Nashville Int’l Establishes New 7-Year Airline Agreement, Fosters Facility Expansion to Meet Growing Demand

Nashville Int’l Establishes New 7-Year Airline Agreement
Author: 
Jennifer Bradley
Published in: 
July-August
2016

Nashville may be best known as the home of country music, but years of notable commercial growth are helping it earn some new distinctions. In 2015, for instance, Forbes ranked Nashville as the 4th best city for white-collar jobs, and Business Facilities magazine named it the U.S. city with the best potential for economic growth. 

Such business accolades have been great news for the Metropolitan Nashville Airport Authority, which owns and operates Nashville International Airport (BNA) and John C. Tune Airport, the city's general aviation facility. Last year, BNA set a new record by serving 11.6 million passengers, and the airport is on pace to shatter that record this year.  

Rapid commercial expansion, the addition of the Music City Convention Center (which has attracted 1.8 million guests in just three years) and a generally booming economic foundation inspired the airport authority to reconsider its operating agreement with tenant airlines at BNA. After two years in development, a new seven-year agreement is now in place, following 28 years of financial control by the airlines.

FACTS&FIGURES
Project: New Operating Agreement 
Location: Nashville Int'l Airport 
Owner/Operator: Metropolitan Nashville Airport Authority 
Agreement Term: 7 yrs
Notable Provision: Fixed terminal rental rates
Previous Agreement: 28 yrs of financial control by airlines
Agreement Development:
2 yrs
Negotiations with Airlines:
9 months
2015 Volume: 11.6 million passengers
Est. FY 2016 Volume: 12.1 million passengers
Service: 10 airlines, with 390 flights arriving/departing daily; non-stop service to 50+ markets

Challenging Situation

Rob Wigington, president and chief executive officer for the airport authority, notes that shorter-term agreements are now an industry trend. The new agreements enhance an airport's ability to manage its facilities and balance the entrance of different airlines-a change from the previous norm, which often resulted in "fortress hubs,'" he explains. 

Michael Garnier, Southwest Airlines' manager of Network Planning, led efforts for BNA tenant airlines as chair of the Nashville Airline Affairs Committee. (Southwest accounts for roughly 54% of BNA's traffic.) Garnier says Southwest knew that the airport had an extensive capital improvement plan in mind to revitalize the existing terminal, but also that it lacked the necessary funding mechanism to execute it. "What I really got out of this process is that BNA wanted to make it work and made sure to meet each carrier's needs throughout the entire deal," Garnier reflects. 

The new agreement was reached two years before a 30-year restrictive use and lease agreement with American Airlines and other carriers serving BNA would have expired. Such agreements, which were common back in the 1980s, gave the signatory airlines majority-in-interest approval over BNA's full operating budget and any maintenance or capital improvement projects. 

When BNA was an American Airlines hub, the carriers signatory to the agreement were obligated to pay for airfield and terminal facilities. But the airlines' obligation continued even after the airport was "dehubbed" in 1996. "With the change in circumstances, the 30-year agreement had outlived its usefulness," comments Wigington.  

Even though other airlines and concession operators were renting some of American's vacant space at the airport, there was still a lot of square footage American didn't use or need. In addition, Southwest had become the main carrier at BNA. 

Under the previous agreement, airlines would cover funding shortfalls, but the airport was unable to pursue improvement programs at will because the airlines ultimately had veto power over projects and budgets, Wigington explains. Over the years, enhancement projects, major capital improvements and facility maintenance got deferred, he adds. 

Why change with two years left on the previous arrangement? In a word, growth. Wigington points back to the enormous expansion Nashville has experienced in the last five years. "We knew we couldn't wait, from the standpoint of how we needed to serve this community," he remarks. "We can now move forward on many of these projects and take care of the demand that's on us immediately, as well as the passenger traffic coming in the near future."

Benefits for All 

Michael Lee, chief commercial officer for the airport authority, notes that many other U.S. airports have already shifted to what he considers modern use and lease provisions. Such conditions include minimum requirements for flight activity at gates, which allows the airport to take back under-utilized facilities, he explains.

"We were late coming into that with the old agreement we had," Lee acknowledges. "The one unique item we did incorporate into our new agreement is a fixed square-foot rental rate for the terminals for the entire seven-year term."

The new arrangement provides airlines with stable rates and affords all parties a level of certainty for nearly a decade of operations, says Wigington. The partnership is mutually beneficial, he adds: The airport is better able to execute needed projects cost-effectively, and airlines are able to come to BNA and grow. 

