Adam Yalowitz Research Coordinator UNITE HERE 202-826-4086 ayalowitz@unitehere.org Airport Policy Brief: ALWAYS ASKING FOR MORE: UNITED AIRLINES REAPS BENEFITS OF GROWING LIST OF SUBSIDIES, RENEGOTIATED DEALS WHILE PAYING HOUSTON FOOD WORKERS LOWEST OF ANY HUB CITY United Airlines has received over $216 million in public subsidies from the City of Houston since the merger with Continental in 2011. Houston is also the only airport where United entirely controls three terminals, including keeping concessions revenue that would otherwise go to the City. While the City of Houston has renegotiated deals to United s benefit multiple times, and cited good jobs as justification, United pays Houston food workers lower than any other United hub city in the country. United and the City are currently negotiating a new Memorandum of Agreement. United wants the City to build it a new baggage handling system for Terminal E, another multimillion dollar subsidy for United without a public price-tag. Houston s ongoing public subsidies to United Airlines have a variety of consequences. Subsidies stifle competition and negatively impact other businesses at the airport. Additionally, as Houston looks to expand transit options to George Bush Intercontinental and Hobby International Airports, the airport system could invest in funding rail to Hobby and better transit connections to Bush rather than continuing to give United additional public subsidies. City of Houston public subsidies to United since 2011 Capital Projects Terminal B Terminal C International Terminal Project Technical Operations Center Terminal B/C Projects $52 million $85 million $36.5 million $22.5 million $20 million Control of Concessions Revenue Terminal B Terminals C and E $4 million per year Unknown /1
$216 million in capital subsidies to United since 2011 Houston has paid for $216 million in projects that only benefit United at IAH since 2011 Multiple subsidies for United required Council to appropriate additional funding years after the initial deals were approved Terminal B - $52 million In 2011, the City of Houston and United Airlines reached an initial agreement for the redevelopment of United s terminals at Bush Intercontinental Airport. In addition to giving up control of terminal operations and millions of dollars in concessions revenue to United annually, the City of Houston funded a significant portion of the overall project cost. The Houston Airport System paid $52 million for the apron, ramp and utilities infrastructure work for United s new Terminal B South. i Terminal C - $85 million In March 2015, the Houston Airport System came to City Council to approve four agreements with United Airlines. City Council appropriated $85 million to reimburse United for the new Terminal C-North ramp, the TX4 baggage transfer belt, the new consolidated ramp control tower, and for civic art. ii Like in Terminal B, United gained control of terminal operations and concessions revenue in Terminal C. International Terminal Project - $36.5 million Beyond funding $85 million of United s new Terminal C North and again giving up control of terminal concessions revenue, in 2015 the City of Houston also agreed to pay United $36.5 million for giving up its old space in the former Terminal C North building in order to allow the airport to expand Terminal D and build the new Mickey Leland International Terminal. Technical Operations Center - $22.5 million In September 2016, Houston City Council approved a $12.5 million economic incentive agreement for United to build their technical operations center in Houston. iii United expanded its existing aircraft maintenance operations and built new hangar facilities. Then, in November 2017, United and the Houston Airport System came back to City Council for an additional $10 million in funding for United s project beyond what was originally agreed to. iv Terminal B/C Projects - $20 million Like with the United Technical Operations Center subsidy, United also came back to City Council for additional money for Terminal B and C projects beyond the $85 million that was appropriated in 2015. In February 2017, United returned to City Council to request an additional $20 million in funding. The justification for the additional appropriation was that the original $85 million agreed to by the City was approved before the specific design or bids were received for the work. v 2/
Millions more, and counting: Special concessions arrangements divert otherwise public revenue to United annually Houston is the only airport where United entirely controls three terminals, and keeps most concessions revenue for itself rather than that revenue going to the airport Airport revenue per enplaned passenger stagnant at IAH while United profits IAH non-aeronautical revenue is lowest among United U.S. hub airports Giving up control of concessions to United Airlines in Terminals B, C and E amounts to a significant public subsidy to United. United s control of concessions in Terminal B alone is worth an estimated $4 million in lost airport revenue annually. While data for Terminals C and E is not available, United s concessions program in Terminal C is much larger than Terminal B. The City is letting United keep millions in revenue that other concessionaires have to pay the airport. Terminal B South Concessions Giveaway As part of its 2011 deal, United gained control of terminal concessions in Terminal B South. Previously, the airport collected concessions revenue. As part of the new terms, United collects the revenue and only has to give the City 10 percent up to a cap of $1 million per year. Given United s capped payment of $1 million per year, at most United would be required to pay the airport was $66.67 per square foot. vi Meanwhile, the non-united food, beverage and