Florida to LVIA Flight Dilemma: Airlines Can Fill Planes, But Struggle to Make Profit

Mar. 26 -- Nonstop flights from here to Florida are among the most popular at Lehigh Valley International Airport.

The flights to Orlando, for example, are full not only during the winter months but year-round, as families flock to Disney's amusement parks.

Yet the popularity of the flights has done nothing to guarantee their staying power. Airlines that offered nonstop service to Florida cities have come and gone at LVIA. One departed so abruptly it stranded Lehigh Valley residents in Florida and left LVIA with $1 million in unpaid bills.

Hooters Air is the most recent carrier to announce it will stop flying from LVIA. Its last flight, on April 19, will take off just shy of a year after the company arrived at LVIA.

Allegiant Air, a discount carrier based in Las Vegas, is now the airport's next hope for restoring stable service to Florida. To endure, Allegiant will have to overcome obstacles that stopped the other airlines. It remains to be seen if the nine-year-old leisure carrier can pull that off.

Here are challenges the other airlines faced:

Low fares, full planes

Hooters, Southeast Airlines and TransMeridian Airlines consistently operated Florida flights that were at least 80 percent full. As soon as LVIA officials announced new service, passengers scurried to book tickets.

As small, relatively new airlines, they were unknown entities when they arrived at LVIA. To entice passengers, they offered rock-bottom prices. That stocked the planes with passengers, but the fares often did little more than meet costs.

The airlines then found it difficult to charge higher fares. Experts say passengers flying to leisure destinations are more sensitive to price hikes. If the price to fly to Florida is more than they want to spend, many passengers will instead drive to the Jersey Shore or skip traveling.

Hooters has charged between $79 and $199 one-way for its flights to Florida destinations, Myrtle Beach, S.C., and Las Vegas. But the airline was not able to sell enough tickets in the $129-to-$149 range, which would have allowed it to turn a profit, said Judy Tull, director of marketing and sales for Hooters Air.

"Passengers don't like to pay those prices. Who wants to pay $149 if they can get a $79 fare somewhere else?" Tull said in a telephone interview Wednesday."If people are not willing to pay the price that it takes to fly your plane, you are unable to make up your cost."

Many passengers interviewed Thursday at LVIA said they don't want to pay much more than $200 round-trip to Florida, and if they can find flights for less, they jump at them.

"Anything more than [$200], we will drive or take a boat," said John Baldwin, 45, of Coopersburg, who was flying Thursday to Orlando with his family.

Many destinations seasonal

Airport officials say Orlando is a year-round destination. But other cities such as Fort Lauderdale, Fla., and Myrtle Beach attract passengers only at certain times of the year. And airline experts say a few months of the year -- September and January, in particular -- are dead for leisure destinations.

The traditional September lull, coupled with the fallout from Hurricane Katrina, delivered a mortal blow to TransMeridian last year. Airport officials say the Atlanta airline, which began flying from LVIA about a year ago, was filling planes last summer with $100 one-way fares. Under those conditions, the airline was turning a profit. But when the hurricane disabled refineries in the Gulf Coast region, fuel prices soared and TransMeridian crumbled.

Allegiant officials say the airline has an advantage because Las Vegas is a hot market during the fall when passengers don't want to fly to Florida. The airline flies to Vegas from other airports; it does not have immediate plans to fly there from here.

Tough racket

The small airlines that LVIA has attracted for Florida flights serve the leisure market, where profit margins are typically low. Business travel, by contrast, often occurs at the last minute, which means airlines can charge a premium.

Leisure travel is often a luxury. That means business can go south quickly if bad weather or a geopolitical catastrophe strikes.

There's also more competition for passengers. Airlines at LVIA now must contend with Southwest Airlines, the nation's No. 1 discount carrier, which began flying at Philadelphia in 2004. Southwest, which considered starting operations at LVIA before deciding on Philadelphia, is waging a fare war in many of the cities it serves. Industry officials say it is single-handedly responsible for lowering fares at many airports.

Battling US Airways and AirTran in Philadelphia, Southwest dropped some one-way fares below $50 during the fall.

"Passengers are all looking for the cheap price," said Tull of Hooters Air. "Do you think any airline is making money with a $39 fare?"

Fuel costs

High fuel cost has been the scourge of the industry for the past two years. It's a major reason Southeast, TransMeridian and Hooters have called it quits at LVIA.

The larger, more established airlines have been able to weather high fuel costs better because their bulk-buying provides steeper discounts. And unlike charter airlines such as Southeast, carriers such as US Airways and Delta can immediately use ticket proceeds for operating expenses. Charter carriers are legally bound to sequester the funds in escrow until a flight takes place. That requires ample cash reserves, which few small airlines have.

"They don't have Wall Street money or the war chest of hundreds of millions of dollars," said Cary Evans, a former official at Interstate Jet, which briefly flew from LVIA to Las Vegas and other leisure markets in 2003.

Nearly all airlines, however, have struggled. Several large airlines reported some of their biggest financial losses ever in 2005, in large part because of fuel prices. Southwest Airlines, which locked in fuel prices in advance, was a notable exception.

Most leisure travelers book in advance, experts say. That means the price they pay when they book does not reflect market conditions at the time of the flight.

"They are booking today for July," said Evans by cell phone. "In July, we could have more turmoil in the Middle East or South America or Nigeria, and the price of fuel could go up steeply like it has in the past. Well, there is no way to adjust because your fares were based on current market conditions."

Generous incentives

Some say LVIA has been too generous with incentives to start-up carriers. Southeast, TransMeridian and Hooters received a reprieve on landing fees and other expenses for a specified period of time. Some say the airlines take advantage of the incentives but are not able to operate without them.

