Dec. 13 (Bloomberg) -- Delta Air Lines Inc.’s $1.2 billion overhaul at New York’s Kennedy airport is taking shape as the carrier bolsters its international hub in the busiest and most competitive U.S. aviation market.
Expanding Terminal 4 will bring all Delta’s overseas gates under one roof and add a lounge as big as five basketball courts. That consolidation will allow for the demolition of the adjacent, 1960s-era Terminal 3 that a Delta executive once said evoked a “Third World country.”
“They are losing a certain amount of traffic because people dread that terminal,” said Ray Neidl, a Maxim Group LLC analyst. Delta’s Kennedy redo is “going to make them much more competitive out of New York. The payback is a no-brainer.”
Delta is playing catch-up after rivals invested more than $3 billion during a decade of New York airport upgrades. Like United Continental Holdings Inc. and American Airlines, Atlanta-based Delta seeks to win more of the Wall Street fliers prized for frequent, last-minute bookings in premium seats.
John F. Kennedy International Airport has been a pillar of Delta’s strategy to boost international flying since the carrier’s 2007 bankruptcy exit. New York flying is likely to be discussed at an investor presentation tomorrow, after the subject was broached on seven previous 2011 conference calls.
Delta’s project chief is Harry Olsen, who built the New York Yankees’ $1.5 billion baseball stadium. He must open the new terminal by May 2013 without disturbing daily rhythms at Kennedy as backhoes and bulldozers smoothe earth a few hundred feet from where carriers such as El Al Israel Airlines and Virgin Atlantic Airways Ltd. taxi and park wide-body jets.
“The most difficult thing is the logistics and scheduling and moving equipment around planes,” Olsen, 55, said in his first interview about the job as he sloshed through construction-site mud and skirted slippery residue from fire-retardant foam sprayed on overhead steel girders.
The last beam was installed in early November and most of the concrete for floors and gate areas has been poured. Sections of walls are being installed in the coming weeks.
While having Kennedy as a gateway for New York’s lucrative travel market was a plus for Delta, aging facilities were a liability in an industry where creature comforts are the standards by which airlines set themselves apart.
JetBlue Airways Corp.’s Terminal 5 at JFK opened in 2008 and cost $743 million, and American parent AMR Corp. spent $1.3 billion on a Kennedy terminal in 2007. Continental Airlines, a United Continental predecessor, invested $1.4 billion in 2001 at New Jersey’s Newark Liberty airport.
“The customer experience will be a thousand times better,” said Philip Grieci, general manager of hub operations at JFK for Atlanta-based Delta. “It will give us the advantage in international. It will be massive.”
The lack of discount competitors on overseas flights means higher prices than on domestic trips. Delta’s cheapest walk-up fare in business class for departure tomorrow to London Heathrow from Kennedy is $5,844, compared with $3,112 to Los Angeles, JFK’s most-traveled U.S. route.
Filling more premium seats may help boost earnings at Delta, whose 1.3 percent profit margin over the past 12 months ranked seventh among 11 carriers in the Bloomberg U.S. Airlines Index, according to data compiled by Bloomberg. The shares tumbled 35 percent in the 12 months through yesterday, the third-worst performance in the gauge.
One of Delta’s challenges at Kennedy has been gates split between Terminal 4 and Terminal 3, the saucer-shaped building that inspired Treasurer Paul Jacobson’s “Third World country” remark at an airline finance conference last year.
All of Delta’s international gates will be consolidated into Terminal 4’s Concourse B, where the airline already operates. The building’s footprint will expand by a third with 481,000 square feet (44,700 square meters) of new space.
A 24,000-square-foot SkyClub lounge will be the biggest in Delta’s system and among the largest in the U.S., complete with showers and massage rooms. A tunnel with moving walkways will link Terminal 4 to the adjacent Terminal 2, which serves domestic Delta destinations. Delta also operates a domestic hub at New York’s LaGuardia airport.
Delta’s changes will eliminate hassles such as a Terminal 3 customs area so small that incoming passengers are often kept on planes for a half-hour until they can fit inside, and six different security checkpoints that confuse passengers, said Thomas Lang, the airline’s deputy program director for JFK.
Luggage scanners the size of Volkswagen Beetles hog space near check-in counters, creating bottlenecks as fliers wait to hand bags to security personnel.
Delta also will save fuel and time with 15 new parking spots for jets that will be created once Terminal 3 is demolished, instead of having to taxi them halfway across the airport at night, which can take an hour or two.
The refurbished terminal is “going to be magnificent, the crown jewel in their New York strategy,” said Maxim’s Neidl, who rates Delta as “buy.”
About 400 workers are on site, and with the completion of below-ground work such as sewage, utilities and fuel lines, “it’s going awfully fast,” said Olsen, who began work in early 2011. The project is on time and on budget, he said.
On any given day, 10 to 15 truckloads of cement are poured, and the project will require 158,000 tons of asphalt and 1.38 million feet of wiring, more than the distance between New York and Washington. Almost 2 million man-hours will be spent on the project.
Delta’s upgrades are overdue, said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California, who used to fly through Kennedy regularly. He said he built in three or more hours for international connections to ensure he could clear customs and switch terminals.
“I’m so glad they’re doing something to improve JFK,” Green said. “JFK has such capacity issues and it’s not like anybody can do anything about it. Whatever Delta can do to improve the areas they control will help.”
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