Resolution PPD12-BI21 May 18, 2012

Transcription

1 Resolution PPD12-BI21 May 18, 2012 Resolution of the Board of Directors, Greater Houston Partnership Approved by, the Business Issues Committee In Support of Competition in the Houston Airline Market The Greater Houston Partnership (GHP) strongly supports an efficient and vibrant regional airport system that enables competition and yields benefits for Houston s travelers, individual airports, and our airport system, overall. Expanding international service from William P. Hobby Airport would achieve these goals, foster economic development, and help Houston achieve its goal to become a World Class City. Anthony R. Chase, Chairman Jeff Moseley, President and CEO David McClanahan, Secretary

2 MEMORANDUM DATE: May 18, 2012 TO: FROM: SUBJECT: Greater Houston Partnership Board of Directors Charles Swanson, Chairman, Business Issues Committee Resolution of the Board of Directors In Support of Competition in the Houston Airline Market EXECUTIVE SUMMARY GHP has been asked by United Airlines to oppose expansion at Hobby Airport. The Business Issues Committee met on May 1 st to hear directly from HAS Director Mario Diaz and to consider whether a recommendation should be made to the GHP Executive Committee and Board of Directors. After review and discussion, the committee passed a Resolution in Support of Competition in the Airline Market. To date, there are two business organizations, GHP and the Greater Houston Convention and Visitor s Bureau, that have taken formal action to support increased competition and the free market principles, without citing support for either airline. The Resolution will now be considered by GHP s Executive Committee and Board of Directors to develop GHP s Formal position. GHP ACTIVITIES Future of Aviation Shirt Sleeve Meeting On March 20, GHP held a shirt sleeve meeting with representatives from United and Southwest Airlines. Each airline gave an overview of their business model and shared their view on how investments should be made in George Bush Intercontinental (IAH) Airport (IAH) and William P. Hobby Airport (HOU). United Airlines aggressively supported the investment in, and focus on, IAH. Southwest Airlines suggested international service from HOU will increase competition throughout the Houston Airport System (HAS). Airports Task Force GHP s Airports Task Force met on April 13 th to discuss the Future of Airline Travel in the Houston region. Michelle Baden gave a presentation as an official representative of United Airlines. Dennis Braham made comments on behalf of Southwest Airlines. Following the discussion, there was an attempt to pass a recommendation Asking GHP to wait until all studies were complete before making a recommendation. After discussion of GHP s expected process for consideration, the motion was retracted and no action or recommendation was taken by the Task Force. The GHP staff insured the committee that its discussion and sentiments would be conveyed to the committee of consideration.

3 Culture and Tourism Committee On April 18 th, GHP s Culture and Tourism Committee met. There was no item on the agenda to discuss the aviation issue. However, at the request of the Chair, the Committee also approved a Sense of the Committee stating Should GHP decide to take a stand on the airports issue, the Culture & Tourism Collaborative would like to communicate its support for two international airports. Business Issues Committee The Business Issues Committee met on May 1 st to hear Houston Airport System (HAS) Director, Mario Diaz s, recommendation regarding the expansion of Federal Inspection Facilities at William P. Hobby Airport. Mario supported his recommendation by outlining five key concepts: 1) the strength of the Latin American market in Houston, 2) competition equates to reduction of monopoly in the Latin American market, 3) low cost carriers stimulate traffic, 4) the positive economic impact to Houston, 5) and the impossibility to relocate Southwest Airlines to George Bush Intercontinental. Following discussion, the committee made a motion for GHP staff to write a resolution of support for the HAS recommendation to allow international travel at William P. Hobby Airport citing support for competition at the consumer, airport and airport system level. The committee also felt that having two international airports would create an economic benefit to HAS and the overall Houston region, create jobs, and support the goals and mission of the Greater Houston Partnership to support economic development. GHP Public Policy Division and Research Division Since March 2012, GHP s Public Policy Division and Research Division have reviewed and analyzed over 19 academic and technical reports, six Congressional hearing testimonies, annual reports, and numerous memos and correspondence between the involved airlines and policy leaders at all levels of government. BACKGROUND INFORMATION The Greater Houston region is one of the largest metropolitan areas in the nation with a population of over 6.1 million. Over the past few decades, Houston has positioned itself as an international center of trade and commerce, the energy capital of the world, and as the headquarters for 25 Fortune 500 Companies. Business is thriving in Houston and an in order for this trend to continue, people and goods must have economical options to travel internationally. In 2011, George Bush Intercontinental Airport and William P. Hobby Airport, the two main airports within the Houston Airport System (HAS), served about 49 million annual commercial passengers including arriving, departing, and connecting passengers. According to an economic impact study released by HAS, $27 billion is pumped into the Houston economy by the Houston Airport System. International travel in particular, has experienced growth, increasing by 9.7 percent since 2007, and is contributing significantly to our prosperous economy. Additionally, the Report on Trade Facilitation Study released in 2011, stated each foreign visitor entering

