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Old Posted Jan 2, 2008, 8:35 AM
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June 2007 Presentation to City Council

FWIW, Here's some information on the low-cost terminal and Viva Aerobus that answers some questions asked earlier such as why Austin was picked over San Antonio or Houston, who Viva Aerobus' target market is, etc. It's the closed caption log from a presentation made back in June to the City Council by Jim Smith of the City's Aviation Dept. with susbsequent questions posed by some of the Council members.

Note: Since these log files are derived from the Closed Captions created during the Channel 6 live cablecasts, there are occasional spelling and grammatical errors. These Closed Caption logs are not official records of Council Meetings and cannot be relied on for official purposes. For official records or transcripts, please contact the City Clerk at 974-2210.

Closed Caption Log, Austin City Council Meeting 06/21/2007

Mayor Wynn: So apologize for the delay this afternoon, but now council will take up our two posted briefings that we have outlined. We were scheduled this morning to have a briefing regarding a proposed possible new airline service at Bergstrom. We'll take up that briefing if aviation staff is here and then we'll go to our afternoon briefing, which was some of the results of property analysis we've been doing on Austin Energy's tract in far Eastern Travis County. Welcome Jim Smith.

Jim Smith: Mayor, Council members, I'm here with a relatively short briefing to let you know what we've been working on. It is not an action item. If things go well in the negotiation, hopefully we'll be back in July to bring you an action item on it. Fundamentally, this is about improving Austin's competitive posiition so that we can compete for air service specifically on the handout. The next step - what we're proposing -- we're proposing to lease some land at the airport to General Electric General Aviation Services [sic] and the purpose for that is to build and operate a low-cost terminal.

I'll entertain what a low cost firm national [sic] is in a moment and why do we want to proceed with this? The first one is that we have an opportunity. We've been negotiating with an airline out of Mexico for five new nonstop flights to five destinations in Mexico, and we've had a lot of difficulty attracting international flights, specifically to Mexico. So this is something that we've been working very hard on. The airline is Viva Aerobus. It's a relatively new airline in Mexico. It's been around a year and they are following the ultra low cost business model, which I'll explain too, which is [different from] the typical business model of an airline. We also have [the] opportunity to position Austin to compete for this ultra low cost service as it continues to grow.

Some [of] you may have read some of the articles about Skybus, which is a new Airline headquartered in Columbus, Ohio which has just started flying. They are also following this new ultra low cost business model and we would obviously try to use this facility to compete for their business as well.

Finally, we have an opportunity with GE to form a strategic partnership that would advance Austin's business. If we can partner successfully with General Electric, then we have a large worldwide company who would be trying to make Austin a successful operation and it would enhance our marketing power significantly.

Ultra low cost service - it's a successful business model in Europe, Asia and Mexico. In Europe, it's been around for over 10 years. And Ryan Air, which was the pioneer of this model, is now the largest carrier in you are ron. [sic] Some of you may have flown it or read about it, but they're famous for their five dollar fares, 29-dollar fares, 30-dollar fares. Relatively cheap fares. The business model is if they can keep their fares low enough, they will stimulate new demand from people who weren't flying previously. And because they stimulate the demand, they also put pressure on the communities to provide them the type of facilities which allows them to keep their costs down. It's based on the Ryan Air success model. Very low fares to stimulate demand. This is no frills service. You get a cheap fare, but you pay for everything else ala carte. You want food, you pay for it. You want bags, you pay for it. You want a drink, you pay for it. That's the type of service they provide. In terms of facilities, they don't use loading bridges. You load on the ramp. And again, to keep the costs down on the types of facilites and again because they don't come to every community and they encourage people to drive to one location, they try and solicit incentives from communities in order to bring their service to your community.

For example, in negotiating with Viva Aerobus, they only plan to come to one city in Texas, so we were working against Houston, San Antonio and other cities to try to get them to make Austin their hub for flights into Mexico. The bottom line is this new ultra low cost business model is a differentiated model from the typical airline operation and it requires low cost facilities. The bottom line is these people don't come to your community unless you can provide them a lower cost facility than your typical airline terminal.

The next page is an example. Have some pictures there of the concept of differentiated products for different airlines at airports, and the particular one you've got here is Singapore. In the upper right hand corner, you have the standard Singapore terminal which is widely acknowledged as one of the top three in the world. But yet when they have one of the top airports in the world, they've determined they need differentiated products and the picture on the lower right shows you their luxury terminal. There are airlines flying which now have just a first class and business class product and they want a higher class terminal facility. And then you see to the left of that they also have a budget terminal which is for the people who want the lowest fare possible. So in Singapore, they have three types of terminals, all differentiated for different markets.

The following page is the Monterrey low cost terminal, which we went down to look at and study because this is where Viva Aerobus is [head]quartered and this is what the City of Monterrey had to build to have Viva Aerobus come to their area. You can see the type of facility it is. It's a single story type of facility with no loading bridges similar to a cargo type facility. Just used for processing passengers as quickly and cheaply as possible. Again, the last picture there is the Singapore budget terminal which gives you an indication of what they're like. So far, all of these low budget terminals have a typical similar type of design.

Why we're bringing this to you is the bottom line is air service these days is a very, very competitive marketplace and communities have to position themselves to compete successfully to get airlines to come to your communites. The low cost model encourages competitive proposals. Skybus now, when they [...] come to communities, they want competition, so they'll pick three or four airports in a geographic region and you bid against each other to see who will give them the best deal, which is essentially what Viva Aerobus did and [we] were successful with that particular solicitation, but the bottom line is this competition requires communities to take risks if they want to win these particular proposals.

