Building A New Denver Airport

Building A New Denver Building A New Denver AirportAirport

Adam Danczyk, Saif Jabari, Adam Danczyk, Saif Jabari, and Matthew Forsythand Matthew Forsyth

HistoryHistory

Benjamin F. Stapleton, Mayor of Denver in Benjamin F. Stapleton, Mayor of Denver in 1920s, desired a new airport.1920s, desired a new airport.

Site was selected six miles east of Site was selected six miles east of downtown because of low development in downtown because of low development in area and land price values.area and land price values.

Stapleton had opposition from City Council. Stapleton had opposition from City Council. Denver Post called idea “Stapleton’s Folly” Denver Post called idea “Stapleton’s Folly” and “Simpleton’s Sand Dunes.”and “Simpleton’s Sand Dunes.”

HistoryHistory

Mayor Stapleton beat the Mayor Stapleton beat the opposition. On March 25, opposition. On March 25, 1928, the City Council 1928, the City Council approved airport construction.approved airport construction.

Cost of the airport was Cost of the airport was $430,000 and it opened in $430,000 and it opened in October 1929.October 1929.

HistoryHistory

Airport was an immediate financial success.Airport was an immediate financial success. Amelia Earhart stopped at airport during a Amelia Earhart stopped at airport during a

cross-country escapade.cross-country escapade. The first control tower in Denver began The first control tower in Denver began

operations in 1938.operations in 1938. Mayor Stapleton was given full recognition Mayor Stapleton was given full recognition

by renaming in Stapleton Field.by renaming in Stapleton Field.

HistoryHistory

The Jet Age became a reality in the 1950s The Jet Age became a reality in the 1950s and Stapleton Airport became more and Stapleton Airport became more successful.successful.

By 1985, Stapleton had grown to 4,700 By 1985, Stapleton had grown to 4,700 acres.acres.

Trouble On The HorizonTrouble On The Horizon

Stapleton Airport began having trouble in the Stapleton Airport began having trouble in the 1980s.1980s.

Inadequate runway separation caused difficult in Inadequate runway separation caused difficult in landing coordination during low visibility weather, landing coordination during low visibility weather, causing delays.causing delays.

Local opposition erupted over noise complaints.Local opposition erupted over noise complaints. Threats of legal action by Adams County Threats of legal action by Adams County

prevented further expansion into the Rocky prevented further expansion into the Rocky Mountain Arsenal Lands.Mountain Arsenal Lands.

Show Me The Money!Show Me The Money! In September 1989, Denver Mayor Federico Peña got approval for In September 1989, Denver Mayor Federico Peña got approval for

construction of a new airport.construction of a new airport. Peña was harshly criticized by opponents of spending too much money Peña was harshly criticized by opponents of spending too much money

on large-scale projects.on large-scale projects. Besides the airport, Mayor Peña’s leadership hosted a Grand Prix, built Besides the airport, Mayor Peña’s leadership hosted a Grand Prix, built

a new convention center, and authorized the construction of a new a new convention center, and authorized the construction of a new baseball stadium.baseball stadium.

Denver residents suffered the bills of these endeavors.Denver residents suffered the bills of these endeavors. Airport initially was to be built by 1993, but poor planning and frequent Airport initially was to be built by 1993, but poor planning and frequent

design changes pushed it back to 1994.design changes pushed it back to 1994.

Federico Federico PeñaPeña

If At First You Don’t Succeed…If At First You Don’t Succeed… In April of 1994, the city invited reporters to In April of 1994, the city invited reporters to

observe the first test of the new automated observe the first test of the new automated baggage system.baggage system.

Reporters got to witness luggage fly off the tracks Reporters got to witness luggage fly off the tracks and personal items vanish in the tunnels.and personal items vanish in the tunnels.

Better Late Than Never?Better Late Than Never?

The luggage system fiasco prompted further The luggage system fiasco prompted further delays in opening. Engineers worked on the delays in opening. Engineers worked on the system and opened finally in February 1995.system and opened finally in February 1995.

