Exploring Airline Economics

In my younger days in Huntsville, AL many of my friends were NASA engineers. On technical matters they were so far over my head that I didn’t even try to pretend otherwise. One thing they taught me is that some problems have so many variables it’s impossible to calculate the outcome. Trying to predict the airline market is one such problem. Warren Buffet sold all of his airline stock a few years back because he said it was impossible to predict the industry accurately. Airports, of course, must deal with airline markets, and they work at it.

When I traveled almost constantly out of Huntsville, it was sometimes profitable to drive to Nashville or Birmingham to get the best airfare. The Huntsville airport staff actually had figures on how many cars with North Alabama license tags parked in the Birmingham and Nashville airports. They took those figures to the airlines that served Huntsville, airfares dropped and my need to drive to either city disappeared.

Now I live in east Tennessee, some 59 miles from Asheville Regional Airport (AVL), NC, and 32 miles from Tri Cities Regional Airport (TRI). At first, I sometimes drove to AVL for a cheaper fare, but during the last year or so that has not often been necessary. The directors of both airports — Lew Bleiweis in Asheville and Pat Wilson at Tri Cities — are knowledgable and aggressive marketers. Visiting with them has been informative.

About a year and a half ago, Southwest Airlines announced plans to begin service in and out of Greenville-Spartanburg Airport (GSP), SC some 63 miles south of AVL and 142 miles south of TRI. Most folks figured GSP was close enough to interfere with AVL’s market, but not close enough to bother TRI. Talking with Pat Wilson, however, left me thinking: If Southwest could cause fares to drop in Asheville, I and others might start driving to Asheville, which would indeed hurt TRI.

Southwest has been operating at GSP for about ten months now and here are some stats gleaned from AVL’s marketing director Tina Kinsley and TRI’s Pat Wilson: AVL’s airport set a record for enplanements in 2010, rising 27 percent compared to 2009. Knowing that Southwest was coming into GSP in March 2011, AVL studied other markets into which the carrier moved. Based on their findings, they assumed (and budgeted for) enplanements dropping 10 percent in 2011. It didn’t happen. The drop, so far, has been more like 1.5 to 2 percent, making 2011 their second best year for enplanements.

TRI enplanements, according to Wilson, climbed in 2011. He says, “There must be ten important factors that have influenced enplanements, and it’s impossible to say which have been most important.” Maybe that’s what Warren Buffet was talking about.

Obviously, the entry of Southwest into GSP was of little importance at AVL or TRI. One major factor is that, thanks to increased costs in jet fuel, Southwest is no longer that much cheaper than other airlines. This is a different market from the days when a commercial bus drove people from Memphis to the Little Rock Airport, just so they could fly Southwest.

And change does go on: TRI is currently negotiating to get service to/from Nashville. I hope they can pull it off.