So why [are] we talking to General Electric? In the first sense, they're an existing tenant at the cargo part. We have a relationship with General Electric today. They're already one of our tenants. They also cooperated with us on making the proposal to Viva Aerobus in Mexico. So we competed jointly and the bottom line [in] my opinion [is] that the only reason they're coming to Austin is because we had GE as a partner and they knew we were serious about providing them the type of facilities that they wanted. GE clearly has a brand and presence in key global markets. They have relationships with airline customers around the world. They have relationships with 230 airlines and 70 countries, so they have tremendous connections to try to market Austin and make our facility successful. Why are we not building this ourself? First of all, Viva Aerobus wants to start flying by the holidays. So by Thanksgiving or Christmas they want to start flying and there's no way the City can move quick enough to put facilities in place to meet that type of time line.

There's also risk involved. While we compete for the airlines, the airline business is a shaky business. More than 50 percent of those businesses go bankrupt or get into trouble, so we don't want to risk a lot of our capital with these types of situations. So finding a strategic partner or a partner like GE who is willing to risk their capital in conjunction with us helps us preserve our capital for the expansion of the existing terminal while GE moves ahead with the low cost terminal that we've been talking about. The lead structure that we're talking about would be consistent with existing leases at the airport. Fundamentally, the city's role at the airport is landlord. We are not a direct service provider to any of the customers. What we do is we lease land to other businesses who then in turn build the facilities necessary to serve their customers. Whether it's the airlines, whether it's the cargo facilites, whether it's general aviation, Sky Chef that provides foods, we basically lease them land and they run the business to provide service.

Essentially, we give a lease to the entity, they build and operate the facility and at the end of the lease the city inherits that particular [facility]. We become the owners of that the same way we will inherit the hotel at the end of 30 years and fixed base operator facilities at the end of 30 years. So the term of the [...] lease is usually equal to the useful life of the facility and the typical facility we're talking about is typically a 25 to 30 year facility. Finally, we charge a base rent and also a percentage rent which gives us rent based on the success of the operation. So the bottom line is offering air service in any community is a competitive business and for us to compete effectively a strategic partner will help in our ability and also help mitigate our risk as we try to preserve our capital as much as possible. Finally, in terms of next steps, we're going to proceed with negotiations with General Electric. We are hopeful that those [end] up successfully but we're still in the very early stages of doing that. Viva Aerobus has committed to coming to Austin. We just have to get the facilities in place. So ideally, it's our game plan to come back to Council in your meeting towards the end of July to come back with a proposal and a lease structure with General Electric to provide these particular services. With that, I'll stop and answer any questions you may have.

Mayor Wynn: Thank you. Questions for staff, Council? Councilmember Leffingwell.

Leffingwell: I believe you don't know for sure yet, but the anticipated term of the lease would be somewhere in the neighborhood of 90 [sic] years depending on what you determine to be the life of the building?

Jim Smith: Right. For the facility, normally about 25 to 30 years is generally the typical life of the building we have in our lease structure today.

Leffinwell: At the end of that time, it would revert to city ownership?

Jim Smith: Right

Leffinwell: What about things like concessions, parking, public transit, things like that? Are those all negotiable items?

Jim Smith: Yes, they are and in terms of -- object be obviously with General Electric putting their property at risk, they have to get a return on the investment. So we have to develop pro formas with them from both sides on what their stinlts [sic] are on the volume of traffic, how much money will be paid, what they have to pay us in lease structure, and make sure it's a fair return. So yes, the concessions would be part of the negotiations. The parking will probably be part of the negotiations. We may choose to ask General Electric to build the parking to serve this facility rather than us build it. All those things have to be worked out during the negotiation and we're not that far along yet.

Leffingwell: OK. Last question. Is this going to be exclusively for the use of Viva Aerobus?

Jim Smith: No. They will be the first tenant, but we are hopeful that -- first of all, these facilities are modular in design, so they can easily be expanded. Our goal is to market Austin as having now two different products. We have the main terminal for the traditional airline, but the ultra low cost business model is a growing business model and more airlines are entering it and we want to be competitive in going after and recruiting them to come to Austin.


Leffingwell: And finally, just looking at the map, there's no connectivity between the existing terminal and this low cost terminal?

Jim Smith: No.

Leffingwell: It's accessed through a different route

Jim Smith: We're still negotiating, but right now it looks like we would put this on the south side of the airport and you would actually access it from Burleson Road as opposed to [Highway] 71

Leffingwell: And initially you plan four gates?

Jim Smith: It would be three or four gates max to get it started.

Mayor Wynn: Councilmember Kim


Kim: What if the public wants some connectivity between the low cost terminal and the main terminal? If they want to catch flights going to other destinations and other airlines, what would be the option? Is that something we would provide or hire a private transporter or our airport shuttle service.

Jim Smith: Well, there's always transportation options, wlits [sic] super shuttle, taxi cab, in a we can provide [sic] There's a variety of ways of doing it. The first thing to do is to judge what is the level of transfer traffic. Generally, this is not transfer traffic. This is destination traffic the way most -- 98% of everything we get at the airport today is what they call origination and destination. We don't have a lot of transfers taking place at our airport because we're not a hub. So that isn't a major portion of the business be. [sic] But yes, there will probably be occasional people looking to get from one terminal to the other and we'll have to accomodate that, but it will probably be some type of a bus facility or whatever. Again, this is not planned out yet.

