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United Airlines

Get ready to fly to Cuba

You’ll be able to get there from Houston in a few months.

A new weekly flight from Bush Intercontinental Airport to Havana was announced Thursday as part of the government’s historic effort to unwind more than 50 years of political tensions, family divisions, trade embargoes and travel restrictions with Cuba.

The United Airlines flight, tentatively scheduled for Saturdays beginning as early as the fall, positions the city to benefit economically from expanded Cuban travel and trade. Business leaders foresee opportunities for exporting agricultural products, collaborating on health-care research and upgrading the island’s aging infrastructure.

“Access is opportunity,” said Bob Pertierra, senior vice president and chief economic development officer for the Greater Houston Partnership. He said the flight will enhance “economic and personal ties to Cuba.”

United was one of eight U.S. airlines given tentative approval from the Department of Transportation to begin scheduled commercial flights between 10 U.S. cities and Havana, the Cuban capital. The United flight will depart Bush Intercontinental for José Martí International Airport.

Houston and Los Angeles are the only cities west of the Mississippi River granted flights to Havana. Bush Intercontinental, a major hub for United Airlines, will make Cuba a one-stopover flight for 20 other United markets across the central and western U.S. Steve Morrissey, United’s vice president of regulatory and policy, said that network helped secure approval.

[…]

Twelve U.S. carriers collectively applied for nearly 60 flights per day, exceeding the 20 daily flights made available by the U.S.-Cuba agreement announced in February.

For Houston companies, many already accustomed to doing business in English and Spanish, a scheduled flight would connect people and help build relationships, business leaders said. There’s a geographic advantage, too.

“The opportunities are across the board from health care to energy to engineering and general infrastructure,” said Felix Chevalier, a Houston lawyer and member of the Texas State Council of Engage Cuba, a nonprofit working to end the travel and trade embargo.

“The airlines would not be petitioning the Department of Transportation to fly to various parts of Cuba if the demand wasn’t there,” Chevalier said.

Dallas-based Southwest Airlines, which didn’t apply for flights from Houston, received tentative approval to fly to Havana from Fort Lauderdale and Tampa, Fla.

The Transportation Department has a comment period before its proposals become final. Airlines have 90 days to begin service after that.

In June, the department approved six domestic airlines to begin scheduled flights to nine other Cuban cities.

See here and here for the background. There have been a bunch of complaints from various Republicans in the state about President Obama’s outreach to Cuba, but I suspect now that there’s business that directly benefits Texas firms going on, they’ll tamp it down a bit. We can hope, anyway. The Mayor’s press release touting this win for IAH is here, and CultureMap has more.

Flying to Cuba

You can get there from Houston, or at least you will be able to soon.

United Airlines made it clear Thursday it intends to offer regular commercial flights between the U.S. and Cuba, saying it would look to offer service from its Houston and Newark hubs to the Caribbean island.

The Chicago-based carrier’s statement came Thursday, following the administration’s announcement that it would begin steps to ease restrictions against Cuba starting Friday.

“We plan to serve Cuba, subject to government approvals, and look forward to doing so from our global gateways of Newark and Houston,” the airline said in a statement.

Many details remain to be worked out before such service could begin.

The Department of Transportation said Thursday the U.S. regulators will work with Cuba to explore air service expansion. A specific air service agreement between the two countries would be required before regular commercial flights could start between the countries.

[…]

The infrastructure is in place here to capitalize on the travel changes. In 2011, Bush Intercontinental Airport was designated as one of the airports that could legally charter flights to Cuba. The first one took off in February 2012 with 80 passengers. Several charters have flown from the airport since, but none on a regular basis.

American Airlines, which has operated flights to Cuba for 15 years, dominates U.S. travel there. JetBlue Airways and Delta Air Lines were among the companies that started flying charters in 2011 from Florida

We’ve already discussed Cubans coming to Houston to visit and shop, so this is only fair. Houston is a hub for a lot of Latin American travel anyway, so the surprise would have been if United didn’t plan to play in this market, whenever it officially happens. Until then it’s a matter of dumping enough money on recalcitrant Republicans lobbying Congress to get the ball rolling.

There will still be international flights at IAH

In fact, soon there will be a new airline and a new destination at IAH.

Turkish Airlines plans to start non-stop flights between Bush Intercontinental Airport and Istanbul next year, the Houston Airport System announced in a press release.

The announcement comes three weeks after Council approved an expansion of Hobby Airport to accommodate plans by Southwest Airlines to start commercial international flights from that airport in 2015.

United Airlines had argued strenuously that the expansion would hurt the city’s economy by diverting international air traffic from Bush that all of the airlines depend on to support marginally profitable flights. In fact, the day Council approved Hobby expansion, United announced it would reduce its Houston-area staff by 1,300 employees and that it was canceling its planned service to Auckland, New Zealand.

Turkish Airlines, on the other hand, will start the new route with a Boeing 777-300ER, which seats up to 334 passengers.

See the Houston Airport System press release for more. The point once again is that there will be a fairly small number of international flights out of Hobby once Southwest has finished its expansion there, and they will be limited to Mexico, the Caribbean, and South America. It will continue to be business as usual for flights to other parts of the world, for which IAH will be the only option. Mean Green Cougar Red has more.

On competition and airline prices

I come across news stories of blog interest from a variety of sources. Here’s one that I got from my alumni association email list that has to do with airline pricing; it was of interest to Trinity University alums because it quoted one of my former economics professors.

United Airlines gained a new hold over Newark Liberty after it merged with Continental Airlines, which had controlled nearly 70 percent of the flying business at Newark. United’s dominance is even stronger, providing consumers with a variety of travel conveniences, but also wielding a unique power that travelers and experts say makes flying from Newark more pricey.

To get a sense of the marketshare United commands, consider the snapshot provided by the Port Authority of New York and New Jersey: For all of 2011, Continental and United, which were still operating as separate airlines last year, handled 71 percent of the flying business at Newark Liberty — or nearly 23 million passengers traveling through the airport, according to the Port Authority’s data.

Delta and JetBlue Airways, which were among Newark’s four busiest airlines, each commanded less than 5 percent of the flights at the airport. US Airways is ranked fifth with 3.5 percent of the business.

The dominance of a single airline — Continental was the busiest carrier at Newark for more than a decade — brings some benefits, including the convenience of frequent service and lots of destinations, but price-conscious travelers like Levy grumble that the lack of competition also gives United the ability to set higher fares.

“There’s more frequent service. There are more places where you can fly,” said Richard Butler, an economics professor at Trinity University in San Antonio who is considered an expert on airline hubs. “The less wonderful thing is that the hub carrier has increased pricing power.”

That was evident in 2009, when Continental dominated Newark Liberty. The airline’s average round-trip fare to Houston was $336 compared with United’s average fare of $315, according to data collected by the Department of Transportation’s Bureau of Transportation Statistics. In comparison, American’s average fare to the Texas city was $209, according to the DOT’s data.

George Hobica, who runs airfarewatchdog.com, a fare-finding website, said Continental’s (previous) dominance always made flying out of Newark more expensive than other airports, including others in the region like JFK, LaGuardia and Philadelphia. “Now it’s United dominating,” Hobica said, “and some of the effects of the dominance have shifted somewhat.”

The most dramatic effect of United’s stronghold may be on flights to the Western part of the country — California, Nevada and Denver — where Continental no longer exists as a competitive force.

I don’t know how much there is to learn about the situation we have here with Southwest and the Hobby expansion from this, but one thing is clear: Less competition is generally not good for the consumer. Maybe the Southwest deal will be a boon for the city and maybe it won’t, but it at least makes sense to me as a matter of basic principle.

It’s just business

The fact that Continental Airlines once had a cozy relationship with the City of Houston doesn’t mean that United Airlines should expect the same treatment.

Then two years ago, Continental got married, and it took a new name. Houston renewed the courtship by trying to entice United to locate its post-merger corporate presence here. United responded with a reminder that whatever the emotional component to the relationship between town and trade, corporations are guided by the bottom line. It moved 1,500 corporate jobs out of Houston to Chicago. Some Houston leaders regarded it as a stinging betrayal.

“Why did you buy Continental? Why did you do it?” Councilman Andrew Burks thundered at United executives making their pitch against Hobby expansion to the council last month.

Part of that pitch was that it would cost the city jobs. Former Lt. Gov. Bill Hobby seized on what he considered the irony while attending a news conference to announce the Houston-Southwest deal at the airport named for his father.

“Continental, or United, has been very concerned about job losses in Houston. They weren’t so concerned about job losses when they moved their headquarters to Chicago,” Hobby said.

“I know there are hard feelings about the headquarters location, but the merger was something we felt we had to undertake for the company’s future, to protect future jobs,” said Nene Foxhall, executive vice president of communications and government affairs at United.

Let me rewrite that sentence for you, Nene:

“I know there are hard feelings about the Hobby expansion proposal, but giving the go-ahead to Southwest to spend their own money doing it was something we felt we had to undertake for the city’s future, to protect future jobs.”

Wasn’t that hard, was it? You can believe whatever economic projections about this deal that you want, but asking the city to ignore its own report and give you what you want amounts to special treatment. Continental might have been able to get away with that back in the day, but what exactly has United done to deserve it?

