The West sings the Denver airport blues
by Ray RingIt was billed as a black-tie gala: Denver's finest coming together to celebrate the grand opening of the city's new international airport. Nearly 4,000 people were trying to breathe life into the cathedral-like terminal building, where banquet tables had been set on a granite floor meant for the footsteps of millions of air travelers. A Philharmonic from Germany soared notes toward the 100-foot-tall tent ceiling. But it must have felt desperate.
Everybody knew that despite superhuman effort, the airport was in major trouble, setting a new definition of uncontrollable cost and still not ready - the first day of business had been postponed after the invitations to the gala were mailed.
Nevertheless, the celebration that night, November 19, 1993, went ahead. On a sound stage and a spread of giant TVs doing larger-than-life simulcast, Rita Moreno, Ben Vereen and the feel-good troupe, Up With People, sang and danced.
With the terminal filled by the amplified beat, the celebration took on aspects of a ritual, perhaps like the one American Indians in the West staged a century ago against defeat. Ghost dancing, it was called: If only the dancers could go long and hard enough, dancing beyond exhaustion and dizziness, the world would be theirs.
Today, more than a year and countless additional gyrations since the ribbon was cut, the airport planned as the primary hub of air travel in the West still isn't open for business. Shock waves will continue for years to come. Even if this airport can shrug off its baggage system from hell and the other little questions about cracking runways and a gauzy tent roof, even if it somehow manages to meet the latest readjusted opening date, Feb. 28, the immediate result will be that flying in and out of Denver becomes more expensive and more of a hassle.
"People will work around it'- by using other airports, or traveling by car instead of by plane, or just by staying home, says former Colorado Gov. John Vanderhoof. "It's really sad. I guess, as a state, we have to learn to live with terrible errors. The rah rah boosterism is born in society to some degree and every once in a while political leadership teams up with business and just gets carried away."
Denver wanted to build the grandest airport in the country. The airport may be so flawed that after a year, or five, or 10, of struggling operation, it won't survive. But this story is not so much about an airport that may fail as it is about a failed strategy. Denver's ambition may have gotten too big for the region it once led and lived off.
Cashing in on location
From its beginning, Denver went to great lengths to establish itself as the center of things, first in the Rocky Mountains, punching railroads and highways outward to promote mining and tourism. When air travel dawned in the 1920s, Denver wasted no time building the region's first significant airport, Stapleton. Traffic at Stapleton grew even faster than the population of the region, thanks to location and some air-travel industry tactics.
When the industry adopted a hub-and-spokes pattern, routing flights from hundreds of smaller airports into a few major hubs, Denver was the logical hub to collect traffic from the Rockies and high plains. Denver was also perfectly located as a pit stop and plane change for people flying across the country.
Cashing in on its longitude and latitude, Denver has been an unusual hub. Its territory is vast - even today, a 500-mile radius takes in only one other hub, Salt Lake City. Territories are tighter in the East: The same radius around USAir's hub in Pittsburgh takes in 21 other hubs. Denver's territory is sparsely populated, but the distance between towns is so great that there are more air travelers per capita. Westerners are more likely to fly than other Americans.
By the mid-1980s, Stapleton had grown up to be the only hub in the country claimed by three major airlines (Frontier, Continental and United). On the spoke routes that reached around the West, 30 airports as small as Minot, N.D., and Medford, Ore., fed nonstop into Denver; at the hub, long-haul connections could be made nonstop to Miami and Boston and 77 other cities coast to coast. The joke used to be, a Wyoming resident who died could get to heaven only by flying through Stapleton.
Not only was the service at Denver's old airport frequent, nowhere were the fare wars in the wake of deregulation more ruthless - and more advantageous to travelers. You could fly from Denver to New York for $69, Denver to L.A. for $49.
Attracting a horde of connecting flyers - at least half of Denver's traffic merely passed through - Stapleton climbed in the ranking of airports to be the sixth busiest in the U.S., seventh busiest in the world. Success has its dangers: Despite expansions of runways and the terminal, Stapleton could not shake a reputation for flight delays and overcrowding.
