Airports, cities and airlines across the country will be closely watching Wichita's dispute with the FAA over subsidies to AirTran Airways. The dispute may have a long-term effect on the way airports and cities offer incentives to attract low-cost air service, consultants say. That in turn could hamper cities' ability to compete for companies and create jobs.
Others will be watching "how all of this is going to fall out," said Mike Boggs, manager of airport business services for Mead & Hunt in Eugene, Ore.
"The water has been muddied quite a bit by the FAA's position on Wichita."
In a letter to the city this month, the Federal Aviation Administration said that the city's multimillion-dollar subsidy to AirTran is an unacceptable form of discrimination against other airlines serving Wichita, which do not receive subsidies.
In a six-page letter dated April 6, the FAA gave the city 30 days to say how it will remedy the situation.
Subsidies to airlines are not uncommon. A number of airports and cities use revenue guarantees, travel banks and marketing programs to lure airlines to their communities.
"I'm trying to think of an airport where it hasn't happened," said Darryl Jenkins, visiting professor at Embry-Riddle Aeronautical University in Florida and an airline travel expert. "Without that, you would not have any low-cost service in a lot of markets."
Wichita's subsidies are somewhat different, however, because of the large amount of money it has given AirTran and the length of the subsidy, Boggs said.
To date, the city has given AirTran $7 million in revenue guarantees. And last week, despite complaints from Delta Air Lines officials, it approved another $2.5 million for a fourth year of service. The county is adding $1 million more.
Delta told the city it wants to "level the playing field." It may take months for the issue to be resolved.
At risk is future FAA grant money -- millions -- that helps fund Wichita Mid-Continent Airport.
"It's premature to talk about any sanctions or action that might or might not be taken under the compliance process since the city still hasn't explained its most recent action to us," FAA spokesman Paul Turk said.
The issue is an important one for the city, officials say. Subsidies have improved air service and lowered fares. And affordable fares are an important tool in attracting and keeping businesses in Wichita, they say.
"The city has crafted a program that will save consumers in Wichita hundreds of millions -- literally -- and give the community the betterment of air service," said Mike Boyd, Boyd Group airport consultant.
Others are watching because "you want to make very sure you don't get caught in this kind of an argument in the future," Boyd said.
Sarasota Bradenton International Airport in Florida attracted AirTran with a federal grant program for smaller airports and with county marketing assistance.
As in Wichita, AirTran's presence has lowered fares and increased passenger numbers, said Fredrick Piccolo, the airport's president and chief executive.
"Communities the size of the Wichitas and Sarasotas and Tallahassees have enough critical mass to support service," Piccolo said. "It just needs that jump-start."
Stephen Van Beek, executive vice president of Airports Council International-North America, called the FAA's scrutiny of the Wichita subsidies a "warning shot." The association represents airports around the country and is watching the Wichita developments, he said.
Many of the airports he represents have subsidies with some airlines that serve them. Van Beek is looking for other financing arrangements that could be affected by the outcome of Wichita's situation.
The FAA's latest action in Wichita is "breaking new ground," he said, because it "doesn't matter if the source is airport money or not."
The FAA said that because the city receives federal grants for the airport, the city must comply with grant assurances of nondiscrimination.
The FAA first said that one way to fix the problem may be to make the Airport Authority separate from the city, then later said that may not be enough to solve the problem. Another option is to stop subsidizing AirTran.
Wichita has argued that the Airport Authority and city government are separate, which would allow the city to subsidize any airline it chooses.
It also argued that the subsidy comes from city funds, not airport funds, and that a subsidy is reasonable because fares have dropped 30 percent and passenger traffic has increased 33 percent.
But favoring one route and fares over another does not justify a financial incentive that "favors one carrier over another," the FAA said.
The FAA has scrutinized other subsidy deals.
Last year, the FAA reportedly was looking into whether Wilkes-Barre/Scranton International Airport was in violation when it agreed to subsidize startup costs for Vacation Express to begin service from the Pennsylvania airport to Orlando, Fla., and Myrtle Beach, S.C. The airport reportedly has lobbied the FAA to relax its prohibition on airlines subsidies.
And in 1996, the FAA investigated subsidies the Lehigh-Northampton Airport Authority gave TWA and Midway airlines to lure them to that Pennsylvania airport. The FAA began its review after USAir, United, Delta and Northwest airlines complained.
Ultimately, the agreements ran out and "everybody lost interest in the case," said airport authority executive director George Doughty.
Lehigh-Northhampton has not since offered airlines subsidies, he said. Instead, it has paid for marketing programs.
But the issue of communities offering to subsidize airlines to spur economic development is a larger one, Doughty said.
"The FAA's premise is the airports are essentially there for the airlines," he said. "Our premise is airports are here for the community."