Air Service in Troubled Times

With a perfect storm brewing for airlines, airports stay vigilant - and patient

This spring was a bad time to be an airline. With reported first quarter losses in the billions, shutdowns and mergers, the industry is on shaky ground, thanks to a lagging economy and record high fuel prices. The carriers are working to reduce capacity — get airliners that are less fuel-efficient out of the system, thereby reducing competition so prices can go up and profitability return. Bankruptcies force this; mergers can have the same effect. Regardless, airports across the country are waiting to see what happens next, with a billfold of experience in their back pocket.

Tim Sieber, vice president and general manager of the Colorado-based consulting firm The Boyd Group, says many of the airline bankruptcies were inevitable.

“ATA lost a pretty big military flying contract,” Sieber says. “So they were going to be dependent on their scheduled service, which was basically bottom-feeding traffic.”

Part of that traffic, he says, was in the highly competitive Hawaii market, which relies heavily on discretionary income — currently in short supply. He says Aloha Airlines shut down for a similar reason.
Skybus shutting down was also inevitable, he says. “Quite frankly, there’s a business plan that never made sense. That was just economic gravity proving it exists.”

He says he’s mostly positive about the Delta/Northwest proposition. “There’s not a lot of negatives to this one.”

In fact, he says, the flying public probably won’t see much difference after the merger. “A lot of what these carriers are proposing to do, they’ve already been doing in terms of code-sharing and frequent flier reciprocity. From the consumers’ perspective, a lot of the benefits have always been realized.”

In the meantime, airlines have to do what they can to weather the current economy. “Here we have some credit and weakness issues in the economy and then we have oil at record prices,” Sieber says. “Sort of like a perfect storm. Certainly the airline industry has gone through challenges and there’s been some pretty tough periods.

“But I think the restructuring and the positioning that the industry made going into this storm — or underwent going into this storm — certainly has put them in a better position to weather it than they might have otherwise been.”

Maintaining the approach
Sieber says the rules governing air service still apply — building a market at an airport, connected to international travel, remains key. Accommodating unconventional low-cost carriers is necessary, but Sieber advises against trying to rely solely on that type of traffic. “That business model will never be the bread and butter for an airport.”

Sieber says airports who have lost service recently to the bankruptcies are essentially no worse off than they were before.

“Everybody loves PSEs and concession revenue. But if you’re talking about building an air service market, you’re never going to build an air service network with a carrier like that. I think network access is really where they need to be focused on.”

Gary/Chicago International Airport had Skybus service — two daily flights to Greensboro, North Carolina — less than a month before the airline shut down.

Unfortunately, Gary is no stranger to losing air service, according to airport director Chris Curry. Curry says he was surprised Skybus was in enough trouble to declare bankruptcy, though he was suspicious when the CEO and vice president of operations resigned a few weeks prior.

“Two days before they went bankrupt, I talked to one of the senior managers of Skybus and we were preparing for events as far as a month or two out with our local Chamber of Commerce,” Curry says.

Overall, the impact to the airport — and its budget — has been minimal. Curry says the airport was purposely slow in changing or relying on revenue generated by Skybus. The airline wasn’t there long enough to really make an impact.

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