Case Study: Denver International airport
Submitted To:- Submitted By:
Mr. Gary Sveinson Loveneesh Kumar
1. Is the decision to build a new airport at Denver strategically a sound decision?
Strategically to build a new airport at Denver is a good decision from the various aspects such as:-
1. Denver ‘s Stapleton airport (old airport) is not able to handle the traffic properly. Due to insufficient
airport capacity, Denver could lose its valuable business.
2. As Denver ‘s airport is attached to world ‘s major airports, therefore, delays at Stapleton airport affect
the flights at other airports. According to an estimate, Denver losses $100 million income each year
because of delays and flight cancelation.
3. For the future, Denver ‘s new airport will act as a potential hub for the Northwest or USAir. This will
cause to increase business in Denver.
4. Stapleton airport has only two North-South runways which are near to each other and during the bad
weather, the two runways act as a single runway while Denver ‘s new airport would have three North-
South runways that will help to increase the number of flights per hours and will cause in reducing
delays. Moreover, the new runways would be technically better than the previous runways as these will
include lighting system and a 327-foot FAA air traffic control tower that will help to air traffic
controllers to lead the pilots properly and also during bad weather conditions.
5. Last but not the least, because of the sufficient space 2 FAA class 6 aircraft can operate one after each
other without impacting each other that will help in reducing delays and proper use of time.
2. Perform an analysis for strengths, weaknesses, opportunities, and threats (SWOT) on the decision to
Strength:- 1. The noteworthy quality of the choice is that DIA has the three North-South runways that will
expand the number of flights every hour and will cause in decreasing the deferrals.
2. Because of the adequate space 2FAA class 6 aircraft can work one after each other without
affecting each other that will help in diminishing postponements and appropriate utilization of time.
3. Another quality is that in view of no postpones Denver presently won’t misfortune $100 million
income every year.
4. Moreover, the choice of new airplane terminal will decrease the commotion contamination since it
is arranged in a uninhabited territory.
5. Last however not the minimal quality of the choice is that it will help in expanding the productivity
of all the air terminal activities, for example, new things framework will bring about diminishing
the sitting tight time of travelers for their gear.
Opportunities:- 1. The major opportunity of the decision is that for the future, DIA was going to act a potential
business hub for the Northwest or USAir that would increase the business in Denver.
2. As the Denver will convert into business hub it will help to increase its economy that will cause in
strong financial power.
3. Another opportunity by the DIA is that it will result in increasing number of enplaned passengers.
Weakness:- 1. The weakness of the decision is that initially, it did not get the full support from the United and
2. Another weakness is that cost of renting at DIA is higher than the Front Range airport that can be
extended at the place of building a new airport.
Threat:- 1. The major threats to the decision are airlines boycott, customer boycott and government authorities
approval, public pressure groups.
2. Another threat to the DIA decision is the bad weather of city as it can affect the schedule
management of building the DIA.
3. Who are the stakeholders and what are their interests or objectives?
City officials To build a new airport to satisfy the needs of
Denver Mayor Federico Pena and Adams
County(1985) and Denver Mayor Wellington(1993) To build a thing of beauty in the form of airport and
to satisfy the needs of Denver.
Peat Marwick (consulting firm) The objective of the consulting firm is to conduct a
feasibility study (economically, operational,
technically) included project traffic.
Denver voters To get an airport that could result in higher traffic to
the city that would cause of potential business hub.
Airlines Providing the better services to the customers and
generating revenue for the shareholders.
Passengers Passenger’s objective is to get a comfortable airport
that will reduce their waiting times and will reduce
the number of delays.
Security agencies Maintaining the security at the airport.
Greiner Engineering (engineering, architecture, and
airport planning firm) and Morrison-Knudsen
Engineering (design-construct firm) The objective of these two firms is to act as project
management teams which are responsible for
schedule coordination, cost control, information
management, and administration of approximately
100 design contracts, 160 general contractors, and
more than 2000 subcontractors.
New Orleans-based architectural firm The objective of this firm is to create the standards
for the whole airport.
Airport staff The objective of airport ‘s staff is t provide better
services to the passengers to satisfy them according
to their needs.
4. Did the airlines support the decision to build DIA?
Initially, the airlines did not support the decision to build the DIA. As the major traffic at Denver is from
United and Continental airlines but these did not support the decision because airlines feel that the new
airport would increase the cost burden. As the construction started in 1989 but till November 1991 airlines
did not sign a firm agreement with the DIA but in December 1991 airlines agreed to provide services at
5. Why was United opposed to expansion at Front Range Airport?
Denver International Airport was good strategic fit for the United airlines because most of the business at
DIA is from the United and Front Range airport is lookin g as the competitor for the DIA. Therefore, if
Front Range expands then it will directly affect the business at DIA that causes low revenue to the United
airlines. Therefore th e United opposed the expansion at Front Range Airport.
