The Vertical Space

#85 Sean Donohue, DFW Airport: A CEO's perspective on running a global airport

• Luka T • Episode 85

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In this episode we dive into an engaging conversation with Sean Donohue, CEO of Dallas Fort Worth International Airport (DFW). The discussion covers a broad range of topics such as the significant role of travel and tourism in the global economy, the strategies of introducing new technologies in aviation, and the operational priorities of running one of the world's largest airports. Sean provides insights into the complexities of balancing demand and supply in air traffic, his perspective on the privatization of air traffic control and airports, and DFW's extensive capital and technology investments aimed at future-proofing the airport. Additionally, Sean talks about DFW's role as an economic engine, the impact of car services like Uber and Lyft, biometrics in enhancing security and customer experience, digital twin technology, and the potential integration of autonomous vehicles and eVTOLs. 

Sean:

I was part of the World Travel and Tourism Council and we have Oxford Research do a tremendous amount of research on travel and tourism. And globally, travel and tourism is more than 10 percent of global GDP. Just an enormous number. So if you are constraining your ability to grow, first of all, you're going to have a massive economic impact. Number two is, and again at the risk of sounding naive, but one of the reasons I love this industry, and I've been in it for 41 years, and I really do believe this, and it sounds a little maybe sophomoric, but I believe there is a spirit to travel. As hard as it can be, as frustrating as it can be, you know, there's just something when you get off an airplane. I was fortunate enough to go back to Australia last fall, even after a 17 hour flight when I got off that airplane in Australia and you hear the Aussies accent and you grab a great cup of coffee, and you can name that in any country in the world, there's something about that connectivity that I think takes away misconceptions and it breaks down barriers.

Jim:

Hey everyone, welcome back to The Vertical Space and a conversation with Sean Donohue, Chief Executive Officer of Dallas Fort Worth International Airport. We so much enjoy talking to those who are creating, developing, and marketing capabilities in aviation and aerospace technology. But as many of you have or are realizing, it's really hard to introduce technology to aviation and to get aviation companies like airports and airlines to actually pay for that technology. As such, it's so important to hear the thoughts of one of our great aviation and airport leaders, Sean Donohue. Listen to what Sean says are the areas the large airport CEO focuses on the list is many, but he also selects the one area he would recommend at least for the DFW CEO as one of the most important areas. We talk about the macro industry trends affecting airports. And I like how Sean answered Luka's' question about how airports and other aviation organizations balance the demand and supply side of airport air traffic. We also get into a bit of a discussion on Sean's perspective on privatizing air traffic. We even touch a bit on privatizing airports with some of the pluses and minuses. We also have a good discussion on whether or not our air traffic system is prepared for even today's capacity constrained airports, to say nothing of what will happen as demand continues to increase in the future. Listen to how DFW is preparing for the future. Where they're investing, including the technology and some of the areas may surprise you. Listen to Sean's comments on the role of technology and planning for airport parking, a massive revenue source for airports. Sean talks about the airport product and the role of technology and providing a better product. It's also important to hear what Sean considers to be one of DFW's greatest risks and what they're doing about it today and in the future. Great discussion on DFW's technology roadmap, including the focus on cyber security. And I really liked Sean's discussion on investments on the airports air side operation Toward the end we discussed the impact of Uber, Lyft and even a bit on the role of, or lack there of of advanced or mobility. This is a rich discussion for our innovators and entrepreneurs to be listening to. It is also for anyone who wants to better understand how one of our great leaders runs one of the largest airports in the world. Many thanks to Sean, a great pleasure having you join us, Sean. And to our many listeners, we hope you enjoy this special discussion with Sean Donohue, as you innovate, hopefully profitably in The Vertical Space. Sean Donohue serves as Chief Executive Officer of Dallas Fort Worth International Airport. Under his leadership, DFW airport is the third busiest airport globally for passengers and is ranked the third busiest for operations. Sean has led DFW airprort's growth as an economic engine in North Texas, which today's supports more than 600,000 direct and indirect jobs which amounts to 38 billion in payroll. DFW airport connects the North Texas region with nonstop service to over 250 destinations on five continents and is consistently ranked among the best large airports for customer service. During Sean's decade of leadership at DFW the airport became a global leader in aviation sustainability and resiliency. Prior to joining DFW. Sean had a 29 year career in the airline industry, having held executive roles with Virgin Australia Airlines and United Airlines. His dedication and expertise within the aviation sector is recognized globally and he serves as the Co-chair of the Aviation and Aerospace Committee as part of the World Economic Forum. In addition, he serves on the board of Atmos Energy and several boards for community organizations in the Dallas Fort Worth region. Sean Donohue. Hey, welcome to The Vertical Space.

Sean:

Jim, thank you and, look forward to the discussion. Appreciate you asking me to participate.

Jim:

Great honor having you on. So Sean,

Sean:

see if, we'll see if you say that the end.

Jim:

at the end. Is there anything that very few in the industry agree with you on?

Sean:

Well, the, the one part of the industry right now that everyone is optimistic on in aviation, well, it's certainly the, the carriers who have a premium product are very optimistic on is the incredible spend that customers are willing to now pay for a premium product, in the airline space and even in the airports and, and it's great to see and I hope it does continue just being in the industry 40 years and seeing all the peaks and valleys I'm not convinced it's going to have the staying power that maybe some others in the industry believe in. And, and my only point is, I think there'll continue to be peaks and valleys, if you were to look at the revenue premium right now, over the next 10 years, will it still be positive? Yes, I just don't think it will stay on the same trajectory that we've seen the last couple of years.

Jim:

Sean, what's driving the premium seat today? And how could that not sustain itself over time?

Sean:

Well, I'll give you an example. When I travel, and, and we travel from DFW up to, to Boston to see our kids and our, our grandson all the time. And when you buy the ticket, you'll get this offer to upgrade to first or business class for an extra two, three hundred dollars. And my understanding is a lot of customers are going ahead and using that and paying to upgrade, which is great for the airlines. It's good for us as an airport. I just wonder how much longer that will last. And will people start to say, Was that worth an extra 2 or$300 and, you know, to a certain extent, you're seeing the same thing international, but, people, obviously, the economy is doing well, savings rates, I think, are still pretty strong, especially after COVID. People are willing to pay more for an experience now than, than we probably have seen in the industry for decades. My only question is how long will that last?

