ITEM NO.    9a Supp
DATE OF
MEETING  August 18, 2009

Aviation Division
2010-14 Business Plan
Overview
August 18, 2009

Outline
Airline Industry
Outlook for Sea-Tac
Strategic Goals
Challenges
Strategies

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Airline Industry
Strength of economy is major driver of travel
demand
Amid worst recession in generations
Airlines:
Lower demand, particularly for "front of airplane"
Revenue dropping faster than passenger levels
Higher, volatile fuel costs
Strategy: new fees and additional round of capacity
cuts are latest additions to longstanding cost cutting
Staggering losses since 2001 leaves little capability to
absorb additional losses
3

Airline Industry Outlook
As economy begins to recover, demand for travel will
likely lag
Have new video conferencing and webinar tools
significantly altered demand for business travel?
Experts say domestic industry still has too much capacity
Recent airline announcements indicate capacity cuts are coming
Will cuts be enough to improve profitability?
If not: merger, bankruptcy, liquidation?
How will needed capacity cuts affect Seattle market?
Competition-induced capacity bubble on west coast?

4

Outlook for Sea-Tac
Diverse mix of carriers
Strong origin and destination base
Reasonably balanced economic base in Puget
Sound
Largest carrier (Alaska) has strong cash position
Conclusion:
SEA traffic holding up better than most airports
Do not expect "V" shaped rebound

5

Enplaned Passenger Forecast
(Preliminary)
16,500
Year  Assumption
2009      -7.0%  16,000
2010      0.0%
15,500
2011      1.0%
2012      2.5%
15,000
2013      2.7%
14,500
2014      2.7%
14,000
2007     2008     2009     2010     2011     2012     2013     2014
Not typical recovery; no sharp rebound
Travel demand may pick up in late 2010 as economy improves, but
capacity cuts and/or increased fares may dampen demand
Growth rate in out years reflects FAA long-term forecast (2.7%)
Continuing to review and refine forecast
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Strategic Goals
Given crisis facing airline industry, Sea-Tac has
two overriding goals:
1. Manage airline costs
Cost per Enplanement
2. Increase non-aeronautical Net Operating Income
Debt service coverage
Cash fund capital improvements


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CPE History
Cost Per Enplaned Passenger - CPE
Growth in CPE
$14.00
due to capital
$12.00
$10.00                                                        spending
$8.00                                                      CPE flat for three
$6.00                                                         years (2006-8)
$4.00
2009 budget cuts
$2.00
$0.00                                                         mitigated increase
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
due to falling
13.00                                                        enplanements
12.57
12.50
12.08       12.09
11.90                                             Challenge for 2010
12.00
11.50                                                        is that most 2009
11.00                                                        budget cuts were
10.50                                                        not sustainable
10.00
2009 Bud   2009 Bud &   2009 Rev Bud &   2009 Fcst
Rev Enpl     Rev Enpl

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Challenges  Managing O&M Costs
2009 Budget    $ (000's)  AV %   %     Cost drivers include:
Payroll            84,777    64%              Square footage of terminal
Outside Services    23,737   18%             Acres of airfield pavement
Utilities              13,571    10%
Lineal feet of baggage system
Other           10,580    8%
Total Aviation      132,665   100%   70%        Number of elevators and
Corp/Police/CDD    56,856        30%        escalators
Total            189,521         100%       Few costs directly tied to
enplanements
Payroll costs are major
Need budget capacity for new
component
initiatives:
Corporate costs also large, as AV
receives ~ 70% of Corp Costs         Part 150 study
Implications:                   Maintenance for elevators &
escalators
Reducing costs requires reducing
FTEs                    Wetlands adaptive
Corporate decisions have             management
significant impact on airport
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Challenges  CIP and Debt Service
Capital Spending
$ millions                                Spent $3.5 billion since
$450
$400                                                    1999
$350
$300                                                 While capital spending
$250
$200
is falling, existing debt
$150                                                    service will rise through
$100
$50                                                    2013
$0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008        Use of PFCs to offset

Existing Debt Service                             revenue bond debt
180,000                                                                                service is key to

160,000

140,000                                                                                managing CPE

120,000

100,000                                                                           Necessary new debt-

80,000                                                                                  funded spending in

60,000

40,000                                                                                  2010 and beyond will

