The Remarkable Business of Memphis International Airport

April 12, 2007

This article first appeared in the Spring 2007 edition of CCH Issues in Aviation Law and Policy. For more information contact CCH Incorporated, 1-800-449-6435.

From Regional Economic Engine to America's Aerotropolis
by Arnold E. Perl
April 2007

Memphis International Airport (MEM) is one of the most successful and well-respected airports in the world. It is faithful to its self-proclaimed vision “To be recognized as a world-class aviation center.” Memphis International is unique in that it is a dual hub serving as both a passenger connecting hub and a cargo super-hub. It is distinguished also for its leadership in such areas as
airport management, economic development, community partnership, minority participation, and as a hassle-free facility for customer convenience. How does an airport in a mid-size city become such a world leader? The answers are logical, practical, and unprecedented.

Background
The success story of Memphis International Airport began in a most unlikely place—the halls of the Tennessee General Assembly. It was there, in 1969, that the enabling legislation was approved for the creation of Airport Authorities to guide the growth of major airports in Tennessee.

The Memphis-Shelby County Airport Authority is a structure that enables the airport to invest, grow, and prosper without the threat of politics that plagues so many airports. At the same time, its structure is such that it can never drift away from the overall goals of the community as a whole. As such, it has become pro action, pro growth, pro service, and pro customer, all under the umbrella of pro Memphis.

The Memphis-Shelby County Airport Authority (MSCAA) is governed by a seven- member Board of Commissioners, all of whom are appointed by the Mayor of the City of Memphis. Of the seven, two must be nominees of the Mayor of Shelby County. All are confirmed by the Memphis City Council for seven-year terms. Members are qualified leaders in the fields of aviation, engineering, law,
industry, or finance.

In addition to creating a professional board through its membership structure, operating as an Authority has also proven to be a source of stability for the airport. The original chairman of the Authority, Ned Cook, served for the first 12 years. The second chairman of the Authority, Jim McGehee, served for 15 years. I have had the privilege of serving as the chairman for 10 years now. During this 37-year period, there have been only three presidents, including Larry Cox, who has served the airport with distinction for more than 34 years, the last 22 as president and CEO. In addition, over the last 37 years, only some 25 individuals have served on the seven-member board of commissioners. This continuity within a body of highly qualified professionals has created a consistent air of serious business.

Leadership has led the way to dramatic results in the last 37 years. Memphis International today is the economic engine for the region, generating some $21 billion in annual economic impact—exceeding the economic impacts of heavyweights like Atlanta Hartsfield-Jackson airport. It has been the catalyst for investment and has functioned as a transportation juggernaut, spawning warehouse, distribution, and logistics companies that have led to Memphis' designation as America's Distribution Center and its airport as the World Leader in cargo for 15 years. On top of that, Memphis has more air service per capita than most any other city in America, serving as one of three passenger hubs operated by Northwest Airlines in the United States.

Memphis' successful structure, business approach to airport management, and overall leadership has not gone unnoticed. Our management team's leadership has received many accolades, and both staff and board members have received industry awards throughout the airport's history. And, in the most sincere form of flattery, our peer cities and others much larger than us, such as Detroit, have studied the Memphis airport authority model as a “best practice.”

Who are the partners who share in the success of Memphis International? The answer is all of the stakeholders; and they are many. They include FedEx, Northwest, the Tennessee Air National Guard, the Federal Aviation Administration (FAA), and the Transportation Security Administration (TSA). Our partners also include the City of Memphis, the County of Shelby, and the State of Tennessee.

Our Future
Given this background, where will Memphis International be in the future? What will it focus on? How will it continue its success? Our future lies in continuing to be the economic engine of the region. Our future lies in continuing our culture of collaboration. And, our future lies in leading Memphis to become a shining example in the world as an Aerotropolis.

As with any successful business, one of the keys to success is “focus” and “keeping things simple.” While future challenges are complex, that does not mean solutions also must be complex. I have recently had the privilege of publishing a book (Simple Solutions—Harness the Power of Passion and Simplicity to Get Results, John Wiley & Sons, 2007) with my good friend and colleague Tom Schmitt, president and CEO of FedEx Global Supply Chain Services and SVP of FedEx Solutions. In the book, we discuss how discipline and simplicity can be applied to businesses as complex as FedEx and Memphis International Airport. Indeed, the lessons each of us have learned during our careers can be applied effectively to the volatile world of international aviation in the future.

