By Joel Warner
By Michael Roberts
By Joel Warner
By Michael Roberts
By Alan Prendergast
By Michael Roberts
By Michael Roberts
By Amber Taufen
The rose-colored projections offered up by SH&E were received so eagerly by city officials and business leaders promoting the nascent Denver International Airport that the city printed a brochure touting Denver as an international gateway on the plains. With the opening of DIA, it prophesied, Denver, conveniently perched midway between Europe and the Orient, stood to become a cosmopolitan crossroads.
Today, Denver is still waiting for its airships to come in. The number of overseas flights leaving from DIA each week isn't 57. It hasn't even reached 41, the number of weekly flights that same SH&E study predicted Denver could support as far back as 1988. Instead, the number of regularly scheduled airliners lifting off to distant shores each week is zero. Continental shut down the city's lone regularly scheduled overseas run, a once-a-week London hop, when it hightailed it out of town in the wake of DIA's opening. DIA does play host to a lonely Dutch charter airplane that flies in from Amsterdam once a week for ten months out of the year, but for the general public, the international itinerary is blank--which means Denver has fewer overseas flights than it did in 1987, when Denver hired SH&E specifically to drum up such traffic.
The consulting firm hasn't come close to realizing its vision of Denver as an international mecca. But SH&E is still on the payroll, its contract having been extended no fewer than six times since it was first signed in 1987. The company has collected nearly half a million dollars during its nine-year stint with Denver and stands to collect much more. Even though the city has its own full-time employee working on luring international flights, Denver aviation officials say they have grown dependent on the firm's expertise--so much so that in 1994, aviation director Jim DeLong flew an SH&E executive to Denver to help him interview applicants for a vacant deputy manager's position. A contract administrator put the kibosh on that $4,000 expenditure. But the firm had better luck last year, when the city gave it a new contract that commits another $175,000 to its efforts to woo carriers.
Leslie Madsen, the employee Denver already pays $60,000 per year to help attract international service, says it's important to have SH&E "by my side. When you work with airline executives on a consistent basis, it's the difference between making courtesy visits and being able to hand them relevant information in an airline format."
So far, though, it's hard to tell where SH&E has made a difference on overseas flights. The firm's Denver project director, Deborah Meehan, failed to return repeated phone calls. But in documents submitted to the city, the company, founded in 1963 by a former chief economist for the now-defunct Civil Aeronautics Board, describes itself as an authority on nearly all facets of modern aviation. It maintains a database it says is "unmatched in the industry"--and it bills accordingly. The firm's rates have risen from $87 per hour for its top executives in 1987 to a lawyer-like $189 per hour today. However, the intricate charts, cost-benefit analyses and glossy brochures it has prepared on Denver's tab so far have failed to pay off. Even as Denver was signing its new contract with the firm, the city was stung with bad news on the two main fronts where it has asked SH&E to concentrate its firepower: England and Germany.
Last year Denver paid SH&E roughly $10,000 to prepare a sleek sales pitch for British Airways--a document that came complete with pie charts and glowing accounts of Denver's boomtown economy and was hand-delivered to the English giant's London offices in October 1995. But the dominant British carrier has shown little interest in serving DIA. The month before it received the report from Denver, British Airways had announced plans to add a daily London round trip to Phoenix, a city only ninety minutes from DIA by air and long Denver's arch-competitor for overseas service. And earlier that year, the airline actually transferred a U.S. route it was authorized to fly into Denver to Tampa, Florida. "I think they just saw more use [for the route] in Tampa at that point," concedes Denver deputy aviation director Diane Koller, an SH&E supporter.
And while Denver has pleaded its case for years before officials at German powerhouse Lufthansa, Phoenix recently added insult to injury by landing its own nonstop Germany service. Beginning November 4, that city's Sky Harbor International Airport will offer once-weekly service to DYsseldorf by LTU International Airways, Germany's second-largest carrier.
Ultimately, the decisions by British Air and LTU to bypass Denver had more to do with economics than they did with public relations. "I know that in general, landing fees are a factor for most carriers," says Sky Harbor public information officer Joan McHenry, "and my understanding is it's very, very expensive for an air carrier to land in Denver."
But despite DIA's high costs, Denver presses on, continuing to focus on its old friends at British Airways and Lufthansa as primary targets for new transoceanic service. It is a battle plan--and a use of funds--that DIA critics find incredible. "If we could support more international service, we would have it today," says Mike Boyd, a longtime DIA detractor who runs his own aviation consulting firm in Golden. "Running off to British Airways--which has already dumped its Denver authority--and trying to convince them to fly into this overpriced landing field is a waste."
