Despite being in the middle of a massive overhaul, Houston's George Bush Intercontinental Airport and fellow Houston airport William P. Hobby received middling rankings in the American City Business Journal's first-ever Airport Power Rankings.
Relying on reams of public and proprietary data, the effort identifies winners and losers in an industry that in some quarters is growing by leaps and bounds while in others is wilting on the vine. It depicts a highly profitable sector being pushed by fast-expanding upstarts that cater to today's frequent travelers, albeit one that's still dominated by big, legacy operators who are learning the hard way that they too must modernize to stay competitive.
The analysis draws from U.S. Department of Transportation statistics with supporting research from ACBJ’s 43 newsrooms and analysis provided by faculty at Wake Forest University's School of Business. The findings are quantitative and subjective, and they spotlight both where the industry is headed and the airports leading the charge.
But enough about how we got here. It’s time to get to the rankings.
THE BEST OF THE BUNCH
Ask a thousand travelers, and you’re likely to get a thousand different answers as to what qualifies as the best-run airport in the country. But for our money, the answer without question is Norman Y. Mineta International Airport in San Jose.
Why San Jose International? It’s because the city-owned airport ranks among the best of its peers in virtually every financial and operating category measured by ACBJ, particularly when it came to productivity among its relatively lean workforce. Never mind the free Wi-Fi, convenience to the city's downtown area or the multitude of transportation options to and from the airport.
Between 2010 and 2015, San Jose International expanded its revenue by 28 percent, its passenger counts by 16 percent and its nonflight-related revenue by a whopping 43 percent — all while simultaneously tightening its belt. Over that same span, its total headcount and payroll costs fell about a third, while total debt was slashed by 6 percent.
Houston's two airports, William P. Hobby and George Bush Intercontinental, received a D+ and C rating, respectively. The middle-of-the-road rankings show how Houston's airports operated before their large overhauls. Hobby's new five-gate terminal opened in late 2015, and IAH is in the middle of a multistage expansion of its international terminal and United wing. Both upgrades also include new restaurants, shops and other amenities for passengers, which will likely pay off down the road.
OPERATING EFFICIENCY
Variances among the nation's major airports are many and in some cases extreme. New York's John F. Kennedy International Airport generated more than $1 billion in revenue in 2015, roughly 10 times what Raleigh-Durham International Airport booked that same year. Likewise, San Francisco International Airport's $111 million budget for repairs and maintenance was greater than the total revenue booked by roughly half the airports included in ACBJ's analysis.
So how does one decipher whether an airport is operating at a greater level of efficiency compared to its peers? According to Jeffrey Camm, the Inmar Presidential Chair in Business Analytics at Wake Forest University's School of Business, the answer boils down to identifying a consistent set of inputs and outputs that all subject airports share. From there, it's about accepting that no two organizations are ever exactly alike, and that outliers and exceptions will always sway the rankings. Essentially, it's all a bit of a back-of-the-envelope approach to measuring efficiency.
"There's always the potential for inconsistencies," said Camm, who compiled an efficiency-scoring system that was applied to ACBJ's rankings.
To determine which airports were getting the most bang for the buck, Camm used a slate of inputs (operating expenses, total employees) and outputs (passenger enplanements, total aeronautical revenue, total non-aeronautical revenue) that were consistent among all the operations analyzed. To account for significant size disparities, he then divided his findings into two buckets: airports with more than $100 million in revenue, and those with less.
The results, said Camm's former student and longtime aeronautics-industry consultant Doug Goldberg, certainly warrant some footnotes, but they are by and large what he has seen in the field. That is, the airports seeing the most growth and profitability are the ones investing in modernized spaces chock with retail and restaurants that can handle greater volumes of passenger traffic than their larger and, in many cases outdated, peers.
"By routing all these people through ... it drives a lot of that non-aeronautical revenue, and that is what's supporting a lot of these airports," Goldberg said.
GROWTH
Expansion played a primary role in ACBJ’s Power Rankings, particularly as it pertained to passenger traffic and profitability. No surprise, the two were closely correlated, particularly among airports that have invested heavily in nonflight-related revenue drivers such as restaurants, parking options and hotels.
A case in point: Dallas Love Field, which led all airports when it came to growth in enplanements (i.e., passenger boardings) and growth in non-aeronautical revenue. The airport, which is now home to a fast-expanding hub for Southwest Airlines, also ranked eighth in the category of operating income growth by roughly doubling its bottom line between 2010 and 2015. That was more than twice the 42 percent national average increase in operating income during the same span.
Hobby Airport has a similar story as Love Field with one major exception. Its enplanements increased 35 percent from 2010-2015, and it's also been tapped as an international hub for Southwest Airlines. However, while Love Field's expansion coincided with an approximate 1,900 percent explosion in the airport's long-term debt, the Houston Airport System decreased its debt during the same period for both its airports. The increase in borrowing saw Love's annual interest expense spike to $23 million from around $1 million — or a third of its total operating revenue. The result: Despite its breakneck growth, Love's borrowings pushed it to 16th place in the Power Rankings.
PROFITABILITY
Airports are capital-intensive and require significant reinvestments in the people, technologies and maintenance needed to stay competitive — all of which would seem to put the industry’s profitability under pressure.
Nonetheless, airport profits are booming. In 2015, the nation’s airports generated $7.03 billion in operating income, a 42 percent increase from 2010's total. During that same five-year span, operating margins improved to 35 percent of total revenue, versus 31 percent in 2010.
Hobby Airport and IAH are both profitable. Hobby posted $31.17 million in operating income in 2015, or 49 percent five-year growth, ranking it No. 20 among the surveyed airports. George Bush Intercontinental brought in $161.98 million in 2015, which amounts to a 14 percent increase during the same five-year period, ranking it No. 60 on the list.
Some airport operators have proved savvier than others when it comes to spending money to make money, or at least when it comes to squeezing each and every dollar of profit out of their existing resources. Those airports — particularly regional upstarts such as San Jose International and San Antonio International — scored particularly well when it came to ACBJ’s Power Rankings.
To account for size disparities, ACBJ’s Power Rankings also put particular emphasis on each airport’s ability to generate profit on a per-employee and per-passenger basis. The result: Larger airports scored well on profitability per employee — due in part to the fact that all airports need certain lines of jobs filled, regardless of their passenger capacities. Meantime, the ranking of airports on an income-per-passenger basis proved far more diverse.
Maintenance and repairs played a similar role in the rankings. At 81st-ranked Cincinnati/Northern Kentucky International Airport, maintenance and repairs spending plummeted by 77 percent during the five years analyzed. It was the same for Denver International Airport, which ranked 60th in part because of a five-year span that saw its maintenance and repairs budget slashed by 62 percent.
ACBJ's ranking methodology: ACBJ's Power Rankings were derived from a weighted formula that prioritized growth, particularly in the categories of non-aeronautical revenue, profitability and passenger enplanements, while also applying efficiency scores compiled by Jeffrey Camm, the Inmar Presidential Chair in Business Analytics at Wake Forest University School of Business.