Luka:

When you say that you don't think it will last, are you anticipating that there are aspects of this that passengers value today that they will not value in the future or just the economics will not work.

Sean:

Probably a little bit of both. Luka. As a traveler, I say to myself, when I look back on a three hour flight to Boston, if I paid an extra 250 bucks to sit in business class. Was it worth it? And sometimes I probably would say, no, it wasn't worth it. Let me give you an airport example. When we measure our concessionaire sales, we're actually starting to see a plateau of concessionaire sales per customer. And again, customers, I think, are starting to tighten up a little bit more. The one, aspect of that in the airports that is, very robust is lounges. I have in my 40 years, I have never seen the demand that you see for airport lounges today. We, can't build them fast enough. It's a very, very profitable business for the airports. What I would say is, especially the credit card companies. Obviously, Amex has had lounges for a while. We have a Capital One lounge, beautiful lounge. Chase is now getting into the lounges. We'll be opening a Chase lounge. I'm not sure you guys are familiar with private suites. They're the lounge product out in LA. They're going to come to DFW those products though, other than maybe being overcrowded, are very good products. And actually I think they've raised the game for the airline lounge products as well. And that is a product that I believe customers will continue to pay for as long as the demand doesn't exceed the supply, and that is a bit of an issue with certain lounges right now.

Peter:

Sean, do you see the potential drop off in the appetite for first class upgrades and for these lounges as being driven by the economy? Or do you see it? I mean, are you saying that it's a change in the nature of the product itself? Because there's an equilibrium point in the product, there's an equilibrium point in the experience from a lounge as they get more crowded or as they get more numerous and as the alternatives in the rest of the terminal continue to improve as well. So, how did those drivers play into your thinking versus macroeconomic ones?

Sean:

It's a good question, Peter, because fundamentally, economics, I think, will always be the key driver. We're in a good economy. People have extra income. They're willing to spend it, and they're actually willing to experiment a little bit, and if the experiment on the experience is good, great. If not, well, they don't feel like they lost anything. Whenever we go into the next recession, economics will clearly take something off the top. My point is, either business class, or first class, or lounges, At the end of the day, what will be the most sustainable part of that driving that demand will be the experience. If it's a really good experience, then I think people will continue to be more willing to pay. There will be, you know, peaks and valleys based upon the economy, but ultimately, I think it will come down to the experience.

Jim:

Sean. So let's, play out a scenario. Let's say a buddy calls and says, Hey, I'm about to take over a big airport. And, you've been running DFW successfully now for 10 plus years. And you said, listen, here are the things you got to focus on. You know, day to day. These are the metrics I focused on. This is how you're going to be judged. What would be the guidance you give to your buddy on that first phone call?

Sean:

Well, it's a an appropriate question, given that I'm retiring and I've had some people call me who are interested in the role and pretty much asked me the same question from a, from a different angle. And what I would say is, is this, Jim, and everybody in aviation says this, and we've said it for decades and decades and decades, and that is, you have to start with safe and secure. I go a little deeper than that, though, and that is the U. S. has, by far, the safest aviation system in the world. It's amazing. It's amazing. The OEMs, the aircraft engine manufacturers, the airlines, the airports. The whole ecosystem does, and has done for decades, a great job. However, in the last couple years, I believe no one can argue that we have had too many, what I would call, near misses. More than I can remember. Probably in a couple decades in in every aspect, and I believe that's because we lost so much institutional knowledge and experience in aviation during COVID. A lot of people left a lot of experience and we have hundreds, literally hundreds of thousands of new employees. Everyone is focused on training them and, making sure they understand how critical safety and security is, but I would argue we can't just use our normal statement that it's, you know, you see it in every press release, you know, when there's an incident, companies will say, the safety and security of our customers is our number one priority. Well, that's not good enough. really, you got to dig a lot deeper now to make sure it truly is, your number one priority. So I, I start with that. Number two, the fascinating thing about airports that I didn't know, even though I worked in airports from an airline perspective, is they are this incredible economic engine. And take DFW, for example, directly and indirectly 600, 000 jobs, 38 billion annually in payroll. We generate 5 billion in taxes. And we take no tax revenues whatsoever. So we, we are a generator, not a user of taxes. So, airports, in, in Texas, we're the second largest economic engine in the entire state behind the port of Houston. Not the airport, but the port. So we're these, you know, huge economic engine, and therefore we get a responsibility. You know, people count on us for jobs. People count on us. Small companies, you know, women owned, minority owned companies, they want a shot at, at being successful at DFW, and we've got a responsibility, to make sure everyone has a shot and, an ability to participate in the economic, engine of DFW Airport. I would say clearly, focus on the customer experience through the airport is absolutely a priority. We all know it's hard to travel. We all know there's going to be disruptions, interestingly, and I know we'll talk about technology and maybe this is another area that maybe my views a little bit different than others. Yes, we are investing a significant amount of money and technology to help us run a better airport from a lot of different angles. But at the end of the day, it's a people business and, you know, when you talk to the airlines. I believe 50 to 60 percent of their customer base travels one to three times a year. So when you think of that from an airport perspective, well over half of our customers probably come through DFW once or twice a year. You can have all the technology you want, but when they misconnect, or their flight cancels, or they're running late, people make a difference. And, we've actually invested in more people resources, to help out our customers. On the employee side, as we all know, it was tough, coming out of COVID. Our turnover, like most companies, was over 20%. we've now got it down to kind of the historical average around 7 or 8%. but we got a lot of new employees, which is great. But we've got a responsibility, as I was talking before, around safety and security. How do we help these employees understand the industry? How do we help them become really good leaders? We'd love, more of our employees to stay in the industry longer. And then finally, obviously the financial performance is a given, but at DFW, in a lot of airports, we are in the midst of a huge capital infrastructure program, almost 10 billion. And delivering that. In a safe fashion, within budget, on time, minimizing the disruption, those are, those are huge goals and objectives for us.

