News Is My Business / September 6, 2016
By Larry Luxner
SAN JUAN — The massive exodus of Puerto Ricans to the U.S. mainland and the island’s continuing financial mess is certainly bad news, but the increased air traffic has been a bonanza for Aerostar Airport Holdings LLC, the company that’s taken over management of San Juan’s Luis Muñóz Marín International Airport (LLM).
“Fortunately for us, because of these very special conditions Puerto Rico has endured recently — the financial crisis, the political crisis, Zika and also emigration to the U.S. mainland — we’ve seen an increasing number of people traveling and using the airport,” Aerostar CEO Agustín Arellano said in an Aug. 25 interview. “You have more businesspeople trying to get deals or finding ways to help improve our financial situation, officials of federal agencies traveling to Puerto Rico, and law firms looking for business.”
Arellano expects the airport to close 2016 having handled 9.0 million passengers, up from 7.2 million in 2013 — the year it took over LMM’s operations in a controversial privatization he says ultimately paid off for the government and people of Puerto Rico.
“We closed the deal paying the government $615 million in advance rent for the concession,” Arellano said. “Then we brought in $230 million to do the remodeling and almost $50 million in additional working capital. That’s almost $900 million just in 2013 and subsequent years. So the exercise the government did by giving the concession to a professional operator like Aerostar is a very good investment, and could be an example for other pieces of Puerto Rico’s infrastructure that are right now in trouble.”
Aerostar is a 50-50 venture between New York-based Highstar Capital and Mexico’s Grupo Aeroportuario del Sureste (ASUR).
Besides the $615 million up-front payment, the deal also requires Aerostar to transfer $2.5 million in annual payments to the Puerto Rico Ports Authority (PRPA) as well as 5% of annual gross revenues between years six and 30, rising to 10% of annual gross revenues from year 31 to year 40. The PRPA will receive $552.5 million over the life of the 40-year concession.
The deal has created 400 permanent and 2,500 temporary jobs on an island whose jobless rate now stands at 11% — well over twice the U.S. unemployment rate of 4.8%.
“People who emigrate to the States do it because they are looking for jobs or they already have a job there. And when they have a job, they travel more often to Puerto Rico, or they invite their family to visit them in the U.S.,” said Arellano, a 60-year-old Mexican aviation industry veteran who relocated to San Juan in 2011. “People may leave family and friends here, but they do have a tendency to come back more frequently.”
As a result, 80% of the 9 million passengers who used LMM last year are not tourists but Puerto Ricans traveling back and forth to visit family and friends, said Arellano, citing surveys done at the airport’s 11 convenience stores.
Aerostar will likely close 2016 with $112 million in revenues, about 30% of that coming from retail, though Arellano expects that to rise to 40% over the next five years.
As terminals have been renovated and retail services expanded at LMM, revenues have jumped from $2.30 per passenger when Aerostar took over the outdated airport to about $7.40 today. LMM now boasts 124 retail shops selling everything from liquor to local handicrafts, and Dufry — the airport’s duty-free operator — has a 28,000-sq-foot store that departing passengers must pass through after clearing security. Dufry also operates a nearly 9,000-sq-foot shop in Concourse A, which serves JetBlue and two small Caribbean regional airlines, LIAT and Tradewinds.
Since 2005, JetBlue’s share of total traffic at LMM has jumped from under 5% to about 38%, displacing American Airlines as the island’s dominant carrier; AA now has 22%, meaning six out of every 10 planes entering or leaving San Juan fly either the JetBlue or American logo. United, Southwest, Spirit and Delta split the remaining 40% of traffic to and from the U.S. mainland, though Southwest is growing the fastest, he said.
On Dec. 14, Allegiant Airlines will introduce direct service from San Juan and to Orlando Sanford International Airport, located about 30 miles northeast of downtown Orlando. The four-times-a-week flights are being advertised at only $50 one-way; three days later, Allegiant will launch direct service from LMM to Cincinnati and Pittsburgh.
In fact, due to recent emigration flows, the top three airport destinations for LMM are all in Florida: Miami, Fort Lauderdale and Orlando. Says Arellano: “Puerto Rico’s financial crisis is not going to be solved in two, three or four years. It’s going to take eight or 10 years. This is what knowledgeable people are saying. So the back and forth will continue.”