Mayor Hickenlooper Seals Deal With United & Frontier

Mayor Hickenlooper Seals Deal With United & Frontier


Monday, November 10, 2003

Lindy Eichenbaum Lent

Mayor Hickenlooper Seals Deal With United & Frontier

City of Denver Resolves All Issues, Provides Gates for Airlines to Grow & Thrive, and Implements a New Cutting-Edge Asset Management Approach for Hub Airports
(DENVER) Mayor John Hickenlooper put an end to months of uncertainty and brought peace to the City’s previously tense standoff with its major airline carriers on Sunday by announcing that the City and County of Denver had reached a series of agreements with United and Frontier Airlines that will benefit Denver, the airlines, and the public. Joined by Attorney General Ken Salazar, United Executive Vice President Pete McDonald and Frontier CEO Jeff Potter, Hickenlooper unveiled the details of agreements that will give both United and Frontier the gates they need to pursue their business plans while ushering in a new era of innovative asset management for hub airports.

“When these negotiations began three months ago, I told our negotiating team that there were only two rules - preserve the interests of the airport and create a climate where United, Frontier, and the other airlines could grow and compete fairly,” Hickenlooper said. “I am proud to say we have achieved both goals. No one got everything they wanted in this deal, but we all won. This deal will help United to get back on its feet and grow its regional jet and low cost operation. At the same time, it gives Frontier the short-term and long-term gates it needs to pursue its impressive business plan. For people flying to, through, or from Denver, this means more choice and lower prices.”

The City of Denver's agreement with United provides that United will assume its principal lease and use agreement at Denver International Airport (DIA), and for the construction of a $40 million, 38-gate regional jet facility on the east end of Concourse B at DIA, to be occupied by United Airlines and its regional partners, as well as for the construction of new ticket counters for United at a cost of $15 million. The City's agreement with Frontier calls for completion of three interim gates on Concourse A at a cost of $8.5 million and construction of an extension to the west end of Concourse A, providing four permanent gates, at a cost of $42.5 million, with the option to add up to six more gates over time. In addition, United will permanently release one of its gates and temporarily release two additional gates, all on Concourse A, to accommodate Frontier's immediate needs for additional gates. Frontier’s need for 16 gates by spring 2004 will be met as a result of these agreements. The agreements also require DIA to complete certain taxiway and hangar projects at a total cost of $18 million.

“We have greatly reduced the capital construction costs that were planned at one time for the airport,” Hickenlooper said. “The old plans required us to spend over $300 million; the new plan, which extends the A concourse and provides a regional jet facility at the end of B, totals only $137 million - less than half of the original costs.”

The agreements with United and Frontier also provide tough new gate utilization and occupancy standards that will be applied to all airlines at DIA as their leases come up for renewal. The gate standards narrow the period of scheduled gate occupancy for United's flights on Concourse A, giving airport managers the flexibility to accommodate Frontier or other carriers’ flights on United gates when they are not being used by United. The new gate utilization standards also require that all airlines meet a weighted average of four departures per day per gate on Concourses A and C.

"These new standards give us the flexibility to manage Denver International Airport, our most valuable economic development asset, for the benefit of consumers and the regional community no matter what turbulent economic conditions we may face in the future," Hickenlooper said. “We are fortunate to have two major carriers competing for Denver’s business, and this deal establishes a firm foundation for future growth in robust competitive airline service for Denver, Colorado, and the Rocky Mountain Region.”

The agreement with United finally and conclusively settles all of the claims and issues between the City and United dating back to the construction of Denver International Airport, including two claims by United against the City totaling more than $30 million relating to the construction of the automated baggage system and a claim by the City against United for $13.5 million in pre-bankruptcy rent.

“We want the entire world to know that Denver not only has the nation’s best-run airport, but also is an active and proud partner with both United and Frontier Airlines as well as all of the other carriers who make Denver home,” said Hickenlooper, who worked to fashion a deal that would not burden Denver’s other airline carriers.

Hickenlooper praised United CEO Glenn Tilton, Frontier CEO Jeff Potter, and their respective teams for their willingness to settle old issues and take new approaches.

"This agreement is a good one for Denver, for Denver International Airport and for the millions of airline customers who fly in and out of DIA each year," said Pete McDonald, United's Executive Vice President - Operations. "I want to thank Mayor John Hickenlooper and his staff for all their hard work in reaching an agreement that ensures that United will remain an active part of this community for many years to come. United has a long history in Denver - it's home to 6,000 United employees, it's our second largest hub, an important part of our global route network, and it will be home to our new, low-cost operation that will launch in February."

"We are appreciative of the Denver community's overwhelming support and appreciate Mayor Hickenlooper and his staff's hard work on this compromise,” said Jeff Potter, President and CEO of Frontier Airlines. "As Denver's only headquarter airlines, we remain committed to maintaining Denver as our hub. Each and every Frontier employee is 100% dedicated to continuing to build upon our success in Denver."

Attorney General Salazar participated in Sunday’s news conference to announce that his Office settled its three-year antitrust investigation regarding United’s operations at Denver International Airport (DIA) and throughout Colorado.

"Throughout our antitrust investigation of United, I have felt that a truly competitive environment at DIA was essential to creating and maintaining a competitive marketplace for air service, not just at DIA, but at all of the smaller regional airports in Colorado," Salazar said. "I am pleased that my Office was able to work with the City of Denver in achieving this important goal."

The key points of the City of Denver’s respective agreements are listed below:

The City of Denver Receives:

  1. Higher utilization and occupancy requirements for mainline gates on Concourses A and C, allowing the airport to optimally manage airport facilities and reduce future capital costs.

  2. Two growing, competitive airlines resulting in lower fares, robust schedules and competitive service.

  3. Denver International Airport secured as a principal base of operations for United and as Frontier’s home airport and hub.

  4. Mitigation of financial impact on all airline tenants.

  5. Greatly reduced capital construction costs - While original estimates for United and Frontier’s gate expansion projects totaled more than $300 million, the current plan - which satisfies both airlines' infrastructure needs - totals only $137 million - less than one-half of the original costs.

  6. Protection that if, in the future, an airline does not use its gates on Concourses A and C more efficiently than the existing requirements, the City has the ability to recapture the gates and lease them to another airline - giving the City more assurance the gates will be fully used in the future.

  7. Protects DIA’s operating revenue by using net revenues from non-airline sources to reduce the financial impact of the agreement.

United Airlines Receives:

  1. Thirty-eight (38) new regional jet gates on the east end of Concourse B.

  2. New linear ticket counters.

  3. Rental savings due to returned space.

  4. Repair of hangar apron drainage problem.

  5. $7 million in net cost reduction for the next seven years, or approximately a 4% reduction in rent.

Frontier Airlines Receives:

  1. All 16 gates and four (4) regional jet positions by spring 2004 that they needed.

  2. Three (3) interim gates immediately to provide for their current schedule.

  3. Six (6) to eight (8) permanent mainline gates, plus up to four (4) regional jet positions by October 2005.

  4. Affordable expansion: costs increase roughly 25% for a 50% increase in gates.

All DIA Airlines Receive:

$12 to $19 million in average annual net cost reductions per year for the next seven years for all signatory airlines, which is approximately 2% of the airport’s total costs. These cost reductions will mitigate the financial impact of these agreements with United and Frontier on ALL airlines serving Denver.

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Posted on Nov 10, 2003 (Archive on Dec 10, 2003)
Posted by kpellegrin  Contributed by kpellegrin