Jim:

I was either listening to readings about something you've done recently Toyota came to visit. And they didn't tell you who they were, but they, your board said, Hey, there's a big company and they want to talk to you. And they were talking about coming and moving a headquarters to Dallas. What did you say to them that made DFW stand out where a large corporation would say, I'm going to choose DFW over whatever, Houston or LAX or what are the others, what were there two or three things they walked away from and said, I'm going to go to Dallas,

Sean:

Well, what you're referring to, Jim, I had been in the role maybe a month, so this is back in 2013. the head of the Dallas chamber calls me and introduces himself and says, Sean, we've got about a dozen people who are going to come out and talk to you next week. I can't tell you who they are. And he said, just trust me, it's really important you meet with him. I said, okay, and I remember in the discussion, I was obviously at a point where I didn't know a lot about DFW Airport, to be, to be candid. So I actually spoke more as a traveler and more as a customer. And I just spoke about, how important it was for us to run a good airport from a customer perspective. Also having just moved from Australia, one of my key priorities. And when I joined DFW was, it was not really a global airport. It was not as international as it should be. So I spoke a lot about international. Luckily, it was Toyota. So that was blind luck on my part and, you know, I spoke a lot about, the, growth that the DFW Metroplex and how we as an airport had to support that and actually be out in front of it. So that we were never constrained. So I, believe that resonated with them. It was funny, a month later, I saw the Toyota announcement and the chamber CEO called me up and said, well, I can tell you who you met with now. And I said, oh, thanks a lot.

Jim:

That's great, Alright, so you've had the conversation with your friend, you've expressed what you just expressed to us, but she or he said you, but no kidding. What's something I really got to focus on? In other words, you could do everything and let's say safety is a given. And I know it's not anymore. And you're right about the near misses. But at the end of the day, Martha, do this one thing. Well, what would it be?

Sean:

Boy, it's, it's tough to prioritize 1 over I'd say the other 4 or 5, but if I had to and put safety and security to the side. Understanding the strengths of DFW and, great, great team, really good employees. If I look at it from a risk standpoint over the next 5 years, I would say, you know, delivering upon the 10 billion dollar capital plan will probably be the, the greatest risk. So, from that perspective, Jim, I would suggest that.

Luka:

Sean, what are the major macro and industry trends that airports are dealing with in general? Not necessarily DFW, but the airport ecosystem.

Sean:

Luka, I would say right now, you know, obviously on the revenue side, we're all doing well, as I mentioned before, and, from a DFW perspective, record revenues, record passengers. Clearly, despite all the talk about, inflation getting closer and closer to 2. 5 or their 2 percent target, we're not seeing that. The cost pressures are, maybe not what they were 2 years ago coming out of COVID, given the supply chain issues, but the cost pressures now continue to be significant. And that is one of our greatest challenges that we have to manage right now. I'd say the 2nd 1 is how do we keep making the right decisions and the right investments when it comes to technology to improve our entire business. We're obviously like, I believe almost every company in the country around the world making a lot of investments when it comes to cyber security, you know, that's the one when someone says, Sean, what keeps you up at night? Usually, my answer is cyber security. and so we're spending a lot of money, putting in a lot of programs, a lot of training on that. But in general, as you three know probably better than I, it's wonderful to see how fast technology keeps moving. Obviously, machine learning and AI is a great example right now. We keep asking ourselves, when it comes to AI, for example, we have to admit what we're good at and what we need to learn more about and for example when it comes to AI we're not a tip of the spear company right now. I think we're we'd be much better as a fast follower than trying to lead with AI and we have those discussions a lot and and we're still on that journey, I would say within the US we're, we're probably ahead of most large airports with our technology investments and our platforms. If you compare us globally, we're probably middle of the pack and we've just got to get to a point where we're prioritizing the right technologies that will have the biggest and quickest impact on the business. And we're also at the same time trying to develop our own skills internally so that we're not purchasing a 100 percent of the technology solutions we want to start developing on a small scale, some of them on our own

Luka:

And generalizing and looking at airports in the U. S. not specifically D. F. W. How are supply and demand balanced? And as you look at the industry growing over the next decade or so, do you see a capacity bottleneck? Obviously, you mentioned a 10 billion infrastructure project, so assume that there's some capacity, increase baked into it. But again, more broadly, the U. S. Airport ecosystem, aviation ecosystem. How do you describe that demand and supply balance?

Sean:

and Luka and I probably mumbled a little bit. It's a 10 billion dollar capital plan. And luckily we have over 2 thirds of it already contracted. So we've got some price certainty, but in my mind, the number 1 issue in aviation in terms of growth is the air traffic control system and we continue to be short of controllers, we continue to be, behind on technology improvements that we've been talking about for 20 years. Having said that, it's still an incredibly safe system, but it can be far more efficient.

Peter:

Okay. So you mentioned a shortage of controllers is one of the bottlenecks at DFW. You're talking about the whole system, right? Or are you talking about at DFW? Because my question is, mean, is, that your problem or is that the FAA's problem?

Sean:

It's everybody's issue in my mind, Peter. Again, we're somewhat fortunate at DFW that a lot of ATC controllers, when there's an opening in a position, air traffic controller position at DFW. A lot of people from all over the U. S. will say, yeah, I'd like to go down to DFW, not because of DFW Airport, but North Texas, lower cost of living. So we're actually somewhat insulated, but nationally, significant issue, and, I'm not one to point the fingers at the FAA, the FAA has not had, until just recently, an FAA authorization bill that was passed that gave certainty that they wound up being part of the continuing resolutions. So, it's everyone involved in aviation. It's all of our responsibilities to make sure the FAA is funded appropriately, that their roadmap on the technology side on the, air traffic controller side. But the airlines play a big part in it. Airports play a big part. So, I'm not pointing the finger, but the facts are the facts.

Jim:

Sean, two things that come up about, from Luka's very good question and Peter's. So in your response, let's assume that we're able to solve the air traffic controllers situation, and it's a challenge. No doubt. Do you support the privatization of air traffic and let's face it, it seems to be coming back again, into conversation for, for some obvious reasons. What's your perspective of that? If you were, the new head of the DoT is this, would this, be on your priority list?

Sean:

It would be on my list to understand better the practicality of it. And, and, and I'm not trying to skirt the question, Jim, but, as you know, Canadian air traffic is privatized. My guess is that's what maybe 10 or 15 percent of the size of, US ATC you know, most, a good chunk of Europe is privatized, but again, maybe 50 percent of the size of the US, aviation system, so should it be looked at? Yes, but it shouldn't be a, uh, I know this is naive to say, it shouldn't be a political football. It should be, Is it fundamentally, given the size of the U. S. air traffic control system, fundamentally, could you even get there? And I, I really don't know the answer to that, but it should be looked at because, it could help in implementing the technologies that we need. But, you can't do it in such a fashion that you introduce risk into the system. And I think that's the key question you'd have to look at.