So, during the "80s, Denver's leaders were able to write a script in which the old airport faced more perils than Pauline: In the worst weather, all but one runway had to shut down! The only way to expand further was onto the poisonous Rocky Mountain Arsenal, a waste product of the chemical-weapons industry. Angry neighbors filed noise complaints. And the wolves of competition were closing in: Salt Lake City's mayor, Palmer De Paulis, said the long-haul flyers could make connections at his city's airport instead. "We'd like to fill that gap if Denver doesn't take the lead and build a new airport."
Denver's government mobilized its citizens with handouts that quoted De Paulis and trumpeted in bold headlines, "Stapleton is a bottleneck choking Denver's future ... Defend Denver's status ..."
It looked very much like an emergency. Never mind a few facts, such as, the FAA had okayed building more runways on portions of the arsenal that were not so polluted, and the noise problem was actually much smaller than at other major airports. Stapleton was also making a profit of $50 million to $80 million a year, and likely could have bought its way out of its problems.
Betting on a moment
Denver had motives for insisting on a grand new airport. The city's economy had gone bust with the oil industry. The air-travel industry seemed to be a substitute worth pursuing. And numerous experts told the city what it wanted to hear.
In chorus, consultants hired by the city and staffers of the booster-inclined Federal Aviation Administration predicted that the record spurt of air traffic through Denver would continue more or less unabated for the next 30 years. For their firmness alone, the predictions should have been suspect.
The air-travel industry in a nutshell: Most people fly by choice rather than out of urgency. When an airline inches up a fare, customers vanish. Controllable costs have to do with buying and maintaining a fleet of jets. On the uncontrollable end, any Saddam Hussein around the world can jack up fuel costs overnight. A crash begets nightmarish publicity and probably lawsuits. Deregulation replaced any shred of certainty with awesome swings in profit/loss and tactics. It's hard to imagine an industry that's less stable.
Denver might have been better off playing the Colorado State Lottery, where the odds against are at least known.
Worse, Denver bet on a moment of the air-travel industry. The fare wars of the early "80s could not be sustained. Around the country, airlines began to eat each other. Eastern, PanAm, Braniff disappeared. In Denver, the competition had forced fares so low that the airlines were operating at a loss, trying to hold market share until better times; the first loser was declared in late 1986, as Frontier (the historical favorite around the Rockies) went bankrupt. Suddenly the hub was down to two major airlines.
But Denver had already started pushing its new airport through a consuming political and construction process. Never mind that the airlines surviving at Stapleton raised fares to make a profit, and that the loss-leader fares had been an artificial stimulation. Instead of soaring, during the late "80s, Denver's traffic slumped more than 20 percent.
Today, Denver has not quite climbed back to the record air traffic it saw eight years ago, let alone matched the stratospheric levels once foreseen by the FAA and city consultants. Repeatedly during the slump, optimistic predictions have been reissued - and quickly proven to be bogus. Predictions now are for modest increases of traffic through Denver, which makes a new airport look more like a want than a need. Any optimism feels shaky.
Airlines grumble, one breaks
The very size of Denver's bet increased the risk. Denver International Airport sprawls for 53 square miles (larger than the sum of Chicago/O'Hare and Dallas/Fort Worth), so huge that radar will be used to track ground vehicles.
It's computerized from a 33-story summit (the country's tallest control tower) to the subterranean labyrinth that bustles with two railroads (one moving people from concourses to terminal, another for baggage). Much of it is experimental technology, difficult to master.
Delays and way more than the usual snafus (see accompanying story) have the total outlay approaching $10 billion - roughly one-third for land and hardware, two-thirds for finance charges, with a sprinkling of $8 million for art. It's said to be the most expensive public-works project ever tried in Colorado.
Airlines recoiled from the first whiff of the thing. Continental and United, which handled nearly all the traffic through Denver in the late "80s, insisted that the mega-airport was unnecessary and unaffordable. Their reaction deserved attention because Denver expects the airlines and their passengers to reimburse almost the entire $10 billion.
Airlines always get hit with some sort of bill for airport construction and operation, amortized per-passenger over the life of the airport. The bill always causes tension. Airlines sued Las Vegas over a glitzy new $300 million terminal that opened in 1986 (mauve motif, metal palm trees under a vaulted, mirrorlike ceiling). The suit settled with an adjustment of how the bill would be figured. But the airlines were more than tense about Denver's mega-airport. Continental's CEO, Frank Lorenzo, warned in 1989, "Denver will price itself out of the market."
