Soaring fuel cost behind airline's pullout

The same soaring fuel prices pinching Valley motorists also are driving an airline's decision to terminate passenger air service between Visalia, Merced and Las Vegas.

But these cities are not alone in the plight.

Visalia and Merced are just two of more than a dozen small markets in the federal Essential Air Service program that Air Midwest, a subsidiary of Mesa Air Group, has notified recently of its desire to cease service.

Air Midwest, flying 19-seat airplanes under the US Airways Express brand, began a loop of flights between Visalia, Merced and Las Vegas in November and was only six months into a subsidized EAS contract with the federal Department of Transportation when it filed its notice of termination a week ago.

The company's notice states it wants to cease service effective Aug. 19.

"I think the biggest thing is the increased cost in operating expenses, especially for fuel," said Jeffrey Hartz, planning manager for the Phoenix-based Mesa Air Group. "There's no foreseeable slowdown to the increase in fuel costs."

The Essential Air Service program, administered by the U.S. Department of Transportation, was created by Congress after the airline industry was deregulated in 1978 to ensure that smaller communities continued to have air service connecting them to major airline hubs.

In some communities -- including Visalia and Merced -- the federal government pays the airline a subsidy that maxes out at $200 per passenger.

But not even a subsidy of up to $1.6 million a year for the combined Visalia/Merced route could offset the increase in fuel and other expenses, Hartz said.

"When we bid this contract, fuel prices were substantially lower and we expected them to stay lower," he said.

Besides higher expenses, Hartz blamed foggy fall mornings, maintenance delays and a lack of security screeners at Visalia Municipal Airport in the first few months of the service for lower passenger counts.

"It was a 'perfect storm' of sorts to not be able to serve those markets profitably," Hartz said.

The same factors are affecting other small airports served by Air Midwest and Mesa Air Group across the country.

On the same day Air Midwest said it wanted out of Visalia and Merced, the airline declared its intention to quit seven other subsidized EAS markets: Ely, Nev.; Roswell, Farmington and Alamogordo, N.M.; and Moab, Vernal and Cedar City, Utah.

Less than three weeks earlier, Air Midwest filed notices of termination for six additional subsidized communities: Hagerstown, Md.; Franklin, Lancaster and DuBois, Pa.; Lewisburg, W.Va.; and Athens, Ga.

Bill Mosley, a spokesman for the U.S. Department of Transportation, said many small airport markets are struggling to maintain service.

"It is difficult," Mosley said. "It's an increasing trend in recent years that some communities that were once served without a subsidy are now needing to be subsidized."

Mosley said it's not uncommon in a competitive and changing airline industry to see EAS communities change carriers frequently.

But such change may be unavoidable, said Lloyd Partin, manager of the Merced Airport.

"That's one of the problems with the EAS subsidy," Partin said. "It's nothing specific to Visalia or Merced, but it's endemic to the Valley; our demographics make it extremely difficult for airlines to establish air service and be competitive enough to charge reasonable fares."

With airports offering jet service within driving distance of both Visalia and Merced, Partin said, "there's not a lot of need for consolidated business travel."

That's little consolation to Visalia, where a game of "musical chairs" might describe the comings and goings of airlines in recent years.

"It's very frustrating," Visalia Municipal Airport Manager Mario Cifuentez said.

"Our local public has said, 'We want to fly from our hometown.' ... Our numbers are on the rise, and we believe if the schedules were reliable and on time, Visalia would be a profitable market."

Prior to the terrorist attacks of September 2001, SkyWest Airlines provided three nonstop United Express flights daily between Visalia and Los Angeles. Changes by SkyWest in the aftermath of the attacks, Cifuentez said, served to drive Visalia from a peak of nearly 10,000 passenger departures in 2000 to fewer than 2,200 in 2004.

SkyWest asked out of its nonsubsidized EAS contract in December 2004.

Scenic Air, a Las Vegas company known for tourist flights to the Grand Canyon, took over Visalia's EAS service in September 2005 with flights to the North Las Vegas airport under a subsidized three-year contract.

Within two months, Scenic outpaced the number of passengers that SkyWest carried in the previous 12 months.

But last summer, Scenic opted to quit the route, as well as the routes it operated since 2001 from Las Vegas to Merced and to Ely, to refocus its efforts on tourism.

Since Air Midwest took over in November with flights to Las Vegas' major airport, McCarran International, Cifuentez said, passenger counts were rising again, peaking at more than 1,300 in both March and April.

"We're a strong market," Cifuentez said.

"When you consider there are some markets at risk to lose service altogether, we were on a pace to do 13,000 passengers this year."

Cifuentez, Hartz and Mosley agree Visalia and Merced are in no danger of losing air service.

Within weeks, the Department of Transportation will issue a request for proposals from airlines interested in replacing Air Midwest in both Visalia and Merced to fly to a major air hub -- Las Vegas, Los Angeles or San Francisco.

Officials in both cities will review proposals and make recommendations, but the final say will belong to federal officials.

Meanwhile, Air Midwest will be ordered to continue flying until a new airline is chosen.

"We are obviously obligated to stick around until another carrier is selected," Hartz said. "Visalia and Merced deserve to have a carrier that can be there for a long time and make this work. ... It's a large enough market that it can be served profitably by certain carriers."

Cifuentez is optimistic that other airlines will be drawn by the upswing in passengers built by both Scenic and Air Midwest.

He noted that two other airlines competed last summer when Air Midwest was selected for the Visalia/Merced EAS contract.

"We'll see what this proposal process holds," Cifuentez said. "It's so important for us. ... If someone could give us two years to build back up, I truly believe we can get off the subsidy and show we're a viable market without it."

Reporter Tim Sheehan can be reached at 559-622-2410 or tsheehan@fresnobee.com.



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