Peter:

What are the unintended consequences of privatizing ATC in your mind that people would have to be vigilant for as they consider it?

Sean:

Well, I believe the single biggest risk would be, how would you take the thousands of current ATC controllers, how could you successfully migrate them into a privatized system where they don't feel disengaged or frustrated or that they feel like they've been penalized because if you're already short that resource, and then you introduce a level of disenfranchisement that that you just can't do that from a safety perspective.

Jim:

Great. Thanks, Sean. Yeah, the privatizing of the air traffic system is an important. and relevant discussion and most likely we're going to be talking about it again here soon. You know, it's funny when we talk about constraints and you're talking about your traffic system being a constraint to growth. We often think about, well, what's the big deal. If an airport's not growing the way it should be growing or the system's not growing the way it should be growing. But let's face it. If we don't grow in our key cities, it slows down travel and it slows down arguably overall economic growth.

Sean:

I was part of the, World Travel and Tourism Council, and we have Oxford Research do a tremendous amount of research on travel and tourism. And globally, travel and tourism Is more than 10 percent of global GDP just an enormous number now that's tourism and and travel. So if you are constraining your ability to grow. First of all, you're going to have a, a a massive economic impact. That's, that's number one. Number two is, and again, at the risk of sounding naive, but one of the reasons I love this industry, and I've been in it for 41 years, and I really do believe this, and it sounds a little, maybe sophomoric, but I believe there is a spirit to travel as hard as it can be as frustrating as it can be, You know, there's just something when you get off an airplane, I was fortunate enough to go back to Australia last fall, even after a 17 hour flight when I got off that airplane in Australia, and, you hear the Aussies accent, and you grab a great cup of coffee, and you can name that in any country in the world, there's something about that connectivity that I think, takes away misconceptions and it breaks down barriers and, you know, the more people can travel to the U. S., I think the greater that is for the U. S. in terms of, how people feel about this country and rather than what you might read via social media. So I, it's the economic impact, but I, there's clearly a social impact that I think is really, really important.

Jim:

Great discussion. A few years ago, I moderated a panel of industry and thought leaders where we talked about the massive capacity constraints at the New York airports. Where heck they can't even handle today's traffic to say nothing of the expected demand. And we actually questioned what not only happened to the airports. But in fact, what would impact would it potentially have on New York city and our other great cities that are air traffic capacity constrained.

Sean:

Well, and here, and here's the paradox, Jim, on one hand, we complain about constraints in the New York, area system. On the other hand, we don't talk about this too publicly, the constraint in demand is clearly having a positive impact, on the economic results for the airlines. And, again, the issues Boeing are having, the issues Airbus is having delivering airplanes, everybody wants more airplanes. But the dirty little secret is, it's constraining supply, demand is rising, airlines have never had so much pricing power in their history. But what is going to keep happening, I think, in New York specifically is, you'll just see larger and larger airplanes going into not only Kennedy, which already has, you know, one of the largest percentage of wide body aircraft of any airport in the U. S., but you'll start to see larger, narrow bodies into LaGuardia. Obviously, Newark doesn't have any constraints in terms of, aircraft size so that that is the lever the airlines can pull. They'll continue to pull it then that goes back to the customer experience. So there's no single bullet it's it's interesting though. And who knows, but I, I saw a study In the next 60 to 70 years, so by the end of this century, and we didn't do this, the largest three cities in the U. S. could very well be the Dallas Fort Worth area, the Austin San Antonio area, and Houston. If you use the same growth parameters that those metropolitan areas have seen over the last 10 or 15 years, and you use the same growth parameter as the Chicago, New York, L. A. have seen over the last 10, 15 years. That's what the math would tell you. Now, who knows what's going to happen clearly the demographics are moving to the southern tier of the U. S.

Jim:

great thanks, Sean. We've had, people on the podcast who questioned the value of privatizing airports, what are your thoughts?

Sean:

It's, it's a legitimate question and a legitimate point of view. and I've seen both now, living in Australia. and, and running Virgin Australia, obviously dealt with all the airports down there that are privatized and, familiar with the European airports as well. What's what's fascinating to me, and it took me a while to learn this in the US, and it's one of the reasons I'm at DFW. As I believe the 3 of, you know, but maybe your audience doesn't most U. S. Airports, report into City Hall. So they're part of the bureaucracy of City Hall and that makes running an airport in an efficient, innovative, decisive way tough. It just does and luckily, I have a board of directors. We don't have to go even though the city is at Dallas from Fort Worth own us and they're very supportive of us we're not part of city government So the governance of DFW as a board, it's more like a company. So we are able to make decisions. We are able to invest in hopefully the right things. And that's obviously what the international privatized airports can do. They can make decisions faster. They can tend to be more innovative. they can tend to react quicker to market trends. But what's really interesting to me is, and the airlines, I think, are starting to recognize this, a hub like DFW on a cost per enplanement is how, and that's how, that's one of our key metrics, is less expensive by a significant margin than almost any other global hub. And let's face it, when the owners of Heathrow their shareholders they're looking for a return on their investment, and therefore they're going to charge the airlines a rate that meets their metrics in terms of their return. Where the U. S. airports historically have not done a good job, but I, I really do think they are doing a better job, and it's something we pay a lot of attention to is we have become more efficient. We've become more cost effective. And, you know, my cost per enplanement is around 13. My guess is if you were to look at Heathrow or Sydney or Munich or many others, we're probably half the cost, maybe a third of the cost in terms of the cost per enplanement. And, airlines are starting to pay a lot more attention to that.

Jim:

Sean, when we've had guests on, who've talked about the value of privatizing airports. We've probed on, what's the value to the travelers at the airports. Can you comment on that?