Kim: And as far as where the destinations are in Mexico, have those been announced yet? Do you have any idea where they are?

Jim Smith: Monterrey will definitely be one of them because that's where they're headquartered. The rest, they're plan[ning] to go file with the FAA this week. They've delayed until this week, so that will show up next week and I don't have the final destinations myself yet. So other than Monterrey being one of them.

Kim: Thank you very much

Mayor Wynn: Further questions?

Martinez: I wanted ask a quick question about -- I guess Councilmember Leffingwell kind of asked about the services, the transportation to get out there, parking, but I assume policing services will be the same way? Will they provide their own or is this part of the Federal Customs Program? How will that work since these are international flights? Would we be providing policing services out there?

Jim Smith: There's different levels of security there. The Transportation Security Agency is the entity which actually screens passengers. They will have to have a presence in this facility. We've already had preliminary discussions with them to do that. Immigration will have to have a presence in this facility because it's international. So we've already had discussions with them to be prepared for this. In terms of just security -- in terms of our security of police or whatever it is, yes we would still be providing that the same way we do in the existing terminal.

Martinez: And maybe you mentioned this and I missed it earlier, but what would be our initial investment to build a structure, a separate structure or separate facility? What is our initial it [sic] investment or the total investment?

Jim Smith: From ABIA? Well, we're negotiating that. At this stage of the game it's potentially that our potential investment will be nothing more than leasing the land and GE will put up the capital. But again, as we negotiate this out, that may change slightly depending on what we think is most important for us to accomplish in this transaction.

Martinez: So it sounds like this is a Mexican Airline that is targeting the heavy immigrant community here in the United states? That's where their target market is?

Jim Smith: First of all, their business model is intended to have very inexpensive seats, basically all under $100.00. A lot of them for $25.00, $35.00, that type of thing. In Mexico their business model revolves around the fact that less than five percent of the people of Mexico fly today because they can't afford the fares. So the goal is if they can get the fares down for every increment they can keep the fares down, they will stimulate that much more traffic in Mexico. So the boon to us and why the tourism community in Austin is excited about this is that means a whole lot more tourists coming to the Austin area. And they may decide to go to Houston and San Antonio after they land here, but at least they're going to come into Austin.

The other thing that this business model tries to accomplish on the U.S. side of this is because the fares will be so low , they anticipate that people will be driving from Houston and San Antonio in order to take these flights, and then we get the benefit [of] that business as well. So the business model -- this has been proven successfully in Europe, Asia, Mexico, wherever it's been used, is you will get people to drive relatively long distances to get a cheap flight to a destination and by being a community which hosts this, hopefully us, then we get the benefit of both incoming and outgoing passengers for that reason.

Martinez: But none of the safety standards, regulations, we're not creating some two tiered flight system?

Jim Smith: No. You all have to meet the same FAA standards and everything else to fly in the U.S. You will get different contract standards on the plane because you will be squeezed in a little tighter on the plane so they can put more seats in there and things like that.

Mayor Wynn: Further comments, questions?

Leffingwell: Standard fees that apply to all airlines coming into ABIA, are they going to be the same? Are they going to pay the same landing fees that everybody else pays?

Jim Smith: The FAA requires that you cannot discriminate among the airlines, so all landing fees, rental rates that we charge for the airlines have to be the same for everybody. Now, for new certain routes we as an airport offer incentives for a certain period of time which reduces one airline's rates [when] they introduce service to a new destination, but those expire at a certain point and then everybody's rates become the same.So Viva Aerobus will pay the same as anyone else at the airport.

Leffingwell: The reason I ask the question is in some of the material that you furnished us, it said that they usually look for out of the way airports that have very low landing fees. I didn't know that we were in that classification.

Jim Smith: We're not. We don't have what you would consider a low landing fee, but because we're proposing to build them a terminal that is lower cost, that their rental rate inside the terminal will be significantly less than the rental rate we charge in the main terminal. And that's what you find in Europe, what they did in Amsterdam and Frankfurt. They basically got the rent to down to about half of what is was in the main terminal.

Mayor Wynn: Councilmember Martinez

Martinez: One last follow-up. If we contract with GE and we simply just lease the land, I want us to make sure that we put provisions in there that any construction that takes place at ABIA, Infrastructure building, that we continue to do everything we can to meet and exceed our minority participation goals. I don't want us to get into a situation where we just sign a lease and some company comes in here and builds whatever they want using outside firm, outside labor. I want to make sure that it speaks easy the values of Austin and that we contract locally.

Jim Smith: We try and do that through all the leases at the airport. Almost everything which is done at the airport is through a lease arrangement Faye, so we put those items in there.

Martinez: Thanks

Mayor Wynn: Further comments, questions? Thank you Mr. Smith. Interesting stuff. So Council, without objection, we'll now go to our afternoon briefing, which is a presentation and update on the City's -- Austin Energy's 2800 some-odd acre tract of land in far Eastern Travis County.
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  #42  
Old Posted Jan 2, 2008, 8:56 AM
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Six Months Later

Fast forward to December 19, 2007 and this News 8 Austin Story.

Major Airlines Upset Over New Terminal Deal

Quote:
A planned low-cost terminal at Austin-Bergstrom International Airport is hitting some turbulence.

