Southwest Airlines is pushing the City of Houston to add international service at Hobby Airport, their base of operations in the city. Unsurprisingly, United Airlines is objecting to the idea given their position across town with the bulk of the traffic out of Intercontinental airport. And in the middle sit the City and the airport authority, trying to figure out what the right thing to do is.
Since the acquisition of AirTran the formerly domestic-only Southwest is suddenly interested in keeping some of the international routes that the buy-out included and even growing their international footprint. No real surprise there, as the routes apparently make money. So they want to grow their international service options, opening up Hobby and potentially other airports as bases for such flights. Hobby doesn’t currently have the facilities to handle immigration and customs for commercial flights, so the city has to decide if they’re going to spend the money to build that out or not. Complicating factors include the limited runway length at Hobby and the limited growth opportunities for operations there given the current gate/airline situation.
The Houston Airport System issued its opinion on Monday, suggesting that the addition of gates and a FIS facility at Hobby was a good idea. They intend to add nearly 200K square feet of finished space and more than 17K square yards of apron space (no idea why they use different units of measure there) to accommodate the FIS facilities and also the aircraft which can access them. He project is estimated to cost $91MM and apparently Southwest is willing to pay a decent chunk of that through increasing the PFC at the airport by $1.50 per passenger. Only 60MM passengers to pay it back at that rate.
But there are some quirks to the plans. For one thing, the gates will only be sized to handle 737s or A320s. The runways at Hobby don’t support aircraft that are too much larger than that, but it still seems somewhat short-sighted to not account for at least 757-200s in the gate space. They aren’t even that much larger than the 737-900s that will be accounted for. Also, the gates are an interesting configuration: three of them will be arrivals only. I honestly have no idea what an arrivals-only gate is these days, but apparently they’re going to build some new ones for some reason. It was also rather disappointing to open up the HAS papers on their opinion to find completely illegible drawings of what is actually being proposed:
More interesting, however, were the financial impact numbers that the recommendation was accompanied by. Among them, there is the suggestion that 1.5MM new passengers will be handled through the airport annually because of the new facility. That’s more than 4000 daily through a facility which will initially only handle 400 passengers an hour, In other words, those passengers will be completely miserable as they pass through or the number of passengers predicted is completely bogus.
Also, the economic study suggests that the flights will contribute 10,000 jobs and $1.6Bn in value to the community. Of course, there is no explanation offered for how each passenger taking such a flight will generate $1000+ in value to the local economy of Houston, and considering many will only be in transit the numbers are even harder to believe.
And then there is the "Southwest effect" suggesting that any market the carrier enters suddenly sees lower fares. It conveniently ignores the impacts of Southwest driving competitors out of markets and then jacking fares up. In this case that seems somewhat unlikely given the competition across town, but it also remains to be seen whether the competitive effect will even exist in this case. After all, United has a history of ignoring cross-town airports as competitive markets when it comes to pricing (e.g. EWR v. LGA/JFK).
Finally, there are the niggling issues facing Southwest in their merger progress. Little things, like their computer systems still cannot handle interlining passengers between the Southwest and AirTran brands or that they actually cannot support international flights in the current Southwest systems. The former of these actually resulted in a number of flights to and from Atlanta reverting to the AirTran codes recently so as to be able to accommodate through passengers. And the company has indicated that it will be more than a year before they can address the systems issues.
It is quite likely that the new facility will happen at Hobby. Everyone seems keen to add a bit of competition in the Houston market, even if the new competition on offer is somewhat biased in its focus. Given the population of Houston and the distribution of passengers around the metro area it will even probably work out OK as far as numbers go. That said, the revenue and economic impact numbers seem highly skeptical, so who knows. And with the passengers – even the ones not using the new facility – footing the bill, it isn’t necessarily clear that this is a good thing for the market.