It’s April 11, and just three weeks ago, John Mok, Cleveland’s Director of Port Control, learned that Continental Airlines, Cleveland’s largest carrier, will cut its work force by 1,200, yet another blow to the shaky relationship between Cleveland Hopkins International Airport and the airline.
Elsewhere, three of the 12 largest airlines are in bankruptcy court, while the others, save anomaly Southwest, announce huge losses, with The Wall Street Journal reporting that revenue was down 17 percent in 2002 for nine major airlines.
Combine these challenges with disgruntled travelers who are not only worried about safety since Sept. 11, but about a mysterious illness called SARS, which in early April was halting travel to places like Hong Kong, China and even Toronto.
How do you run an airport in the times like these? Moreover, how do you plan a $1.4 billion expansion when more than half of your revenue is based on the health of the airlines?
“We know all the airlines are bleeding red — it’s just a matter of time before the rest of them go into bankruptcy,” Mok says. “…We’ve got to do whatever we can to assist them through these difficult times. At the same time, we’ve got to make sure that the long-term future of the airport is not totally dismissed.”
Mok was appointed director of port control in July 2002 and is responsible for the management and operation of Hopkins and Burke Lakefront airports.
He previously served as vice president of planning for the Dallas/Fort Worth International Airport, head of strategic planning for the Hong Kong Airport Authority, project manager for the Newark International Airport Redevelopment Program and manager of the Major Works Program at John F. Kennedy International Airport.
Smart Business sat down with Mok to talk about how he will manage his $98 million annual budget, 400 port control employees, 5,600 airport employees and the travelers who pass through Hopkins, 10.8 million of them last year.
What’s a typical day like for you?
There is no typical day, but over the course of a week, there are routine activities, like I have a series of meetings down in City Hall I’ve got to attend to. I have mayor’s cabinet meetings, mayor’s board of control meetings, and every week there is a city council meeting. In preparation of city council, if we’ve got any issues, I’ve got to go through the whole legislative process with the [council] aviation committee, finance committee.
A good portion of my time is spent downtown just handling city procedure. Out here at the airport, my organization is divided into a series of what I call cluster groups. I’ll have my weekly staff meeting with my cluster chiefs, which is basically we run through a list of what’s hot, what’s cold, what’s dead and so on. That’s pretty much to carry us through week to week in terms of the management of the business.
The general public assumes that because we’re a city-owned airport and a city department that we must be run off the back of the city taxpayer. That’s a common assumption, but it’s a wrong one. We, and the city’s utilities department, water and power, are enterprise funds. We are not funded by any tax dollars.
At the end of the day, we add up all our expenses, and above all the expenses is debt service, capital financing. We deduct from that expense all of our non-airline derived revenue, that’s what we get from terminal concessions, the retail stores, the food and beverage shops in the terminal, our parking concessions, the hotel, the rental cars, all our non-airline operations.
We deduct the revenue from those from our expenses — of course it doesn’t cover our total expenses. The difference or residual amount is the basis for determining what landing fees are, and terminal rentals, all the costs that the airlines then have to ante up.
The airlines guarantee that we remain solvent from year to year. We operate as a break-even business, kind of like a not-for-profit organization. It’s also a misnomer that the city is raking in all sorts of revenue from the revenue. We cannot remit any revenues downtown. That’s against our federal regulations.
Because the airlines pick up the difference between what it costs to operate the airport and what we earn from non-airline sources, they’re going to be very parsimonious about what they want us to be spending our money on. So, we review with them annually our budget. They don’t approve our annual budget, but they have significant influence over what they think is acceptable in our budget.
But, it’s a trade-off, obviously. They are carrying the can to keep us solvent from year to year, to keep us at break-even point. What they get in exchange for that financial obligation is they get financial control of our capital development program.
We can’t build anything on this airport without airline approval, because this goes back to our annual budget; the biggest component is our debt service. So, if the airlines control how much capital we expend, they control how high the debt service is. Pretty simple, isn’t it? (Laughs).
How can you have long-range plans when there is so much uncertainty facing the airline industry?
The airlines’ interest is obviously in trying to contain costs. They don’t want to pay for anything. As far as an airline is concerned, the best airport to fly into is one that pays them to land there. Airlines, as we know them, have a very short-term horizon.
Before the current crisis, a long-term plan for an airline was maybe, a week. Today, it’s hour to hour.
Airports are a very different animal. Airports have to address future requirements. There are always going to be perturbations in an economic cycle — things are going to up, things are going to go down — but if you go back the past 40 years of the industry, it’s always been progressive growth, so we always look long-term. We’re looking 10 to 20 years out.
The reality is for an airport, we basically provide capacity for the airlines to serve our community. We fully appreciate that post-9/11, recession, the war and now SARS are having an impact for some West Coast airports, in particular. Traffic is way down.
