Denver international airport project management case study

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)

517

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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

518 DENVER INTERNATIONAL AIRPORT (DIA)

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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

April 1994________________

United Airlines 717,093 1,049,613 68% 7,743 136 United Express 44,451 92,880 48% 3,395 27 Continental Airlines 275,948 461,168 60% 3,127 147 Continental Express 24,809 92,733 27% 2,838 33 Other 234,091 354,950 66% 2,833 125________ ________ ______

Total 1,296,392 2,051,344 63% 19,936 103

a Airport management records. b Official Airline Guides, Inc. (on-line database), for periods noted.

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by building a new airport? There was no question that insufficient airport capacity would cause Denver to lose valuable business. Being 500 miles from other major cities placed enormous pressure upon the need for air travel in and out of Denver.

In 1988, Denver’s Stapleton International Airport ranked as the fifth busiest in the country, with 30 million passengers. The busiest airports were Chicago, Atlanta, Los Angeles, and Dallas–Ft. Worth. By the year 2000, Denver antici- pated 66 million passengers, just below Dallas–Ft. Worth’s 70 million and Chicago’s 83 million estimates.

Delays at Denver’s Stapleton Airport caused major delays at all other airports. By one estimate, bad weather in Denver caused up to $100 million in lost income to the airlines each year because of delays, rerouting, canceled flights, putting travelers into hotels overnight, employee overtime pay, and passengers switching to other air-

520 DENVER INTERNATIONAL AIRPORT (DIA)

Exhibit II. Airlines serving Denver, June 1994

Major/National Airlines Regional/Commuter Airlines

America West Airlines Air Wisconsin (United Express)b

American Airlines Continental Express Continental Airlines GP Express Airlines Delta Air Lines Great Lakes Aviation (United Express) Markair Mesa Airlines (United Express) Midway Airlines Midwest Expressb

Morris Aira

Northwest Airlines Cargo Airlines TransWorld Airlines United Airlines Airborne Express USAir Air Vantage

Alpine Air Charter Airlines American International Airways

Ameriflight Aero Mexico Bighorn Airways American Trans Air Burlington Air Express Casino Express Casper Air Express One Corporate Air Great American DHL Worldwide Express Private Jet Emery Worldwide Sun Country Airlines Evergreen International Airlines

EWW Airline/Air Train Foreign Flag Airlines (scheduled) Federal Express

Kitty Hawk Martinair Holland Majestic Airlines Mexicana de Aviacion Reliant Airlines

United Parcel Service Western Aviators

a Morris Air was purchased by Southwest Airlines in December 1993. The airline announced that it would no longer serve Denver as of October 3, 1994.

b Air Wisconsin and Midwest Express have both achieved the level of operating revenues needed to qualify as a national airline as defined by the FAA. However, for purposes of this report, these airlines are referred to as regional airlines.

Source: Airport management, June 1994.

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lines. Denver’s United Airlines and Continental comprised 80 percent of all flights in and out of Denver. Exhibit I shows the service characteristics of United and Continental between December 1993 and April 1994. Exhibit II shows all of the air- lines serving Denver as of June 1994. Exhibit III shows the cities that are serviced from Denver. It should be obvious that delays in Denver could cause delays in each of these cities. Exhibit IV shows the top ten domestic passenger origin-destination markets from Denver Stapleton.

Stapleton was ranked as one of the ten worst air traffic bottlenecks in the United States. Even low clouds at Denver Stapleton could bring delays of 30 to 60 minutes.

Stapleton has two parallel north-south runways that are close together. During bad weather where instrument landing conditions exist, the two runways are con- sidered as only one. This drastically reduces the takeoffs and landings each hour.

The new airport would have three north-south runways initially with a mas- ter plan calling for eight eventually. This would triple or quadruple instrument flights occurring at the same time to 104 aircraft per hour. Currently, Stapleton can handle only thirty landings per hour under instrument conditions with a max- imum of eighty aircraft per hour during clear weather.

