Thomas P. Glynn CEO Report to the Massport Board September 18, 2014 Welcome to the September meeting of the Massport Board. I hope everyone had a very enjoyable summer. Aviation 9/11 Last Thursday, as it has for the past 13 years, the Logan Airport community paused to remember the friends, colleagues and loved ones who were lost on September 11, 2001 and to honor the courage and sacrifice of those who gave their lives trying to save others on that terrible Tuesday 13 years ago last week. United and American Airlines personnel observed private moments of silence at the departure gates in honor of the passengers and crew of American Airlines Flight 11 and United Airlines Flight 175. Wreaths were placed at the Logan Airport 9/11 Memorial. And for all of us, last Thursday served as a reminder of why vigilance must be unrelenting, complacency can never be tolerated and safety and security must always be the top priority of everyone who works at Massport s facilities. Cathay Pacific The big story since we last met in July was the announcement by Cathay Pacific Airways that the airline voted world s best in a survey of nearly 9 million travelers this year will start flying nonstop between Boston and Hong Kong next May. The increases in passenger traffic and visitor spending are both cause and effect of the record increases we ve also seen in the number of new international routes added at Logan in the past two years. Cathay is the second airline in as many months to offer nonstop flights to China from Logan Airport, following the launch of Hainan Airline s new route to Beijing in June. Cathay Pacific is the recipient of six Skytrax awards for customer service, including World s Best Airline 2014. 1
Hong Kong is the state s 11 th largest export partner, sending nearly $710 million in goods and services to Massachusetts each year. More than 53,000 passengers flew between Boston and Hong Kong last year. When Cathay s 44 connections from Hong Kong to other Asian markets are included, the new route represents more than 330,000 passengers and $332 million in annual revenue. Travel between Boston and Hong Kong/China is growing rapidly -- nearly doubling (by 86%) in just four years. Hong Kong is Logan s 40 th international destination and the sixth new overseas route to begin in the last two years alone. New air service is one of the more visible and tangible by-products of the Governor Patrick s trade missions abroad, where 12 new destinations have been added since the Governor took office. Securing new international service is a very competitive business and Cathay Pacific chose Boston over a group of other attractive destinations: Washington D.C., Dallas-Fort Worth, Seattle-Tacoma and Las Vegas. Instrumental to the success Logan has had attracting new service is the International Air Service Incentive Program this Board created five years ago. We are proposing to slightly modify the program going forward over the next three years by making benefits available to international carriers that offer new service to targeted destinations operating a minimum of three times per week instead of the four-times-per-week requirement now in place. The incentive program would still be available only to new service to targeted destinations in Asia and India, Central and South America, Africa and the Mideast, and Mexico City. Qualifying airlines would continue to receive the same benefits, which include up to $350,000 in marketing support as well as relief on landing fees during the first two years of service. We believe that this modest adjustment in weekly frequencies gives us the flexibility to successfully entice airlines to begin service to a new destination, both for Logan and for the carrier. The change is also consistent with the purpose of the incentive program which is to help these new international routes get off the ground during those first two critical years of service. 2
International Travel On August 15 th, about 120,000 passengers went through Logan Airport. That was an unusual event because it means that just about every seat on every flight in and out of Logan Airport was occupied. This statistic highlights the impressive increases in passenger traffic at Logan that we will hear about from Ed Freni later in the meeting and is a big reason visitor spending in Massachusetts was up 4.2%, from $17.7 billion in 2012 to $18.5 billion in 2013. According to statistics provided by MOTT, spending by international visitors alone was $2.5 billion in 2013 -- a 5.3% increase over the previous year. Overall, foreign travel at Logan is up about 20% in just the past decade alone, with 5.7 million international travelers served at Logan last year. Beginning next year we expected to see annual 8% increases in overseas traffic right through to 2017. International travelers now account for 1 in 5 passengers at Logan and the forecast between now and November has the number of international departing seats increasing 7.5%. US Olympic Committee Last Friday, I gave an overview on Logan Airport as a growing international hub to the US Olympic Committee, which is considering Boston as a possible site to host the 2024 Summer Olympics. In my presentation I emphasized that Logan now has nonstop service to 40 international destinations able to bring athletes and spectators to Boston from around the world to the Games quickly and easily. Once they get here, we also have a wide variety of ground transportation options and expedited US Customs and Border Protection services, such as the self-serve kiosks recently installed in Terminal E that are available to arriving passengers and which have helped to earn Logan its national recognition as one of the easiest airports in the country to breeze through. Last January I spoke before the special commission headed by Suffolk Construction Chairman John Fish created by Governor Patrick and the State Legislature. The commission looked at a variety of issues -- infrastructure, transportation, security, lodging, locations, costs, and job creation before eventually determining that New England had the ability to host the Olympic Games, which allowed Boston to be included along with Los Angeles, Washington D.C. and San Francisco as potential sites for the 2024 Games. 3