The CEO was no kidder. The sucking sound over Denver three months ago was most of Continental leaving town. The airline, which had also been popular around the Rockies, went the way of Frontier and gave up hubbing in Denver. Continental was under stress, struggling through its own bankruptcy, evaluating the bottom line everywhere. The bill for the mega-airport was too much.
Compared to what airlines have to pay to operate at Denver's old airport, charges at the mega-airport will be triple or quadruple - which is why an unnamed executive of another airline grumbled to the Denver Post a few weeks ago, "I don't care if the damn thing never opens."
Continental is a broken presence in Denver now, managing just 22 flights a day where it once offered 285. When the mega-airport is looking for airlines to bill, it will feel the vacancy.
How not to create passengers
Denver's mega-airport was in jeopardy even at its conception, for the same basic reason any megaproject is. Namely, during the eight or 10 years Denver is taking to do its mega-airport, the rest of the world is changing at a faster pace. In particular, the air-travel industry has undergone several dramatic evolutions.
First the industry sought to save money by decentralizing, shifting flight operations from the half-dozen major hubs to dozens of smaller competing hubs in the likes of Phoenix and Las Vegas. Now the whole structure of the industry is being challenged by a new and extra-aggressive species: cheap-fare, no-frills airlines.
Spurning any hub-and-spokes pattern, these airlines exclusively fly routes that have the densest traffic (city-to-city, no service to smaller towns).
The leading no-frills, Southwest - the only major airline to make a profit from 1990-92 - proves once and for all that passengers care mostly about ticket price. Southwest doesn't merely lure passengers from other airlines, it creates passengers - by making flying so cheap, travelers abandon their cars.
When Southwest invaded Spokane International Airport in December 1993, enplanements (number of passsengers boarding at the airport) instantly jumped 32 percent. The price of flying round-trip Spokane to Seattle plunged from $200 to $78; Spokane to Portland went from $450 to $78.
Southwest has staked out the West, taking over one of its imitators, Morris Air, while expanding into airports in Phoenix, Las Vegas and Salt Lake City - the three largest hubs in the inland West, behind Denver's Stapleton. All three have shot up during Denver's slump: Traffic at Las Vegas/McCarran International has more than doubled; Salt Lake International's traffic is up 75 percent; Phoenix/Sky Harbor is up 50 percent.
"That's the overall benefit of having somebody like Southwest," says Buzz Hunt, marketing director at the Salt Lake airport. "They force competition (lower fares), and that stimulates all kinds of traffic for everyone."
Studies nationally have shown that other airlines slash their fares in half when they fly head-to-head against Southwest. But the Denver hub hasn't benefitted from the latest outbreak of fare-slashing and passenger-creating. The new, expensive airport means Denver has also priced itself out of the no-frills boom.
"To a low-fare carrier, costs are a paramount concern," says Linda Rutherford, a public information person for Southwest. Denver's mega-airport will charge airlines at least $18.50 per passenger. Southwest, flying on the thinnest profit margin, pays airports an average of one-sixth that amount (see graph below comparing airport charges).
To do business at the mega-airport, Southwest (or any other no-frills airline) would have to pass on the higher charges to its customers, thereby surrendering some competitive edge - which Southwest in particular is loathe to do. "Denver International is not an airport we would be looking at," says Rutherford.
So Denver has turned away another important airline it could have billed for passengers who now won't be flying.
The hub loses spokes
The mega-airport has also mistakenly taken for granted the support of the rural, small-town airports in Denver's territory. In the past, the rural airports have been dependent, connected to the rest of the world mostly through the Denver hub. But now people who die in Wyoming can get to heaven through other hubs. Rural airports are gaining some control of their destiny.
Pacing the increase of population and tourism throughout the region, many rural airports have upgraded their facilities and can accept more variety of planes - and airlines - than they could a few years ago. In Western Colorado, towns such as Montrose, Durango and Gunnison have been added to the list that can land full-size jets. And even at the smaller rural airports, an improved class of commuter planes is coming into service - carrying more passengers per flight, in more comfort.