Three airlines are not happy with an agreement made by the City Council earlier this month that allows a private company to build a new low-cost terminal at Austin's airport.

"I think there is a potential that they could sue the city and they could demand equal treatment," city council member Lee Leffingwell said.

At least three council members say they were under the impression that only one airline, Viva Aerobus, a Mexico-based low-cost carrier, would use the new terminal.

"We became aware that there was going to be a plan to expand the ultra low-cost terminal from three to eight gates and also include domestic low-cost carriers," Leffingwell said.


And that, according to a memo sent to the City Council from the airlines, is the problem.
The fact that GECAS and the City would be recruiting other airlines besides Viva Aerobus and the fact that the low cost terminal would initially start with 3-4 gates, but was modular and easily exandable was discussed at this presentation back in June. Why is Councilmember Leffingwell saying he and other Councilmembers were unaware of this some six months later?

And finally, from Evan Spark's Aviation Policy Blog, an entry on this issue.

Quote:

Airports in the United States are almost always owned and operated by municipal or county authorities. (In a few cases, like Indianapolis and Chicago Midway, private companies have managed airports for the authorities.) These airports lease gates to airports in long-term leases, and then that airline has exclusive use of those gates. Most big-city airports have extra space to accommodate new entrants or airlines wishing expand service, as airlines rarely wish to lease more gates than they need. In some cases, however, gate unavailability has limited the entrance of new carriers. (Issues like this have threatened US Airways international expansion in Philadelphia.)

Airlines who lease gates at airports usually offer the same amenities to all airlines/tenants: baggage facilities, concessions, and the like, which means that gate-lease fees vary little. If there is competition for amenities and fees, it is among airports. For example, Providence and Manchester offered lower fees and attracted discounters like Southwest unwilling to pay the higher fees of Boston’s center-city Logan Airport. The same applies for Miami versus Fort Lauderdale, Orlando International versus Orlando Sanford, and several others. There has been until now little competition within U.S. airports for fees and amenities.

Austin-Bergstrom International Airport in Texas is now attempting to pull this off. Its only passenger terminal, the Barbara Jordan Terminal, is fully occupied and leased. So, to add significant service, it will need to build more space. But this new space is intended to serve the super-discount airlines like Skybus and Mexico’s vivaAeroBus that Austin wants to attract. Back in June, it began negotiations with GE Commercial Airline Services (GECAS) to build and operate a no-frills terminal at Bergstrom. GECAS would operate the terminal for thirty years, and it would be expressly designed for super-cheap airlines, with neither luggage facilities nor assigned gates. Gate fees at the GECAS terminal would presumably be much less than those at the Jordan terminal.

Southwest, one of two dominant airlines at Bergstrom, is not happy with this and fired off a letter to Bergstrom to complain that

“[e]ssentially, this new terminal will allow carriers to ompete against existing carriers at a substantial cost advantage. . . . While it may be argued that GECAS or some other third party is sponsoring the terminal development and not the City, this argument is splitting hairs. The end result allows the City to take actions which provide facilities to some carriers at a substantially reduced cost compared to those bound by agreement to more expensive facilities.

The airport replied that the move simply makes more low-fare competition possible, adding that Southwest would not want to use the GECAS terminal anyway, so why not let an airline that does want to offer true no-frills service use it?

Such an arrangement is hardly unusual. At New York’s JFK airport, the terminals are mostly built and run the airlines that use them. Pan Am’s Worldport (now used exclusively by Delta and its partners) and TWA’s Saarinen-designed Flight Center (now the under-construction JetBlue terminal) are both iconic examples of privately built terminals at public airports. American Airlines built its own new terminal there (T9), and Terminal 4, the main international gateway, is operated and part-owned by the same Dutch government company that owns and operates Amsterdam’s Schiphol Airport. There should be no problem with an airport leasing space to private operators.

In fact, Southwest tried this very thing in Seattle. Stung by high fees at the region’s main airport, SeaTac, Southwest proposed that it would build a terminal at Boeing Field in south Seattle, which has only nominal passenger service. Southwest would enjoy exclusive use of the close-to-downtown airport for fifty years. Other airlines’ complaints sounded a lot like Southwest’s now. (In the end, King County, where Seattle is located, rejected Southwest’s proposal, for several reasons.)

So then, what’s wrong with airport entrepreneurship? It’s complicated because airports are almost always publicly owned and operated. Airports must operate as public accommodations, open to all entrants. And is it fair for an city and airport authority to operate its own terminal (Jordan) and lease space for a private terminal operator (GECAS)? I don’t see why not. It happens all the time with leases to fixed-base operators and general aviation services.

If Southwest is concerned that the GECAS terminal airlines at Bergstrom will enjoy an unfair advantage, it should seek to build its own terminal at the airport–or simply leave the market altogether, as their letter subtly hints at. Southwest signed the long-term gate lease freely, so it should not complain when another airline gets a different (better) deal under different circumstances. Southwest has brilliantly hedged its fuel costs, taking risks that that price of fuel might drop but betting that it wouldn’t. Its lease at Bergstrom should be considered in the same light. And if Southwest were to, against all odds, desire to build a terminal of its own at Bergstrom, the airport should negotiate with Southwest on the same terms as any other potential tenant.

