Travelers using Sacramento International Airport could see more flight options and lower fares in the new year, thanks in good part to a fee agreement being hammered out now between the airport and airlines.
Eight years ago, airport officials outraged air carriers by jacking up lease rates to help pay for a billion-dollar airport expansion, making Sacramento at the time one of the costliest airports in the country for airlines to do business in.
Now the airport is poised to replace that expensive lease deal with one that lowers costs for the airlines.
A proposed five-year deal would include profit-sharing for airlines during good years for the airport, and financial support for the airport if another recession causes it to struggle to pay its debt, Sacramento County airports executive John Wheat said this week.
Wheat, hired in 2013 to improve the airport’s finances, said he thinks a deal can be signed in February and take effect in July. The airport and airlines have been in talks since June. Both sides had a draft agreement in hand for review as of last week.
“We hope it means continued improved air service – more flights, more seats, more cities,” Wheat said.
Sacramento’s economic rebound from the recession has already prompted airlines to slowly add flights to and from the capital city. Southwest will begin nonstop service to Salt Lake City in March, competing with Delta, and Alaska Airlines will add nonstop service to San Diego, competing with Southwest.
Air service development manager Mark Haneke said the airport hopes to announce several new flights later this month, but declined to disclose what those might be.
He said a new lease deal could help Sacramento lure low-cost airlines such as Allegiant, Frontier and Spirit to Sacramento. “We are keeping them abreast,” Haneke said. “There has been some proactive outreach on our part.”
A spokesman for Florida-based Spirit acknowledged airport fees are a key element in deciding whether or not to serve an airport, but declined to say if the airline would consider Sacramento.
“We are always looking for airports who are interested in keeping costs low ... but we don’t discuss specific plans for expansion,” spokesman Paul Berry said in an email.
Airport officials in 2008 imposed fees to pay for the billion-dollar expansion despite protests by Southwest and other airlines that they didn’t want to pay for a construction project they felt was too large and too expensive. County airport director at the time, Hardy Acree, dismissed the airlines’ complaints as whining, saying the county needed to think big and take risks.
The recession hit as construction started, causing flights and passenger numbers to dip, reducing airport revenue, forcing the airport to cut costs. After six years of declines, airlines have slowly been adding flights in the last two years as the local economy rebounded.
Sacramento last year was the 14th-fastest-growing airport in passengers among the 50 largest North American airports, according to data published by Airports Council International. Santa Ana, Oakland, San Diego and San Francisco also were in the top 20, suggesting a California-wide resurgence in air travel. Notably, all 50 of the largest airports gained passengers in 2015, the most recent full year of data collection.
The local airport is set to record a second straight year of increased business, and should hit the 10 million passenger mark for the first time since a 2007 all-time peak of 10.8 million.
“We believe we have turned the corner (financially),” Wheat said this week. “We’re feeling much better than were were (a few years ago). That is why we feel comfortable entering this agreement to continue to reduce their rates.”
Officials with Southwest Airlines, the airport’s main carrier, said in an email to The Sacramento Bee this week that they are pleased with Sacramento’s efforts to be more collaborative.
“We’re pleased with the direction the airport has taken,” said Monica del Rio of Southwest’s airport affairs department. “Negotiation of a new use and lease agreement is a major milestone, and we look forward to a ... final agreement that benefits the community, the airport, and the airlines.”
The lease rates imposed by the airport on airlines peaked several years ago at more than $18 per passenger. The rates are set at about $15.45, a recent analysis shows. The new arrangement should drop airline fees to under $14 per passenger, Wheat said.
The airport still is burdened with more than $1 billion in debt, most of it from construction of Terminal B and its concourse building in 2011. Airport officials recently restructured some of that debt, obtaining lower interest rates that could save an estimated $22 million, according to airport Chief Operating Officer Sylvia Ambrogio.
Those savings will be used by the airport to help cover the lower rates the airport expects to charge the airlines.
S&P Global Ratings service last week issued an analysis on those new bonds, saying that the airport’s fiscal condition appears stable and on a positive trajectory, but pointing out that the airport remains highly leveraged with debt.
“We do not expect to raise the (airport’s) ratings due to the very high debt burden,” S&P’s credit analysts wrote.
Airport officials nonetheless say they are moving forward with several major facilities improvement projects in the next six years using existing cash reserves.
The airport has two runway and taxiway rehabilitation projects in the works, worth a total of about $80 million. Officials say they will modernize Terminal A’s gate waiting areas next year as well.