The USOC has between now and when the International Olympic Committee meets in Switzerland this December to decide whether to throw the name of a US city into the ring for IOC consideration as the host of the Summer Olympic Games a decade from now. Worcester Regional Airport JetBlue Reaches 100,000 Passengers On November 7 th, Massport will mark the one year anniversary of the day we joined Governor Deval Patrick, Worcester Chamber President (and former Lt. Governor) Tim Murray, Congressman James McGovern, Worcester Mayor Joe Petty and other city officials to welcome JetBlue Airways to Worcester Regional Airport along with the resumption of regular commercial service in Central Massachusetts. We had hoped JetBlue would serve 100,000 passengers during its first year at Worcester Airport. Instead, we expect to reach that milestone in the next few days, nearly two months ahead of schedule because the expected fall-off in traffic to Florida during the warmer summer months did not materialize as flights over the summer were nearly 90% full. JetBlue and Massport have heavily promoted the new service during its first year of operation with the assistance of Congressman McGovern, Chamber President Murray, Mayor Petty, Worcester City Manager Edward Augustus and other local officials who have always been willing to step up and support the airport. Massport distributed informational materials to those attending the Worcester Chamber s annual Central Massachusetts Business Expo at the DCU Center, where two round-trip tickets to either Orlando or Fort Lauderdale were raffled off. Airport Director Andy Davis sponsored a trade show at the airport featuring many of the major tourist destinations in Florida, such as Universal Studios and Sea World. Central Massachusetts was also featured in a trade show held in Florida as airports there returned the favor. And more recently, Worcester Airport hosted a brainstorming luncheon with recruiters from 11 nearby colleges and universities to come up with ways the schools could more effectively utilize JetBlue s air service to bring more students to Central Massachusetts. 4
These promotional efforts paid off with flights during the supposedly slower summer months that were actually 3% more heavily booked than average load factors since JetBlue began daily nonstop service to Orlando and Fort Lauderdale last fall. $3 Million Fire Rescue Upgrade With the help of a grant from the FAA, Worcester Regional Airport is getting a $3 million safety upgrade that will allow the airport to better meet the growing demand for air travel throughout the Central Massachusetts region. Portions of a 60-year old tower that once housed the airport s maintenance, safety, air traffic control, communications, and weather services will be removed to make way for a renovated Aircraft Rescue and Fire Fighting facility able to accommodate more modern equipment as well as staff and offices. The new safety facility is scheduled to be complete next April. Maritime Environmental Bond Bill In August, Governor Patrick signed a $2.2 billion energy and environmental bond bill that contains the state s $65 million share of the $300 million project to dredge Boston Harbor in order to make it deep enough to accommodate the larger container ships that will soon be traversing the new and expanded Panama Canal expected to open in 2016. The project would deepen the inner harbor to 47 feet from 40 feet and deepen the outer harbor to 51 feet from its depth of 40 feet. In addition to deepening Boston Harbor, the legislation authorizes funding for dredging New Bedford Harbor and constructing a New Bedford Marine Commerce Terminal that would be the first facility in the nation designed to support the construction, assembly and deployment of offshore wind projects, creating a new national industry centered in Massachusetts. The Governor said these investments are good energy, environmental and economic policy that will help Massachusetts continue to lead in clean energy innovation and job growth. 5
