Can Sea-Tac Airport dominate the Asia market?

Growth at the airport and its proximity to Asia have put a stronger hold on the international flight market directly in its hands.
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Take off at SeaTac

Growth at the airport and its proximity to Asia have put a stronger hold on the international flight market directly in its hands.

The Seattle-Tacoma International Airport is taking off, but it is also trying to figure out where to land. The Seattle economy is growing rapidly, especially with companies with an international reach. At the same time, the mix of airlines here — and the destinations they serve — is changing. 

It's a formula that will mean dramatic change to commercial flying in the Seattle-Tacoma area — for the airport, for the airlines and for the traveling public who use both. According to one estimate, over the next 20 years the number of passengers going through Sea-Tac annually will rise from about 37 million now to more than 65 million.

New figures out last week show a sharp 7 percent jump in passenger traffic through the airport in 2014 —about 2.5 million more passengers than the year before. Airport officials say the jump is because of two airlines — Alaska and Delta. Alaska is the legacy airline in Seattle, a long-time local favorite with an increasing national domestic network. Delta gained its foothold in Seattle after its merger with Northwest Airlines, but now sees Seattle as its hub, especially to Asia and other growing regions of the world. Both airlines are growing rapidly here.

Alaska Air Group, the holding company that owns both Alaska Airlines and Horizon Air, on Thursday reported a record year in 2014 with profits of $605 million, up more than 19 percent from 2013. The company gave Wall Street its “advice” that it expects to grow another 8 percent this year. Delta had similar results, reporting strong profits on an operating basis.

Thirty years ago, the Port of Seattle, which owns and operates Sea-Tac, made a bold bet on seaborne container traffic. One of the big selling points? Seattle is a day closer to Asia than anywhere else in the country. Today, that same selling point is driving expansion at Sea-Tac. By air, Seattle is an hour closer to Asia than other West Coast airports. It’s a big selling point to business travelers.

Delta is capitalizing on that, essentially moving its Asian hub at Tokyo's Narita Airport to Seattle. The Japan hub was originally operated by Northwest Airlines, but dropped after the merger with Delta. With longer-range aircraft, the need to operate a hub in Asia has disappeared and now it makes much more sense to operate Seattle as the hub. Delta flies nonstop now to Tokyo, Hong Kong, Shanghai, Beijing and Seoul. 

Meanwhile, Alaska continues growing its domestic market, featuring the nonstop point-to-point flights that consumers seem to prefer.  Alaska has capitalized on the same theory that drove the development of Boeing aircraft. Rather than develop increasingly larger planes, Boeing looked at the market and determined that travelers want to go from one place to another without stopping at a hub, especially internationally. Hence the development of the long-range 777 and 787 aircraft. Alaska has adopted that same philosophy with its network of non-stop flights. Meanwhile Airbus developed the huge A380 that now seems to be a bit of an airline white elephant.

Delta and Alaska are much different airlines as a result. Alaska is more of an “origin and destination” airline, meaning travelers either fly from Seattle or fly to Seattle. Airport officials estimate that more than 70 percent of all flights at Sea-Tac are origin and destination flights. Meanwhile Delta is operating an international hub from Seattle, bringing travelers here to board its more lucrative international flights, especially to Asia.

That makes the stories about bitter competition between Delta and Alaska overblown. Sure, they compete. Sure, Delta is adding flights to Alaska in Alaska’s traditional turf. Sure Alaska is responding with its own expansion plans. But the two airlines are different and have different objectives. The competition is strong and the people who benefit are travelers. Two airlines competing in the same market can create an environment where price is truly competitive. Not cheap, mind you, but at least competitive.

The two airlines also compete in another way. Delta is the official airline of the Seattle Seahawks, while Seahawk Quarterback Russell Wilson is featured in a number of new Alaska commercials as “chief football officer.” Both airlines have announced expanded service to Phoenix for the Super Bowl.

“Our contention was that Seattle was underserved,” said Anthony Black, a spokesman for Delta in Atlanta. “The fact that we are both growing seems to bear that out. Seattle is a significant investment for us — we can be successful long term.”

“Seattle is a critically important market to us,” said Joseph Sprague, Alaska Senior Vice President, Communications and External Relations, adding that it has been true for decades. “We are very focused on protecting our core markets.” Alaska has more than 6,000 employees in the Seattle area.

The change is also affecting other airlines. United Airlines is closing its pilot and flight attendant base here, focusing on its operations in San Francisco. United still has nearly 50 flights a day out of Sea-Tac, but it has reduced its presence as Delta and Alaska have grown. But Seattle’s emerging status as an international hub is also attracting other airlines here. There are now about two dozen daily flights from Seattle to international destinations.

Delta flies to Amsterdam, Paris, London, Beijing, Hong Kong, Seoul, Shanghai and Tokyo. Other international carriers include All Nippon (Tokyo), Asiana (Seoul), British Airways (London), Emirates (Dubai), Eva (Taipei), Hainan (Beijing), Icelandic (Reykjavik), Korean Air (Seoul) and Lufthansa (Frankfurt).  Alaska even has international flights, serving Mexico on a seasonal basis. And Horizon, Alaska’s regional carrier, is often ranked as the largest international carrier for its many flights to destinations in Canada.

Sea-Tac is responding. The airport is by far the largest part of the Port of Seattle, accounting for about 75 percent of total port revenues. With the new Seaport Alliance that melds the ocean operations of Seattle and Tacoma, the port will be able to focus more on its management of Sea-Tac. With the growth in passengers coming, it will need to spend more time. And money.

The current capital budget for the airport totals nearly $2 billion including a new international arrivals center, an updated baggage system, expansion of the north terminal and other improvements. The international arrivals area is probably the most important, most visible and expensive at more than $600 million.

Sea-Tac has a unique problem given its location and size. “We are the largest airport in the country operating on the smallest footprint,” says Mark Reis, Sea-Tac managing director. It means everything airport managers try to do is restrained. “It’s like peeling the layers on an onion in a bowl of onions, but also realizing the onion you are peeling is interacting with other onions.”

And the additions do not come without controversy. The new international arrivals area is now set to be built over the current A Concourse at the south end of the terminal. A sky bridge will link the South Satellite terminal where international flights now arrive.  Originally pegged a few years ago at about $334 million, the cost has ballooned to more than $600 million. Airport officials say the original price was a ballpark figure and with the refinements of actual construction, plus inflation, the price is where it stands now.

But the airport also is considering using passenger facility charges to pay for the terminal. That bothers some carriers whose operations are mostly domestic. “It’s like someone traveling south on 405 being asked to pay for the new 520 floating bridge,” said one airline spokesman. “They may never use the bridge, but they are being to asked to pay for it.” It goes back to that origin and destination figure — three-quarters of the passengers going through the airport are heading for domestic destinations rather than international.

By the same token, if Seattle wants to be seen as an international gateway, it needs a better international arrivals area than what exists now. Travelers who have seen any of the new airports of Asia — Pudong (Shanghai), Beijing, Inchon (Korea) — understand what the competition is all about. There are funding options for the new international terminal, but it will be up to the Port of Seattle Commission to make that decision.

The Port of Seattle Commission will hear alternative funding proposals at its meeting Jan. 27. In addition it will hear a presentation on a “sustainable airport master plan.” The plan addresses the growing needs of the airport over the next 20 years, including additional gates, terminal expansion, new taxiways and other adjustments. The presentation does not include any cost estimates at this point.


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About the Authors & Contributors

Stephen H. Dunphy

Stephen H. Dunphy

Stephen H. Dunphy writes on business and economic issues for Crosscut. He was a business editor and columnist for a number of years at The Seattle Times.