Denver international airport case study pdf

BACKGROUND

How does one convert a $1.2 billion project into a $5.0 billion project? It’s easy. Just build a new airport in Denver. The decision to replace Denver’s Stapleton Airport with Denver International Airport (DIA) was made by well-intentioned city officials. The city of Denver would need a new airport eventually, and it seemed like the right time to build an airport that would satisfy Denver’s needs for at least fifty to sixty years. DIA could become the benchmark for other airports to follow.

A summary of the critical events is listed below:

1985: Denver Mayor Federico Pena and Adams County officials agree to build a replacement for Stapleton International Airport. Project estimate: $1.2 billion

1986: Peat Marwick, a consulting firm, is hired to perform a feasibility study in- cluding projected traffic. Their results indicate that, depending on the sea- son, as many as 50 percent of the passengers would change planes. The new airport would have to handle this smoothly. United and Continental object to the idea of building a new airport, fearing the added cost burden.

May 1989: Denver voters pass an airport referendum. Project estimate: $1.7 billion

Denver International Airport (DIA)

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March 1993: Denver Mayor Wellington Webb announces the first delay. Opening day would be postponed from October, 1993 to December 1993. (Federico Pena becomes Secretary of Transportation under Clinton). Project estimate: $2.7 billion

October 1993: Opening day is to be delayed to March 1994. There are problems with the fire and security systems in addition to the inoperable baggage han- dling system. Project estimate: $3.1 billion

December 1993: The airport is ready to open, but without an operational baggage handling system. Another delay is announced.

February 1994: Opening day is to be delayed to May 15, 1994 because of bag- gage handling system.

May 1994: Airport misses the fourth deadline.

August 1994: DIA finances a backup baggage handling system. Opening day is delayed indefinitely. Project estimate: $4 billion plus.

December 1994: Denver announces that DIA was built on top of an old Native American burial ground. An agreement is reached to lift the curse.

AIRPORTS AND AIRLINE DEREGULATION

Prior to the Airline Deregulation Act of 1978, airline routes and airfare were es- tablished by the Civil Aeronautics Board (CAB). Airlines were allowed to charge whatever they wanted for airfare, based on CAB approval. The cost of additional aircraft was eventually passed on to the consumer. Initially, the high cost for air- fare restricted travel to the businessperson and the elite who could afford it.

Increases in passenger travel were moderate. Most airports were already un- derutilized and growth was achieved by adding terminals or runways on existing airport sites. The need for new airports was not deemed critical for the near term.

Following deregulation, the airline industry had to prepare for open market competition. This meant that airfares were expected to decrease dramatically. Airlines began purchasing hoards of planes, and most routes were “free game.” Airlines had to purchase more planes and fly more routes in order to remain prof- itable. The increase in passenger traffic was expected to come from the average per- son who could finally afford air travel.

Deregulation made it clear that airport expansion would be necessary. While airport management conducted feasibility studies, the recession of 1979–1983

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occurred. Several airlines, such as Braniff, filed for bankruptcy protection under Chapter 11 and the airline industry headed for consolidation through mergers and leveraged buyouts.

Cities took a wait-and-see attitude rather than risk billions in new airport de- velopment. Noise abatement policies, environmental protection acts, and land ac- quisition were viewed as headaches. The only major airport built in the last twenty years was Dallas–Ft. Worth, which was completed in 1974.

DOES DENVER NEED A NEW AIRPORT?

In 1974, even prior to deregulation, Denver’s Stapleton Airport was experiencing such rapid growth that Denver’s Regional Council of Governments concluded that Stapleton would not be able to handle the necessary traffic expected by the year 2000. Modernization of Stapleton could have extended the inevitable problem to 2005. But were the headaches with Stapleton better cured through modernization or

Does Denver Need a New Airport? 519

Exhibit I. Current service characteristics: United Airlines and Continental Airlines, December 1993 and April 1994

Average Enplaned Scheduled Boarding Scheduled Seats per passengersa Seatsb Load Factor Departuresb Departure

December 1993________________

United Airlines 641,209 1,080,210 59% 7,734 140 United Express 57,867 108,554 53% 3,582 30 Continental Airlines 355,667 624,325 57% 4,376 143 Continental Express 52,680 105,800 50% 3,190 33 Other 236,751 357,214 66% 2,851 125________ ________ ______

Total 1,344,174 2,276,103 59% 21,733 105