Crry or HousroN

Office of the Moyor

lnleroffice
Correspondence

To:

City Council Members

From: Date:
Subject:

Mayor Annise D. Parker

/T \"
"/

{)fo,"r \/
' rdj

March
Hobby

12-2012 '

-.
itt n-jv"rry'

.:Y

Airporl

The attached memorandum describes, in detail, the process we will use to consider whether the City of Houston supports the creation of an Intemational Terminal at Hobby Airport. The key dates are that the Director of Aviation will submit a report to me on April 9th recommending future actions. If we conclude that we support the cfeation of an Intemational Terminal at Hobby then City Council will be asked to approve a Memorandum of Understanding on May 9th.

Southwest Airlines International Services at Hobby Airport Purpose

Timeline to Decision

This white paper provides a description how an important recommendation will be made in response to the request by Southwest Airlines (Southwest) to expand air service at the William P. Hobby airport of the Houston Airport System. Southwest has indicated that it will extend its competitive reach into various intemational markets if it receives the approval and support of the City of Houston.

Background
Southwest Airlines has taken the strategic decision to enter the regional international passenger market by proposing to offer service between Mexico, and other Central and South American countries, and Houston. The airline has identified substantial traffic between cities in Mexico and Houston, and believes these travelers can afford and would make use of a low-cost air traffic option to Houston for purposes of business, leisure, tourism and shopping if Southwest were to be permitted to operate internationally from the William P. Hobby airport (HOU, Hobby).

To facilitate Southwest's foray into intemational passenger markets would require a substantial investment in the Hobby Airport terminal, as well as the'need to reach agreement with the federal government for the creation of a Federal Inspections Service (FIS), and the resolution of economic and competitive issues which inevitably arise. United Airlines and other carriers continue to provide extensive international traffic between Houston and Central and South America from Bush International GAff)

ln order to reach a decision regarding Southwest's proposal, an analysis of what is in the best interest of the Houston Airport system and the City of Houston is underway. The decision whether to permit international operations from Hobby Airport will not be made in a vacuum. The perspectives of many stakeholders, including the needs of passengers and the views of airlines, will be weighed.
The approach for this important recommendation involves a discussion among the leadership of the airport, city leadership, the business community, federal regulatory agencies, and the Houston congressional delegation. To understand the implications (financial, operational, and economic) will necessitate the use of consultants and experts who are knowledgeable about the issues, costs and benefits involved in such a decision. The approach for this analysis and decision-making combines Houston Airport System staff members with experts invited to participate in a peer review of the proposed competitive international route expansion and the impacts that are forecasted to occur.

Preparation and Actions to be Taken

The timeline to a decision on the Southwest request

will involve

three key actions.

l. 2. 3.

A recommendation to the Mayor whether to approve or reject Southwest's request. lf the recommendation were affirmative and the Mayor decided to proceed, Airport staff would conclude a memorandum of agreement(MOA) with Southwest for presentation to the City Council. The memorandum of agreement would be submitted to the City Council for approval.

All three actions

are at present contemplated to be taken before the end of May 2012. If the recommendation is to disapprove the request, a discussion will first be held with Southwest, supplemented with a formal letter explaining the reasons therefore, with a copy to be provided to the Federal Aviation Administration, Airports District Office in Dallas.

A very important consideration leading to the right decision to be recommended involves the assembly of documents, including the preparation of a route analysis. This analysis will evaluate the likely markets that Southwest would enter, the frequency of service that it may look to operate, and will provide a forecast of the number of incremental passengers that would take advantage ofthe new service. It will also show what the impact might be on current passenger traffic at Bush Intercontinental Airport.
An economic impact analysis describing the likely benefits to the City and area gross domestic product will likewise be prepared, using as the base set of assumptions the output of the route analysis model developed to determine the incremental passenger flows-local and transfer-derived from the proposed new service. Comparable situations across cities in the United States will be reviewed to determine whether the request to Houston was unique and without precedent, or whether there exist conditions similar to what would exist in Houston if Southwest's request were approved.
There are clearly governmental and regulatory issues that will need to be weighed in reaching this historic decision. Risks will be identified for consideration. Questions of financing the investment to be made, what credit would be available to support the financing needs, and who would bear the possible downside risk ofa shortfall in reaching projected levels oftraffic all need to be addressed.

