‘Big milestone’: Sacramento airport sees financial picture strengthen

08/17/2014 12:12 PM

10/07/2014 8:58 PM

Sacramento International Airport officials say they finally see clearer skies ahead after years of financial struggles.

A recent increase in passengers, combined with aggressive expense-cutting efforts, has airport head John Wheat saying he’s “cautiously optimistic” that the facility is starting to emerge from the financial hole it has been in since the county borrowed $1 billion to build a new terminal during the depths of the recession.

The passenger uptick is modest, just 1.7 percent in the first seven months of this year, and barely begins to chip away at the 18 percent drop in passengers the airport has seen since its pre-recession peak in 2007.

Still, Wheat called the increase “a big milestone for us.”

“There is still a long ways for us to go, but we are definitely headed in the right direction,” he said.

Wheat, who was hired last year to improve the airport’s financial picture, said passenger increases appear likely to continue in the next few months, based on internal airline schedules that show a roughly 2 percent increase in available seats on flights. July passenger numbers alone jumped 4 percent over last year. But Wheat said it is too early to say the airport is out of its funk.

Jeffrey Michael, an economist and the director of the Business Forecasting Center at the University of the Pacific in Stockton, called the passenger increase modest. But he agreed with Wheat that the airport may be entering a growth period, noting that the Sacramento-area population is growing by about 1 percent annually, while job growth is at slightly more than 2 percent.

In a recent report, the Federal Aviation Administration said it expects 1 percent growth nationally on domestic flights this year and a 2 percent annual growth in the coming years.

The airport still faces a challenge, Michael said, because of its high debt burden from what he calls a “significantly overbuilt” terminal, and because airlines are taking a cautious approach to adding flights and routes. “It is going to be struggle for quite some time.”

The airport’s annual debt obligation was $15.5 million in 2008, when the expansion project was launched. This year, it has ballooned to $83.8 million. Debt payments will level off to $75 million in 2016, but the Sacramento airport – an enterprise separate from the county general fund – will be making $75 million debt payments every year until 2041.

Wheat said the airport has been cutting costs to improve the bottom line and free up money for future capital improvements, including ambitious plans to expand Mather Airport, also owned by the county, as a cargo and general aviation alternative to the main airport. Current airport budget numbers show a 15 percent decrease in annual operating expenses this year compared to last.

By year’s end, airport staff will have thinned to 300, down from 386 last year. That does not include reducing the sheriff’s airport unit this spring from 43 to 31. No layoffs were involved, Wheat said. Some airport employees were transferred to jobs in other county departments.

The airport has reduced the number of parking lot shuttles and no longer is washing the windows monthly. Wheat said it even has changed the type of hand-cleaner available in the restrooms, from a liquid soap to a foam. The switch, which stopped spillage waste, should save about $15,000 a year, Wheat said.

“We are looking for big dollars, but we are also looking for small dollars,” he said. “If we can save five bucks, it all adds up.”

The airport also is looking to increase revenue. It recently signed a deal with food manager SSP America to remake the Terminal A food court, adding more local restaurant outlets and creating a more inviting atmosphere. SSP has agreed to invest $3 million in the revamp.

Wheat said the bar area in Terminal A will be rebuilt to allow fliers to see their gates better. That, he said, will allow passengers to relax more – and spend more – at food and beverage outlets before their flights.

The airport also is in active negotiations with a developer for a privately financed hotel close to both terminals, Wheat said.

A representative for Sacramento’s main carrier, Southwest Airlines, which handles slightly more than half of flights in and out of the airport, said his company is pleased with Wheat’s efforts.

“Southwest continues to support the work John Wheat is diligently undertaking, and we’re in constant contact with him and his team,” Southwest spokesman Brad Hawkins said in an email. “We don’t publicly discuss our business agreements, but I can underscore how much we appreciate and are invested in the work John is leading to provide the best cost structure to support Southwest’s ability to provide the service our Sacramento Valley customers want and will support.”

Hawkins said Southwest is flying planes with larger seating capacities in and out of Sacramento, but he said the airline has no substantial scheduling changes planned in the near term.

The airlines have been forced in recent years to pay substantially more in rents and fees to help the airport make good on debt payments for the new Terminal B. Currently, the airport unilaterally imposes annual rents and fees on the airlines. Those fees increased from $34 million in 2008 at the start of the airport expansion project to $80 million last year.

Wheat said he hopes to negotiate a new deal with the airlines, likely involving revenue-sharing, when the financial situation is a little more certain. He said that could come in the next year. The fee the airport charges passengers is capped by the federal government at $4.50 per ticket.

Sacramento was one of several medium-sized airports hit hard by the recession. Oakland, San Jose, Burbank and Ontario also saw a drop-off in passengers. Sacramento’s situation was exacerbated by the expansion project. Construction began in 2008. The new facilities opened in late 2011.

The project, led by then-airports director Hardy Acree and approved by the Board of Supervisors, is designed to give the county a facility large enough to handle years of future passenger growth, and to be expanded, if needed. The airlines opposed the size of the expansion.

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