"Southwest says Houston at no risk for Hobby expansion costs"

Monday, May 14, 2012
 
Southwest says city at no risk for Hobby expansion costs
By Chris Moran
The Houston (TX) Chronicle


In the heat of testimony before Houston City Council last week as he made
the case for expansion of Hobby Airport so his airline can start
international flights, Southwest Airlines CEO Gary Kelly leaned into the
microphone and pounded the lectern as he said, "If we can reach an agreement
with you, I'll pay for the $100 million project."

It was a startling pronouncement that sounded like a gift. Southwest's pitch
to Houston is that without a single cent of taxpayer money, the citizens of
Houston can become the owners of five new international gates and a Federal
Inspection Services facility at Hobby.

And that is true. Because the Houston Airport System is an enterprise fund
separate from the rest of city government, its budget comes from landing
fees and ticket surcharges, not from tax dollars that pay the salaries of
police officers and firefighters.

Kelly's declaration does not mean Southwest is offering to build the
facilities at its own cost, however. There is no financing proposal from the
airline yet. Houston Airport System Director Mario Diaz told City Council
last month that putting an extra $1.50 surcharge on the ticket of every
passenger who takes off from Hobby would pay for the expansion. It is called
a passenger facility charge, and it is money Houston's publicly owned
airports and others across the country collect from airlines to build
runways, gates, people movers and concourses.

All travelers pay fee

The fee would be paid not only by Southwest's passengers, but those of
American, Delta, and JetBlue, which also fly from Hobby. So, although
Southwest accounts for roughly 87 percent of Hobby's passengers, other
airlines would be chipping in under the surcharge model. American and Delta
declined comment. JetBlue issued a statement in support of Hobby expansion,
but did not comment specifically on the prospect of increasing the
per-ticket fee from $3 to $4.50.

The collected surcharges are not the airlines' money to spend as they
please. The fees must be kept in a segregated account and turned over to the
airport system, which decides how to spend it.

Asked after Tuesday's Council hearing if he had meant that Southwest was
willing to take the money from its profits or instead had meant that he
intended to use money from a $1.50-per-ticket fee increase, Kelly said,
"It's all the same."

Bob Montgomery, Southwest's vice president of airport affairs, said Friday
that the airline has not yet proposed how to pay for the project. In Dallas,
Southwest fronted the money for a modernization of Love Field and is paid
back through a rebate of the rent it pays to the city as a tenant at the
airport.

United Airlines opposes the Southwest plan. United, which operates out of
Bush Intercontinental Airport, dominates Houston's Latin American routes on
which Southwest wants to compete.

United's deal at Bush

United contrasts an expansion of Hobby paid for entirely with ticket fees
with United's approach of paying from its own pocket for a massive expansion
of Terminal B at Bush. The deal signed last year calls for United to put up
$686 million while the city ponies up $264 million it raises from passenger
facility fees, which remain at $3 a head at Bush, and which are paid by 17
airlines. United has "skin in the game" at Bush, a company spokeswoman said,
whereas if Hobby expansion is funded by passenger fees, Southwest does not.

On the other hand, United gained a financial windfall at Terminal B by
acquiring its exclusive use. It even controls the concessions. The
facilities at Hobby would be shared by any carrier that wants to compete
with Southwest there. And passenger fees, not United, are paying for Bush's
Federal Inspection Services facility.

Councilman Mike Laster's follow-up question to Kelly's podium-pounding
pronouncement indicated that he heard the hint of a freebie for Houston at
Hobby.

"I thought I heard you say just a minute ago that Southwest would be
interested and willing to build the FIS facility at its own cost of $100
million. Is that correct?" he asked.

Kelly responded by offering assurance that Southwest would back any debt so
that the city would not be left holding the bag if Hobby expanded but did
not bring in enough passengers to cover the debt payments.

"It is our risk that we're taking here," Kelly said. "We're going to pay for
this $100 million one way or the other. And it is getting the cart before
the horse because we do need to sit down and negotiate all of the terms and
conditions for this facility."

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