United Will Spend $781 Million on LAX and Houston Passengers

NEW YORK (TheStreet) -- In a big week for United Airlines (UAL) hub upgrades, the carrier said it will spend $781 million for improvements at Los Angeles International Airport and Houston's George Bush International Airport.

The announcement came in the same week as Delta (DAL) and Southwest (LUV) announced billion-dollar stock buybacks. The airport improvements are a sign that airlines, finally making real money, are not just giving it all back to shareholders in order to placate Wall Street.

The major carriers also have moved to enhance employee compensation and they are investing in new airplanes and airport facilities, which probably are the most visible signs, for passengers, of the broad benefit of improved airline economics.

U.S. airlines this year will spend $15.8 billion on capital expenditures, according to Airlines for America, the industry trade group. The amount has risen gradually from $5.2 billion in 2010. Most of the money is for new aircraft. The top 10 U.S. airlines took delivery of 317 new aircraft in 2014 and will take 367 this year, A4A said.

Airlines are also spending billions on airport improvements: United announced a $537 million terminal renovation at LAX on Thursday, after announcing a $244 million new concourse in Houston on Monday.

At LAX, United's improvements will include a new lobby for its Terminals 7 and 8, where it operates both domestic and international flights out of 20 gates; a spacious new club; updated earthquake support; and improved underground baggage handling.

"We want to provide a great experience for the customer, all the way from the curb to the gate," said Kate Gebo, United vice president of corporate real estate. "We haven't invested here in LA, the airport hasn't invested, since the (1984) Olympics, and now is the time."

United's upgrade will combine all of its security checkpoints in one spot, requiring a 25,000-square-foot expansion. That will cost about $100 million. A spacious ticketing lobby will offer self-service kiosks for ticketing and baggage check. Gate seating will be improved and cell phone charging sties will be expanded. Also, United will build a new 20,000-square-foot club with expansive views.

Much of the work will be less apparent. The terminals' electrical systems are being replaced. Also, 100 column supports are being strengthened to meet higher standards for earthquake safety. It takes about 20 to 30 hours to reinforce each column, and much of the work must be done at night, because it's tough to reinforce columns in a functioning airport terminal.

Like other aging airports, LAX doesn't have sufficient baggage handling infrastructure, especially now that the Transportation Security Administration inspects baggage. Currently, "the TSA screens bags in the lobby," Gebo said. "The bag system here at LAX is 30 years old. We're replacing it." The cost is $80 million.

In 2014, United opened a new 10-gate concourse at Boston Logan costing $170 million as well as a new boarding area in Terminal E at San Francisco International Airport. In 2013, it spent $97 million on a new Terminal B Concourse at Houston.

Other airlines are making similar investments at key airports. Delta next month will complete a $299 million project at LAX Terminal Five; the improvements include new jet bridges and baggage handling facilities. The total cost of the ongoing LAX overhaul (for all airlines) will be more than $7 billion.

Also, Delta opened a newly renovated terminal at John F. Kennedy International Airport in 2013. The cost was $1.4 billion; the carrier has spent several hundred million more dollars to expand the facility. Delta also spent $160 million modernizing its terminals at New York LaGuardia airport.

American (AAL) has committed to spend more than $2 billion on capital improvements, mostly for new aircraft. It took delivery of more than 100 new aircraft in 2014.

American is spending $150 million to redesign Terminal F at Philadelphia International Airport, and it plans to spend $2.7 billion, in partnership with Dallas-Fort Worth International Airport, to upgrade four older airport terminals.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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