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

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.

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.

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