Debt, Airports, and Kansas City
With Kansas City considering new terminal plans for Kansas City International Airport (MCI), it’s a good time to revisit some basic tenets of terminal finance.
There are good reasons to build new airport terminals, whether at MCI or any other airport. It may be that continuing to maintain and operate existing buildings is just too expensive compared to a modern replacement, especially given possible service upgrades. Many airports also build new terminals to accommodate increased flights or different carriers that existing terminals cannot.
However, the cost of any terminal plan needs to be taken into consideration. If an airport like MCI takes on too much debt, the results can be higher prices (for parking, car rentals, etc.) and fewer flight options for residents. Right now, MCI is in a good financial position, and has a relatively low debt load for an airport of its size. That allows MCI to offer low fees to airlines and moderate prices for terminal services, and to borrow cheaply. As a counterexample, consider the most indebted of MCI’s peers, San Jose International Airport (SJC). After completing a $1.3 billion new terminal a couple years ago, SJC struggles to keep airline costs low so it does not lose service. Doing so is causing SJC to burn through reserves at a rate of $30 million per year, which is not sustainable. If SJC cannot significantly increase revenue, San Jose may have to subsidize the airport’s debt through the city’s general fund.
If MCI had gone forward with the erstwhile “New Terminal Plan” (priced at $1.2 billion) its debt level (and debt payments) would have become the highest among its peers, including San Jose:
This would have been a risky move for MCI and Kansas City residents. Unfortunately, despite our objections and common sense, some in Kansas City’s leadership seem to think that costs do not matter at airports, and that MCI can simply pass extra costs onto airlines and travelers without consequence.
Kansas City International Airport may be better off with a new terminal. The city’s aviation department may put forward a plan that makes sense for travelers and the airport’s finances. Our main criticism over the late “New Terminal Plan” was that because of the $1.2 billion price tag and the fact that the plan would have resulted in less capacity, the proposal seemed more about civic ego than helping residents get good flights. We hope any new plan won’t have the same problem.