There are a lot of ways to handle an airport expansion, but in general, here’s how it works. Airports decide to build something and the cost gets baked into the airline operating fees. This is a very simplistic way to look at it, and of course there are exceptions (yes, there can be PFCs, etc), but you get the idea. So it caught my eye when I saw that Phoenix-Mesa Gateway airport was looking at a very different path.
Gateway was an airport without much service for a long, long time. They had a tiny little terminal, but it was usually empty. Then last year, Allegiant came along and established the airport as a base. Apparently, the airline is happy with what it’s seen, and it’s growing the place. Only one problem: there isn’t enough room in the terminal.
There were plans to address that problem, but recently the Arizona legislature cut the funding for the project, and that left Phoenix-Mesa in a tough spot. What could they do? Well, how about go to your tenant? Allegiant is giving the airport a loan, and that will allow them to expand to serve Allegiant’s growth plans.
It’s a pretty decent deal for everyone. Allegiant gets its new terminal and finds yet another source for ancillary revenue (they’ll earn some pretty hefty interest out of this). Meanwhile Phoenix-Mesa gets the money it needs to expand and basically ensures that Allegiant won’t be going anywhere until that money is repaid.
How will they repay it? The way airlines usually pay airports but in reverse. Allegiant will receive $4.50 for every passenger it boards at the airport. It’s no wonder they consider Allegiant to be the king of ancillary revenue here in the US. They keep finding new and creative ways to make money on the side.
Disclosure: I own a very tiny number of shares in Allegiant (ALGT)