The runway master plan called for ten 12,000 foot and two 16,000 foot run- ways. By opening day, three north-south and one east-west 12,000 foot runways would be in operation and one of the 16,000 foot north-south runways would be operational shortly thereafter.

Does Denver Need a New Airport? 521

SEA

PDX

BOI

BIL

DIK

RAP

PIR

ABR

FSD

LBF

MCK

GLD

GCK

LBL

OKC TUL

AMA

LBB

MAF

AUS

SAT

IAH

DFW

ICT

MCI

GRI

OFK

LNK

DMA

BIS

JAC

SBS FNL

DEN GJT

ASE

COS

LAA

PUBDRO

CEZ MTJ

GUC

TEX

GCC

MSY MCO

ATL

CLT

BNA

CVG

CMH

CLE PIT BWI

EWR

PHL JFK

LGA

BOS

BDL

IAD

DTW

IND PIA

MDW

ORD

MKE

MLI

MEM LIT

SGF

STL

DSM

MSP

CID

TPA

MIA

RIW

RKS

CPR

CYS BFF

LAR

SMF

OAK SJCSFG

SBA

LAX

SAN PSP

SNA

ONT BUR

RNO

Legend

Source: Official Airline Guides, Inc. (On-line Database), June 1994.

Denver

Served by major national airlines

Served by regional/ commuter airlines

Served by both major/national and regional/commuter airlines

SLC

TUS

ELP

ABQ

SAF

PHX

EUG

GEG

LAS

Exhibit III. U.S. airports served nonstop from Denver

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The airfield facilities also included a 327-foot FAA air traffic control tower (the nation’s tallest) and base building structures. The tower’s height allowed controllers to visually monitor runway thresholds as much as three miles away. The runway/taxiway lighting system, with lights imbedded in the concrete pavement to form centerlines and stopbars at intersections, would allow air traffic controllers to signal pilots to wait on taxiways and cross active runways, and to lead them through the airfield in poor visibility.

Due to shifting winds, runway operations were shifted from one direction to another. At the new airport, the changeover would require four minutes as op- posed to the 45 minutes at Stapleton.

Sufficient spacing was provided for in the concourse design such that two FAA Class 6 aircraft (i.e. 747-XX) could operate back-to-back without impeding each other.

522 DENVER INTERNATIONAL AIRPORT (DIA)

Exhibit IV. Top ten domestic passenger origin-destination markets and airline service, Stapleton International Airport (for the 12 months ended September 30, 1993)

Percentage of Certificated Average Daily

City of Orgin or Air Miles Airline Nonstop Destinationa from Denver Passengers Departuresb

1. Los Angelesc 849 6.8 34 2. New Yorkd 1,630 6.2 19 3. Chicagoe 908 5.6 26 4. San Franciscof 957 5.6 29 5. Washington, D.C.g 1,476 4.9 12 6. Dallas–Forth Worth 644 3.5 26 7. Houstonh 864 3.2 15 8. Phoenix 589 3.1 19 9. Seattle 1,019 2.6 14

10. Minneapolis 693 2.3 16_____ ___

Cities listed 43.8 210

All others 56.2 241_____ ___

Total 100.0 451

a Top ten cities based on total inbound and outbound passengers (on large certificated airlines) at Stapleton International Airport in 10 percent sample for the 12 months ended September 30, 1993.

b Official Airline Guides, Inc.(on-line database), April 1994. Includes domestic flights operated at least four days per week by major/national airlines and excludes the activity of foreign-flag and commuter/regional airlines.

c Los Angeles International, Burbank–Glendale–Pasadena, John Wayne (Orange County), Ontario International, and Long Beach Municipal Airports.

d John F. Kennedy International, LaGuardia, and Newark International Airports. e Chicago-O’Hare International and Midway Airports. f San Franciscio, Metropolitan Oakland, and San Jose International Airports. g Washington Dulles International, Washington National, and Baltimore/Washington International Airports. h Houston Intercontinental and William P. Hobby Airports. Sources: U.S. Department of Transportation/Air Transport Association of America, “Origin-Destination Survey of Airline Passenger Traffic, Domestic,” third quarter 1993, except as noted.

