Item 9b Supp

ITEM NO.   9b-Supp
DATE OF
MEETING August 11, 2009

Port of Seattle
2010 Budget Planning
August 11, 2009

Overview
Aviation Budget Preview
Seaport Budget Preview
Real Estate Budget Preview
2010 Budget Assumptions
2010 Budget Calendar

2

Airline Industry
Domestic airline industry lost $9.5 billion in 2008
Oil price rise followed by financial collapse and deep economic
recession
Since 2001, industry has lost $37 billion, and was only
profitable in 2006 and 2007
Airlines responded by reducing capacity by 12% in past
two years, and cutting costs
Weak economy has depressed travel demand in 2009
Top ten US airlines have lost nearly $2.5 billion in first half of
2009
In spite of new fees, revenues dropped 26% for June compared
to June 2008
Fewer first class and business class tickets sold

3

Airline Industry
Recent airline decisions/announcements:
Delta: will reduce international capacity by 15%
Reduced combined workforce by 10%
Continental: will cut 1,700 more jobs (already cut 1,200)
Southwest: Will cut capacity 5-6% in 2009 compared to 2008
1,400 Southwest employees (4%) took voluntary separation buyout
United: will reduce international flights by 7%
American: will reduce system wide capacity by 7.5%
Outlook for remainder of 2009:
Continued weak demand, low yields
Relatively high and volatile oil prices
Industry profits unlikely; liquidity concerns could lead to
bankruptcy and/or liquidation
Additional capacity cuts possible in fall/winter
4

Sea-Tac Outlook
2009 Enplanement growth has remained strong:
2009 budget       -3.0%
Feb. 2009 revision    -7.0%
YTD June        -5.1%
Projection for 2009:    -5.0%  7.0%
Economy may be bottoming out, but demand for travel
will likely lag the recovery
Financial challenges will persist for airline industry
Unclear how needed capacity reductions will affect Seattle
market
Alaska's scheduled seats for Q4 2009 at Sea-Tac are down 5.3%
vs. 2008
Still a competition-induced capacity bubble on west coast?
Currently assuming no passenger growth for 2010.
5

Aviation 2010 Budget Preview
Key Revenue Assumptions
Airline revenues
Rates set to recover costs, so capital and operating budget
decisions will affect revenues
Passenger volume and landed weight is down, putting pressure
on rates
Non-airline revenues:
Parking, rental car and concessions revenues affected by
reduced enplanement levels and economy
Parking has declined faster than enplanements
Concessions sales per enplanement has dropped
Rental car transaction percentage has dropped
Commercial properties, utilities more stable

6

Aviation 2010 Budget Preview
Expense Trends and Risks
Achieving 5% expense reduction target is challenging
Much of expense savings plan implemented in 2009 not
sustainable
Zero-based budget process designed to identify
sustainable cuts
Over 60% of budget composed of payroll-related costs
Achieving budget target will require reduction in staff
Rising maintenance costs for old elevators and
escalators
More snow?
7

Seaport 2010 Budget Preview
Operating Revenue (excluding grants and
reimbursements) is projected to be approximately flat
compared to 2009 Budget
Primary components of revenue:
In place leases
Volume: Cruise, Grain, Crane Rent
Grants/Reimbursements

8

Seaport 2010 Budget Preview
Key Revenue Assumptions
TEU volume 8% decrease from 2009 budget
Eagle Rate increase in July
Container Terminal Customer Support Plan
T25/30 lease  full year of lease payments in 2010
Cruise forecast 6% increase in passengers
Grain volume
Properties in transition

9

Seaport 2010 Budget Preview
Expenses 10% below 2009 Budget (excluding Grant
Expenses)
Expense Trends and Risks
Asset Condition Assessments
Repair Costs
Environmental Reserves
Stormwater
Implementation of NW Clean Air Strategy
Maintenance Dredging
Fender Piling Expense Projects
10
`

Real Estate 2010 Budget Preview
Operating Revenues expected to be flat
or up slightly relative to 2009 Budget
Third party revenue may increase due to
addition of Maritime Event Center venue
Harbor Services revenue may be up slightly if
rate changes warranted
Potential higher vacancies in commercial
properties and recreational marinas
Eastside Rail Corridor
11

Real Estate 2010 Budget Preview
Expense Trends and Risks
Deferred maintenance projects
Tenant improvements (expenses related to
lease renewals)
Eastside Rail Corridor unknowns
Audit implications unknown


12

Net Operating Income Comparison
Operating Revenues, Operating Expenses and NOI
600

500

400
In Millions of Dollars                                                                          Revenues
300                                                        Expenses
NOI Before Depr.

200

100

0
2004      2005      2006      2007      2008    2009 Est.

13

Payroll Assumptions
(2010 Projected Salary and Benefits Rate)
Average pay for performance of 3.75% (and
funding for the increases is 2.8%)
Salary ranges increase of 1.5%
Reduction in benefit costs: average benefit
rate projected at 38.7% (vs. 39.4% in 2009)
Better forecast by the end of August

14

Other Budgeting Issues
Revenue assumptions yet to be finalized
Focus on sustainable O&M cost reductions
(using Modified Zero Based Budgeting)
Voluntary Separation Program (VSP)
FTE reductions
Recognize majority of severance costs in
2009

15

2010 Budget Calendar
August
Commission workshops on division business
plans and strategies
Budget Guidelines released on 8/12
Budget system available by 8/17
Finalize all the ZBB decisions by the end of Aug.

16

2010 Budget Calendar - Cont.
September
Preparation of preliminary operating and
capital budgets
Internal budget reviews by depts and divisions
Executive preliminary budget reviews
Commission tax levy workshop(s)
October
Commission budget workshops
Operating and capital budgets
Draft Plan of Finance & Tax Levy
17

2010 Budget Calendar - Cont.
November
Preliminary budget document released
First and second reading of budget resolution
December
Statutory budget filed

18

Port of Seattle
2010 Budget Planning
August 11, 2009

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