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Southwest to Pay for $100 Million Air Terminal in Houston

Southwest Airlines Co. (LUV) agreed to fully fund a $100 million expansion of Houston’s William P. Hobby Airport as it seeks the city’s approval to start international flights there over the opposition of rival United Continental Holdings Inc. (UAL)

The agreement between the Dallas-based airline and Houston’s Airport System, announced today, has the backing of Mayor Annise Parker. It must be approved by the Houston City Council, which will consider the matter at a May 30 meeting.

Southwest, the biggest discount carrier, wants to add flights to Mexico, the Caribbean and South America from Hobby, Houston’s secondary airport. United Continental, which has its main overseas gateway and biggest hub at the city’s George Bush Intercontinental Airport, says Southwest’s plan will drain passengers and force it to cut flights and jobs.

“This removes all risk for the city of Houston for the project and puts all the risk on Southwest,” Bob Montgomery, Southwest’s vice president for properties, said in an interview. Houston “has no risk, puts up no cash, doesn’t have to approve passenger facility charges, and they get a facility with a clear title. They get an asset worth $100 million.”

Southwest rose 1.1 percent to $8.36 at the close in New York. The shares have fallen 2.3 percent this year. United Continental increased 2.2 percent to $22.31, and has gained 18 percent this year.

Five New Gates

Christen David, a spokeswoman for Chicago-based United Continental, said the carrier hasn’t seen the funding proposal. A single international airport is best for Houston’s future, she said.

“There is no funding plan that makes this proposal good for Houston,” David said in an e-mail. “Splitting the city’s international air service will harm the city’s competitive advantage and cost jobs.”

Houston’s Parker said the agreement with Southwest “is not about one airline over another.”

“From the beginning, I have said that my decision would be based not on what is best for one or another airline, but rather on what is best for the city, the local business community and the traveling public,” Parker said today in a statement. “There is no question we have done that.”

The international terminal would include five gates to support as many as 25 Southwest round trips a day and facilities for U.S. Customs.

Security Checkpoints

Southwest also would pay to improve security checkpoints to handle more passengers, expand a fuel system and relocate its ticket counters and offices and the airport management offices, Montgomery said. The terminal also could be used by other airlines, he said.

The Southwest plan would cause the loss of 5,000 jobs and erode $414 million of regional economic activity, according to a study United Continental released earlier this month. It may force the airline to cut 6 percent of capacity at Intercontinental.

A Houston Airport System study found that expansion of Hobby under Southwest’s plan would create an annual economic benefit to the region of $1.6 billion, create 10,000 jobs and attract 1.5 million passengers.

Southwest has financed similar projects in other cities, including a $500 million modernization of Dallas’s Love Field that will open later this year, Montgomery said.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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