Title
Airline Rates and Charges Code Amendment (Ordinance G-6394)
Description
Request to authorize the City Manager, or his designee, to amend the Phoenix City Code to authorize the Aviation Director to set the rates and charges at Phoenix Sky Harbor International Airport (Airport) up to a cap based on the cost per enplanement.
Report
Summary
The airline rates and charges program generates revenue needed to fund the ongoing operations and maintenance of the Airport. The Phoenix City Council established the basic framework for the Airport's rates and charges program in 1981, and approves a new schedule each year based on the Airport's projected operating and capital costs.
Airline rates and charges are regulated by the FAA to achieve cost recovery (and no more) from the airlines, proportionate to their use of the Airport facilities. Each year, the Aviation Department calculates these rates, consistent with the FAA's regulations, and recommends City Council approval to amend the City Code with the new airline rates and charges to be effective on July 1 of each fiscal year. These include the terminal rate, cargo rates, common use rate, Federal Inspection Services (FIS) charge, Explosive Detection Service (EDS) charge, landing fee, and Remain Overnight (RON) fee.
The airline Cost per Enplanement (CPE) is a common airport metric used to measure the airlines' cost for each passenger who travels from a given airport. This metric adds all of the airlines' costs at an airport, and divides the sum by the number of passengers who board a plane there.
The current annual code amendment approach to rate making at the Airport requires numerous levels of approval prior to being scheduled and voted on by the City Council. This process is viewed as a credit risk by Moody's Investors Service as it prevents timely responses to airline actions. Staff recommends a CPE cap as a more efficient alternative to the annual code amendment. This solution would comply with FAA regulations and policies, facilitate nimble management of the rates and charges, and maintain Sky Harbor as an affordable airport for airlines to provide service.
If approved, this amendment would replace the existing rate language in the City Code with a simple not-to-exceed CPE cap. The CPE cap would be set at the Large Hub Airport median. As shown in the attached chart, the Large Hub Airport median is currently $10.48. The Aviation Director would be authorized to set airline rates and charges each year, in accordance with FAA regulations, provided that the rates and charges result in a CPE less than the Large Hub Airport median. If, at the fiscal year's end, the CPE is determined to have exceeded the Large Hub Airport median, the Aviation Department would reduce airline billings to bring the CPE within the authorized amount. City Council approval of the airline rates and charges would only be required to amend the City Code in the event the CPE were projected to exceed the Large Hub Airport median value.
Concurrence/Previous Council Action
A staff recommendation regarding an alternative to the annual rates and charges code amendment was requested by the City Council at the May 31, 2017 formal meeting.
This item was recommended for approval by the Downtown, Aviation, Economy and Innovation Subcommittee on Dec. 6, 2017 by a vote of 3-0.
Public Outreach
This recommendation was presented to the Phoenix Aviation Advisory Board's Business and Development Subcommittee on Oct. 5, 2017, to the Airline Affairs Finance Subcommittee on Oct. 16, 2017, and to the full Phoenix Aviation Advisory Board on Oct. 19, 2017.
Location
Sky Harbor International Airport, 3400 E. Sky Harbor Blvd.
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Deanna Jonovich and the Aviation Department.