Canada's airports remain in expansion mode despite dark clouds looming on the horizon.

As skyrocketing fuel prices force major North American airlines to cut back routes and services, airports on this side of the border remain confident and have no immediate plans to halt major development projects.

"Airports plan on a 40-year basis," says Barry Rempel, president and CEO of Winnipeg Airports Authority.

"Airlines plan on a month-by-month basis. Our role as an airport is to ensure we have the right size pipe. It doesn't matter if a carrier flies more or less, because the market size is the market size, regardless of which carrier they're going on."

File photo by Larry MacDougal, Business Edge
Despite current economic turbulence, analyst says WestJet and Air Canada balance sheets are strong.

Billions are being spent on increasing capacity, improving infrastructure and modernizing airports. Major construction is moving forward in Vancouver, Edmonton, Winnipeg and Ottawa, among other airports.

Toronto recently completed a $4.4-billion redevelopment that will allow it to handle an additional seven million passengers. Calgary plans to spend $1.8 billion to add a dedicated international/trans-border concourse with 20 new gates by 2015, as well as a fourth runway to be in service by 2014.

Airports need to take a longer planning horizon because of their capital-intensive nature, says Bob Cowan, senior vice-president of engineering for Vancouver Airport Authority. "These projects take a long time to plan and deliver," he adds.

Despite the forward-looking developments, passengers are facing greater challenges as airlines lay off staff, downsize their fleets and slash routes and capacity.

Add to this an onslaught of new charges, with fees being tacked onto airline tickets for fuel surcharges, checked bags, and in some cases, higher costs for booking through an airline's call centre or for redeeming airline miles for flights.

Even the free in-flight beverage is not immune. At least one airline, Tempe, Ariz.-based US Airways, will sell all non-alcoholic beverages (including pop, juices, bottled water and coffee) in its domestic coach cabins for US$2 as of Aug. 1, when it will also boost the cost of alcoholic beverages by US$2 to US$7.

"Unfortunately, in this very high (cost) fuel environment, all airlines are doing whatever they can - U.S. carriers have much more fuel-inefficient fleets, we've already done those transitions," says Calgary-based airline analyst Rick Erickson, managing director of RP Erickson and Associates. "Both WestJet and Air Canada are sitting on the strongest balance sheets any airlines in Canada have ever had."

Airlines north and south of the border are fighting to survive, let alone compete. Atlanta-based Delta Airlines recently reported a net loss of US$1 billion for the quarter ended June 30, 2008.

However, Delta is merging with Minneapolis/St. Paul-based Northwest Airlines and says it will have one of the strongest balance sheets in the industry once the merger is completed over the next 12-24 months.

Air Canada will reduce fall and winter capacity in response to record price of fuel, stating that every $1 increase in the price of a barrel of oil adds an estimated $26 million to its annual fuel expense. For now, WestJet says it will stay the course, citing its low-cost structure as the reason for enabling it to deal with the economic turbulence other airlines are facing.

Barry Rempel

Airport authorities are continuing to take a long-term view.

"When I hear people say, 'Carriers are in trouble, why are airports continuing to plan for the future?' it's important to understand we operate two very different (business) models and on different timelines," says Winnipeg Airports Authority's Rempel.

But there's much more to the recent round of airport expansions than just expanding for expansion's sake, officials say. Cities including Edmonton, Ottawa and Winnipeg are playing catch-up to soaring passenger numbers. In some cases, earlier expansions were delayed due to 9/11, SARS and other crises that rocked the aviation sector.

There's also the need to replace aging facilities.

"These were airports that desperately needed upgrading," says Erickson, referring to facilities Ottawa turned over to local authorities on long-term leases starting in the early 1990s. "One of the reasons the federal government got out of airport ownership was because they couldn't afford to make the capital investments required."

Winnipeg's James Armstrong Richardson International Airport is perhaps the best example of an airport that was in urgent need of upgrades.

"In 1997, when our airport authority was established, this airport was in the worst condition of any airport in Canada," says Rempel. "We had to replace all of our runways; we did that on a cash basis. We felt it was more important to get the infrastructure up before we looked at the terminal building itself."

Winnipeg spent $215 million on runways. Now, it's spending $585 million on a new terminal - an independent audit shows the building is no longer sustainable for the mid- to long-term and that renovating the terminal would be more expensive than constructing a new one - as well as parking and related facilities.

"There will be nothing left on this airport that has not been replaced by 2011," adds Rempel.

Edmonton's airport found itself busting at the seams last year due to an unexpectedly strong Alberta economy. It had already spent more than $275 million on expansion between 1998 and 2005, an undertaking that was to accommodate its passenger growth to 2015.

"Even with the latest expansion that was to accommodate 5.5 million passengers - we expected to reach that by 2015 - we hit 6.2 million passengers last year in a building that right now is at overcapacity," says Edmonton International Airports president and CEO Reg Milley. "Every morning there's a plane at our gates and a second one waiting, and a third one behind it. If we don't do the (new $1.1-billion) expansion, we're going to artificially cap any growth. We're completely out of gates in the mornings."

In the last three years, Edmonton International has seen growth of 10.5 per cent, 15.5 per cent and 16.3 per cent. The numbers so far - as of May 31, 2008 - show a 7.4-per-cent increase in passenger volume over the same period in 2007. Typical airport growth is two to four per cent per year, says Milley.

Other airports are also showing strong passenger numbers. Phase 1 of the expansion to Ottawa's airport was completed in 2003, with a new terminal designed to accommodate five million passengers. However, current passenger numbers are now just in excess of four million.

"We've been experiencing record-breaking growth year over year since we've opened this terminal," says Krista Kealey, vice-president of communications and public affairs for the Ottawa International Airport Authority.

The authority is now poised to fully open its $95-million Phase 2 expansion later this year - one that will add 12 gates. "This should basically keep us in very good standing to 2020 and beyond," says Kealey.

Airline analyst Erickson doesn't see any Canadian airports that are overbuilt. "I think Toronto was very aggressive, it may be somewhat underutilized but it has future capacity expansion now," he says.

Airports are very conservative, adds Garth Atkinson, president and CEO of Calgary International Airport. Calgary passenger volumes reached an all-time high in 2007, surpassing 12.2 million annual passengers - an increase of 8.4 per cent, or almost one million more passengers, than in 2006.

"In the next 10 years, our investment program is $3 billion - everything, renovation and the two big expansions at about $1.8 billion - and it's predicated on a relatively low-growth scenario of three per cent to 3.5 per cent a year, which is about a third of the growth we've had in the last five years," says Atkinson. "We build on forecast demand; our build plan is based on a very conservative growth forecast."

But airport authorities will still keep a cautious eye on the economy, adds Erickson.

"The beauty with all airport expansions is that you can stage it for short, medium and longer development terms," he says. "Once you put up the main structure - almost all of them are modular - all you need to add is the gates. (And) they don't have to put all the gates in now."

(Laura Severs can be reached at laura@businessedge.ca)