Overall, I think it’s good that airports seek ways to generate revenue, attract more flights, and cut costs–all of which can be done by privatizing various components of the airport’s business. More power to Bergstrom and GECAS.
In his presentation to Council, Jim Smith also flat out said that the FAA required the City to charge the same rental rates to all the airlines. I e-mailed a couple of questions about gate rental fees to the airport and their response was that for the gate rental fees in the main terminal, the city does charge the same amount per square foot to all the airlines regardless of whether it's a ground level gate (Gate 1) or an upper level gate (Gates 2-25). Some gates are smaller and have less floor space for seating, etc. (like the ones at the very end of the East & West Concourses) so they're cheaper than the bigger gates towards the center of the terminal, but per square foot the rent is the same for everyone. Jet loading bridge fees are separate. Gate 1 is currently the only gate without a jetway.

Whether or not it would stand up in court remains to be seen, but I think the City's position is that they're only leasing the land. The City won't play a part in the construction or operation of the facility. GECAS is building the terminal. GECAS is recruiting the airlines with some assistance from AUS. GECAS will own the terminal for the next 25-30 years until it reverts to city ownership. GECAS is setting the gate rental rates and collecting the money, not the city. The city will just get a percentage of GECAS' overall profits and income from the leasing of the land, if I'm understanding things correctly.

The things that the city does charge for (like landing fees) will still be the same for every airline.

Southwest, in their letter to ABIA mentioned that whether the city was charging lower rates itself or having a third party do it, it was splitting hairs. I don't know if there's some sort of legal loophole if there's a third party involved, but if there is, I hope the City of Austin crawls through it. It wouldn't be the first time an airline or airport used a legal loophole to achieve a desired result.
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Old Posted Jan 2, 2008, 6:55 PM
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seriously! i haven't flown southwest since 2003. the ironic thing is that people perceive them as hyper competitive, when they're in fact not.
They used to be competitive and they did help bring down fares of other airlines in once locked markets. But I agree w/ you - they are no longer worth the trouble of fighting for a seat and standing in lines and changing aircraft 3 times to reach a destination.
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Old Posted Jan 2, 2008, 6:59 PM
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Thanks for the posts LoneStarMike, interesting reading. With out understanding all of the intricacies it doesn't seem that SWA has much of a leg to stand on. As a WAG - if SWA is doing significant business in Austin, I would gamble they would not pull out. What does come to mind, is that they might want use of the low cost terminal, and then clog it with empty planes to run the low cost carriers out of Austin.
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Old Posted Jan 2, 2008, 7:28 PM
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They used to be competitive and they did help bring down fares of other airlines in once locked markets. But I agree w/ you - they are no longer worth the trouble of fighting for a seat and standing in lines and changing aircraft 3 times to reach a destination.
They almost always beat the legacies for business travel - i.e. short-notice stuff where the cheap seats are already gone. For trips where you have time to shop, they've never been remotely competitive for me either.
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Old Posted Jan 2, 2008, 7:43 PM
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I'm surprised that Southwest is continuing to do so well. I think part of this is due to its brand image - the name is synonymous with a fair price and reliability. To be honest, I haven't flown them in years. I think the last time was an Austin - Long Island flight in '04.

Other than their hyper-competitive California and Texas short hops, they aren't exactly the cheapest. I would naturally go to them first when bargain hunting, only to find out that their cheaper fares were always sold out - sometimes even their mid-priced ones were, too, and I was checking well in advance. Add the pain of their point-to-point route network and their cattle call seating arrangements, and I really question their future.

All of the other mainstream airlines, plus JetBlue and others, have essentially narrowed their brackets of pricing and taken the best of Southwest's business practices without also adopting the worst. I have a bit of contempt for Southwest in general, since they have a pretty smug image as a populist, cheap, reliable airline that is a total smokescreen compared to their anti-competitive back end behavior.

Also, their fares are not usually able to be compared on the mainstream sites like Kayak or Expedia - that has to represent some kind of disadvantage, however marginal.
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Old Posted Jan 2, 2008, 9:07 PM
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I can not believe this. Vivaaerobus has chosen Austin because the city of Austin worked harder to get their business????

Houston'a population is exploding and now close to 4MM and Austin is what? Not even 1MM maybe.

Continental is charging us at least 400-500 dollars roundtrip to anywhere in Mexico from Houston. I am tired of being ripped off and now all that time waiting for Vivaaerobus to make wise decision to fly directly to Houston and what happened? Some wiseguy in Austin got their attention and they expect 4MM people to flock into tiny Austin so that they can get business.

We need cheap direct flights to Mexico from Houston. Houston is the only large metropolitan city in the US that lacks small airlines flying international. Man, I hate continental.

I have been emailing back and forth with the people in Ellington Field for sometime and I asked them if Vivaaerobus has aproached them recently and they responded no. I was surprised because that is the only airport that is available for new business in terms of starting it with building a new terminal from scratch. City of Houston should do something and have Vivaaerobus start flying to Houston directly from Mexico. Otherwise we will keep paying too much to Continental. What a huge loss for Hostonians...

Man, I am so mad...

Last edited by misterno; Jan 2, 2008 at 9:28 PM.
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Old Posted Jan 2, 2008, 10:08 PM
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Originally Posted by misterno View Post
I can not believe this. Vivaaerobus has chosen Austin because the city of Austin worked harder to get their business????

Houston'a population is exploding and now close to 4MM and Austin is what? Not even 1MM maybe.

