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Testimony of Alaska Airlines
Before the Seattle Port Commission
April 14, 2014

Thank you for the opportunity to once again address the Sea-Tao lAF funding issue.
We know a lot of folks on all sides of the matter are working it hard and we're
hopeful fatigue is not setting in. l'm especially hopeful that you're not getting
fatigued with having me in front of you!

It seems that there is a lot of information flowing around on the lAF and how
different airlines may be viewing the topic. Given this, I'd like to begin by
highlighting a few very key facts:

0  Alaska fully supports making improvements to the IAF. Approximately
73% of all international connections at Sea~Tac are coming to or from an
Alaska flight. We benefit, and we know the region benefits, from
international air service to Seattle and we do want to see the airport's
international facilities improved.

.  Next important fact: what Alaska is seeking is a level playing field, not  as
some seem to be suggesting  favorable treatment for financing the North
Star project. To be really clear on this important point, Alaska pays
around 50 percent for the total domestic terminal rents at Sea-Tac  the
most of any airline. This includes the C and D concourses, the A and B
concourses that we essentially do not use, as well as the North Satellite.
Not only are we not seeking favorable treatment, but if the Port would
prefer us to move from the North Satellite to a different part of the airport,
we would be happy to do so.

0  Finally, there is a misperception regarding historical allocations of PFCs
and whether they've benefitted international service. Of the roughly $2
billion in PFCs collected or committed over the last 20 years, $1.5 billion
has benefitted all users of the airport - domestic and international - for
projects like runways, trains, baggage systems, etc. Only $390 million has
been spent exclusively on domestic projects. To put domestic and
international spending on projects into proportion with PFC collections,
we'd only need to spend $43 million in PFCs on the international facilities.

Beyond these facts, in recent months, we have heard this Commission wisely
express concern about overall airport costs. Accordingly, it seems important to
review where we are with airport cost per enplanement, or "CPE".

0  With an $11.49 CPE, Sea~Tac is already an expensive airport, and its costs
will increase considerably if a significant amount of PFCs are diverted to pay
for the lAF. The CPE at Sea-Tao is far higher than Atlanta at $3.40, Salt
Lake City at $3.90, and Minneapolis at $6.70. The airport staff seems

determined to create an artificially low FIS fee at the expense of what risks to
be ballooning airport-wide CPE. This is made worse by the inequity of
requiring domestic carriers and their customers to subsidize the cost of an
international facility to be used by a mega carrier with much lower costs at its
hubs, especially when this will only lead to further increased costs for your
hub airline at Sea-Tao.

0  Further adding to the cost problem, Sea-Tac's average domestic fare is lower
than many other US airports, resulting in a higher percentage of airport costs
on a domestic ticket...an especially bad formula for both airlines and
passengers at Sea-Tao.

.  As you'll recall from the presentation from a respected economist that we
shared with you last May, demand for domestic airline service is significantly
more price-sensitive than international service. In addition, the FIS fee that
the airport staff is so heavily focused on is a very small percentage of the
average international fare. For example, a projected future $32 FIS fee  the
scenario with the international airlines essentially paying their full share of the
IAF - represents just 3.4% of the average fare from Seattle to Asia vs 7.2%
for projected CPE on an average domestic ticket. And while we know this is
an apples and oranges comparison, even if a CPE amount is added in for an
international carrier, the combined amount is still likely in line with or lower
than the percent of CPE on a domestic ticket.

0  Another point that we suspect the Commission is understandably concerned
about is the high cost of the proposed new lAF. A fair question that we do
not believe has been answered is whether there are other, more cost
effective ways to address the FIS processing congestion challenge while also
providing some modest modernization of the facility. LAX provides a
compelling comparison: The LAX Bradley international Terminal investment
cost $737 million to support over 8 million international enplanements in
2010. At Sea-Tao, the proposed $608 million spend is to supportjust 2.7
million projected passengers in 2019.

o  The cost of the project also drives a key legal question. An important hurdle
for FAA approval for use of PFCs is that a project must be cost-effective
compared to reasonable alternatives.

One of the proposed funding scenarios now being circulated by airport staff would
have PFC allocations to the lAF project limited to 10%. This scenario is fair given
that domestic passengers comprise 90% of the total traffic at Sea-Tao. And it is one
we believe is supported by the majority of the signatory airlines, including American,
United, and Southwest who together with Alaska Air Group represent over 74% of
the enplaned passenger share at Sea-Tao.

We know the Commission will be encouraged to provide direction to the airport
staff. However, given the many unresolved issues and the concerns of a majority of
airlines at Sea-Tao, we do not believe a viable funding plan is even close to being
ready for approval by the Commission.

Ensuring Sea-Tao remains a great airport for international carriers while maintaining
a level playing field for all the airlines is an achievable balance for the Port. Thank
you for your important work on this front.





















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