Chasing Air Service: Innovative programs, charter airlines may supply the answers for small communities

Managing Airports Today

By John F. Infanger, Editorial Director

Chasing Air Service

Innovative programs, charter airlines may supply the answers for small communities

DAYTONA BEACH, FL — As turboprop airliners go away and the major carriers restructure their operations, small communities across the U.S. are grappling with how to maintain current airline service and attract new carriers in a dramatically changing marketplace. A two-year old federal program for small communities is having an impact, but analysts suggest that how well airports and local leaders position themselves is often a deal-maker for carriers, along with having a readily identifiable market.

Such were the messages at the 9th annual National Air Service Confer-ence hosted here in March by the American Association of Airport Executives.

Mike Boggs, manager of Airport Business Services for Mead & Hunt, a consulting firm based in Madison, WI, sees increasing challenges for smaller communities and their airports as the turboprop fleet is abandoned in favor of regional jets. The RJ fleet consists of aircraft that generally have 50 or more seats, effectively taking some communities out of the picture when their previous service had been from smaller turboprops. And the trend for RJ seating capacity is moving upward.

According to Back Aviation Solutions, based in New Haven, CT, the turboprop airline fleet will decline to only one percent of the commercial fleet by 2023, down from some 12 percent today. RJs, meanwhile, will increase from their present 12 percent of the fleet to 27 percent.

Boggs points out that, from the carriers’ perspective, small hub and non-hub airports generate only 11 percent of the passengers in the U.S., and carriers can no longer wait six to 12 months to break even after entering a new market. “Today, they can’t wait that long,” he says.

That means communities must do their homework about their markets while also creating incentives that can work to attract carriers. He says that “revenue guarantees are popular with airlines right now,” and says that travel banks, which Mead & Hunt has successfully orchestrated with several communities, are an option. “Travel banks only work in strong business markets,” he adds.

Boggs says that carriers often want start-up cost reductions while putting the burden of marketing on the airport and community. They also want a clear identification of the opportunity: the marketplace, passenger demographics, and interest level of local businesses and associated groups.
Building on that, Greg Dull, director of marketing for Orlando Sanford International Airport, suggests finding other markets with which there are natural links. That way, both airports/markets can come to a carrier, demonstrating the level of interest from both destinations.

DOT seeks to help
Boggs points out that the two most frequent requests on applications for the DOT’s Small Community Air Service Development Program are for marketing and revenue guarantees to carriers. The SCASDP was created under AIR-21 legislation as a two-year pilot program to, in essence, provide monies to communities that were trying to help themselves in regards to new air service. The program distributed $20 million in both 2002 and 2003.

The Vision 100 legislation, which authorizes aviation funding for 2004-2007, targets $35 million a year for the program; however, for FY04, just over $19 million has been appropriated for distribution by DOT.

Tulinda Larsen, marketing director of strategic consulting for Back Aviation Solutions, says that restructuring by the major carriers is the primary reason non-stop routes served by turboprops have dropped 52 percent in a decade — from 1,400 routes to 680 — and additional airports are at risk. She points out that some 162 U.S. airports have three daily flights or less and that that number is the traditional benchmark minimum for airlines.

Larsen, formerly with DOT and the Alaska Air Carriers Association, explains that there are four programs under DOT/FAA available to aid small communities:

• The Essential Air Service Pro-gram, which she calls “addictive.”
• The Small Community Air Service Development Program (see sidebar).
• Community and Regional Choice Programs, a pilot program that allows communities to opt out of EAS in exchange for grants. It is, in effect, redistributing the money from the carriers to communities, she says.
• The National Commission on Small Community Air Service, which Congress wants to have study the EAS program. However, no funding has been appropriated for the commission, leaving it on hold.

Carriers’ perspectives
A central message underlying this year’s AAAE conference was the role charter airlines may be able to play for communities that need or want new air service, or any service for that matter. Rockford, IL, located some 90 miles northwest of Chicago, is one example of a community that has failed to sustain commercial service. Enter TransMeridian Air-lines, a charter offering scheduled service to Florida. TransMeridian has also launched charter service to Las Vegas from Harrisburg, PA, and Stewart, NY.