Continental is charging us at least 400-500 dollars roundtrip to anywhere in Mexico from Houston. I am tired of being ripped off and now all that time waiting for Vivaaerobus to make wise decision to fly directly to Houston and what happened? Some wiseguy in Austin got their attention and they expect 4MM people to flock into tiny Austin so that they can get business.

We need cheap direct flights to Mexico from Houston. Houston is the only large metropolitan city in the US that lacks small airlines flying international. Man, I hate continental.

I have been emailing back and forth with the people in Ellington Field for sometime and I asked them if Vivaaerobus has aproached them recently and they responded no. I was surprised because that is the only airport that is available for new business in terms of starting it with building a new terminal from scratch. City of Houston should do something and have Vivaaerobus start flying to Houston directly from Mexico. Otherwise we will keep paying too much to Continental. What a huge loss for Hostonians...

Man, I am so mad...
This is no way to start out as a new member of a forum. First of all, Austin's metro area is well over 1 million, and second, it's not our fault that Houston was unable to take advantage of this - I guess it can't be the business leader in everything. The bottom line is that landing fees and operating costs are what really makes the difference, and obviously they shopped Houston first.

For example, Ryanair only flies to Charleroi Airport in Belgium and won't fly into Brussels' main airport. The reason budget airlines go to smaller cities and smaller airports is because of cost.
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Old Posted Jan 2, 2008, 10:50 PM
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A naive post but welcome to the forum. Obviously a lot to learn about some Texas metros...

Viva can not go to a "hub" airport or "hub" city like Houston or Dallas due to host airlines having too much control [Continental and American]... they are large enough to exert full influence on all airport decisions and pricing. See Southwests battle against American... and their failure.

Your suggestion for the alternate airport is a good one... however hub influence expands beyond the airport alone... again reference Love Field restrictions in Dallas.

Be thankful Houston has a hub... this is very important for the economy and you can go direct just about anywhere.
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Old Posted Jan 2, 2008, 10:58 PM
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I still have a hard time believing that this will work out. Just bc a low cost airline (that btw is brand new) comes to town doesn't mean business will follow. And if they are banking on people driving from Houston and San Antonio....I think they might be mistaken. The people that are flying out of those cities are usually people of means. Loading they're own luggage on to a plane and Standing out in the elements to board the plane just isn't their cup of tea. And the fact that the guy specifically states that Austin has had a hard time attracting flights to Mexico should be a big ol' red flag to the city AND the airline, that this may be too huge of a risk. (Maybe more of a risk to the airline than the city though) What this sounds like to me imho, is the city of Austin trying to further justify the I in ABIA. As it stands I believe Austin has maybe a few seasonal flights to Mexico, and a couple of daily's to Mexico? Look, I'm not trying to insult Austin as some on here would take it that I was....Im looking at this from a business stand point, and something about this just doesn't smell right. I feel that the city and the Airline are going to be very disappointed with the results of this....now if it happens to work out...more power to Austin and I will stand corrected!
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Old Posted Jan 2, 2008, 11:09 PM
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Texboy... I think you are right in your statements other than there being any risk to the city of Austin. There is none. They get a lease payment with no expenses. The city did not seek this out... GE and Vivo approached them.

Since they could not do the hub cities [Dallas or Houston] the only targets would be Austin or San Antonio.

...not sure why - probably for the migrants or folks with little means that will drive for trips? Because Austin has been at the top of lists for relocating latin decendents? Its the 3rd busiest airport in the state? Demographic/Population trends and forecasts we don't have in front of us? Political constraints at other facilities? Most likely it is because this is an experiment for an investment arm of GE that happens to be located in Austin.
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  #52  
Old Posted Jan 2, 2008, 11:10 PM
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A bit more info from the closed caption log of the City Council Meeting on 08/23/2007, a couple of months after the initial presentation:

Leffingwell: On Item Number 4, I believe Mr. Smith is here, Airport Director. This is an item to approve a ground lease for a low-cost terminal at...midfield and the item now reads to negotiate. Hopefully, we will establish some guidelines for these negotiations and talk about those guidelines in future executive sessions as we progress in the negotiations. My main concern -- it is going to be a complex agreement, I think, and there will be a lot of variables involved and it's complex enough to where I think we ought to be -- the Council ought to be briefed on it as we go forward. And my main concern is to make sure that we -- the contract is structured so that there's fairness between those who operate -- fairness and equity between those who operate out of the low-cost terminal and those who are currently operating out of the main terminal. So Mr. Smith, if you would like to make a couple of comments on that, you are more than welcome, but I'm going to leave it on consent. I just wanted to make that explanation.

Jim Smith: Well, as it relates to the rate structure, the F.A.A. requires that we do not discriminate among the players at the airport. And what they mean by that is that there's two fees involved at the airport. One is an airfield-related [fee] for the use of the runways, taxiways. Everybody who flies at the airport pays the same fees so that cannot be modified. Then you pay a fee for the facilities that you rent from the airport -- your office space, your gates, your loading bridges, et cetera like that, and there's a fee associated with that. The only way you can differentiate among the players is if one doesn't have the same type of facilities as the other. And under the lease arrangement we're contemplating, the new ultra low-cost terminal is going to have loading gates. It's not going to have the same level of electronics and telecommunications, and as a result it's going to have a cheaper rent.

