BRADENTON, Fla. — The pending loss of Southwest Airlines at Jackson-Evers International Airport in Mississippi's capital prompted Fitch Ratings to downgrade the airport's debt to BBB-plus from A-minus.
The lower rating affects $39 million of the Jackson airport's outstanding revenue bonds, Fitch said in an April 3 report. The outlook is stable.
Southwest, the second-largest carrier, announced that it will discontinue all service at Jackson-Evers by June 7. The airport will lose direct service to Houston Hobby, Orlando, and Chicago Midway.
"The service cut will likely lead to measurable and potentially permanent declines in the airport's small enplanement base," said Fitch analyst Casey Cathcart. "While the airport historically maintained strong financial metrics, Fitch believes that Southwest's actions absent a backfill of service will translate to a higher airline and passenger cost profile in order to maintain stable debt service coverage performance."
The monthly use and lease agreement with Southwest is viewed by Fitch as an additional exposure to airline revenue generation at the airport.
"Fitch will continue to monitor cost containment actions, successes to replace lost service, and revenue elasticity in light of increasing costs," Cathcart said.
The Jackson Municipal Airport Authority runs the facility and issues its debt.
Fitch said management has indicated that enplanements are forecasted to drop 10% in the current fiscal year.
The airport increased landing fees 18% and parking fees 8% at the beginning of fiscal 2014, and is implementing an additional 15% landing fee increase in May to offset revenue declines due to Southwest's departure. Enplanements were down 1.3% in fiscal 2013 to 605,000. Seats are currently down 10% from October to February.
Nearly two-thirds of the authority's operating revenues of $17.6 million are from non-airline sources. Revenues increased 3.3% in 2013 due to the addition of a non-aviation tenant, while operating expenses decreased 0.8%. In 2014 a 7.9% increase in operating expenses is anticipated due to a one-time building maintenance project and increased employee benefit costs.
The airport's $88 million five-year capital improvement plan includes terminal, concourse, and security checkpoint upgrades, as well as design and construction of a new quick-turnaround car rental facility. The authority expects to issue $20 million in bonds and up to a $5 million subordinate loan to finance a portion of the CIP, according to Fitch.
