Comments a candid Boyd Group International vice president Tim Sieber, “First and foremost, we come from the perspective of saying, you can have all of the incentives in the world; if the market isn’t there, it is not something an airport should use its resources pursuing … because when the incentives run out, so does the airline.” Yet, in certain circumstances, offering incentives for air service can work well, as Sarasota Bradenton International Airport (SRQ) CEO Rick Piccolo attests.
Says Michael Audino, who spent a half a dozen years in the ‘90s as an Iowa state aviation officer, and five years as director of marketing and business development for the Des Moines International Airport, “At the end of the day, and what many communities fail to remember, is that airlines are for-profit entities with a responsibility to their shareholders.”
The overriding theme is that, if a carrier isn’t making money in a particular community, it will not enhance service in that community, relates Audino. So why offer incentives?
“It’s a risky business,” he says. “The fundamental purpose of offering incentives is to help an airline mitigate the risk of sustaining or expanding service. It’s important for communities to start with an honest assessment of their role in the greater transportation system.”
Boyd Group’s Sieber agrees, stating, “Airports should focus on where they can fit in helping an airline make a profitable addition to its overall network strategy.”
Sarasota’s Piccolo says SRQ has had an incentive program for several years, and it has resulted in a number of start-up services. The key to the success there is the targeted nature of its program, and the non-discriminatory way in which it is applied to all its airline carriers.
With regard to regulatory constraints when offering incentives, and the structure of airline/airport incentive agreements, Airports Council International-North America’s (ACI-NA) Monica Hargrove outlined specific regulatory constraints at the ACI-NA finance and economics conference held in Miami last May. Constraints include:
1) Revenue diversion prohibition;
2) Self-sustaining requirement;
3)Unjust descrimination prohibition;
4)Contractual, state, and local law issues;
5)Restrictions on the airport sponsor’s use of non-airport revenues.
[Hargrove’s presentation, titled Airport Incentive Programs: Legal and Regulatory Considerations in Structuring Programs, can be found online at: www.aci-na.org/about/2010_finance.]
Audino, who now works with the Center for Urban Transportation Research (CUTR), served as the chair of the project review panel for the Airport Cooperative Research Program’s (ACRP) Report 18: Passenger Air Service Development Techniques. The report, published some 18 months ago, was put together as a guidebook fundamentally designed to help managers, marketers, and air service specialists at smaller airports, relates Audino.
“I contend that any of the findings in the report is relevant to airports of all sizes; and can also be very valuable to local community leaders such as mayors, city councillors, chamber directors, etc.,” he says.
Critical when considering offering incentives for service, relates Audino, is the community’s ability to clearly and specifically articulate its air service goals. “Airports must identify goals and communicate them broadly throughout the community so that everyone is on the same page.”
Audino categorizes specific types of incentives into three broad categories:
1) Revenue guarantee, such as when a community sets aside money, or works with local businesses to purchase a number of tickets; committing a certain amount of money (travel banks). More often than not, the incentive is utilized in support of new service, explains Audino;
2) Cost subsidies such as fee waivers, which can be applied to a variety of service goals;
3) Marketing support, helping promote the airline to the community with paid advertising or other types of airport/airline marketing collaboration.
The incentives package also includes $5.3 million of city tax increment financing and $1.4 million of state infrastructure and employee-training grants.
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