BBJ: BWI is spending millions to increase the number of international passengers

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Editor’s note: The following article appeared on BizJournals.com on March 4, 2016.

By Rick Seltzer

Amanda Gutierrez stood next to a large suitcase on a Friday evening at Baltimore/Washington International Thurgood Marshall Airport’s international terminal, preparing to check in for her WOW Air flight to London.

“It worked out, and we got less than $700 for our round trip to and from Europe,” said Gutierrez, 25, a medical school researcher preparing to spend two weeks visiting a friend and touring Europe. “Our friend had told me WOW had really cheap flights, and we were looking to go.”

Gutierrez isn’t alone in wanting to travel outside the U.S. International traffic has been on the rise at U.S. airports for years, with domestic carriers’ passenger boarding alone rising from 62.6 million in 1996 to 102.6 million in 2014, according to federal data.

Nor is Gutierrez alone in trying to travel on the cheap. Experts are projecting continued overseas travel growth driven by foreign carriers and low-cost airlines new to American shores.

That has BWI’s leadership hoping to ride international service to new heights. The skies aren’t entirely clear — the established U.S.-based carriers likely aren’t coming in greater numbers to the Linthicum airport, and its major operator, Southwest Airlines, seems happy to take its international expansion slowly. Worse, BWI has to contend with other regional hubs long-positioned for international service like Dulles International Airport in Virginia and even Philadelphia International Airport.

But at the end of the day, airport leadership and industry experts agree BWI has the chance to cruise to new international altitudes. The airport is spending millions on incentives and capital costs toward that goal, it’s positioned itself to attract the hot low-cost airlines, and it has a large surrounding market to tap.

“BWI is doing the right things,” said Michael Boyd, a Colorado-based aviation consultant. “It’s a major population center. It certainly can support some additional international traffic. I’m not talking about just going down to San Juan to get a sunburn. I’m talking about gateways to major international centers.”

Boyd and other experts see BWI as being in the perfect spot to tap into major changes in travel favoring nontraditional air carriers. Thanks to the aggressive, government-subsidized carriers based around the Persian Gulf and those in huge opening-up markets like China, there are many destinations and more travelers set to be served by airlines offering cheap tickets, they said.

Several even mentioned China’s Hainan Airlines as a good fit for BWI. The Chinese airline commenced service between Los Angeles and Changsha in January, its eighth North American route. In 2015, it started a Shanghai-to-Boston route and is widely considered to be looking for more destinations.

Speculation aside, some upstarts have signed on at BWI in the last year. The low-cost WOW and Norwegian Air Shuttle started flights out of the airport. BWI CEO Ricky Smith called Norwegian an airline to watch and said his business development team is engaged in discussions to bring new low-fare carriers onboard.

Smith didn’t name those carriers. But he predicted future increases in international traffic at his airport.

“We think we have some very good days ahead of us,” Smith said. “We spend a lot of time looking at unserved and under-served markets. Our search-and-development team spends time around the clock talking to new carriers and existing carriers.”

Future increases in international service would be keeping with a trend at BWI. International passenger traffic jumped 31.9 percent last year to a record 1.1 million. It far outpaced domestic growth of 5.8 percent. International growth has been faster than domestic growth at BWI in each of the last six years, although domestic traffic still accounted for the vast majority of BWI’s 23.8 million passengers in 2015.

Smith has a plan for convincing new overseas carriers to come to BWI, and for encouraging its existing airlines to expand international service. It starts with airport enhancements.

To that end, BWI is nearing completion of a $100 million connector between its D and E concourses. The connector, slated to open this summer, will add gates and capacity.

It will help Southwest in particular, Smith said.

Southwest is only a recent entrant into the international market, flying its first international flights out of BWI in 2014 after it acquired AirTran Holdings Inc. But the airline has signaled intent to grow service to Latin American locations from BWI.

Beyond serving Southwest, Smith has a simple plan for boosting BWI’s international service: Focus on cost.

“There’s a strong base here for low-fare international service,” he said. “Our strategy is to build on our low-fare domestic position and position ourselves as the low-fare international airport for this region.”

BWI can make the case that it’s the lowest-cost airport in the region. Its cost per enplanement, a measure of how much airlines pay on average per passenger at an airport, is far below competing airports at $9.85, according to data from DWU Consulting LLC. Reagan National came in at $11.26, Philadelphia stood at $12.81 and Dulles was $26.55.

