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Rachel D’Oro

(c) ANCHORAGE DAILY NEWS

01/31/99

   Moonsun Lee ignores the sub-zero cold as he strides up the metal steps of the blue and white Boeing 747. Inside the huge cargo carrier, the Korean Air pilot has little room to move. The double-deck fuselage is crammed with 97 tons of clothing, stereos and CD-ROMs made in China, Malaysia and Bangladesh, all on their way from Anchorage International Airport to Los Angeles.

   At least 93 times a day, such tightly packed planes pass through the airport, where 24 international and seven domestic freight carriers made 34,000 landings last year. Anchorage is easily one of the world's busiest air-cargo centers.

   That could change as more and more airports embrace the lucrative air-freight industry, extending their runways to handle heavier cargo loads, and selling their choice locations -- the same feature that has made Anchorage such a success.

   Airport officials here say they're not worried. Anchorage is such a pivotal midway point between Asia, North America and Europe that it will retain most of its air-cargo business.

   But competitors are circling, particularly for the Asia/Europe routes, which account for 3 to 10 percent of the Anchorage airport's business. Among those forging ahead are the Kallax Airport in Lulea, Sweden, the Vancouver International Airport in British Columbia, and a converted military airport in Tashkent, the capital of Uzbekistan, a former Soviet republic.

   Korean Air has already switched to Tashkent some of its flights that used to refuel in Anchorage. But airport officials remain unruffled, confident their air-cargo business won't implode the way international passenger flights did a decade ago.

THE GROWTH OF CARGO

   Anchorage was once a major refueling hub for international passenger flights. In the late 1980s, spending by international passengers at the airport's Duty Free shop generated $120 million a year in sales, making the shop Alaska's single biggest store and a main source of revenue for thestate-owned airport.

   Today, the airport has less than $15 million in duty- free sales. In 1989, Anchorage got hit by a triple whammy: longer-range aircraft, a shorter route through newly opened airspace over the Soviet Union and an erupting Cook Inlet volcano that made it dangerous to land in Anchorage while giving airlines a reason to test the Soviet air space.

   But the damage was offset in part by the cargo business, which has grown in the 1990s like fireweed. Cargo aircraft could pack in the freight, refuel in Anchorage and not have the headache of passengers in back complaining about the long flight.

   Still, for some cargo flights, especially those between Europe and East Asia, better routes than Anchorage are available.

   ''The reason Tashkent was able to capture a few of our flights is because

it's a much shorter distance between Asia and European airports,'' said Rich Wilson, development manager for the Anchorage airport.

   ''But Europe/Asia flights are only a fraction of our cargo business. On the other hand, most of the international passenger flights (10 years ago) were between Asia and Europe.''

   Korean Air diverted eight Seoul/Europe routes from Anchorage to the Tashkent Airport in the spring of 1997. The airline has since added 20 additional flights a week through Tashkent, said Quin Buckman, sales manager for Korean Air's Anchorage operations.

   For Korean Air officials, the advantage is obvious, despite more expensive fuel and landing and parking fees in Tashkent. Bypassing Anchorage shaves up to two hours each way, eliminating fuel weight in favor of more freight, said Jong H. Lee, the airline's Anchorage cargo manager.

   ''Fewer flying hours with more payload swayed the minds of decision makers,'' he said. ''In other words, Korean Air decided that the benefits of shorter flying time with more payload for revenue cargo are greater than the benefits of simply cheaper airport charges in Anchorage.''

   Korean Air still uses Anchorage up to 10 times daily as a midway point between Asia and North America, mostly for refueling stops. However, the airline is increasingly picking up cargo as well, including Alaska seafood and sliced Alaska deer horn, a medicinal delicacy in some Asian cultures.

   Anchorage is ideally located to remain the nation's ultimate cargo handling hub, airport officials say, particularly between Asia and North America, the bulk of the airport's freight business. Last year, Anchorage pumped 33 percent more jet fuel in cargo aircraft than Memphis, the number two site for all-cargo refueling, Wilson said.

   The rate of cargo landings has increased by more than 9 percent a year since 1991, according to airport records. That growth has produced more than 4,000 jobs -- nearly half of the airport's employees -- from people who refuel the planes to those who sort and load packages. FedEx alone employs about 1,000 employees in Anchorage, the company's main U.S. gateway for imports from Asia, and it just completed a $38 million expansion of its package-sorting center.

   ''We don't have a threat to our basic cargo business,'' Wilson said. ''Asia is an engine. North America is where we consume. And Anchorage is the midway point. That's the bottom line.''

TWO THREATS

   Airport officials, however, concede they could lose more Europe/Asia flights to Tashkent for southerly routes and Lulea for northern traffic. But first those airports would have to overcome significant barriers.

   Tashkent, about 425 miles north of the Afghanistan border, is significantly full of ''ifs,'' Wilson said. Little is known in Western circles about the quality of the airport's jet fuel, two runways and crew housing, not to mention the efficiency of its snow removal system and stability of Uzbekistan's economy and political structure. Getting through by phone is

often impossible; in fact, airport officials could not be reached from Anchorage for comments on this story, despite dozens of attempts.

   Moonsun Lee, the Korean Air pilot, has flown about 20 times to Tashkent in the past year and a half. In that time, he's seen improvements in runway snow removal. Freight has never been delayed. The only significant problem, he said, is that the airport's only taxiway goes unused. He has to make a 180-degree turn in the massive Boeings and return on the same runway, or, if he's lucky, take a wider turn and return on the other, parallel runway.

   ''I don't know why the taxiway is not used,'' Lee said, relaxing in the cockpit moments before he embarked on the Los Angeles trip. ''I have found no other problem in Tashkent. But it is difficult to turn around on the runways.''