So it is perfectly okay under the F.A.A. guidelines to have a rent structure in the main terminal. All the players who share that facility, and have that be different than the rent structure for the ultra low-cost terminal. What you can't change is anything on the landing fee. The only variation that occurs in that is occasionally the airport offers incentives to a carrier who is introducing new, non-stop service, and for a limited period of time, the airport will sometimes offer incentives to underwrite sombody's landing fee or rental rate in the terminal for a specific period of time while they introduce the new non-stop service. But that has a limited time period where the rent's obviously good on for as long as that entity is there. So that's pretty much how it works. And as a result, any deal we strike with GE has to be sent to the F.A.A. for review to make sure we are not[...] discriminating against any of the carriers.


Leffingwell: And I also assume as you've been going along, you've been getting input from the other airlines, the ones who currently operate out of the main terminal and like to make sure they are fully informed as to what's going on, too. But little...it is a complex agreement. The term has not been totally nailed down yet. The price per square foot, we have a minimum number of per square foot, but that has not been nailed down. It's complicated enough to where we have another agenda item today that we are going to approve on the consent agenda to hire outside counsel to negotiate that agreement. So my concern is just to make sure that we're briefed on an ongoing basis and hopefully we can start that executive session to talk about those details next week. So Thank you.

Jim Smith: If any of you at the council offices have any questions or concerns we would appreciate hearing about them before we bring this item back in a couple of weeks in executive session for you to vote on the final lease deal. Thanks.


Here's additional information from the closed caption logs of the City Council Meeting on 09/27/2007 when the council approved the negotiation and execution of the lease with GECAS. (Some misspellings and/or acronyms that I don't know what they stand for, but I re-typed it as is.)

Mayor Wynn: Council, that concludes our general Communication. Let's see. We had discussion -- let's see if any of our Aviation Department folks are here. Mr. Smith is here. Let's see. We have four folks on the dais. So Council, earlier in closed session we took up Item number 78, the real estate matter regarding a potential land lease at Bergstrom. We had a good presentation from our Aviation Department in closed session pursuant to state law. We have posted Item number 8 for potential action related to that discussion. That being authorizing the negotiation and execution of a land lease and perhaps a quick staff presentation about that item and the four of us could deliberate. Welcome Mr. Smith.

Jim Smith: Mayor and Councilmembers, this is the third time we've been here before you with this issue. The first two times to give you an update on our negotiations with General Electric Commercial Aviation Services to build a low-cost terminal on the south side of our airport. We've completed those negotiations and coming to you today for an action item to actually execute that particular lease. The terms of the lease, a 30 year land lease, which is the same as all the other leases we have out at the airport. It's -- transfer model which means at the end of the lease term the facility reverts back to the City of Austin.

The first step in the process will be the renovation of an existing building at the airport to make an interim facility that would have three gates. And we need an interim facility before a whole lot of money is invested to see if this business model will work successfully. Assuming it does work successfully, GE is committed as soon as there's a demonstration of a business need, they will start building a 100,000 square foot new facility on the site of the airport.

In terms of a rent structure, again, it's the same as the other leases we have at the airport. There's a ground rent plus a performance rent based on how well the facility does. We will share in those profits. We have arranged with GE to dord [sic] nature their operating budget, capital program, market ago program and concessions program to make sure it's in sync with what we're trying to accomplish at the airport. Also sthef [sic] committed to a strong DBE program and they are working not only in anticipation of the construction of a new terminal but also on the interim facility to make sure they are doing sufficient outreach and identifying scopes of various projects and working with SMBR to get that into the community so the contractors know what kind of work is available.

The bottom line, this is really a unique opportunity for Austin to develop a niche in the aviation market which would hopefully bring more air service to Austin that the pop lakes [sic] (Population?) actually deserves and that's because we would essentially be becoming a mini hub for some of those ultra low-cost carriers. So this is a rare opportunity and we're hoping in partnership with [GE] and their strength of having relationships with over 270 airlines in 70 countries that we can make a dent and improve the air service here in Austin

Mayor Wynn: Great, thank you, Mr. Smith. It is exciting. Questions, comments? We have posted Item 8 which is this authorization to negotiate a execute [sic] I'll entertain a motion.

Leffingwell: I move approval

Mayor Wynn: Motion made by Councilmember Leffingwell, seconded by Councilmember Cole to approve Item 8 as presented by staff. Further Comments? Hearing none, all those in favor please say aye. Opposed? Motion passes on a vote of 4-0 with the mayor pro tem and Councilmembers Martinez and McCracken off the dais. Thank you, gentlemen.


So does anyone know exactly which existing building is being renovated for the interim facility and if renovations have begun?
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  #53  
Old Posted Jan 2, 2008, 11:12 PM
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Originally Posted by texboy View Post
I still have a hard time believing that this will work out. Just bc a low cost airline (that btw is brand new) comes to town doesn't mean business will follow. And if they are banking on people driving from Houston and San Antonio....I think they might be mistaken. The people that are flying out of those cities are usually people of means. Loading they're own luggage on to a plane and Standing out in the elements to board the plane just isn't their cup of tea. And the fact that the guy specifically states that Austin has had a hard time attracting flights to Mexico should be a big ol' red flag to the city AND the airline, that this may be too huge of a risk. (Maybe more of a risk to the airline than the city though) What this sounds like to me imho, is the city of Austin trying to further justify the I in ABIA. As it stands I believe Austin has maybe a few seasonal flights to Mexico, and a couple of daily's to Mexico? Look, I'm not trying to insult Austin as some on here would take it that I was....Im looking at this from a business stand point, and something about this just doesn't smell right. I feel that the city and the Airline are going to be very disappointed with the results of this....now if it happens to work out...more power to Austin and I will stand corrected!
You're definitely right in being skeptical that it won't succeed. Nobody is entirely optimistic - but the point is, there is little financial risk on Austin's behalf in undertaking this venture. It's better to think of it as an experiment that GE Capital would like to carry out. If it fails, all that will probably happen is that some other airline arrives to take the slots.
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  #54  
Old Posted Jan 3, 2008, 12:20 AM
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Originally Posted by ATXboom View Post
A naive post but welcome to the forum. Obviously a lot to learn about some Texas metros...

