Faced with a dramatic drop in passenger volumes, the San Diego Regional Airport Authority adopted a budget Thursday that assumes a more than $100 million decline in revenue over the coming fiscal year.
In addition to trimming expenses by $29 million, the airport also is relying on more than $54 million in federal funding to help produce a $288.4 million spending plan for the 2020-21 fiscal year that includes providing rent relief for its concessionaires and fee waivers for the airlines.
In all, the airport has received $91 million in federal assistance, which is being doled out to U.S. airports in the wake of the sharp downturn in travel fueled by the coronavirus pandemic.
Airport officials reported that between the current and upcoming fiscal year, they will use nearly $38 million in CARES (Coronavirus Aid, Relief, and Economic Security) Act funding for fee waivers for the airlines and $22 million in rent relief for tenants like the rental car operators and concessionaires.
"As you can imagine, developing a budget during these times has been quite a challenge as our passenger numbers are constantly changing and there's been an unprecedented level of uncertainty," Airport Authority CEO Kim Becker told her board during its Thursday meeting. "And we've had to be very thoughtful to find a balance between assisting our tenants and the airlines while still ensuring that the ongoing sustainability of the airport remains whole."
Passenger volumes at Lindbergh Field have been down by about 85 percent in the last couple of weeks, which is a slight improvement over April when the drop was as high as 95 percent, Becker said in an interview. For the coming fiscal year, which begins July 1, the airport anticipates a total of 6 million passengers boarding planes — a 50 percent dip from the 12 million that had been expected prior to the pandemic, Becker said.
"I'm hoping that once a vaccine comes into play we'll come back more quickly," Becker said. "But it's going to be two to three years before we come back to normal volumes."
Airline analyst Henry Harteveldt believes that San Diego's air travel outlook is in keeping with the forecasts he has been tracking.
"By the end of this year, we believe that the airline industry will have recovered to between a third and 40 percent of pre-pandemic levels of traffic," said Harteveldt of the Atmosphere Research Group. "The airlines are starting to see demand recover for summer travel, which bodes well. By the end of 2021, we think the industry will be at between two-thirds and 75 percent of pre-pandemic levels. That's assuming we don't get a vaccine by then."
With many of the airport's retail shops and food and beverage outlets either closed or operating at much reduced volumes, board members decided it made sense to give those tenants a financial break between April and September, when air traffic is still expected to be considerably slower than normal, Becker said.
In all, the airport is expecting a decrease of nearly $55 million in non-airline revenue, including $13 million in rental car license fees, $9 million from terminal concessions and $20.6 million from parking. It has found ways, though, to pare some expenses, including $9 million in savings from parking and shuttle operations and $4 million in professional services, like consultants. It also has deferred temporarily about $220 million in planned construction projects, including replacement of the Terminal 2 East baggage handling system and the replacement and refurbishment of passenger boarding bridges.
While the Airport Authority's budget for overall expenses comes to $288 million, its forecasted revenue for the 2021 fiscal year are expected to be $376 million, about 21 percent less than the current year's income. Even with the dip in revenue, there is excess money over and above expenses that the airport says it will set aside for financing ongoing capital improvement projects.
One project that continues to move forward is the $3 billion Terminal 1 expansion, the single largest development in the airport's history. Becker says that the Airport Authority, for now, is sticking with its current timeline, which anticipates a groundbreaking late next year. That could change, though, depending on how slowly the travel industry recovers, she said. A good portion of the project cost is financed through airline fees.
In the meantime, airport officials are interviewing candidates this week for a team to design and build the project. Should the airport adhere to its current timetable, there is the potential for cost savings during the economic downturn, Becker said.
"Before we award the contract, we will check in with the airlines and make a determination, do we move forward or do we delay for a while. Ultimately, the airlines pay for vast majority of this and they don't start paying the debt service until they occupy the facility, which is planned for 2024."
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