Council approves Hobby expansion plan

In the end, it wasn’t close.

City Council approved a plan Wednesday that will give Houston two international commercial airports, settling a public policy debate that raged for months over whether flights from Hobby Airport to Latin America would boost the local economy with new passengers or divide the city against itself and trigger layoffs, canceled routes and stagnation at Bush Intercontinental Airport.

Within hours, United Airlines told employees in a bulletin that, as a result of the Council vote, it would be cutting planned operations at Bush Intercontinental by 10 percent and eliminating 1,300 Houston jobs, with the first buy-outs, transfers or pink slips going out in the fall. It immediately canceled planned service to Auckland, New Zealand.

Council’s 16-1 vote, according to the bulletin, also puts in “significant doubt” whether United will complete a planned $700 million expansion of Terminal B at Bush Intercontinental on which it broke ground in January.

“We believe that splitting Houston’s international air service is the wrong decision for the city’s future, but we respect the fact that City Council did not agree,” United spokeswoman Mary Clark said in a released statement.

Houston Airport Director Mario Diaz declined to comment on United’s jobs announcement.

Mayor Annise Parker was dubious of United’s post-vote stance.

“I’ll wait to see that they do that,” she said. “I think United is committed to this city and that they’re going to do their best to continue to grow jobs here in Houston. We already know that we provide a much more competitive environment in terms of cost of living and work force than any of their other hub areas. They committed early on that we would be the largest hub in the largest airline in the world and that’s the commitment I expect them to keep.”

She added later, “They’ve stated continuously that they welcome competition. That competition is at least three years away. So, for United to say there are going to be 1,300 people laid off next week or so, that’s just not reasonable. Because nothing is going to happen until that terminal is built. There’s no competition today. So any decisions they make in terms of personnel are based on other things not the vote we cast today.”

See here for more on United’s reaction, here for more on Council’s vote, and here for the Mayor’s press release. I’ll note that United has already cut some 1300 jobs in Houston, which they did after the merger with Continental. Maybe they knew all along that this was going to happen, and were planning for it even back then. You’d think with that kind of foresight they’d have no trouble handling a little competition. It’s truly impressive how badly they’ve lost the PR battle over this – just read the comments on that first Houston Politics link for a sample. Honestly, in the end I believe this will prove to be way overblown. We’re talking five gates, and a small range of destinations. For United to claim that they had to cut planned service to Auckland, New Zealand, a destination Southwest and its 737s couldn’t reach if we built them a wormhole at Hobby, as a result of this just show how ludicrous their reaction has been. Hair Balls has more.

Hobby jobs claims

There’s been a lot of discussion about how many jobs the proposal to expand Hobby Airport and allow Southwest Airlines to begin flying internationally from there may or may not create. This story gets to the heart of what really matters.

Expanding Hobby Airport so Southwest Airlines can begin flying to Latin America will create more than 10,000 local jobs, perhaps as many as 18,000.

Or it will eliminate 3,700 jobs in the Houston area.

To City Council members preparing for a historic vote on whether Houston should have two international airports, competing studies, with their statistical formulas that extrapolate jobs from airplane passengers, are dueling crystal balls that offer radically different visions of Houston’s economic future. Will Southwest’s new flights to Latin America lower fares by all carriers, increase the number of passengers at both Hobby and Bush Intercontinental airports and create jobs to serve that growth? Or will it divert so many passengers from Bush that United and other airlines cancel flights and dry up employment opportunities that rely on those lost passengers?

[…]

Such a discussion, [Houston Airport System Director Mario] Diaz said, misses the point.

“We’re trying to be precise about a forecast, and that’s where people are getting wrapped around the axle,” Diaz said. The larger question is, does Hobby expansion help Houston more than it hurts it, he said. Tapping into the growing Mexican middle class market by offering lower air fares to Houston will bring in more visitors with money to spend at restaurants and hotels, he said.

“When you ask the (Greater) Houston Partnership, when you ask the Convention & Visitors Bureau, when you ask all of these chambers, they’ve all come to the same conclusion, that whatever the numbers are, it’ll be a net benefit to the city,” Diaz said.

That’s been my sense all along as well. The job creation projections strike me the same way that the obligatory economic projections of a sporting event like the Super Bowl or the Final Four do, more voodoo than anything else. I think Diaz frames the issue correctly, and I believe there’s another group of people who will use this service and benefit from it. There are loads of bus companies in this town that provide round trip service into places like Monterrey and Mexico City. A check on Greyhound’s website told me that a trip to Mexico City takes literally all day – 22 to 26 hours, with transfers – and cost $118; a trip to Monterrey ranged from 10 to 15 hours and cost $53. I doubt Southwest or any air carrier can match the prices, but don’t you think there will be plenty of people willing to pay a bit more to turn a 24-hour trip into a 2-hour trip? That may not be something that will benefit most of the people making most of the noise about this proposal, but it will benefit a lot of Houstonians. That is what this really comes down to. More choices, more options. I have a hard time seeing how that won’t be better for us.

The deal with Southwest

It’s official.

You are now free to fly internationally

In a news conference at Hobby Airport, Mayor Annise Parker announced Wednesday that Southwest Airlines will pay the estimated $100 million cost for a five-gate expansion at Hobby that would provide international flights.

“This is one of those deals where I don’t have to spend the next 20 minutes explaining what’s in the deal,” Parker said. “Southwest has agreed to pay for all the expenses associated with building the expansion. That’s it.”

Parker said she would present a memorandum of understanding about the deal later Wednesday to City Council.

“And I look forward to an affirmative vote from City Council next Wednesday when it’s formally on the council agenda,” she said.

There are apparently already enough votes on Council to pass this. Barring anything unexpected, it’s a done deal.

The mayor said the deal would not be financed by any city debt or facilities charges tacked onto the price of passenger tickets.

The airline will build five new gates according to city specifications and will get exclusive use of four of the new gates, Parker said.

“The fifth gate will be available to other carriers that choose to fly out of Hobby,” she said.

Once the improvements are made, the city will own them debt-free, Parker said.

The Chron story goes into more detail.

First, Southwest will not have to pay rent on the four gates or for the customs facility.

Southwest officials acknowledged Wednesday that exempting it from rent but assuming the debt payments is, essentially, a wash, though they said an apples-to-apples comparison was nearly impossible because there are so many ways to structure a deal.

Southwest also qualifies for an annual rebate of as much as $3.9 million based on the growth in passengers once the international addition opens. Southwest would get roughly $1.43 back for each additional passenger over the previous year’s total.

Andy Icken, the city’s chief development officer and one of the negotiators on the deal, estimated that Southwest would have to increase its passenger total by roughly 50 percent in a single year for it to earn the maximum rebate.

A city study projects that the number of Hobby passengers would grow far less than that.

Southwest gets a key concession of near total control of the international section of the terminal at Hobby. While Southwest has touted the benefits of competition its entry into the Latin American market would bring, Southwest’s competition within Hobby will be limited to the flights that can squeeze out of one gate.

Southwest has plans for up to 25 daily international departures to destinations like Mexico and the Caribbean, which are places that can be reached in their fleet of 737s. They would start service in 2015.

The Mayor’s press release on this is here. One of the things it emphasizes is that Southwest will abide by all of the city’s minority and small business contracting requirements as well as the Hire Houston First policy. That drew a laudatory release from the Texas Organizing Project for the commitment to local hiring. I’m sure United will kick up a fuss about this, but everything I’ve seen indicates that public sentiment is very much on the side of Southwest and the Hobby expansion. All in all, I think it’s a pretty nice accomplishment for Mayor Parker, who as I said before will have some more positive things to talk about in her next election campaign than she did in the last one. What do you think about this deal?

Mayor to announce Hobby expansion deal

Here it comes.

Houston Mayor Annise Parker is planning to announce Wednesday morning that the city and Southwest Airlines have come to an agreement on how to finance a $100 million expansion of Hobby Airport to accommodate international flights, according to a City Hall source.

The agreement is subject to approval by City Council. The mayor said last week that if the city and Southwest could negotiate a memorandum of understanding, she intended to put Hobby expansion on the May 30 Council agenda.

No details of the agreement have yet been divulged. But several City Hall sources say Parker has scheduled a news conference at the Southwest ticket counter at Hobby Airport.

We’ll see what that amounts to. Southwest has been pretty aggressive about this, with CEO Gary Kelly sort of promising to pay for it all. Whatever the deal is, Council will have to vote on it, presumably next week. In the meantime, prior to this announcement the proposal picked up some endorsements:

The Greater Houston Convention and Visitors Bureau has endorsed expansion of Hobby Airport to accommodate a proposal by Southwest Airlines to start international flights in 2015. But that endorsement comes with a caveat.