4 the Houston area, using a HAS airport, is on average associated with between $1,200 and $1,700 in exports departing the U.S. from facilities in the Houston area. Low cost carriers (LCCs) can facilitate growth in the international sector by offering consumers and businesses choices when traveling. Decades of academic and technical studies show that the entry of a low cost carrier in the market creates significant depressions in airline fares. Furthermore, competition, particularly from low-cost carriers, has reduced airfares by 30 percent over the past decade. Competition clearly creates a direct benefit for consumers. In addition, when low cost carriers announce a new route, many times incumbent carriers have dropped their fares on those routes, resulting in an increase in passenger traffic on those routes and a benefit for the legacy carriers (Goolsbee, 2005). Studies further show that growth in the number of LCCs increases overall airline business activity and legacy airlines benefit from the spillover effects enough to offset the threats from LCC competition (Detzen, Another key to Houston s vibrant economy over the last couple years has been job growth. Air passenger demand is significant to the growth of a metro area s employment opportunities and to the increase in the number of establishments especially in the professional, scientific and technical sectors (Alkaabi, 2007). Last year alone, the Houston Airport System was responsible for more than 230,000 jobs, and new lost cost carriers entering the international market will further increase job opportunities. To expand Houston s aviation reach, significant investments have been made at both George Bush Intercontinental Airport and William P. Hobby Airport over the last two years to expand and improve airport infrastructure. This includes a $1 billion redevelopment project of Terminal B at George Bush Intercontinental Airport and a $6 million roadway project at William P. Hobby Airport. These investments and those planned for the future, must be preserved and supported as they are an integral part of the plan to enable Houston to compete globally. It is crucial that those traveling to and from Houston have a positive traveling experience while using our regional airports. Low cost carriers entering the international aviation market in Houston, creates the need for expansion of Federal Inspection Facilities and the need for additional customs resources to conduct efficient inspections. A concentrated regional effort is required to advocate for an increase in full-time Customs and Border Protection (CBP) officers to man current and additional Federal Inspection Facilities at all regional airports. Efficient and effective inspections will enable Houston to truly compete on a global scale. Houston s recent accomplishments do not mean we can remain satisfied and be stagnant in our planning. The population size of a metro area and its employment in the sectors of finance, insurance, real estate, information, professional, scientific and technical services, determines the metro area s likelihood to be a major air passenger market (Liu, 2006). Houston possesses all the tools required for additional economic growth. We must consider long term growth opportunities and that includes having the ability to offer competitive international air service to a variety of destinations on multiple airlines providing our community choice and capacity in air travel.

5 Future of Airline Travel References May 1, 2012 Articles and Reports Abda, M. B., Belobaba, P.P., & Swelbar, W.S. ( Impacts of LCC Growth on Domestic Traffic and Fares at Largest US Airports. Journal of Air Transport Management, 18(1), Retrieved from Alderighi, M. (2010). Fare Dispersions in Airline Markets: A Quantitative Assessment of Theoretical Explanations. Journal of Air Transport Management, 16(3), Retrieved from Alkaabi, K.A. & Debbage, K.G. (2007). Air Passenger Demand and Skilled Labor Markets by US Metropolitan Area. Journal of Air Transport Management, 13(3), Retrieved from Bhadra, D., & Texter, P. (2004). Airline Networks: An Econometric Framework to Analyze Domestic U.S. Air Travel. Journal of Transportation and Statistics, 7 (1). Retrieved from the Research and Innovative Technology Administration, Bureau of Transportation Statistics website: number_01/html /paper_06/index.html Borenstein, S. (2011). What Happened to Airline Market Power? (Working Paper). Retrieved from Bureau for Research and Economic Analysis of Development website: ipl.econ.duke.edu /seminars/system/files/seminars/068.pdf Bowen, B. D., & Headley, D. E. (2011). Airline Quality Rating Retrieved from Bowen, E., Bowen, B., & Headley, D. ( Frequent Flier Perceptions & Air Travel Satisfaction: The Airline Passenger Survey Retrieved from Brueckner, J. K., Lee, D., & Singer, E. (2011). Airline Competition and Domestic U.S. Airfares : A Comprehensive Reappraisal. Retrieved from UC Irvine School of Social Sciences website: Collier, K. & Moran, C. (2012, March 18) War between United, Southwest looms over Houston. Houston Chronicle. Retrieved from /Plan-for-Hobby-international-flights-triggers php Cooper, M. N. (1999). Freeing Public Policy from the Deregulation Debate: The Airline Industry Comes of Age. Paper presented at the American Bar Association. Retrieved from Consumer Federation of America website: Detzen, D., Jain, P. K., Likitapiwat, T., & Rubin, R. M. ( The impact of low cost airline entry on competition, network expansion, and stock valuations.journal of Air Transport Management, 18(1), Elsevier Ltd. Retrieved from /pii/s