6. Why was the new baggage handling system so important to United?
The new stuff dealing with framework was imperative to United in light of the fact that United needed to
decrease the sitting tight time of travelers for their things and furthermore needed to abbreviate the
turnaround time. Joined was concerned that to exchange the baggage with the old framework would devour
much time in light of the fact that their few entryways are in excess of one mile far from each other. It was
clear in light of the fact that the old things framework is worked manually so it devours much time yet the
new stuff framework is quick since it is bolstered by the new innovation and with the new framework,
things could be exchanged starting with one entryway then onto the next in under 10 minutes. Along these
lines, new things framework was important to the United.
7. Is DIA a good strategic fit for Continental?
As DIA regards lessen the number of deferrals of flights and expanding number of flights every hour for
Continental yet from the general view, DIA isn’t deliberately fit for Continental in light of the fa ct that DIA
has expanded the weight of cost on Continental carriers. Mainland has been going under subsidence so it
can’t run with the high arrival expenses so it diminished 23 percent flights at DIA in light of high landing
8. What appears to be the single greatest risk in the decision to build DIA?
The single most serious hazard in taking the choice to manufacture the DIA is to sign the agreements with
two noteworthy carriers (United airlines and mainland airlines) on the grounds that 80% of the flights at
Stapleton air terminal are from these two airlines. As at first the two aircrafts did not bolster the choice and
marked any agreement with the DIA experts. These agreements were important to create the cash for the
advancement of the DIA and the income for what’s to come.
9. United is a corporation in business to make money. How can Unit ed issue tax-free municipal bonds?
In a business, one partner can issue some tax- free or interest free bonds to other partners. S imilarly, in this
case United issued the tax-free bonds to the DIA authorities by making the contract to provide the service s
at the airport.
10. What impact do the rating agencies (i.e., Moody ‘s and Standard & Poor ‘s) have in the financing of
Standard and Poor’s Corporation has the negative effect on the DIA bonds as the organization brought
down the rating on the DIA bond from BBB to BBB-. On the opposite side, Moody did not bring down the
rating on the $1 billion remarkable of air terminal bonds.
11. According to the prospectus, the DIA bonds were rated as BBB —by Standard & Poor ‘s Corporation.
Yet, at the same time, the City of Denver was given a rating of AA. How can this be?
Rating, for one thing, could be different from the prospects of two distinct companies because eac h
company uses the different factors to rate something. Therefore, this can be possible in case of De nver so
the rating of DIA bonds by the City of Denver is AA while Standard ; Poor ‘s Corporation gave BBB-.
12. On October 1, 1992, the United bonds were issued at an interest rate of 6.875 per cent. Was this an
appropriate coupon for the bonds?
As the united agreed to pay the vital, interest on the bonds and also the premium, therefore, it would not be
wrong to say that to get the 6.875% interest on the bonds was an appropriate coupon bonds .
13. There are numerous scenarios that can occur once the airport opens. Create “what if ” scenarios that
will help identify potential issues or blind spots for DIA. For example, “What if low cost carries begin
using Front Range airport? ” Or “what if the city sells the airport to a private Corporation? ”
If the low cost carries begin using Front Range airport then it will directly affect the revenue of DIA
authorities because the other airlines will also like to move to Front Range airport. United is already seeing
the Front Range airport as its competitor, therefore it will take further actions to maintain its profit.
If the city sells the airport to a private Corporation then it could raise the price for the landing of airc rafts,
so the cost of air tickets could increase and private Corporation could also increase the services at the
airport to generate the more profit.
14. Assume that DIA finally opens and with a debt of $3 billion. Is the revenue stre am sufficient to pay
interest each year and pay the principal at maturity?
As per the case, DIA’s income stream would have the capacity to pay the intrigue every year and the vital at
15. What options are available to DIA if the coverage falls below 100 percent?
There are several options available to the DIA authorities to cover the 100% revenue as DIA authorities can
earn the income by implementing the own telephone company that could generate the good income to the
authorities. Moreover, by giving the space at rent to retail shops, food chains, parking garage and etcetera
DIA authorities can cover the revenue .
16. If the debt coverage were actually this good, why would the ratings on the bonds be BB?
Despite of good revenue coverage the rating of the bonds was BB because of poor baggage handling
system as the airport authorities were failed to implement the baggage system effectively and the second
reason was the poor management of the airport because many things were going wrong.
17. One of the critical parameters that airlines use is the cost per enplaned passenger. Using
determine whether the cost per enplaned passenger can be lowered.
From the exhibit V it is clear that number of enplaned passengers increased in the year 1993 as compare to
1992. Because of more enplaned passengers the number of departures will also increase that would result in
generating more revenue to the airport because airport charges fees to the airlines for the departur es,
therefore, if the airport decreases the charges for the departures then the cost per enpl aned passenger can be
18. Is there additional revenue space available (i.e., unused capacity)?
Initially, the DIA is focusing to generate the revenue from the airlines because without the services of the
airlines, DIA cannot be acted as an airport but DIA could generate the additional revenue from the various
factors such as by giving the space at rent to restaurants, retail shops and parking garages etcetera.