According to Boyd, city officials are desperate to land overseas flights because they feel compelled to make good on the lofty promises they made during the selling of DIA. "They said DIA will attract nonstop air service from Europe, the Far East and South America," says Boyd. "Federico Pena said that. It was a lie. So now they're trying to blame the rest of the world."
Madsen denies that the aviation department is under the gun. "I don't feel any political pressure at all," she says. "I feel a deep obligation knowing what [overseas service] has done for other communities, and I know that this city absolutely deserves it. We deserve it, we support it and we're going to have it."
And officials are convinced that--one of these days, anyway--SH&E is going to help them get it.
The city's contract with SH&E sparked controversy soon after it went into effect on February 15, 1987. One person who objected to the deal was then-city auditor Mike Licht, who sent a withering letter of protest to then-aviation director George Doughty that April.
"You have done it again!" Licht's letter began, referring to the aviation czar's decision to hire SH&E without conducting what Licht considered to be a true competitive bidding process. "As I understand this procedure, you have asked for RFQs [Requests for Qualifications] and then told the top companies, 'Tell us what you can do for $100,000.' I can't understand why this study could not have been done by using qualified companies and asking them to give their best price for the services required."
Licht went ahead and signed the contract, however, noting that he had no choice because Doughty had complied with all the pertinent regulations. And SH&E began what would become a long and lucrative relationship with Denver's aviation department.
Although it was hired for its technical expertise, from the beginning there was little doubt that SH&E's job had as much to do with boosterism as it did with crunching numbers. The head of the Colorado Tourism Board had served on a review panel that selected SH&E, and one of the first things the firm did was conduct a $6,000 "kick-off" meeting to "verify objectives" with members of the local business community.
It didn't take long for SH&E to lend its imprimatur to those objectives. In December 1987, the firm released a set of traffic forecasts that looked too good to be true--and were.
That study backed its conclusions with references to things like "load factors" and "threshold traffic levels," but in hindsight, its view of the future seems almost surreally optimistic. Among other things, the report declared that by 1988, Denver would be able to support thirteen weekly flights to London and six to Frankfurt, along with five flights to the "Caribbean gateway" of San Juan, Puerto Rico. It also raised the prospect of flights to Tokyo, Seoul, Hong Kong and even Sydney, Australia, a destination so distant that reaching it without a refueling stop would have required the longest regularly scheduled airline flight in the world.
Doughty, now executive director of a regional airport in Pennsylvania, says he doesn't remember the 1987 study but adds that in such situations "there is a Chamber of Commerce factor you have to deal with. That is that everybody wants to go nonstop from Denver to every destination in the world."
And SH&E's crystal ball grew still fuzzier the further into the future it peered. Assuming a preternaturally healthy growth rate of 11 percent for overseas traffic, the firm predicted that by 1993 Denver would be able to support nine weekly flights to the Far East and speculated on additional service to exotic points such as Switzerland and the Bahamas.
Perhaps giddy with the thought of wide-bodies soaring from the Rockies to the Alps, city officials wasted little time extending the SH&E contract. In 1988 an amendment raised the upper limit Denver would pay the firm to $200,000. And a review of invoices on file at the aviation department shows that the consultants had no trouble finding work to do. In 1989 the firm billed for studying the feasibility of Denver-Amsterdam service by KLM and even devoted several hours of research to the possibility of USAir opening up a hub operation in Denver (the Pittsburgh-based airline now has just six daily departures from DIA).
A Washington, D.C., attorney working as a subcontractor on the SH&E contract, Michael Goldman, billed the city at $160 per hour and by August 1989 had racked up more than $50,000 in legal fees--for, among other things, talking to Mayor Pena and reviewing SH&E documents. Goldman also jetted to meetings in Japan and Europe, including a stopover at the Golden Tulip hotel in the Netherlands ("unpretentious elegance in the heart of Amsterdam").
The attorney's spending habits quickly caught the eye of Madsen, who inherited oversight duties for the SH&E contract when she hired on with the city in September 1989. After Goldman billed the city more than $12,000 for the month of November 1989 alone, Madsen fired off an internal memo in which she described the city's handling of the law firm's invoice as "the EPITAMY of no control." Madsen followed that broadside with a January 1990 memo in which she described a "terse conversation" with SH&E executive Richard Murphy over her belief that "miscommunication was rampant between Denver, SH&E and [its] subcontractors." Madsen closed with a reference to an ongoing dispute over whether a trip Goldman had taken to Tokyo was really on behalf of Denver. Concluded the aviation official, "THERE WILL BE NO S&L BAILOUT ON MY WATCH."