Sean:

Well, it's tough to make a general comment on this. And, you know, typically, I mean, let's take the airports that just have a great reputation for customer service. So, let's start with Singapore and they deserve it. They've done 2 things, I believe, really, really well. First of all, they. have an incredible amount of manpower that they put into their facilities. I'm not sure I've ever seen anything like it. Now, the cost of labor, I think, is less over there than it is in the U. S. But when you think about the condition and cleanliness of an airport, and you're in an airport like Singapore, they just put a lot of manpower and they take great, great care of their facilities, and customers notice that. Number two, they've invested a tremendous amount of technology, similar to us at DFW. Today, if you're a U. S. citizen, you land at DFW, you do not have to show your passport to get through Customs and Immigrations. It's all biometrics. Singapore, has been doing that for a couple years. You know, those type of, innovations, those type of, technologies help the facilitation of customers through an airport. And that's why we're so focused on it because it's if you come out to DFW and it takes you five minutes to get through TSA and then you come out two weeks later and it takes you 35 minutes, that is incredibly frustrating'cause you say to yourself, well, I don't know how much time I have to bank on that. If it takes you an hour to wait. After a 12 hour international flight to get through customs or immigration is incredibly frustrating. So we very, very much prioritize the facilitation through the airport. And that's more important to us because 60 percent of the people at DFW never arrive or leave the airport they're connecting. So that facilitation between terminals, um, getting through customs, getting through TSA, really, really critical. Um, the international airports that are great at customer service do a really, really good job at that.

Luka:

So, Sean, when we consider what really an airport quote product is, then we can probably talk in the context of the passengers it's about enabling or delivering a travel experience. For airlines it's ensuring and providing the infrastructure. For businesses and retailers that are at the airport it's about building an ecosystem of, you know, a commercial marketplace of sorts. And there's probably others that I'm missing. But when you're running an airport are you adopting a product based view and strategy to where you map out, the product roadmap and how it needs to change to meet the evolving needs of all the stakeholders that I mentioned, or is it more about operational efficiency and riding economic waves?

Sean:

Yeah, Great Great question, Luka. And this is where we believe that technology can provide us the greatest benefits. And let me give an example. If you think of conveyances in an airport, escalators, elevators, you know, the moving sidewalks, you know, we have hundreds and hundreds of those at DFW. And when you go through an airport and one of those is not working, two things happen. Number one, you say, well, I can't use it. So now I got to figure something else out. It's frustrating. But number two, it sends a signal to you. If they can't get an elevator to work, what does that mean in terms of the entire airport? So, you know, one of the first big investments we made from an infrastructure standpoint is we're starting to use this digital twin technology, which digitizes all of our facilities, and most importantly, it gives us predictive data on when we can expect an elevator, an escalator, a moving sidewalk. You know, we've got sensors on motors, we've got sensors that take temperature checks. So now, I have a far greater chance of identifying a problem before it happens, so it gives me a much, much greater opportunity to fix it with little to no impact on customers, and we've set a target because of this that our O& M costs for our facilities, we're going to reduce those by 25 percent over the next two or three years. So, again, it's just an example where you create, as you said, a road map of where are your opportunities? Where can you be more efficient? Where can you be more predictable, better customer experience, less costs. Those are the type of technologies that we're very focused on.

Luka:

Just to quickly follow up on the digital twin. How granular is that simulation? Is it predictive maintenance mostly in collecting sensor data from various endpoints throughout the airport? Or do you also have the capability to engage in high fidelity simulations and scenario based modeling in terms of, what, if I lose X number of gates, what does that create to the airport and the A. T. M. and the A. T. C. infrastructure around me. What does it create to the flow of passengers? Can you give us a sense of the sophistication of some of these modeling and, simulation tools?

Sean:

Right. And, and the answer, Luka is both. So, yes, it gives us predictive data. But yes, it starts collecting a tremendous amount of data that we can start to use to model. Now, I want to be candid here. We don't really have the, we're building it, but we rely on some partners to help us with modeling And one of our, absolute best partners is the National Renewable Energy Lab. They have helped for us to simulate, for example, all of the vehicular traffic at the airport so that we can model what time of day could create the largest traffic issues? It even gives us data from a cargo standpoint. When are we going to have the most amount of trucks on the airport going to the cargo facilities? They've helped us when it comes to our sustainability work in terms of energy use and how we can be more efficient with energy use. So the digital model, yes, it gives us the kind of the near term predictive, but we are now starting to collect all this data, and then we feed this data, to some of our partners who've got the computing power to deliver the models and deliver the outcomes that, that benefit us.

Luka:

What's in your wish list as it relates to this topic? What are some remaining gaps that you would like to see closed in the coming years?

Sean:

One of the bigger risks we have as an airport moving forward, and each of you will probably, shake your head when I say this. We're in Texas, obviously, Texas is known for oil and gas. One of the biggest risks we have, is the energy supply to this airport over the next 10 years. When you think about the energy required for all these data centers, especially the AI data centers, when you think about the energy required for onshore manufacturing. In those two areas, Texas is probably the top two or three states in the country for both of those, and you couple that with the state of Texas, our grid is a standalone grid, we're not connected to the rest of the United States. And we've had issues, you know, we've had issues in the last couple of years, having sufficient power in the state during certain weather events. So again, in working with our, our partners like NREL, we're looking at developing a microgrid at DFW. Solar battery, it would not, I want to be clear, it would not be able to power the entire airport, but if we can take chunks of demand and buy down some of that risk with a microgrid, we are very, very interested in that.

Luka:

Can you give us some other examples of technology that you see on your road map that really has the promise to deliver immediate ROI and help an executive make better decisions and optimize the product?

Sean:

Well, from a, from a product standpoint, Luka, and I know it's a bit controversial, I referred to it before. I'm a huge supporter of biometrics. I am not a security expert, but when I talk to, the experts in the Department of Homeland Security, which has TSA and Customs and Border Patrol, I am told biometrics is the most secure way of validating someone's identity so not only does biometrics clear you into the U. S. when you come into the into D. F. W. it is now the way we board all of our international flights. You don't have to show a boarding pass and I think that will continue to to grow into other flights. I know the TSA wants to roll out more and more biometric technology for checkpoints. Very, very efficient technology and also very, very secure. I think from a financial metric standpoint, we have not cracked this code, but when you look at an organization like DFW, and you look at the amount of, accounts receivable and payable, I think there's some real technology opportunities there, that could make us more efficient, especially on the payment side. Because so many people rely on us, and we do a good job, but it's still too manual. And I think, there's some solutions we're interested there. And then finally, from a safety and security standpoint, there's some really interesting technologies that could alert us, without getting into a lot of detail, alert us to certain safety or security risks, and we're, we're quite interested in that as well.

