American Airlines, DFW Airport strike deal to build new $3 billion terminal
Dallas Fort Worth International Airport and chief tenant American Airlines have agreed to build a sixth passenger terminal, the first such expansion at the region's economic driver since 2005.
They'll also update Terminal C, which opened with the airport in 1974 and is the only original terminal that has not been renovated. Together, the projects will cost up to $3.5 billion, and Terminal F could open by 2025, officials said on Monday.
The improvements and investments, contemplated for several years, double down on some of the most important infrastructure in the state. DFW Airport and the Dallas-Fort Worth economy have grown side by side for decades, and one’s success would be almost unimaginable without the other's.
The Dallas metro area often leads the nation in job growth, adding over 100,000 jobs annually in recent years. Passenger traffic at DFW has grown almost as fast -- and airfares have dropped sharply, in part because DFW has attracted discount carriers like Spirit Airlines.
The airport expects 73 million passengers in 2019, over 30% more than a decade ago. It’s already busting at the seams, having had to open 15 gates at a satellite terminal so American could add 100 daily flights this summer.
“We’re at a critical moment because today’s decision will impact the airport for decades,” CEO Sean Donohue told over 500 people attending the airport's annual meeting at the Hyatt Regency DFW.
North Texas’ growing population is on track to surpass Chicago’s by the end of the decade, he said, and DFW Airport must keep pace with the booming economy.
“We are a catalyst for growth,” Donohue said.
The new terminal will have up to 24 gates, which will address increasing congestion at DFW as well as future growth opportunities for American and over two dozen other airlines. DFW has more than 1,000 daily departures to 250 cities, and that connectivity is often cited as a key factor in corporate expansions in North Texas.
Just last week, American and DFW were tentatively awarded a new route to Tokyo’s Haneda Airport, the top choice of business travelers to Japan. Such service is especially important to Japanese-owned companies like Toyota, which moved its North American headquarters to Plano two years ago.
DFW is No. 4 in passenger traffic in the U.S. and No. 4 in the world in daily departures. It said it has the largest domestic footprint of any U.S. airport, which includes over a dozen daily flights to many top markets. To Los Angeles and New York, DFW has 30 flights a day.
DFW added 28 destinations in 2018 and expects to add more passengers and air service in the next two years than in the last two decades.
Terminal F will be built on a greenfield in the southwest corner of the airport, south of Terminal D, on what is currently a parking area.
DFW will use bonds to finance the terminal projects, estimated to cost $3 billion to $3.5 billion. Airlines will pay off the notes through landing fees and rents, and customers will contribute through passenger facility charges that they already pay to use the airport.
American will absorb much of the costs because its mainline and regional carriers account for about 86% of passenger traffic at DFW.
“This is an exciting day for American and our more than 31,000 team members who call Dallas-Fort Worth home,” American CEO Doug Parker said from the stage. “The plans we’re announcing today will allow for the continued growth of DFW and ensure the airport remains a premier gateway for American for many more years to come.”
DFW is the largest and most profitable hub for the world’s largest airline. American’s margins at DFW are roughly twice as high as the rest of its system. And with its huge size, DFW generated about $1.3 billion in profit for American in 2017, according to an estimate cited by the airport. That was over 30% of American’s total operating income that year.
American expects most of its 2019 growth to occur at DFW, and the carrier also is nearing completion of a large, new headquarters just south of the airport.
“Why am I so excited about DFW?” American president Robert Isomsaid at an investor conference in September. “This is the most profitable part of our network."
Design work on Terminal F will begin immediately and several options for laying out the terminal will be considered, officials said. Many details, including how new technology will be deployed, are still to be determined.
Perhaps the biggest challenge of expansion at DFW — finding ways to get more connecting customers to other terminals quickly — has not been conquered yet.
With five separate terminals and a highway between them, DFW is ideal for originating and departing passengers. But connecting fliers account for almost 60 percent of traffic, and transporting them and their luggage to another terminal can be slow and costly.
Despite that outstanding issue, DFW and American decided to move ahead now. Everyone wants to keep the good times coming — and building up DFW is crucial to that.
“This is a machine that helps us all,” Dallas Mayor Mike Rawlings told the crowd.
He said moving forward on Terminal F was the most important development at DFW in the eight years he’s been mayor, and probably longer. He gave a special shoutout to the company driving it all.
“To have a partner like American Airlines -- that believes in this region, that believes in this airport -- says that the growth cycle of this town is going to continue,” Rawlings said. “They don’t bet that money easily.”
DFW Airport is often called the economic engine of North Texas because its impacts ripple far and wide.
The airport has 2,000 employees and an annual budget of $1 billion, including debt service. Over 60,000 people work on airport property, including employees of the airlines.
DFW said it supports 228,000 jobs in the region, with a combined payroll of $12.5 billion. Its economic impact is estimated at $37 billion a year with over half coming from cargo.
This winter, after Japan and the U.S. agreed to open new slots into Haneda, American requested four routes. Priority No. 1 and Priority No. 3 were from DFW — an indication of how American’s future runs through here.
“One daily Haneda flight is not enough to meet passenger demand,” American wrote in a filing with the U.S. Department of Transportation.
To drive home the point, local CEOs of several Japanese companies sent letters to Transportation Secretary Elaine Chao.
“As a representative of a company whose headquarters is in Japan,” wrote Jim Lentz, CEO of Toyota Motor North America, “I can tell you the influx of Japanese businesses ... has generated booming demand for DFW-Tokyo service.”
American and DFW got only one route to Haneda, but it’s still an achievement — and the latest milestone in a long turnaround story.
When terrorists struck on 9/11, DFW was building Terminal D for international travel and installing the Skylink people-mover. Local leaders decided to continue the $2.7 billion program, betting that air travel would soon recover.
But many setbacks followed, including airline bankruptcies, recessions and a financial crisis. DFW Airport ended 2010 with fewer international passengers than when Terminal D opened five years earlier.
Then the local economy roared back, American Airlines restructured and merged with US Airways, and the international terminal became a catalyst for growth.
In 2004, before Terminal D opened, DFW travelers could fly to 33 international destinations. Today, there are 63 such locales, including Haneda. Since 2009, international passengers have increased 70%, more than double the growth rate for all traffic at DFW.
The airport’s debt load has been rising steadily, in part because it recently renovated three terminals, a $2 billion investment. That burden has been offset by traffic growth and the $4.50 facility charge that customers pay on every departing flight.
DFW has among the highest leverage in the airport industry, according to an October report by Moody’s Investors Service. But it has a strong credit rating and stable outlook, and analysts said the airport could handle the debt on a new terminal. They also said it was necessary to maintain momentum.
“Beyond the next few years,” Moody’s wrote, passenger growth “would likely require the addition of Terminal F.”
Donohue, who became airport CEO in late 2013, was talking about adding a terminal soon after he arrived. The idea often seemed premature. Then suddenly it wasn’t.
“We’re a part of this region’s growth, and we always have to stay ahead of it,” Donohue said in a previous interview. “We can never be a constraint.”