20,000                                                                                  add to cost structure

0
2007     2008     2009     2010     2011     2012     2013     2014
Gross Debt Service     Net of PFC Offset
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Challenges  Capital Spending Needs
Maintaining operational integrity of facility and
equipment requires ongoing reinvestment
Airline industry consolidation/cost saving
strategies are driving facility changes & costs:
Delta and NW on South Satellite
Alaska move to North Satellite
United and Continental?
Capital costs drive increases in CPE  challenge
is to strike the right balance

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Challenges  Non-Aeronautical
Non-Airline Revenues Per Enplanement                Compared to recent years,
10.00                                                                                revenues per enplanement are
9.44
9.50                                                 9.36                               down slightly
9.18                         9.19                         9.16
9.00                                                                              Actual dollar decline compared

8.50                                                                                   to 2008 is significant

8.00                                                                              Fewer passengers, spending
fewer dollars
7.50
Parking: revenues down 17%
7.00
while passengers down 5%
6.50
Concessions: drop in sales per
6.00                                                                                          enplanement
2005         2006         2007         2008        2009 Fcst
Depressed market for property
$ in Millions
development
-1.5% vs.
160            2008                      Airline relocations have
-7.6% vs.
150                          -9.0% vs.
2008                     depressed business for
2008
140                                     concessionaires on Concourses
130
A and D
120
110                                       Difficult time to invest in new
100                                         facilities/concepts
2008   2009 Budget  Feb Fcst   July Fcst

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Strategies
1. Manage/reduce operating costs
2. Restore/develop/defend non-airline revenues
3. Prudent capital investments focusing on:
Renewing existing assets
Customer needs
Common-use systems -- implemented
opportunistically


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Manage/Reduce Operating Costs
Reducing O&M contributes to both strategic goals:
Reduced airline costs, CPE
Improves non-aeronautical NOI
For 2010 budget, Aviation initiated business unit reviews
and zero-based budget process to achieve 5% reduction
target, Port implemented voluntary separation program
(VSP)
Identify non-critical functions
Sustainable for current traffic levels
Future: maintain focus on managing costs
Benchmark key functions
Process improvements, "Lean" efforts
Explore airline consortium initiatives

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O&M Reductions for 2010
How we "hit" target:
Payroll: No furlough; normal salary & wage
increases, flat benefits cost
Eliminate 73.5 positions  half empty; half filled
Scaled back on level of customer service
Eliminate renewable energy purchase
Assume $1.5 million savings from VSP
FTE summary
Positions to be cut:           73.5 (8.8%)
Eliminated positions occupied:   37.5
Open positions (to be filled):     12.0
Voluntarily separating:          7.0

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Restore/Develop Non-airline Revenues
Public parking: Explore new products and innovative
services to win back customers
Increase advertising through value-added promotion
programs
Develop advertising on Port's Wi-Fi home page and web
site
Concessions: Expand array of products and services
Property development: Continue pre-development
activities with City of SeaTac, Burien, and Des Moines
for under-utilized property

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Prudent Capital Investments
Focus investments on maintaining and renewing existing assets.
Many projects competing for approval:
Key Aeronautical assets such as:
Runway 16C
Airfield pavement
Baggage systems
North Satellite: mechanical, seismic
Key Non-aeronautical assets:
Garage, revenue control system
Freight elevators, grease ducts
Selective new investments to:
Accommodate customer needs:
Delta club
Enhance productivity of facility to achieve cost savings for airlines
and/or airport
Electrify ground service equipment
Prepare facilities to maximize capacity and flexibility of existing
footprint with common-use equipment
CUSE expansion
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Summary
Actual   Fcst      Preliminary Forecast
2008   2009   2010   2011   2012
NOI ($ millions)    163.1    163.0    164.1    176.5    190.5
D/S Coverage     1.42    1.43    1.36    1.31    1.27
CPE (2009 Cap Bud)      11.89     12.09     12.78     13.86     14.29
NOI stable in near-term, growing in future
2010 operating budget will reflect need to reduce operating costs to
achieve aeronautical and non-aeronautical goals
Maintain strong debt service coverage
Reduce aeronautical operating costs to mitigate rise in CPE due to
increasing debt service
2010-2014 capital budget will reflect need to renew existing assets
Timing and priority balanced against need to moderate growth of CPE

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