Luka:

Yeah, you mentioned cyber is one thing that is keeping you up at night. Are there any more specific examples or stories perhaps they can share that maybe happened in the past or things that you anticipate might happen in the future that's problematic or concerning.

Sean:

Well, the only thing I'd say on cyber is this. When you talk to the experts, there's two things that are pretty clear. The, state actors who are, heavily, heavily engaged in cyber just keep getting more and more sophisticated. And with AI, they will get even further, more sophisticated. Having said that, the vast, vast majority of times that the bad actors get into an organization is through a basic phishing scheme, where you get an email, an employee looks at it, they don't pay attention, or it looks legit. They click on it, boom, they're in your system. You don't know they're in your system. They could be in your system for months and months and months, just monitoring. Um, so yes, the technology sophistication keeps getting better and better, but we focus a tremendous amount of time on training for our employees. We're testing our employees all the time. Because the, vast, vast amount of issues you have is because an employee inadvertently, clicked on something that allowed people into your system.

Luka:

Sean, what about technology that relates to airside operations and ground handling and managing of the flow of the aircraft and gate allocations, is that an area where you see a near term bottleneck or, an opportunity to improve efficiency of the overall system? And what are some of the technologies that you are deploying in that direction?

Sean:

On airside, Luka, obviously, the FAA plays a big role in that, and we support them, but we don't cross pollinate in terms of our systems. Again, we're lucky at DFW, as, as Jim mentioned, with 7 runways and all the land we have, we typically, don't have some of the, the airside constraints that other airports have. But one of the, the recent technologies we've used, you know, you hear a lot about runway incursions, um, in many, many times, uh, from an airport perspective, a runway incursion is actually a vehicle. So we've installed in all of our DFW board vehicles, a system that is very similar to what the airlines have in terms of avoidance. As, one of our vehicles approaches a taxiway or a runway, it will alert them if they have to stop, if they have to get clearance from the tower, whatever the condition might be, and, that has improved our safety performance and reduced the amount of vehicular runway incursions and, and, has been a really, really effective tool for us.

Jim:

Yeah, it's interesting, Sean, you know, when it comes to, for example, Luka's question about airside technology. And when considering our discussion of privatizing airports. We've talked to a lot of companies on the podcast who provide services, to improve gate turns to some degree improve efficiency of the ramps. What's interesting is that in the United States, most gates and ramps are managed by the airlines versus the airports versus other parts of the world. There's of course, many exceptions, but generally that's the case. Would we see better gate turns and better use of gates assets if we saw more airports in the U S manage their gates had perhaps even make them come and use gates.

Sean:

Right, right. Well, American is over 80 percent of our business at DFW, and they manage their own gates. So right there, you've got 80 percent of the gates and ramps And then a couple other airlines, United, Delta, they manage their gates. So when you look at what we manage we manage the international gates for the foreign flag carriers, and we manage some domestic gates for those carriers who are smaller. And, and so it's a good question. I mean, unlike Heathrow, some other, uh, global airports. Yes, they want to squeeze those assets as hard as they can, and make sure, that those aircraft on the gates are turning as fast as possible. Less of an issue for us because of the airline control of the gates Here in DFW, American Airlines also pays 80 to 85 percent of our operating costs and therefore, as part of our business agreement with them, we need to get approval from them for large capital programs. Unlike the foreign airports where they just have more leverage on the airlines. I mean, Heathrow, and if, if I was the CEO there, I'd probably be doing the same thing, they know the airlines are desperate for slots at Heathrow. And, so when it comes to the negotiation with the airlines, and the fact that they're not beholden to the airlines, they just have a much different business arrangement and, and much different leverage.

Jim:

Sean, is it possible you wouldn't need to expand as much with your capital program with additional terminals and ramps if you took back the gates?

Sean:

Well, um, it's probably not as big an opportunity as you would think, but let me put it that way, um, because, take American, I believe they on average turn about, I think there's six to seven aircraft per gate. During the course of a day, so it's in their best interest as well to keep their airplanes flying. It's in their best interest. Obviously, you hear this from every airline CEO. They don't make money when their airplanes are on the ground. But the other big distinction is just the hub and spoke system and that drives a lot, drives a tremendous amount of the scheduling inefficiency because if you're going to bring a bank of a hundred flights into DFW, making sure that connectivity works drives some inefficiency on how they route the aircraft. I mean, it's just the way it works, but the revenue benefit of that far outweighs some of the latent inefficiency in the scheduling of the aircraft.

Jim:

Sean why do airport airline relationships sound adversarial at times. Airlines complain about high costs, airports complain about airline delays and unused slots.

Sean:

Overall, it's a healthy relationship, I would say. Again, I've been on both sides, and, so I probably bring a little bit different perspective and, I've got a great relationship with Robert and his team. I view American as a customer, first and foremost, and this airport would not be what it is without American Airlines. I mean, their investment in DFW is extraordinary. So I recognize that. Now, having said that, do we always agree? No, we don't, but we've got enough respect and credibility that we talk and we're honest with each other and we, you know, nine times out of ten, we'll, we'll figure out a solution. I believe what American appreciates about DFW is, be it on the capital side or the O& M side, we're very, very focused on making sure that cost per enplanement is very, very competitive because at the end of the day, that's what will enable American and other airlines to keep growing at DFW. I mean, the revenue is the revenue, but, operating out of airports is expensive and you've got to build up that credibility that they view you as a good partner of, and a good steward of the money they're paying you to operate out of your airport.

Luka:

What are usually the sources of disagreements?

Sean:

Usually it comes down to the big capital projects. If you guys are familiar with, with DFW, we've renovated all of our original terminals except Terminal C. Terminal C is just awful and clearly one of my failures in 11 years is I just couldn't get American Airlines fast enough to agree to renovate C, we did come to an agreement 2 years ago and, that work has begun. But I understand it. I mean, that that's going to be a couple billion dollar program. We actually were negotiating it right in the middle of COVID when there was so much uncertainty and so much unpredictability. So I give American credit that they did, stand up and get that deal with us done. You know, where I failed is I should have got that deal done back in 2017.

