Southwest's departure might ground Flint airport's credit quality

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DALLAS -- Southwest Airlines’ plan to end service at Bishop International Airport in Flint, Michigan is a credit negative for an airport that is already at the lowest investment grade level, Moody’s Investors Service report said Friday.

Moody’s rates the airport’s $15.08 million of debt Baa3 with a stable outlook. Southwest represents 33% of the Flint airport's total traffic. The airline said its last day of service is scheduled for June 6.

The rating agency said Southwest's departure lowers the airport's competitive edge over nearby Detroit Metropolitan Wayne County Airport because it drives up the costs per passenger by more than $1. The cost per enplanement is a consideration for airlines when reviewing current route offerings and potential future routes. The loss of Southwest will increase the per passenger cost to $3.13 for the remaining carriers at Bishop. The airport had a CPE of $2.10 in 2016.

A higher CPE also risks weakening Bishop’s ability to attract new carriers or routes to make up for the loss of Southwest, Moody’s warned.

“Its low cost is the airport’s primary competitive advantage against nearby Detroit Metropolitan Wayne County Airport,” Moody’s wrote in its weekly credit outlook report. “As the primary airport in the region, Detroit offers significantly more route and carrier options than Bishop, and is only about an hour away.” Moody’s noted that the Detroit airport still has significantly higher operating cost for airlines, with a CPE of $10.01 in 2016.

Bishop’s overall earnings should be well shielded from the loss of Southwest traffic because a residual cost-recovery mechanism in the airline lease and use agreement means the airport has the ability to increase charges on the remaining carriers to maintain operating revenue at a sufficient level to recover operating expenses and maintain its debt service coverage ratio.

Bishop also collects revenue from an ad valorem tax on property in Genesee County, where the airport is located. That tax provides stable operating revenue of about $4 million. “The property tax revenue accounts for about 28% of total revenue, and will not be affected by the loss of Southwest because it is not tied to airport activity,” Moody’s said.

After the loss of Southwest, the airport will still be serviced by Delta, America , United and Allegiant.

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