Robert O’Brien, A.A.E., executive director of the Northwest Chi-cago Regional Airport at Rockford, reports that TransMeridian is up to six flights a week and on track to carry 75,000 passengers this year, following zero commercial service for two years at RFD. TransMeridian was formed in 1995, gets two-thirds of its income from tour operators, and has a fleet of ten aircraft, 757s and 727s, the latter of which will be replaced by MD-80s, says TM’s Colin Wheeler.

Carriers like TransMeridian, he says, are interested in markets that have a strong origination and destination (O&D) base with little or no competitive non-stop service. TM seeks cities that share in the start-up risk with marketing support and cost abatement packages, he explains.
Meanwhile, Bill Mishk of regional carrier Trans States Airlines, which flies 62 aircraft for USAir and United Express, encourages communities to seek service. New markets, he says, need good economics, risk management, RJ opportunities, and community support (“follow through beats promises”).

Delta Airlines’ Brad DiFiore suggests that the major is still interested in adding new service, having added six cities thus far in 2004, with more possibly to come. “We’re definitely willing to talk with you,” he says.

At AirTran, which operates a hub at Atlanta and mini-hubs at Akron-Canton, OH, Orlando, and Milwau-kee, John Kirby says the carrier will take stock of its network in 2004 and be slow to add markets. A main reason: To see how discounts by majors affect the marketplace.

Two airports that have had success attracting new air service are in Columbus, OH, and Orlando.

John Malabad, manager of air service development for the Columbus Regional Airport Authority, reports that the new charter terminal at Rickenbacker International Airport is active with Southeast Airlines and Hooters Air. The new facility features two gates and six check-in positions and was built in an effort to initiate commercial service at the cargo/military airport.

Southeast offers service to Orlando, Tampa, and Allentown, PA. Malabad says entry of this service has not negatively affected similar service by competing carriers at Port Columbus International. Hooters Air, meanwhile, flies to Atlanta and Myrtle Beach, SC, and has generated some 30 local jobs, according to Malabad. Hooters press coverage helped generate activity, he adds.

Rickenbacker has waived passenger fees and is using a “per turn fee,” says Malabad.

At Orlando Sanford International, director of marketing Greg Dull reports that enplanements should reach 1.4 million in 2004, up from 50,000 in 1995. The United Kingdom, he says, is the airport’s bread and butter market for charters. The airport, operated under private management, has two terminals and 12 gates, five of which are international.

New air service is coming from Southeast Airlines to Gary, IN, and from JetsGo of Canada to Vancouver and Montreal.

Terri Bingham, associate director for the DOT Office of Aviation Analysis, advises for those wanting to participate in the Small Community Air Service Development Program: Know what you want; have the money up front; and plan on sustaining it when the federal money runs out.

Bingham was at Daytona Beach to tell attendees at the AAAE National Air Service Conference as much what the program is not as is. “It’s an important program,” she says. “We take it very seriously at the Department of Transportation. This is a very, very different program than most government programs.”

Critical elements to know up front before applying, says Bingham, are that airports only receive program funds (reimbursement) after they have paid for the initiative up front; and, once the one-year federal funding ends the program must stand on its own. Both issues need to be addressed within the official application, she explains. She relates that marketing to date has been generally at least part of each community’s proposal and that “marketing has been one of the most successful ways of using this money.”

Bingham’s other observations ...

• DOT is limited to 40 grants under the development program and no more than four per state in a given year. Annual funding for it is authorized at $35 million; however, in FY2004, DOT has only been appropriated $19.88 million.
• “The money can be used for virtually anything for air service development,” except not for capital improvements.
• The intent of the program is to help a community get an air service development initiative off the ground, but it must be self-sustaining. That is, DOT wants to see that there are serious stakeholders on board with the program to help fund it in the long-term, as necessary.
• Grants must be spent “in a timely manner,” and only one to a customer. A program that has already received one grant is ineligible for another under SCASDP.
• Applications for this fiscal year will “probably” be due in early May (watch DOT for an RFP) and the actual grants will be announced likely around September.
• Serious consideration will only be given to applications that have significant community participation. Airports must have players such as the Chamber of Commerce, economic development groups, associations, and the like as partners.
• There are currently no working travel banks in the program as yet — “the flavor of the day for some time” — but one could still work.
• “In-kind contributions” such as free advertising from local media are not reimbursable.
• Don’t spend the money before the grant agreement is signed. And, “You can’t wait for our money and then pay the bill.”