San Jose's arduous campaign to establish the first direct flight between Silicon Valley and Asia in more than six years highlights the obstacles regional airports face in luring more planes to terminals in an era of airline industry cost-cutting.

After a five-year effort, business and government officials will toast Friday's launch of the five-day-a-week All Nippon Airways service between Mineta San Jose International Airport and Tokyo's Narita International Airport that will deploy Boeing's new 787 Dreamliner. But industry experts say future success for San Jose International -- which underwent a billion-dollar makeover amid the U.S. airline industry's recent financial implosion -- will be hard-won.

"It's not just a San Jose issue. The airline industry has fundamentally changed in the last three to five years," said Robert Herbst, an aviation industry consultant who operates AirlineFinancials.com. "It will be challenging for San Jose to get any measurable airline growth. I don't see it happening in at least five, 10 years minimum."

The changes include airline bankruptcies, major consolidations, elimination of routes and reducing plane sizes for some service. Meanwhile, more flights have been shifted to the nation's largest airports, such as San Francisco International Airport, and away from secondary airports, such as San Jose. The deep recession added to the financial pain airlines were experiencing brought on by rising prices in jet fuel, cutthroat domestic competition and aging, less efficient planes.


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Annual passenger traffic at the San Jose airport has dropped 22 percent since 2007 -- from 10.6 million to about 8.4 million last year, with final numbers for 2012 expected to remain about the same. Oakland International Airport experienced an even greater falloff during the same period: a 32 percent plunge, from 14.6 million passengers to about 10 million. SFO, on the other hand, has seen the number of passengers moving through its terminals soar 20 percent from 2007 to about 43 million in 2012.

San Francisco remains the de facto gateway for the region. San Jose and Oakland, for example, offer only one daily nonstop flight to the New York City region -- and each flight is a JetBlue Airways red-eye flight. SFO has 28. San Francisco International handles about 96 percent of all Bay Area international travelers, averaging 60 international flights a day. Other than the new Tokyo service, San Jose has just three international routes, all to Mexico. Oakland has two routes to Mexico and two seasonal summer flights to Europe.

San Jose's airport is "a beautiful facility and better than the vast majority of U.S. airports," said Alan Bender, professor of aeronautics at Embry-Riddle Aeronautical University in Daytona Beach, Fla. But, he added, passengers land at San Jose because it is usually their final destination, not to catch another flight. "San Jose is a dead end. Almost no one is going to change planes there," he said.

The industry's turbulence began with the struggles of U.S. airlines. Over the past 11 years, America's airlines suffered dramatic losses caused by a combination of skyrocketing fuel prices -- up 300 percent in the past seven years -- the recession and broken business models, said Herbst, the consultant. Airfares, on the other hand, increased only 15 percent between 2006 and 2011, he noted.

In the past two years, after the merger of Delta and Northwest, United and Continental and Southwest Airlines and AirTran Airways, most U.S. airlines returned to the black. American Airlines, which is in bankruptcy, is looking to merge with US Airways.

The consolidations cut service to smaller airports. In 2003, Oakland International averaged 15 United departures a day, airport spokesman Brian Kidd said. Today, United has four daily flights at Oakland.

The Bay Area is "the third-largest air market (in the United States), after New York and Los Angeles," he said. "But that doesn't mean it gets distributed proportionately."

Oakland, he added, was particularly hard hit when Burlingame-based Virgin America launched service at SFO in 2007, which caused competitors to beef up service in San Francisco to the detriment of other airports.

Changes in flight plans have been devastating for San Jose International, which incurred $1.5 billion in debt to modernize its facilities on the assumption the improvements would increase air traffic to Silicon Valley. Airport officials, in planning for the worst-case post-construction business scenario, anticipated a 2 to 4 percent drop in airline business, said Bill Sherry, Mineta San Jose International Airport's director of aviation. Instead, the revenue drop-off from fewer passengers was about 35 percent.

"No one, from the rating agencies to the bondholders to our financial consultants, envisioned we'd lose 35 percent of our traffic," he said.

"We had to take some extraordinary measures," Sherry said. Those included slashing airport expenses by $50 million a year, including restructuring debt and outsourcing services such as janitorial, landscaping and curbside security.

It also meant cranking up marketing efforts, including tapping the Silicon Valley Leadership Group, which represents companies from Apple (AAPL) to Cisco Systems (CSCO), to lobby airlines such as ANA to bring new service to San Jose.

Increasing numbers of airports are trying to steal service from one another, said Debby McElroy, executive vice president of Airports Council International, a trade organization that sponsors an annual conference that is something akin to speed dating for airports and airlines. Airport officials make pitches not only to win new air services, but also to retain those they already have, she said.

With the U.S. airline industry still in recovery, airports are aggressively courting international carriers, which are rolling out new aircraft and routes. To land the ANA San Jose-Tokyo flight, San Jose offered the airline numerous incentives -- including no fees for its first year, a 66 percent fee discount its second year and 33 percent discount the third.

Bender said the incentives are a good way for secondary airports to snag a new carrier. And it can pay big dividends when the new flight is an international route, he said. Studies show that travelers from Asia, for instance, spend as much as $2,000 when they travel, giving a good boost to the local economy.

Seth Young, director of the Center for Aviation Studies at the Ohio State University, said San Jose and Silicon Valley, with its large population, tech economy and wealthy enclaves, is in a strong position to attract more flights once the economy and airline industry have fully recovered.

"If you make those investments (in airport upgrades) there is always a risk of the investment not turning out," he said. "But if you don't make those investments, there is no chance of taking advantage of increased demand in the future. If airlines are going to service a major market like the Bay Area, there will be need for additional capacity."

Contact John Boudreau at 408-278-3496. Follow him at Twitter.com/svwriter.