News Column

SRQ airport takes on risk to turn a profit

May 20, 2014

By Matt M. Johnson, The Bradenton Herald



May 20--MANATEE -- Just four months from being free of debt, the Sarasota Manatee Airport Authority is poised to write a new, four-year use-and-lease agreement with airlines that should give the Sarasota Bradenton International Airport a bigger piece of the revenue pie.

The authority and its longtime leasing consultant, Roger Bates, recently concluded negotiations with air carriers Delta, American, Jet Blue, United and Air Canada to give the authority complete control of revenue from its non-aviation properties. It will also give the authority a greater share of concession revenues, a bigger chunk of net revenues generated by terminal services and all the net income generated by leased terminal spaces.

Carriers would no longer be responsible for making up any airport revenue shortfalls. They are also expected to incur per-passenger airport costs lower than those currently paid.

The authority board of directors voted unanimously Monday to sign the new agreement unless the contract-language review be

ing conducted by the airlines leads to major changes.

The agreement comes as the airport authority prepares to pay off its long-term debt. Since 1992, the airport authority and its air carriers have shared responsibility for paying $70 million in bonds used to build the Sarasota Bradenton International Airport terminal. Under an airport residual agreement renewed in five-year increments, landing, terminal, apron and lease fees paid by the airlines and other airport revenues went toward paying off bonds and airport expenses.

Most years, the airlines profited from the arrangement. In the most recent fiscal year, about $600,000 was turned back to the airlines. Not one penny went to the airport, said airport CEO Rick Piccolo.

The airlines acted as the equivalent of a bond co-signer. The bonds were sold during a "volatile" period in the airline industry, Piccolo said. They have been a backstop for the airport's annual $16 million in operation expenses, although they haven't paid out for a shortfall during Piccolo's 18-year tenure.

Under the new arrangement, the airport authority will earn a lot more cash. The authority has about $20 million in cash on hand and will be freed of $3.3 million in annual debt service as of Sept. 31. It will also receive $22 million from passenger facility charges through 2023.

"That provides a wonderful pot of seed capital," Bates said.

That money will allow the airport to risk having to pay shortfalls. The potential payoff, Bates said, is worth it.

Previously, the authority could only generate a limited amount of revenue for itself. Even money made off authority property not connected to the airport is shared under the current agreement.

The new agreement allows the airport to take in all revenues associated with those properties, all profits from leased spaces inside the terminal, a 50-percent share of net concessions revenue and 50 percent of terminal area revenues, including car rentals and parking.

Airlines will receive an increase amount of space under lease in and around the terminal. The airport authority will be responsible for making up any revenue shortfalls caused by vacancies.

The airlines will continue to pay landing and terminal space fees at a rate expected to be 70 cents less per passenger.

Lower fees probably won't lead to lower fares, but should make the airport more attractive when carriers think about adding flights and routes, Piccolo said.

"I think it gives us a little bit of competitive assistance," Piccolo said.

Sarasota Bradenton International Airport now serves about 1.25 million passengers a year.

Matt M. Johnson, Herald business writer, can be reached at 941-745-7027, or on Twitter @MattAtBradenton.

___

(c)2014 The Bradenton Herald (Bradenton, Fla.)

Visit The Bradenton Herald (Bradenton, Fla.) at www.bradenton.com

Distributed by MCT Information Services


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Bradenton Herald (FL)