Bloomberg News

Southwest Plan Advances for Flights Abroad at Hobby

April 09, 2012

Southwest Airlines Co. (LUV:US) won backing from Houston’s aviation director to add international flights at the city’s secondary airport after larger competitor United Continental Holdings Inc. (UAL:US) objected.

The proposal to expand at William P. Hobby Airport would add 1.5 million passengers a year, 10,000 jobs and an annual economic benefit of $1.6 billion for the metropolitan area, according to a memo today to Mayor Annise Parker from Mario Diaz, director of aviation for the Houston Airport System.

George Bush Intercontinental Airport is Houston’s main overseas gateway and the biggest hub for United, which along with its regional partners controls about 80 percent of passenger traffic there, while Southwest has about 90 percent of traffic at Hobby, where flights are chiefly domestic.

Parker will review Diaz’s analysis before deciding whether to accept the recommendation, which also needs approval from the City Council and U.S. regulators, the airport system said on its website. United asked the mayor last week to defer any decision on Southwest’s request pending further study.

Southwest proposed spending as much as $100 million for a five-gate terminal with customs facilities, breaking with a history of U.S.-only flying. New Hobby flights would include Mexico, the Caribbean and elsewhere in Latin America as Dallas- based Southwest absorbs the 2011 purchase of AirTran Holdings Inc. (AAI:US), which already serves some of those destinations.

‘Fundamentally Flawed’

The assumptions in the city of Houston’s analysis are “fundamentally flawed,” Christen David, a spokeswoman for Chicago-based United, said today in an e-mail. United’s own, unfinished assessment shows that Southwest’s plan would “significantly harm” Intercontinental, David said.

United Chief Executive Officer Jeff Smisek, who ran Houston-based Continental Airlines before its 2010 merger with United, wrote to Parker to request the delay and told employees that the airline’s Houston hub would suffer “serious injury.”

Hobby’s expansion would imperil the airline’s $700 million investment at its Intercontinental hub and could result in 1,300 United job cuts in Houston, Smisek wrote in an April 4 memo.

“I didn’t expect United to agree with it,” Bob Montgomery, Southwest’s vice president for properties, said in an interview. “That’s why the city did an independent study. I expect whatever study is done by whoever, it will find objection from United. They enjoy a near monopoly in that marketplace and I believe they want to keep that monopoly.”

New flights could start in mid- to late 2015, he said.

Intercontinental is about 30 miles (48 kilometers) from Hobby and is closer to some of the newer business and residential developments on Houston’s northern and western fringes. Hobby airport is in the city’s southeastern quadrant.

While Intercontinental has been home for decades to most of the region’s international flights, overseas flying isn’t banned at Hobby, and both Southwest and Continental expressed interest in adding such flights there as recently as 2003, Diaz said on a conference call with reporters.

Two airlines in Mexico have also expressed interest in a new international terminal at Hobby, Diaz said.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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Companies Mentioned

  • LUV
    (Southwest Airlines Co)
    • $28.87 USD
    • 0.82
    • 2.84%
  • UAL
    (United Continental Holdings Inc)
    • $46.0 USD
    • 1.18
    • 2.57%
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