retail concessions packages City Council voted on in 2015 had an annual revenue estimate of $28.5 million for 86,400 square feet of concessions space at IAH, or $329.86 per square foot. vii United s maximum payment to the City for Terminal B South concessions revenue would be 80 percent less than other concessionaires at IAH. Based on sales estimates the airport provided City Council in 2015 for other concessions packages, United keeps an estimated $21.5 million extra sales revenue per year just from Terminal B South concessions. Terminal C Concessions Giveaway As part of its March 2015 deal, United gained control of terminal concessions in Terminal C as well. This deal was even more lucrative for United than the Terminal B concessions agreement the maximum amount of concessions revenue United is required to pay the City is capped at only $500,000 a year, while the concessions space is significantly larger. Terminal E Concessions Giveaway United also has exclusive control of terminal operations in Terminal E and has kept the revenues from food and beverage, retail, gifts and advertisings concessions for over 15 years. United s lease for Terminal E began in 2001, and the terminal opened in two phases in 2003 and 2004. viii Concessions revenue from Terminal E is particularly valuable to United because international travelers have a longer average dwell time at the airport and can purchase all goods exempt from sales taxes. ix City Earnings from IAH Concessions Stagnate, Lag Other Airports As a result of Houston giving United Airlines exclusive control of three terminals at IAH, including letting the airline keep most concessions revenue, overall food, beverage and retail revenue at IAH for the Houston Airport System has been relatively stagnant in recent years. /3
Houston Airport System Revenue from Food, Beverage and Retail Concessions at IAH 2017 $17,775,502 2016 $15,368,255 2015 $19,856,705 2014 $20,560,924 Source: FAA Operating and Financial Summary Report 127 for IAH Airport Houston Airport System s food, beverage and retail concessions revenue per enplaned passenger is lower at IAH than at Hobby. Based on data reported to the FAA, for the fiscal year ending June 30, 2017, the City of Houston made $1.76 in revenue per enplaned passenger from food, beverage and retail concessions sales at Hobby but only $0.86 per enplaned passenger at IAH. To compare to another large hub airport, Dallas-Fort Worth International Airport made $1.67 in revenue per enplaned passenger from their food, beverage and retail concessions for FY2017, grossing over $55 million in revenue. Newark Liberty International Airport (EWR) is the only other airport where United keeps concessions revenue, from one terminal. Having lower non-aeronautical revenue because of this subsidy to United has the potential to artificially inflate costs for other airlines operating at IAH. Less revenue is available for the airport to invest in non-united related capital projects and debt service, effectively limiting the airport s ability to attract more airlines to IAH and stifling competition. These subsidies also negatively impact other concessions businesses at IAH that have to compete with United s concessions outlets while being charged higher rents by the airport. Airport Revenue from Food, Beverage and Retail Concessions at United U.S. Hub Airports Airport Revenue Enplanements Revenue per enplaned passenger LAX $153.6 million 41,602,124 $3.69 IAD $37.3 million 11,323,660 $3.29 ORD $108.2 million* 38,872,669 $2.78 SFO $71 million 26,871,549 $2.64 DEN $44.9 million* 29,140,204 $1.54 EWR $32.6 million 21,507,885 $1.52 IAH $17.8 million 20,703,800 $0.86 Source: FAA Operating and Financial Summary Report 127 for IAH Airport xxii *Most recent data available for FY2016 An Alternative to Even More United Handouts: Improving Public Transit to Bush and Hobby Airports 4/ Houston s ongoing public subsidies to United Airlines have a variety of consequences. As discussed above, these subsidies hurt other airport concessionaires, stifle competition, and make IAH less attractive for other airlines to invest in. In addition, hundreds of millions of dollars in public money could be invested instead in airport projects that benefit the entire airport and the general public, like airport-related public transit.
Improving public transit throughout Houston is key to keeping Houston competitive. Large companies, including Amazon, have made vibrant transit public systems a prerequisite when choosing cities for large corporate campuses. xix In particular, Mayor Turner has emphasized the need to have more reliable transit options to Bush and Hobby Airports. Amazon HQ2 Request for Proposals Core Preferences Site Requirements Population Center International Airport Highways and Roads Mass Transit Houston Yes Yes Yes Not Competitive Houston Airport System funding that has been used for projects that only benefit United at IAH could instead be used to expand rail to Hobby and improve transit connections to Bush in compliance with FAA airport funding rules. Other hub airports around the country have invested millions of dollars in airport funds to increase public transit access to their airports. In airport rankings, Bush Airport has been criticized in particular for the amount of time it takes to use public transportation to get to the airport from downtown. xiixi Adding Insult to Injury: United pays Houston food workers lower than any other United hub city United has received hundreds of millions of dollars in public subsidies from the City of Houston in recent years. Yet, United doesn t care about Houston residents who serve food for the carrier and its passengers every day. United Airlines catering employees at IAH are stuck in poverty, earning as low as $9.99 to start and just over $11 per hour after nearly 30 years of service. The restaurant workers in United s terminals face similar challenges. In fact, United pays Houston food workers lower than any other United hub city in the country. I ve worked in the United Airlines catering kitchen at the Houston airport for nearly 30 years, but I make just over $11 an hour. María Velásquez While the airport is negotiating a new agreement with United for Terminal E and the International Terminal Project, the City can require the airline to pay a fair wage. $9.99 lowest wage for United Airlines catering employees at IAH /5