The Economic Engine
In June 2005, Sparks Bureau of Business and Economic Research/Center for Manpower Studies at The University of Memphis published its study of the economic impact of Memphis International Airport on the region. The study, commissioned by MSCAA, showed Memphis International Airport produces a total output of $20.7 billion annually. The total output represents cargo operations,
passenger operations, construction, and the impact of visitors to the metro area. At $20.7 billion, Memphis International Airport ranks among the highest per capita impacts on a community of any airport in the United States.

The total impact of the airport is represented not just in financial data, but in jobs. According to the study, 166,000 jobs are generated by the airport, representing 27 percent—more than one in four jobs in the Memphis metro area.

The airport's largest impact comes from cargo operations and the distribution and logistics industry that has formed around the airport. In 2006, Memphis was the world's busiest cargo airport for the 15th consecutive year. This distinction is even more impressive when you consider the rankings of the top ten.

1. Memphis
2. Hong Kong
3. Anchorage
4. Seoul
5. Tokyo
6. Shanghai
7. Frankfort
8. Louisville
9. Singapore
10. Los Angeles

Total Cargo: loaded and unloaded freight and mail in metric tons. Airports Council International, Geneva, Switzerland, 2006

Some 3.69 million tons of cargo were handled at Memphis International in 2006. Cargo operations at the airport had a total economic impact of more than $19.5 billion in output (the production of goods and services) and some 155,872 jobs were supported by cargo operations (2004 data per survey).

A disproportionate percentage of the cargo impact is from the FedEx WorldHub facilities in Memphis. FedEx's influence on Memphis is nothing short of profound. FedEx alone employs some 30,000 people in Memphis. Moreover, each day investment in distribution and logistics by FedEx and others expands across the city, making the airport more vital to a growing number of companies and industries. The next wave of growth, already beginning in laboratories across the city's medical research and treatment operations, is biotech and bioscience distribution leadership. Many drugs and treatments, especially those dependent on an individual's unique genetics, benefit from the overnight, and climate- controlled distribution operations made possible because of Memphis International.

On the leisure and business travel side, the direct and indirect impact of passenger operations at MEM, led by the Northwest Airlines hub, is nearly $1.2 billion annually. Nearly 9,500 jobs are directly tied to passenger operations at MEM. A total of 5,193,060 total boardings and deplanings took place at MEM during 2004. Using FAA estimates for average domestic and international trip lengths, a total of 4.8 billion domestic passenger miles and more than 481.0 million international passenger miles were attributed to Memphis International.

The significance of the Northwest Airlines passenger hub cannot be measured in numbers alone. For example, St. Jude Children's Research Hospital is the international leader in pediatric cancer research and treatment. The ability of doctors and patients from throughout the world to reach these Memphis facilities is highly dependent on the Memphis hub.

Why is the airport's economic impact—particularly distribution and cargo, but passenger traffic as well—so important to Memphis and the region? To answer this question is to answer a key measure of success for any airport—are you meeting your community's primary needs? In Memphis' case, yes! The needs of Memphis lie in two primary areas—distribution and logistics, and tourism.

Memphis' roots, going back to the city's founding in May of 1819 by John Overton, James Winchester, and Andrew Jackson, were as a trading post dependant upon distribution excellence. At first, Memphis depended upon the Mississippi River. With the advent of rail, Memphis became the rail distribution capital of the mid-south region. As the Interstate and U.S. highway systems grew, Memphis became a leader in surface transportation. And, today Memphis is the world leader in air cargo. Continuing Memphis' leadership in distribution and logistics is a critical component of the city's identity for its entire 188 years and part of the sacred trust that Memphis International must protect.

On the flip side is the city's heritage in music and entertainment. The birthplace of Rock 'n Roll (50th anniversary celebrated from July 2004 to July 2005) and the Home of the Blues (50th anniversary of Soul celebrated in 2007) depends heavily on tourism. Graceland, the former home of Elvis Presley, is itself a tourist phenomenon, attracting fans from around the world, second only to the White House as the most visited house in the country. More than 13.3 percent of the visitors to the Memphis area arrive at Memphis International. It is estimated that those visitors spent more than $400 million on lodging, food and beverage, and retail in 2004. Continuing Memphis' leadership in tourism in support of its music heritage is another part of the sacred trust that Memphis International must protect.

