By João Machado
Part 1: DFW’s EVP of Global Strategy and Development Discusses Post-Covid Growth
Going forward after a pandemic that devastated the airline industry, the role of airports are greatly underestimated.
During the World Routes 2021 event in Milan, however, airports made clear that they want to be an active player in the recovery, and Dallas-Fort Worth was not an exception.
AirlineGeeks had the chance to sit down with the airport’s Executive Vice President of Global Strategy and Development, John Ackerman. The half-hour talk will be divided in two parts. Here’s the first part of our discussion.
AirlineGeeks (AG): How has COVID changed your operations?
John Ackerman (JA): Wow that’s a good question. So just from a flight buy-in perspective, like all the other airports in the world our passenger volumes dropped precipitously, you know, almost overnight.
In April, we were down about 92% for passengers [versus 2019], in April of 2020. But since then the passenger volumes have actually recovered fairly strongly. We’ve recovered faster than almost any airport in the world, so we’re very, very grateful for that.
AG: There [were] no passengers. So how do you attract customers?
JA: Well, I mean, the passenger demand has come back. We were very fortunate the United States market on the domestic side actually stayed.
In summer of 20, just like everything else it dropped, but the domestic market actually came back fairly strong in the US, our Mexico market stayed very strong. In this year, our domestic traffic has been very, very, strong. Our international traffic on the other hand is still down quite a bit. As far as attracting, what we did to attract customers in the airport; we knew that if the customers didn’t feel safe, they would be less likely to travel. So we have installed UVC technology and UVC light sterilization technology.
We have that in all of our terminals are fully UVC [covered] now. So you’re breathing much healthier air. We were the first airport to get the GBAC certification, which is the Global Biorisk Advisory Council, I believe; and it’s an international standard for sanitization and cleanliness.
We knew that we couldn’t just say “hey, DFW says that we’re clean” because, you know, who knows? I mean, everybody’s going to say that. So we wanted an independent international standard to validate it. So we did that like everybody else, you know, we made sure that there were, you know, distant social distancing markings and things like that, but we did everything we could to tell our customers that we’re keeping [them] as safe as possible. So we worked very hard at that to try to restore the consumer trust and the consumer confidence in air travel.
AG: What about the airlines? How do you attract new airlines?
JA: Well, the airlines we attract with the strength of our market. I mean, actually the pandemic in some ways has helped us there because as I mentioned earlier, we recovered faster and stayed stronger than almost any other airport in the world.
I mean, we’re one of only two airports in the world that has more net destinations now than we did before the pandemic. So I think the airlines look at the demand, they look at the local economy, they look at a number of different factors and by almost any measure, DFW has again done better than most airports in the world. So that’s been a huge advantage for us. So we’re selling the strength of our market and our market has remained very strong.
AG: So is your job easier than others’ in any sense, compared to other airports’?
JA: You know, I think all the airports worked very hard to attract traffic. I think that the facts base that we have, give us an advantage over some of our competitors, but everybody’s there, there’s many great cities and great airports around the world.
We’ve done very well during the pandemic, but we don’t want to be arrogant. We don’t want to be cocky, you know, we did well because we just didn’t do as badly as everybody else. So it’s not something that we’re celebrating, you know, it’s still a tough business. And we also know that even when we see, when I say that our traffic is back, what we also know, and this is really important, is that the airlines may be getting their passengers back, but the yields are still depressed.
So for an airport I really just need the passenger because then I could sell them food, they could shop in my stores, they could rent cars, they can park. So the passengers [are] the same to me before the pandemic or after the pandemic; for the airlines, they need the passenger to be paying 2019 yields, a raise as opposed to 2020 or 2021 with yields.
So we recognize our recovery is not the same as the airline wreck, the underlying airline economic recovery. So [to say] “you are almost fully recovered”… No, I would not say that, we’re still down this year, this month we’ve forecasted that we will be down maybe 10% to 20% compared to 2019.
We’re getting close but we’re not fully recovered yet. We think our domestic network will be fully recovered by next summer, more or less, and we think international long haul is one to two years away from a fully recover.
AG: In financial terms, you are already profiting.
JA: We received government assistance, so we stayed very strong, financially. And we were actually able to, this year, we just closed out our fiscal year that ends on Sept. 30. So we just closed it out a couple of weeks ago and we did a lot better than our budget, and we were actually able to take some of the extra money that we earned.
And actually, for the month of September we had no landing charges for the airlines. So it was about a $9 million benefit that we just returned to our airline partners because we did better than we expected and the airlines are still suffering. So we wanted to help out our airline partners as much as possible.
AG: For you guys, is it a blessing or a curse to depend too much on one airline? I mean, American Airlines in your case.
JA: You know the business professors would tell you that having more than 80% of your eggs in one basket is a risky thing – and there is some truth to that, just in general.
