Session 2

Needs vs. Wants: What Do We Really Need to Build and How Should We Pay for It?

Speakers

Cindy Nichol, Director of Airports, Sacramento County Department of Airports, Moderator

Lance Lyttle, Managing Director, Aviation Division, Port of Seattle

Steve Sisneros, Vice President Airport Affairs, Southwest Airlines

Lutz Weisser, Managing Director, Munich Airport International

Overview

This moderated debate session aimed to explore how we as an industry decide what we need and how it should be funded. Some topics included how much cash an airport should have on hand, how much debt is too much, how risk is apportioned, and how economic regulation models differ between regions (i.e., European Union/United Kingdom vs. the United States).

Detailed Summary of the Panel Discussion

Cindy Nichol welcomed the panel. She stated that the session was designed to focus on what infrastructure airports need and how to pay for it.

Lutz Weisser described Munich Airport International’s approach to the airport business, noting that European airports do not receive federal grants as U.S. airports do. He said this requires those airports to be run as businesses. This includes Munich Airport International’s operations at Newark Liberty International Airport with the Port Authority of New York and New Jersey (PANYNJ) and other American examples, such as San Juan and New Haven. Weisser stated that the airport experience should be a pleasurable one. He continued that airports also must be leaders in sustainability, with no greenwashing. Running an airport like a business also leads to innovative ideas such as pricing the curbs and roadways, peak pricing for car parking, and use of facilities for events. Weisser noted that Munich Airport International has beach volleyball and a Christmas market, and that each weekend the airport has 35,000 people come just to shop at its facilities.

Steve Sisneros stated that he enjoyed the last panel, finding it fascinating and timely. While he had been with Southwest Airlines for 28 years, he said, there had been nothing like the recent pandemic. He noted that, due to the pandemic, Southwest Airlines had tens of thousands of bookings disappear overnight with no end in sight. He explained that Southwest Airlines did not furlough anyone, instead offering a generous retirement package that resulted in 17,000 employees leaving. He also noted that Southwest Airlines did not have enough staff when traffic returned and said that the industry reaction to the pandemic was the one big positive that came from it. All of the industry worked together, and the

federal government provided billions of dollars in relief to keep airports afloat. Many airports did the right thing and worked with the airlines to defer payments and help the airlines through the down period.

Sisneros noted that it now appears to be the Roaring Twenties for airport infrastructure development. He explained that all U.S. airports are expanding capacity and replacing aging infrastructure. As they do so, stakeholder involvement is critical. He noted that has worked well with Los Angeles, where Southwest Airlines has been able to move forward on its Concourse Zero, a $2 billion project. He also said that while San Diego is a hugely expensive project, it is necessary. With all of the projects coming online, Sisneros stated, the landing fees alone will be more than $2 billion, requiring the airlines to work with the airports to mitigate their impact. He said that today, as the largest domestic passenger carrier, soon to have more than 1,000 aircraft in its fleet, Southwest Airlines is running out of room to put these aircraft. These physical constraints are real, he said, and Southwest Airlines must work with airports to deliver projects that will take 10 to 15 years.

Lance Lyttle stated that he believes the industry needs to start with the mission, vision, and strategy of the organization. The mission of the Port of Seattle is to create 100,000 jobs with living wages in its community over the next 20 years. He continued that this is the Port’s moral purpose and drives everything it does. A few years ago, the Port of Seattle conducted a visioning session to identify what it needed to achieve the mission. Customer service, employee engagement, and financial and sustainability goals (defined as those that are economic, environmental, and social) were included. Lyttle stated that the Port of Seattle airlines and concessionaires understand that their facilities and work must fit within the overall vision. He explained that how they pay for it will depend on various factors but will include debt funding, grants, PFCs, PPPs, and tenant reimbursement projects. Lyttle provided an example of how the Port of Seattle is doing a tenant reimbursement project with Alaska Airlines for a terminal renovation. He stated that the Port is managing the project and has control over the pain its customers feel. He explained that the Port of Seattle pays for the project, and the tenants deliver it. He added that the tenants abide by the requirements for participation of women’s business enterprise/disadvantaged business enterprise (WBE/DBE).

Weisser offered that the number one priority the industry needs to focus on is the workforce. He explained that too many people have left the industry, and it has lost some of its appeal for younger people. Weisser also noted that he struggles to understand why airlines want to have a terminal on their balance sheet. He suggested that the airports should manage airport terminals, and the airlines should focus on flying.

Sisneros argued that there should be a sharing of risk of airport management and development. He said the airlines bring the passengers to the airport; when the passengers disappear, the airlines are still on the hook to pay the landing fees. Every airport is different in terms of its dominant carrier, and, therefore, whether it makes sense for an airline to take on more risk for managing facilities or projects should be individually assessed.

