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What Happens When a Capital City Loses One of Its Largest Carriers

Apr 18, 2014 4:00 pm

Skift Take

The loss of a major airline means higher fees for carriers and higher fares for flyers, which could have a long-term impact on the hub’s ability to attract new service in the future.

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Rick Wilking  / Reuters

A Southwest Airlines jet waits on the tarmac at Denver International Airport in Denver January 22, 2014. Rick Wilking / Reuters

The Jackson-Medgar Wiley Evers International Airport is delaying security checkpoint upgrades and improvements to the concourse after a downgrading of its revenue bonds by Fitch Rating Service.

Fitch dropped the rating to BBB+ from A- on the heels of Southwest Airlines‘ decision to stop nearly two decades of service on June 7.

Fitch said the loss of the airport’s second-largest carrier could bring higher fees to airlines and higher costs to passengers. This is already occurring, Fitch said, citing the airport’s increase of landing fees by 18 percent and parking fees 8 percent at the beginning of FY2014. The airport also implemented of an additional 15 percent landing fee increase effective in May to offset future declines in revenue caused by Southwest’s departure.

Nearly two-thirds of the Jackson Airport Authority’s operating revenues of $17.6 million come from non-airline sources. Parking revenues alone count for approximately $6.1 million, Fitch said.

Dirk Vanderleest, Airport Authority executive director, told the Mississippi Business Journal¬†Fitch’s designation of a “stable” credit outlook for the airport assures borrowing costs won’t go up on the $39.4 million bond issue “at this time.”

“We’re still investment grade,” Vanderleest said. “We have the capacity for timely payments.”

The security and terminal improvements are part of the airport’s $88 million five-year capital improvement plan. In capital plan includes design and construction of a new quick-turnaround car rental facility.

Delaying the projects by up to 12 months keeps the debt off the books as Fitch Ratings makes further evaluations of the Airport Authority’s credit worthiness, Vanderleest said.

Southwest represents 27 percent of available seats and its departure means a loss of direct service to Houston Hobby, Orlando and Chicago Midway airports.

A determination will have to be made on what the Southwest loss translates to in terms of “the overall cost per passenger” after June 7, Vanderleest said.

It will take at least six months of enplanement totals to gain a fix on the financial consequences of the loss of Southwest, he said.

Vanderleest said Delta Airlines has agreed to increase its seat offerings by at least 10 percent in July when it replaces its regional jets at Jackson-Evers with 7/17 aircraft.

United will bump up total seat availability by 35 percent by adding a daily direct flight to Chicago O’Hare and 1.5 flights a day to Houston’s George H. Bush International.

The loss of Southwest leaves the airport without a direct flight to Orlando, a popular vacation destination.

“We are talking to some other carriers about that direct service,” Vanderleest said.

Copyright (2014) Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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