But we consider American Airlines to be a major blessing; without American we would not have the route network that we have. We would still have a very strong network, we’re Dallas-Fort Worth, the fourth largest Metro area in the United States ,and we’re the fastest growing. So we believe we’d have a strong market and network anyway, but there’s no question that American Airlines operating their biggest hub and their headquarters at DFW is a tremendous advantage for us.
AG: But at the same time, you want more airlines. So how do you see the advance of ultra low costs into the major airports in the US?
JA: You know, what we’ve seen is that when some of the carriers come in, they’ll stimulate the market. So there’s extra people flying so that the pie gets bigger for everybody. So we think that the DFW market is a big enough market in a rich market – and a strong enough market.
There’s plenty for everybody, I guess you could say. I mean, people forget [when] we talk about DFW Airport [that] we have another great airport, right in Dallas, Dallas-Love Field; that airport, pre-pandemic was [at] 17 million passengers [a year]. So that’s a big airport just by itself that’s just 15 miles away from us.
AG: But is there some sort of conflict of interest? Let’s say Spirit increases their operations in Fort Worth, but American is concerned about it, I suppose. How do you deal with these things?
JA: We don’t have anything to do with airline pricing and the way the airlines compete. The airlines work that out amongst themselves and they compete, they all compete vigorously against each other. So we don’t have anything to do with that. When a new carrier comes into another’s market there’s usually a competitive response and the competition kind of settles down, but we don’t, we don’t take a position on that.
What we do do, though, since we’re at [World] Routes, I think this is important. Many airports offer service incentives, for starting new service. And we do the same. We have a very generous incentive program, but many airports will go for an incentive to everybody who flies a given route. We’ve taken the position that if you’re an airline who wants to start a new route, we provide an incentive and you are successful on that route and you prove that that market works and you grow that market and stimulate that market.
When another airline come, [it] says, “Hey, that’s a good market, now I see that’s a good market, I want to fly it.” Many of the airports will give an incentive to the second airline. We have taken the position that if you’re an airline that has the vision to recognize a new market and take a risk on that new market and you develop the market, then if I pay your competitors to fly that market, I’m not being a very good partner to you.
I mean, you flew the market, you took the risk, you did all the work. And as soon as you make it work, someone else jumps in and I give them incentive as well. That doesn’t make it. I don’t think it makes any sense for an airport, to be honest with you, but it certainly doesn’t make any sense for the airlines incentive strategy work.
So we offer incentives for any unserved market. We have target markets that are strategically important to us that we actually offer a 25% bonus incentive on top of our normal incentive. You can get 25% additional for certain target markets. And we publish those on our website. Everybody knows what they are – so if there’s a big enough market, it may need more than one flight per day and may need two flights per day. But in general, we only provide incentive for unserved or underserved markets if the market’s already established, and there’s no reason to pay an incentive for it. And again, it just harms the existing carriers.
AG: So you work more on a route-to-route basis, rather than attracting new airlines. You are more interested in a new city pair that in a new airline.
JA: We want both usually, but no, the city pair is, I think what’s most important. We don’t look at an airline and say, “Wow, we’d like to have [it] yeah”.
Or, you know, SAS, we don’t look and say, we want SAS. We might look into – and I’m just offering an example here – Stockholm to DFW. If we looked at that market, what we first did was we looked at a market and we say, okay, does the market work? And then once we figure out that the market works, then we look at who would be the best carrier, who would be the most likely carrier to fly that.
So in my example of Stockholm-DFW, we would talk to American because they might want to fly it. We’d also talk potentially to SAS, you know? So we look at a market, a city pair, and then we look at the airline to see which airline best fits that market.
AG: So when you go pitch to an airline, a new market, you just say, “oh, hey, we want this route”, or you say, “oh, we want this route and we offer this, this and that incentives”?
JA: Yes, we do both. When we work with a new airline, typically we have a professional airline relations team. So we typically have at least some relationship with many, many airlines.
I mean, dozens and dozens of airlines we’re already acquainted with, and we know people in their planning departments and their strategy teams. But we would go to them and we would say “we have data.” We’re very big on data. I have an entire data team. So we go in with the data because you can tell all the stories you want, but when you talk to a network planner, they want data.
They’re very quantifying people. So you have to have the numbers. So we go in and we will show them all the data and prove to them why that market would work for that carrier. And then as part of that presentation, we would also tell them that if you’re willing to try this, we will put some of our money in.
We want to have risk as well. We want to be taking risks with our money because the airline is taking, you know, it’s a big investment for an airline; there’s risk in starting new routes. It’s a multi-year maturation process for the economics of that route.
So we would talk about the incentive with them, but we talk about the incentives only at the end. It’s very deliberate. We first talk about the underlying route economics and the data. And then we talk about the incentives because there’s no airport in the world that can afford to completely subsidize a route.
The incentive is designed to help in the riskiest phase, the startup phase. And it’s also designed to signal to the airline that we’re putting our own money into this, so it is important to us as well, that we want the airline to succeed.