United vs. Southwest: Do you believe the numbers?

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by Doug Miller / KHOU 11 News

khou.com

Posted on April 18, 2012 at 10:33 PM

Updated Thursday, Apr 19 at 12:21 AM

HOUSTON -- Could Southwest Airlines really fly people from Houston to South America for $133?

That’s one of the questions flying around Houston City Hall from elected officials poring over the numbers in what’s become a controversial economic impact study.  The report commissioned by the Houston Airport System at a cost of $110,000 analyzed the economic consequences of international flights out of Hobby Airport.

The study forecasts 10,000 new jobs, lower air fares and an annual economic impact of $1.6-billion, if airlines are allowed to fly internationally out of Hobby.  But city council members have reacted to the report with everything from chuckles to outright anger.  

“Where are these numbers coming from?” asked C.O. Bradford, a city councilmember.

“I really want to throw this proposal out of the window,” said Andrew Burks, another council member, “because right now, when I see numbers that can’t match, it just don’t work for me.”

So we asked a couple of independent experts to read the report and offer their assessments.  They concluded some of the predictions were probably optimistic, but as one of them said, that’s “typical of the genre” of economic impact studies.

Southwest Airlines wants to fly out internationally out of Hobby, mostly to Mexico, but United Airlines is waging an intense lobbying effort against it.  Airline executives, including Southwest CEO Gary Kelly, sat in the crowded audience this week as Houston’s aviation director formally presented his report recommending foreign flights from Hobby.

Aviation Director Mario Diaz endured more than three hours of intense questioning from sometimes hostile council members, many of whom caustically sniped at the report’s credibility.  They particularly ridiculed a line item in the study predicting Southwest Airlines could fly Houstonians one way to Bogota, Colombia, for $133.

“Now, you can’t even fly from Houston to Lubbock for $133,” Burks told Diaz.

That number also caught the eye of Darren Bush, a University of Houston law professor who’s testified before Congress on airline issues. 

“I can’t wait to take that $130 airfare to Bogota!” Bush said. “And I’m really hoping that fuel costs are low enough to allow that to happen.  I don’t necessarily believe that to be what’s actually going to happen.”

Economists point out there’s no way to precisely predict the future financial impact of international flights into Hobby.  Fuel costs are just one of many volatile factors that could throw off any financial forecast involving the airline industry.  Studies like this make assumptions and projections that produce the precise numbers the public reads in headlines, but the results are actually ballpark estimates.

“If I was a city council person, I’d be much more worried about the signs: Are they positive or negative?” said Steven Craig, a professor of economics at the University of Houston. “And the exact numbers I guess I wouldn’t worry so much about.”

Craig, who’s conducted economic impact studies for many clients including Houston’s aviation department, said “you have to take them with a grain of salt.” 

Another number raising skeptical questions at City Hall is the prediction that the Hobby plan will create 10,000 new jobs.  Critics question how adding just five additional airport gates could create such a hiring binge. 

“I’ll say that it’s on the higher end, but typical of the genre,” Craig said.  “When you stimulate air traffic, all kind of things happen.  And so all the jobs are not even at the airport.”

The methodology of the report seems solid, Craig said.  Nonetheless, some of the council critics question not only its veracity, but also whether it was tailored to take Southwest’s side.  So some of them are suggesting an alternative.

They want to wait for United to produce yet another economic impact study.

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