By April 1990, however, Goldman and SH&E had run up so many charges that another Madsen memo noted that the contract had gone over budget and that the city had run out of money with which to pay the bills. Madsen recommended that Goldman begin routing his bills through a separate contract with the city attorney's office. Today Madsen says she doesn't remember much about that series of memos. Goldman did a good job for Denver, she adds: "He went to Japan once and Germany twice. Big deal." Madsen also says she has no complaints about SH&E's overall dealings with the city.
Doughty, an unabashed promoter of the notion that American cities could lure international flights through marketing and lobbying efforts, remained a firm believer in SH&E. In an April 26, 1990, memo to then-public works manager William R. Roberts, the aviation director explained why he wanted to again extend the firm's consulting contract. "Hundreds of millions of dollars" were at stake, Doughty wrote, and "Denver is in a strategic position to receive new service through the strength of Stapleton's current operation as well as the new airport's capacity down the road."
Accordingly, the visionaries at SH&E continued to think big throughout 1990, courting British Airways and spending $3,700 to prepare a "briefing report" proposing a competing Denver-London service by Virgin Atlantic Airways. The firm drafted a letter raising the specter of flights to far-off Singapore. And it researched the prospects of a route that would have been a true crown jewel for Denver: direct luxury service from Colorado to Zurich via Swissair. The effort proved to be a Swiss miss.
It's obvious that much of the promotional work Denver paid for in the late 1980s was based on wishful thinking, acknowledges Madsen. "I'm not defending it; it was unrealistic," she says. But Madsen adds that those great expectations came at a time when Denver still had two hub carriers and when airlines as a rule were more willing to take chances on international routes. "You still found carriers putting in flights they knew wouldn't even break even for a number of years," she says. "How quickly we forget the atmosphere, what was going on in the company mindset."
Both the city and SH&E received a rude awakening in 1991, when a rise in jet fuel prices linked to the Gulf War sent the airline industry into a tailspin. Expenditures on the SH&E contract plummeted from $145,000 in 1990 to just $25,000 in 1991, and dropped even further in the two following years as the industry slump continued. For a time, about all the consultants did for the city was compile statistics for a quarterly report officials had asked them to prepare so the airport could tell which airlines were flying where and when from Denver. Goldman's firm stopped doing work for the city, and Doughty departed for Pennsylvania. SH&E, however, stuck around--and was rewarded when officials began gearing up for the opening of DIA. Eager to attract new service, especially in light of Continental's pullout, officials asked SH&E to go after not just international flights but domestic carriers that could help break United's stranglehold on the market.
So far, though, SH&E success stories are as hard to pin down on the domestic front as they are on the overseas scene. For instance, the firm prepared a $13,000 report for Southwest Airlines as part of the city's ongoing attempts to convince the budget carrier to fly into DIA. Southwest didn't bite, citing the airport's high costs. The city also paid SH&E to prepare a brochure selling MarkAir on Denver. The financially troubled airline began service to Stapleton, a decision that had more to do with a seven-figure subsidy it hoped to extract from the city than anything else. But MarkAir crashed and burned last year, sticking DIA with millions in unpaid landing fees and other bills. By contrast, two budget carriers that didn't receive pitches from SH&E have successfully initiated Denver service: Vanguard, with seven daily departures, and the hometown Frontier, now the city's leading discount carrier.
Koller points to Air Canada, which began service between Denver and three Canadian cities last October, as an example where an SH&E route analysis helped sway a carrier toward DIA. Koller says Air Canada used SH&E's three route analyses for Vancouver, Calgary and Toronto to "confirm data" the airline had gathered itself. "I wouldn't say they looked at that in a vacuum, but it is an additional piece of information they can use," she says.
However, there were a number of other reasons for Air Canada to start service to Colorado. Airline spokesman Dick Griffith notes that the carrier's decision came eight months after the U.S. and Canadian governments signed an "open skies" agreement allowing airlines free access to each other's markets. Before that, the airline served nine American cities; it now serves twenty-two. The Denver route was also made attractive by the fact that Air Canada recently took delivery on a fleet of new aircraft, allowing it to expand more rapidly, Griffith notes.
City officials did lobby actively to lure the carrier, adds Griffith. But as for SH&E, he says, "I'm totally unfamiliar with their role in this."