Garnier agrees, noting that predictability is welcome from all perspectives. "The airport gets to do a lot of capital improvements, which benefits our passengers, our customers," he says. "And our rates continue to be stable. We're all getting brand-new jet bridges and some refurbishment in the terminal. It is truly a win/win." 

Although fixed rates are something airports don't typically offer, BNA is very comfortable with the arrangement, Lee notes. 

In contrast to the terminal provisions, the new agreement's airfield terms are more traditional. "We did give them (the airlines) the ability to approve capital projects for the airfield, as they are paying the full cost," says Lee. 

Another noteworthy change in the operating agreement is that BNA's airlines are no longer responsible for shortfalls in capital project expenses. The airport authority is. 

Although the airlines no longer have ultimate control over terminal projects and other initiatives outside the airfield, the airport authority still plans to consult with them and consider their input. "They are our partners and their opinion is important, especially on terminal impacts," Lee remarks. "We want to make sure what we are doing works for them. We know airports, they know airlines; and we've got to make sure we balance those needs effectively." 

Protracted Process

Nine months of the airport authority's two-year development period were spent in direct discussion with the airlines. "I think we did partner with them very well," says Lee. "They were with us lock-step and were engaged, which was nice." 

The first crucial step was getting everyone to agree that negotiations should begin before American's 30-year agreement ended. As is often the case, the first step was a bit of a doozy, recall authority personnel. 

Both Wigington and Lee credit Southwest Airlines for stepping in to lead the carriers throughout the process. "They were critical to coordinating and getting the other airlines to the table, and working through the issues," says Lee. "Without their leadership, we wouldn't have gotten this done." 

Garnier is similarly complimentary about the authority execs: "There were times we had differences on business deals and language, but they were always open to understand our needs. They made as many concessions as they could to make it work for us and still work for them." 

While Southwest provides more than half of BNA's passenger volume, American, Delta and United are also key carriers. JetBlue flew its first BNA flight in May, and Alaska Airlines began service there last September. WestJet is scheduled to begin flights in a few months. [Note: WestJet began service this week.]

Given the spate of added flight activity, BNA's ability to provide new carriers with space seems to be benefiting everyone. By 2023, the airport is expected to serve 18 million passengers per year.

 "Nashville is booming and BNA is one of the fastest growing airports in North America, for certain, and the real key for us was getting ahead of the demand curve with a new agreement so we can move ahead on these projects," Wigington adds. 

Moving Forward, Together 

Speaking on behalf of the airlines, Garnier notes that everyone involved with negotiations at BNA strived to move the process forward and make the agreement work on a positive level for all involved. "Nashville's always been a great partner to us," he reflects. 

The intense negotiations required everyone involved to continue talking and listening, despite intermediate ups and downs, he adds. "I truly believe that our success came in the constant communication we had, and that is what made this deal move forward." 

He further contends that relationships built during negotiations added a crucial human factor that allowed opposing factions to work through differences of opinion by seeing and respecting other points of view. "That only strengthened the relationship," Garnier comments. "This had to be a unanimous decision in order to end the other deal early." 

With the new agreement in place, BNA executives are eager to begin working on several projects in the airport's latest master plan.  Wigington reports that the airfield is in great shape, with plenty of runways and taxiways because it was built for hub operations; but the terminal, parking areas and roadways all need work and expansion. 

He considers short-term parking an immediate need, as congestion is growing on airport roads, at the curb and inside the terminal, especially in the ticketing lobby and baggage claim areas. A second cellphone parking lot is already in the works, and other projects such as ticketing lobby renovations are in the planning stages. "These areas were not built for the kind of airport we've become and for the type of services we have," Wigington explains. 

"We really went into this new agreement negotiation with the notion that we needed a better partnership, and the airlines recognized that, too," he adds. "They also knew that at some point, this 30-year-old agreement was going to come to an end, we'd all sit down and discuss how we're going to operate this airport." 

In the spirit of partnership, everyone celebrated together when the final agreement was signed and sealed. "We have a lot to celebrate, and that was a big one," muses Wigington.

Announcement of the new agreement coincided with Southwest's 30-year anniversary at BNA, which the airline commemorated by unveiling a 737 painted like the Tennessee flag. "This is working out great for us and the other carriers," Garnier concludes. "It was a good year for us in Nashville." 

Subcategory: 
Operations

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