In pitching his case for moving flights to Boeing Field, Southwest Airlines chief Gary Kelly aimed two powerful punches last week at the...
In pitching his case for moving flights to Boeing Field, Southwest Airlines chief Gary Kelly aimed two powerful punches last week at the Port of Seattle over its management of the airport Southwest wants to leave, Seattle-Tacoma International.
First, Kelly said, the cost of the third runway and terminal makeover at Sea-Tac had ballooned.
Second, he said, recent Port efforts to cut costs had thrown up so many figures that Southwest doesn’t know what it will ultimately pay.
“They aren’t spending what they promised us they would spend,” Kelly said.
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Today, Sea-Tac Director Mark Reis plans to counter those allegations at a Port commission meeting, the first since Southwest unveiled its proposal last week.
“We’ll have figures to show that we brought in every part of the airport project on budget,” Reis said. “Not many governments can match that record.”
The cost history of Sea-Tac’s expansion is at the center of the tug of war over Southwest’s proposal to build a $130 million terminal at Boeing Field and move its operations there in 2009, just as the expenses of Sea-Tac’s $1.1 billion third runway come due.
Critics of the airline’s plan, including the Port, say Southwest is breaking faith by walking away from spending it already approved. Like a guest leaving before the restaurant check arrives, Southwest is sticking rival airlines with its share of the enormous Sea-Tac tab.
Southwest says it and other airlines were shown lower figures by the Port in past years. Those figures already were too high, Kelly says. And they have since risen sharply.
The cost of the third runway, for example, has climbed from an estimated $540 million in the mid-1990s to $787 million in 1999 to more than $1 billion today.
“What did we make a commitment to? Hundreds of millions,” Kelly said in an interview. “And it’s now $1.1 billion. It’s not even in the same ballpark.”
The Port says construction delays, litigation and environmental efforts raised the runway cost.
But those factors don’t explain increases in the rest of the $4.2 billion spending plan, spread over a decade ending in December 2008. The Port and Southwest disagree on whether those increases represent cost overruns or improvements added as the projects went along.
Leaving aside the $1.1 billion runway, the Port is spending $3.1 billion for other projects at Sea-Tac, such as expanding the South Terminal (known as Concourse A), rebuilding the subway system, sprucing up terminals and infrastructure, improving roads and adding security measures.
Costs take off
Rising costs for those projects show up clearly in status reports provided by the Port.
A presentation to the commission on June 24, 2003, estimated the total cost of the major projects at $2.47 billion, including the runway. Eighteen months later, a similar presentation put costs for those projects at $3.08 billion, an increase of nearly 25 percent. That presentation also included two new projects costing a further $276 million — another 11 percent increase from the 2003 figure.
“It’s unfair to say that we signed up for this,” Southwest’s Kelly said. “We didn’t sign up for what ultimately happened.”
The Port doesn’t dispute that costs have risen. But it says airlines understood the lower figures were only part of what would be necessary for Sea-Tac’s makeover. And it says airlines reviewed the changes every six months, and voted for them along the way.
“In 1999, we and the airlines decided on a capital plan as we envisioned it at that time, and it was $2.6 billion dollars,” said David Soike, deputy airport director. “There were a lot projects that were not far enough along to put in the plan.”
Also, many projects envisioned in the late 1990s were put on hold after the Sept. 11 attacks, and are now being restored to the spending plan as needed, he said.
Accordingly, “additional projects have been defined and identified as necessary by the airlines,” Soike said. “That’s why it went from $2.6 billion to $4.2 billion.”
Rising costs are a concern for airlines because they affect how profitably the carriers can operate. In 2003, the costs were projected to average $25 per passenger at Sea-Tac, among the highest in the nation.
That figure set off alarms at Southwest, prompting it to look for alternatives that ultimately led it to Boeing Field, formally known as King County International Airport.
At the same time, Southwest said, the Port was changing terms under which it leases terminal space to the airlines.
The changes “drove up the cost in addition to the costs that were being pushed down on us from the projects,” said Bob Montgomery, vice president of properties at Southwest. “That’s when we said, ‘We should probably look at some alternative because this is going to destroy our business.’ “
Southwest delayed signing its lease that year, and sent a letter of protest to the Port. “The proposed lease makes low fares impossible,” Montgomery wrote in the July 2003 letter.
“We first started complaining when the cost hit $25,” Kelly said in an interview. “Our complaints fell largely on deaf ears. But since the news has come out about King County airport, the cost has miraculously come down.”
Indeed, the Port said this month that the projected cost of Sea-Tac’s makeover pencils out to about $14.15 per passenger, starting in 2009.
But that’s still too pricey for Southwest, Montgomery and Kelly said. Southwest’s national average cost is below $5 per passenger.
“There’s no way the Port can get [its cost] to $5 because of the changes they’ve made and the environment they put us in,” Montgomery said.
“Sea-Tac before these improvements was kind of a dirty, small, dark airport,” he said. “It had clearly been ignored for a lot of years and was in dire need of renovation.”
Now, he says, “It’s gorgeous. But Tampa has a wall of glass, mahogany and art. They have delivered that to us at a reasonable cost of around $4 per passenger.”
Playing out the hand
Montgomery also said Southwest won’t abandon Boeing Field in the middle of negotiations.
“We’ve now found a partner who’s excited and wants to work with us. For us to tell them that it’s subject to negotiations with the Port would be the height of bad faith. We just don’t operate that way. We’re playing this hand out.”
The Port currently is negotiating leases with airlines to replace two-year leases that expire the end of the year. The new leases would cover only the next few years.
“After that, all bets are off,” Montgomery said.
“If we cease to pursue it, this thing [Boeing Field] goes away forever,” he said. “I don’t think there’s any coming back if we walk away.”
Alwyn Scott: 206-464-3329 or firstname.lastname@example.org