"Official: Industry turbulence won't ground Mineta San Jose Airport project"

Wednesday, June 25, 2008

Official: Industry turbulence won't ground airport project
By John Woolfolk
The San Jose (CA) Mercury News


Though high fuel costs have sent the airline industry into a tailspin, San
Jose officials see no immediate threat to the city's airport and its $700
million terminal overhaul project.

"Given the volatility of the industry, it's difficult to make any long-term
forecasts," said David Vossbrink, spokesman for Mineta San Jose
International Airport. "But our finance staff is pretty confident we're in
good shape in terms of our financial obligations."

Turbulence has rocked the once high-flying airline industry for nearly seven
years, since the Sept. 11, 2001, terrorist attacks and an economic recession
triggered by the dot-com bust.

Now, with the economy still sputtering, rising demand has sent oil prices
surging toward $140 a barrel, nearly double the figure from a year ago,
driving up fuel costs for airlines that have little room to absorb them.

Since December, six airlines have filed for bankruptcy and ceased
operations. Others have announced plans to ground aircraft, reduce flights
and capacity by 10 to 17 percent this year, and lay off thousands of
employees. Carriers are reporting record financial losses.

"The United States commercial aviation industry is facing its worst crisis
in its history," San Jose Aviation Director William F. Sherry said in a
report to the city council this month. "Continuing reductions in capacity,
flights, and employees are being predicted, along with the serious
possibility of additional bankruptcies in the coming year."

Passenger traffic at San Jose Airport has been falling since September,
Sherry said, and the airport expects a drop of 5 to 10 percent over the
coming year.

Aviation activity and passenger traffic drive revenues for the airport,
which is a self-supporting city operation. The airport's original budget for
the coming fiscal year, which begins Tuesday, projected a passenger growth
rate of 1 percent, down from an earlier assumption of 3.5 percent. If
traffic instead decreases by 10 percent, airport officials say revenues
would fall as much as $9 million.

"This will be a critical challenge at a time when the airport is building
and opening new terminal facilities over the next two years," Sherry said in
his report.

Still, Vossbrink said the terminal area improvement project is not in
jeopardy. The city has already sold the bonds and other financing vehicles
for the project, expected to be completed in 2010, and is still well within
revenue projections for meeting its debt payments, he said.

"We've been holding the line very well on costs, so we're more than making
our commitments," Vossbrink said.

Vossbrink added that the airport expects the expanded concessions coming
with the terminal project will increase revenues.

As for airport operations, Vossbrink said San Jose's airport should be able
to weather the industry downturn through the kinds of budget-cutting
measures it has been using since 2001, such as not filling job vacancies or
delaying non-critical maintenance. Vossbrink likened it to a sailor who
continuously monitors a compass and makes course adjustments.

"Alarm is not the word we're using," Vossbrink said. "There's a great deal
of concern. It's a trend in the wrong direction, but neither is it
precipitous."

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