The project was now 16 months behind The project was now 16 months behind schedule and 2 billion dollars over budget.schedule and 2 billion dollars over budget.

Stapleton Airport, under the agreement Stapleton Airport, under the agreement made with Adams County, was forced to made with Adams County, was forced to close for good.close for good.

Problems with DIAProblems with DIA Underestimation in Underestimation in

passenger service.passenger service. ““Second Largest” Second Largest”

ClaimClaim Higher Cab FaresHigher Cab Fares Higher Parking FeesHigher Parking Fees Intense Wind StormsIntense Wind Storms

Higher Landing FeesHigher Landing Fees Drain on Denver Drain on Denver

EconomyEconomy White “Circus Tent” White “Circus Tent”

RoofRoof Congested Access Congested Access

RoadsRoads New World Order New World Order

ConspiracyConspiracy

Charleston, South Carolina Daily Mail Headlined, “Denver Airport Great If You Don’t Live In Denver.” (Date Unknown)

Have the Benefits Surpassed The Have the Benefits Surpassed The Costs?Costs?

DIA is 5DIA is 5thth busiest U.S. Airport, 10 busiest U.S. Airport, 10thth Worldwide.Worldwide.

23 Passenger Airlines operate at DIA23 Passenger Airlines operate at DIA Over 42 million passengers in 2004 Over 42 million passengers in 2004

(13% increase over 2003.)(13% increase over 2003.) J.D. Power & Associates named DIA #1 J.D. Power & Associates named DIA #1

airport in the U.S. in customer airport in the U.S. in customer satisfaction, #2 in the world.satisfaction, #2 in the world.

In 2004, the FAA ranked DIA first in In 2004, the FAA ranked DIA first in major airports for on-time arrivals.major airports for on-time arrivals.

Future Aircraft Potential with 16,000 foot Future Aircraft Potential with 16,000 foot runway (16R/34L).runway (16R/34L).

The Automated Baggage System is The Automated Baggage System is deemed a failed experiment and has deemed a failed experiment and has been completely abandoned this year been completely abandoned this year (2005).(2005).

Cost OverrunsCost Overruns November 1988: Conceptual estimate of November 1988: Conceptual estimate of $1.34 billion$1.34 billion 1989: Bid solicitation began without input 1989: Bid solicitation began without input from the airlinesfrom the airlines February 1994: Costs increased to $2.92 February 1994: Costs increased to $2.92 billionbillion March 1995: Construction costs go over March 1995: Construction costs go over $3.00 billion, total costs over $4.80 billion$3.00 billion, total costs over $4.80 billion

Total Costs to Construct DIATotal Costs to Construct DIACategory Cost

(Dollars in millions) Cost to Denver Airport System Construction 3,004 Airport Planning and Land 261 Capitalized Interest 915 Bond Discounts 43 Total Cost to Denver Airport System 4,223 Cost to Others FAA’s Facilities and Equipment 199 United Airlines’ Special Facilities 261 Continental Airlines’ Special Facilities 73 Rental Car Facilities 66 Total Cost to Others 599

Total Cost of Denver International Airport 4,823 Source: United States General Accounting Office. (1995). Denver International Airport.

(GAO/T-RCED/AIMD-95-184). Washington D.C.

Scope ChangesScope ChangesOriginal conceptual design:Original conceptual design:

Four runwaysFour runways Two ConcoursesTwo Concourses 78 Gates78 Gates Two-module terminalTwo-module terminal A conventional baggage A conventional baggage

handling systemhandling system

DIA opening facilitiesDIA opening facilities::

Five RunwaysFive Runways Three ConcoursesThree Concourses 94 Gates94 Gates Three-module TerminalThree-module Terminal An automated baggage An automated baggage

handling in Concourse B handling in Concourse B and a conventional and a conventional baggage handling system baggage handling system throughout the rest of the throughout the rest of the airportairport

