DENVER — Denver International Airport posted lower borrowing costs than most of its peers last year while generating higher returns, although it operates in a state with the 22nd-largest population.
A new 519-room hotel and rail line connecting it to the rehabilitated downtown Union Station put the finishing touches on a facility once derided as an expensive boondoggle, as Denver recorded the sixth-highest economic growth of any U.S. metropolitan area last year.
The nation’s largest airport by area, DIA has become Colorado’s top economic generator, earning $26.3 billion a year and supporting 225,000 jobs. Bonds that financed its construction were the sixth-best performer in the past 12 months among 53 U.S. airports with outstanding debt. Their 5.41 percent gain outstripped both U.S. investment-grade and high-yield corporate bonds, according to data compiled by Bloomberg.
“A large part of the population in the Denver area voted for the bonds to build this airport — it’s really unique,” said Kim Day, the facility’s chief executive officer. “This community understands the economic engine they get growing this airport — we’ve got political support you don’t find anywhere else.”
The airport started life as a project people loved to hate, with political consultant Roger Ailes, now president of Fox News Channel, spearheading a campaign by businesses near the former Stapleton International Airport to defeat it. Today, as Congress debates whether to replenish the federal Highway Trust Fund while roads and bridges crumble, DIA has become a testament to the economic heft of infrastructure projects.
The facility helped transform the Denver metro area from a cow town to an international destination of choice for business and leisure travelers. Passengers ranked it North America’s second-best air hub for customer satisfaction in 2015 after Cincinnati/Northern Kentucky International Airport in a survey by Skytrax, a London-based research firm.
DIA’s domestic flight network — the nation’s third largest after Hartsfield-Jackson Atlanta International and Chicago-O’Hare International — enticed corporations such as Panasonic Enterprise Solutions Co. and Charles Schwab to expand in Denver in 2014. These gains helped Colorado’s economic health improve more since 2010 than any other state except North Dakota and Michigan, according to Bloomberg data.
Twice the size of Manhattan and with room to grow, DIA is the only major commercial airport within 500 miles. Its location, nearly equidistant from both coasts, makes it the fastest-growing market in Dallas-based Southwest Airlines’ 44-year history. The airline began service at DIA in January 2006 with 13 daily nonstop departures to three cities. Today it serves more than 170 daily nonstop departures to 56 destinations.
“We have people who drive from Nebraska or Wyoming here to fly,” said Day, former executive director of Los Angeles World Airports.
Coloradans travel by air 3.2 times as much as the United States as a whole, she said.
The nation’s fifth-busiest airport, DIA served a record 53.4 million passengers in 2014 and its 140 shops, restaurants and services reported historic revenue of $322.8 million. Its record-breaking growth isn’t without challenges. To compete with well-established facilities with global networks like Dallas/Fort Worth International, the city and county of Denver accrued $4.4 billion in debt to build DIA, said Standard &Poor’s in a Nov. 11 report.
“Debt per enplanement is, in our opinion, high, at $169 based on total enplanements, or $291 based only on origin and destination enplanements, in 2013,” analysts wrote.
Airlines use enplanements, a measure of each passenger that boards a flight at a facility, to compare costs among airports. Origin and destination passengers, or those who begin and end their trip in a designated city, represent the region’s true demand for air service.
S&P cited several other possible contraints on growth, such as a high proportion of connecting traffic, at 42 percent, and the fact that United Airlines Inc. serves about 41 percent of the airport’s passengers, making it vulnerable to cuts by the carrier.
Even so, Denver’s airport benefits from some of the lowest borrowing costs in the $3.6 trillion market for tax-exempt securities among the country’s airport authorities. At 2.2 percent, it’s cheaper for DIA to raise money than airports in California, Georgia, Michigan, Florida and Texas, Bloomberg data show.
DIA’s economic ascendance outstrips that of its predecessor, Stapleton, which opened in 1929 three miles east of downtown Denver. In the 1980s, Denver trailed Dallas-Fort Worth, Houston, Phoenix, Seattle and San Francisco in population and economic growth. Skiers eschewed Stapleton, where a parallel runway system prevented simultaneous landings in bad weather, in favor of Salt Lake City.
“It had a very bad reputation — business travelers would say to their travel agencies, ‘Send me to Chicago or Atlanta, do anything you can to help me avoid Stapleton,’ “ said former Transportation Secretary Federico Pena, today a senior adviser for Vestar Capital Partners, a private-equity firm. As Denver’s mayor in the 1980s, Pena assembled a coalition of businesspeople, city council members and state legislators to promote building a new airport.
In May 1989, Denver voters approved airport bond sales by a nearly 2-1 margin, with many seeing it as a way to jump-start the local economy. Denver issued the last set of bonds without airline agreements — forcing interest rates up to 10 percent, said Pena. The airport has never lost money and proven profitable for bondholders, he said.
“DIA has surpassed everyone’s projections in terms of direct, indirect and induced revenue — it’s had an extraordinary impact,” Pena said. “The Denver metro economy is booming — it’s far more diverse than it was in the late 1980s — and to some extent that’s a result of the airport.”
Prices for office and retail space are escalating faster in Denver than in any other U.S. municipality. Metro Denver also charted the greatest one-year rise in home-resale prices in January of 20 U.S. markets on the S&P/Case-Shiller index.
The airport’s sheer size keeps aircraft noise largely within its boundaries and saves money when it expands.
“When Chicago built their last runway they had to do a 15-year environmental process and they had to buy land and soundproof houses,” said Day, the airport’s CEO. “All we have to do is put down pavement.”
O’Hare spent $1 billion on a seventh runway, while Denver’s costs for a planned seventh runway will be about $350 million, she added.
When Colorado Gov. John Hickenlooper, then Denver’s mayor, hired Day to run the airport in 2008, they agreed a top goal was to complete Pena’s vision of making it into a global network.
The facility’s international flights comprise only 4 percent of total passengers, with service to nine countries including Germany, Iceland, Japan, Britain, Panama and Mexico. Day wants to add flights to Europe and to Latin America, Asia and the Middle East. Denver’s location allows carriers to bypass coastal hubs in fuel-efficient aircraft like the Boeing 787 and the Airbus A380.
When she travels to meet with airlines overseas, Day brings business leaders and city and state officials to court companies like Samsung and Panasonic.
Day uses a planned $1.2-billion light-rail line that will connect DIA with downtown in 35 minutes and a $589 million airport hotel and transit center project as a selling point with carriers. The Westin is scheduled to open in November, with the train being operational by the second quarter of 2016.
The hotel’s conference facilities are already helping the city compete, luring a convention away from Dallas-Fort Worth, said Day, who is trained as an architect. The facility includes an open-air plaza that Day plans to use for concerts and other events.
Day is working to reconfigure DIA’s main terminal, crowned with tents to mimic the Rocky Mountains, and opening up space for concessions. The project is expected to be complete in 2019.
“Our goal is for you as a passenger to say ‘I didn’t know you could do that at an airport,’” said Day. “We were built to be a major global hub — we are fulfilling that vision.”
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