PHOENIX - Officials at Northern California's three major airports outside San Francisco say major bond-financed investments have been followed by more airline business with passengers flowing out and money flowing in at ever-higher levels.
Mineta San Jose International Airport completed a $1.3 billion dollar remodel of its Terminal A and construction of a new Terminal B in 2010. Just over 30 miles southeast of the much larger San Francisco International Airport, San Jose's facility also competes with Oakland International Airport 30 miles north.
Rosemary Barnes, an airport spokesperson, said the Silicon Valley business community made it clear that it prefers the option to use their hometown airport whenever possible, which helped spur new investment. The airport has now experienced 32 consecutive months of passenger growth, Barnes said.
"It's been a constant, wonderful trend," Barnes said. "Our efforts have really paid off."
Enplaned passengers (those boarding aircraft) are a key metric for airport financial performance because each ticketed traveler pays a passenger facilities charge which is capped at $4.50 by federal law. Those revenues are used to back bonds and are responsible for as much as 30% of airport capital investment since 1990, according to Airports Council International-North America. SJC has experienced enplanement growth in all but one fiscal year since fiscal 2010, rising 2% in FY2011, 2.7% in FY2013, 6.7% in FY2014, and 5.5% in FY 2015. Gross concession sales including parking, car rentals, and in-flight kitchen revenues have also risen sharply since 2010: a total of 6%.
"The in-flight kitchen increase is primarily due to the growth in international airline service," Barnes said.
In the domestic market, Southwest Airlines has expanded service to markets including Denver, Orange County, Calif., San Diego and Seattle.
Hawaiian Airlines resumed daily wide-body service to Honolulu in May 2014, and Delta Air Lines has opened routes to Seattle and Los Angeles in the past two years.
Internationally, Hainan Airlines began five weekly flights to Beijing earlier this year, and British Airways will begin daily service to London beginning in May 2016. All Nippon Airways also serves Tokyo nonstop from San Jose.
Barnes said that the support of the airlines servicing the airport demands investment in the airport itself.
"The airlines are investing their multi-million dollar aircraft in our market, so we need to respond in kind," Barnes said. San Jose airport revenue bonds carry ratings of A-minus from both Fitch Ratings and Standard & Poor's, and A2 from Moody's Investors Service.
Oakland International Airport has also aggressively invested in its infrastructure, though it did briefly pull back on an extremely ambitious plan conceived around the turn of the millennium when the recession hit and airports almost universally suffered from a drop in air travel. The Oakland airport is part of the Port of Oakland, and the port issues bonds for major airport projects. A new air traffic control tower was completed in 2013, representing a $51 million investment on the part of the Federal Aviation Administration.
In November 2014, a Bay Area Rapid Transit shuttle tram began linking Oakland's airport to the nearest mainline BART rapid rail transit station.
Rail ridership to the airport is up 36% compared to the previous shuttle bus service, said Port of Oakland communications manager Robert Bernardo. The airport contributed $45 million of the overall $484 million expense of that project, he said.
In 2008 OAK began a more than $200 million Terminal 1 modernization program financed primarily by PFCs. In May the airport announced that a $100 million phase of that project, an interior renovation, had begun. It will include architectural improvements, upgrades to the security lobby, upgraded restrooms, new elevators, a redesign of the second floor administrative offices and public meeting space, and signage enhancements.
Bernardo said all of these investments have been paying off handsomely for the airport.
"The overall expansion is attracting new air service and expansion of air service," Bernardo said.
When completed, he added, expansion of the international arrivals building will accommodate a 50% increase in international passenger throughput. Norwegian Air and Mexican airline Volaris are OAK's current international carriers.
For the fiscal year ending June 30, Oakland airport revenues increased 3.2%, driven by an 8.7% increase in passenger traffic, according to figures supplied by the Port of Oakland. These figures represent 10.7 million passengers and 19 consecutive months of passenger growth at California's fourth-busiest airport. The airport expects to end calendar year 2015 with approximately 20% more travelers passing through than in 2011. During the past fiscal year, additional flights in existing markets as well as nine new destinations were added. The airport also has scheduled nonstop service to a record high of 49 destinations worldwide, including five cities in Mexico, two in Europe and the four main Hawaiian Islands. OAK is the 13th busiest cargo airport in the US, and FedEx has made tens of millions of dollars in long-term capital investment in the past three years at OAK.
Port of Oakland senior bonds, which pledge revenue from both the airport and seaport, carry ratings of A-plus from both Fitch and S&P, and A2 from Moody's.
Sacramento International Airport took on $1 billion of debt to open a new terminal in 2011, and has been aggressively advertising and searching out new revenue to pay down that considerable debt for an airport that is considerably smaller by passenger volume than Oakland and slightly smaller than San Jose. The airport has experienced some passenger growth, including a 3.3% increase from 2013 to 2014 according to ACI-NA figures.
The Sacramento County Board of Supervisors in February unanimously approved an agreement between the Sacramento County Department of Airports and Southern California developer Sonnenblick LLC to build a 5-story, 135-room hotel on the airport property. Tentatively slated to open in 2017, the hotel figures to be a big win in offsetting the airport's development costs. The deal stipulated that the Department of Airports receive a one-time payment of $2.46 million for the use of the parking garage spaces, and fixed rent for the hotel site for the first four years at an amount totaling $900,000. After that the hotel will pay rent as a percentage of gross revenue.
Moody's rates revenue bonds for the Sacramento airport A3; Standard & Poor's assigns its A rating.
Despite all the investments in the three airports, they may simply be benefitting from a rising tide that's lifted the entire airline industry. Airlines serving the United States carried an all-time high of 848.1 million scheduled service passengers in 2014, 2.5% more than in 2013 and 1.2% more than the previous record-high reached in 2007, according to the U.S. Bureau of Transportation Statistics.
The other regional airports' growth hasn't come at the expense of San Francisco, which reported a record 47.2 million passengers in 2014, up 4.8% from 2013, which was the previous record year.
Airports and other interest groups across the country are actively pushing to raise the PFC limit, a move that could instantly create significant revenue growth to both pay existing debts and to finance new investments. The