Peter:

Is that the terminal that's on the continuous arc? The old one that American is in?

Sean:

Yeah, terminals A, B, C, and E are all in that arc. And C is the one that is 50 years old and looks like it's 65 years old.

Peter:

I find those tremendously disorienting when I'm walking through them because of that gradual curve.

Sean:

Yeah, I know. It's, another paradox about DFW. If you are a local customer and there's nothing to do with, with me or the last 10 years, it's pretty extraordinary where you can park in the garage, go through a security checkpoint and get to your gate and literally that can be 100 yards because we have multiple security checkpoints the garages are very convenient and, so many people will tell me, Sean I don't leave the office or my house until about an hour or maybe 75 minutes before my flight, and I know I'm always going to catch my flight. You wouldn't hear that in any other hub airport in the U. S., I don't think. However, for the 60 percent of our customers who have to connect, it's hard. I mean, you're connecting between multiple terminals. Our SkyLink system is one of the most important components of the whole airport. That thing has to work. But then when you get into the terminals, to your point, you don't have line of sight, you know, you keep walking that crescent. And so it can be confusing for the connecting customer.

Peter:

Yes.

Luka:

On that note on the question of travel experience again, not specifically talking about DFW, but, broadly, I think it's fair to say that the general feeling is that the travel experience is getting worse. People are frustrated with the experience, whether this is TSA or otherwise, you know, being treated like you're not an adult, people telling you what to do, where to go, what not to do, constant, screaming over the intercom. How do you expect this experience to evolve, especially when you compare the experience to the JSX model, for instance, with private terminals or FBOs?

Peter:

Great question.

Sean:

Right? And I'm not sure it's a relevant comparison in terms of JSX or Net, NetJets or, or any of those, Luka, I mean, those experiences and obviously, especially with corporate aviation are considerably more expensive. JSX is actually pretty competitive on, on the pricing side, but when you're talking about the facilitation, of moving 25 customers on a flight versus anywhere from 200 to 400, it's just, it's night and day in my view. But your, your point about the experience is relevant and the industry working with our federal partners and I'm not sure there's an airport in the US that tries to be a greater partner for our federal partners than DFW. So our operations center, our 24 7 operations center, the TSA employees who determine the manpower planning and staffing, they sit in our operations center. So they're working with us. We're working with them. They get real time information. We get real time information. And usually our staffing in our line waits are some of the best in the U. S. I've been in other airports where it's a confrontation where, Oh, you know, that's TSA or that's CBP. No, that's not the case. I mean, when people come through DFW, If they don't have a positive experience going through TSA or CBP, that's a DFW issue, that's how the customer looks at it. They don't, blame a government agency. And they're starting to use more technology as I explained. So, you know, as long as we can provide an experience, as I said, that's very predictable on the facilitation side, as long as we're providing really good, modern facilities and infrastructure with good services as we work with our concessionaire partners, The one opportunity, I still believe on the customer experience side. Airports and airlines need to find a way to work better together and, we've made some progress with American on that here, but we tend to go in our own corners and that's not going to get us to where we need to be in the next 5 or 10 years. So how we can share better data, trust each other with that data. Um, American's been great. They're starting to share much, much more data with us on when their peaks will be in terms of customers that's helping us do a better job, move our manpower around, work with TSA. That's an opportunity where the airlines and the airport can do a better job owning the customer experience together.

Luka:

What are some of the, specific, you know, three or five things that you would do in that direction?

Sean:

Well, in addition to the data, so that we, you know, we understand the, the traffic peaks and valleys, it's also how we understand each other's priorities and investments. You know, if you think back 20 years ago, 25 years ago, when the airline started to do more and more self service. If you really think about it, between airports and airlines, we haven't made much progress in the last 20 years. Yes, you can now tag your own bag and maybe check your own bag in versus just getting a boarding pass. And yes, obviously we get boarding passes on our phone. But when you think about it, when you walk into any airport lobby, It doesn't give you a sense of relaxation, because what's the first thing you do when you walk into an airport? Unfortunately, if you walk into a lobby, you tend to see lines. When you go to TSA, you tend to see lines. So, as we develop facilities in the future, and you'll see this at DFW as some of the new terminals we're building. How do we create more of a sense of when I walk into an airport, my first reaction isn't well, where do I go? Or why are there so many people here? Am I going to get to my airplane on time? There's some design opportunities as well there and technology opportunities.

Luka:

Right? That's a good point. One of the observations is that despite many opportunities to go and apply technology to the pain points that, the air transportation industry has in airports in particular, we see that there's a number of innovators who are discouraged from even participating in that market just because it takes so long to convert and break into that ecosystem. And the sale cycle is tremendously long, partly because it seems like airports are always distracted by a crisis du jour. What's your experience been with technology providers and what's a best practice for somebody who wants to go and solve some of these issues to still make it worth their while?

Sean:

You're right, Luka. Airports for the most part, this is true for every U. S. airport, you know, we have to follow either local or state procurement laws. So right there, you've got a huge bureaucratic, inefficiency. And, we try to work our way through that. I mean, obviously we follow all the laws and regulations. But what we go out of our way to do is a couple of things. Number one, we try to be as transparent as possible about opportunities and like, we just did a, a session where 1200 vendors showed up because we laid out over the next 18 months the 1. 2 billion dollars worth of projects we're going to have so we, we just laid everything out. We said, you know, by quarter, this is what's coming. So you can get it on your radar screen. Number 2, we spend a lot of time and resources we call it capacity building, where we work with new companies, okay, how do you maneuver around all the bureaucracy of DFW Airport, procurement, bidding, other type of regulations and goals we have, and, and that obviously helps. And then we're using technology from a procurement standpoint as well, but it is difficult. And, I stood up about 5 years ago, I stood up a standalone innovation department to help us, I would say DFW has had a history of being an innovative airport. But there was no process to it. And now we have a process because we've got people working with departments who know how to do the research, who know how to do the R. O. I. who know how to, reach out to the accelerator groups that can bring ideas. And, um, so we're making progress. We've just joined a coalition with some other airports, uh, global airports on how we can tap into some more accelerator programs. And in fact, If a, tech company has a deal with another airport and it's already done it, we now can tie into that deal. So they don't have to go through it again with us. So we're working on it, Luka, but I, I admit, we can be a bit of a beast to deal with because of all our regulations and requirements.