Viva can not go to a "hub" airport or "hub" city like Houston or Dallas due to host airlines having too much control [Continental and American]... they are large enough to exert full influence on all airport decisions and pricing. See Southwests battle against American... and their failure.

Your suggestion for the alternate airport is a good one... however hub influence expands beyond the airport alone... again reference Love Field restrictions in Dallas.

Be thankful Houston has a hub... this is very important for the economy and you can go direct just about anywhere.

Actually, Viva was on to something there. Houston Hobby is analogous to Dallas Love, but Ellington Field could be ripe for this type of service. Continental pulled out of Ellington a while back, and all it ever did was provide short hop flights up to Bush. I loved the service because parking was free and I could ride my bike to the airport if so inclined.

The parking is in place, they would just have to add international facilities. However, Ellington is surrounded by nice sub-divisions that would likely frown on too much expansion.

Last edited by JAM; Jan 3, 2008 at 12:53 AM.
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  #55  
Old Posted Jan 3, 2008, 1:36 AM
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Agree Ellington could be unique but I still think the lobying power of Continental in the Houston area would cause too much risk for GE [too politically challenging]. Continental will want to control the Houston market as American does the MetroPlex.
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  #56  
Old Posted Jan 3, 2008, 3:37 AM
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To that first poster, Austin is at 1.6 million and Houston is at 5.6 million.

Quote:
Originally Posted by ATXboom View Post
A naive post but welcome to the forum. Obviously a lot to learn about some Texas metros...

Viva can not go to a "hub" airport or "hub" city like Houston or Dallas due to host airlines having too much control [Continental and American]... they are large enough to exert full influence on all airport decisions and pricing. See Southwests battle against American... and their failure.

Your suggestion for the alternate airport is a good one... however hub influence expands beyond the airport alone... again reference Love Field restrictions in Dallas.

Be thankful Houston has a hub... this is very important for the economy and you can go direct just about anywhere.
Couldn't they have gone out of Hobby instead? I also don't thin Continental has (or uses) as much power in Houston as American does in DFW.
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  #57  
Old Posted Jan 3, 2008, 3:44 AM
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Originally Posted by ATXboom View Post
Texboy... I think you are right in your statements other than there being any risk to the city of Austin. There is none. They get a lease payment with no expenses. The city did not seek this out... GE and Vivo approached them.

Since they could not do the hub cities [Dallas or Houston] the only targets would be Austin or San Antonio.

...not sure why - probably for the migrants or folks with little means that will drive for trips? Because Austin has been at the top of lists for relocating latin decendents? Its the 3rd busiest airport in the state? Demographic/Population trends and forecasts we don't have in front of us? Political constraints at other facilities? Most likely it is because this is an experiment for an investment arm of GE that happens to be located in Austin.
You sure it's the third busiest? I though Hobby Airport had more passengers (somewhere around seven million I believe for Hobby). Besides that, there is a big drop of between 2nd and 3rd.

I hope this works out well for Austin though.
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Old Posted Jan 3, 2008, 4:18 AM
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Austin will be over 9 mil for 07. As of October 7.5 mil passengers went through Austin. I'm sure it was 4th, 5th or 6th not too long ago... heck it wasn't long ago Austin was smaller than Toledo.

I'm sure vivo could attempt hobby... but with GE running the investment side and being located in Austin it was 1. convenient and 2. more important there is less risk being in a "non hub" city [avoiding potential conflict with the big incumbent]... There is good reason why Southwest and low cost carriers in other countries avoid hub cities.

This is or should be how an investment type thinks about this whole thing as a "risk minimized test". Get it running and prove it here... then expand. There is probably too much chance that something like this in a hub city would never get off the ground or be way to much of a resource commitment to do so.

I'm rambling but designing businesses is what I do... so I am approaching the problem how I imagine a GE financial type would.
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  #59  
Old Posted Jan 3, 2008, 4:59 AM
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Originally Posted by ATXboom View Post
Austin will be over 9 mil for 07. As of October 7.5 mil passengers went through Austin.
As of November 30, AUS has seen 8,164,901 passengers.

http://www.ci.austin.tx.us/austinair...yrpt_nov07.pdf

December should see somewhere between 700,000 and 740,000 passengers which would put us around 8.9 million passengers for the year.
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Old Posted Jan 3, 2008, 5:55 AM
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You sure it's the third busiest? I though Hobby Airport had more passengers (somewhere around seven million I believe for Hobby). Besides that, there is a big drop of between 2nd and 3rd.

I hope this works out well for Austin though.
Hobby had ~8.1M as of Nov

http://www.fly2houston.com/0/654773/0/1906D1937/

Hobby and Austin have been running about the same number of passengers over the last few years. Got me wondering what Love field count was, but number seems harder to find.
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