Other United hub airport authorities have taken action to address wages of airport workers: Airport Airport Minimum Wage Newark (EWR) $19 by 2023* Los Angeles (LAX) $17 by 2021 San Francisco (SFO) Chicago (ORD) $14.52 now $13.80 now Washington (IAD) $12.75 by 2020 Source: Links to minimum wage laws in endnotes xiii *Pending final vote by Port Authority of NY and NJ Board in September 2018 Looking Ahead: Questions City Council should ask of United Airlines and the Houston Airport System As City Council considers approval for any new Memorandum of Agreement with United Airlines, council members should do due diligence. Houston deserves to know the answers to the following questions: How much is City of Houston being asked to pay for United s baggage system in Terminal E? Why can t United pay for their own baggage system? How much profit does United make from having control of terminal concessions? Every other project Houston has paid for United, United has come back for more money. What guarantees do we have United will not come back for more money again? Why does Houston keep renegotiating deals to United s benefit while they pay Houston food workers the lowest of any United hub city in the country? How much do United s employees make by demographic at IAH? UNITE HERE UNITE HERE represents almost 3,000 hospitality workers in Houston, including over 1,500 airport concessions workers at Bush Intercontinental Airport. Nationally, the union represents 35,000 airport concessions and airline catering workers at 51 airports in the United States. The UNITE HERE research department regularly conducts analysis of airport development projects across the country. 6/
Endnotes i Houston Intercontinental & United Wrap Up First Phase of $1 Billion Terminal Project, Robert Nordstrom. Airport Improvement. January-February 2014 http://www.airportimprovement.com/article/houston-intercontinental-united-wrap-first-phase-1-billion-terminal-project ii Houston City Council, March 31, 2015: HAS Terminal C with United Airlines for IAH https://houston.novusagenda.com/agendapublic/coversheet.aspx?itemid=3607&meetingid=83 iii Houston City Council, September 7, 2016: HAS Memorandum of Agreement (MOA) with United Airlines, Inc. for the Development of a Maintenance Hangar Complex at IAH https://houston.novusagenda.com/agendapublic/coversheet.aspx?itemid=8250&meetingid=138 and United breaks ground on $162 million maintenance project, Andrea Rumbaugh. Houston Chronicle. October 25, 2016. https://www.houstonchronicle.com/business/article/united-breaks-ground-on-162m-maintenance-facility-10330474.php iv Houston City Council, November 14, 2017: HAS Special Facilities Lease (SFL) for United Technical Operations Center (UTOC) https://houston.novusagenda.com/agendapublic/coversheet.aspx?itemid=12607&meetingid=261 v Houston City Council, February 21, 2017: HAS Construction Management and Reimbursement Agreement (CMRA Funding Change Request with United Airlines https://houston.novusagenda.com/agendapublic/coversheet.aspx?itemid=9094&meetingid=209 vi Westfield and United Airlines reveal new commercial offer at Houston, Genevieve Knevitt. The Moodie Report. April 3, 2013 https://www.moodiedavittreport.com/westfield-and-united-airlines-reveal-new-commercial-offer-at-houston/ and $1 billion terminal expansion at Bush airport is approved, Chris Moran and Jenalia Moreno. Houston Chronicle. August 10, 2011 https://www.chron.com/business/article/1-billion-terminal-expansion-at-bush-airport-is-2078855.php vii Houston City Council, March 24, 2015: HAS Food/Beverage/Specialty Coffee Concession Agreements for IAH https://houston.novusagenda.com/agendapublic/coversheet.aspx?itemid=3452&meetingid=82 and Houston City Council, March 24, 2015: HAS Retail Concession Agreements for IAH https://houston.novusagenda.com/agendapublic/coversheet.aspx?itemid=3453&meetingid=82 and Houston Airports: Airport Concessions, February 2015 https://www.houstontx.gov/council/committees/bfacommittee/20150219/has-concessions.pdf viii City of Houston, Texas Airport System Official Bond Statement dated March 2, 2018 https://emma.msrb.org/es1115811-es872446-es1273739.pdf ix Airports Council International 2016 ACI-NA Concessions Benchmarking Survey, April 2017 https://www.aci-na.org/sites/default/files/2016-aci-na-concessions-benchmarking.pdf x FAA Airport Financial Reporting Program, The Operating and Financial Summary, FAA Form 5100-527 https://cats.airports.faa.gov/reports/rpt127.cfm xi Amazon HQ2 RFP https://images-na.ssl-images-amazon.com/images/g/01/anything/test/images/usa/rfp_3._v516043504_.pdf xii The Best and Worst Airports in the U.S. Michael Y. Park. The Points Guy. November 3, 2016 https://thepointsguy.com/guide/best-and-worst-airports-usa/ xiii Airport Minimum Wage Laws: Newark (EWR): www.panynj.gov/wagepolicy Los Angeles (LAX): http://clkrep.lacity.org/onlinedocs/2015/15-0817-s1_ord_185321_01-20-2018.pdf San Francisco (SFO): http://media.flysfo.com/media/quality-standards-program-2016.pdf Chicago (ORD): https://chicago.legistar.com/legislationdetail.aspx?id=3110636&guid=- 6D13AD27-E73E-41E1-A837-2BCBDD4101A6&Options=Advanced&Search= Washington (IAD) : http://www.mwaa.com/about/airport-workers-wage-program /7