Massport is scrambling to plug a new $100 million-plus shortfall in this year’s budget, as the downturn in air travel at Logan Airport caused by the COVID-19 pandemic is turning out to be far worse than even the most conservative forecast.
Chief executive Lisa Wieland on Thursday warned the Massachusetts Port Authority’s board of painful cuts ahead, though exactly what they will be isn’t clear yet. Layoffs are on the table, after Wieland avoided them at the 1,350-employee port authority during a previous round of cost-cutting in the spring.
Some of the already-suspended capital projects, such as a new parking garage at Terminal E, could face further delays. Wieland and her team expect to craft a new budget for the current fiscal year, which began in July, by the end of December.
One particularly worrying sign for Logan: After steadily rising from its nadir in the spring, passenger traffic actually fell in August from July. Total monthly passengers dropped 5 percent, to 700,000. Meanwhile, many other major airports continued to see upticks that month, including those serving Detroit, San Francisco, Philadelphia, Seattle, and Miami.
States in the Northeast have taken much longer to recover their lost flights than other parts of the country, according to trade group Airlines for America. Only one state, New York, is experiencing a substantially bigger year-over-year decline in passenger flights than Massachusetts this month. Flights in Massachusetts — predominantly reflecting Logan activity — are down 61 percent year over year, compared to a national average of nearly 50 percent.
Logan currently serves 400 to 500 daily flights, down from an average of 1,200 in October 2019. Overall passengers in October continue to be down about 80 percent, year over year. Massport’s main revenue sources include landing fees, terminal rents, and parking.
“This pandemic-induced economic crisis is going to be more prolonged than anyone anticipated for air travel,” Wieland said in an interview.
Logan, in particular, is suffering from the sharp global downturn in international travel, and an unexpected drop in student trips as many universities reopened with remote learning this fall. International passengers at Logan were down 92 percent in August from the same month a year ago, for example, while domestic passengers fell 81 percent.
Business travel normally drives about 40 percent of Logan’s passengers but remains “pretty much nonexistent right now,” Wieland said.
“Back in the spring, when we were putting together the budget . . . we were prudent in our planning,” Wieland said. “What’s changed for us is that the continued increase in business activity has not materialized. Unfortunately, we are trending below those worst-case forecasts.”
In June, Massport’s worst-case scenario seemed pretty awful: as few as 13 million passengers would travel through Logan this year, compared to 42.5 million in 2019.
As a result, the port authority in the spring trimmed its operating budget from $900 million in 2019 to $600 million for fiscal 2021.
But now, make that $540 million: Massport officials are lowering the bar even further, to budget for as few as 8 million passengers this fiscal year.
To put this in perspective: The port authority hasn’t seen fewer than 10 million passengers at Logan, the authority’s main money-maker, in one year since the mid-1970s.
The port authority also expects to provide $66 million in rent deferrals to airlines and other tenants this year, to be paid back over a four-year timeframe. That creates a new financial gap of $126 million for the current fiscal year.
The situation could have been far worse, if not for $113 million in federal relief funds that Wieland banked for this fiscal year. However, she is now planning for no federal stimulus money in either fiscal 2022 or fiscal 2023, and just modest increases in revenue those years. What does that mean? More budget shortfalls.
Taken together, across three years, Massport executives now say they need to solve a $400 million problem.
Wieland and John Pranckevicius, Massport’s top financial officer, also talked about looking for additional revenue to help close the gap — by squeezing more money from Massport’s real estate portfolio, for example, or considering changes to the port authority’s fee structure.
Wieland will need to worry about wooing people like Andrew Bunn, vice president of US sales at Emirates. His airline used to make daily flights between Boston and Dubai, but it has dropped that number back to three times a week because of the decline in demand. Corporate travel has been decimated, and most of the leisure travel involves visits with family and friends, Bunn said.
Still, Logan is one of six US airports where Emirates has returned since suspending flights here in late March. But Emirates still has no date for when service will return to six other airports in the United States that it once served — or for when daily service will resume at Logan.
Massport has other operations, but they represent minor parts of the puzzle compared to Logan. Freight cargo revenue is stabilizing as retailers stock up for the holidays, but cruise ship traffic remains nonexistent.
Wieland stressed that Logan has been through major shocks before, such as the 9/11 terrorist attacks and the Great Recession, and always rebounded — eventually. It took four to five years to recover from the 2001 attacks, and two years to bounce back from the 2008-2009 recession.
Wieland said she is projecting that it could take as long as five years to return to pre-pandemic levels at Logan. Whether that worst-case scenario will need further adjustment remains to be seen.