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HIA glides among the aces, as similar airport LVIA struggles under debt and intense regional competition

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Lehigh Valley International Airport in Hanover Township, Lehigh County, loses many potential passengers to major airports in Philadelphia and Newark, N.J. Photo/Steve Williams, Flight Quest Aerial Photography
Lehigh Valley International Airport in Hanover Township, Lehigh County, loses many potential passengers to major airports in Philadelphia and Newark, N.J. Photo/Steve Williams, Flight Quest Aerial Photography

By some key measures, Harrisburg International Airport is winning the fight for air supremacy.

At the very least, it has a good opportunity to be the go-to airport for people in Central Pennsylvania, considering what it's doing right compared with the problems plaguing similarly sized airports, such as Lehigh Valley International Airport just 90 miles to the east in Lehigh County.

HIA has a reliable roster of seven airlines, a manageable credit rating, additional sources of revenue and a prime location near 1 million people, but it's still far enough from major airport competition. Add to this a consistent base of passenger traffic and the midstate's airport in Lower Swatara Township, Dauphin County, emerges as an economic model for others.

In contrast, LVIA is too close to major airport competitors, has a large payroll, is saddled with $14 million in debt from a 1990s lawsuit, goes through carriers at a rapid rate and doesn't have a credit rating.

The result is that, despite proximity to about 1 million potential travelers in the Greater Lehigh Valley, LVIA's limited airline and route choices pushes many travelers elsewhere.

Fewer passengers means fewer carriers and a seemingly ever-changing lineup of airlines in those slots — which, in turn, leads to fewer passengers.

It's a cruel cycle, one that HIA is familiar with, yet has fewer problems managing.

"For long-term fiscal sustainability, you have to look at doing business differently," said Charles Everett, executive director for the Lehigh-Northampton Airport Authority, which owns and operates LVIA.

Here's a closer look at the two airports and why HIA is well-positioned for the future.

HARRISBURG INTERNATIONAL

Location

HIA is about 110 miles from Philadelphia International Airport and 90 miles from Baltimore-Washington International Airport. These distances are enough to give the Harrisburg-area traveler pause before booking a flight at those major airports.

Although BWI and Philadelphia are competitors for HIA, Harrisburg's leakage rate is 35 percent — only half that of LVIA's, said Timothy Edwards, executive director of the Susquehanna Area Regional Airport Authority. The authority owns and operates HIA and three other smaller airports in the region.

In 2012, HIA had 1.3 million passengers, an increase of 1.1 percent over 2011.

"Our goal here is to see if we can increase the percentage of passengers," Edwards said.

Credit rating

HIA's credit rating as of December 2012 ranged between Baa3 and Ba1, Edwards said.

The ratings are low, but just having a credit rating gives potential investors some sense of security and makes it easier to issue a bond to pay for an improvement or capital project. HIA does not need to pay for bond insurance, Edwards said.

"We're able to get things done and react to new market forces almost immediately," he said.

Outsourcing

With 96 employees — 87 of them full time — HIA carries a much lighter employee payload than LVIA, which helps the airport's bottom line.

HIA does not have its own employees performing baggage claim duties or fuel services to airlines.

"That's all done by the airlines themselves. They either do it themselves or handle it through competitive bid process," Edwards said.

The airport pays an annual fee to an organization that manages its parking operations, but the airport still collects annual revenue. In 2012, it collected $7.5 million, Edwards said.

Additional revenue sources

Although the vast majority of HIA's revenue is directly or indirectly from airline activity, the authority generates revenue from nearby property that it owns.

To generate revenue, the authority tries to develop property assets, leases, concessionaires and rents for other properties.

"We own a 22-acre parcel of land across the street from the terminal building that formerly served as the airport parking lot," Edwards said. "We're currently working with Sheetz (convenience stores) to develop approximately 2.8 acres of that land. Another developer is interested in developing the remaining property as mixed-use commercial property."

Two other nontraditional sources of revenue are a water plant and wastewater treatment facility owned by the authority.

In 2012, the authority generated $264,000 from its water plant and $265,000 from its sewer facility, said Becky McCrone, staff accountant for the authority.

"We do sell water to outside sources. United Water is our biggest customer," Edwards said.

In contrast, LVIA's best source of nontraditional revenue is $140,000 annually for agricultural companies that lease authority land to grow corn and soybeans.

"When we see opportunities for additional revenue, we are not shy about going out and grabbing it," Edwards said.

LEHIGH VALLEY INTERNATIONAL

Location

LVIA is just 70 miles from the Philadelphia airport and 76 miles from Newark Liberty International Airport in New Jersey. Both provide attractive alternatives to Lehigh Valley travelers.

"This geographic situation causes the air service region to be hyper-competitive, particularly for a small-hub airport like Lehigh Valley International," Everett said. "The impact is leakage ... to these larger airport facilities."

The airport's leakage rate of potential customers to Philadelphia and Newark is a hefty 70 percent, twice that of HIA.

Everett said the major airports have numerous low-cost carriers and high-frequency service to destinations. Travelers are willing to drive the distances to take advantage of a cheaper fare, and it shows.

In 2012, 723,556 passengers used LVIA, or 17 percent fewer than the year before, and an even bigger decline compared with 2004, the last time passengers topped 1 million.

Credit rating

LVIA's lack of a credit rating hinders the airport's ability to issue bonds and pay for projects. Without it, the authority is forced to pay a premium to issue bonds and obtain bond insurance, Everett said.

Bond insurance covers principal and interest payments in the event of a default by the borrower. It can be expensive and difficult to acquire for airports, he said.

"We will certainly be pursuing a credit rating and going out to market; that will be contingent on the bounce-back in passenger traffic," Everett said.

Given the loss of passengers and revenue in 2012, the authority would be considered a high credit risk, he said.

"We're trying to improve cash flow and identify additional revenue sources," Everett said. "We've actually talked to banks and bonding. ... It doesn't look good at this point."

Not outsourcing

LVIA employs 105 full-time and 65 part-time workers at LVIA, with most work handled by its own employees.

Outsourcing duties is an area the authority is examining, since there's a perception that reducing labor costs would make the airport more efficient, Everett said.

"Those are questions we are trying to answer. Labor is expensive," he said.

The authority outsources some work, including some maintenance support duties, consultants for engineering, planning and architectural services, as well as acoustical experts and legal services.

The authority is considering outsourced parking and fixed-base operations, which sells fuel to airlines and tenants, as well as provides hangar and ground-handling services, ticketing, customer service and baggage to the airlines.

Since 2004, the authority has also served as the fixed-base operator for general aviation (smaller aircraft), providing services for hangars and fueling.

Major debt

With $14 million in debt to pay off by 2015 — the result of several court judgments dating to the 1990s — LVIA is looking for ways to make payments on time while balancing the financial needs of operating the airport.

In October 2011, the authority received the most recent judicial order to pay $16 million by 2015, Everett said. So far, the authority paid $2 million of that debt and will pay an additional $3 million by December.

The judgments stem from a lawsuit by a landowner who wanted to build on his property but was stymied because the airport authority wanted to buy the land for another runway, which was never built.

The settlement has implications for many aspects of operating the airport, even causing higher costs to be passed on to consumers, Everett said. The debt payments also affect capital funding and long-term investment strategies, making new revenue sources critical for the airport.

Central Penn Business Journal staff reporter Jim T. Ryan contributed to this article.

Write to the Editorial Department at editorial@cpbj.com

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