of consolidations, one thing that is certain is near-term reduction in air service levels across the country, Colorado-based airline analyst Michael Boyd said in his recent industry outlook.

If jet fuel prices keep soaring beyond $3 a gallon, smaller jets could be less lucrative in some markets and service discontinued. The impact could be felt on emerging secondary cities in the Midwest and in the Deep South, Boyd says.

Beyond that, airlines might start cutting service on routes served by jets of 130-plus seats. Boyd cites, for example, Northwest Airlines' aging fleet of DC-9s.

"Note that these are the mainstay of the Northwest focus operation at IND [Indianapolis]," Boyd said. "Conclusions can be drawn."

The new midfield passenger terminal will sport 38 gates versus 33 gates in the current facility. It also includes a new international gate.
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