TimesWatch: Airport economy is in for a long, rough ride

Just after noon, Northwest, American and United Airlines prepare their daily flights from Seattle-Tacoma International Airport to Tokyo. The three flights leave within about five minutes of each other, forming an airborne conga line to Asia from the Pacific Northwest.

These are Sea-Tac's glamour flights — the flights that link Seattle to the world and generate millions of dollars a year. But like most airline travel since the terrorist attacks Sept. 11, passenger totals on some of these flights are down more than 50 percent.

The reasons are a litany of woes for the airline industry. Fear of flying. Long lines at security checkpoints. Continued scares, ranging from last week's crash of an American Airlines flight to the incident at Sea-Tac when a security breach forced authorities to call flights back and send thousands of passengers back through security gates.

Seattle has lost one of its high-profile international flights already. American Airlines announced recently that it would drop its unprofitable Seattle-Tokyo flight in January. The flight was linked to a nonstop American flight from Seattle to Miami, which was also dropped. Another international airline, EVA of Taiwan, trimmed two flights a week on its Seattle-Taipei service.

What happens at the airport is a key piece of what happens in the Seattle area's economy. The region's transportation links to the rest of the world and the rest of the United States are important drivers of economic growth. When they slow, the economy slows.

Sea-Tac's slump has added to the woes for the regional economy. This month's Times Watch figures show the Seattle economy falling into a deeper recession than most had thought possible only a few months ago.

Major revisions in the unemployment and job-growth reports make the picture even bleaker, confirming what most had already surmised. The economy started dropping sharply last spring, but was beginning to stabilize when the terrorist attacks hit.

The attacks threw all kinds of estimates out the window, especially in the airline industry and, by extension, the nation's airports.

While September was a disaster at Sea-Tac, the October results are expected to be somewhat better, according to Gina Marie Lindsey, Sea-Tac director. Traffic is expected to be down 10 to 15 percent for the month, compared with the 26 percent collapse in September. The impact of the American Airlines crash last week is hard to measure so soon.

Before the attacks, passenger traffic was keeping pace with a year earlier. "We expect to end the year with an overall 6 percent drop in passengers," Lindsey said. In preparing budgets for 2002, the airport expects a 10 percent drop.

The region feels the decline in other ways, of course. Boeing's sharp employment cutbacks over the next few months are driven by airline-industry problems that have dried up orders for new aircraft, forcing Boeing to trim production.

Cuts in the airline industry will be felt here as well. When American Airlines drops its Tokyo flight, as much as $60 million is expected to be pulled from the Seattle economy in lost jobs and crew transfers, plus purchases of supplies, fuel and services.

"That was a real unhappy piece of news for us," said Lindsey.

No airlines lost

While the airport has seen reduced passenger traffic and fewer flights, it has been spared the worst of the airline downsizing. While traffic and cargo were down in September, the airport did not lose any airlines. Airlines cut the number of flights but not many destinations.

Other airports in the region had similar experiences. Spokane International Airport reported a 25.7 percent decline in passenger traffic in September. Passenger traffic at Portland International Airport was down 30.8 percent for September.

Even in a reduced state, the airport remains an economic driver. Lindsey manages the 17th busiest passenger airport in the nation, a staff of 800 providing service to more than 28 million passengers annually.

A 1999 study showed the airport accounted for about 71,000 jobs directly tied to the passenger travel through Sea-Tac. Business revenues associated with Sea-Tac — concessions, nearby hotels, restaurants — were almost $7 billion in 1999. Reduced traffic will cut into those totals this year and next, until passenger traffic returns to former levels.

Using the Gulf War in 1990-91 as a guide, Lindsey said it would be at least a year before passenger levels return to former levels. Some airline-industry analysts say it could take much longer as the airline industry makes long-term reductions in operations.

Like many complex organizations, the airport is also creating jobs. A major renovation will continue in 2002 with more than $400 million expected to be spent on the main terminal and gate expansions, generating jobs in construction and business from suppliers.

Security concerns remain high, adding to costs but generating additional jobs. Airport security was criticized after last week's incident that caused flights to be canceled. Congress struck a deal last week to require all airport security screeners to be federal employees within a year, with an unknown impact on airport expenses.

The Port of Seattle, which runs the airport, recently added $20 million for additional security expenses in a $500 million bond issue to finance airport expansion.

Like Boeing and other industries, airports are tied to the airline industry for growth. Until airlines return to profitability, the outlook remains gloomy. Airline-industry analysts do not see an easy return.

"Because the extent of the falloff in traffic was so steep, we don't expect a rebound in industry traffic for at least 18 to 24 months," according to Michael Linenberg, airline analyst for Merrill Lynch. That puts any rebound well into 2003.

Other Times Watch statistics show the regional economy also has been hit hard by the combination of a national recession and the cutbacks at Boeing. In the past 30 years, there have been five national recessions but only two recessions — in the early 1970s and early 1980s — in the Puget Sound region. Both have come when there is a combination of Boeing employment cuts and a national recession.

Negative employment growth

Washington state's overall economy also is worsening, according to Bret Bertolin, economist with the state Office of Forecast Council. Employment growth will be negative in 2002, dropping 0.8 percent in the current forecast. An earlier forecast had employment growing, albeit slowing, at 0.9 percent.

Microsoft remains a strong point for the economy, however, according to Bertolin. Total high-tech employment is expected to drop by 4 percent in 2002, but would decline more than 10 percent if Microsoft were not counted.

Another factor is the Microsoft income effect. Boeing will trim about 22,500 jobs in the state in 2002 while Microsoft adds about 5,000 jobs. Because of higher average salaries in the software industry, Bertolin said Microsoft would replace about a quarter of the Boeing jobs but almost two-thirds of the lost Boeing salaries.

Another key indicator showing the weakness of the economy is the growing numbers of jobless people and the total claims for unemployment insurance. The unemployment rate is one measure, but the number of unemployed and the new claims are more telling ones.

Times Watch figures show unemployment totals have jumped 50 percent from a year ago with 78,800 people unemployed in October. That is also a sharp jump from September, when 67,500 were unemployed.

Total claims for unemployment insurance soared 85.8 percent from October a year ago with 34,120 new claims. New claims are now running at more than 10,000 a week.

Cheryl Morningstar, Seattle Times research assistant, contributed to this report. She can be reached at 206-464-8246 or at cmorningstar@seattletimes.com. Steve Dunphy can be reached at 206-464-2365 or at sdunphy@seattletimes.com.