On the issue of reflecting our community and its music and cultural heritage, one need only look at the passenger terminal improvements unveiled at Memphis International in late 2005. In December of that year, Memphis International Airport displayed the results of approximately $25 million in improvements. Such well known Memphis food and entertainment names as Interstate Bar-B-Q, Back Yard Burgers, Lenny's, Corky's, Grisanti's Bol a Pasta, Folk's Folly, Huey's, The
Half Shell, Sun Studio, The Memphis Zoo and its pandas, Memphis Rock & Soul Museum, and Elvis Presley Enterprises are featured in restaurants and concessions throughout the airport.

For many passengers connecting on Northwest, Memphis International Airport is their introduction to Memphis, perhaps even their only experience with the city. For that reason, an environment was created throughout the airport to provide travelers a real flavor of Memphis. From the food they eat, to the stores they shop, to the artwork on the walls, our goal was to entice them to want more of the one-of-a-kind Memphis experience. The center of the busiest concourse— concourse B—was transformed into a soaring music-themed rotunda, surrounded by shops and restaurants. This area of concourse B is the most traveled section of the airport and gives departing, originating, and transferring passengers a real feel for Memphis.

A Culture of Collaboration
While numbers count and create a scorecard for results, behind any set of successful numbers often stands business collaboration. In the case of Memphis International Airport, it is a longstanding culture of collaboration.

My views on this subject are shaped not only as a partner at the national labor and employment law firm of Ford & Harrison, they reflect my 24-year experience on the Memphis-Shelby County Airport Authority and other successful civic projects in which I have held positions of leadership.

These experiences have demonstrated that a business model built on key leadership principles, including principles of collaboration, can produce results that meet or exceed expectations for most any organization.

Consider several notable examples of leadership as it relates to Memphis International Airport.

In 2002, the challenge was to reconstruct Runway 18R-36L and to do so without taking any of the four existing runways out of service. The solution arrived at was to strengthen the adjoining taxiway to 18R-36L and use it as a runway during reconstruction. The timetable for reconstruction was set at nine months, an unprecedented short time for airfield construction. And, it all happened just as planned—in fact, better than planned.

A great measure of that success is owed to the quality and creativity of FAA, FedEx Express, and NWA personnel, who formed a coalition with airport staff to coordinate the planning, design, and construction effort. This partnership used a combination of experience, breakthrough thinking, time-tested processes, and proven management methods to set the stage for delivery of a near-flawless project. Indeed, the project was completed 38 days ahead of its ambitious nine-month time schedule and significantly under budget—a shining example of execution.

Another example of collaboration took place in late 2004 when local headlines heralded “A Multi-Million Dollar Land Exchange” that some would say is the most significant development in the last two decades at Memphis International Airport. FedEx was landlocked on the airfield, cramping its ability for future expansion. In yet another example of breakthrough thinking, the “great land swap” took place, enabling FedEx to acquire 103 additional acres in the middle of its super-hub complex on the airfield from the Tennessee Air National Guard. Meanwhile, the Guard acquired 118 acres across the airfield to build a state-of- the-art greenfield facility to accomplish its new mission—the C-5 Aircraft. This new Guard facility will be the Nation's first that is 100 percent compliant with the post 9/11 anti-terrorism force protection plan of the U.S. Department of Defense. This land swap clearly was a win-win for all!

How did this come about? Just as with the reconstruction of Runway 18R-36L, it was because of our culture of collaborative relationships with airlines, tenants, government agencies, and other airport stakeholders.

It also includes a collaborative process that links inclusion of minority and women-owned business participation to key business objectives. One of the guiding principles on which we make our business decisions at Memphis International states that we will, “continue to be recognized as an industry leader in business diversity development.”

Our core belief is that the principle of minority participation is not merely a social issue; it is not merely a legal standard; it is not merely a moral imperative. It is something much more than that. Minority participation is just smart business. At Memphis International, we have demonstrated time and time again that, not only are diversity and business excellence individually important, they are actually highly synergistic. The synergy created by dedicating yourself, your organization, your project to being the best it can be, and being diversity-focused, is a powerful combination.

The Aerotropolis
Memphis International Airport's history of growth, collaboration, synergy, and local social awareness all come together for the next great phase in airport and community development for the 21st century. Never before has the need for communities, business leadership, and airport leadership to come together been greater than in the next wave of community economic development.

In July, 2006, Fast Company magazine featured an article titled “Rise of the Aerotropolis.” As defined by Dr. John Kasarda of the University of North Carolina, who is recognized as the definitive expert on the concept, an aerotropolis is a community that grows or even is created with an airport as its economic engine.

