Flight Blog

Jun 25 2010 Follow-up: Spin Control? BY sgf-adminTAGS How the Airport Works

 

Jason has explained the logic behind his thought that the Branson airport caused last year's upswing in Springfield passenger numbers:

"Prior to Branson Airport opening in May 2009, out of the top 150 commercial service airports in the country, Springfield consistently ranked in the top 15 as one of the highest airfare airports in the country. Those are DOT numbers not mine. Branson Airport brought low fare competition to the region and effectively lowered fares from Springfield."

Jason... Your overall premise here is that the Springfield airport is in a state of denial. It is not. We have consistently said in public, and on this blog, that competition in the market is a good thing because it could lower fares. We have also said that the Branson airport has created competition in the market. We just think it’s inaccurate to say that it was responsible for last year’s overall drop in Springfield air fare—the notion isn’t supported by fare data.

Fare data does show that the Branson airport created competition on one Springfield route: the American service to Dallas. It was short lived, but it sure was sweet while it lasted. The competition was created by the Sun Country service between Branson and Dallas. While that service was running (and it was only for a few months), American was matching the Sun Country fare. During that time customers could fly from Springfield to Dallas for less than $200. In 2008 and 2007 that fare was typically between $400 and $600.

Bottom line: the overall decline in fares last year was a national phenomenon. It was driven by the fact that airlines faced terrible advance sales early in the first quarter ’09. Their response was to cut fares across the board in an attempt to fill the seats. In the Springfield market the national fare decline was given an extra bump by the short lived competition on the Dallas route.

As time goes on, and as more fare data come in, it’s our hope that we’ll see strong evidence of Branson competition driving down Springfield fares down. At this point, however, we’re not particularly optimistic that it will happen. With the economy on the mend fares are trending up and they’ve been doing so (with a vengeance) since the first of the year. 

 


Jun 24 2010 Spin Control? BY sgf-adminTAGS How the Airport Works

 

Jason has some comments apparently in response to the postings about airline profits and the airport's May passenger numbers being down:

"Spin this one however you want.  Great! The airlines are making money now.  How are you going to pay for that new terminal with less passenger revenues for the airport?  You were up 17% last May because of Branson Airport!  You can continue to spin it in any direction you want to serve your purposes, but that is all it is and people are getting sick of it."

Jason... Paying for the new terminal is not an issue. The debt service plan is extremely conservative—as routine we make annual payments that are 1.5 times the amount required. Even if passenger numbers drop 15 percent for 12 consecutive months, debt service can be paid back at 1.25 times. This debt service plan survived the depths of the recession when passenger numbers were down 18%. The fact that passenger numbers were down 4% in May is not an issue. As for the thought that the Branson airport caused last year's upswing in passenger numbers...could you please explain that logic?

 


 

Our passenger numbers are in for May and they show that we were down four percent for the month and four percent year-to-date. Here’s how the numbers breakdown, showing a month to month comparison:

  • May 2009: 81,496 total passengers
  • May 2110: 67,609 total passengers

Take a look at how the individual airlines did during May 2010, compared to May 2009:

  • Delta: - 27%
  • United: - 17%
  • Allegiant: -10%
  • American: -15%

On the surface these negative numbers seem lousy—especially when compared to last May when the airport’s total passenger numbers were up 17 percent. The numbers seem lousy, but they really aren’t. That’s because this year the airlines are making money. Last year they were losing money. In the jargon of the business, “yields” have improved. Here’s how yields work… Suppose you’re an airline with a jet that holds 50 people. Would you rather sell 50 seats at $100 a piece, or 30 seats for $200 a piece? You do the math:

  • 50 seats sold for $100 = $5000
  • 30 seats sold for $200 = $6000

wingsdollars1The dollar amounts used here are hypothetical, but this illustrates exactly what’s going on in Springfield right now: the airlines are selling fewer seats this year, but they’re selling them at a higher price. Let’s look at the big picture and gain some perspective… Last year, early in the first quarter, the airlines took a look at their advance bookings and nearly stroked out—advance bookings were terrible. In response, airlines cut fares across the country. At this airport, in 2009, fares were down an astounding 22.3%. Bottom line: more people were flying due to fare cuts, but the airlines were losing money hand-over-fist. It was good for customers, but bad for airlines. This year, early in the first quarter, something unexpected happened: business travel ticked up. As an American Airlines route planner told me last week, “It was like someone turned on a faucet and the business traveler was suddenly back.” The return of the business traveler, after the depths of the recession, gave the airlines the leverage they needed to start raising fares. Here’s the bullet point summary of where the airlines are right now:

  • Fares are up
  • Airlines continue to cut the number of seats in the air, thus further reducing operational costs
  • Fuel prices are down (compared to last year)
  • Airlines are giddy because they’re making money...

Here’s the take-away from all this: airports tend to get giddy when passenger numbers are up because it means more airport revenue. That’s what happened last year at our airport. The downside was that the airlines were losing money. Now, the tables are turned: the airlines are making more money and the airport is making less money. In the final analysis, airports would rather have happy airlines. An airline that’s losing money is a lot more inclined to pull up its stakes and leave the market.

Having said all that, be warned! We’ll see wild swings this year. The month of June has 59 more flights than May; all of them seasonal. This will probably cause passenger numbers to swing to the positive side. But this fall, when those seasonal flights go away, numbers will swing back the other way. It’s true for the entire industry—just two months ago the International Air Transport Association (IATA) predicted a  $2.8 billion global loss for airlines this year. Last week the IATA changed its mind and predicted a $2.5 billion gain.

Don't be surprised if the entire industry swings back and forth for the duration of the recession.

 


Jun 15 2010 Slight of Hand BY sgf-adminTAGS Customer Service

 

The Detroit News reports that some airlines will waive bag fees if you use an airline credit card. There is, of course, a catch: the credit cards have annual fees.

This news comes on the heels of a survey which found, among other things, that "given the opportunity, 68% of respondents said they would fly at an inconvenient time of day with an additional connection in order to avoid fees; 32% said they would bite the bullet and pay the extra money to fly at a convenient time.  62% also said they would forego a carry-on bag in order to avoid a fee." All these fees probably won't go away any time soon. They generate too much income. By some estimates  fees generated over $7 billion last year.

And here's an airline revenue stream you may not have thought about: shopping catalogs. You know, those catalogs in the airplane seat pockets. Last week I flew to San Diego and had a chance to browse one.  This particular catalog featured one of those spiffy upside down garden things for $89.95.  Earlier in the week I saw one at a Springfield Wal-Mart for $15.00.

 


May 19 2010 Ozarks Honor Flight III BY sgf-adminTAGS Misc.

 

The Honor Flight departs Springfield as Airport Rescue Firefighters provide a water canon salute. (click any image for a larger version)

Yesterday the Airport was host to the third Ozarks Honor Flight. If you haven't heard about Honor Flight, please read on. Ozarks Honor Flight is a non-profit organization that formed late last year. It has one mission: to transport World War II veterans to Washington, D.C. so they can visit the World War II memorial. If that doesn't sound like a big deal, consider this: the World War II memorial wasn't built and finished until 2004. As a result, most veterans of that war have not seen their memorial. Most will leave us without having had the chance to visit their place of honor. Yesterday Honor Flight flew 75 veterans to Washington, D.C., free of charge. More than 500 Ozark veterans are on a waiting list.  Visit Ozarks Honor Flight for more information.

The Honor Flight returns to Springfield late Wednesday night, More than 300 people showed up to welcome them home.