Stakeholders

It will be important to gauge the general sentiment of business and civic organizations, which represent the interests of passengers, regarding the possibility of new international service at HOU. To date, key members of the Greater Houston Partnership, the Houston Convention and Visitor's Bureau, the Houston Hispanic Chamber of Commerce, and the Bay Area Houston Economic Partnership have been given preliminary information and have been requested to submit any questions or statements they may wish to be considered in aniving at a recommendation.
Similarly, it will be important to understand and weigh the views of the international airlines that currently operate at IAH. We have already met and corresponded with United Airlines and we will shortly be engaging the other international airlines at IAH to understand their interests. There may be other organizations that may request a briefing, or we may wish to brief in further detail at the appropriate
time.

It will be important that we meet with the federal regulatory agencies such as the Federal Aviation Administration, Customs and Border Protection, and the Transportation Security Administration to inform them of the pending assessment underway. We will seek specific guidance from each concerning the responsibility the City and the Houston Airporl System may have, both to Southwest and to any other parties, in interest over this matter. Finally, members of our congressional delegation have been alerted to the on-going assessment and have will have an interest in the outcome from both a budget and regulatory oversight perspective, over the course of the next few weeks we will undertake to make these briefings.
asked that we brief them as well. As they

Timeline
Given the above discussion and anticipated and required actions, the accompanying detailed schedule events is provided to give a sense for the order and timing of each.

of

l\'} esto$* l: Recr:r$mlemdation olt $$nt{hc*-est Alrline (WI{} R*qar*st r March l-23120122 HAS to gather all relevant documents and retain services for the production
of analyses determined to be of interest and central to assisting in understanding the issues
presented.

o o o r e .

March 7,20122 Peer Evaluation Meeting: A half-day collaboration of Houston Airport System
staff and consultants to review, discuss, and debate the findings produced by the respective
studies.

March 8-912012: Possible opportunity while in DC for FAA Conference that the Aviation Director brief select members of the Texas and Houston congressional delegation.

March l2-15r2012: Draft"report and recommendations to be prepared by the consultants. March 12,2012: Meeting with Southwest Airlines to provide an early assessment of the request
made and to confitm the key assumptions and output of the models developed.

March 26120122 Release reports to the airlines at HOU and IAH, and answer any questions they
may have.

April 9,2012:

Report from the Director of Aviation to the Mayor providing "Director's Recommendations". The report will be a memorandum with a synopsis of history, efforts, actions, meetings, reports/analysis done, peer review, and all other actions and efforts made to arrive at the recommendation. The Mayor will decide if the item will proceed to subsequent
steps.

lddr:-rflrrr;* "f lr*fpptir:rrf*tg

r"*i.gl*

ff;*

i.it'{i,q'jJ*rf#li{jrf^\ rjr?*f }""rJi.;r,r,j

;t; iitti;t"mglfr:si

fs; yfe* r:c.df;Jju.

F3i[cstume

?1: Fi*al

Aggrel*lta*rcat pvit!: $c]$tEawest

*n

. April 16,20122 .

&'lemcgr$l:c]mmr r:f "{gr*enmc*t

{l!{{}A)

Create draft of MOA for WN with Legal Department input. The MOA would include a caveat presenting a timeline for Southwest to obtain CBP approval to staff a new FIS. Complete discussions with WN on finalized MOA.

April23,2012: }

,{f,fd''tri'''c"

'-"ti/tt#rrttrE'.o rg'jffi ffr+: rri;rr'eJ $fl{}.$

slirfi

x"ErgsffJr'.,"1f .,{j;d,'rr'rr-

{d$,\i,

F{ilest*n* 3: {}bt;aka il*rrn*:in *atrrpr*val frlr NIGA May 16,20122 Submit RCA for Council action.
't.Sif.'v,, ldlri aJ.","iI. ]. < f{if,re{t;?*tf.9 -..irf* s.fii t srdifft.Sd Ijr|Jirr{tr ""J""",'."..s.". rFd{fd 1';d..r"'"'"'*'.Jf.i*".*""".."" ,. "'.-,*',,,.* . tjrt " JtFstl{{.t.

l Assuming an affirmative recommendation and decision taken to allow international operations. Otherwise, letter would be prepared and delivered to Southwest stating the decision and reasons therefore. If the decision is not to proceed further milestone's are not relevant.