Passenger levels dropping, Sacramento airport looks at budget cuts

Faced with declining passenger levels and high debt, Sacramento International Airport officials say they plan to cut airport system costs by 15 percent over the next 18 months.

County airports head John Wheat says his staff is scouring expenses at each of the county’s three significant airports, including International, Executive Airport and Mather Field, with the goal of shaving $14 million a year to deal with a deep and persistent slide in air travel nationally.

The county’s airport department is saddled with more than $1billion in debt from the recent construction of its new Terminal B. That project – the largest in county history – was launched just as the recession hit, with an unanticipated 20 percent drop in fliers since 2007.

“We’ve seen a tremendous reduction in passengers,” Wheat said. “Unfortunately, we have not quite bottomed out yet.” He said the airport is planning for passenger levels to remain even next year, with hopes of a slight increase. “We’re starting to see business travel upticks, but we’re still not seeing growth in the leisure (travel) market.”

Wheat said his management team has not yet decided what cuts and operational changes it will make. “Everything is on the table,” he said. He declined to rule out layoffs, but said he hopes to reduce employee costs through natural attrition as some employees retire or leave for other jobs.

He also said airport officials are “analyzing” the possibility of no longer using Executive Airport in south Sacramento as an airfield serving owners of private planes. “It’s not an airport with a lot of growth potential,” Wheat said. “The commercial growth potential (there) may be non-aviation.”

Sitting in his office overlooking Sacramento International’s new people-mover and concourse building, Wheat said he also will try to make the airport a less expensive place for airlines to do business, in hopes they will respond by increasing service, generating more passengers and income for the airport.

“By no means is this a financial situation of ‘Oh my word, we’re in trouble,’” Wheat said. A 15 percent budget cut, about $14 million a year, “places us in a very sound position to weather continued no- or very-slow growth in our passengers.”

Wheat said he will lay out some details in the spring when he presents the county airport’s budget to the Board of Supervisors. The county airport department is a self-sustaining operation, separate from the county general fund. Sacramento International pays its costs through fees it charges the airlines, rental car agencies and concessionaires. The airport also charges fliers a facilities fee, and generates revenue from on-site parking.

Wheat said the airport is looking at several technological changes to reduce expenses, including more automation at parking lot pay booths. The airport is considering small increases in parking fees as well, and is reviewing its shuttle bus operations.

Wheat, a 30-year airport executive at Salt Lake City and two Florida airports, was hired in April with marching orders to improve airport finances. He replaced Hardy Acree, who retired after overseeing the county’s $1 billion “Big Build” airport expansion project. That expansion, completed in 2011, included a new Terminal B, replacing the old Terminal B complex, as well as a new concourse building a people-mover shuttle system.

Though it drew rave reviews from local business leaders and politicians, the project was criticized by airline executives, including those at Southwest, as too big and too expensive for their needs. To help pay for it, the county increased airline fees, making Sacramento one of the most costly airports in the country for airlines to do business over the next few years until the airport debt is reduced.

Wheat said Sacramento will have to lower those costs if it wants airlines to increase flights here. He traveled to Southwest Airlines headquarters last month to preview his plans with airline executives. Southwest is the dominant carrier at Sacramento International, operating more than half of the airport’s flights.

Southwest officials said this week they support Wheat’s efforts.

“We agree, financially they are in a difficult position,” said Chris Czarnecki, Southwest’s manager of airport affairs. “The debt with the new building is very high.”

Sacramento County officials said the question of whether the airport was overbuilt is moot.

“What’s done is done,” said Sacramento County Supervisor Jimmie Yee. “I have no second thoughts. I like the airport. Back then, the economy was crazy, and unfortunately the economy tanked.”

Yee said he will be watching what Wheat comes up with. “I am concerned about the finances of any department, especially the airport. We just spent a billion dollars,” he said. But he doesn’t plan to play airport manager. “I’m going to rely on John.”

Wheat also dismissed questions about whether the airport expansion was too expensive. “It’s a moot question,” he said. “We’re dealing with what we have. We have a wonderful asset.”

In their most recent analysis of Sacramento’s finances, credit rating agencies Moody’s and Standard & Poor’s cited Sacramento’s high debt load and high airline fees as ratings negatives, but both described the airport department’s overall debt situation as stable. Moody’s noted that the airport’s ratings outlook would improve if the airport and airlines can come to a new fee and lease agreement. Currently, the airport unilaterally imposes annual user fees on airlines, having failed to reach an accord several years ago with the airlines.

Both Wheat and Southwest officials say they want an agreement eventually, but are not pushing for one now. Wheat said the county is focused first on lowering expenses, and paying for some improvements, include airfield tarmac repairs. “Once we accomplish that, it makes sense to begin discussions with our air carriers.”

Southwest’s Czarnecki spoke similarly. “It is hard to craft a deal about rate charge to airlines without knowing the path forward completely. John is getting to that point now. It is something we want for sure.”

Industry experts say Sacramento’s financial challenges are similar to those facing other medium-sized airports, including San Jose, Oakland and San Diego. “It is really a reflection of the new economics of the airline industry more than anything,” Southwest’s Czarnecki said.

Aircraft fuel prices, which soared during the recession, remain high, discouraging airlines from expanding service. Nationally, domestic passenger numbers were down slightly in 2013, according to the U.S. Department of Transportation. Aviation industry analysts say they expect little or no growth next year in domestic travel, although international flights are on the rise.

Wheat said he isn’t focused just on cutting costs, but is also working on ways to increase revenue. The airport department continues negotiations with a developer to build a hotel near the terminals, hoping for a deal that will result in substantial income for the airport, he said.

The airport department is also assessing the best use for Mather Field. It backed off of previous plans to turn the Mather site into a major cargo hub, but wants to combine cargo, aviation-related businesses and non-aviation related commerce on the site.

Wheat said he ultimately sees the airport passenger numbers growing again, with a possible small uptick next year. “It is not panic time,” he said. “It is going to turn around.”