Over the troubled 2000s, airline employment declined, and passenger traffic rose only slightly—growing just 0.2 percent per year from 2000 through 2010, compared with about 4.6 percent annually in the 1980s and 1990s. The harsh business climate forced many big airlines to shrink, merge, or go bankrupt, and they began abandoning unprofitable routes and airports that didn’t generate sufficient revenue. Because airports rely heavily on the fees that airlines pay them, which vary according to use, the shift hit them hard, especially those that already owed a lot of money to pay off their construction or expansion. And airports that had expanded to accommodate hub traffic saw unprecedented declines in business, since they generated most of it from passengers taking connecting flights, which airlines suddenly eliminated or shifted elsewhere. Airports that relied on local business lost far less traffic.
One of the big losers was Pittsburgh International Airport. In the immediate years after deregulation, it had become a key market for USAir, then one of the nation’s most profitable carriers. Local leaders, using USAir’s success as a justification for expanding and upgrading the airport, began urging the airline to finance a new terminal. According to a retrospective account in the Pittsburgh Post-Gazette by former USAir chairman Edwin Colodny, airline executives initially balked, arguing that it would be less expensive to expand the airport’s existing terminal. By the late 1980s, though, USAir had reluctantly committed to occupy a new $1 billion terminal, which would be built with local-government debt. To help service that debt, USAir would henceforth pay Pittsburgh International dramatically higher fees—as much as $50 million a year, compared with $10 million before. The airline moved into the new terminal in 1992, and by 1997, Pittsburgh International was handling nearly 21 million passengers a year, most of them flying USAir. But only 20 percent of those passengers originated in Pittsburgh; the rest were transfers.
Then came the 2001 recession and the 9/11 terrorist attacks. Business slumped, and new, low-cost carriers began competing for USAir’s passengers. The reeling company entered bankruptcy in 2002, exited in 2003, and then reentered in 2005. It sought to reduce its fees at Pittsburgh International, saying that it was losing tens of millions of dollars a year, but the airport resisted. So USAir began scaling back, shifting transfer flights to less expensive locations and laying off thousands of Pittsburgh-area workers. USAir currently operates only a few dozen flights from Pittsburgh, down from a peak of nearly 550, and the airport’s total passenger volume has dropped to about 8 million a year—far fewer than the 32 million once predicted by local leaders.
USAir’s diminished role left Pittsburgh International with a $25 million budget gap for annual debt-service payments for the new terminal. The airport filled the hole with taxes on passengers’ tickets and with $10 million a year in proceeds from legalized gambling, which Pennsylvania is now funneling into the airport. Pittsburgh International still owes some $450 million for the terminal. To save money, officials have also shrunk the airport that cost so much to expand. Of the nearly 100 gates in use at the height of Pittsburgh International’s traffic, only half are active today. One concourse in the 1992 terminal has been demolished, and whole sections of two others, occupying nearly 100,000 square feet, have been closed indefinitely. [Emphasis added]
Consider the following counterfactual scenario. Had local leaders not intervened, Pittsburgh International would not have taken on enormous new debt, USAir would not have been burdened by the costs of its expensive new hub, and Pittsburgh might have adjusted to a more sustainable equilibrium level of flights in and out of the city without having taken on an economic burden the region can’t afford. Granted, you could say that local leaders made a bet on the future, and sometimes bets turn out badly. The trouble is that the local leaders who made the bet are not bearing the consequences of their abject failure. Rather, the taxpayers and passengers of Pittsburgh are paying the price in foregone economic activity.