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Monday, 21 December 2015 14:52

Despite looming pilot shortage, aviation stakeholders point to industry growth

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Joining MiBiz for a aviation roundtable were (top row from left) Cheryl Bush of Landmark Aviation EFD Inc., Russ Kavalhuna of Western Michigan University, Ron Kitchens of Southwest Michigan First. (Bottom row from left) Curt Pullen of West Michigan Regional Air Alliance and Brian Ryks of Gerald R. Ford International Airport. Joining MiBiz for a aviation roundtable were (top row from left) Cheryl Bush of Landmark Aviation EFD Inc., Russ Kavalhuna of Western Michigan University, Ron Kitchens of Southwest Michigan First. (Bottom row from left) Curt Pullen of West Michigan Regional Air Alliance and Brian Ryks of Gerald R. Ford International Airport. PHOTOS: Jeff Hage

Responding to a strong economic cycle for both business and leisure travel, Gerald R. Ford International Airport in Grand Rapids has focused on investing in both its infrastructure and amenities.

Beyond adding parking and enhanced shopping and dining options, the airport just launched a $45 million project to consolidate the security checkpoint and improve the customer experience at the facility.

While airport executives invest in providing better customer service, the broader aviation industry faces a looming pilot shortage, leading to a period of uncertainty for facilities managers, communities and economic developers as they wait to see how airline carriers respond.

To get an idea of where the aviation industry is headed in 2016, MiBiz convened a panel of experts for a roundtable discussion. Participants included:

- Cheryl Bush, general manager at Landmark Aviation EFD Inc.
- Russ Kavalhuna, executive director of flight operations at the College of Aviation at Western Michigan University
- Ron Kitchens, president and CEO of Southwest Michigan First
- Curt Pullen, vice chairman of the advisory board for the West Michigan Regional Air Alliance
- Brian Ryks, executive director of Gerald R. Ford International Airport

Here are some insights from the conversation.

What’s the general outlook for the aviation industry as you look ahead to 2016?

RYKS: We’ve had a very strong year. Our passenger numbers are up 9.5 percent to date. It’s going very well. Since Southwest Airlines came to our market in August of 2013, we’ve seen a lot of stimulation. It not only is because of Southwest, but because of other airline’s responses to Southwest. Airlines like American and Delta and United are all adding capacity and doing things to compete. That’s been very good for our environment.

We’re seeing double-digit increases in seat capacity as we move into the first quarter of 2016. We had a nice announcement from Southwest indicating that they’re going to start serving Midway Airport (in Chicago) with three frequencies a day starting in April. We think that will offer additional stimulation as Midway is the top domestic hub of Southwest. Because they’re offering three frequencies a day, it will allow them to compete more for the business traveler piece of the business, which certainly they want to see grow out of the Grand Rapids market.

How are you handling that growth?

RYKS: We’re always trying to stay ahead of the demand curve from a facility standpoint. The biggest project right now is the consolidated checkpoint which will transform the passenger experience. It’s actually starting now. You’ll start to see – at the end of December – construction walls going up in the Grand Hall area and various places. There’s already some construction equipment on the northeast side of our facility.

What has led to the business community actively engaging with the aviation industry in West Michigan?

PULLEN: The Regional Air Alliance started in 2010 and that effort culminated in some of the low-cost carriers coming in and then continued. It’s a great example of the business community and the at-large community being able to sit down with Brian and his leadership team and really talk about the issues we think are important to address so that we stay ahead of them. The problems he’s having are because of the success of the community. We want that to continue.

It’s a channel of communication that works both ways. We can talk from the needs of the community. He’s certainly wanting that audience represented in his thinking. But it gives him a way to communicate back to those businesses as well as to (tell them) what would help him. The project that’s underway — I think we’ve got a lot of really good work going back and forth between the Regional Air Alliance and the board members that volunteer their time.

What’s happening in the Southwest Michigan region?

KITCHEN: (In Battle Creek), Duncan Aviation has completed their expansion and new aprons are under construction. It’s also a pretty big commitment by Duncan and (an example of) their growth. Battle Creek (is) their second biggest facility globally. They’re in the remanufacturing of corporate jets business. It’s in Battle Creek, but one of the reasons it’s strong is because of Western Michigan University’s commitment to aviation. When we look at that growth, one of the things we have to remember is it’s not just pilot training. There’s a lot of places you can get pilot training, but there’s not a lot of places you get the mechanical training, the flight skills and the air traffic controller experience. It really has built that culture.

How so?

KITCHENS: When we look at aviation, airports are important, but the corporations to us are a critical component. This airport is part of the regional (economic development) strategy.

How do broader economic trends contribute to the industry’s growth?

PULLEN: From the overall economic standpoint, as long as the economy does well, aviation does well from the standpoint of business travel. The volume of business travel is up. Leisure travel is up because people feel confident to go on those vacations.

How is the pilot shortage affecting the industry?