In June, President Obama committed the federal government to its $130 million share of the Boston Harbor improvement project when he signed the Water Resources Reform and Development Act, which had earlier passed the House and Senate easily. Massport also stands ready to fund the remaining $65 million of the state s share. The Army Corps of Engineers estimates that every $1 invested in dredging will return $9 for the local economy. The project will also deepen the Chelsea Creek to ensure the safe and efficient passage of petroleum to the terminals supplying 67% of this region s needs, including 100% of the jet fuel at Logan Airport. It s estimated that the dredging project will be complete in 2018 or 2019. New Shipping Service at Port As Massachusetts is poised to move forward on the deepening of Boston Harbor, two new shipping companies have begun to call on Conley Container Terminal. The developments coincide with improvements in truck turnaround times and with a new ILA agreement hammered together last winter that has produced time and cost-saving efficiencies for shipping companies using the Port of Boston. Crane productivity is up more than 15% compared to last year and truck turnaround times for the past 12 months have consistently averaged between 30 and 32 minutes, which are key measures of terminal efficiency and reliability. When Evergreen Line s 5,000 TEU Ital Lunare called on the Port of Boston in August, it was the first time in nearly 30 years the fourth largest container shipping line in the world has brought cargo to Boston along with the good paying job opportunities that go with it. The new weekly service allows Evergreen to serve New England without having to go through the Port of New York and New Jersey. Operated by the CKYHE alliance, the new service links North Asia and the US East Coast through the Panama Canal, whose expansion has necessitated the harbor dredging projects in Boston and elsewhere along the East Coast. Also in August, Hanjin Shipping s 4,200 TEU Milano made its maiden call in Boston. Hanjin is a partner in the COSCO alliance, fifth largest in the world that, along with K Line and Yang Ming, has been providing direct weekly service to Asia since 2002. 6
Each year, more than 1.5 million metric tons of cargo passes through the port. Container traffic at Conley through July is up 10% over calendar year 2013 when the port handled more than 195,000 boxes. Volume on the all-water service to Asia is also up 13% so far this year over last. 7,000 Direct Jobs About 7,000 jobs are directly tied to maritime industries in Boston, which would make the Port of Boston the 6 th largest employer in the city if the port was a single firm, according to a report by Martin Associates unveiled at the July meeting we held for more than 150 port stakeholders held at the Exchange Conference Center. All told, nearly 50,000 jobs are dependent on the Port of Boston, which generates some $4.6 billion in economic activity a year. John Barros, Chief of Economic Development for the City of Boston, said the port was critical to Mayor Marty Walsh s job-creating agenda for the city. Budget Fiscal Year 2014 Budget There was good news from Massport A&F Department as the Authority ended Fiscal Year 2014 with expenses 1.5% below projections while total revenues were 5.9% ahead of budget. Total expenses for the year, which included operating expenses, pay-as-you-go capital expenditures and debt service was $583 million, or $9 million below a budget of $592 million. On the other side of the ledger, revenues for the year were $627 million, or about $35 million higher than originally projected. Contributing to the increased margins, Logan revenues were 4.7% above budget due to the great performance of international carriers, higher concession and parking revenues and an improving Massachusetts economy. Utility revenues and landing fees were also up, as well as grant payments and one-time insurance claim payments. Maritime revenues were $85.8 million, or 16.4%, over budget due to the 9.2% increase in container volume over budget, which was a 6% increase in actual container volume over last year. 7
In addition, a $2.9 million one-time transaction fee received from the Seaport Hotel refinancing, along with increased parking activity, positively impacted Maritime s contribution. Of the $47 million in increased contribution margin in FY14, $20.5 million was transferred to the Capital Budget Account to fund an acceleration of capital projects approved by the Board. The remaining $26.5 million net contribution is being used to support Massport s FY 14-18 capital program. In sum, this was the best fiscal performance Massport has had since the Tobin Memorial Bridge and its $30 million in annual toll revenue was transferred to the Commonwealth in 2010 as part of transportation reform. That amounts to about $170 million over the next decade after expenses for bridge maintenance are deducted. Congratulations to John Pranckevicius and his team at A&F, as well as the department budget officers who helped secure such great returns for FY14. Massport s ability to continue to work collaboratively with the Commonwealth to advance our shared transportation agenda is dependent on our ability to produce annual budgets like last year s on a regular basis, with operating expenses kept to a minimum, revenues maximized and investments made to keep the economy performing well in the future. The list of Massport s contributions to this statewide transportation agenda also includes the addition of a new Back Bay Shuttle to supplement MBTA service to Logan during Government Center construction over the next two years; the $15 million spent to acquire Worcester Regional Airport while at the same time assuming the airport s $4 million annual deficit from the City of Worcester; and finally interest on the $365 million Massport borrowed to help the Commonwealth pay down the Big Dig debt, whose payment amounts to about 23% of Massport s total bonded indebtedness. Parking Rate Increase Providing the means for making these HOV improvements was, in part, why the Board voted earlier this year to raise the daily parking rate at Logan by $2. Going into effect July 1, the rate adjustment raised $600,000 more in its first month than originally projected due to the increasing number of passengers we saw at Logan last summer. 8