Speaking at the chairman's annual luncheon of the Memphis Regional Chamber last November, Dr. Kasarda outlined the global challenges and competition that airports face in creating an infrastructure to support the new economy.

Consider one of the largest projects underway in the world—Dubai World Central. This visionary airport city within a city will be twice the size of Hong Kong when completed. Promotional literature produced by the Dubai government talks about a community that will exceed the air cargo and passenger capacity of any existing community in the world, with a residential and workforce population of 750,000.

Leaders of this and other projects, such as the airport for the Huadu District of Guangzhou, China, openly proclaim goals to emulate what has happened in Memphis with Memphis International, and to go well beyond.

Dr. Kasarda challenged the leadership of Memphis to not rest on past success, but, instead, to set new goals and new priorities that can compete with this new wave of airport community.

Yes, the economic impact of Memphis International is remarkable. And, yes, 15 years of world air cargo leadership is to be commended. Yet, we must today be prepared to compete—not with other cities and world capitals—but with other Global Supply Chains. Our competitive edge lies in effectively developing our emerging aerotropolis, which is unique, according to Dr. Kasarda, as the only such entity in America today.

The aerotropolis will expand the reach of Memphis International Airport from beyond the fence line to 25, or even 60 miles. It will anchor our quadra-mobile assets of air, rail, port, and highways. No other community in America is so well-positioned to accomplish this. For example, Memphis is one of only two cities to have all five of the Class 1 railroads; the fifth largest inland port; and crisscrossing Interstate highway systems, soon to include I-69 (the NAFTA Highway).

But, it is not just about the numbers. We also must strive to ensure that, as we build our aerotropolis, we make our community aesthetically pleasing. We need to invest in community and business development that will ensure that the experience of traveling from the airport to the central and suburban business districts, and from the airport to residential and entertainment districts, reflects the quality of the community and makes a positive impression.

That kind of infrastructure investment will also require an investment of breakthrough ideas that effectively move the airport from being viewed as merely a transportation hub, to being viewed as one of the major assets that together create an integrated aerotropolis community. That is a goal much easier to accomplish with a clean slate—a luxury we don't have in Memphis or in virtually
any other already-developed metro area.

It will take vision and sound business approaches under the guidance of well- organized leadership. It will take a firm understanding of the economic impact that must be harnessed and how that impact relates to the economic whole of the community. It will take collaboration between all stakeholders with a vested interest in the airport's success and the community's growth. It will take a dedication to principles that say no part of the community demographics can be left out.

Fortunately, Memphis International Airport has demonstrated consistently that it can meet and exceed expectations. That is what brought us to where it is today, and what will carry us into the future of aerotropolis.

Three Lessons from Memphis International
As I reflect on the history of Memphis International Airport and the years I have been associated with it, at least three critical lessons come to mind.

Lesson #1: An airport authority is the best business model for airports. In keeping with any successful business model, focus on your assets and never lose sight of them.

Lesson #2: Collaboration is an essential leadership quality for any successful airport operation. Think “one big team” and provide the leadership to make it a winning team.

Lesson #3: While incrementalism can lead to continuous improvement, only breakthrough thinking leads to remarkable results. Think big.

As we look ahead with confidence in our future and the continuing contributions from Memphis International Airport, we are ever mindful of the remarks given at the opening of the World Runway at Memphis International. Then-U.S. Secretary of Transportation Rodney D. Slater proclaimed, “Aviation in the first half of the 21st century will be as important to the country as the interstate highway system has been in the second half of the 20th century. . . . There is no place in America that understands that more at its core than Memphis.”

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Arnold Perl is a partner with the national labor and employment law firm Ford & Harrison. He is well known in Memphis for his tireless community service. He serves as Chairman of the Memphis-Shelby County Airport Authority, and the New Memphis Arena Public Building Authority, which received acclaim for the construction of the FedExForum. In addition, he is the Chairman for the Memphis Regional Chamber's Regional Logistics Council for 2006-2007.

Perl is listed in The Best Lawyers in America, International Who's Who of Management Labour and Employment Lawyers, and in both Business Tennessee Magazine's Top 100 of “Tennessee's Most Powerful People” and Memphis Magazine's Top 100 Influential Leaders. He received, in 2006, the Diversity Memphis “Humanitarian of the Year” award. Perl is co-author of business book Simple Solutions, with Tom Schmitt from FedEx.