KAVALHUNA: The primary place of employment that we send our product — our airline pilots — to are the airlines. The airline industry has seen over the last five years a significant consolidation with really four major carriers providing most of the competition among themselves. They are experiencing a significant pilot shortage.

What’s driving the shortage?

KAVALHUNA: There’s several reasons for that. The pilot workforce is generally older than other workforces. There’s a mandatory retirement, so the numbers game just cannot be manipulated, at least without a legislative fix. Because we make pilots, I’m not interested in having a legislative fix. The other thing causing the demand is, recently, the rules associated with getting into an airline cockpit … have changed.

What changed with the regulations?

KAVALHUNA: When I became an airline pilot, I think I had 600 hours of flying time. Today, I wouldn’t be able to be in an airline cockpit because of the legislative change that requires at least 1,000 hours of flying time and your airline transport certificate. … There’s only a couple institutions that get (students to) that 1,000 hours: my institution and some of my competitors.

I say all that to tell you that it’s not as easy to fill the cockpits these days. That’s not just hyperbole. Airlines are parking airplanes right now because they can’t fill the cockpits with pilots.

PULLEN: I think the real key is the economics have to become attractive enough for people to want to (become pilots) and pursue it as a career. Where else can you devote your time and energy into a degree and come out fully-qualified and not be hired (due to federal regulations)? Bridging that gap is really critical and how do you get them to work right away so they can build their experience and feel optimistic about their career potential.

What is the university doing to help the situation?

KAVALHUNA: What we’ve tried to do as an institution is compete for more of the students that might want to become airline pilots. One of the strategic disadvantages we have being in Michigan … is we don’t have as many flying days for training environments. When you fly in the clouds, there’s a particular set of skills you need to do that.

How can you get around Michigan’s weather?

KAVALHUNA: Western Michigan has approved at the board level the process of opening its first campus in Punta Gorda, Florida. We plan to start traveling down there the beginning of next year and evaluate the potential of building a new hangar facility to do flight training. We’re going to train pilots there, we’ll train maintenance professionals and I believe there are two other colleges in our university who will send students there.

It will be the first time the university has ever opened a campus outside the state of Michigan. We’re in the planning stages of building a $5 million building on that airport. So our pilots, if they get caught in three or four or five weeks of bad weather, we plan to give them the opportunity to go and fly Western Michigan airplanes in Florida.

What’s the impact for the West Michigan region in opening a Florida facility?

KAVALHUNA: Everyone (else on the roundtable) is in the real world and we’re trying to support them. We’re excited that there’s a lot of demand. But frankly, I worry about not being able to meet it.

RYKS: That’s a serious concern. They’re the pipeline and we’ve got another piece of that sitting on the airport with the West Michigan Aviation Academy, (which is) starting to manufacture pilots and getting kids interested in aviation careers as well. The timing is perfect for that and I think the school is getting a lot of national recognition for that. Delta just presented a check for $150,000 to the school a couple months ago so they could buy their second Cessna 172 training aircraft.

How is the shortage impacting the industry?

RYKS: There’s going to be 16,000 pilot retirements between now and 2020 with the big four airlines — Delta, American, United and Southwest. … But with the whole pilot shortage, the other impact is small community air service. If airlines don’t have pilots to fly planes, that’s going to have a ripple effect across the entire country. We’re starting to see it already. Communities are losing air service because there’s just not enough pilots to fly those airplanes to those communities. We need a bigger pipeline of pilots to enter the system.

Has West Michigan felt that ripple effect at all?

RYKS: Absolutely. In fact, we’ve already had some impacts with (cuts to) our Cincinnati service. Delta indicated that was purely a result of the pilot shortage.

KAVALHUNA: What I can tell you, in my experience, the pilot shortage will not affect one leg or two legs between two cities. It will affect system-wide in a rare kind of happenstance position. … I don’t think it will result so much in cancellation of routes. It will be foisted on us when you and your wife want to go on vacation and it just so happens that the pilot shortage hits that day of travel for the entire system.

If we don’t stem the tide, well (the airlines) can’t provide service because they don’t have the pilots. But right now it’s just going to be that thing that drives us as passengers crazy.

What role are airlines playing in helping fill the pipeline?

RYKS: The airlines are going to have no choice but to start to invest in that pipeline as well as create partnerships. I’m sure (WMU) already has partnerships with some of the carriers. My feeling is as the years go by when they really start to feel that shortage and that pinch, there will have to be other methods to bring new pilots and new folks interested in the career into the pipeline. I think the airlines will share in some of that investment.

BUSH: I think they’ll have to because with the increased demand or requirements for the certification and the additional hours, the cost of that education gets close to six figures. I think the support from the industry (is critical).

How does this pinch affect business travel in a community like Kalamazoo?

KITCHEN: Commercial aviation is critical. It’s both an expectation of business and a commodity. … You need a frequency that will enable your people to travel very efficiently — one flight per day on Southwest to Midway is not enough. If I can’t get there and back in the same day dependably, then I’m just not going to do that. If we lose that capacity, we don’t have a backup. We don’t have trains (like Europe). It really is a business driver. If people can’t move in and out, then all of a sudden it doesn’t make sense for Herman Miller executives to be here and you relocate them. It really can’t be overstated why this is a regional issue and why we worked (about 10 years on the issue). It’s how we grow Grand Rapids and Kalamazoo.

