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Airport forecast turns partly cloudy

Wednesday, June 11, 2008 by Kimberly Reeves

Airline mergers and a downturn in the economy could be hitting Austin Bergstrom International Airport hard as it moves into the next budget cycle.

Speaking to the Austin Airport Advisory Commission last night, Shane Harbison outlined some of financial factors affecting the airport right now. First, traffic has slowed slightly at the airport, a first. According to Harbison’s figures, traffic was down 3 percent this April, compared to last April. Most months, traffic is up 5 to 8 percent, year-over-year.

“That’s probably the first sign we’re starting a slowdown,” Harbison said.

And it doesn’t include the changes in service that ABIA is expecting. American Airlines said it would soon begin to reduce the number of non-stop flights out of ABIA. And AeroMexico also is ceasing all service out of ABIA as of the end of this week.

On the other hand, Jet Blue and Air Canada have added non-stop flights, and the low-cost South Terminal has added vivaAerobus service to Cancun and Monterrey.

But that’s not all. Airline mergers are in the air. Right now, the rumored mergers could include Northwest and Delta, as well as United and Continental. Most are serving ABIA with regional jets. Given the duplicated service for both carriers, ABIA could lose up to four gates, Harbison said.

Each gate brings in $175,000 in airport revenue, Harbison said. The loss of terminal and equipment fees could be about $1 million if four gates are lost.

The slow down in traffic – plus the possible worst-case scenario of the four gates disappearing – are risk factors that will be included as one scenario in next month’s initial operating budget forecast.

“We’ll certainly be listing that (potential loss of gates) in our budget,” Harbison said. “We still anticipate we’re going to have an overall 2 percent growth.”

The losses are on the general aviation side. Mail, cargo and freight have all gone up at ABIA, Harbison said. ABIA is still in the Top 40 on cargo aircraft.

The city also is losing money on its current debt structure of auction rate bonds over variable rate bonds, a point raised by Airport Advisory Commission members. The current bonded debt structure has led to losses of $6 million with interest rate changes. Harbison said that was balanced by the $35 million the city initially saved when it put its bond package together, and many general aviation airports are facing similar losses. Denver is losing $75,000 a month due to interest rate changes.

Asked what the final tally might be on interest rate costs by the end of the year, attorney David Peterson said “the hole shouldn’t get much deeper than it is currently,” although he deferred the specifics to the airport’s finance staff, which will be on hand next month to discuss the airport budget.

In a review of other revenue, Harbison reported that parking revenue was up 9.7 percent over the same time last year, along with an increase of 3.96 percent in concessions and 6.7 percent in car rentals and fees at the airport.

Also on the agenda last night was the approval of contracts with various concessionaires, including an increase in rent. Concessionaires typically pay either a minimum annual guarantee or a percentage of gross revenues, whichever is greater.

Given the age of the venues and the need for upgrades – and some changes in contract terms – the airport is asking for higher rent. In response, concessionaires asked for slightly longer terms. Harbison said the concessionaires would be given an extra two-year option if they met certain performance measures and paid a slightly higher percentage of gross revenues.

Performance measures will include compliance, customer service and revenue. Concessionaires also cannot have recent defaults on rent payments.

Harbison said most of the concessionaires were on board with the new terms. Harlon’s BBQ, which is dividing its space, will share a location with Hill’s Café. Ruta Maya Coffee also will be added. And Wok and Roll will become Ichiban, changing its menu from Chinese to Japanese, with an emphasis on sushi.

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