DALLAS — The Houston Airport System expects to begin expansion of Hobby Airport next spring using debt backed by Southwest Airlines as the discount carrier begins offering international flights.
Despite threats of layoffs at United Airlines’ Houston base, the Houston City Council last week approved the $100 million expansion of Hobby, the smaller of the city’s two airports. United, which includes the formerly Houston-based merger partner Continental Airlines, warned that it would be forced to reduce its workforce if Hobby expanded.
Houston Airport System director Mario Diaz said the expansion would be paid for through a $1.50 surcharge on each Hobby passenger. That includes other Hobby carriers American, Delta and JetBlue airlines. Southwest accounts for nearly 90% of the traffic at Hobby.
The situation in Houston is similar to that of the Dallas-Fort Worth area, where Dallas-based Southwest operates out of the smaller Dallas Love Field against Fort Worth-based American Airlines operating out of Dallas-Fort Worth International Airport.
An agreement in 2006 lifted federal restrictions under the Wright Amendment, allowing carriers at Love Field to serve any U.S. market beginning in 2014.
Southwest and the city of Dallas in 2009 launched a $519 million master plan to replace the existing Love Field terminals with a new 20-gate concourse and expanded baggage facilities.
That debt was issued as bonds backed by Southwest through a conduit enterprise issuer. The bonds are repaid through a rebate of the rent Southwest pays Dallas as a Love Field tenant.
At DFW International, a $2 billion remodeling of the airport’s four original terminals is underway as its dominant carrier American seeks a path out of Chapter 11 bankruptcy. Until last November, American and Southwest were the only major airlines to avoid Chapter 11. Southwest has managed to remain profitable through one of the worst financial decades in aviation history.
In Houston, the airline has not announced specifics on how it will finance Hobby’s expansion, adding five gates and customs and immigration facilities for flights to Mexico and the Caribbean beginning in 2015. But Southwest chief executive Gary Kelly confirmed plans to cover the entire cost of the project.
At Houston’s Bush Intercontinental Airport, United is financing most of a $1 billion expansion and renovation. The first phase of the redevelopment is expected to be completed in 2013.
After the council voted to open Hobby to international flights, United said that it would reduce capacity at Intercontinental by 10% and eliminate 1,300 jobs. However, the airline later said that those cuts were already in the works and were related to the Continental merger.
Houston Mayor Annise Parker disagreed with United’s assessment that creating another international airport would hurt the Houston area’s economy.
“Competition will lead to jobs, lower fares and a positive economic impact for the city,” Parker said. “My goal is a strong international presence at Hobby and a continued strong international presence at Bush Airport.”