19. What is the function of the project management team (PMT) and why were two companies involved?
The project management team ‘s functions are schedule management, budget control, information handling
and management of near about 100 design contracts, 160 general contractors, and more than 2000
The city of Denver appointed two companies (Greiner Engineering (engineering, architecture, and airport
planning firm) and Morrison-Knudsen Engineering (design-construct firm)) to assist the project
management process and these companies ‘ acts as project management team.
20. When did the effectiveness of the project management team begin to be questioned?
When the New Orleans teams designed a stepped-roof profile, the mayor, city council and others started to
concern about the budget because they were thinking that this design is not according to the $2 billion
project. Here the effectiveness of the project management team began to be questioned and the financial
analysis of the roof design clarified that the cost of the project would increase by $48 million and the
project will not go according to schedule. Hence the questions raised on the effectiveness of the project
21. Did it sound as though the statement of work/specifications provided by the city to the PMT was
” vague ” for the design phase?
The statement of work/specifications provided by the city to the PMT was vague for the design phase that
is cleared from various perspectives such as:-
? As the city wanted a thing of beauty but the airport personnel wanted an easy to clean airport.
? It seemed that all the decisions were made in reaction to maintenance or technical issues. Thus this
created the problem to the design team to design the airport image.
? The project team was also failed to understand the differences between the city ‘s aspirations and the
maintenance orientation of the operators.
? PMT was failed to estimate the cost and required time to complete the project.
From all these this is clear that work specifications provided by the city were not clear.
22. During the design phase, contractors were submitting re-estimates for work, 30 days after their
original estimates, and the new estimates were up to $50 million larger than the prior estimate. Does
this reflect upon the capabilities of the PMT?
No, this can’t be reflected upon the capacities of the PMT on the grounds that when the city of Den ver gave
the summon to the PMT to plan the air terminal, the task was at that point a half year behind the real
timetable and a few times venture was deferred. This shows that the project was complex and was really in
the bad situation. This also indicates this that top management was unable to know the real situation of the
project, therefore, PMT required some time to know about the project so submission of re-estimates for
work that was different from the original estimate cannot be reflected upon the PMT after just one month.
23. Should the PMT be qualified to perform risk analyses?
Yes, PMT should be qualified to perform the risk analysis. As the risk analysis is not the single step
process. It starts from risk identification by several methods such as expert judgment, brainstorming
etcetera then analysis of risks comes. Because the DIA was facing several problems from the initiation,
therefore, here the PMT should be highly qualified to perform risk analyses.
According to the case, major risks to the project are cost, human resources and bad weather. With the
addition to this PMT should analyze quality risk, scheduling (there is lot work is postponing in the project).
24. Why were the architects coordinating the changes at the construction site?
The architects were coordinating the changes at the construction site because they were contracted to create
standards for the whole airport and when they analyzed that the decision is based on operational issues than
aesthetic values then this raises the questions on the effectiveness of PMT therefore, architec ts coordinated
the changes at the construction site by designing a stepped roof profile. Another reasons were to de crease
the paperwork and to maintain the schedule, architects were highly involved in the construction phase.
25. Should the PMT have been replaced?
Yes, the PMT should be replaced due to several factors that are as:-
? Several questions were rising against the effectiveness of the PMT as it was looking that PMT has
been failed to determine the correct budget and schedule to complete the construction in the starting
? Another reason was that it was failed to add the airlines in the decision-making process which were
the major stakeholders.
? PMT was also unaware about the baggage system as it did not know what to do with the DCV
(destination coded system) which was highly important for the United.
? Delays in the project work also raise questions on the effectiveness of the project management
team, therefore, it would be better to replace the PMT.
26. Do scope changes reflect upon the ineffectiveness of a project management team?
Yes, scope changes reflect upon the ineffectiveness of the project management team. The various changes
in the scope in this project are as:-
As the automated baggage system was important to the United airlines, therefore, the chankes occurred in
the designing of terminal building.
Because of the pressure from the United airlines the changes made in the interior design of Concourse B.
Changes the cost of various things such as runway and lighting system.
27. Why did United Airlines decide to act as the project manager for the baggage handlin g system on
Baggage handling system was highly important to the United. DIA authorities were failed to imple ment the
baggage system properly because they were totally unaware about the installation o f a new system.
Authorities Selected BAE to design the baggage system but it was also failed to implement the system in
the proper way as most of the bags were going at the wrong spot and one joke was that when people fly for
Denver they had to stop in Chicago to get their luggage. Therefore people were getting irritated from thi s
but United was wanted to provide highly scaled services to its customers and the concourse B was only for
United airlines operations, therefore, United decided to act as project manager for baggage handling at the