Lyttle stated that it does depend. He said when he was with the Houston Airport System, he worked closely with the dominant carriers there. He explained that the Port of Seattle

has a revenue-sharing agreement with Alaska Airlines. The Port had a tiered profit-sharing structure during the pandemic recovery in which the short-term profits were reduced for a longer-term benefit. In conclusion, he stated, it really depends on airport and economic circumstances and how the use and lease agreements are negotiated between the airport and the airlines.

Weisser stated that, apart from grants, European airports are not so different. Weisser noted that European airports depend on airlines, and in Munich, the airport has a very good relationship with Lufthansa. Weisser said that Lufthansa was not pleased when infrastructure was developed at the airport for the Gulf carriers; it was a political problem that eventually died down. At Newark, the airport has good relationships with the carriers, including United and Air Canada. Weisser noted that the airport found that these carriers will do better when they have happy customers. He continued that the airlines were actually the ones that pushed the airport to put in more concessions to elevate their passengers’ experiences. In Europe, the airports have been in survival mode; they are now bouncing back from the pandemic, but preparation for the next challenge is needed. Weisser stated that Europe is dealing with the war in Ukraine and the severe impact on energy; Europe imported 75 percent of its natural gas from Russia but now is importing none because of the war, which has impacts. France has prohibited most short-haul flights, which it can do because it has a great rail service. Weisser noted that there is talk of doing the same in Germany, and he made the point that airports need a more resilient model going forward.

Nichol asked the panelists about their thoughts on environmental stewardship and the constraints that airlines and airports commonly face. She stated that there seems to be a lot of emphasis on alternatively fueled vehicles and renewable energy.

Lyttle stated that he started working at the Port of Seattle 7 years ago and that he received a request from three state senators who wanted to stop the airport’s growth or shut it down. However, he had been hired to grow the airport. Lyttle stated that the key to dealing with difficult issues is to start with empathy and attempt to understand reasoning and motives. Often the objectives are the same, but people choose different paths. For example, the Port of Seattle’s plan is to get to net-zero by 2050, but the activists would like to do it much more quickly. Lyttle stated that he must frequently meet with activists to reason with them about the economic value of the airport and the livelihood of people. He continued that it is important to recognize how much everyone relies on air travel—many daily necessities, such as cell phones and clothes, are shipped by air.

Sisneros said that sustainability through airport development and construction is the right thing and reduces future energy costs. He said Southwest Airlines embraces this perspective in its infrastructure development. He noted that it is harder on the aircraft side, where Southwest is restricted to kerosene jet fuel, which has a great deal of market volatility. Unfortunately, sustainable aviation fuel (SAF) is not yet to scale. Sisneros noted that Southwest Airlines is investing in SAF, and other carriers are too. He said Southwest Airlines is hoping that its engine manufacturers can accommodate a blend of fuels. Sisneros said that SAF is coming, but the question is when it will be to scale. He added that Southwest Airlines is committed to carbon neutrality by 2050.

Lyttle noted that the Port of Seattle has conducted extensive feasibility and feedstock studies but that the studies have not resulted in an increase in SAF usage. He said the Port is incentivizing the airlines to use SAF by reducing fees.

Sisneros also connected the power issue to sustainability by stating that Southwest Airlines has electric ground support equipment and noting that many more consumers are driving electric vehicles (EVs). He also observed that the power grid is a limiting factor.

Weisser said that his customers expect access to power for their devices and cars. He said that 50 percent of the parking spaces at Munich Airport International are equipped with charging stations and that the airport is going to be the largest EV farm in Bavaria. Weisser noted that there is also a need to recognize that the younger generation often does not want to come to the airport in a car, preferring to take a train.

Lyttle indicated that while the Port of Seattle wants to discourage single-occupant trips to the airport, that means fewer cars in parking and less revenue. He said that revenue is needed for capital development.

Nichol explained that Sacramento International Airport (SMF) does not have enough parking and frequently runs out of space. She said voters rejected bringing rail to the airport, which resulted in the airport only having a small number of electric buses. Sacramento County invested heavily in electric buses, but only a small percentage of those are in working order at any one time. She said SMF does hope to bring an express bus to the airport for airport passengers, but that a quick solution is needed. Another challenge for Sacramento is the presence of natural gas under the airport. However, the company extracting the gas was shut down because of concerns about greenhouse gas (GHG) emissions. She said since the airport gets a lot of sun, it is employing solar generation, which had its own challenges, including storage.

An audience member asked whether the panelists were using their existing facilities more efficiently by employing common use principles.

Weisser responded that it is important to be as efficient as possible. With Terminal A in Newark, Munich Airport International started out as completely common use; now there are branded stations, but all are interoperable. He said common use gates can be made more attractive to carriers by allowing them to digitally brand them.

In his concluding remarks, Lyttle noted that there are huge opportunities for airports to provide economic wealth and health for their communities.

Sisneros revealed that Southwest Airlines is discussing projects in the billions of dollars with airports today that have not been announced yet. He said Southwest is building what is needed, and partnerships are the most important way we as airport practitioners can get there.

Weisser concluded that the most important need is to invest in quality.