What it Means: First New Agreement in 43 Years Between Airport, Airlines
For the first time since 1972, the Greater Cincinnati/Northern Kentucky International Airport (CVG) and its airline partners have agreed on a new modernized use agreement.
A use agreement governs the manner in which fees and charges are assessed.
“I want to applaud CVG leadership, airline partners and consultants who worked diligently for many months to come to an agreement on the New Use Agreement,” said Wm. T. (Bill) Robinson III, Kenton County Airport Board Chairman.
The airport entered into the current use agreement with carriers in 1972. That agreement expires December 31.
With changing dynamics in the airport/airline industry, a complete modernization of the use agreement was warranted, according to a news release from CVG. The airport and its existing key passenger and cargo airlines have negotiated a new Use Agreement comprised of the following key substantive terms:
- Five Year Term: January 1, 2016 through December 31, 2020. Shorter terms of 3-5 years are now the industry norm.
- Control Over Capital Projects: The New Agreement provides the airport with greater control over capital projects. Under the Existing Use Agreement, with a few limited exceptions, airlines must approve all capital projects/expenditures. The New Agreement provides greater latitude for airport controlled capital spending and limits airline approval.
- Revenue sharing/discretionary funding: The new agreement permits the airport to retain discretionary revenue at the end of each year. The existing agreement provides that all revenues are refunded to signatory carriers under a formula provided in the existing use agreement. The new agreement is structured to permit the airport to retain discretionary capital and cash balances through a sharing of revenue with the airlines, with the airport being paid first.
This will allow CVG to build cash balances for greater long-term airport stability, a news release said. The airport will also be able to fund projects important to the airport’s future while maintaining airline operating costs at reasonable levels and also has positive implications on the airport’s credit rating.
Minimum signatory requirements: The new agreement provides that passenger airlines must rent at least one gate to become a signatory to the agreement. Cargo carriers must lease a defined amount of space or have a minimum defined annual landed weight. Currently cargo carriers are not permitted to be parties to the existing use agreement.
This will allow DHL and Federal Express to now become signatories to the agreement. These minimum requirements also provide a low barrier of entry for potential new signatories.
“We are pleased that we could reach an agreement that meets the needs of the airport and its diverse base of carriers. This includes our traditional carriers and, for the first time, ultra-low cost and cargo carriers,” said Candace McGraw, Chief Executive Officer, Cincinnati/Northern Kentucky International Airport. “This New Use Agreement positions the airport for long-term success. Even this week, Fitch improved our outlook from stable to positive. We look forward to long standing future growth and improvements.”
“DHL continues to experience unprecedented growth at CVG. While we have an existing strong partnership with the airport, this new agreement provides us with a seat at the table representing all of our DHL Airline partners. As such, we anticipate continued growth at our North American hub in CVG where we recently announced a further expansion to our growing Operations,” said Travis Cobb, SVP Network Operations Americas, DHL Express.
“This important agreement allows Delta to continue our longstanding relationship with the Cincinnati/Northern Kentucky International Airport and the customers we serve,” said Holden Shannon, Delta’s senior vice president – Corporate Real Estate.
“Allegiant compliments the leadership of CVG for creating a new agreement structure that enables carriers to operate in a safe, efficient and cost effective manner. This agreement makes a commitment to keep carrier cost stable and reasonable over the next five years and we look forward to further building on our existing network at CVG,” said Keith Hansen, Director of Airport Planning, Allegiant Travel Company.