In a released statement from Lindsey Brown, the organization’s director of marketing and PR, the Bureau announced:

As the official destination marketing organization for Houston and our region, the Greater Houston Convention and Visitors Bureau supports expanding international air service at William P. Hobby Airport that encourages reasonable air service pricing. We have historically supported the expansion of Houston air service and we believe it is good for our customers and the citizens of Houston/Harris County. International meetings and tourism are an essential part of our core mission. The case for allowing international travel through Hobby Airport is a strong one, but that move should not significantly diminish existing international traffic at Bush Intercontinental Airport. We encourage the City of Houston to determine what actions will provide the best service and competitive fares for the traveling public and the greatest benefit to the Houston hospitality community.

Also on Friday, the Greater Houston Partnership made official its position in support of Hobby expansion. Its board of directors voted to approve a resolution previously supported by both its Executive Committee and its Business Issues Committee.

We’ll know more in a little while. At this point, I will be surprised if this doesn’t get done.

Paying for Hobby expansion

At last week’s Council hearing on the proposed expansion of Hobby Airport, Southwest Airlines CEO Gary Kelly made the statement that if the proposal were to be accepted, Southwest would pay for the $100 million project. The Chron looks at what this means.

Because the Houston Airport System is an enterprise fund separate from the rest of city government, its budget comes from landing fees and ticket surcharges, not from tax dollars that pay the salaries of police officers and firefighters.

Kelly’s declaration does not mean Southwest is offering to build the facilities at its own cost, however. There is no financing proposal from the airline yet. Houston Airport System Director Mario Diaz told City Council last month that putting an extra $1.50 surcharge on the ticket of every passenger who takes off from Hobby would pay for the expansion. It is called a passenger facility charge, and it is money Houston’s publicly owned airports and others across the country collect from airlines to build runways, gates, people movers and concourses.

The fee would be paid not only by Southwest’s passengers, but those of American, Delta, and JetBlue, which also fly from Hobby. So, although Southwest accounts for roughly 87 percent of Hobby’s passengers, other airlines would be chipping in under the surcharge model. American and Delta declined comment. JetBlue issued a statement in support of Hobby expansion, but did not comment specifically on the prospect of increasing the per-ticket fee from $3 to $4.50.

The collected surcharges are not the airlines’ money to spend as they please. The fees must be kept in a segregated account and turned over to the airport system, which decides how to spend it.

[…]

United contrasts an expansion of Hobby paid for entirely with ticket fees with United’s approach of paying from its own pocket for a massive expansion of Terminal B at Bush. The deal signed last year calls for United to put up $686 million while the city ponies up $264 million it raises from passenger facility fees, which remain at $3 a head at Bush, and which are paid by 17 airlines. United has “skin in the game” at Bush, a company spokeswoman said, whereas if Hobby expansion is funded by passenger fees, Southwest does not.

On the other hand, United gained a financial windfall at Terminal B by acquiring its exclusive use. It even controls the concessions. The facilities at Hobby would be shared by any carrier that wants to compete with Southwest there. And passenger fees, not United, are paying for Bush’s Federal Inspection Services facility.

It was less than a year ago that Council approved the deal to refurbish and expand Terminal B at IAH. That deal included United getting the lowest gate fees of any airline at IAH, as well as 90% of concession revenue, both of which will go a long way towards taking the sting out of the money that United is putting up for the construction. United is on the hook for Phase One of this project, but can back out of Phases Two and Three; they have to make a decision about that in 2017. At the time this was being debated, the Service Employees International Union was arguing that United got a sweetheart deal from the city. Ah, memories.

This doesn’t have anything to do with whether or not the Southwest proposal is worthwhile in and of itself, or with whether accepting that proposal will lead to millions of jobs and ponies for everyone or a plague of locusts and seven years’ bad luck. It’s just to note that United hasn’t exactly been treated shabbily by the city. The amount of fuss they’ve kicked up about this is out of proportion to the small number of international flights that would result from Hobby being expanded.

Two cities, one argument about airports

Turns out Houston isn’t the only city squabbling with United Airlines about airport expansions. There’s a similar fight going on in Chicago.

O'Hare International Airport

Mayor Rahm Emanuel has gotten tough with the teachers union and muscled the City Council. But will he mess with somebody his own size?

Mr. Emanuel is at odds with airline boss Jeff Smisek over expansion of O’Hare International Airport. The CEO of United Continental Holdings Inc. jabbed at Mr. Emanuel recently, saying there’s no need to finish the multibillion-dollar project launched seven years ago.

The new mayor shot back with a demand to start talks now on the final phase of the expansion. The deadline for starting those negotiations isn’t until next March.

[…]

Mr. Emanuel can’t afford to let O’Hare fall behind rival airports. Mr. Smisek, on the other hand, has a different agenda. Unlike airline execs of the past, whose expansionist strategies dovetailed with the city’s desire for an ever-bigger O’Hare, he’s focused on the bottom line. He aims to boost profits by reducing capacity and competition in the airline industry, which has a long history of big spending, bloody fare wars and monumental losses. His merger of Houston-based Continental Airlines Inc. and Chicago’s UAL Corp. advanced those aims while creating an airline with unprecedented market power, the largest in the industry.

Proceeding with the final phase of the O’Hare expansion would undercut Mr. Smisek’s agenda, adding capacity that could allow new airlines into the airport, where United and AMR Corp.’s American Airlines now control 80 percent of the flights. Their stranglehold makes it hard for newcomers to get into O’Hare and maybe offer lower fares. It also means that United and American pay most of the cost of any expansion projects at O’Hare, giving them clout in construction negotiations.

The terms of the debate are different in Chicago, but the bottom line is the same. What’s best for the city may not be best for United Airlines, and vice versa. There’s nothing particularly remarkable about a large company with near-monopoly control in a given market doing whatever it can to keep competition out. What is remarkable is that the argument to allow such competition would somehow be damaging to consumers is given any credibility.

Which brings me to Tuesday’s Council session, in which United and Southwest made their case before a joint meeting of the Budget & Fiscal Affairs and Transportation, Technology & Infrastructure committees.

CEO Gary Kelly spoke for Southwest. He framed the debate in his company’s David-and-Goliath narrative of the scrappy low-cost carrier trying to crack a market dominated by the big boys.

Kelly opened with, “It is déjà vu.” Southwest had to fight just to keep from being killed in its crib by legacy carriers that schemed and litigated all the way to the U.S. Supreme Court to keep the airline from starting up, by Kelly’s version of history.

“That group included Continental Airlines,” Kelly said, the hometown carrier that merged with United in 2010. “It was a cynical move.”

In 1971, Southwest sought to reopen Hobby, which had closed two years earlier when Houston Intercontinental Airport opened.

“Then, as now, the legacy carriers went ballistic,” Kelly said, “… insisting that reopening Hobby would cause irreparable damage to Intercontinental.”

[…]

[United] delivered PowerPoint slides with statistics on how over the past 19 years Southwest has increased its fares at a faster rate than the legacy carriers have and juxtaposed the city’s projection of a Houston-Bogota flight for $133 on Southwest with the airline’s recent advertised rate of $160 just to get from Chicago to Oklahoma City.

John Gebo, United’s senior vice president of financial planning, even contested Southwest’s central contention that its entry into Houston’s international travel market will lower fares:

“There are cases where Southwest’s fares are lower. There are cases where they’re higher. It is a fallacy that Southwest’s fares are always lower.”

They also focused on the future instead of history. A council vote to expand Hobby, they said, would prompt them to reconsider a $700 million investment they have planned at Bush’s Terminal B. United broke ground on the project in January, unaware that later that same day Kelly would be meeting with Mayor Annise Parker to discuss Hobby expansion.

Let me refer you back to the two posts in which my wife Tiffany Tyler analyzed Southwest’s proposal and the claims United was making at the time, which seem to have evolved somewhat. I understand United’s fear of this proposal. I understand their threats regarding Terminal B at IAH, though given the growth projections for IAH and the fact that they want to close down the former Continental hub in Cleveland it’s hard for me to take those threats too seriously – where else are they going to go? Unlike Southwest, which says it will go to San Antonio for their Latin American and Caribbean business if Hobby is not available to them, they’re pretty much locked in. What I don’t understand is how having more competition, even if it’s just for a handful of Latin American routes, can be bad for travelers. It makes no sense to me, and according to his press release it makes no sense to CM Andrew Burks, either. I hope in the end it makes no sense to the rest of Council.

“Reasonable accommodation”

According to a legal opinion provided by the City Attorney’s office, Houston must provide “reasonable accommodation” to Southwest Airlines for its proposal to offer international flights at Hobby Airport.

In a memo accompanying the legal opinion, City Attorney David Feldman wrote that “consideration of such economic issues for the community cannot be controlling; the City’s obligation to provide reasonable accommodation to Southwest is paramount, irrespective of such issues.” In other words, if Council finds Southwest’s request reasonable it cannot reject it based on economic projections.

If the Federal Aviation Administration finds that the city is not complying with its obligations, it could suspend millions of dollars in airport improvement program grant funds and disqualify Houston from receiving future grants, according to a legal opinion prepared for the city by attorney Peter Kirsch of Kaplan Kirsch & Rockwell, a firm based in Denver and Washington, D.C., that specializes in aviation law.

