Delta's Expanded International Terminal in Seattle Is Officially on the Way

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A few years ago, Delta Air Lines (NYSE: DAL) made Seattle its primary international gateway on the West Coast. Today, Delta flies nonstop from Seattle-Tacoma International Airport to the top five business centers in East Asia -- Beijing, Hong Kong, Seoul, Shanghai, and Tokyo -- as well as three of the biggest European hubs (Amsterdam, London, and Paris).

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However, Delta has had to put the brakes on its international growth in Seattle since 2014. The airport's international arrivals facility, originally designed to process 1,200 passengers per hour, now has to cope with up to 2,000 passengers per hour. As a result, there are significant delays at the customs facility during peak hours.

The Port of Seattle has been working for several years on a plan to alleviate this overcrowding. Last week, it finally broke ground on a major expansion of the international arrivals facility, which will more than double its capacity.

Eking out growth in Seattle

Seattle has been the fastest-growing major airport in the U.S. for the past three years. A growing rivalry between Delta and Alaska Air (NYSE: ALK) has driven much of this growth. Delta has more than tripled the number of flights and destinations it offers from Seattle since 2012, and market leader Alaska Air has responded with steady growth of its own.

Despite this rapid capacity expansion, Seattle has remained a very profitable hub for Delta and Alaska. This can be attributed to the Seattle metro area's stellar economic growth, which is being driven primarily by the tech sector.

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While demand remains red hot, Delta Air Lines has had to slow its expansion in Seattle recently due to a lack of gate space. Earlier this year, the carrier converted four widebody gates in Seattle to six gates for smaller narrowbody aircraft, allowing it to fit in a few more flights. Alaska Air faces similar constraints on its growth.

For international flights that require customs facilities, the situation is even worse. The current international arrivals facility simply can't keep up with the existing traffic. Adding more flights would just exacerbate the delays.

Seattle expands its facilities

Last Tuesday, the Port of Seattle began work on an expanded international arrivals facility that will be able to process 2,600 passengers per hour, providing room for growth. When the project is completed in late 2019, Sea-Tac will have 20 gates capable of accepting international arrivals, up from 12 today.

This will enable Delta to start adding international flights in Seattle once again, catching up with its domestic growth. Seattle is particularly well-positioned geographically for connecting traffic between the U.S. and Asia. Delta could potentially add nonstop flights to Singapore, Taipei, and a variety of destinations in China. It may also have long-term growth opportunities in European business markets like Frankfurt, Barcelona, Madrid, and Milan.

Importantly, faster customs processing times will allow Delta to provide a better customer experience for passengers on its existing international flights into Seattle.

Alaska Air will get to grow as well

While Delta Air Lines will be the biggest beneficiary of the new international arrivals facility, Alaska Air is set to get its own expanded facilities in Seattle in 2019. Earlier this year, the Port of Seattle broke ground on a modernization and expansion of Sea-Tac Airport's North Satellite concourse, which is exclusively used by Alaska Airlines.

The expansion part of the project will add eight gates to the concourse. These new gates should be ready by the spring of 2019, allowing Alaska Airlines to ramp up growth by the summer of that year, if it wants to.

Renovation of the existing gates will wrap up about two years later. By the end of the project, Alaska Airlines will have much-better facilities in Seattle -- allowing it to deliver a better customer experience.

For now, fares could go higher

Until these expansion projects are completed in 2019, Seattle-Tacoma International Airport will be more crowded than ever. The silver lining for airlines is that these capacity constraints could lead to higher ticket prices.

Looking ahead to 2019, the new international arrivals facility and additional gates will allow Delta, Alaska, and other carriers to catch up with demand growth by adding new flights. Yet if the Seattle regional economy continues on its current growth trajectory, the airport will need to expand again within a few short years.

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Adam Levine-Weinberg owns shares of Alaska Air Group and Delta Air Lines. David Gardner has no position in any of the stocks mentioned. Tom Gardner has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.