Construction DelaysConstruction Delays DIA was planned to open in October 1993DIA was planned to open in October 1993 In March 1993 the city announced that opening would be In March 1993 the city announced that opening would be

delayed to December 1993delayed to December 1993 In October 1993 the city announced that opening would be In October 1993 the city announced that opening would be

delayed to March 1994delayed to March 1994 In February 1994 the city announced that opening would In February 1994 the city announced that opening would

be delayed to March 1994be delayed to March 1994 In May 1994 City announced indefinite postponement of In May 1994 City announced indefinite postponement of

openingopening DIA finally opened on February 28, 1995DIA finally opened on February 28, 1995

Construction DefectsConstruction Defects Airfield pavement defects: 14,838 of 32,000 concrete Airfield pavement defects: 14,838 of 32,000 concrete

panels inspected had defectspanels inspected had defects

Cracks and water damage problems found with air traffic Cracks and water damage problems found with air traffic control facilitiescontrol facilities

Type of Pavement Problem No. of Panels Affected Clay Contamination and Panel Cracking 3,009 Tie Bars Improperly Installed 10,374 Dowel Bars Improperly Aligned and Attached 1,000

Total 14,383

Source: United States General Accounting Office. (1995). Denver International Airport. (GAO/T-RCED/AIMD-95-184). Washington D.C.

The Automated Baggage Handling The Automated Baggage Handling SystemSystem

System Components:System Components: 4,000 Destination Coded 4,000 Destination Coded

Vehicles (DCV)Vehicles (DCV) Over 19 miles of DCV trackOver 19 miles of DCV track Automatic scannersAutomatic scanners Over 5 miles of ConveyorsOver 5 miles of Conveyors

Problems with the system:Problems with the system:

Baggage jams undetectedBaggage jams undetected Overloading of DCVsOverloading of DCVs Conveyors and DCVs not well Conveyors and DCVs not well

synchronizedsynchronized DCVs locked together when DCVs locked together when

they collidedthey collided Poor empty DCV managementPoor empty DCV management

The Automated Baggage Handling The Automated Baggage Handling SystemSystem

GAO ObservationsGAO Observations

GAO recommendations to avoid future cost GAO recommendations to avoid future cost overruns with similar projects:overruns with similar projects:

The airlines should be involved during The airlines should be involved during designdesign

Alternative or backup systems should be Alternative or backup systems should be incorporated in design when dealing with incorporated in design when dealing with new technologynew technology

A more vigorous quality control and quality A more vigorous quality control and quality assurance programassurance program

Economic Impact Of Economic Impact Of Airports in ColoradoAirports in Colorado

79 public use airports accounted for 23.5 79 public use airports accounted for 23.5 billion dollars of the Colorado economybillion dollars of the Colorado economy

Approximately 280,000 jobsApproximately 280,000 jobs DIA was responsible for 72% DIA was responsible for 72%

– 16.8 billion economic activity16.8 billion economic activity– # 1 in Low Cost Carrier(LCC) growth# 1 in Low Cost Carrier(LCC) growth

LCC’s Servicing DenverLCC’s Servicing Denver

Air TranAir Tran America WestAmerica West ATAATA FrontierFrontier JetBlueJetBlue SpiritSpirit SouthwestSouthwest

These LCC’s service approximately 50 destinations with non stop service and make up roughly 20% of passenger at DIA.

Denver’s High Propensity to TravelDenver’s High Propensity to Travel

YE 2003 Domestic O&D Overall O&D per Hub Population 2000 Metro Area Domestic O&D PassengersPopulation Rank Metro Area Rank Population Passengers per Population

1 Las Vegas 20 1.5 26.89 17.22 Salt Lake City 22 1.33 9.16 6.93 Denver 16 2.58 17.63 6.84 Phoenix 13 3.25 20.81 6.45 Miami 11 3.87 23.78 6.110 Minneapolis 14 2.96 12.8 4.3