Tuesday’s council hearing and two neighborhood meetings in the next week are part of the process the city will use to determine whether Southwest’s request is reasonable, said Janice Evans, spokeswoman for Mayor Annise Parker. The plan calls for a $1.50 fee increase on every Hobby traveler’s ticket to cover the costs of construction for the airport’s expansion.

Houston Airport System Director Mario Diaz, who last month formally recommended the city support Southwest’s plan, said of the legal opinion, “It’s what I’ve been saying since Day One.”

The city could reject a proposal for Hobby to go global only if the airport did not have the capacity to accommodate international flights, if noise or other environmental concerns could not be overcome or if public safety were threatened, Diaz said. None of those conditions apply in the case of Southwest’s plan, Diaz said.

You can see a copy of Feldman’s memo here and a copy of the legal analysis here. The summary and conclusions are enough to give you the big picture, but do check out the last section, entitled “Consequences for violating legal obligations” for an idea of what could happen if the Federal Aviation Administration doesn’t care for the city’s actions. United disagrees with this analysis, and that says to me that one way or another this is going to end up in court, but if this analysis is accurate that may not be the city’s biggest risk factor here.

Council had a joint meeting of the Budget & Fiscal Affairs and Transportation, Technology & Infrastructure committees yesterday at City Hall at which Feldman and both airlines made presentations. There will two be public hearings on this topic as well. The first is tonight, May 9, from 6 p.m. to 8 p.m. at the DoubleTree Hotel, 15747 JFK Blvd. The second is scheduled for Tuesday, May 15, from 6 p.m. to 8 p.m. at the Houston Marriott South, 9100 Gulf Freeway. The Texas Organizing Project spent some time visiting residents in the Hobby area to ask them about their thoughts and concerns, and had its own public meeting with 100 of those residents to discuss this on Sunday. According to a letter they sent to Mayor Parker yesterday, there was strong support among those who attended their meeting for the Hobby expansion. Here’s your chance to make your voice heard, so attend one of these meetings if you have something to say about this.

United’s study predicts doom and disaster if Hobby expands

Well, what did you expect it to say?

You are NOT free to move around the country

Expanding Hobby Airport to allow for international flights will cost the Houston area 3,700 jobs and $295 million in economic activity, according to a study released by United Airlines Thursday afternoon.

United’s conclusions contrast starkly with the projections of a study commissioned by the Houston Airport System that an international Hobby would create 10,000 jobs and inject $1.6 billion into the local economy annually.

[…]

The United study attempts to dissect the city study by challenging several assumptions, including what United considers unrealistically low fares on new routes. Much has been made of the city study’s finding that fares to Bogota would decrease from $739 to $133. Although it concedes the average fare would decrease, United finds that the city study overstates current fares and understates the projected fares.

Southwest and the city study assert that new low-fare routes would increase passengers at both airports.

“Competition is always good, but there is already plenty of competition at Bush where it can take advantage of the enormous economies of scale associated with a large hub,” said Barton Smith, one of the United study’s authors and professor emeritus of economics at the University of Houston. “Diminishing the volume of connecting flights through Bush could be very damaging. The HAS study finding that Southwest Airlines proposal would actually increase trips through Bush is just sheer nonsense.”

You can find United’s study here and a summary of its findings here. I guess United’s claim of 1300 lost jobs wasn’t sexy enough. This was posted late yesterday and I have not had the time to give it a read-through, but clearly United’s economists and whoever did the HAS study were operating under two completely different sets of assumptions. One or both of them must be wrong. I still think Darren Bush wimped out by not offering an actual opinion on this matter, but his advice to Council to “trust no one” sure seems apt. Let’s have one more study to break the tie!

The United study came out as the Greater Houston Partnership formally endorsed Hobby expansion.

“We want two vibrant airports and the benefits that go along with it: more jobs, more travelers and a competitive advantage for our city,” Greater Houston Partnership chairman Tony Chase said in a statement after a unanimous vote by one of the group’s 60 committees.

[…]

Partnership president Jeff Moseley said in the Wednesday statement that the organization “carefully deliberated on how increased competition changes the landscape within airport systems.”

More on that here and here. I’ll leave the wisecracks about who put these words in their mouth as an exercise for the reader. So, is anyone convinced by United’s study? Let me know in the comments.

Hobby expansion, for and neutral

The Chron had an interesting point/not-quite-counterpoint about the Hobby expansion proposal on its Sunday op-ed pages. The pro-Hobby expansion piece by Ed Wulfe was mostly rah-rah stuff and didn’t bring anything new to the debate. The other piece, by Darren Bush, was interesting mostly in that it wasn’t an actual counterpoint to Wulfe’s argument.

My view is that City Council should proceed with extreme caution and seek its own independent study to navigate carefully between the Scylla of Pollyannaish hopes and the Charybdis of doom and gloom.

It is no wonder then that the City Council is presented with two pictures. The first, favoring Southwest’s position, promises pie in the sky and the sweet bye and bye. Specifically, the independent estimate prepared for the Houston Airport System makes some lofty assumptions, including a $133 one-way fare from Hobby to Bogota. Other projected benefits of “freeing Hobby” include the creation of 10,000 more jobs, an overall economic impact of $1.6 billion and an increase in passenger traffic to both airports.

United’s story is far less rosy. It has suggested that the move would cause it to cut 1,300 jobs and reduce service. It also claims that the Houston Airport System study is “fundamentally flawed” in its assumptions about the economic effect of international service at Hobby. Finally, United worries that the increased customs presence at Hobby would hurt an already understaffed customs presence at Intercontinental.

City Council: Whom do you trust? My advice to you given the radically different viewpoints is the same as that given in that 1990s hit, “The X-Files:” Trust no one.

Bush recommended Council commission its own study instead. Which I guess is reasonable advice, though it could wind up being moot if Southwest gets impatient and decides to pursue opportunities in San Antonio or Orange County or wherever. It also feels rather like a copout by a guy whose byline says he is “a professor of law at the University of Houston Law Center who has testified before U.S. House and Senate Judiciary Committees on numerous airline matters”. I mean, the HAS study is on the web, along with other related documents. It’s not very long, though it is somewhat technical. I’ve read through it, and while I’m hardly qualified to give testimony on airline matters, I thought I grasped its main points, and it seemed sensible to me. Wouldn’t it have been nice if someone with actual expertise and no skin in the game had offered his own expert opinion on it? If he had access to United’s study, which as far as I know is not publicly available, an expert evaluation of that would be useful to the debate as well. This, I’m not sure what use it is.

Now clearly Bush is skeptical to some degree of the HAS study, though his recitation of talking points doesn’t tell us anything we haven’t already heard. Maybe this is just his way of saying there’s nothing else to say about it. And maybe he just didn’t have enough space to go into whatever other reasons he may have had for discounting this study. All I’m saying is that it seems like a waste of an expert’s talents to have him write something that any non-expert could have done.

Here come the lobbyists

It’s getting real in the United versus Southwest fight.

This was one of the less impolite images I found on Google

Both sides have enlisted A-list lobbying teams. United’s includes Marty Stein, who until little more than a year ago was Mayor Annise Parker’s agenda director; former City Attorney Anthony Hall and Greater Houston Partnership Airports Task Force Chair Michelle Baden. Southwest has former City Councilwoman Graci Saenz, and Jeri Brooks, communications director for Parker’s 2009 campaign, lobbying at City Hall. State Rep. Garnet Coleman also is advising Southwest.

Darrin Hall, Parker’s deputy chief of staff, called it the largest and most intense lobbying effort he has ever seen in eight years at City Hall.

Then, there is the money. A Chronicle review of campaign contribution records dating back to 2007 turned up nearly $90,000 in donations to current council members, the mayor and the 2010 inaugural celebration by Continental’s employees political action committee, and past and present Continental/United executives. Parker alone has received $52,298 since the beginning of her last term as controller.

It’s not just money, explained Chris Bell, a former city councilman and former congressman.

“Politics is a relationship business and those relationships are built up over time,” he said. Continental built those relationships, not with just campaign cash, but by sponsoring and buying tables at local events, supporting arts organizations, lobbying and being out in the community.

Southwest, by contrast, doesn’t do campaign contributions. United built up all that good will as Continental, and going by public reaction at least it’s not clear how much of it has carried over. Of course, if you go by Council’s reaction you get a different picture; Mayor Parker, on the other hand, is more in line with public sentiment. It’s too early to say how this will play out, but I will say this: The best counterweight to lobbyists and campaign contributions is your own voice. If you have an opinion about this, whoever it favors or opposes, call your Council member, the five At Large members, and the Mayor and tell them what you think. Be brief, be clear, and be polite to whoever answers the phone. They do pay attention, and they keep track of how many of each type of call they get on an issue like this. Sending an actual piece of snail mail is as good as a call, sending an email is not as good but better than nothing. Unless you have your own lobbyist to do this work for you, it’s your best bet.

Council is skeptical of Hobby International

Not so clear skies for expanding Hobby Airport into an international terminal.

A consultant’s study that forecasts an economic boon for Houston if Hobby is made into an international airport came under fire from city council members Monday as “biased” and “custom-made just to satisfy the demand of Southwest” Airlines, which is asking the city for permission to build a $100 million Customs facility and five-gate expansion at Hobby.