Other strategies in play include marketing BWI in overseas locations and maintaining long-term relationships with airlines, Smith said. Even though he’s been CEO at BWI for less than a year, he pointed out that he previously spent 17 years at the airport as chief operating officer. He also kept up to date on BWI and kept up his relationship with airlines in his previous position as director of Cleveland Hopkins International Airport. Beyond that, the airport’s business development team does much of the heavy lifting on wooing airlines, he said.

BWI has also moved recently to boost its service with a more traditional long-haul carrier, British Airways.

The airline will be bringing a 787 Dreamliner to BWI later this year in what Smith cast as a major win. The new aircraft will be configured with 214 passengers in three classes. British Airways had previously used an older plane design, the 767, to fly between BWI and London’s Heathrow Airport. The airline flies 767s with 189 seats for long-haul flights.

BWI and the State of Maryland lured the new plane to BWI using an incentive deal that could total as much as $6 million in 2016 if the BWI-Heathrow route does not meet certain metrics. But it was necessary to keep a keystone service that proves BWI works for international flights, Smith said.

The British Airways incentive was a special grant approved through the state, but BWI can use an incentive program to lure airlines that can provide certain levels of service, Smith said.

It would be harder to convince other traditional carriers to fly out of BWI, Smith said. They’re already entrenched at other airports.

“If we go after the traditional international carriers, we would have to, in essence, convince them to leave Dulles for here,” Smith said. “What has worked for us is to go after those nontraditional international carriers.”

Fortunately for BWI, that’s the part of the international market expected to grow fastest.

“The traditional carriers, they’re adding incremental service, so they’re not going to be announcing 40 new routes,” said Matthew Cornelius, vice president, air policy at Airports Council International North America. “But, particularly in Europe, the explosion of ultra-low-cost carriers like Ryanair and EasyJet, that’s a much more mature situation. As they max out their European options, I think a lot of them are going to look at where we go next. Even Frontier or Spirit or WOW, they’re going to be the ones growing faster with more route options.”

Airports Council International runs an annual program Cornelius likened to “speed dating” for airlines and airports. The two parties feel each other out during short meetings. Airlines tend to be interested in a local market’s business base, economic trends and recreational travel base.

At the end of the day, the major driver is economic conditions, Cornelius said. Markets need enough travelers to make the financial figures work.

And while the Baltimore-Washington market has plenty of inbound and outbound travelers, it also has other airports with which to contend. Dulles is a major impediment to winning passengers and planes.

BWI has long had an advantage over Dulles from the traveler’s perspective — it has a direct rail link. The MARC train pulls up to a station at BWI’s doorstop. Passengers without a car have had to take the D.C. Metro’s Silver Line and connecting bus to get to Dulles.

That’s set to change in a few years when the Silver Line is extended all the way to Dulles. Meanwhile, BWI has another challenge in international expansion — its greatest strength, Southwest, is also a weakness of sorts.

Southwest does not codeshare with other carriers, industry experts said. That means BWI’s biggest airline is a largely domestic carrier that doesn’t have ticket-selling deals linking to international carriers. It also means BWI tends to be an origin point and a destination point for international service, rather than a stop along the way for passengers flying elsewhere on longer itineraries.

Yes, Southwest is expected to grow internationally. But its expansion will be limited by its willingness to buy planes capable of long-haul flights over the Atlantic. Southwest CEO Gary Kelly said during a 2015 BWI Business Partnership appearance that his airline was focused on 737s flying to North America. And industry experts haven’t seen anything signaling changes in that strategy.

“The thought of Southwest getting an aircraft capable of transatlantic service is interesting,” said Tom Reich, director of air service development at AFCO AvPorts Management, an aviation consulting firm in Dulles. “I’ll believe it when I see it.”

What Southwest could more easily do to boost transatlantic flights at BWI is start codesharing. The airline has been mentioning at industry conferences a move toward a new reservation system allowing it to do code-sharing, Reich said.

The move would allow passengers to book flights over the ocean on a European carrier, disembark at BWI, and then board a Southwest flight to another U.S. destination, all under the same itinerary.

It would turn Southwest’s Baltimore hub from a location that doesn’t feed other airlines’ traffic to one attracting more interest overseas, Reich said.

“Southwest suddenly becomes more attractive to a low-cost carrier in Europe,” he said.

Of course, there’s nothing keeping travelers from booking on separate airlines themselves. They’re showing willingness to do it at BWI.

It’s what Gutierrez did to get to BWI. She started with a Southwest flight from her home of Houston and spent a seven-hour layover at BWI in order to get her cheap WOW flight, which she booked separately.

“WOW usually only flies out of BWI or Boston, so we took a one-way flight here,” she said. “We thought we’d give it a try. It’s cheap. We can’t pass it up.”

Source: Baltimore Business Journal

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