Along with the uncertainty associated with fuel costs, a rapidly deteriorating economic environment has dropped the bottom out of passenger demand and has many airports re-evaluating their business models regarding air service development. AIRPORT BUSINESS recently canvassed various airports across the nation to uncover their approaches to the air service crisis facing the industry in 2009.
Small community airports have been hit hardest, many losing airline service altogether. With airlines cutting capacity to recoup record-high fuel costs during the first half of 2008, many secondary airports are experiencing double-digit declines in enplanements compared with 2007.
“It’s time to retrench, hold your breath, and do everything you can to maintain existing service,” relates Steve Martin, senior vice president for strategic and development planning at InterVISTAS Consulting Inc. “There are big forces at work here, and big challenges for small communities.”
Martin, who spent over 20 years with the Government Accountability Office (GAO) addressing issues regarding air service to small communities, says air service woes are expected to continue through the rest of 2009.
Deborah McElroy, executive vice president of policy and external affairs for Airports Council International-North America (ACI-NA), relates that many airports received notification late last summer announcing there would be service reductions through the end of last year.
“This is something that airports have been focused on for several months, taking actions that all responsible businesses do when they face potential reductions in revenue,” says McElroy.
Ken Scott, executive director at Norfolk International Airport, counts his blessings in respect to many things, least of which is that his passenger numbers were down only 4.4 percent last year, a modest decrease compared with many airports. Scott has been at Norfolk International for 38 years, and admits that this is the worst passenger decline he has ever seen.
“It’s going to take almost double-digit growth in passengers before demand dictates that we do something new,” says Scott. “We are focused now on tightening our belt so that we can keep our costs to the airlines reasonable.”
Scott says Norfolk has kept the cost to its airlines per enplaned passenger at about $3.50, which is currently unheard of at most airports. Norfolk has accomplished this by economizing expenses, initiating a hiring freeze on some new employees, and cutting travel for its staff.
Says Martin: “The problem with the smallest airports is that they have very little that they can actually cut, because they may already be operating with a fairly lean budget. What happens then is that the fixed costs become spread over fewer operations, and it becomes a vicious cycle.”
While small communities are feeling the brunt of the problem, larger hubs are not exempt from the cost-cutting philosophy exercised during the current economic recession.
Chuck Cannon, spokesman for Denver International Airport (DIA), says enplanements are down nearly five percent. DIA is aggressively trying to maintain its existing air service, yet on the same token, says Cannon: “We want our airlines to be healthy; if they need to cut costs to stay healthy by reducing flights, it’s probably better in the long run for both of us if the airport tries to absorb that.
“The airline industry is very cyclical, and depends on many things which are beyond our control. When airlines are hurting, they ask us not to pile on any more unneeded debt, and we are listening to them.”
DIA had plans in the works for a ten-gate expansion to concourse C, but is now reconsidering the initiative and is looking at it on a month-by-month basis. “We watch very closely how and when we spend our money,” says Cannon.
The experience at rockford, abilene
Chicago-Rockford International Airport (RFD) is another anomaly from the airports experiencing declining passenger numbers. Despite a decrease in seats of 11 percent last year in conjunction with airline industry cutbacks, and a 9 percent reduction in activity, RFD remains stable, says Executive Director Bob O’Brien. “Our planes are still going out about 95 percent full, so we didn’t lose as many passengers as we saw seats being reduced.”
O’Brien, in the airport industry for 32 years, relates that even though these are tough times now, most small airports in the U.S. have been experiencing nothing but increasing pain for the last ten to 15 years.
In 2003, RFD swore off the traditional hub and spoke approach and began appealing to a niche market with low-cost, high-value, point-to-point service. Surrounded by four top 100 airports in the nation, competition has kept RFD strong, and O’Brien expects the airport to continue to grow.
“You really have to understand not only your community, but your air service market area,” says O’Brien. “Where your passengers could come from, would come from, and how the surrounding airports compete for those passengers.”
When O’Brien courts airlines, he tells them that RFD doesn’t simply have a local community of 150,000 people; it has 500,000 people within 30 minutes of the airport, 2.5 million people within 60 minutes, and 8.4 million people within 90 minutes.
“We are selling our strengths, our abilities, and the quality of our airport to the airlines, helping them see that we are a viable alternative to Chicago O’Hare, and that we are geographically and strategically positioned in the Chicago/Milwaukee corridor,” says O’Brien.
Meanwhile, in Texas, Abilene Regional Airport (ABI) is also somewhat insolating itself from the drastic passenger declines seen around the nation. ABI has experienced only a 2 percent decline in passengers, thanks to the frequency of service to Dallas-Fort Worth by American Eagle, the airport’s sole carrier.
“We have been fortunate in this part of Texas because we have somewhat of a dependency on the energy markets, including wind energy, which is a developing industry out here,” says director of aviation Don Green.
Competition, on the other hand, has been Abilene’s toughest challenge to gaining new air service. According to Green, ABI loses approximately 40 percent of it’s potential passengers to other markets.