In a three-hour grilling of Houston Airports Director Mario Diaz, council members complained that the numbers in the study strained credulity, that they were kept in the dark about Southwest’s pitch for at least eight months, that airport officials have been condescending and that council and others should have been asked for input before Diaz recommended approval of the Hobby expansion.

According to the study, an international Hobby would lead to the creation of 10,000 jobs and inject $1.6 billion annually into the Houston area economy, as well as lower air fares. Comments from the general public have been overwhelmingly in support of Southwest’s plan to start flying to Mexico and the Caribbean.

The study is here; it and other supporting documents can be found here. I’ve skimmed the study but have not given it a full read yet.

“What may be the largest issue perhaps of the century, you all have blown it in my view,” Councilman C.O. Bradford told Diaz. “This rollout simply has been a complete disaster. I mean lack of transparency, arbitrary time lines, total disregard, disrespect for council. It’s just unconscionable.”

Councilman Al Hoang said, “I feel that this report is already biased, it’s already custom-made just to satisfy the demand of Southwest.”

[…]

Councilman Andrew Burks questioned the numbers in the report and singled out a projected fare of $133 to Bogota.

“You can’t even fly from Houston to Lubbock on Southwest for $133,” Burks said. “I really want to just throw this proposal out the window because, right now, when I see numbers that can’t match, it just don’t work for me.”

I can’t address Council members’ complaints that they have been disrespected, but from what I have seen of the study it seems pretty sensible to me. The case for international flights at Hobby is straightforward. There’s currently almost no competition for the market to Mexico and the rest of Latin America. Hobby is well suited to provide low cost carrier flights to that market, and Houston is about as ideal a population center for those flights as you could want. Several other cities have more than one international terminal, and recent history shows that not only can that work, the original carrier winds up increasing service as well. (See also page 18 of the study.) Unlike United, Southwest has other options for its international gateway if Houston passes; Orange County’s John Wayne Airport has a new Federal Inspection Service and would be a good alternative for Southwest.

Like I’ve said, I’m not the expert on this in the family – I’m working on getting her to contribute to this topic once more. I can’t speak to the specific objections Council members have raised. Perhaps the topline numbers – ten thousand jobs! $1.5 billion in economic activity! – are overstated. But honestly, does anyone believe that Houston fliers would not benefit from the increased competition? I don’t get it. I hope this was just Council doing its due diligence and not rejecting out of hand what looks like a good deal to me.

Houston Airport System sides with Southwest

Hot out of the inbox:

In a memorandum to Mayor Annise Parker, Houston Director of Aviation Mario Diaz recommends the City of Houston work with Southwest Airlines (Southwest) to expand the federal inspection services (FIS) facility at William P. Hobby Airport (HOU) to support scheduled commercial international service.

“I have concluded given Southwest’s existing and sizeable domestic network operation at Hobby, it would not be reasonable to require the airline to relocate to Bush Intercontinental Airport (IAH), or even conduct split operations – domestic service at Hobby and international service at Intercontinental,” said Diaz. “Therefore, it’s my recommendation we support Southwest’s request to begin the process of obtaining the necessary approvals to initiate international service at Hobby.”

Houston Airports commissioned two independent studies to evaluate the economic impact on the City of Houston from international flights operated by Southwest. Those studies, by two acknowledged experts in the aviation industry, found that international air service at HOU is projected to generate an additional 1.5 million passengers to, from and through Houston annually, creating more than 10,000 jobs and generating an annual economic impact of more than $1.6 billion.

In addition, the studies determined increased competition will result in an expanded market for all airlines that serve Houston. The findings note other metropolitan areas with more than one international airport – South Florida, Chicago, Washington, D.C. and New York/New Jersey – have seen expanded service, particularly where low-cost carriers like Southwest helped spur competition.

“By adding new international air service at Hobby, it creates competition in the Houston-Latin America market, leading to lower airfares and more travel options for the public,” concludes Diaz.

Mayor Parker is reviewing the study and seeking input from stakeholders before deciding whether to accept Mr. Diaz’ recommendation and seek City Council approval to enter into a Memorandum of Understanding to allow Southwest to pursue the necessary federal approvals for international flights at HOU.

During the week of April 16, Mr. Diaz will present his recommendation to a joint meeting of Houston City Council’s budget and fiscal affairs and transportation, technology and infrastructure committees as well as to the Greater Houston Partnership’s transportation committee.

You can go to www.fly2houston.com/hobbyinternational to see all of the supporting documents. Here’s Mayor Parker’s statement:

“I am carefully considering Southwest’s proposal and the recommendation of the city’s aviation director and will take all views into account. With City Council involvement, we will convene meetings with and seek input from stakeholders, including airlines, members of the business community, Houston residents, organized labor and other interested persons. My decision, which I intend to reach by the end of April, will be based on what is best for the city and the flying public, not what may or may not be best for any one specific airline.”

Mayor Parker noted that the City is only deciding whether to support Southwest’s proposal to expand gate space at Hobby. The authority for deciding whether international service will be allowed at Hobby rests with the federal government.

Here’s the Chron story. I haven’t seen a statement from either United or Southwest yet; the Texas Organizing Project put out another statement urging “the Mayor and City Council to listen to the people that live and work around the airport”. The studies are over, so let the politics begin.

Today’s the day for the airport report

Today’s the day when we get that report from Houston Airport System Director Mario Diaz that makes a recommendation to Mayor Parker and City Council about whether or not to expand Hobby Airport to include international flights. We will also get those two economic studies the city paid for to quantify the effect of such a decision. As we know, Southwest says greenlighting the expansion will be an economic jobs-creating boon for Houston, while United says just the opposite. In a Friday editorial, the Chron leans in Southwest’s direction.

Our call on this issue proceeds from the answer to a straightforward question: What is best for Houstonians and their city’s future? That is the question we expect to be uppermost in Houston City Council members’ minds as they deliberate this matter – well ahead of small-bore political considerations such as which party has ponied up how many dollars in campaign contributions or fund-raisers and the like. This is an issue with large regional implications and should be so addressed by council and Mayor Annise Parker. There are no home teams to favor in this.

As a general proposition, we believe the skies over Houston are big enough for both of these airlines to grow and prosper. And we believe that the future of this city and region is even bigger than the wild blue yonder they both call home.

That inclines us to favor welcoming Southwest’s entrepreneurial plan to expand Hobby at its own expense.

It’s hard for me to see how that’s not the right call. United’s argument largely boils down to a claim that you can only expand international travel at IAH, which in addition to being intuitively questionable also fails to hold up under a closer look at the numbers. To that effect, I presented another analysis of the situation by my wife, Tiffany Tyler. I’m reprinting that here today, partly because it was at the end of a long post on Friday and people may not have gotten to it and partly so I can link to her LinkedIn profile so you can get some idea of what her professional creds are. Here it is again:

First, thanks to all who responded favorably to my previous guest post. And yes, it’s been more than a weekend since I promised to write a follow-up. Unlike my spouse, I’m not conditioned to getting up at 5 am daily to create blog content, so it took me a while to work this in.

I’ve been reading with interest the “debate” around whether or not creating an international terminal at Hobby would be dilutive to the US Customs presence at Intercontinental. I’ve seen numerous comments from people saying things like, “the lines are too long at IAH as it is, this will only make it worse! They’ll take agents away!”

This got me thinking about the real numbers involved in the lines at International arrivals. Basically, it’s a function of how many people are getting off the plane at once. A busy airport like IAH has multiple flights coming in at the same time, especially when long haul flights from Europe and Asia arrive. An international terminal at Hobby would, at least in the beginning, have a much smaller number of flights and no 747s dumping 450 people at a time on Customs and Border Protection. Do the math:

The proposed Hobby scenario is 25 flights a day at 5 gates. The average capacity of a 737 in the Southwest fleet is 137 people. Southwest flies ONLY 737s. Even if they added the biggest, baddest 737 out there to give themselves greater range or capacity, they will top out at about 180 passengers. So 25 flights a day, spread over 10 hours – we’ll be generous and say 3 flights an hour, then round up capacity and say 500 people an hour through customs at Hobby, closer to 600 if they go with new 737-900ERs. This number is too large, in any real sense, but keep it in mind as we continue our mental math.

Compare that to IAH, where United and all of the other international carriers land something like at least twice that number of flights an hour (peak times when long haul flights come in from Europe or Asia) with an average capacity of a 747 or a 777 at 450 passengers PER PLANE. Look at the data, which I have taken straight from the Customs and Border Protection website, which can generate this handy table for any date range you select. This one is for 1 January 2011 to 1 January 2012.