Are these issues causing more companies to have their own aircraft?

BUSH: I think that it does, but then we also are impacted by this pilot shortage that will really be consumed by the commercial side. It puts a pinch on the general aviation business.

Over the last several years, we’ve seen a variety of infrastructure and amenity upgrades at Gerald R. Ford International Airport, and there’s more on the way. Why are those renovations so critical?

RYKS: To keep up with demand is one of the obvious reasons, but I think the other thing that we’ve really focused on is the whole customer experience and ensuring that when individuals are coming and going from Ford Airport, that it’s an excellent experience. … We realized that we’re oriented around customer service. We’re not just a utility anymore. I think airports were thought of as basic utilities for many years. There was only one purpose — to get them on a plane. But that’s all changed. We want this airport to reflect West Michigan and the values that surround it. When businesses are bringing clients in, it’s the first impression and the last impression.

PULLEN: The customer part is really key. In (the furniture) industry, we pay a lot of attention to places where people work because we think they matter. The CEO of Southwest Airlines was once asked, ‘What’s more important: Your customers or your employees?’ He said, ‘Well, of course, my employees. Without happy employees, I can’t have happy customers.’ … We’ve always said the employee experience needs to be the same as the customer experience. The (security checkpoint project) is going to make an important contribution to your experience as you spend time here passing through the airport.

RYKS: This (airport) industry has become ultra-competitive so we have to market ourselves and put out a good product — a product that is priced, from our standpoint, fairly to the airlines. Otherwise, they’ll go somewhere else.

Prior to the emergence of the Air Alliance and the addition of some lower-cost carriers, customer leakage studies showed that people were leaving the West Michigan region to travel from other airports. Will there be an update to that study?

RYKS: Yes, we are actually doing that (study) this year. In 2016, we’ll be updating that catch analysis to determine what the change has been. The last one was done just before Southwest arrived. That capture rate was 72 percent in our primary service area. We think that has increased. … We’d like to be in the 80 percentile range. People that were driving to Detroit and Chicago Midway to catch a Southwest flight — we think we’ve captured a lot of that traffic.

The airport is currently in the process of switching from being a department of Kent County to an authority-based management model. How is that expected to help operations?

RYKS: I’ve been one that’s always in favor of an airport authority governance model. I’ve spent half my 30 years in the industry working for different airport authorities. The county has done an extremely good job of running the facility — the department has always been an enterprise department — but I think that the challenge you have in being part of a city or county government is that aviation is a different animal. It operates in a different business cycle. At times, you have to respond quickly to demands in the industry.

Also, I think from a regional perspective, this airport serves a much larger region than just Kent County. About the time that I came (to Grand Rapids), the county allowed a seventh board member to be outside of Kent County. That does nothing but promote goodwill throughout the entire region. Our plan is to transfer the operating certificate from the county to the new authority — which must be approved by the FAA — on July 1, 2016.

How could trends affecting large airline carriers impact operations in West Michigan?

RYKS: Airlines are making more money than they’ve ever made before. The nice thing is they are investing that money back into the product and back to the customer service. That’s the biggest thing that I’m seeing.

It also allows them to invest in additional capacity in markets that they can be profitable in. This market here, from a Delta perspective, is a top-50 revenue market across their entire system. We have many businesses that spend a lot on travel in the area. They see and recognize that. They’ll continue to invest as long as they’re making a good return. Those are the things we’re seeing.

KAVALHUNA: Grand Rapids is a pretty top-notch airport. Being on the Michigan Aeronautics Commission, it’s a little precarious for me to say because I represent a lot of different airports that are in very close proximity.

Fair enough, but what can you say about the health of the other airports in the region?

KAVALHUNA: None of the airports are doing revenue guarantees. … Sometimes airports want and need airline service so badly that they’ll guarantee the revenue to the airlines. They’ll hope they make it. … If they don’t make the guarantees, they have to write a check to the airline to sustain service. In West Michigan, no one is having to make guarantees. That’s a statement to the health of these airports.

How important are corporate headquarters to securing air service in a region like West Michigan?

KITCHENS: They’re critical. Stryker’s headquarters are on the Kalamazoo airport. That’s not accidental. The private aviation business is a function of headquarters and regional headquarters. But when we look at the downturn when private aviation was hurt so dramatically, those people began to fly commercial. Without viable commercial locations, you see teams get relocated. So it’s critical (to the local economy).

An airport is a trailing indicator, so when you see a healthy airport, it tells you the business community is healthy and that the community is vibrant. It tells you that there’s wages being paid at a level that allow families to travel. It is absolutely (critical) that you have far-sighted aviation administrators, educators that are building that capacity and betting on a future that is strategic and thoughtful, but certainly not guaranteed. That’s why aviation and economic development are so closely aligned.

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