Delta warns airport over cost increases

Atlanta-based Delta Air Lines has warned that rising costs at Hartsfield-Jackson International Airport raise questions about the size of the carrier’s future operations there.

Separately, airport officials said Saturday that construction on the long-delayed international terminal could shut down in the next few weeks because of squabbling over costs and the tight credit markets.

Delta’s warning was contained in a memo obtained Saturday by The Atlanta Journal-Constitution.

“Our estimates show that the loss of connecting traffic routed through Atlanta could jeopardize billions of dollars in annual economic benefits and could translate into higher prices and service reductions for consumers who fly locally from Hartsfield-Jackson,” the memo stated.

The message comes as Delta seeks to stake out a position for negotiations with the airport on new airline leases, and as the airline contests the cost of the airport’s capital improvement plan, including the new international terminal.

Delta has not yet agreed to a revised budget and memorandum of understanding for the planned new terminal.

In another memo, written to Delta by Hartsfield-Jackson General Manager Ben DeCosta and dated Jan. 2, DeCosta said construction would be halted “on about Jan. 26” if they could not reach agreement on the budget and memorandum of understanding by Jan. 16 —- this past Friday.

The project provides “hundreds of jobs to the local economy —- all of which will be lost if we shut down construction,” DeCosta wrote.

Construction may be halted anyway in the next few weeks due to tight credit, airport spokesman John Kennedy said Saturday night.

In his memo, DeCosta also agreed to more than $300 million in budget cuts for the international terminal project. Delta had asked that the project budget be cut by $400 million, the memo says.

As of November, construction cost was estimated at $1.6 billion, more than twice the original estimate. The project is three years behind schedule; the latest projection is for a 2012 opening.

Hartsfield-Jackson’s existing 30-year airline agreements expire in 2010, and formal negotiations are expected to begin in the next few months. Delta said it had tried to start lease negotiations earlier.

In response to DeCosta’s memo, Delta’s vice president of corporate real estate, John Boatright, wrote that Delta prefers to see work on the international terminal proceed, but “our position remains that we must understand our long-term financial future at Hartsfield-Jackson before we can commit to major capital investments.”

DeCosta wrote that the airport must make a decision quickly on whether to proceed on the international terminal project, but Delta wants to first resolve some lease negotiation issues.

In a telephone interview Saturday evening, airport spokesman Al Snedeker said the issues are subject to pending negotiations. “Until negotiations formally begin, those sorts of matters really won’t be able to be sorted out,” he said.

Boatright wrote that the international terminal project “will not make fiscal sense” under the airport’s proposed new capital improvement program, which he said would double Delta’s unit costs by 2016.

Also at issue is whether to reduce the number of gates in the planned international terminal from 12 to 10, according to Delta and airport officials.

Boatright wrote that Delta’s costs would increase from $5 currently to $10 per passenger boarding planes under the airport’s most recent version of its capital improvement plan. This, he said, “would make it unlikely that we could continue to grow and invest profitably at Hartsfield-Jackson.”

Meanwhile, with the recession weakening travel demand, Delta is already preparing to cut flight capacity this year by 6 percent to 8 percent.

Boatright said about two-thirds of Atlanta’s traffic can be connected through other hubs, such as Memphis, Cincinnati and Detroit. With the recent Northwest merger, Delta now has domestic hubs in those cities as well as Atlanta, Minneapolis, New York and Salt Lake City.

Delta wants to limit its costs and preserve its say on major capital expenditures and operating costs at the airport. It said Hartsfield must compete with other hub airports.

“Airports that have a ‘build it and they will come’ philosophy have failed,” Delta spokesman Kent Landers said Saturday. “The advantage that Atlanta has had over the years is that it’s been very collaborative between the city and the airlines to have a clear understanding for what the airlines need.”