Southwest Airlines promises cheaper flights to Mexico

With $100M Hobby expansion

by Doug Miller / KHOU 11 News Posted on May 23, 2012 at 10:27 AM Updated yesterday at 7:13 PM

HOUSTON—Southwest Airlines just threw $100 million on the table in a high-profile fight with United Airlines, committing to a deal that now seems destined to change the way Houstonians fly to Mexico and Latin America.

Southwest has agreed to pay for the construction of five new gates and a customs facility to accommodate international flights out of Hobby Airport.

Mayor Annise Parker and Southwest CEO Gary Kelly announced the agreement in a celebratory media event at Hobby, surrounded by cheering airline employees. Just as importantly, the mayor was joined at the podium by seven council members, indicating she will need only one more vote to pass the deal through city council.

"Southwest Airlines has agreed to pay for all of the expenses associated with this expansion," Parker said to boisterous applause. "That’s it." 

United, which dominates local air travel from its hub at Bush Intercontinental Airport, has waged a high-profile fight to kill Southwest’s international ambitions at Hobby. Both airlines have hired brigades of lobbyists, publicists and political consultants to influence the council members, who must approve the proposal. But the number of elected officials joining Southwest’s CEO at the podium indicates United now has little chance of winning this political battle.  

"Competition is good," Kelly said. "Houston has suffered from monopoly airfares to Mexico, Central America, the Caribbean and South America long enough. So we will bring lower fares. We will bring more competition."

The deal scuttles a $1.50 per ticket passenger fee that was part of the earlier proposal. Instead, Southwest will collect up to $3.9 million a year of Hobby’s concession revenues under a complicated formula based upon the growing number of passengers flying through the airport in future years.

Southwest will have rent-free first access to four of the five new international gates if the deal is approved by city council. The fifth gate would be available for other airlines, but they would have to pay rent.

"The airline will design and build these gates to the city’s specifications," Parker said, adding that the airline will also use the city’s policies on giving preferential treatment to local and minority contractors.  That’s an especially important concession for some minority council members, who have pointedly questioned airline executives about their hiring and contracting practices.

Southwest intends to book about 20 more flights a day. But federal regulators must still approve any new international routes for the airline. City officials say under the agreement, Southwest is still committed to building the new facility, even if the FAA rejects the new routes.

The deal will go before city council next week, but under the council’s parliamentary rules, the vote will probably be delayed for another week. Construction is expected to begin next spring.

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