Critics argue that's especially so because LVIA charges relatively high landing fees. Allegiant considers LVIA "a relatively high-cost" airport, a company official said. LVIA officials say that's partly because the airport does not receive subsidies from local municipalities.

"When the perks run out, the airline simply cannot afford the high cost of operating in and out of LVIA," said David Hoch, a former captain on Southeast Airlines, in an e-mail. "Then, when it all comes to a head, the airline either pulls out of LVIA or simply shuts its doors."

Critics also worry LVIA is focusing too many resources on the low-cost, under-financed start-up airlines that fly nonstop to Florida. Legacy carriers such as Delta, which flies daily to Atlanta and Cincinnati, and Northwest, which flies to Detroit, provide the backbone of LVIA's business travel service. These airlines fly to Florida but do not provide nonstop service from here.

There has been almost no new service at LVIA from the older carriers in recent years, with the exception of Continental Airlines' service to Boston, which began last year. LVIA only provides incentives when carriers expand or start new service. That means airlines such as United, Delta and Northwest have not received incentives that have helped the newer carriers.

Some observers say the so-called legacy carriers that have filed for bankruptcy could use financial assistance from the airport. Delta and Northwest filed for bankruptcy protection last year, and United just exited bankruptcy.

"The longer-term future is really with retaining a Delta, or a United, or Northwest, much more than with these come-and-go operations," said Dick Barsness, a former dean of Lehigh University's business school, who has studied the airline industry. "The impression one comes away with is the only market that really matters is the leisure market to Florida."

George Doughty, LVIA's top official, does not deny the airport needs to review its incentives policy. He now says TransMeridian was already in bad financial shape when it began service here.

"I think it's a legitimate concern," Doughty said in an interview last week.

But he said the airport cannot provide incentives for all the airlines that have been through bankruptcy. Instead, the airport has developed interest-free payment plans for the airlines as they've exited bankruptcy.

The airport never recouped $1 million in payments Southeast owed, and Hooters has a $1 million fuel bill that it has left unpaid since January. Despite the debts, the airport continues to operate with a surplus. It absorbed the Southeast debt by laying off employees in ground-handling and maintenance that were no longer needed.

Allegiant received modest incentives because it is flying to Orlando, a proven market that requires little marketing and is a winner for almost any airline.

Revolving door

The arrival and departure of airlines at LVIA has repeatedly left airport officials and passengers starting at square one. Most of the small airlines that have touched down in the Valley were not household names; it took time to market their flights, and time for customers to become acquainted with them.

Many passengers, however, are willing to try new carriers. Passengers interviewed before an Allegiant flight to Orlando on Thursday said their chief concern is price.

"For me, it doesn't matter who I go on, as long as I can get there and get back," said Don Stahley, 47, of Allentown, who was flying to watch his 12-year-old daughter, Shannon, compete in a cheerleading competition.

But it has affected how some travelers approach Florida travel. Dorrit Emerich, 23, and her boyfriend, Jared Gollie, 22, were left holding tickets on TransMeridian last fall when the carrier ceased flying. Dorrit received a refund but said seeking reimbursement and booking travel on another airline was a hassle.

"It makes me nervous," Emerich of Hellertown, a frequent traveler, said of the shutdowns. "Now we try to book at the last minute, with all the airlines coming and going out of Allentown. But then the fares are higher."

Even Allegiant officials acknowledge the difficulty of winning passengers over. Scott Tyra, Allegiant's director of planning, said he knows many passengers at LVIA might be thinking, "Oh here come's another."

"Over time that goes away but it is a problem," Tyra said. "We can tell customers in Allentown we are very profitable, and we don't pull out of markets willy-nilly. We are the polar opposite of Southeast or Hooters. But that's not going to register with them until we stay there for a while and the schedule stays the same for a while, and people get to make their second trip with us."

Hooters' experience provides a cautionary tale for any airline. It had an advantage that virtually no other airline has: a wealthy owner who was willing to indulge some losses. That's because the airline functioned largely as a flying billboard for the restaurant chain of the same name, known for its buxom, skimpily clad waitresses.

LVIA has turned its attention to Allegiant, which airport officials and others say has a solid business plan. Experts say Allegiant has distinguished itself by expanding slowly, and turning a profit. Tyra said the privately held airline has been profitable for 11 of the last 12 months, and expects to be profitable this year.

Allegiant has high hopes for the Lehigh Valley market. Tyra said LVIA is attractive because of the area's relatively large population base that is centrally located between Newark and Philadelphia.

"It was a 'when' not an 'if' market," Tyra said.

Despite the string of failed airlines, Doughty said he is more optimistic about LVIA's prospects than ever. That's largely because the Lehigh Valley is one of fastest-growing regions in Northeast. Between 2000 and 2004, 30,000 people moved here, and many of them have higher incomes than the local average.

Doughty is courting five airlines, including one that is sending representatives to the Lehigh Valley on Monday to hear his sales pitch. Among the airlines he would like to land at some point are USA 3000, which is based in Newtown Square and flies to Mexico, and Spirit Airlines, which flies to Tampa, Las Vegas and the Caribbean. He has a wish list of cities he would like to add to the airport's roster of destinations. They include Fort Myers in Florida, Dallas and Houston.

Doughty said he does not dwell on the airlines that have failed. Instead, he focuses on the thousands of local passengers who received low-cost, nonstop service to Florida.

"I am looking at it in terms of how much risk I can take without jeopardizing the financial status of the airport," Doughty said. "In business, you have to be willing to take some risk."

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