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Even when two aircraft (one from each concourse) have pushed back at the same time, there could still exist room for a third FAA Class 6 aircraft to pass between them.

City officials believed that Denver’s location, being equidistant from Japan and Germany, would allow twin-engine, extended range transports to reach both countries nonstop. The international opportunities were there. Between late 1990 and early 1991, Denver was entertaining four groups of leaders per month from Pacific Rim countries to look at DIA’s planned capabilities.

In the long term, Denver saw the new airport as a potential hub for Northwest or USAir. This would certainly bring more business to Denver. Very few airports in the world can boast of multiple hubs.

THE ENPLANED PASSENGER MARKET

Perhaps the most critical parameter that illustrates the necessity for a new airport is the enplaned passenger market. (An enplaned passenger is one who gets on a flight, either an origination flight or connecting flight.)

Exhibit V identifies the enplaned passengers for individual airlines servicing Denver Stapleton for 1992 and 1993.

The Enplaned Passenger Market 523

Exhibit V. Enplaned passengers by airline, 1992–1993, Stapleton International Airport

Enplaned Passengers 1992 1993

United 6,887,936 7,793,246 United Expressa 470,841 578,619_________ _________

7,358,777 8,371,865

Continental 5,162,812 4,870,861 Continental Express 514,293 532,046_________ _________

5,677,105 5,402,907

American Airlines 599,705 563,119 America West Airlines 176,963 156,032 Delta Air Lines 643,644 634,341 MarkAir 2,739 93,648 Northwest Airlines 317,507 320,527 TransWorld Airlines 203,096 182,502 USAir 201,949 197,095 Other 256,226 398,436_________ _________

2,401,829 2,545,700_________ _________

Total 15,437,711 16,320,472_________ _________

a Includes Mesa Airlines, Air Wisconsin, Great Lakes Aviation, and Westair Airlines. Source: Department of Aviation management records.

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Connecting passengers were forecast to decrease about 1 million between 1993 and 1995 before returning to a steady 3.0 percent per year growth, totaling 8,285,500 in 2000. As a result, the number of connecting passengers is forecast to represent a smaller share (46 percent) of total enplaned passengers at the Airport in 2000 than in 1993 (50 percent). Total enplaned passengers at Denver are forecast to increase from 16,320,472 in 1993 to 18,161,000 in 2000—an average increase of 1.5 percent per year (decreasing slightly from 1993 through 1995, then increasing 2.7 percent per year after 1995).

The increase in enplaned passengers will necessitate an increase in the num- ber of aircraft departures. Since landing fees are based upon aircraft landed weight, more parrivals and departures will generate more landing fee revenue. Since air- port revenue is derived from cargo operations as well as passenger activities, it is important to recognize that enplaned cargo is also expected to increase.

LAND SELECTION1

The site selected was a 53-square-mile area 18 miles northeast of Denver’s business district. The site would be larger than the Chicago O’Hare and Dallas–Ft. Worth air- ports combined. Unfortunately, a state law took effect prohibiting political entities from annexing land without the consent of its residents. The land was in Adams County. Before the vote was taken, Adams County and Denver negotiated an agree- ment limiting noise and requiring the creation of a buffer zone to protect surround- ing residents. The agreement also included continuous noise monitoring, as well as limits on such businesses as airport hotels that could be in direct competition with existing services provided in Adams County. The final part of the agreement limited DIA to such businesses as airline maintenance, cargo, small package delivery, and other such airport-related activities.

With those agreements in place, Denver annexed 45 square miles and pur- chased an additional 8 square miles for noise buffer zones. Denver rezoned the buffer area to prohibit residential development within a 65 LDN (Level Day/Night) noise level. LDN is a weighted noise measurement intended to deter- mine perceived noise in both day and night conditions. Adams County enacted even stiffer zoning regulations, calling for no residential development with an LDN noise level of 60.