Traffic at the rural airports is so strong, it also proceeds independent of Denver. Just measuring what passes through Denver, from 1986 to "93, while the total traffic through Denver/Stapleton slumped, the number of people boarding commuter airlines there nearly doubled. "Montana has been discovered," says Bruce Putnam, manager of Billings (Mont.) Logan International Airport. "There's a new group of people living out here that require (new levels of) air service."
At the same time, the mega-airport has strained Denver's hold on the territory. Spokes linking the hub to the rural airports have been reduced or eliminated, because when Continental pulled back, so did its commuter subsidiary, Continental Express - a primary provider of service to the ski resorts and other small towns. Other commuter airlines with a base in Denver have tried to fill in, but gaps have appeared where there used to be spokes.
Colorado's West Slope could see it coming. Worried that the commuter airlines would be hit especially hard, West Slope counties had asked that the mega-airport charge a lower per-passenger rate for commuters. "Most of us took a dim view" of the mega-airport, says Vanderhoof, the former governor who now works with Club 20, a business and political cadre of West Slope counties. "Most of us realized that it wasn't going to do any good for us."
But Denver (in the form of Mayor Wellington Webb) refused to bend its rate for the airlines that serve the rural airports. Just as Denver didn't care what the airlines thought about replacing its old airport with something grand, it also didn't care what the region thought.
Consider how that sits today with the ski resort, Steamboat Springs, Colo., which had designed its own new airport around a type of plane that only Continental Express flew. Steamboat has been left with no commercial service to its new airport. Tourists have to land at the Yampa Valley Regional Airport and take ground transportation another 45 minutes to reach the resort.
Aspen is only somewhat better off; the jet-set resort has been left with commercial service from a single airline partnership, United/United Express. Sherlock Holmes couldn't detect a discount fare. "United has no reason to discount flights here," says Reid Haughey, manager of Pitkin County (Aspen is the county seat). "United has a lock on this market."
The suddenness of Continental Express' disappearance has the rural airports re-evaluating their dependence on the Denver hub. On top of its recent instability, Denver has become a "fortress hub' - dominated by a single airline. The lord of the fortress, United, now runs nearly 70 percent of the action in Denver (with more than 10 times as many flights as the next-largest airline there). The reduced competition itself means higher fares, or less chance of a discount that other hubs offer - which also makes Denver less attractive.
Other hubs raid the territory
It's happening quickly. The rural airports are looking with more vigor to the West's other hubs. And those hubs, which have grown more powerful, have begun raiding Denver's territory - reaching into the rural airports with more competitive or new commuter flights that whisk passengers away from the Denver hub.
Ten years ago, every commercial flight out of Montrose, Colo., headed 150 miles to Denver. Now America West, from its base in Phoenix (more than twice as far away), is starting direct commuter flights to Montrose, twice a day, seven days a week. "So if you're westbound, that opens a whole new opportunity to use another hub," says Stan Broome, executive director of Region 10, a Montrose cadre that provides economic assistance and planning.
From the Salt Lake City hub, Delta and its commuter airline, SkyWest, are making a bid for Casper. The flight from Casper to Salt Lake now costs $70 less than the flight to Denver (even though Salt Lake is 120 miles farther away). Eddie Storer, manager of the Notrona County Airport in Casper, says, "I suspect more people from here might choose to fly through Salt Lake (to take advantage of lower fares). SkyWest would like to develop that Salt Lake traffic."
Ski towns are especially capable of turning elsewhere. With their deep pockets, they've started subsidizing direct long-haul flights into rural airports from cities far outside the region, such as Los Angeles, Houston and Chicago.
Denver is invisible to such flights, which bring in planeloads of skiers and, to some resorts, summer tourists. Typically the recreation flights more than pay for their subsidies, with the business brought in; some have proven so successful that subsidies don't have to be offered. Most run only once or twice a week in season, but a few years ago, all those passengers would have touched down in Denver, en route. That's no longer a given.
A West less interested in Denver
Denver didn't realize that the West's air travelers are more up for grabs than they used to be. Even without the imposition of a mega-airport, loyalties the rural West had for Denver have been getting slimmer and slimmer.
