Not all risks are created equal; risks can be good or they can be very, very bad. But playing it safe in order to maintain status quo and avoid problems can also be foolish—particularly when running a small to mid-size airport.
Across the country, airlines have slashed service or eliminated long-haul nonstop routes. In fact, the Government Accountability Office reported in May 2014 that since 2007 nearly three-dozen mid-sized airports lost one-quarter of their flights, 76 small airports lost 20 percent of their flights, and 23 airports lost their air service altogether.
When it comes to air service it’s no longer acceptable to play it safe. As a result many airports are taking a gamble and using financial incentives to encourage airlines to add flights. And when their efforts succeed, the payoff—for airlines and airports alike--can be quite large.
Fort Wayne International Airport is just one winner in the high-stakes game to attract air service. In late November, this airport, situated in Indiana’s second largest city, announced its passenger traffic rose 7.4 percent and its seating capacity by 24.8 percent since November 2013. And, while other airports of the same size had airline flights leave, this airport saw American Airlines and US Airways launch new flights from Fort Wayne to Philadelphia and Charlotte, United Airlines increase its daily flights to Chicago, and Delta Air Lines bring in larger CRJs to serve Atlanta. At the close of 2014, enplanements hit 294,498 and the number of flights hit 156.
Scott Hinderman, executive director of airports with the Fort Wayne-Allen County Airport Authority, attributes this growth to a thriving partnership between the airport and community leaders, who banded together to support new air service through an aggressive incentive program, where the Fort Wayne community made $2 million in incentives available in the form of a minimum revenue guarantee to the first airline that added a new nonstop route.
Mead & Hunt Senior Air Service Consultant Jeffrey Hartz, who worked with Fort Wayne on its new incentive strategy, says this type of program is exactly what airlines need to see as they consider adding routes. Communities, he says, need to get some skin in the game—and that’s exactly what the Fort Wayne program has done by helping front airlines’ start up costs as they add new routes.
“New routes are inherently risky; you don’t know if a new route is going to work,” he says. “You don’t know if the passenger traffic will materialize as the studies have shown. A revenue guarantee covers part of the airline’s total start up costs.”
Hartz explains a decade or more ago such a program was a luxury rather than a necessity; one reserved to resort or ski communities rather than the masses. “But back then the airlines were the ones calling and saying, ‘We are interested in serving you, we’ll be there in three months,’ ” he says.
Those days are gone, he adds.
“While some airports may have that happen, the reality is that the non-hub or small-hub airport cannot rely upon airlines to research their community and any potential routes,” he says. “It’s up to the community and the airport to make the effort to understand their community’s air service needs and communicate them to the airlines.”
Know the market
Mead & Hunt began working with Fort Wayne-Allen County Airport Authority in early 2013. They began with a leakage study and air service market research to help the airport authority ascertain where passengers were flying, what airports they were using, and what the demand was for the market. They also held a number of informational community meetings and worked with the airport to survey the corporate market.
“These efforts helped us define what the community’s air service needs were and where there was room for improvement,” Hartz says.
Studies like these separate the wheat from the chaff, so to speak. In other words, this research needs to separate the person who flies twice a year and wants direct routes to wherever they fly, from those who fly frequently and need direct flights to specific locations. To pinpoint the needs of this second group of flyers, Hartz says airports must analyze airline data.
“An airport is not there for the whims of any one person,” he explains. “Airports need to take heart what the community needs, what the community wants and what the community can support. Because if the community is saying one thing and the airport is doing something else, any new route is almost guaranteed to fail; the airport is not the one getting on the airplane and flying that route. It’s the community.”
Fort Wayne’s research revealed that the business community sought additional direct routes from Fort Wayne to the Northeast. “We found that there is a sizable market—sizable enough to support a route and make sure it would be profitable,” says Hinderman.
Mead & Hunt then performed route forecasts to all of the major hubs in the Northeast, from Washington-Dulles to New York and Philadelphia to see what routes made the most sense.
This analysis pointed to Philadelphia in particular.
“We discovered there are a large number of people flying regularly to Philadelphia,” Hinderman says. “That doesn’t mean they are flying out of Fort Wayne to get there. They might be driving to Detroit, Chicago or Indianapolis for their flights, but we found we had an adequate number of passengers per day going to Philadelphia from our region.”
