Wednesday, August 19, 2009

Airports and Small Cities

Small cities like Windsor have no chance without a viable airport. The entire Windsor Essex region should be supporting the efforts to improve and expand service at our local airport.

Below is a good read published online in the New York Times.

By ELIZABETH OLSON
Published: August 17, 2009

Small Cities Pay to Keep Air Travel

With airlines cutting back service in a weak economy, some cities that are too big to qualify for federal help but too small to keep the planes flying in have stepped up with ways to hang on: paying the airlines, either directly or indirectly.

The cities, like Myrtle Beach, S.C., and Duluth, Minn., have tried various strategies to keep their lifeline to the outside world.

Myrtle Beach, for example, has reduced landing fees, terminal rents and other fees. In addition, the city’s convention and visitors bureau plans to spend $8 million — in money raised from private businesses and in state tourism promotion money — on a marketing campaign to attract more visitors, particularly golfers from northern states, said Bradley Dean, president and chief executive of the area’s visitors bureau.

Officials in Duluth are weighing whether to guarantee an airline that a certain percentage of seats will be filled. Once those targets are met, the city will profit.

“Anymore, the airlines don’t want to take the risks,” said Brian Ryks, executive director of the Duluth Airport Authority. “But they want all the rewards.”

While many of these cities have struggled for years to keep their airline service, the issue has become more acute in recent months. Airlines have been cutting capacity sharply for much of the last year — first as their costs rose with skyrocketing oil prices and then as the economy slowed, reducing demand for air travel. To save money, the airlines either eliminated service or significantly cut back on routes.

But some airlines have been willing to resume service if cities agreed to shoulder most — or all — of the financial risk.

The airlines confirmed their arrangements with cities, but declined to discuss the guarantee programs. Many of the cities are not part of the federal Essential Air Service program, which subsidizes service to about 150 communities.

Henry H. Harteveldt, travel industry analyst for Forrester Research, said changes in the airline industry had begun to change the financial relationship between the carriers and the cities.

The airlines have a right to ask for revenue guarantees, Mr. Harteveldt said. “There is no responsibility to serve a market that loses money.”

But, he said, some towns might have a hard time rounding up the support for guarantee programs. “At a time when basic services are being cut back, it’s hard to justify paying airlines for service.”

The cities left behind feel the economic pain, even beyond the sting of the broader economic downturn.

Roswell, N.M., for instance, lost airline service in 2002, said Bill Armstrong Jr., a board member of the Roswell-Chaves County Economic Development Corporation, and “it hurt us terribly.” He added, “We were like nomads in the desert looking for water.”

It took five years for Roswell to regain service, and that was only after the city offered a minimum revenue guarantee of $2.4 million over two years to American Eagle to fly from Roswell to the Dallas-Fort Worth Airport, Mr. Armstrong said.

The service has been so popular, he said, that $700,000 in community pledges have not been touched and the deal is being renewed next month.

Roswell has assembled a $360,000 fund to underpin a second program: a six-month tryout of American Eagle flights to Los Angeles International Airport. The city plans to use $40,000 from that fund to pay for a marketing campaign to persuade businesses and the public to buy seats, Mr. Armstrong said.

“This is the name of the game in weak economic times,” he said. “Communities have to do more. Airlines are hesitant to start a new service without economic support.”

Wichita, Kan., was a pioneer in the business of paying airlines to continue service. It acted after one of its biggest businesses, the headquarters of Pizza Hut, moved away more than a decade ago, and the city was looking for a way to assure service, recalled Valerie Wise, the air service and business development manager for the Wichita Airport Authority.

Through a combination of federal, state, local and private money, Wichita was able to guarantee revenues to some airlines to continue flights. Competition from low-budget airlines, in turn, pressured other carriers to lower prices, she said, to the benefit of business travelers, who had been paying walk-up fares of as much as $1,000.

The city now guarantees AirTran $6.5 million a year to assure flights to the airline’s hub city of Atlanta.

The airport in Latrobe, Pa., is trying a different tack after losing its only air service last month. Delta Air Lines had flown twice a day from Latrobe to Detroit.

The community is small but does not qualify for federal Essential Air Service subsidies, which underwrite service in rural areas, because it is within 70 miles of a large airport, in Pittsburgh. The Senate recently voted to fund the program for $175 million next year, a $39 million raise.

So Gabriel Monzo, executive director of the Westmoreland County Airport Authority, which operates the Latrobe airport, said the authority was considering whether to offer a complete service package to attract a carrier. It is looking, he said, at “handling ticketing and everything over and under the wing, including de-icing.”

He added, “We’re telling carriers: ‘Put up your kiosk, hang up your sign and we’ll do the rest.’ ”

But such partnerships do not always work out. Duluth, for example, has already been burned once in trying to entice an airline to serve the manufacturing, iron ore mining and medical enterprises in and around the city. In 2004, Mr. Ryks of the airport authority said, the city put up a $1 million minimum revenue guarantee in a deal with American Eagle for flights to Chicago O’Hare.

But after six months, O’Hare, which was having trouble handling all its scheduled flights, required the carrier to end flights from some destinations, and Duluth was one of them.

“The revenue guarantee was spent and then they were gone,” Mr. Ryks said.

So Duluth officials are considering a different sort of arrangement, this time with ExpressJet, a regional partner of Continental Airlines, to fly between Duluth and Chicago twice a day at a cost of $5.4 million for the first year.

“The plus is that with conservative figures factored in for revenues and expenses — and a 70 percent load factor,” he said, referring to the percentage of seats sold, “it is estimated there would be an $800,000 profit, and that would come back to the community.”

He conceded, though, “the wild cards are the load factors, the fare levels and the fuel costs. And the community takes the upfront risk.”

But if the airline can sell more seats, the city could make a profit on the deal because the carrier’s profits and expenses are already built in. “This way,” Mr. Ryks said, “we also get to share in any rewards.”