With the maximum daily rate now $29 in the central garages, and $20 for economy parking, total July revenues from on-airport parking was $1.3 million above this same time last year. The first hour rate of $6 did not change so that we could reduce terminal curb congestion. Parking revenues will be used on two other projects in addition to the HOV projects already mentioned: construction of a $30 million Logan Express parking garage in Framingham that will double the number of available spaces for the suburban bus service; and $60 million in improvements to the central and Terminal B garages to add up to 2,050 more spaces and reduce the need for valeting or diverting cars that could not be accommodated in available spaces. Over the last 12 months, Massport spent more than $1 million to valet or divert more than 70,000 cars to a different lot than the one the customer wanted. Real Estate Alex Krieger Charrette In July, one of the most highly regarded experts in urban design led a visioning session to help us get into sharper focus the big picture of our real estate efforts in South Boston. Alex Krieger has devoted his professional career toward improving the quality of life in major urban areas as a professor at the Harvard Graduate School of Design and principal at the global architecture and planning firm NBBJ, whose clients include many big city mayors and their planning staffs. Massport was fortunate that Mr. Krieger was willing to spend time helping us develop a plan to achieve the balance between commercial and industrial needs in the emerging South Boston Waterfront District that we ve been talking about for some time. Using examples of what cities were able to accomplish with waterfront districts in Brooklyn, San Francisco and Philadelphia, Mr. Krieger also led our discussions on how we could better integrate the Seaport and Innovation districts into a more cohesive whole with a distinctive character all its own. The area we are talking about extends from the Black Falcon Cruise Terminal to both the Boston Convention and Exhibition Center and to Liberty Wharf. 9
For comparisons sake, that is roughly the distance between the Hynes Convention Center and Copley Square, as well as between Columbus Park and Faneuil Hall both walkable distances through well-known and distinctive districts of the city. Key takeaways from the session involved the identification of the list of the ingredients, such as adequate parking and mixed-use establishments easily accessible by pedestrians, which would be needed to create the sort of thriving, 24- hour districts popular with residents and visitors alike that have taken root in other cities. Community Greenway Connector In August, Massport cut the ribbon on the new East Boston Greenway Connector the Board voted in 2011. Joining us at this long-anticipated opening were State Senator Anthony Petruccelli, Representative Carlo Basile, City Councilor Sal LaMattina and community activist Mary Ellen Welch, of the Jeffries Point Neighborhood Association. The distance between the East Boston waterfront and Constitution Beach is about 3.3 miles. Soon, local residents will be able to walk or bike the entire distance using an East Boston Greenway that includes Massport s Piers Park and Breman Street Park as well as the Greenway Connector. Massport invested more than $6 million to create this new Greenway Connector. The project encompasses a 1/3 mile-long landscaped walkway, protective fencing, ample lighting, security cameras and police call boxes spaced every 200 yards and a park overlooking Wood Island Marsh. The City of Boston hopes to open the final phase linking the new connector to Constitution Beach sometime early next year. The Greenway project is a joint effort of Massport, the Boston Natural Areas Network; Friends of the East Boston Greenway; Mayor Walsh and the City of Boston; the BRA and the Boston Conservation Commission. Two others who were instrumental in the construction of a continuous park connecting East Boston with its waterfront treasures were former Boston Mayor Tom Menino and the late Lowell Richards, Massport s Chief Development Officer. 10
Management Strategic Plan Implications As Chairman Angelini and other Board members have pointed out throughout the year-and-a-half long strategic planning process to chart Massport s future over the next 20 years to come, the changes we have been discussing have implications for our management structure as well as our asset and investment portfolios. One re-organization change we have already made is to take all of the planning capacity currently housed in our Economic Planning and Development and to combine it with Strategic Planning under Betty Desrosiers, who has been spearheading the strategic planning effort for the past two years. At the same time, EP&D s real estate responsibilities will be reconfigured into a separate Real Estate Department under Jim Doolin with two units: Real Estate Development headed by Beth Rubenstein, and Asset Management under Andrew Hargens. The strategic planning process has also spelled out new priorities for Port Director Deb Hadden and her team, Lisa Wieland, Reed Passafaro and Michael VanderBeek. Foremost among them is ensuring that all four business units reporting to the Maritime Department be self-supporting. There are two key challenges this team will face in accomplishing that goal: The first is managing along with the Army Corps of Engineers the $300 million Boston Harbor Improvement Project now that state and federal funding has been secured. The second is carrying out the $200 million strategy for developing the backlands that are instrumental to the success of our port facilities. That could mean identifying state and federal resources, or moving forward with the public/private partnership model we witnessed in Baltimore, or fleshing out the vision of the waterfront district we developed with Alex Krieger. 11