So at peak times, Border Protection sees an average of 1100 or more people an hour through IAH. That makes our 500 passengers an hour through Hobby seem crazy-big. But stay with me. The data from CBP can’t be cut by day of the week, so I can’t tell if it’s appreciably worse on certain days. I’ve been on enough overnight flights to be leery of the low averages between 8 and 10 am, for instance. If you look at just 2 of the arrival schedules for cities in question with the proposed Southwest expansion, Mexico City and Cancun, as pulled from the handy schedule tool at http://fly2houston.com/:

You can see that United doesn’t bring in more than one 737 from either departure city before noon (at least on a Wednesday, the day I pulled the data). The majority of the flights come in during those peak average hours on the CBP chart. So it’s unclear to me that taking some passengers OUT of those IAH averages would be a bad thing. Given that the IAH Master Plan for 2011 (the last one available on their website) is estimating a 3.9% annual growth rate in international travel alone between now and 2015, and diversion of traffic from Cleveland when United (probably) draws down that hub in favor of Chicago, it seems to me there is still PLENTY of growth going on at IAH to sustain demand for international flights, even if you add a potential 500 passengers an hour that could go through Hobby instead.

The advantage I’d see for potential international travelers at Hobby, and frankly for CBP as well, is that at least in the short run, Southwest would be the only international carrier at Hobby, and for that length of time, the average number of passengers coming through per hour would be highly predictable and consistent. That would make staffing easy to model, and certainly have a smaller swing from valley to peak than they have at IAH. As a traveler, I’m having a hard time seeing a downside with this.

The funding mechanism for Customs agents has always seemed opaque to me. On the one hand, United is claiming that IAH is already understaffed and opening Hobby would take agents away form IAH. This presumes the number of customs agents in a city airport system is a zero sum game. Of course United also contended that they didn’t have an issue with Southwest flying internationally as long as they do it out of IAH, which as I’ve shown above is absolutely silly in terms of wait times for the passengers. If they could add more agents to IAH to handle that added traffic, why couldn’t they add agents at a new airport, making passengers at IAH no worse off, and possibly with an improved option for lower fares and reduced customs wait times at Hobby relative to IAH?

This all presumes that new aircraft types don’t drastically change the throughput of arrivals in the IAH customs hall independent of anything Southwest might or might not do, of course. Surely United wouldn’t be planning to add more folks to what is already an overcrowded CBP system, right? That’s what they’re trying to protect us all from! And yet, look at the data. According to Boeing’s order book, the old Continental ordered 25 787s and United ordered 25. It’s true that I can’t tell where these planes are INTENDED to go in the United Route system, or even if those 50 orders are still “firm” in Boeing’s books, but think about it for a few minutes. This aircraft is slightly larger than the 737 (210-290 passengers, depending on configuration), with a range suited for flights between, say Houston and Delhi, India. Imagine the customs issue at IAH when you add 75 extra people per flight.

But you might be more concerned about the Airbus order book. The A380 holds 525 passengers. Imagine IAH at peak hours with 525 people on each of the BA, Air France and Emirates flights and not the 450 currently on a 747. You won’t have to wait long to see what it will feel like. Lufthansa is bringing the A380 to IAH beginning this August, and that Frankfurt flight lands at about 2 pm, right before a number of those United flights from Mexico.

Color me skeptical about United’s position generally. They may lose some customers, and cut some flights, in response to Southwest opening international service. But even with the newest, longest range 737s, it’s still a 737. And that “fleet commonality” is a huge part of what makes Southwest able to do what they do to control costs. Trust me here, I wrote a doctoral thesis on it. For United, as for American and AeroMexico, the overall risk of passenger loss will go up over time as Southwest expands their schedule past the currently proposed 5 city pairs. But those airlines, with their diversified fleets and deeper, longer route structures (at least for the US-based carriers), will still have plenty of places to go that Southwest can’t get to in a 737, and passengers want to go those places. I find the Customs and Border Protection argument disingenuous, given the pressures already in the customs hall and the growth projections that are already part of the IAH Master Plan and the fleet growth plan of United, insofar as I can guess what it is from the Boeing order book.

It’s the customers who have the most to gain from a Hobby expansion gateway. And as a customer, I’ll bet on Southwest working in my interest before I’ll bet on the “new” United.

Thanks again to Tiffany Tyler for that in depth analysis. And now we wait to see what Mario Diaz has to say.

Catching up on United versus Southwest

There have been a few news stories of interest since we first heard about the Southwest Airlines plan for international flights at Hobby Airport, which is being vigorously opposed by United, who wants to keep IAH as the only international airport in Houston. United has a couple of Congressmen on their side.

In this corner...

Two local congressmen have asked Mayor Annise Parker not to turn Hobby Airport into an international operation because they are concerned Houston would not get sufficient customs staffing to avoid long delays for international travelers.

The opposition of U.S. Reps. Kevin Brady, R-The Woodlands, and Al Green, D-Houston, casts doubt on whether Houston should become a two-international-airport city, even if city-commissioned studies indicate it would be an economic boon.

In a letter sent to Parker this week, Brady and Green echo an argument made by United Airlines, which has been lobbying against the project at City Hall, saying they oppose equipping Hobby with a federal inspection services facility because they fear it will divert customs officers from Bush Intercontinental. Resulting delays, United argues, will cause international passengers to book flights through another hub.

Brady and Green argue that an international Hobby would “divert, not increase” the number of customs officers in Houston.

[…]

In his annual State of the Airports address Thursday, [Houston Airport System Director Mario] Diaz lamented what he described as persistently low customs staffing at Bush Intercontinental.

Last week, Diaz told the Houston Chronicle that if council approved an international Hobby, “the city could make a very, very good argument that those (customs) services should be enhanced.” Several times on Thursday, Diaz acknowledged the challenge in lobbying for federal funding.

“If we can make the correct understanding to the Appropriations Committee that (we need more) Customs and Border Protection … staffing, they’ll have to find something else that they may be able to cut, but that’s a budget problem,” Diaz said.

The story quotes an expert who notes that the level of Customs agent staffing at a given airport is determined by the demand for international passenger arrivals at that airport. Keep all that in mind for now.

This story questioned the effect on air fares of Southwest’s arrival on the international scene.

And in this corner...

According to data compiled by Hotwire.com, average airfares from Houston to Cancun and other Mexican destinations have increased steadily since March 2009 and were higher across the board last month than they were in 2007 before the onset of the recession and also in 2008 when record high-oil prices jacked up all types of airfares.

High-priced oil also factors in the escalating fares now, along with an improving economy.

Average airfare from Houston to Cancun last month was $630, compared to $495 a year ago.

[…]

Airfare analysts say the increased competition probably would bring fares down to some extent, but probably not as drastically as fliers are envisioning.

Rick Seaney, CEO of FareCompare.com, said Southwest probably would start out by offering sales reducing fares up to 40 percent and then “settle down” a few months later into a price range reducing fares 5 to 10 percent.

Still, he said, “when you add capacity to a route, prices are going to be lower.”

But with high jet fuel prices and tougher competition from merged mega-carriers like Delta and United, which are able to charge higher fares on certain routes where there is less competition, it’s not as easy for Southwest to offer the startlingly low fares that made it famous as the country’s pioneering domestic budget carrier.

“A lot of those things that allowed Southwest to keep the price points really low are not as easy today,” Seaney said, noting that it depends on how intent Southwest is “to make a stronghold.”

“My guess is since this is the first time Southwest would actually be flying international, it’d be top on their priority list,” he said.

If that’s not good enough for you, Southwest is now making the job creation pitch in their favor.

Opening Hobby Airport to commercial international flights will create 10,000 jobs, bring 1.6 million more air travelers through Houston annually and inject an additional $1.6 billion a year into the local economy, according to a Southwest Airlines executive who has seen city-commissioned studies on the matter.

“We’re asking for an opportunity to invest $100 million in a new building in your city to provide more passengers, 1.6 million a year, a huge economic gain for the city,” Ron Ricks, executive vice president and chief legal and regulatory officer for Southwest Airlines, told the Houston Chronicle editorial board Tuesday.

[…]

Southwest CEO Gary Kelly said repeatedly at the editorial board meeting that Southwest is not asking for any city investment in the terminal expansion and Customs facility addition to Hobby. The $100 million cost of the project is to be covered by debt backed by Southwest and paid off through ticket surcharges.

Clark said Customs waits at IAH are among the worst in the nation. “If Houston can secure additional agents, they should be deployed to address the chronic understaffing IAH experiences every day,” Clark said.

But Ricks asked, “Is Houston going to let 20 Customs agents stand in the way of a $1.6 billion-a-year economic impact? If we can’t solve finding 20 Customs agents in this economy, then Houston, we do have a problem.” Ricks said staffing is covered by a $17.50-per-international passenger fee.

Kelly said he believes Southwest’s entry into the Houston market will drive down prices and increase passengers at both airports.

“If you make the air fares affordable, the people will fly – a gigantic increase. We’re arguing to you the pie is going to increase,” Kelly said.

United says “Nuh uh!” in response to that:

United Airlines officials said Wednesday that allowing international commercial flights at Hobby Airport would force the carrier to cut 1,300 Houston jobs and dozens of flights from Bush Intercontinental Airport, and that city-paid consultants and Southwest Airlines are using unrealistic data to support the proposal.

In a letter to Mayor Annise Parker on Wednesday, United CEO Jeff Smisek said “the assumptions that underlie the analysis are so contrived it is clear they were designed to reach a predetermined conclusion.”

Smisek said United is commissioning its own study and urged Parker to “delay this decision, which you agree will impact Houston’s aviation industry and economic future for decades to come.”

