Alaska Doesn’t Want To Pay For Delta’s Growth In Seattle

One of the best sources of drama in the airline industry in 2014 was “the battle in Seattle” between Alaska and Delta.

I won’t provide a rundown of the situation again, other than linking to the previous post and sharing the below GIF, which I think sums it up perfectly.

Real-Housewives-Reunion

We haven’t seen a lot of public drama between the two airlines lately, and that’s probably simply a function of the fact that they’ve both been profitable. With oil prices where they are, they’re both probably fairly complacent. So as much as I’ve been looking for the drama, clearly Bravo’s “Real Airlines Of Seattle” TV show has been on break.

Until now.

What are they bickering over? Basically Alaska doesn’t want to pay for a new international arrival facility, which will mostly benefit Delta’s passengers. And they plan on attending the Port of Seattle commission meeting today to voice their displeasure.

Alaska-737

Via the Puget Sound Business Journal:

“Virtually none of our customers are going to use that facility, but they’re going to pay for most of it,” said Joe Sprague, Alaska Air Group Inc. senior vice president of external relations. “The people using the international facility, they need to pay for the facility, and if the price tag is too high, they need to bring the price tag down.”

The price tag Sprague is referring to the cost of the planned upgrades to Sea-Tac’s international arrivals facility, which he said has almost doubled to $608 million.

“The intention is for vast majority of funding to come on the back of domestic customers who would never use the facility,” he said.

The payment system uses what are called “passenger facilities charges,” or PFCs, essentially a per-head tax on passengers moving through the airport. These are a common way of paying for capital investments.

The way Alaska sees it, not only is the new international arrivals facility too expensive, but he’s also afraid this will take away funding from projects which would benefit Alaska.

What’s Delta’s argument for the facility?

But Mike Medeiros, vice president of Delta Air Lines’ Seattle operations, said that it’s about time some of the PFC money goes to international carriers’ needs.

“The international arrival facility was built in 1973, and since that time, not a dollar has gone into that arrival facility,” he said. “We think it’s high time that the international side of the business gets a little attention as well.”

Medeiros warned against raising costs for international carriers so much that Sea-Tac is no longer competitive with other West Coast gateway airports, which also want the business of big international carriers like Delta.

“If you burden international carriers with the entire cost, and make it such that user fees aren’t competitive with with other airports up and down the West Coast,” he said, “it’s highly likely that with a higher cost structure, airlines will choose to depart and arrive international flights somewhere else.”

This is an interesting one, and I have to say I side with Delta on this one…

Here’s how the FAA describes the Passenger Facility Surcharge (PFC):

The Passenger Facility Charge (PFC) Program allows the collection of PFC fees up to $4.50 for every boarded passenger at commercial airports controlled by public agencies. Airports use these fees to fund FAA-approved projects that enhance safety, security, or capacity; reduce noise; or increase air carrier competition.

It is intended for capital improvements to the airport, so it’s not airline specific. And I don’t think there’s any arguing that more international traffic could have a huge impact on the Seattle economy. So it seems like the right move to make a capital investment rather than taxing international airlines more.

Now I’m not sure about the cost involved here. $600+ million sounds like a lot, though I don’t really have a sense of scale on these kinds of projects.

That being said, as such, I think investing money to improve services for international airlines and passengers is a great idea. Though I also see why it sucks for Alaska… but such is life.

What do you think? Is it fair to spend most of the surcharges that Alaska is bringing in on something that will ultimately benefit their competitor?

Comments

  1. Alaska has partnership agreements with a bunch of international carriers outside of Delta. Certainly they get feed for their system from them. A bit disingenuous to say none of their customers will use the facility.

  2. I’m a bit confused here. I’m paying over 100% tax on tickets now (airport fee, TSA fee, Fed Tax, 9/11 fee, etc ) on my domestic flights. Not to mention Intentional flights . This became pretty obvious now that I only get Skymiles for the actual $ I give to Delta, not for the Total $ pay for ticket.

