A nonprofit publication of the Kentucky Center for Public Service Journalism

CVG adds destinations, employs diverse strategy to utilize assets and position for the future

By Mark  Hansel
NKyTribune managing editor

With the launch of United Airlines’ nonstop service to San Francisco Thursday, it may seem that Cincinnati/Northern Kentucky International Airport is adding another route every few days.

That’s because airlines are increasingly finding CVG an attractive option when looking to add destinations.

The United Airlines launch follows the entry of Southwest Airlines into the CVG market Sunday with nonstop flights to Chicago’s Midway Airport and Baltimore/Washington International Airport . In late May, Frontier Airlines added nonstop service to San Diego.

Candace McGraw, CVG’s chief executive officer, says it may seem the growth has come organically, or because of a string of good luck, but nothing could be further from the truth.

“There has been a lot of work, a lot of planning,” McGraw said. “The reason it has come to fruition is because we have a great, passionate team working at the airport – folks working hard every day for the betterment of the airport and this region.”

Speaking at the Northern Kentucky Chamber of Commerce Eggs ‘N Issues forum in May, McGraw and other members of the CVG team explained how an airport that seemed to be struggling just a few years ago has now become a model of successful diversification.

CVG is much more than the tarmacs, concourses and terminals that most envision as an airport.

“We are essentially like a small city at CVG with 7,500 acres under its control,” McGraw said. “We have our own police fire and maintenance.”

About 420 people work directly for the airport authority and there are 12,000 badged employees, such as cargo workers and government employees, that have a security clearance to work at the airport.

“Of those, about 60 percent are residents of Kentucky, 30 percent are residents of Ohio and 10 percent are residents of Indiana,” McGraw said. “Of our customers that fly thorough the airport, 60 percent are in Ohio, 30 percent are in Kentucky and 10 percent regional. So we are truly a regional employer and we want to grow the airport for this entire region.”

CVG is a self-sustaining entity that does not operate using tax dollars. It is overseen by the 14-member Kenton County Airport Board that includes representatives from Kenton, Boone, Campbell and Grant counties and one appointee chosen by the governor.

“We run a business like you are running your business,” McGraw said.

The most recent study indicates CVG has an annual economic impact of$ 4.4 billion on the region.

For years, Delta Air Lines was the airport’s bread-and butter, operating more than 600 flights through CVG in 2005, to destinations all over the United States and to Europe.

Having a major player such as Delta operate a hub can be a huge asset for an airport and Greater Cincinnati’s central location in the United States made the partnership beneficial to the airline as well.  Delta’s decision to reexamine its business model and significantly scale back its schedule of flights here left CVG with fewer destinations and not many alternative carriers.

Delta’s strong presence at CVG for all of those years made it expensive for locals to fly out of their home airport and discouraged competitors from entering the market. Many locals chose to fly out of airports in nearby cities where flights were less exensive.

McGraw said it was at that time that CVG had to take a hard look at where it was and how it could position itself positively for the future. Diversification was key to that strategy and a major cargo carrier gave the airport a huge lift.

In 2009, DHL Express announced it would invest $275 million to move its U.S. air cargo and package sorting operations back to CVG. DHL has since invested another $280 million in capital improvements to that facility and CVG is now home to one of its three Global Superhubs.

CVG leaders then began to move forward with a strategy that would increase the number of passenger flights and destinations.

“In 2012, we consolidated all of our operations into what was at that time Terminal 3,” McGraw said. “Terminal 1 was vacant, but for our offices and Terminal 2 had eight gates, but wasn’t very passenger-friendly. We knew we could attract additional carriers and we knew those carriers that were there wanted to grow, but we had no space for them.”

CVG worked out an arrangement with Delta Airlines and took back control of Concourse A, which was really the first step in allowing it to attract carriers.

“It also helped with the customer experience and it also helped a little on our overhead costs,” McGraw said. “We generate about $120 million in operating budget a year and we have to meet payroll, we have to meet the bottom line.”