Most of the airport land embodied two ranches. About 550 people were re- located. The site had overhead power lines and gas wells, which were relocated

524 DENVER INTERNATIONAL AIRPORT (DIA)

1Adapted from David A. Brown, “Denver Aims for Global Hub Status with New Airport Under Construction,” Aviation Week and Space Technology, March 11, 1991, p. 44.

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or abandoned. The site lacked infrastructure development and there were no fa- cilities for providing water, power, sewage disposal, or other such services.

FRONT RANGE AIRPORT

Located 2.5 miles southeast of DIA is Front Range Airport, which had been de- veloped to relieve Denver’s Stapleton Airport of most nonairline traffic opera- tions. As a satellite airport to DIA, Front Range Airport had been offering six avi- ation business services by 1991:

� Air cargo and air freight, including small package services. (This is direct competition for DIA.)

� Aircraft manufacturing. � Aircraft repair. (This is direct competition for DIA.) � Fixed base operators to service general (and corporate) aviation. � Flight training. � Military maintenance and training.

The airport was located on a 4,800-acre site and was surrounded by a 12,000- acre industrial park. The airport was owned and operated by Adams County, which had completely different ownership than DIA. By 1991, Front Range Airport had two east-west runways: a 700-foot runway for general aviation use and an 8,000-foot runway to be extended to 10,000 feet. By 1992, the general plans called for two more runways to be built, both north-south. The first runway would be 10,000 feet initially with expansion capability to 16,000 feet to support wide body aircraft. The second runway would be 7,000 feet to service general aviation.

Opponents of DIA contended that Front Range Airport could be enlarged sig- nificantly, thus reducing pressure on Denver’s Stapleton Airport, and that DIA would not be necessary at that time. Proponents of DIA argued that Front Range should be used to relieve pressure on DIA if and when DIA became a major in- ternational airport as all expected. Both sides were in agreement that initially, Front Range Airport would be a competitor to DIA.

AIRPORT DESIGN

The Denver International Airport was based upon a “Home-on-the-Range” de- sign. The city wanted a wide open entry point for visitors. In spring of 1991, the city began soliciting bids.

Airport Design 525

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To maintain a distinctive look that would be easily identified by travelers, a translucent tent-like roof was selected. The roof was made of two thicknesses of translucent, Teflon-coated glass fiber material suspended from steel cables hang- ing from the structural supports. The original plans for the roof called for a con- ventional design using 800,000 tons of structural steel. The glass fiber roof would require only 30,000 tons of structural steel, thus providing substantial savings on construction costs. The entire roof would permit about 10 percent of the sunlight to shine through, thus providing an open, outdoors-like atmosphere.

The master plan for the airport called for four concourses, each with a max- imum of sixty gates. However, only three concourses would be built initially, and none would be full size. The first, Concourse A, would have thirty-two airline gates and six commuter gates. This concourse would be shared by Continental and any future international carriers. Continental had agreed to give up certain gate positions if requested to do so in order to accommodate future international operations. Continental was the only long-haul international carrier, with one daily flight to London. Shorter international flights were to Canada and Mexico.

Concourses B and C would each have twenty gates initially for airline use plus six commuter gates. Concourse B would be the United Concourse. Concourse C would be for all carriers other than Continental or United.

All three concourses would provide a total of seventy-two airline gates and eighteen commuter gates. This would be substantially less than what the original master plan called for.

Although the master plan identified sixty departure gates for each concourse, cost became an issue. The first set of plans identified 106 departure gates (not counting commuter gates) and was then scaled down to 72 gates. United Airlines originally wanted forty-five departure gates, but settled for twenty. The recession was having its effect.

The original plans called for a train running through a tunnel beneath the ter- minal building and the concourses. The train would carry 6,000 passengers per hour. Road construction on and adjacent to the airport was planned to take one year. Runway construction was planned to take one year but was deliberately scheduled for two years in order to save on construction costs.