Sea-Tac makeover may have been too extreme for Southwest

Over the last year, Sea-Tac Airport's dark, cavelike spaces have disappeared and been replaced by an elegant terminal selling sushi, action figures and bacteria-resistant underwear.


		Dan DeLong / P-I
	Carriers at Sea-Tac Airport, including Southwest Airlines, are facing rising costs to pay for upgrades, such as the $148 million, renovated central terminal.

But those improvements may be too much of a good -- and expensive -- thing for Southwest Airlines. Like other Sea-Tac carriers, it's facing rising costs to pay for renovations and a $1 billion third runway.

The low-cost carrier looking for a cheaper alternative is expected to announce today what it's willing to invest to move its operations to King County-owned Boeing Field.

Five members of the 13-member King County Council, which would have to approve a deal, sponsored legislation this week that would block the county from spending any taxpayer money on those improvements.

Critics argue that Southwest's departure from Sea-Tac would hurt competing airlines, which would get stuck with the company's share of a $4.2 billion bill for planned work at Sea-Tac.

But others say the Port of Seattle's own spending is to blame for the potential loss of Southwest. The port owns and operates Sea-Tac Airport.

Port officials are preparing a list of roughly $500 million in improvements that commissioners could consider cutting or delaying if the airline leaves, including a new rental-car facility and roadwork necessary to extend light rail.

If Southwest doubles its 40 daily flights and such carriers as Alaska Airlines shift routes to Boeing Field to compete, some offer back-of-the-napkin calculations that Sea-Tac could lose a quarter of its passengers.

A loss of that magnitude could have profound ripple effects, port officials say.

Northwest Airlines has said that fewer feeder routes could affect its ability to provide current levels of international service to Tokyo and Amsterdam. Vendors who invested in new shops on the assumption that Sea-Tac's traffic would grow could suffer.

But proponents of the move -- who argue consumers would benefit from a more convenient and cheaper airport -- say those dire predictions are exaggerated.

Given Sea-Tac's modest annual growth projections of 2.7 percent, King County officials have suggested it could take only a few years to make up for the loss of Southwest's passengers. Today, they represent roughly 8 percent of overall traffic.

Ron Ricks, Southwest's senior vice president of law, airports and public affairs, said it's not uncommon to see airlines cut service or pull out of markets with no warning.

Given the lead time of four years a move would require, the port would have ample time to plan for the loss of one tenant.

"Four years ought to be adequate notice of our intent," he said. "If the airport's finances are that shaky ... then Sea-Tac's got bigger problems, and the fact is we don't think that's the case."

Analysts who rate the risk in buying airport bonds said the announcement that Southwest could leave -- while a significant development -- wouldn't immediately change their outlook on the port's financial health.

Kurt Forsgren, a director for corporate and government ratings at Standard & Poor's, said the airport could likely manage the loss of Southwest's passengers by cutting costs or raising revenue elsewhere.

If the move prompts a mass exodus by other airlines, that could pose a longer-term threat, he said. But Boeing Field's constrained space will likely limit growth there, he said.

"To the extent that it could really grow and develop into an airport of the scale and size that would materially eat into Sea-Tac's market, I think that's unlikely to happen," he said.

Costs scaled back, port says

Other airline experts say that in today's volatile climate -- with high fuel costs and multiple airlines in bankruptcy -- any change that increases costs or offers a competitive advantage is important.

The port estimates Southwest's departure would shift $22 million to other airlines in 2009 -- when renovation costs would be highest -- half of which Alaska Airlines would pay. Alaska is Sea-Tac's largest carrier.

"Every dollar is significant. Why do you think (airline executives) take pretzels off of airplanes?" said Robert Mann, a New York-based airline consultant.

Mark Reis, Sea-Tac's managing director, acknowledges that the timing of the capital improvement program is unfortunate, with payments coming due as airlines are in a somewhat desperate position.

But the picture was far different when those long-term regional investments were launched, he said.

"In the 1990s, the airlines were growing dramatically and they were literally out of space and were rabble rousing for us to build, build, build," he said.