Open and ongoing outreach
“The non-hub and small-hub markets in the United States are predominantly made up of business traffic,” Hartz says. “The business traveler is the customer at the end of the day who can make or break new routes. For this reason, you need to make sure the business community is willing and able to support the service. Without the business community involved, it’s almost impossible to make a route work.”
Once studies identified the most feasible routes, Fort Wayne-Allen County Airport Authority began educating community leaders about the importance of supporting new air service and the airport’s impact on the local economy.
Hartz says Fort Wayne offers a prime example of how airports can work with the community. The airport partners with the area’s major corporations like Lincoln Financial and General Motors down to local travel agencies and small businesses in the area. “The airport also has a great relationship with Greater Fort Wayne Inc, which is a combination of the chamber of commerce and the economic development corporation,” he says. “Airport, business and civic leaders in this community understand you have to work together.”
Because of its ongoing outreach, the Fort Wayne-Allen County Airport Authority was able to garner financial support from the business community for a new route. Business supporters signed letters of commitment where they agreed to provide funds should the airline lose money on the new route. “We were able to say bring air service here, we’ve studied the market and know the traffic is there to support it, and, if it’s not profitable we have a backdrop,” Hinderman says.
In Fort Wayne’s program, the community basically enters an agreement with the airlines that says if the carrier comes in and people do not buy tickets, load factors are poor or the routes are not profitable, then the airline can ask for payment to make the route profitable for up to two years. “Basically we are saying we are confident that people are going to get on your plane and you’ll be able to make some money, but if we’re wrong, we will support it with funds that make sure you’re profitable,” Hinderman says, noting that if the funds are not used within two years, the businesses no longer are obligated to keep these funds available for the airlines.
Airlines that add new nonstop routes or increase service levels at Fort Wayne are also eligible for abatements on airport fees and marketing support.
Financial incentives like these are imperative to the success of new routes, Hartz emphasizes. There is more competition than ever before amongst airports seeking new routes. “As the airlines have contracted and reduced the number of regional jets, it’s put more pressure and more competition between communities on getting new service,” he says.
This pressure has forced communities to increase revenue guarantees. “Airports and communities now must do their homework and show the airlines why a route would work, and then they need to pony up some kind of incentive, cost abatement or revenue guarantee to convince airlines to give it a try,” Hartz says.
Once routes are added, the challenge begins anew. Airports must assist airlines in marketing the new routes to ensure their success.
Hartz says marketing is often an after-thought; one that can derail a new route’s success. “When I was with the airlines, I would see a community make a lot of efforts to secure air service; lots of meetings, lots of data analysis, and lots of expense. Then when the route would start, they’d tell the airlines to do the marketing,” he says. “The reality is that the airlines do not have the marketing budgets and sales teams they used to have, and it’s become critically important for communities and airports to market the service.”
While marketing might include radio and television spots or billboards outside the airport, Hartz cautions airports not to overlook the simple things like ongoing community outreach programs. “A radio ad may not target the right crowd, and specific outreach targeting the business community would be more effective,” he explains.
And while it’s important to make a big push before the launch of a new route, there also needs to be maintenance marketing, which is essentially an ongoing marketing effort to keep the route top of mind. “You need to make sure people understand that the service is there and it’s a use-it-or-lose-it scenario,” he says. “This is a tangible asset that airlines can move from one community to the next, if there is greater demand elsewhere.”
Fort Wayne’s new routes are doing well, but they are still in their infancy; the program began just six months ago.
“We have not spent any money to support the route,” Hinderman says. “The routes have consistently been in the 70 to 80 percent load factor, which is pretty consistent with that type of aircraft in most markets.”
The community is also benefiting from the new routes. “We’re beginning to see that the airport’s expansion is assisting with business development, attracting additional events to our city and increasing travel options for Fort Wayne residents,” says Nancy Jordan, senior vice president, individual annuity operations, Lincoln Financial Group. “The new air service has also made it easier for our employees and business partners to travel into and out of Fort Wayne. We’re receiving favorable feedback from all of our travelers.”
The program has made the City of Fort Wayne the big winner in the air-service game. In fact, it’s been a win-win-win for all involved. The airlines added a route without financial risk, businesses in the community got the service they needed, and the airport saw an uptick in passenger traffic.
“We recognize that people have a choice when they travel,” says Hinderman. “We want to be their first choice.”