Transportation Conference

Airports Get Value Out of Assets

DALLAS — A decade after Austin-Bergstrom International Airport opened for business, it is keeping the light on for a super low-fare carrier that might want to use its no-frills South Terminal.

At The Bond Buyer’s 10th Annual Transportation Finance and Public-Private Partnerships Conference in Dallas last week, Austin’s use of the surplus building was cited as one example of how airports are seeking to get the most value out of their facilities in a distressed aviation market.

The detached terminal — a refurbished remnant of the former Bergstrom Air Force Base — served ultra-low cost carrier vivaAerobus until the Mexican start-up cancelled service last May.

“They said the passenger volume was down due to concerns about swine flu,” said David Arthur, chief financial officer at Austin-Bergstrom. “So, we have a low-cost terminal available for the next ultra-low cost carrier.”

While the no-frills terminal might, at first glance, seem to be part of the “Keep Austin Weird” movement, Arthur says the idea is actually transplanted from Europe by vivaAerobus’s owners. The Ryan family that launched the successful discount carrier Ryanair in Europe started vivaAerobus in 2006 in a partnership with Mexican bus company IAMSA.

At Austin-Bergstrom, the carrier enjoyed a spartan but clean terminal with 28,000 square feet of space, concessions and 1,000 parking places. Passengers walked out onto the tarmac and climbed stairs to enter the Boeing 737 jets for short flights to Cancun, Guadalajara, León, Monterrey, Puebla, and Queretaro, Mexico.

While the vivaAerobus venture was short-lived, the city of Austin viewed the plan as an innovative use of its facilities.

“The simple nature of the terminal — such as no jet bridges or sophisticated baggage handling system, and common-use hold rooms, gates and ticket counter areas — positions Austin to better compete for air service for these kinds of business models,” the city explained in a press release.  “Further, affordable travel rates stimulate passenger demand which attract more and new passengers.”

Susan Warner Dooley, vice president of HNTB Corp., said that airports must use all of their assets and remain flexible to weather the storm.

“This is not just a temporary setback we’re going to bounce back from,” she said. “We are facing a level of uncertainty we haven’t seen in 30 years.”

For the first half of 2009, airline traffic was down 12.5% after falling 4% in 2008, according to Seth Lehman, senior director of global infrastructure and project finance at Fitch Ratings. U.S. airlines have lost $3.2 billion in 2009, and only one, Southwest Airlines, enjoys an investment-grade rating of BBB, he said.

Despite the hardship, no American airports appear in any danger of default, Lehman noted. While regional airports like Austin-Bergstrom have seen traffic decline an average of 11.4% in the first half of 2009, primary hubs like Dallas Fort-Worth International Airport and Washington Dulles International Airport have fared better, with traffic down an average of 5.5%.

“Airports have weathered the storm and stayed strong credits,” said Lynn Hampton, chief financial officer of Metropolitan Washington Airports Authority. “Airport management gets the tough jobs done.”

In August, the MWAA priced $853 million of bonds — including about $360 million of taxable Build America Bonds — to finance a new Metrorail line that will connect riders with Dulles. The project will add 11 new stations and 23.1 miles of rail that will extend the Metro system to the northern Virginia suburbs.

At Dallas-Fort Worth International, officials have hired consultants for a $1.5 billion remodeling of the four original terminals built 35 years ago.

While pressing on with its capital projects, DFW is continuing to find ways to lower operating costs for its airlines. The airport ranks among the lowest in the nation in per-passenger operating costs, according to chief financial officer Chris Poinsatte. It has seen sharp growth in revenue from non-airline operations, and in September it achieved savings of about $100 million on a $600 million refunding deal.

“We hit it on the perfect day,” he said.



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