Bobby Spann, CVG’s vice president of external affairs said in 2012, CVG felt it was in a position to begin attracting new carriers.

“One of the big changes about the airport over the last five or six years is transitioning from what was a mega global hub-type operation dominated by a single carrier, into a multi-carrier (origin and destination) airport operation,” Spann said.  “Delta could not define our network.”

The focus on the air service plan shifted to an emphasis on the local passenger.

“Five or six years ago 70 to 80 percent of the people at the airport were just transitioning from one plane to the other,” Spann said. “Today 85 to 90 percent of our customers are coming and going through the front door and that’s a big deal.”

CVG now has nine passenger airlines and as of this summer, it will have 175 peak day departures with 55 nonstop destinations. It has launched more than 40 new markets or routes in the last four years and currently serves about 6.8 million customers a year.

Much of the credit for the increase in flights is attributed to the addition of low-cost carriers Frontier Airlines and Allegiant Air.

Spann said Allegiant was a tough sell because the airline wasn’t interested in larger mainstream airports.

“They thought it was too expensive and they couldn’t succeed,” Spann said. “We put together a business plan for them that proved they could be successful, they gave us a shot.”

Allegiant began with six flights a week to three destinations. That has now grown to 61 departures a week and CVG is now the fifth-largest airport on Allegiant’s network.

Frontier now offers 17 nonstop year-round and/or seasonal destinations with 93 flights a week. It is now CVG’s fourth-largest carrier in terms of daily flights and second-largest carrier in terms of seats offered.

Even the addition of a few flights can have a significant impact. The decision of Southwest to enter the market, for example, links CVG to its two major hubs and provides one-stop access to all of the U.S. cities Southwest serves.

CVG has also renegotiated agreements with all of its carriers, replacing the 40-plus-year-old deal that was previously in place.

The interior of the Wayfair distribution facility, built on a 52 acre site owned by CVG and leased to the online retailer. The Kenton County Airport Board adopted a policy to lease, rather than sell, airport land deemed suitable for development (photo by Mark Hansel).

“That dictated how we could do business at CVG,” McGraw said. “We were able to reach an agreement with all of our carriers, from our cargo friends at DHL, to our low-cost carriers at Allegiant and everyone in between. They signed a five-year lease deal, committing to doing business with the airport, committing to pay certain landing fees.”

The new agreement allows CVG to set a course for the future. It gives the airport greater control over how it can generate revenue into the future and how to develop a capital plan.

Several years ago, CVG also began to look into land development in an effort to further diversify its business model and take advantage of its unused or underutilized acreage.

“We began that process in about 2010 with an inventory of the property we have – what could be used for aeronautical or aviation purposes and what can be used for non-aviation purposes,” McGraw said. “Again, we didn’t want to be reliant solely on the airlines for our business.”

A primary factor that made CVG attractive to Delta – location – is also now a strong selling point for the airport in its diversification strategy. CVG remains a few hours from just about everywhere in the United States and that is attractive to overnight carriers and the booming online retail business.

The first major tenant for CVG was Wayfair Inc., an online retailer that opened a distribution facility at the corner of Mineola Pike and Donaldson Road.

“The Board has adopted a policy, which I think it is a very wise policy, that we will not sell our land,” McGraw said. “We will only enter into long-term leases and that has benefited us, for instance, with the Wayfair building. The 52-acre site generates hundreds of thousands of dollars in revenue to us, it generates taxes into Boone County and employs probably about a hundred of your friends and family.”

The announcement in January that Amazon will invest $1.49 billion to build an air cargo hub to service its Amazon Prime customers is considered transformational for the region. It also demonstrates how CVG’s strategy to diversify operations can reap huge rewards. The availability of land in a convenient location at an airport with passenger carriers at a variety of price points, with a major cargo hub and capacity to add others, offers strong potential for future economic growth.

Contact Mark Hansel at mark.hansel@nkytib.com

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