6 Federal Aviation Administration. (2011). Airport Sponsor Assurances. Retrieved from /airports/alaskan/airports_resources/media/airport_sponsor_assurances.pdf Federal Aviation Administration. ( FAA Aerospace Forecast Fiscal Years Retrieved from aerospace _forecasts/ /media/2012%20faa%20aerospace%20forecast.pdf Federal Aviation Administration. ( Terminal Area Forecast Summary Fiscal Years Retrieved from _forecasts/taf_reports/media/taf_summary_report_fy pdf Goolsbee, A., & Syverson, C. (2008). How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines. Quarterly Journal of Economics, 123(4), MIT Press. Retrieved from GRA & InterVISTAS Consulting. ( The Economic Impact of International Air Service at William P. Hobby Airport. Liu, Z., Debbage, K., & Blackburn, B. (2006). Locational determinants of major US air passenger markets by metropolitan area. Journal of Air Transport Management, 12(6), Retrieved from Tan, K. M. (2011). Incumbent Response to Entry by Low-Cost Carriers in the U.S. Airline Industry. Retrieved from SSRN website: Williams, J. W. & Snider, C.A. (2011). Barriers to Entry in the Airline Industry: An Analysis of the Wendell H. Ford Aviation Investment and Reform Act. Retrieved from SSRN website: Congressional Hearings and Testimony The Airline Mergers and their Effect on American Consumers: Hearing before the Subcommittee on Commerce, Trade and Consumer Protection (Serial 107-3), 107 th Cong. 61 (2001). (testimony of Mark N. Cooper). Current Situation and Future Outlook of U.S. Commercial Airline Industry: Hearing before the Subcommittee on Aviation of the Committee on Transportation and Infrastructure (Serial ), 109 th Cong. (2005). Current Situation and Future Outlook of U.S. Commercial Airline Industry: Hearing before the Subcommittee on Aviation of the Committee on Transportation and Infrastructure (Serial ), 109 th Cong. 37 (2005) (testimony of Philip Baggaley). The Financial State of the Airline Industry and the Implications of Consolidation: Hearing before the Committee on Commerce, Science, and Transportation (S. hrg ), U.S. Senate, 111 th Cong. (2010). The Proposed United-Continental Merger: Potential Effects for Consumers and Industry: Hearing before the Committee on Transportation and Infrastructure (Serial ), 111 th Cong. (2010). The State of the Airline Industry: The Potential Impact of Airline Mergers and Industry Consolidation: Hearing before the Committee on Commerce, Science, and Transportation (S. hrg ), U.S. Senate, 110 th Cong. 37 (2007). (testimony of Mark N. Cooper).

7 Letters & Memos K. Kratky, Lufthansa German Airlines to Mayor Parker regarding concern over HAS study (February 13, K. Gebo, United Airlines addressed to Mario Diaz expressing concern over expansion of Federal Inspection Facilities at William P. Hobby Airport (February 22, M. C. Diaz, Houston Airport System (HAS) response to United Airlines, February 29, B. Montgomery, Southwest Airlines to Mario Diaz requesting formal evaluation of expansion of Federal Inspection Facilities at William P. Hobby Airport (March 1, A. D. Parker, Mayor of City of Houston to City Council members outlining timeline to decision (March 12, B. Montgomery, Southwest Airlines to Mario Diaz with response to United Airlines Concerns over expansion of Federal Inspection Facilities at William P. Hobby Airport (March 13, N. Foxhall, United Airlines addressed to Mayor Parker (March 16, K. Brady & A. Green, U.S. Congressmen to Mayor Parker expressing concern over expansion of Federal Inspection Facilities at William P. Hobby Airport (March 20, B. Swelbar & G. Hart, United Airlines to Jeff Smisek and Jim Compton providing initial thoughts on HAS Study (April 2, C. O. Bradford, Vice Mayor Pro Tem of Houston City Council to Mayor Parker regarding concern over process of HAS study release (April 3, United Airlines Bulletin to United Airlines Employees providing status update and request for action (April 4, J. Smisek, United Airlines to Mayor Parker requesting delay of Council decision until United Airlines study is complete (April 4, M. C. Diaz, HAS to Mayor Parker recommending southwest Airlines Request for Expansion of Federal Inspection Facilities at William P. Hobby Airport (April 9,