Luka:

And where do you see in the airport value chain, technology or innovation opportunities where current legacy providers are deeply entrenched and yet ripe for disruption?

Sean:

I certainly don't want to, identify any legacy vendors or partners, because that, that wouldn't be fair. And I'm quite candidly not, tech savvy enough to offer that opinion. What I would say is this, you know, when you think of the huge platforms that we all have, financial platforms, HR platforms, procurement platforms. Once they get embedded in your organization, damn, it's tough, it's tough to make changes there. And you guys know that probably better than I. I don't want to name vendors, but you know the vendors. The opportunity, I think, is kind of on the margin. As we look at, as I said, you know, things like digital twins, you know, we're working with a, a small startup company. Well, they're not small and startup anymore, but when we started working with them 3 or 4 years ago, they were, but we have to help them and part of our relationship with them is. We have signed up to help them get into other airports, to grow their business, to grow their opportunities, because if they can grow into other airports and then financially become stronger and stronger, that's actually a benefit to us. Um, so that's the way I would answer it.

Jim:

And Sean, speaking of technology, the airports how do Uber and Lyft, for example, affect the airport? How do they affect the parking spots which obviously are so important to your financials? And even to that end in thinking about improving the passenger experience and getting to the airport. What's the role of advanced or mobility here? Is there at all when you plan. Heck you plan further advanced than probably most other industries, 20, 30, 40 years in advance. Are you planning at all for the introduction advanced or mobility eVTOLs, electric planes and the like?

Sean:

Right. Yeah, it's been fascinating to see the changes. To the credit of Uber and Lyft, they actually have been the single biggest change agent with transportation to and from an airport. Parking is a 200 million annual business to us, so it's a big business. And I believe we have about 40, 000 parking spots. we have no plans to add parking at DFW over the future. Now we build a new terminal will we build a new garage as part of that terminal? Yes, but likely existing parking at some point will, go away and net net. We're we're not going to add back to the TNCs. They're 1 out of 3 cars at DFW now arriving or leaving the airport 1 out of 3 and I don't see that changing. What I don't have a good sense of is autonomous vehicles. I, my sense is, but I'm not. I certainly don't say this with a lot of conviction. I finally feel there is a bit of a pivot moment now with autonomous vehicles. Seems like they're gaining more and more traction in San Francisco and Phoenix, and I believe maybe they're going to some other cities as well. I think they're gaining that customer acceptance. So we obviously are doing a lot of planning around how would our entire system handle autonomous vehicles, and it really becomes a significant safety issue as vehicles are around the terminals and the curbsides huge, huge safety issue. They're coming and we're looking at, at how we become ready for that. In terms of eVTOLs, um, again, I'm not sure they've hit their pivot movement yet. You know, I was out at Joby a couple months ago at their manufacturing site. Very, very impressive. I'm meeting with the CEO of Archer next week at a conference. Um, I think it's a, a fascinating product. My question is, who is their customer? From what I can tell right now, airlines are driving a lot of their decisions, whoever their airline partner is, is driving a lot of their decisions as it relates to the airports. I think the aspect of the eVTOLs that the story is yet to be written is, how are the economics going to work when you have a vehicle that has 6 to 8 people in it? You know, we handle 300, 000 customers a day here and let's say we had 20, 40, 60 EVTOL operations. It's minuscule. It's absolutely minuscule. So will it be more of a niche? And you know, there's talk about could they at some point replace some of the shorter RJ flying? I have a tough time seeing that again because of the economics. So, the other aspect I just mentioned is, we have a, I think, a different view than the, uh, the manufacturers. We keep getting told that, okay, if we come out to DFW, we want to land at each of your terminals. Man, that just does not seem efficient to me. So we're working on a process where there would be a singular place and then we would be responsible for very, very efficiently getting the customers to the terminal they need to get to. Because you can't have that last mile. You know, you jump on an eVTOL. It's a great experience. It's cool as hell. It takes you 10 minutes to go from a city center to an airport. And then it takes you 20 minutes to get to the terminal. That doesn't work.

Jim:

Sean, you've been in the industry a long time, as you approach your retirement. Are there any companies or people who stand out you'd like to mention.

Sean:

Oh boy. I don't know if I got the courage. Because, you know, whoever I say I'll alienate others who will say, well, Sean didn't mention my name, although they don't really care about my opinion. Let's see. well, let me talk about kind of companies again, I think the TNCs have really done, you know, very, very good work in creating a model out of nowhere. The eVTOL companies, again, I give them credit, hopefully the Waymo's of the world, will, continue to make progress on the autonomous vehicles. On the airline side, obviously, all the airlines are in different stages of recovery and, obviously, American is a great, great partner of ours. I, I see the US carriers having to continue to up their game, especially in the premium cabins to catch up with some of the foreign flag carriers who really do a good job there and that's good. I'm really glad to see that. I mentioned back to credit card companies with the lounge products really, really innovative and I give them credit for stepping out and let me make one last comment. A little bit off topic but Boeing, I, I really believe Boeing is going to get on track. I really believe they're going to return to their core as an engineering company and a great, great manufacturing company. When you think of the design and the engineering that went into the 747, and you think of the design and engineering of the 777, a two engine airplane that could basically fly anywhere in the world. I mean, those were amazing, amazing engineering accomplishments. I really do believe Boeing is going to get back on track. They'll not, make the mistake of the last 10 years where they focus too much on the financial side. And that is really, really critical to not only aviation, but critical to the U. S. economy.

Jim:

Great. Thanks, Sean. So what's the next phase of your life? What does it look like? I know you're from the Boston area. You're coming up here back to the Northeast.

Sean:

Well, primarily, be with our family. We've got, five grown kids who live up there. We just had our first grandchild. So, with all the moves I put my family through, and, and Dallas, I think was our 10th or 11th move, you know, it's time we go back to them rather than moving them all over the world. And, uh, and I, you know, I'll stay engaged. I'm on a, an energy company board down here, which I love, a great company called Atmos. And, hopefully maybe join another board or 2, do some advisory work, stay engaged, but, 41 years in aviation sometimes can feel like dog years so, I am looking forward to, some type of retirement.

Jim:

Sean. This has been terrific. Thank you so much for joining us on The Vertical Space.

Sean:

Well, thanks guys.