State looks skyward with new incentives; If Skybus adds jobs, the state may pay it $3.9 million, unusual for a new company

State officials Monday promised a $3.9 million incentives grant to a fledgling airline.

The decision, a shift for one of North Carolina's most lucrative incentives programs, could hurt the airports in Raleigh and Charlotte.

Skybus Airlines, a discount carrier that began service in May, won the incentive after agreeing to make Piedmont Triad International Airport, near Greensboro, a base for its operations.

The Ohio company next year plans to begin flights to seven new destinations from the airport and create as many as 375 jobs with average annual salaries of $46,300.

Its decision ends months of negotiations among local, state and company officials and restores an amenity to the Triad market, where recruiters have worked to win a low-cost carrier after losing others, including AirTran Airways and Independence Air.

About 2,000 passengers a day go to Raleigh and Charlotte for low-fare offerings, said Ted Johnson, executive director of the Piedmont Triad International Airport Authority. "That's about $20,000 a day" in lost revenue for the airport, he said. "We hope to get some of those people coming back."

Passenger volume is the key to generating revenue -- through parking, concessions and other services -- and is integral in convincing airlines to add routes.

However, Raleigh-Durham International Airport spokeswoman Mindy Hamlin downplayed the Skybus expansion.

"We have a strong market," she said. "We have all the major airlines offering service. What that results in is competitive ticket prices. That keeps us strong."

Skybus is experimenting with a business model that's unfamiliar in the U.S. but popular in Europe.

The company sells tickets for as little as $10 and charges additional fees for all other features, including checking luggage, priority boarding, in-flight food and blankets.

It supplements revenue by selling advertising space inside and outside the cabins of its Airbus jets. And it uses technology instead of people whenever possible to keep costs low.

The business is similar to Ryanair, a discount airline that ferries people across Europe for a few euros each. Skybus included a flight between Greensboro and Columbus, Ohio, among its first routes this spring.

Incentive for each flier

As an enticement to get the expansion, the PTI Airport Authority last week agreed to a three-year plan that will pay Skybus $2.15 for each passenger that flies on one of the airline's new routes. Governments, tourism and economic development groups in the Triad promised almost $1 million to help promote the expanded service.

And the state Monday approved the $3.9 million Job Development Investment Grant to further sweeten the appeal. That was a departure for the program, which typically has made awards to established companies such as Fidelity Investments and Google instead of startups.

Tracking Skybus' worth

In a nod to the fragility of the company, the committee that oversees the grant program added a requirement that Skybus demonstrate a net worth of at least $90 million before any grant is awarded.

What's more, Skybus, whose investors include investment bank Morgan Stanley, can't get payments unless it meets hiring goals. The jobs that Skybus plans to create mostly will be for pilots and flight attendants.

"There's no risk here," said Kathy Neal, a spokeswoman for the state Department of Commerce, which manages the grant program. "The funds only go out after the milestones are met."

Communities, especially in mid-size markets, have gotten more aggressive in offering incentives to attract airlines or win specific routes.

A first for PTI airport

The per-passenger payments that PTI promised Skybus were a first-of-its-kind incentive for the airport. Historically, it has offered to help market new destinations, and that's about all. RDU also provides marketing support and has not used payments to airlines to win new routes, Hamlin said.

The Triad, though, is trying to build an industry cluster around air travel. A planned FedEx hub expected to open in 2009 is at the heart of that effort.

DISCOUNT CARRIER PICKS NORTH CAROLINA

Skybus Airlines agreed to make the Triad a base for its operations after North Carolina and community officials promised incentives, including a $3.9 million grant from the state. Here's more on Skybus and what it has planned.

Headquarters: Columbus, Ohio; Top executive: Bill Diffenderffer, CEO

Business: Founded in 2004, Skybus is a discount airline that charges as little as $10 for tickets. It charges fees for every other service, including baggage check and in-flight food, and supplements revenue by selling cabin space to advertisers. It began operations in May.

Risks: Skybus is trying a new business model in a volatile, difficult industry. Investors include investment bank Morgan Stanley.

FLIGHT PLANS

Skybus is expected to create 375 jobs in the Triad, mostly for pilots and flight attendants. Next year, it will begin new air service.

Beginning Jan. 6 A second daily flight to Columbus.

Beginning Jan. 15 Two daily flights to Portsmouth, N.H.; two daily flights to Punta Gorda, Fla.; one daily flight to St. Augustine, Fla.

Beginning Jan. 17 One daily flight to: Fort Lauderdale; Gulfport, Miss.; Chicopee, Mass.

Beginning Feb. 25 One daily flight to Burbank, Calif.


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