Tuesday, July 15, 2014

Southwest departure affects JMAA bond rating.

The loss of Southwest Airlines service to the Jackson area  caused Moody's and Fitch to recently downgrade Jackson Municipal Airport Authority bonds.  Moody's lowered the rating for $39.4  million in debt from A to Baa in May.  Fitch decreased the rating from A- to BBB+ in  April.  The two ratings agencies said the outlook for the bonds remained stable. However, JMAA Executive Director Dirk Vanderleest said JMAA still enjoyed an investment-grade rating and that the downgrade will not affect current bond issues.
It is clear that the departure of Southwest will cause more headaches for JMAA officials.  Moody's stated in its press release:

The downgrade to Baa1 reflects expected weakening in the market position of the airport, due to the elimination of service by the airport's second largest carrier, Southwest Airlines....

The outlook is stable as the Baa1 rating category accounts for the reduced service levels and smaller enplanement base. The stable outlook also reflects Moody's expectations that management will continue to solicit service backfill from other airlines and execute its planned expense reductions....  Rest of press release

Fitch provided more specific reasons and observations in its statement:

The downgrade reflects concerns related to the pending loss of the airport's second largest carrier, Southwest Airlines Co. (Southwest, Fitch rated IDR 'BBB' with a Stable Outlook), and its serviced destinations at an alreadydestination-limited airport...

The airport is the primary service provider for the Mississippi state capital region, serving mostly business-oriented travelers. While airport management has indicated that enplanements are forecasted to drop 10% in fiscal year (FY) 2014, Fitch expects the predominantly O&D nature of traffic and service levels as well as limited competition from neighboring airports, as mitigating factors. Revenue Risk - Volume: Weaker....

Much of the airport revenues are derived by non-airline sources such as parking and rental car activities, which are driven by passenger volumes. Forecasted cost per enplanement is higher than average among airports similar to its size and is expected to increase 11% in Fitch's Base Case. The airport increased landing fees 18% and parking fees 8% at the beginning of FY2014 and is now implementing an additional 15% landing fee increase effective May 2014 to offset future declines in revenue due to Southwest's departure. Revenue Risk - Price: Weaker.. Rest of statement

However, Fitch said JMAA had a "strong financial profile":

The airport's leverage was low at 3.2 times (x) net debt to FY2013 cash flow available for debt service (CFADS) and it had $11.7 million of unrestricted cash, equivalent to 409 days cash on hand. The airport's FY2013 debt service coverage was high at 2.65x, inclusive of airline revenue transfers.
Here is the "guts" of Fitch's analysis:

Enplanements were down 1.3% in FY2013, to 605 thousand, and are a continuation of a slow downward trend in traffic since peak levels in 2006. Seats are currently down 10% from October 2013 to February 2014 versus the same period last year while enplanements are down an additional 7.6%. Current forecasts demonstrate a net reduction of 15% scheduled monthly seats post-departure due to already announced United increasing frequency to Chicago and Houston, as well as Delta upgrading from regional jets to 717s on all flights.

Nearly two-thirds of the authority's operating revenues of $17.6 million are derived from non-airline sources. Parking revenues alone count for approximately $6.1 million. Revenues increased 3.3% in FY2013 due to the addition of a non-aviation tenant occupying previously vacant space. Operating expenses decreased 0.8% in FY2013. However, the FY2014 pro forma forecasts a 7.9% increase in operating expenses. This increase is due to a one-time building maintenance project ($0.6 million of $1 million opex increase) and increases in employee benefit costs. Management's FY2015 budget goal is to reduce expenses by at least 5%-6%.

Mr. Vanderleest also said JMAA delayed issuing another $30 million the Board of Commissioners approved last December.  He said JMAA decided to wait twelve months until after Southwest's departure to determine if the bonds should be sold.

10 comments:

Anonymous said...

Vanderleest sees the writing on the wall and is out the door. MSY and MEM are all smiles.

Anonymous said...

I fly to Denver about 3 times a year. Through SWA a round trip was $350, now through United or American it's $500

Anonymous said...

My wife and I fly to Orlando several times a year. Less than $300 on Southwest direct but now $350-$400 via Atlanta. I'm sure that the baggage pick up on the carousel will be much quicker now that there are less flights. Right?

Anonymous said...

Things started changing when the airport got five new board members. Staff forced out and business model changed.

Anonymous said...

Yeah all five African Americans and all of sudden the white administrators didn't know how to run the airport.

Anonymous said...

At one point Southwest offered plenty of flights out of Jackson, but as soon as they cracked the Memphis
and Atlanta markets our offerings decreased due to their concentration on larger markets. It made no difference that we had strong numbers- SWA let the market determine that ATL and MEM would make more money for them if their equipment stopped there rather than here.

United and American have increased their offerings due to market demand.

So, according to business principals, if everyone within 90 miles of Jackson would fly out of here and not drive to NOLA or Memphis, the market would react by carriers having to lower prices and increase flight offerings in order to grab more of the rising market and to establish themselves with more market share.

So- pay 50-150 extra to fly out of Jackson and be a part of the long-term solution.

Anonymous said...

6:39 - I don't think most people close by prefer to drive to Memphis or NOLA, and it would make no sense to drive 400 miles round trip to save $50 on the fare. $150 is actually more like it, and $150 x the 6 tickets we need for a family vacation really changes the equation. I would love to be part of the solution - just can't afford to.

Anonymous said...

So- pay 50-150 extra to fly out of Jackson and be a part of the long-term solution.

On the route I fly 10-12 times a year it is $275 extra purchasing 30 days or more ahead of time. So please save us the spin.

Anonymous said...

JMAA is so upset they are forcing all the Southwest pilots and flight attendants out of employee parking lot in Sept while other airline employees that work for other airlines that don't serve Jackson are allowed to stay. The comment from JMAA employee was "they were not happy about the SWA pull out"

Anonymous said...

Forget the Jackson Airport, I drive to New Orleans to fly out to anywhere



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