Insights into the dispute between the airport and Southwest over the new terminal

Southwest Airlines last week refused to sign a new use and lease agreement for San Antonio International Airport (SAT) that was two years in the making unless the airline gets the 10 gates it wants when a new $1.4 billion concourse is built. is being built.

But that didn't stop the San Antonio City Council from approving the terms of the agreement on September 12. The new 10-year agreement is set to take effect on October 1, and seven airlines are willing to sign it – with or without Southwest.

This means that the airline will not have access to the revenues for the time being and will not be able to participate in the planning of terminal improvements. It will also have to pay higher user fees than the other airlines operating at the SAT.

Now, officials from the San Antonio Aviation Authority say they are willing to meet and resolve the dispute. However, the terms of the agreement cannot be changed in favor of Southwest, the airport's largest airline, without the approval of all other airlines.

All in all, a complicated and uncertain future looms while plans to build the long-awaited new terminal are progressing rapidly.

New terminal

Talks between the airlines and the city government began in April 2022 after the San Antonio City Council approved the airport's strategic development plan without renewing the airport use and lease agreement that had been in effect since 2020.

Such agreements are common in the industry and set out airport and airline fares and fees, as well as airlines' use of the airport, such as gate locations. The agreements are worked out through a series of negotiations between the airlines and the airport, and a majority must agree to the terms before the deal is sealed.

Negotiations to renew the agreement have been ongoing at SAT for two years. A committee of seven signatory airlines is participating in the negotiations, chaired by a representative of Southwest Airlines.

In the end, it was Southwest who opted out of the deal.

At the heart of the dispute is the planned new terminal – the first at San Antonio Airport in 15 years. The terminal, which is expected to open in 2028, would provide San Antonio Airport with 17 additional gates.

The San Antonio-based airline wanted ten of these new gates. But so do American Airlines and Delta, both of which have announced that they may also build airport lounges in the new terminal.

Where it all began

Negotiations began in 2022 and began with a discussion of the airport's future needs and estimated costs. Then late last year, airport officials asked each airline what they needed for these improvements, including the planned number of gates to accommodate growth.

This resulted in the airlines and the airport reaching an agreement in principle on fares and fees, as well as the amount to be invested in the construction of the new terminal and the improvements to Terminals A and B – $100 million each.

The San Antonio officials then traveled to each airline to find out more details about their plans. One of these meetings, for example, took place in Atlanta, where Delta representatives stated at the time that they had no plans for an airport lounge in San Antonio.

However, if the airline is allocated gates in the new terminal, officials there might consider that investment, said Deputy City Manager Jeff Coyle.

For all airlines, it came down to the same thing. “At these meetings, all airlines asked for exactly the same location: They all want to be in the new terminal,” Coyle said.

The next step in the negotiation process was to decide on the allocation of gates. Ultimately, American and Delta were assigned the new terminal, which will be merged with Terminal B. United will receive the existing Terminal B and Southwest will receive Terminal A.

When allocating gates, airport terminal planners took into account how many gates each airline would need based on its projected growth, the destinations it would serve, and how much space was available.

During this time, United Airlines came forward and said Terminal B “could use some freshening up,” Coyle said, so it was decided to budget $200 million for Terminal A and another $100 million for Terminal B.

The committee agreed and renovations would begin as soon as the new terminal was completed. The group also agreed to a reduction in airport usage fees for airlines operating from these terminals and agreed to wait three years for improvements.

How it works

In May, final gate assignments were made – Southwest will no longer participate in the new terminal – and a draft contract was written, while aviation authorities worked to prepare it for council approval in September before the previous contract expires.

Seven airlines committed have helped over the past few weeks to sign the agreement before the October 1 deadline and use the gates allocated to them.

On the evening of Sept. 11, the day before the council meeting, Southwest told airport officials it would not sign the agreement unless an additional $150 million was allocated to renovate Terminal A, Coyle said.

During negotiations, “we assumed we would move to the new terminal,” said Chris Perry, a spokesman for Southwest Airlines, which is seeking to increase its market share in San Antonio to 50%. “Without what we would consider a mutual agreement, those future commercial plans would certainly be in jeopardy.”

Airport planner A corporation working for the city had proposed converting Terminal A into a separate southwest terminal and reducing the number of gates by seven to expand waiting areas and concessions, and promised to spend $200 million on modernization.

In discussions with Southwest, SAT representatives also offered to advance the design and planning phase for Terminal A improvements and begin as early as 2025 rather than waiting until the new terminal is completed.

A Southwest Airlines Boeing 737 airliner approaches San Antonio International Airport. Credit: Nick Wagner / San Antonio Report

In recent weeks, SAT representatives also flew to Dallas with the architectural team and met with Southwest representatives “to discuss their ideas and see what they would like to see implemented there as part of our renovation,” Coyle said.

Perry told the report that the terminal is currently too cramped and $200 million is not enough to solve the problem. Coyle said Southwest did not provide specifics about its needs when the airline requested the additional $150 million.

Additional funding may well be needed over the next few years, he said, but to raise those funds the airport director would need to obtain prior approval from the airlines through a process outlined in the formal agreement.

11th hour

When Southwest struck back, it was the timing and manner in which the airline acted that angered officials in San Antonio.

“At the last minute … there was pressure and a request from Southwest directly to us – not to all the other airlines that they ran as a committee – but directly to us to put another $150 (million) or more into the agreement,” Coyle said.

“Our response to Southwest last week was that we can't just roll this out now unless everyone else agrees.”

There are “mechanisms and processes” in the airlines' user agreements to make and negotiate requests, Coyle added. Changing a contract that all other airlines have agreed to one day before the council meeting would be out of the question, he said.

Talks with Southwest are ongoing, However, according to Coyle, no dates for meetings have been set yet. It is unclear whether they will come to the negotiating table with further concessions or agree to the original deal.

Demanding more than the initial $200 million is unrealistic and would require the approval of the majority of signatory airlines, Coyle said.

According to Southwest, allocating a smaller number of gates in the new terminal and keeping the remaining gates in Terminal A is also not an option.

“We do things differently than most in the industry and wait for the planes at the gates differently,” Perry said. “And from an operational perspective, it's just not really feasible to split our operations into different terminals.”

“The Heart of the Southwest”

Not all airlines operating at the airport have signed the agreement. JetBlue and Frontier, for example, are not. The signatories to the agreement – both passenger and cargo airlines – have more say in the use of the facilities and receive a share of non-airline revenue.

In addition, non-signatory airlines pay 15% more in airport fees than signatory airlines.

However, with millions of dollars in shared revenue at stake and a long business relationship between the city and the airline at stake, both sides are seeking a resolution.

“I think we should sit down and listen to what they need now and how we can help them get better to get there,” Coyle said. “Southwest is very important to us. San Antonio is very important to them.”

Southwest is not expected to cease operations in San Antonio as a result of the deal, Perry said.

“We are definitely not going to just shut everything down,” Perry said. The San Antonio airport is “very dear to the Southwest, to the history of the Southwest.”

Correction: This story has been updated to correct the number of airlines that signed the use and lease agreement.

Insights into the dispute between the airport and Southwest over the new terminal

ByVanessa

By Vanessa

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