"Corporate clash over Hobby draws throng to City Hall"

Tuesday, May 8, 2012

Corporate clash over Hobby draws throng to City Hall
By Chris Moran
The Houston (TX) Chronicle


In what was likely the two companies' only head-to-head meeting before City
Council votes on the issue - possibly this month - United and Southwest on
Tuesday offered all 16 City Council members competing pitches on whether to
permit construction of a $100 million customs facility and five-gate
expansion at Hobby Airport. The 41/2-hour spectacle of corporate combat drew
such a throng to City Hall that three rooms had to be opened to contain the
spillover from the packed chamber. 

Most of the arguments were out well before the airlines appeared: Southwest
insists that opening Hobby Airport to international commercial travel will
bring jobs and money to Houston. United says two international airports will
damage Houston as the city cannibalizes itself instead of competing with
Dallas and Atlanta.

The audience at the meeting of two council committees - Transportation,
Technology & Infrastructure and Budget & Fiscal Affairs - largely knew that
a city-commissioned study, which Southwest cites in its "Free Hobby"
campaign, projects 10,000 new jobs and $1.6 billion a year injected into the
Houston economy by 25 new daily Southwest flights to Latin America starting
in 2015. United's "Keep IAH Strong" counter campaign has its own study that
predicts the loss of 3,700 jobs and $295 million a year in lost economic
activity.

Déjà vu

CEO Gary Kelly spoke for Southwest. He framed the debate in his company's
David-and-Goliath narrative of the scrappy low-cost carrier trying to crack
a market dominated by the big boys.

Kelly opened with, "It is déjà vu." Southwest had to fight just to keep from
being killed in its crib by legacy carriers that schemed and litigated all
the way to the U.S. Supreme Court to keep the airline from starting up, by
Kelly's version of history.

"That group included Continental Airlines," Kelly said, the hometown carrier
that merged with United in 2010. "It was a cynical move."

In 1971, Southwest sought to reopen Hobby, which had closed two years
earlier when Houston Intercontinental Airport opened.

"Then, as now, the legacy carriers went ballistic," Kelly said, "...
insisting that reopening Hobby would cause irreparable damage to
Intercontinental."

Kelly even pledged to have Southwest pay for the $100 million expansion,
though he later stepped back from such a commitment and acknowledged it
would be covered by a $1.50-per-ticket fee increase on Hobby travelers.

United countered with a former high-ranking Federal Aviation Administration
official, Houston's best-known economist, a nationally renowned aviation
consultant from MIT and several company executives.

They warned council members against being seduced by unlikely promises of
lower fares, thousands of new jobs and an alleged obligation to make Hobby
international facilities available to Southwest.

Terminal B work iffy?

They delivered PowerPoint slides with statistics on how over the past 19
years Southwest has increased its fares at a faster rate than the legacy
carriers have and juxtaposed the city's projection of a Houston-Bogota
flight for $133 on Southwest with the airline's recent advertised rate of
$160 just to get from Chicago to Oklahoma City.

John Gebo, United's senior vice president of financial planning, even
contested Southwest's central contention that its entry into Houston's
international travel market will lower fares:

"There are cases where Southwest's fares are lower. There are cases where
they're higher. It is a fallacy that Southwest's fares are always lower." 

They also focused on the future instead of history. A council vote to expand
Hobby, they said, would prompt them to reconsider a $700 million investment
they have planned at Bush's Terminal B. United broke ground on the project
in January, unaware that later that same day Kelly would be meeting with
Mayor Annise Parker to discuss Hobby expansion. 

A backup plan

Southwest said that if Houston does not accommodate its plans for
international travel, it will take its Latin American operations to San
Antonio or another city.

Councilman Andrew Burks said he felt that United had not shot straight in
presenting its case the past few weeks, and he has been the most open in his
displeasure at the decision to move 1,500 corporate Continental jobs to
Chicago as a result of the merger.

"Why did you buy Continental Airlines? Why did you do it?" Burks barked at
United executives from the dais. Burks announced after the meeting that he
would vote for Hobby expansion.

Councilman Jerry Davis, who represents the area around Bush
Intercontinental, was skeptical about how fair the Southwest proposal was to
other airlines.

"We're going to set up an FIS (Customs) station possibly at Hobby to allow
one other carrier to fly on the backs of the $1.50 increment," Davis said.
"I wish that someone would give me a deal like that."

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