    Who owns the airport? Who is responsible airport facilities? The Airlines or Local/State/Fed gov?
    Alaska would not use the facility, why should they pay for it. Let Delta lease it once built. Have an agreement binding agreement that loc gov get the facility built and Delta will lease it for the next x number of years. Of course this will create a huge monopoly for Delta using the facility, but isn’t it the same at Atlanta, Detroit, etc

    Endre

  3. I support Alaska. If Delta wants to have a better international arrival facility, they can pay for themselves.

  4. Alaska is the largest domestic carrier in Seattle and the largest carrier at SeaTac airport overall. Increasing capacity of the international arrivals terminal stands to benefit Alaska and their passengers transferring to international flights. Using the percentage of international transferring passengers Alaska carries today doesn’t seem like the right proxy, but rather growth projections of passengers not originating from Seattle should be used. Moreover, Delta is not the only international carrier in Seattle. We are lucky enough also enjoy ANA, IcelandAir, Lufthansa, Korean Air, Asiana, Eva Air, Hainan and Alaska Airlines partners British Airways and Emrates, to name a few (not to mention Alaska itself). As the airports largest tenant and arguable beneficiary of SEA-TAC’s international growth, there must be a fai rway for Alaska to pay its fair share along with the other airlines. I am not sure why Delta is singled out here.

  5. I don’t think Alaska should pay and I will go further by saying it will harm Seattle in the long run. Here’s why:

    In the short term it seems attractive. But of Delta gets stronger you will have two airlines using SEA-TAC as a major hub. Seattle is not big enough nor centrally located (like ORD) in the lower 48 to support two hubs. By helping Delta get a bigger share of the Seattle market, this will eventually push Alaska out of the way to bankruptcy and get gobbled up by Delta. A loss of an airline would be a big blow to the Seattle economy and a blow to healthy competion. Not to mention empty gates, kiosks, and restaurants. If Delta destroys Alaska, it should not be aided by SEA-TAC, as they will hurt Seattle jobs in the process.

  6. Your quote “Airports use these fees to fund FAA-approved projects “. Since when are international arrival facilities FAA facilities (or FAA approved)? I can tell you authoritatively that they are not.

  7. @Eddie – You are dead on.
    @Ben – if the backstabbing behemoth wants a shiny new facility, let them pay for it. If Alaska does, they’ll be paying for their own funeral. That seems a lot to ask. Ask a Memphis resident how well Delta’s promises are kept.

  8. I think they should return to charging the airlines for the use of the facilities, and eliminating PFCs.

    This crazy system is like the landlord of a Tesco/Safeway/Walmart store charging a fee to every person entering the supermarket to shop. Totally insane.

  9. Maybe I’m missing something, but aren’t the passengers flying into and out of SEA paying this fee which will help pay for the international terminal? AS isn’t paying for it; the passengers who use SEA are paying for it. The fact that AS and DL passengers account for most of the passengers has nothing to do with it. Seattle residents and visitors pay the fee, and that helps Seattle overall–by increasing the direct international routes available from SEA. That is a boon to SEA and to Seattle, and everyone knows it.

    Anyone in business knows you have to spend some money to make more money. This is just as true for public infrastructure outlays. Seattle has to spend some money to bring SEA’s international terminal up to standard to attract the international routes that will help its economy, and SEA’s passengers should be paying for that.

    AS is using the fee as a red herring in the same way that UA tried in preventing SW from HOU.

  10. I agree bill. It is the same thing as saying, “my kids are no longer in school, so I shouldn’t have to pay the taxes to build schools.”

    AS is trying to use DL as a scapegoat and try and paint them with a tainted brush. Try to put your love/hate of DL aside and look at the fact that all passengers will pay for SEA terminal not a DL terminal.

  11. For those who are “missing something,” SEA is Alaska’s home and not Delta’s. Alaska is a top quality, outstanding smaller market airline that provides a standard of service I have not experienced anywhere. Now that big Delta is aggressively moving into it’s home, threatens Alaska’s viability. It has been a nasty battle because Alaska has been fighting for its survival.

    The majority of the flights in SEA’s domestic terminal are Alaska/Horizon’s. Delta wants to tax those folks to build itself a new home in SEA, so that it completes its entry into Alaska’s market. Basically, Delta would achieve a significant blow to Alaska’s viability and have Alaska pay for it.

    I love Alaska and it saddens me one of the big 3 or 4 oligopoly airlines aims to do them under. Ultimately, it is not good for the consumer.

  12. Delta is a bad business partner. Look at MSP as well as Memphis. And so what if the facility charge lands disproportionately on international? Delta will not “find another place” to fly off the West Coast. Other airports are full, and Seattle’s geography means less fuel spent per flight.

    Don’t throw out the golden goose you have in Alaska unless you want to pay $1200 msp-bos, as my coworker just did.

  13. If it’s $600MM now, they won’t get much change out of a $1B bill by the time it’s actually built and all the design screwups are paid for….

  14. @Endre

    >Who owns the airport?
    A city, typically.