“We like to think that if airports get involved with their local communities, then they certainly stand a better chance of holding onto their existing service, or even attracting new service,” says Martin.
He relates that many airports are forming their own community-based task forces with key stakeholders.
Abilene has formed its own regional air service advisory council which is composed of representatives from its market area. The council meets quarterly to discuss air service needs of emerging businesses in the area.
Not only does Norfolk have an air service task force, the airport also implements public surveys, and periodically puts on seminars and meetings for the public. Says director Scott: “People are not afraid to tell us where they want to go.
“We also use a consultant out of Washington to provide economic analysis. If we can’t convince the airlines that it will be financially feasible for them to come here, then we are not going to ask them.”
The Hampton Roads Norfolk Airport Task Force is charged with enhancing commercial air service, and consists of business leaders throughout Hampton Roads. The task force’s specific goals are expanding routes and attracting more carriers; increased international connections; competitive airfares; and increased perception as a “business friendly” airport.
“Airports routinely work with the business community, and certainly the airport board gives them a great communication tool to ensure they’re informed about their communities’ needs for air service,” says ACI-NA’s McElroy, who was with the Regional Airline Association for 19 years, and who “knows small communities.”
When looking to add new service, many airports create incentive packages to offer potential target carriers.
InterVISTAS’ Martin says the watchword when it comes to incentives is risk-sharing. “Especially now, I think carriers are trying to convince smaller communities that, for service to work, it has to be a partnership. I think there are a fair amount of revenue guarantees now, and the size of those guarantees has gone up.”
Cannon of DIA relates that airports are always trying to attract new service, and that it must persuade carriers that the region not only has a viable market, but also that the market can be sustained.
DIA is currently targeting Asia for new service, and hopes to have an Asian flight, possibly to Tokyo, within the next couple of years. Cannon says DIA is willing to match the carrier $1 million in marketing funds, but the service has to be daily, and the carrier has to operate for at least one year.
At Abilene, Green says that before he talks to airlines about the possibility of new service, he wants to be sure that he has a sustainable market, and that the airport is not seeing downward trends in growth.
“Based on sample ticket polls,” says Green, “we know what regions of the country our passengers are going to. We are really looking for something now to the Western U.S.”
Green says the airport can waive landing fees for the first year as an optional incentive, though the airlines biggest concerns are a sustainable market, and airport support in advertising and marketing.
Chicago-Rockford Int’l Airport utilizes two specific marketing strategies in support of its carriers. The airport uses a traditional approach by purchasing radio and newspaper ads in its local community and surrounding area, and it also markets service through its loyalty club. The club consists of more than 40,000 members who receive perks and other incentives to help the airport spread the word about its air service.
“Historically, most communities have looked at air service as what they are going to have to give, or give up,” says O’Brien. “The reality is the airlines are not as interested in concessions or incentives. You either have a market, or you don’t.”
Norfolk’s Scott relates that the most frustrating aspect to gaining service right now is that the airlines are not talking, and not telling the airport what they may or may not do. “We are not making a lot of headway communicating with airlines right now,” he says. “That makes it difficult for airport operators to do a whole lot.”
Norfolk does offer some promotional start-up assistance which is negotiated from airline to airline, but the airport is primarily focused on convincing the carrier that it can make money.
McElroy of ACI-NA relates that matching marketing funds and reducing landing fees are not unusual strategies for airports when attempting to attract new service, though the ways these incentives are offered varies greatly.
McElroy says that Hartford’s Bradley International Airport has put up $250,000 in marketing and other support as an incentive program. Dallas/Fort Worth International Airport (DFW) has also recently implemented a significant capital commitment for attracting new service for both domestic and international routes.
Brian Murnahan, spokesman for DFW, confirms that its board of directors approved in early January an incentive program which offers any new destination route in the U.S. up to $1 million, and any new international destination up to $5 million. A carrier offering a combination of new services can receive up to $8 million.
Unfortunately, smaller communities cannot afford to invest a large amount of money into offering incentives for new service. For this reason, the federal government offers some assistance in the form of grants via the Small Community Air Service Development Program (SCASD).
The SCASD program provides grant-in-aid assistance to small communities to improve their air service. The program has been in effect for seven years, and its core objective is to secure service enhancements that will be responsive to a community’s air transportation needs, and whose benefits can be expected to continue after the initial expenditures. According to the SCASD website, over the past three years, individual grants have ranged from $20,000 to nearly $1.6 million.
Martin says that, as a federal program, SCASD has had very mixed successes. “The program originally was another way for communities to attract and retain service; but it was also intended as a petri dish of innovative approaches to air service development,” relates Martin.
“After five or six years of this, honestly, I haven’t seen a whole lot new in the last couple years. The program has taken what is probably on average $500,000 of federal funding per community, generating only about a 30 percent success rate of whether an airport attracted new service and maintained it for at least one year.
“From a public policy perspective, that is probably considered to be a measure of success,” says Martin. “Yet, from an individual airport’s perspective, and from a local development perspective, I would relax that standard.”