Awards Top 6 Eco-Friendly Airports The website About.com recently listed Logan as Number One among its top six eco-friendly airports around the world. Most airports have a bad reputation when it comes to environmental issues, the website says, but Logan and the other five major airports that have gone green have stepped to the plate when it comes to recycling, alternative wind and solar power, and much more. Logan was singled out for having the first LEED-certified airport terminal in the US, when Logan opened Terminal A in 2005. The website also mentioned the installation of wind turbines on the LOC, solar panels on airport garages and elsewhere, the plug-in stations that provide auxiliary power for planes parked at Logan s gates and Logan s first-in-the-nation use of warm-mix asphalt to repave an entire runway, making dramatic reductions in energy use and CO2 emissions. Also scoring high was Logan s clean cab initiative launched in partnership with former Boston Mayor Tom Menino, which helped to convert Boston s taxi fleet to clean-burning hybrid vehicles. Other airports on the list were: Denver International Airport, Seattle-Tacoma Airport, Switzerland s Zurich Airport; San Francisco International Airport; and England s East Midland Airport. Bob Weiss Bob Weiss, who does the All Things Travel reports for WBZ and has written extensively about Massport and its services for many years, highlighted the strong performance Massport recorded in the first half of the year, particularly passenger growth that is up 4.4% or 631,632 over the same period last year and well on its way to posting another record year at 31 million. Weiss mentioned that international passenger traffic increased to almost 140,000 for the same period and was up 6.6% as Logan launched three new international routes so far this year. He also mentioned the $100 million approved by the Board for an expansion of Terminal E to handle all this new international traffic, as well as the opening of the new Terminal B connector for United Airlines. 12
For passengers traveling to and from the airport, Weiss focused on new Back Bay Logan Express service that is off to a good start since it was launched last spring. The new Rental Car Facility that opened last September is also running smoothly, said Weiss. Berkshire Farms Market International travel is not the only thing taking off at Logan Airport. When Berkshire Farms Market first opened for business in the new Terminal B Connector four months ago, the store specializing in food products made or grown in Western Mass predicted it would do about $1.7 million in sales the first year. Now it expects to more than double that -- $3.7 million -- thanks to what the owner says is high foot traffic in a prime location and the popularity of the local-food movement. Michael Levin, chief executive of Tastes on the Fly, which partnered with Berkshire Farm & Table to open the store Terminal B told the Boston Globe the Boston store is one-fourth the size of a similar store opened at San Francisco International three years ago yet the Logan store has been able to attract about half as many customers. According to Angela Cardinali, founder of Berkshire Farm & Table, in addition to providing Logan s passengers with healthy food, the store in Terminal B gives growers and other food vendors from the region a year-round supplement to the seasonal farmers markets and co-ops they have traditionally sold their products. Based on the success they ve seen so far in Terminal B, the owners say they are considering opening another store somewhere else at Logan. Wings for Autism And finally, last week we received good news that Chief Bob Donahue and Massport Fire Rescue were winners of the Outstanding Service Award from the international Aircraft Rescue & Fire Fighting Working Group. The department was being recognized for its efforts applying the lessons learned from Logan s nationally-recognized Wings for Autism program to its interaction with other passengers who might be autistic. This might include passengers who need medical care or a member of their family who needs to provide life-saving information. It might also include how the department can better assist passengers with autism in emergency situations. 13
The Outstanding Service Award is one of the organization s most prestigious since only the chairman or Board of Directors can nominate a recipient. The award is being presented at the working group s annual conference on September 30 th in Galveston, Texas. Congratulations to Chief Donahue and the entire Massport Fire Rescue staff on winning this important award and for their work better serving Logan s passengers with autism. That concludes my report, Mr. Chairman. 14