Development

Airlines reach new 10-year lease with Charlotte Douglas International Airport

An American airlines jet takes off at Charlotte Douglas International airport on Dec. 23,2015.
An American airlines jet takes off at Charlotte Douglas International airport on Dec. 23,2015. rlahser@charlotteobserver.com

Charlotte’s airport has reached a new lease agreement with American Airlines and other carriers, in a deal that continues a profit-sharing arrangement with the airlines.

The agreement also includes a commitment by the airlines to support the next decade’s worth of expansion projects at Charlotte Douglas International Airport, and could help the airport add more gates to lure other air carriers.

The new lease has a 10-year term – less than the current 30-year lease that expires this summer – but it would still cement Charlotte Douglas’ status as a major hub for the foreseeable future. Charlotte City Council members will hear the details of the lease at their meeting Monday, and they’re set to vote on the agreement.

Charlotte’s airport will continue sharing 40 percent of profits from parking and concessions in the terminal with the airlines, according to a summary of the lease. The profit-sharing provisions, which have been in place for 30 years at Charlotte Douglas, help the airlines offset their costs and make the airport more appealing for them to fly from.

Charlotte Douglas is the second-busiest hub for American Airlines, after Dallas/Fort Worth. American Airlines operates about 90 percent of the airport’s 700 or so daily flights.

The profit-sharing agreement is prorated according to how heavily the airlines use the airport, so most of the money goes to American. Last fiscal year, Charlotte Douglas gave airlines $14.8 million worth of shared profits, according to financial statements.

If City Council approves the new lease, it would take effect July 1. The airport has been negotiating with the airlines since January 2015, holding monthly meetings.

The new airport lease includes several new provisions that will help Charlotte Douglas, according to the summary on the ity Council’s agenda. These include:

▪ A commitment by the airlines to support $500 million worth of projects that will expand the terminal and other airport facilities over the next decade. The airlines will provide “extraordinary debt service coverage protection” to backstop Charlotte Douglas’ bonds. The bonds are usually paid with airport revenues and fees charged to the airlines, not local taxes. Under the proposed new lease, if the airport is unable to meet its debt obligations, the airlines will have to pay the debt.

▪ An exemption from the requirement that a majority of the airlines approve new capital projects that make additional terminal space and facilities for a new airline or carrier that wants to expand at Charlotte Douglas. That could mean Charlotte Douglas has more flexibility to expand gates and attempt to lure low-cost carriers without approval from American.

A Charlotte Douglas spokeswoman said interim Aviation Director Brent Cagle wouldn’t be available to comment Thursday. Cagle will present more details on the agreement to City Council members on Monday, before they vote on the deal.

American Airlines spokeswoman Michelle Mohr said the airline is “pleased” with the new lease.

“The agreement allows for significant airport improvements that will create a better customer experience while maintaining CLT’s track record of cost-effective management,” said Mohr, in an email.

Hub status

Unlike most other hub cities, such as New York, Los Angeles or Chicago, Charlotte is heavily reliant on connecting passengers to fill flights at the airport. Most of the travelers at Charlotte Douglas – about 80 percent – are connecting from one plane to another, rather than starting or stopping their trip at Charlotte.

As a result, Charlotte has hundreds more daily flights than most cities its size, allowing greater connectivity on nonstop flights. The 150 or so destinations carriers fly to from Charlotte are more than the city could support if it were relying only on local passengers.

Charlotte Douglas has maintained hub status by staying a cheap place for American, and predecessors US Airways, USAir and Piedmont Airlines, to fly from. Charlotte Douglas has the lowest per-passenger cost of any major hub airport – $2.28 per passenger vs. $6.86 in Dallas/Fort Worth and $19.13 in Miami, according to a 2013 study.

Although Charlotte Douglas is a cheap location for the airlines to operate from, it often isn’t for passengers. The average domestic airfare for flights originating in Charlotte was about $447 in the third quarter last year, according to federal data. That’s almost 21 percent higher than the national average of $371.

Other airports have reached shorter deals with airlines recently, reflecting a more fluid air travel industry that shuns the 30-year, long-term operating agreements that used to be more common. Philadelphia, another American Airlines hub city, signed a five-year lease with the airlines in July.

Ely Portillo: 704-358-5041, @ESPortillo

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