   Kallax Airport has ambitious plans to expand its single runway from 7,600 feet to 11,000 feet by the end of the year, roughly the same length as the Anchorage runways. Ground-breaking is targeted for mid-April, once environmental issues like noise are resolved, according to project manager Goran Remahl.

   The Swedish government is funding the almost $20 million runway construction with a condition that private funding pay the $7 million cost to build aircraft parking and a refueling system, Remahl said. The government is still working to secure private financing.

With the runway extension, the airport hopes to attract 500 heavy-cargo landings the first year, expanding to 4,000 landings within three years.

   ''There's a lot of stuff moving from one side of the earth to another,'' Remahl said. ''We see a lot of our market coming from increased Internet orders and the electronics market.''

   Given the runway's length today, the airport mostly generates short flights with small loads, like newspapers. A longer runway would put Kallax in the air-freight major leagues, Remahl said. On a Japan-to-Europe run, for example, carriers refueling in Lulea instead of Anchorage would save two to four hours, by Remahl's calculations.

   ''It's very important to say we are in the same strategic position as Anchorage,'' Remahl said. ''We're not working in competition to Anchorage. We see some cooperation in Asia-to-Europe flights, with connections between Anchorage and Lulea.''

   Remahl was among the Swedish airport officials who toured Anchorage International Airport last year to inspect its cargo operations and offer a future alliance between the two.

   Anchorage airport director Morton Plumb said a partnership is feasible, with Anchorage a well-established gateway to China and Lulea a possible distribution point for trucking or flying goods farther into Europe. But the idea hasn't been fully studied, he said. Anchorage also is waiting to see if Kallax takes its project beyond blueprints.

   ''Yes, there could be a synergy there,'' Plumb said. ''The issue is, can you get commerce to go to Sweden?''

VANCOUVER EYES CARGO

   Vancouver doesn't pose much of a threat to Anchorage business, although the airport recently added a third runway, and it is heavily marketing itself as a cargo gateway to the Americas from 14 Asian cities, including Tokyo, Hong Kong and Singapore. Much of the airport's future cargo growth will come from luring more international freight carriers from other U.S. cities and more overnight courier service between Canada and the Lower 48, according to airport spokesman Mike Tretheway.

   If anything, Tretheway said, Vancouver's push will probably bring more refueling stops to Anchorage for flights to Hong Kong.

   The future for refueling is limited, however, Tretheway said. Anchorage, which relies on refueling stops for up to 75 percent of its cargo traffic, will lose out as airlines replace older jets with longer-range planes, including 747-400Fs.

   ''We're not in the business of competing against Anchorage,'' Tretheway said. ''Anchorage is in a unique geographic location right now. But 10 years from now, planes will need significantly fewer refueling stops.''

   But even with longer-range aircraft, it will still make financial sense to carry less fuel and more cargo, observed Ray Keiser, a Portland, Ore.-based airport consultant.

   ''A long-range freighter can fly non-stop from Japan to New York but the carrier is penalized with more fuel, and profits are not in fuel,'' he said. ''From an economic standpoint, it's much more reasonable to load up in Tokyo with enough fuel to get to Anchorage, and refuel for the continuing leg of the flight.''

   Shorter term, the Asian financial crisis has put a crimp in the air-cargo business in Anchorage, said Tom Mushovic, general manager of Signature Flight Support, a refueling consortium of 22 airlines that use the Anchorage airport. Last year, the airport experienced a 3 percent drop in fuel volume, the first drop in five years. Planes from Asia are flying full of cargo. But devalued Asian currencies have made U.S. products expensive there and slowed American export traffic.

   ''The Asian economy just basically sucked. Clearly that's what hurt us,'' he said. ''And this followed a record year for us, when business was just really good.''

   So far, the airport has felt virtually no impact from the developments besides the switchover by Korean Air. And airport officials are determined to keep it that way.

Development manager Wilson said the airport and city are exploring ways to hold onto present carriers and bring in new business.

   Part of the strategy is to better use a 1996 ruling by the U.S. Department of Transportation that allows most international freight carriers stopping in Alaska to transfer goods between their own planes and domestic carriers. Previously, this was allowed only with special permission from the federal government.

   The ruling makes Anchorage even more attractive because carriers can swap loads here, making the best use of space and fuel for shipments to Europe, Asia and North America, Wilson said. He envisions strategic alliances with potential rivals in the near future.

   ''The point is to maximize payloads,'' he said. ''For millions in savings every year, I'm willing to share our carriers with blood competitors.''

   Staying on top also means creative partnerships with noncompetitors, Wilson said. For example, Anchorage is working on a joint deal with Rickenbacker International Airport in Columbus, Ohio, which would serve as a distribution port for imports trucked in from New York. For Rickenbacker, Anchorage would be the threshold of international trade.

   ''The goal is to increase cargo flights for Anchorage,'' Wilson said.

   Increasing the volume of local air freight is another way to enhance airport business, said Patricia DeMarco, president of the Anchorage Economic Development Corp. Thus the ''Anchorage Solution,'' a plan hatched 10 years ago to persuade manufacturing giants to develop factory assembly and distribution centers in greater Anchorage, which is a nine-hour flight from 95 percent of the industrialized world, according to DeMarco.

   The city targets a dozen American and international corporations at a time. But so far it hasn't sold anyone that Anchorage would cut precious time from the manufacturing cycle, which can involve several companies and numerous locations. The Asian crisis also has scared some prospective companies, DeMarco said.

   But she remains optimistic about closing some deals in the coming year, despite lingering misconceptions that Anchorage is as uncivilized as Alaska's vast wilderness.

   ''Our location gives us a tremendous amount of advantage,'' DeMarco said. ''And we're beginning to have a more modern profile. But it requires persistence and patience and endless politeness dealing with multiple cultures in a very competitive environment.''

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