Port officials say that after Sept. 11, 2001, they scaled back spending significantly.

Two years ago, average airline costs were projected to hit between $23 and $25 per passenger in 2009, which would have made Sea-Tac one of the most expensive U.S. airports.

By dropping projects, pursuing federal grants, laying off employees, reducing maintenance costs and refinancing debt, port officials have whittled those estimates down to $14.15.

"As we've gotten into a very different world post 9/11 ...the port has done a lot to try to address their cost situation," said Joe Sprague, vice president for public and government affairs for Alaska Airlines.

Given that progress, it's difficult to imagine how an airline could save money by moving to an airport where they'd have to build a terminal, parking garage, rental-car facilities and virtually everything else passengers need, Sprague said.

Still, if Southwest leaves, his company will seek to match the number of flights they offer at Boeing Field, he said.

'It is math'

Southwest's Ricks said he's disappointed that the debate over a potential move has turned rancorous before the public has even had a chance to hear what the company will propose.

The airline is looking for better ways to do business in Seattle, Ricks said. The community can then decide whether it's interested in the benefits of increased competition and lower fares.

Southwest also views the Sea-Tac cost projections with skepticism, he said, since they magically keep dropping as the port feels more pressure.

"If they were accurate even in the ballpark at $23, how could they be accurate today? This is not an exact science, but it is math," he said.

Last week, port officials said that because of Southwest's efficiency, its airport costs at Sea-Tac would rise modestly in 2009, to just $9.66 in today's dollars.

Ricks said that's still twice as much as Southwest's average costs at other airports across the country, which are $5 per passenger.

Ricks also said Southwest voted to support improvements at Sea-Tac based on cost estimates that turned out to be wildly off base, with the third runway and renovations to create a terminal filled with art and upscale shops coming in hundreds of millions of dollars over the original budgets.

The company, which last year paid $8.4 million to Sea-Tac in airport fees, made its concerns about escalating costs clear two years ago when it refused to sign a long-term lease, he said.

"There is a pattern of spending that causes us to have very little confidence in the now-somewhat rosy scenarios being painted for us by the port," Ricks said. "If they knew they could hit those numbers all along just by working a little harder, where were they when we said we can't afford that?"

A TIMELINE OF SEA-TAC COSTS

JUNE 1999: Port of Seattle commissioners approve a $2.6 billion capital-improvement plan.

SEPT. 2001: Airport sees drop in passengers, delays $143 million in optional projects such as bathroom renovations.

MAY 2003: First part of renovated subway system opens. The $162 million project wraps up under budget.

JUNE 2003: Projected costs for the third runway stretch to $1.1 billion. The port cites environmental requirements and opponents' litigation.

JULY 2003: Costs for airlines operating at Sea-Tac are projected to hit $25 per embarking passenger in 2009.

FALL 2003: Port cuts airport jobs, abandons some capital projects and drops plans to build a second terminal, cutting long-term capital costs by $1.2 billion

FALL 2003: The port's 10-year capital budget is estimated at $4.2 billion.

JUNE 2004: Sea-Tac's renovated concourse A opens. Post 9/11 security requirements and other changes raise costs from

$375 million to $567 million. FALL 2004: Port lowers airlines projected costs to $17.29 per passenger by cutting expenses while increasing concession revenue and federal grants.

JUNE 2005: Port further reduces airlines' projected 2009 costs to $15.50 per passenger, after proposing to reduce other fees.

JUNE 2005: The port's $148 million renovated central terminal opens with shops, restaurants, artwork, new checkpoints and other infrastructure. Costs were originally budgeted at $84 million.

JUNE 2005: King County announces talks with Southwest Airlines about moving to the county-owned Boeing Field.

JULY 2005: Port reduces average 2009 projections to $14.15 per passenger, through lower interest rates and financing changes.

P-I news researcher Marsha Milroy contributed to this report. P-I reporter Jennifer Langston can be reached at 206-448-8130 or jenniferlangston@seattlepi.com.

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