"I'll give you a different answer now than a few years ago," says Storer at the Casper airport. "There used to be more ties between Casper and Denver, when Denver had the regional minerals industry offices. But a lot of the regional offices have been pulled back to Houston and other places. We're not that tied to Denver now. I suspect it won't make a lot of difference to people whether they fly through Denver or Salt Lake to get where they're going."
Haughey, in Aspen, sees that Denver's imposition of a mega-airport on the region is backfiring. "In the days of low fares, people in Aspen would hop on a plane and go shopping in Denver. The loss of low commuter fares makes Aspen less of a suburb of Denver."
The president of the Club 20 cadre, Greg Walcher, agrees, "People here, in the hinterland, their level of commitment and interest toward Denver is just not what it was. The West Slope link to the rest of the world may not be through Denver. It may have far-reaching consequences, economic and social."
Any Disneyland charges admission
When and if Denver's mega-airport opens, it will at first probably be welcomed by many people - just for the relief from torturous limbo, if nothing else.
People go to Disneyland and they may also pay extra or go out of their way to see the concourses that are as long as 11 football fields, atriums decked out as jungled Mayan ruins, neon rainbows and the breathtaking translucent tent roof. Even the subway tunnels are decorated with art such as the 5,280 tiny propellers that whirl with the gust of each passing train (one propeller for each foot of Denver's elevation).
But the ultimate success or failure of the mega-airport will depend on the predatory forces of the industry.
Stapleton, the faithful old airport that will be retired the day Denver International opens, might have the ambiance of a high-school cafeteria, but you can step off your plane, retrieve your baggage from a tried-and-true baggage system, hop in a car and get to downtown in 12 or 15 minutes, to conduct your business or shopping or to cruise the brew pubs. Ten bucks covers the cab fare.
At the mega-airport, you'll have miles of extra taxiway and floor space to negotiate, you'll be dealing with a Frankensteinlike baggage system, and the drive to downtown will be five times as far. The cab fare will be triple.
All this not including the likelihood of still higher fares for the plane ride itself. Moment to moment, of course, airlines go through incredible convolutions discounting fares to targeted customers. Fares seem to rise and fall by magic. But at the mega-airport two powerful facts will converge: United, already feeling less competition, will be hit with a higher overhead.
The power of the mega-airport to assess higher fares will be determined somewhat by geography. People from outside the region who are flying long-haul - say, from coast to coast - will simply adjust and pass through another hub (Dallas/Fort Worth or Salt Lake City or Minneapolis) if the fare for using Denver rises significantly.
Within the region, the shorter-haul connecting flyers will feel it: People in Montana and Wyoming may be willing to pay extra to fly through Denver on their way to Texas, paying for the convenience.
"I think Denver is still going to see a lot of connecting traffic from the northern tier (of the Rockies)," says Putnam, manager of the Billings airport. "Denver is located strategically (as a connecting hub), better than Salt Lake City or Minneapolis, for flying to certain destinations - a difference of $20 or $30 is not that much on a $300 to $400 ticket."
Commuters - people from the small towns who have downtown Denver as a destination - will also have to pay in terms of time. The mega-airport will add an hour or two to their trip (the time it takes to negotiate the larger airport and the longer cab or bus ride to downtown). It's likely that people setting out from the Caspers and Grand Junctions, within a half-day's drive of Denver, will shift, making more commutes by car.
"You use an airplane to save time," says Vanderhoof. "If you add an extra hour each way when you fly, you might as well drive the whole distance." So in a reverse of the Southwest/no-frills effect, the mega-airport will likely put more Westerners into cars.
In a sense, the mega-airport will encourage trends that are already undermining it. "Business travel has gotten frugal," says Joseph Schwieterman, a former pricing analyst for United who now heads an infrastructure planning institute at DePaul University. "The age of consultants flying around the country and traveling salesman flying 200,000 miles a year is over.
"At a time when the airline industry is really pinched," Schwieterman says, "Denver is bucking the trend by putting up such a lavish facility."
Making more enemies
Denver, and United, hope to maintain a hold on air travelers from the metro area. But even there the industry has not stood still.
Colorado Springs has just opened a new but nonmega-airport ($140 million, completed on time, under budget), handy to suburbs and tech centers on Denver's southern fringe. "Our fares are now competitive with Denver's," says Gary Green, aviation director in Colorado Springs. "We're going to see a dramatic shift in the service we're offering here, and we expect we'll draw people in."
