Southwest seeks to trim gates, not flights, at BWI

November 22, 2008|By Gadi Dechter | Gadi Dechter,

Amid a flagging economy, Southwest Airlines wants to give up nearly a quarter of its gates at Maryland's flagship airport, company officials said yesterday.

The low-cost carrier, which operates more than half the flights at Baltimore-Washington International Thurgood Marshall Airport, is seeking to shrink its footprint without reducing the number of flights offered. The move comes just months after state officials granted millions in concessions to persuade Southwest to maintain its investment here.

BWI officials estimate that Southwest's pullback could cost the state-owned airport between $3 million and $3.5 million a year at a time of declining passenger traffic and falling revenues.

"This is another illustration that these are very tough economic times and ... we can't afford to leave money on the table," said Joseph Shapiro, a spokesman for state Comptroller Peter Franchot, who objected in May to the proposal to forgive $32.2 million in undercharges to Southwest and other carriers.

That month, state officials reduced terminal rents and landing fees charged to Southwest - and forgave the millions in mistaken undercharges to it and other airlines - arguing that efforts to recoup the money could prompt the carriers to retreat from BWI.

But a nose-diving economy appears to have precipitated the outcome they were trying to prevent.

Yesterday, airline and airport officials insisted that the May deal and current negotiations with Southwest are unrelated. "The economic world looks very different today than it did at that point," said Timothy L. Campbell, executive director of the Maryland Aviation Administration. "I thought it was the best deal we could reach at the time, and I still do."

Southwest's plan to reduce its lease at BWI from 26 gates to 20 gates represents a scaling back of long-term expansion prospects in Maryland. In 2005, the airport opened a $264 million terminal dedicated solely to Southwest, which planned to use the extra capacity to expand its offerings.

"They were anticipating growing the operations at BWI where they would at some point need those 26 gates," Campbell said. "I think economic forces have developed in a way where they don't see that expansion developing in quite the same time frame."

Southwest officials said they are not currently planning any reductions in their roughly 160 daily departures from BWI, where the Dallas-based airline accounts for more than half of all flights. "We will continue our commitment to Baltimore," said spokeswoman Whitney Eichinger, noting that the airline has announced extra flights to BWI to coincide with January's presidential inauguration, as has rival low-cost carrier AirTran.

Eichinger said that Southwest is reviewing its gate leases at airports across the country as a way to save money. "In this day and age, you aren't really able to continue to hold space you're not really using. ... That's one of our biggest costs across the country."

Other BWI airlines are considering similar moves because of the economy, said Campbell, though he declined to provide specifics on other negotiations.

Airlines are often loath to give up gates, even if they are not fully using them, said Robert Mann, president of R.W. Mann & Co. Inc., a Port Washington, N.Y.-based airline analysis and consulting firm. That's because releasing gates opens up space for competition from discount carriers.

But as a leading discounter with an "enviable cost position," Southwest is probably less worried about such concerns, Mann said.

Even so, last month Southwest reported its first quarterly loss in 17 years, largely because plummeting fuel prices required the airline to write down fuel-hedging contracts that had in recent years insulated the company from high energy costs.

Campbell said the airport is looking at leasing the available gates in the Southwest terminal to another airline, though Mann said the discounter's dominance at BWI might make the airport less desirable for other carriers. "I think Southwest's very strong position at BWI causes a lot of other carriers to look right past it," Mann said.

Mann said Southwest's plan to operate more flights per gate at BWI could increase the prospect of delays for air travelers, especially during weather-related disturbances, but Campbell dismissed that concern as unlikely. "From the public's point of view, there won't be any difference," he said. "[Southwest] will have enough gates to be able to handle their flights."

The soft economy has airport officials forecasting lower passenger volumes for this year and next. BWI is capable of handling 35 million passengers a year and in 2007 accommodated about two-thirds of that capacity. "We're seeing a decline in passenger volumes this year, and ... we anticipate a good portion of '09 will be negative as well," Campbell said.

Fewer passengers means less income from concessions, parking and other fees. But despite declining traveler traffic and the anticipated loss of gate-rental revenues, Campbell said the airport would strive to break even by reducing costs accordingly, rather than relying on the state's already-strained Transportation Trust Fund. He said Southwest's decision will not hamper the aviation administration's ability to pay off the revenue bonds used to finance construction of the new terminal.

Despite a sluggish economy, Southwest recently announced plans to launch service at airports in New York and Minnesota. "Maybe they've hit the point where they're getting as much traffic as they can at BWI," said David S. Stempler, president of the Air Travelers Association, an advocacy group. He added: "I think they'll still represent a giant operation at BWI. I don't think there's any chance of that ending."

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