Regardless of what promotional efforts are made on behalf of cities, it is the market that ultimately determines where airlines fly. In Denver's case, the city hired SH&E to give it the United Nations; the market gave it United Airlines instead.
The Chicago-based carrier now dominates passenger traffic at DIA, running well over 200 flights per day out of the airport. That monopoly hub has made life difficult for other domestic carriers. And in a scenario never envisioned back in the halcyon days when SH&E made its 1987 forecast, United has also emerged as a barrier to overseas flights. That's because other carriers fear that United, with its dozens of regional feeder flights, has a built-in advantage in the market.
"With most hubs our size, that dominant carrier wants that hub to be an international gateway," says Koller. "To this point, United hasn't made that decision." If it wanted to, United could begin flying tomorrow from DIA to London's Gatwick airport. But because the airline has consolidated its U.K. facilities at Heathrow, it has declined to take over the Gatwick run that Continental abandoned. Instead, United has routed its international passengers via gateways such as Chicago and seems in no hurry to press for a Denver-Heathrow connection.
"Denver's problem doesn't have much to do with SH&E; it's mainly the fact that United doesn't believe there is any advantage in flying to Europe nonstop from Denver," says Doughty. And because of United's death grip on the local market, says Boyd, Denver's costly efforts to lure prestige foreign carriers like British Airways will likely continue to be futile. "I've got no problem with making a projection," he says. "But in Denver, you don't need to hire a consultant to know that unless it's United, your chances of getting scheduled service in here from a major European carrier are extremely low."
Boyd's dour analysis contrasts sharply with the cheery picture painted in the October 1995 presentation SH&E prepared for British Airways. In that document, whose full-color cover features British Airways, DIA and SH&E logos side by side, the consultants portray Denver as an obvious choice for the English carrier. "Denver will be highly profitable for British Airways," promises the report, which goes on to state that even if United were to get into the London market, the local market would be healthy enough to sustain two competitors. The presentation even puts a specific number on the financial bounty that awaits the British company in Colorado: The airline could expect an operating profit of exactly $6,055,757 in 1997.
After touting Denver's recent economic boom, upscale demographics and general acclaim (a 1995 Forbes magazine article is cited for its description of the city's "strong business climate"), the report continues its pitch with a more philosophical argument: "The U.K.'s flagship carrier should serve the U.S.'s flagship airport."
The city spared no expense in making sure the report arrived safely at the subject's door. SH&E's Deborah Meehan flew from Boston to London to make her pitch in person, checking in for two nights at the exclusive Hotel Inter-Continental and billing the city $2,068 for the trip. Koller also flew in to assist in the presentation. The two returned to the U.S. having received a polite reception and no promises.
The transatlantic jaunt by Koller and Meehan was all in a day's work for an airport determined to shed its humble status as the largest passenger market in the U.S. without a nonstop flight to London. And according to Madsen, who herself has made numerous trips to London in an attempt to open up new air routes, SH&E's most recent claims about British Airways are completely reasonable. Perhaps the consultants told the client what it wanted to hear back in 1987, says Madsen, but that's not the case today.
Doughty also defends SH&E's work, pinning most of the blame for Denver's lack of overseas flights on his successors in city government. The city, he says, shouldn't have let the air-service program go dormant after he left in 1992. And the Webb administration's failure to open the airport on time "was also a negative for the marketing effort." Doughty says it makes sense for Denver to gear up the SH&E account again. But, he adds, "it seems to me they're now starting from scratch again."
Madsen and Koller gently suggest that they may take a less starry-eyed approach to marketing than did predecessors such as Doughty, who felt so strongly about international service that he went out and formed his own organization called U.S. Airports for Better International Air Service and then steered thousands of dollars of city money into its efforts to open up new flights. "I can't speak to how it was done back then," says Koller, who came to work for the city in 1994. "If SH&E came to me tomorrow and said, 'You guys should seek nonstop service to Italy,' I'd say no," she adds. "I know in my mind what the viable markets are for this."
For now, those target overseas markets are London and Frankfurt, though the city has also commissioned SH&E reports for Hong Kong-based Cathay Pacific and Korea Air--part of a renewed flirtation with the Pacific Rim that included a "trade mission" to Hong Kong last year by present aviation director Jim DeLong and Webb aide Stephanie Foote. With DIA finally open, says Koller, "we anticipate putting a lot of focus on air-service development."
And wherever DIA may roam in search of new air service, it's a safe bet SH&E will be along for the ride. The aviation department has budgeted $100,000 for the consulting firm in 1996.