Issue Summary (Updated January 2009)
US Airways Presence in the Pittsburgh Region

The Issue:

In October 2007 US Airways announced another decrease in flights and employees to add to the already dramatic drop in the presence of the airline in the Pittsburgh region. Since 2001 the airline will have reduced daily flights from over 500 to 68 in early 2008. Along with the reduction in flight activity, employment fell from nearly 12,000 to 1,800—a decline of 85 percent over the last six years.

What We Know:

The Pittsburgh region and Allegheny County in particular, have made a tremendous investment in US Airways, indirectly through improvements at Pittsburgh International Airport (PIT) and directly through subsidies for the new operations center, only to see the airline reduce its presence dramatically.

In the early 1990s Allegheny County built a new airport facility largely to house the US Airways’ hub and the anticipated surge in traffic the hub would provide. The facility was constructed to accommodate 50 million passengers per year and would be paid for primarily by landing fees charged to the airlines. Unfortunately, passenger traffic never substantially surpassed the 20 million achieved during its first year of operation. However, US Airways dominance at the airport did increase and its monopoly status produced some of the highest airfares in the country—prompting many of Pittsburgh’s originating and destination traffic to drive to other airports.

Yet despite the monopoly status of the airline, it struggled with financial problems arising from high costs. By early 2001, they sought to merge with United Airlines. The merger ultimately fell through and US Airways went into bankruptcy in 2002 and then again in 2004. Those bankruptcies eventually resulted in a merger with America West airlines and a dramatic drop in flights at PIT and subsequent employment in the region. US Airways reduced PIT’s status from a “hub” to “focus city”.

The large decrease in flights has had significant negative financial implications since the construction bonds used to build PIT are paid for, in part, by landing fees. As a consequence the Allegheny County Airport Authority has asked for and received a promise of $15 million in gaming tax revenue to help meet debt obligations. That is $15 million that could be used for other purposes including tax relief.

US Airways then went to state and local officials to ask for financial assistance to build a new $25 million flight operations center. The airline dangled 450 existing, and possibly 150 additional, jobs to the Allegheny County Executive and Governor while mentioning that two other cities, Phoenix (home of the America West flight operations center) and Charlotte were in the running as well. Despite offering a lower subsidy package (more than $16 million) than Phoenix (Charlotte’s bid was never revealed), Allegheny County “won” the center.

Months after the subsidies had been secured US Airways broke ground on the new center. That was followed up by an announcement of more cuts to flights and employees effective in early 2008. Local daily flights will fall to 68 and 450 people will by let go while another 500 pilots and flight attendants will be relocated. This brings US Airways employment levels in the region to 1,800—a reduction of 85 percent since 2001. So the more than $16 million in subsidies used to guarantee 450 flight operations jobs will not offset the loss of 450 jobs and the relocation of 500 others. Pittsburgh’s status as a “focus city” may be in jeopardy as well.

This may not be the end of the cuts as the CEO said, “you never say never.” But as the County Executive responded “the flying public makes that decision.”

Recommendations:

The saga of US Airways should be an object lesson for government officials to stop using taxpayer money to support private firms in decisions that are not financially viable absent the subsidies. Playing favorites, as they have done with US Airways, has proven to be a losing proposition. It is far better to keep taxes low and create a favorable labor climate to the benefit of all companies. But of course if those were present, all this doling out of subsidies would not be necessary to persuade companies to invest in the region and state.