We know all the airlines are bleeding red — it’s just a matter of time before the rest of them go into bankruptcy. Hopefully they won’t, but that’s the speculation.
We recognize that they are in a survival mode right now. We’ve got to do whatever we can to assist them through these difficult times. At the same time, we’ve got to make sure that the long-term future of the airport is not totally dismissed.
We’re in an interesting situation because our expansion program, which is basically providing a lot of improvements to the runways and so forth, was approved by the airlines three years ago, but times were fat. We floated our Series 2000 bonds, which is funding for all this stuff. Obviously, we couldn’t have done this without airline approval.
And that actually was done at the impetus of Continental Airlines because three years ago, this airport was technically at airspace capacity during the peak hours. Continental had these very ambitious plans to keep growing, and they came to us and said, ‘Hey guys, you’re holding us back, we need X,Y and Z’ — which is why we’re doing what we’re doing.
Now, they’re the first people in line saying, ‘Can we stop everything? Can we turn the clock back three years?’
Unfortunately, when you have a growth situation, you provide for future needs, and people are making money, so you go into that development mode. Then, you’re met with this immediate economic downturn. We have the unfortunate situation where the debt service for these new facilities from monies we borrowed three years ago, that debt service is hitting now. We can’t charge the carriers the interest for those funds until they can actually utilize the facilities.
All that notwithstanding, Hopkins, in terms of being a business partner with the airlines, has not been there. Our concession programs are underperforming. Yes, the drop-off of passengers has reduced revenue, but that notwithstanding, the average spending per passenger should be much higher than it is.
We have been working aggressively with our concessionaire to improve product offering. I’ll be the first to say finding a good meal at Hopkins may be a stretch. People have complained to me, ‘We can’t get a good sit-down meal at Hopkins.’ You can get a great grab-and-go meal at Hopkins, but if you’ve got an hour-and-a-half — outside of Max & Erma’s — where are you going to go here?
What has been absent from the Hopkins vocabulary is the recognition that we are in the customer service delivery business.
How do you find that balance between the traveler wanting convenience and service, but still ensuring their safety?
This is a very safe facility in terms of aircraft safety, and it’s a very secure facility. And working with the TSA (Transportation Security Administration), we are as, if not more secure, than most airports in the country when it comes to passenger screening and baggage screening.
That’s never been compromised by Hopkins.
In terms of customer service delivery, it may have been overlooked. What we’ve done here is reorganized our operations department — we’ve created a customer service division. That customer service division is going to be responsible for all front-of-the-shop activities. It’s all the activities that the traveling public encounters in coming through the airport.
We are about to roll out an Airport Ambassador program. Ambassadors are community volunteers that come to the airport, they walk the floors, they’re not behind a static location. Their job is to offer a helping hand to passengers who are lost or are just in need of direction or support.
They are essentially community meeters-and-greeters. They are here to meet the traveling public and to assist them in any way they need.
We’re going to set up a terminal management group. Their responsibility is kind of like terminal ombudsmen. They’re going to be walking the floor and making sure that our tenants have their shops tidy and orderly, and it conforms to lease requirements.
We’re also setting up a ground transportation office to address the issues of public conveyance to and from the airport.
This is not costing us a dime. It’s a reorganization, a redeployment and an articulation of a different set of priorities.
Do you see regional airports as competition for Hopkins? Are you doing anything to take market share away from them?
First of all, I don’t look at it very parochially as how do we keep people at Hopkins. People recognize Hopkins is not just a city of Cleveland airport; it’s a Northeast Ohio regional airport.
From a regional context, what we have been discussing with community leaders, and we’ll embark on shortly, is that regional air service needs assessment. That study is going to look at, what are the needs of the entire Northeast Ohio region, and in that region, it’s not just Hopkins, there’s Akron-Canton, there’s Youngstown, there’s County, there are many airports.
So, you don’t mind sharing business with the other airports?
If there were no other airports, I would love everybody to fly out of here. But the question that puzzles me more than whether or not somebody is flying out of that airport rather than our airport, is the demographic and economic data, the population and the per capita income of this region, would suggest that there should be a heck of a lot more people flying out of this region than are flying.
Does that mean we’re losing traffic to Pittsburgh or Cincinnati or Detroit? We shouldn’t be, because the dominance of the hub carrier at those airports is much greater than the dominance of Continental here at Hopkins. What does that mean? It means our airfares are much more competitive here than they are at those other three airports.
Where do you want to see Hopkins in five years or 10 years?
In business (laughs). Hopkins has a tremendous potential to not only continue as it is today to be a major domestic hub for Continental, but in five years, I would like to see our runway programs completed, and that will allow us to start marketing the region to the Pacific Rim.
Right now, with our 9,000 foot runway, we don’t have the length to get a fully-loaded big bird over the Pacific. How to reach: The City of Cleveland, Department of Port Control, (216) 265-6022