Colorado Springs' new airport is slated to be the hub of a new no-frills airline, Commerical Air. The airport doesn't yet offer the frequency and variety of flights that businesss travelers prefer. But many people will drive 50 or 100 miles to save relatively few dollars on a plane ticket; people in Tucson, for instance, routinely avoid their airport and make the 100-mile drive to the hub in Phoenix, where fares are lower. Saving just $20 or $30 per ticket adds up for a family of four, or a staff of any size.
Other Front Range airports are not taking orders from Denver or United. There is talk of inviting Southwest or some other no-frills into suburban Jefferson County Airport, which is more convenient to downtown Denver than the mega-airport is. In suburban Arapahoe County, Texas businessman John Andrews is being stubborn about trying to launch a new no-frills airline at Centennial Airport. (Some no-frills airlines are struggling for a niche at the mega-airport, but they'll be paying the higher overhead and will be at a disadvantage to any airline operating at a competing airport).
However they can, people will find alternatives.
If the mega-airport can't attract enough passengers, it may have to renege on financial promises. To raise the bulk of the money for construction, the city has floated one bond issue after another, borrowing a total of more than $3 billion at high rates of interest (8 to 14 percent because the deal looked so shaky). The city isn't backing the bonds. The airlines and passengers must pay off the bonds, as well as paying to operate the airport.
If the mega-airport can't pay off its investors, it'll have to default on the bonds (screwing the investors) or go begging for a taxpayer bailout (screwing everybody). Or there could be a combination default/bailout/mud wrestle.
So the airport that was going to save Denver's economy may have to be rescued by the economy. Luckily, the economy, buoyed by real estate and computer firms, has recovered nicely on its own. Depending on how it's structured, a bailout would gouge taxpayers in Denver, the state of Colorado, or the country for millions or billions. A bailout and/or default would sully the business reputation of Denver and Colorado, making it harder to borrow money with bond issues for future megaprojects.
"One thing the new Denver airport has done is sour the atmosphere for a proposal to build a new airport here in Chicago," says Schwieterman. "Now people say, "It could be another Denver." "
So who said no good would come out of all this?
It could turn into tumbleweeds
It's tempting to quote the many critics who list Denver's many mistakes yet almost universally work their way around to volunteering, "You know, 20 to 25 years from now, we're going to look back and congratulate ourselves on having built a world-class airport."
It's become the conventional wisdom from people like Denver investor Alex Crutchfield, who says, get real, any megaproject takes its lumps. "Whenever there is change, whenever there are massive relocations, people rend their garments, gnash their teeth, do ashes and sackcloth ... And then all of a sudden, what were seen as problems become opportunities. It happened to every megaproject from the beginning of history, from the first Roman roads to the Empire State Building (which opened on the eve of the Depression) to the Chunnel (the money hole under the English Channel)."
After all, don't megaprojects typically miss their opening dates, look shaky as they come on line, then new investors buy in at 25 cents on the dollar, and after a while everything is running smoothly? Didn't the ancestor to Denver's mega-airport, old Stapleton (which also got whacked by the Depression) ride out the same sort of finger-pointing?
Won't there eventually be a need for a mega-airport in Denver with five full-size runways leaving no compass direction unfaced? At least the thing is more or less built, more or less a done deal. The next time Denver has to address its air-travel needs, it'll be building a space-port.
What the conventional wisdom overlooks is how the oil shale megaproject in Colorado turned billions of dollars into tumbleweeds. So did two of the five WPPSS nuclear plants in the Washington state debacle. There is such a thing as an entirely bad idea.
The expense of operating and maintaining such a contraption kingdom as this airport (which still hasn't been made to work), plus the loan-shark interest, may prove to be more than any airlines and passengers and taxpayers can bear over the long run.
Cue the ghost dancers. n
Ray Ring is HCN's senior editor.
In addition to interviews for these stories, Ray Ring drew on studies by aviation consultants, the FAA, the Air Transport Association of America, the American Association of Airport Executives, the General Accounting Office and other federal agencies, as well as city and airline documents and eight years of other news stories in publications ranging from Denver's Westword to Airline Business magazine.
This article was supported in part by a grant from the Onaway Foundation. © High Country News