Airfare Cost ComparisonAirfare Cost Comparison

Fargo to Colorado SpringsFargo to Colorado Springs

Minneapolis to Colorado SpringsMinneapolis to Colorado Springs

Minneapolis to Denver InternationalMinneapolis to Denver International

$430$430

$235$235

$135$135

Landing Fees at DIALanding Fees at DIA DIA opened with the Highest landing fees in the DIA opened with the Highest landing fees in the

Nation at $20 per passengerNation at $20 per passenger

DIA has dropped to $14.50 per passenger cost for DIA has dropped to $14.50 per passenger cost for Southwest as they enter the marketSouthwest as they enter the market

Still a very expensive airport to use but with no Still a very expensive airport to use but with no other optionsother options

Cost Comparison of Average Cost Comparison of Average Airfares in Domestic MarketAirfares in Domestic Market

Denver ranked the 12 highest in average airfare costDenver ranked the 12 highest in average airfare cost Highest wereHighest were

– Charlotte $247Charlotte $247– Cincinnati $235Cincinnati $235– San Francisco $230San Francisco $230– Richmond $226Richmond $226– Minneapolis (MPLS) $215Minneapolis (MPLS) $215– Washington $213Washington $213

– Denver $181 Denver $181

Cost of Airfare in Denver Cost of Airfare in Denver Continues to DropContinues to Drop

-25

-20

-15

-10

-5

0

5

10

Perc

ent c

hang

e

Denv er

New Y ork

Chicag o

Mi am

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Phoe nix

Boston

Phi la delp hi a

Atlan ta

Dal la s

St . Lou is

San Frans isc o

Los An gel es

Seatt le

Charl ot te

Hou sto n

Orl ando

Cl evel and

Det roi t

Las Vega s

Minne apol is

Change in Average Fare between 2000 and 2003

Cost of Airfare in Denver Continues Cost of Airfare in Denver Continues to Dropto Drop

-25

-20

-15

-10

-5

0

5

10

Perc

ent c

hang

e

Denv er

New Y ork

Chi cago

Mi am

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Phoe nix

Bost on

Phi lad elp hia

At lan ta

Dal las

St . Louis

San Fransi sco

Los Ang ele s

Seat t le

Charl otte

Hous to n

Orl ando

Cl evel and

Det roit

Las Vega s

Mi nnea pol is

Change in Average Fare between 2000 and 2003

-10

0

10

20

30

40

50

60

Denver

Minneapolis

Atlanta

Dallas/ D

FW

Detroit

Las Vegas

Phoenix

Los Angeles

Houston/ IA

H

Chicago/O

RD

Percent Change in Seats

Change in Number of Available Seats at Key AirportsChange in Number of Available Seats at Key Airports

-10

0

10

20

30

40

50

60

70

Denver

Minneapolis

Atlanta

Dallas/ D

FW

Detroit

Las Vegas

Phoenix

Los Angeles

Houston/ IA

H

Chicago/O

RD

Change in Number of Flights into Change in Number of Flights into Key AirportsKey Airports

Price Comparison of Market Price Comparison of Market StructureStructure

Nearby Airports with Dramatically Nearby Airports with Dramatically different levels of competition different levels of competition originating flights to same originating flights to same destinationdestination

CompetitiveCompetitive$245$245

MonopolyMonopoly$1105$1105

One airport originates flights to One airport originates flights to destination with dramatically destination with dramatically different levels of Competitiondifferent levels of Competition

$224$224 $908$908

Prices before Competitor is Prices before Competitor is driven outdriven out $70$70 $843$843

Prices after competitor is driven Prices after competitor is driven outout $122$122 $800$800

Airlines Exceeding Monopoly Standards

Airport AirlineDominate Firm

Mkt Share

Atlanta Delta 79Charlotte US Airways 90Cincinnati Delta 90

Dallas Ft. W. American 70Denver United 70

Minneapolis Northwest 82

Natural MonopolyNatural Monopoly

A natural monopoly is a situation where for A natural monopoly is a situation where for technical or social reasons there cannot be technical or social reasons there cannot be more than one efficient provider of a good. more than one efficient provider of a good. Public utilities are usually considered to be Public utilities are usually considered to be natural monopolies. natural monopolies.