Golly, couldn’t United mitigate those job losses by moving all the people they relocated to Chicago after the “merger” back to Houston? I’m just saying.

Nene Foxhall, United’s executive vice president of communications and government affairs, said if the Hobby proposal goes through, the airline will have to rethink proceeding with the next stage of an expansion project at Bush Intercontinental’s Terminal B – a potential $1 billion investment.

United claims that Southwest’s study was made on excessively optimistic assumptions. I have no trouble believing that, but I’m not particularly inclined to give United and its blackmail attempt a whole lot of credence.

Smisek says in his letter, which you can see here, that United “welcomes competition from AirTran, Southwest and all carriers for international service at IAH, where there are ample gates and facilities.” And with that, I turn the blog over to Tiffany once again for her long-awaited followup analysis:

First, thanks to all who responded favorably to my previous guest post. And yes, it’s been more than a weekend since I promised to write a follow-up. Unlike my spouse, I’m not conditioned to getting up at 5 am daily to create blog content, so it took me a while to work this in.

I’ve been reading with interest the “debate” around whether or not creating an international terminal at Hobby would be dilutive to the US Customs presence at Intercontinental. I’ve seen numerous comments from people saying things like, “the lines are too long at IAH as it is, this will only make it worse! They’ll take agents away!”

This got me thinking about the real numbers involved in the lines at International arrivals. Basically, it’s a function of how many people are getting off the plane at once. A busy airport like IAH has multiple flights coming in at the same time, especially when long haul flights from Europe and Asia arrive. An international terminal at Hobby would, at least in the beginning, have a much smaller number of flights and no 747s dumping 450 people at a time on Customs and Border Protection. Do the math:

The proposed Hobby scenario is 25 flights a day at 5 gates. The average capacity of a 737 in the Southwest fleet is 137 people. Southwest flies ONLY 737s. Even if they added the biggest, baddest 737 out there to give themselves greater range or capacity, they will top out at about 180 passengers. So 25 flights a day, spread over 10 hours – we’ll be generous and say 3 flights an hour, then round up capacity and say 500 people an hour through customs at Hobby, closer to 600 if they go with new 737-900ERs. This number is too large, in any real sense, but keep it in mind as we continue our mental math.

Compare that to IAH, where United and all of the other international carriers land something like at least twice that number of flights an hour (peak times when long haul flights come in from Europe or Asia) with an average capacity of a 747 or a 777 at 450 passengers PER PLANE. Look at the data, which I have taken straight from the Customs and Border Protection website, which can generate this handy table for any date range you select. This one is for 1 January 2011 to 1 January 2012.

So at peak times, Border Protection sees an average of 1100 or more people an hour through IAH. That makes our 500 passengers an hour through Hobby seem crazy-big. But stay with me. The data from CBP can’t be cut by day of the week, so I can’t tell if it’s appreciably worse on certain days. I’ve been on enough overnight flights to be leery of the low averages between 8 and 10 am, for instance. If you look at just 2 of the arrival schedules for cities in question with the proposed Southwest expansion, Mexico City and Cancun, as pulled from the handy schedule tool at http://fly2houston.com/:

You can see that United doesn’t bring in more than one 737 from either departure city before noon (at least on a Wednesday, the day I pulled the data). The majority of the flights come in during those peak average hours on the CBP chart. So it’s unclear to me that taking some passengers OUT of those IAH averages would be a bad thing. Given that the IAH Master Plan for 2011 (the last one available on their website) is estimating a 3.9% annual growth rate in international travel alone between now and 2015, and diversion of traffic from Cleveland when United (probably) draws down that hub in favor of Chicago, it seems to me there is still PLENTY of growth going on at IAH to sustain demand for international flights, even if you add a potential 500 passengers an hour that could go through Hobby instead.

The advantage I’d see for potential international travelers at Hobby, and frankly for CBP as well, is that at least in the short run, Southwest would be the only international carrier at Hobby, and for that length of time, the average number of passengers coming through per hour would be highly predictable and consistent. That would make staffing easy to model, and certainly have a smaller swing from valley to peak than they have at IAH. As a traveler, I’m having a hard time seeing a downside with this.

The funding mechanism for Customs agents has always seemed opaque to me. On the one hand, United is claiming that IAH is already understaffed and opening Hobby would take agents away form IAH. This presumes the number of customs agents in a city airport system is a zero sum game. Of course United also contended that they didn’t have an issue with Southwest flying internationally as long as they do it out of IAH, which as I’ve shown above is absolutely silly in terms of wait times for the passengers. If they could add more agents to IAH to handle that added traffic, why couldn’t they add agents at a new airport, making passengers at IAH no worse off, and possibly with an improved option for lower fares and reduced customs wait times at Hobby relative to IAH?

This all presumes that new aircraft types don’t drastically change the throughput of arrivals in the IAH customs hall independent of anything Southwest might or might not do, of course. Surely United wouldn’t be planning to add more folks to what is already an overcrowded CBP system, right? That’s what they’re trying to protect us all from! And yet, look at the data. According to Boeing’s order book, the old Continental ordered 25 787s and United ordered 25. It’s true that I can’t tell where these planes are INTENDED to go in the United Route system, or even if those 50 orders are still “firm” in Boeing’s books, but think about it for a few minutes. This aircraft is slightly larger than the 737 (210-290 passengers, depending on configuration), with a range suited for flights between, say Houston and Delhi, India. Imagine the customs issue at IAH when you add 75 extra people per flight.

But you might be more concerned about the Airbus order book. The A380 holds 525 passengers. Imagine IAH at peak hours with 525 people on each of the BA, Air France and Emirates flights and not the 450 currently on a 747. You won’t have to wait long to see what it will feel like. Lufthansa is bringing the A380 to IAH beginning this August, and that Frankfurt flight lands at about 2 pm, right before a number of those United flights from Mexico.

Color me skeptical about United’s position generally. They may lose some customers, and cut some flights, in response to Southwest opening international service. But even with the newest, longest range 737s, it’s still a 737. And that “fleet commonality” is a huge part of what makes Southwest able to do what they do to control costs. Trust me here, I wrote a doctoral thesis on it. For United, as for American and AeroMexico, the overall risk of passenger loss will go up over time as Southwest expands their schedule past the currently proposed 5 city pairs. But those airlines, with their diversified fleets and deeper, longer route structures (at least for the US-based carriers), will still have plenty of places to go that Southwest can’t get to in a 737, and passengers want to go those places. I find the Customs and Border Protection argument disingenuous, given the pressures already in the customs hall and the growth projections that are already part of the IAH Master Plan and the fleet growth plan of United, insofar as I can guess what it is from the Boeing order book.

It’s the customers who have the most to gain from a Hobby expansion gateway. And as a customer, I’ll bet on Southwest working in my interest before I’ll bet on the “new” United.

So there you have it. And what she didn’t tell you is that she did field work for her thesis with Southwest, Continental, American and Boeing. High time it came in handy. In any event, we should get those long-awaited reports Monday – the recommendation from HAS Director Mario Diaz about whether or not to expand Hobby, and the city’s economic impact studies – to be followed by discussion and eventually a Council vote on what to do. A statement from the Texas Organizing Project calling on the city to ensure all voices are heard in this process is here.

United versus Southwest

I feel like I’m missing something in this debate.

A proposal by Southwest Airlines to offer international flights from Hobby Airport has triggered an intense lobbying duel with United Airlines, which still wields considerable local clout as the successor to Houston-based Continental.

In this corner...

If it gets city approval, Southwest says it would spend an estimated $75 million to $100 million to build a new international terminal equipped with full-scale Customs facilities, as well as to improve the aging airport’s domestic terminals. Southwest flights would depart from the new terminal to destinations such as Cancun and the Caribbean.

But United has already broken ground on what may become another international terminal, a $700 million investment piled on top of an additional billion it has pumped into Bush Intercontinental Airport since the late 1990s.

And in this corner...

United says this town isn’t big enough for both projects.

While the city awaits two consultants’ reports, expected next week, on the pros and cons of Hobby going international, both airlines have dispatched emissaries to City Hall. The outcome of their lobbying battle will determine whether Houston becomes the sixth among the nation’s 10 largest cities to have two full-scale, international airports.

As far as I can tell, United’s argument boils down to the belief that allowing Southwest to go forward with their plans would eat into United’s bottom line because Southwest would be able to compete with United for some routes to the Carribbean. They claim that it would dilute international traffic through IAH for reasons that aren’t clear, and they claim that there wouldn’t be enough Customs officials to go around, which strikes me as something that the Congressional delegation ought to be able to address. Beyond that, it’s pretty much fear for United’s profits, and I don’t see how that’s the city’s concern. We’ll see what those consultants’ reports say, but unless they raise red flags that I can’t see from here, I say the city ought to approve this. So I ask again: Am I missing something? Help me out here.

