Can the New Indianapolis Airport Terminal be Justified?

It's a big week in Indianapolis as the airport opens a brand new, $1.1 billion terminal that completely replaces the old one. It's always an exciting time when a new terminal opens, because the passenger experience is inevitably improved dramatically, but that doesn't always mean it's the right thing to do. In fact, while it probably made sense at the time they decided to go forward with the new terminal, it's now going to be difficult to justify the costs when keeping costs low is so important.

The best reason to build a brand new terminal is if the old terminal is too small to handle the existing traffic or if the passenger experience is so awful that it causes people to not fly from the airport. In Indianapolis, the airport experience is acceptable, if not ideal, but it's not like people have another airport nearby that they could use instead. It's also hard to argue that the current facility is too small right now.

If we flash back to the late 1990s, early 2000s when the airport was being studied, it was a different world. Hometown airline ATA was growing significantly in Indianapolis, and the prospect for future growth was great. So I can understand why they felt it necessary to create a new facility at that time. It's not like there's room to further expand the existing terminal.

Unfortunately for the city, ATA collapsed entirely. Northwest and AirTran moved in to pick up some of the slack, but the prospects for major growth just aren't there. With the merger of Delta and Northwest, it also calls into question how much service the combined airline will even keep at the airport.

So, if we look at this, it's understandable why they wanted to build a new terminal, but it's also now obvious that it's not really necessary at this point in time. In fact, it may hurt the city more than anything else right now, and that has to be extremely frustrating.

How could it hurt? Well, someone has to pay for the airport, and that's going to fall squarely on the airlines' shoulders. Higher per passenger costs mean that the airlines need to bring more revenue in to justify the continued operations of their flights. It would not surprise me in the least to see airlines cut flights that were marginally profitable before but are now unprofitable with the increased costs. Of course, it's always possible that they've already done the cutting in anticipation as well.

It's not all bad news for the airlines here from an economic perspective. The terminal currently sits in the far southeastern corner of the airport, so taxi times are VERY long, especially for aircraft departing to the northeast or landing to the southwest. I'm told that the airport expects fuel cost savings of nearly $1 million a month across all airlines via reduced taxi times to the new terminal. I was, however, told that the cost savings number has been used for quite some time, so with the fluctuation of oil prices, it's not entirely accurate these days. Still, there will be concrete cost savings in that way, but I can't imagine it will be enough to make up for the increased costs to airlines.

I was promised the cost impact for airlines from the airport, but as of the time of writing, I was unable to obtain them.