Denver International Airport As a Denver International Airport As a Natural MonopolyNatural Monopoly

Economies of Scale at DIA Economies of Scale at DIA Lack of competition (i.e. Stapleton)Lack of competition (i.e. Stapleton)

Sherman Act Section ISherman Act Section I

Price FixingPrice Fixing Price SignalingPrice Signaling Allocation of customers, market Allocation of customers, market

territoriesterritories Anticompetitive conductAnticompetitive conduct

Sherman Act Section IISherman Act Section II

Predator PricingPredator Pricing– Squeeze out competitors by super low Squeeze out competitors by super low

pricingpricing– Gain freedom to charge anti-competitively Gain freedom to charge anti-competitively

high prices without competitionhigh prices without competition

General Types of Enhanced General Types of Enhanced Private InvolvementPrivate Involvement

Perpetual FranchisePerpetual Franchise– Private firm holds claim to facilityPrivate firm holds claim to facility

Mixed Ownership FranchiseMixed Ownership Franchise– Balance of private and public ownershipBalance of private and public ownership

Build-Transfer-OperateBuild-Transfer-Operate– Private built, transferred to public, and leased to private Private built, transferred to public, and leased to private

Lease-Develop-OperateLease-Develop-Operate– Public ownership leased to private firm to improve and Public ownership leased to private firm to improve and

operateoperate

Potential Benefits from Private Potential Benefits from Private InvolvementInvolvement

Catalyzed New Airport DevelopmentCatalyzed New Airport Development Accelerated DevelopmentAccelerated Development Increased Revenue for Federal, Sate Increased Revenue for Federal, Sate

and Local Governmentsand Local Governments Improved Operational EfficiencyImproved Operational Efficiency Increased Economic ActivityIncreased Economic Activity

Barriers to Privatizing AirportsBarriers to Privatizing Airports Public ParticipationPublic Participation Airport SafetyAirport Safety Airport NoiseAirport Noise AIP Grant eligibilityAIP Grant eligibility AIP Grant AssuranceAIP Grant Assurance Preventing Monopoly PricingPreventing Monopoly Pricing Taking Profits off the AirportTaking Profits off the Airport Antitrust ConsiderationsAntitrust Considerations Sovereign ImmunitySovereign Immunity Access to tax exempt financingAccess to tax exempt financing Potential administrative delaysPotential administrative delays

Potential InnovationPotential Innovation

WayportsWayports Cargo/ Industrial AirportsCargo/ Industrial Airports Military Airbase ConversionsMilitary Airbase Conversions

With the Current SystemWith the Current System

Approach to Federal Policy ObstaclesApproach to Federal Policy Obstacles Protecting the Public InterestProtecting the Public Interest Feasibility AssessmentFeasibility Assessment ImplementationImplementation

Topics for DiscussionTopics for Discussion Should Stapleton have been expanded vs. relocated?Should Stapleton have been expanded vs. relocated? Should Denver have kept Stapleton open as a competitive service?Should Denver have kept Stapleton open as a competitive service? Considering the fact that all mega project are associated with cost Considering the fact that all mega project are associated with cost

overruns and initial investments should they be avoided altogether?overruns and initial investments should they be avoided altogether? When a project such as the automated baggage claim has gone bad, When a project such as the automated baggage claim has gone bad,

who should be held responsible and who should pay the bill?who should be held responsible and who should pay the bill? Would two smaller projects offer lower cost and higher service for Would two smaller projects offer lower cost and higher service for

consumers?consumers? Is investing in a megaproject the same as endorsing a monopoly?Is investing in a megaproject the same as endorsing a monopoly? Does Denver International Airport have legitimate competing airports in Does Denver International Airport have legitimate competing airports in

the aviation market?the aviation market?