Well, I may not know much about airlines, but I happen to be married to someone who does. Tiffany got her PhD in industrial strategy with her thesis in the airline industry, and though she hasn’t worked in that field for awhile, she had a few thoughts about this:

The proposal by Southwest Airlines to bring international traffic to Hobby has created a tempest in a teacup. Now that teacup is Houston City Council, and the tempest includes the potential ill-winds of United Airlines pulling traffic and investments from IAH, so it’s a big tempest and a big teacup. But if there’s one thing I know more than a little about, it’s airline routing, equipment selection and route economics. I’ll let others argue the ins and outs of hardball politics. And that bit about a lack of customs agents? Red Herring if ever there was one. Let’s talk about operational issues related to any additional competition Southwest might give United on the contested Mexican, Central/ South American and Caribbean routes.

First, look at the route map of the newly merged United/ Continental. Southwest currently flies an all domestic route system. Air Tran does operate some international routes, which gives them experience in operational issues that will be relevant in an expansion of service for the rest of Southwest. Eyeballing the route map for Air Tran, I don’t see a Caribbean route they serve that is not also already covered by United.

It’s also interesting to look at Latin American routes American Airlines flies through Dallas and Miami.

If you are going to buy that the competition provided by opening Latin America to Southwest at Hobby is sufficiently dangerous to United that they’d downsize their Houston presence, I think you need to look at the entirety of the routes available to those destinations. Clearly, there are other flights out of Atlanta or Chicago or Los Angeles, but Dallas and Miami are large hubs for accessing the same cities where United and Southwest would potentially go head to head. Interestingly, Southwest entering the Latin American market could potentially provide as much or more competition to American as it does United. Of course, American was among the carriers that lobbied (and worse) and lost in its quest to keep Southwest from growing, and they are reorganizing under the Bankruptcy Code right now, so perhaps they have other things to spend time on.

Passengers choose their travel arrangements based on a combination of price, available flight schedule and perceived amenities. Prior to September 11, 2001, research indicated that schedule was the primary influence on travel decisions for both business and leisure travelers. Get me where I want to go, when I want to get there, and you get my business. Price was generally a secondary consideration. In this new era of high jet fuel prices and fees for baggage, customers have become more price sensitive, and the importance of schedule frequency has diminished. Airline amenities, a proxy for quality, can include things like availability and cost of meal service, comfort of airline seats/ availability of differing classes of service and professionalism/ friendliness of the airline staff. For shorter haul flights, passengers are generally willing to trade fewer amenities for lower prices.

Will international passengers be willing to fly Southwest style? Given international restrictions on transporting food, those sack lunches from home might not work so well. And who knows what anyone thinks of a singing flight attendant. It’s also unclear whether the Southwest strategy of frequent flights (sometimes called “the flying bus”) will work in a Latin American context, since demand for those flights may be significantly lower than the domestic model their planners are used to, and it will require significant schedule coordination for transfer of passengers from the domestic flights into a new international terminal at Hobby. Will gate agents in Providence be checking passports on the first leg of a trip to Cancun? And the logistics of all those bags flying free and then going international? These things are manageable, but not trivial. And they take time. Time travelers may save flying a single stop into IAH or Dallas with schedules that are already suited to international travelers, depending on their departure city.

The other side of the coin is where are these planes going? In any market Southwest enters, they must have LANDING SLOTS at the corresponding airports. One of the reasons they have historically used “secondary” airports is not only the greater ease of fast gate turnarounds in less crowded airports, but also the sheer availability of gate slots. Secondary airports may also have lower gate fees, further enabling Southwest to create a price advantage in the local market.

Among the things not currently being discussed around the potential Southwest expansion to Latin America and the Caribbean is where their landing slots will be. What will their cost structure in those airports be? They are unlikely to be significantly different than those United or American face in the same places. So some significant cost advantages that benefit Southwest domestically may not be in play abroad.

Both American and United already compete with Southwest domestically. This has generally resulted in lower fares for passengers, and there has been some realignment of flight schedules to recognize which airlines may be dominant in particular markets. For the Latin American routes under discussion with a potential opening of Hobby Airport to international traffic, it’s clear that Southwest’s entry could lower fares and increase competition on those routes. But the potential cost advantages in Southwest’s business model come from elements that may not be in play as strongly on international routes as they are domestically. Schedule frequency and coordination may be more difficult for Southwest internationally, and the no-frills flying experience may not translate well for passengers hopping their way across North America on Southwest before heading abroad.

Southwest representatives are currently arguing that opening Hobby to international traffic will lower fares and increase traffic. I tend to believe this is true, both for leisure travel, where people tend to be more price-sensitive, and for business travel, where the ability to deal face to face with your customers is essential in building long term relationships. Of course more seats at lower fares benefits the carrier with the lowest cost structure and the most flexibility. That increased frequency plays directly to the operational strengths Southwest has honed over the past 30 odd years battling the hub and spoke carriers. Should United be worried? Yes. But so should American, and Delta, and AereoMexico. If the legacy Latin American route holders want to hold onto their customers, they should start differentiating themselves clearly on service while keeping the price differential minimized. American learned the hard way in 1978 what happens if you try to keep Southwest from growing. Once upon a time, Continental knew that lesson. It seems United may have to learn it again.

So there you have it. That’s only about half of what Tiffany wrote for me on this – she was all set to get into a discussion of aircraft types and route miles and whatnot, but we decided to leave it at this. She did enjoy the chance to geek out a little, that’s for sure. According to Houston Politics (more here), we’ll have a decision in the next eight weeks. Any guesses what will happen?

Council approves IAH/United deal

The deal is done.

The deal calls for United to put in $686 million and the Houston Airport System $288 million. Although the airport system is a city government function, it runs as a separate business and will not use tax money to finance the deal. The system plans to pay its share of costs with a $3-per-passenger fee it started collecting nearly two years ago.

The City Council approved the deal unanimously. The Service Employees International Union, which represents neither city workers nor United employees, criticized the council for approving the contract less than two weeks after the end of negotiations. In a statement released after the vote, SEIU said the agreement “does not guarantee good jobs with benefits.”

Mayor Annise Parker disagreed.

“Capital projects like that are huge engines for job creation,” she said. “In the long term, the work that’s going to be done out there will benefit the entire community in terms of providing good jobs at good wages.”

The full statement from SEIU is beneath the fold. You can see Mayor Parker’s full response to the question about SEIU’s objections in the weekly press conference video; the airport/SEIU question comes up just before the 15 minute mark. The Mayor stated that SEIU has gotten some facts wrong, but did not specify what exactly she was disputing.

It remains the case that it is not easy to find information about this deal. There is some stuff in Council’s agenda, on pages 91-94, but that’s not the sort of thing a person would find on a casual search of the city’s webpage. My expectation for what there should be is something along the line of a section on the front page of the fly2houston.com webpage saying “Learn more about Terminal B redevelopment” or what have you, with an overview of the deal and a FAQ and contact info for more details. I still don’t know why that hasn’t happened.

As it happens, I have received a copy of the relevant docs from SEIU, which you can see here and here, so one hopes that can answer all our questions. Council did support this unanimously, which is a pretty rare event these days, so they saw no obvious red flags. Whatever the case, the deal is done and I hope it is the good deal and job creator the city says it will be. Certainly spending millions on capital projects is a good way to boost the economy, so on that front I’m hopeful. We’ll see how it goes.

UPDATE: I have been informed by the Mayor’s office that a front page link on fly2houston.com will be added on Monday about the deal. I would have preferred that to have happened before the Council vote, but I appreciate that it will be up now.

(more…)

Terminal B expansion on the menu

In late May, the city announced that Terminal B expansion at IAH would go forward.

Houston Mayor Annise Parker, the Houston Airport System (HAS), and United Continental Holdings, Inc. Airlines, reaffirm a commitment to overhaul Terminal B at George Bush Intercontinental Airport (IAH) with a revised $1 billion renovation project.

This public-private initiative will help boost the Houston economy by creating local construction jobs during the next seven to 10 years. It will also offer a major upgrade for airport passengers as one of the original terminals at IAH is transformed into a spacious, efficient, eco-friendly facility.

“As the largest hub for the largest airline in the world, Bush Intercontinental is positioned to serve the world as United builds its global network,” said Houston Mayor Annise Parker. “Our airport serves as one of the most important economic engines in Houston and we are committed to expanding the portal to our global business connections.”

During a news conference today, Mayor Parker, airport and airline executives reconfirmed construction plans for the billion dollar redevelopment at IAH United’s largest Hub which serves some 40 million passengers a year.

The agreement to move forward closely mirrors the agreement approved by Houston City Council in 2008. Under the revised plan the airlines will develop the project in phases, as economic conditions improve.

Here’s a presentation about the Terminal B redevelopment lease, which notes that it is on the City Council agenda for Wednesday (see item 40) after a public hearing tomorrow. (That will be a special meeting of the Transportation, Infrastructure and Aviation Committee in Council Chambers at 10 AM, in case you’re curious.) There are some questions about what exactly is in the lease agreement, as things are a little different now than they were in 2008. In particular, the main player is now United Airlines, not Continental. The folks at SEIU sent me this fact sheet about the deal that asks some questions about what is in it. I have not followed this story, and I don’t know anything about it beyond the docs that I’ve linked to in this post. It is a pretty big deal, though, so I wanted to throw this out there. If you know anything more about this, please leave a comment. Thanks.