Tuesday, October 03, 2006

Houston airports go for outside revenues

Came across this interesting article from USA Today on how airports are looking for new sources of revenue. Houston is prominently featured (excerpts below), and the article also has a section on DFW real estate development and gas drilling.

Another interesting set of stats buried in the article:
  • IAH: 12,000 acres
  • DFW: 18,000 acres (larger than Manhattan)
  • Denver: 34,000 acres, largest in the U.S. I've been there, and they're not kidding - it's massive. Wikipedia says they have space for 12 (!) runways. IAH's long-term master plan calls for 7, up from 5 today, which should be more than enough for the forseeable future - although I'll bet they could squeeze in an 8th or 9th if it became necessary.
On to the Houston excerpts:
About a year ago, officials from Houston Bush Intercontinental airport huddled to tackle a persistent conundrum — how to squeeze more money out of its 12,000 acres of land.

As part of an ongoing effort by the airport to increase non-aviation revenue, officials thought the land, which needed constant maintenance, could be put to more productive use.

From that meeting came Houston's latest money-making idea having nothing to do with airplanes or airline passengers: cutting and baling the grass on airport land and selling it as hay to cattle ranchers.

The city-owned airport formally launched its agricultural program this month by cutting some of the wild grass on its land.

Sales generated a modest $30,000. But the airport will broaden the program by sowing 2,000 acres later this year with Tifton 85 Bermuda, a protein-rich grass favored by livestock growers.

"The general sense in the business is that airlines are going to have ups and downs," says Richard Vacar, director of Houston Airport System. "And we're trying to find other sources of revenue so that we don't fully depend on airlines, particularly in a downturn."

The Houston hay venture typifies a growing trend in airport management: looking beyond traditional aviation-related sources to bolster finances.

...

Airports' increasing participation in entrepreneurial activities has raised some questions about how much risk a government should undertake. A failed enterprise by an airport has the potential to backfire on local government. Losses could lead to a lower bond rating or even a bailout.

How much risk is too much?

Houston now has an indirect ownership stake in an airport in Ecuador that came about from its foray into selling consulting services to foreign airports. But officials there took steps to insulate the city from risks associated with the venture.

In 2001, Houston formed an affiliate company, HAS Development, to market the airport's consulting and training services to foreign airports. It brings in about $1 million annually for the Houston Airport System.

The company trains airport managers from developing countries on a wide range of issues, including safety standards, running a fire department and management practices.

One of its early projects was consulting Ecuador's Quito Mariscal Sucre International for its concessions program.

After the government's privatization of the airport, HAS and its financial partners now manage the airport. HAS owns a 25% stake in Mariscal Sucre.

The government is building an airport to replace Mariscal Sucre, to be open in four years. HAS and its partners will continue to operate the new airport. HAS is also looking to buy stakes in other foreign airport complexes.

Houston's Vacar says he doesn't believe the city airport system is taking undue risk by venturing into airports in developing countries.

As a separate non-profit corporate entity, HAS Development shields the airport system and the city from liabilities, he says.

Paula Hochstetler, president of trade group Airport Consultants Council, says assessing risk will be increasingly important as airports begin to broaden their businesses beyond the traditional functions.

As public agencies, airports should stick to businesses that pose little risk to the local governments that own them, she says.

"They have to be deliberate and have good business sense that it doesn't place the airport in jeopardy."

I knew HAS provided consulting to airports in other countries, but this was the most detail I've come across on that arrangement. I guess we should be proud we have an airport system so well run other countries want to know how we do it.

6 Comments:

At 9:48 PM, October 03, 2006, Blogger Kevin said...

I wonder if Vacar teaches other countries how to craft sweetheart deals for favored local vendors, like he does here at home for Yellow Cab?

Then again, if he's advising the right countries, they may have that whole cronyism/corruption thing down pretty well.

 
At 2:56 PM, October 05, 2006, Blogger redhairblueface said...

That Denver airport isn't just big, it is absolutely stunning. An engineering feat.

 
At 4:14 PM, October 05, 2006, Blogger Tory Gattis said...

Quite the engineering feat. $2B overbudget, and an automated luggage system famous for its carnage. See
http://en.wikipedia.org/wiki/Denver_International_Airport

 
At 10:09 PM, October 05, 2006, Blogger redhairblueface said...

You say overbudget; I say way ahead of its time.

 
At 7:41 AM, October 06, 2006, Blogger Tory Gattis said...

Don't get me wrong, it's an impressive airport. But how does an airport project go from $3.2B to $5.2B, 2/3 over budget? "Oops, we forgot about the equivalent of 4 Reliant Stadiums we need?" The Big Dig I have a (small) amount of sympathy for: you never know what you're going to have to deal with under a 300+ year old city. And building/tunnel collapses are not an option.

But an airport? You have all the land, and plenty of them have been built before. They're a well known engineering task. Yes, the runways have to be longer for the high altitude, but that's simple math. I just can't see it. Almost certainly, there was intential misleading/fraud on the front-side estimates to get the project approved. Wouldn't be the first time.

 
At 11:58 AM, October 06, 2006, Blogger redhairblueface said...

Kind of reminds me of the new Scottish Parliament building. Way over-budget, but brilliant.

 

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