    >Who is responsible airport facilities? The Airlines or Local/State/Fed gov?
    Usually a municipal agency or a local quasi-governmental entity empowered by the city or region who owns the airport.

    >Alaska would not use the facility, why should they pay for it.
    They aren’t paying for it. A tax is levied upon all passengers who travel through an airport, up to a federally-capped $4.50 for every boarding passenger. That’s what the PFC is. Alaska is saying that the majority (or at least plurality) of the passengers through SeaTac are their customers, so it’s unfair to spend the taxes their customers are paying on something most of them won’t use.

    @Glenn:
    >Since when are international arrival facilities FAA facilities (or FAA approved)? I can tell you authoritatively that they are not.

    From the FAA’s webpage about PFCs:

    “Airports use these fees to fund FAA-approved projects that enhance safety, security, or CAPACITY; reduce noise; OR INCREASE AIR CARRIER COMPETITION.” (emphasis mine)

    You really don’t see how improved international arrival facilities would qualify? Seriously? Whatever, check out PFC Order 5500.1, specifically Chapter 4-6, subsection d, items 1 and 2.

  15. For starters, Alaska isn’t the pretty princess everyone thinks can do no wrong. Having dealt with them both directly and indirectly from an airport operations point of view, these folks are as much crooks and back-stabbers that Delta is, just on a much smaller scale. Believe me, I know. When something doesn’t go their way, they throw a temper-tantrum, much like a 3 year old and they will turn around and stab you in the back just like Delta would. Again, believe me, I’ve seen it from the station manager down to their working staff.

    That being said, this is just another AS “poor us, look at us, we are being bullied” piece. Nothing is going to change. It’s not going to affect AS proper in any way. In fact, just today, I watched Horizon, which is part of AS, pull plane after plane after plane into S4/5 from the Canadian arrivals.Granted they aren’t going through customs since they are pre-cleared, but their customers still need to transit the facility. Not to mention the SJD/CUN/PVR flights that do fully use the facility. Delta can’t even say they have the largest amount of international arrivals. They currently have 8. While I don’t technically count Canada as being international since they pre-clear, every single flight still has to deplane at the customs facility and utilize the baggage system prior to those folks returning “stateside”. AS is the largest user of the facility by far.

    All of these don’t even include the other international carriers, such as BA (2x), EK, NH, LH, KE, H4, FI, OZ, and seasonally DE. And of this list, three are their partners.

    Don’t forget as well that AS has asked in the past that the Port of Seattle bend over backwards for them, only for them to change their mind. The A gates were remodeled, bill mostly footed by the Port and were to be directly benefited and used by AS. AS turned around and said nah, we are good down here at C/D and (eventually) N. Brand new concourse and much better looking than anything AS has, and now DL, US, SY, and UA are the users of the facility.

    But I get why AS is so heavily liked. They are the underdog. They are the invaded. This is a story that we love. We don’t like it when someone is doing well. We like it when someone has their back against the wall. We like a story line that shows the big bad wolf being beaten down and hammered. That’s how we were raised. That’s how we like to see the world.

  16. @Glenn: PFCs can only be used by projects that the FAA approves (following the guidelines that @Steven L. posted).

  17. I can see why Alaska wants to protect its domestic customers, but added international capacity can only benefit the consumer in the end.

    If the fee tops out at $4.50, that is a bargain. I live in Montreal where the Airport improvement fee is $25 every time you depart, and $4-$8 for transit passengers. Yes we have beautiful new airport facilities, but we’ve certainly subsidized it heavily over the years. (International and trans-border facilities were the primary beneficiaries of the investments, but every departing domestic passenger also pays the fee).

    I don’t think $4.50 is a major factor in air travel, even with all the fees we have to pay. But if it climbs to $25 or more, it could become a deterrent to those just transiting through.

  18. This is nothing new for Alaska. Here in Phx, Delta operates out of the larger, newer Terminal 3 (which will be getting a renovation to the tune of $590M) where Alaska is happy as a clam to remain in the much smaller and older Terminal 2. They still have the original Phoenix mural from when Terminal 2 opened in ’62!

  19. Keep in mind what Delta did to CVG. Delta decided to make Cincinnati a hub, convinced the city to underwrite and funnel huge amounts of money into building a new terminal, and then promptly pulled out after their merger with Northwest, leaving not one but two dead terminals (much like those dead malls you see pictures of floating around online). While I don’t trust any airline to do right by anyone, I trust interlopers like Delta even less than the hometown guy like Alaska who at least has a stake in the local economy.

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