Flight Blog

Sep 17 2009 Passenger Growth Continues! BY sgf-adminTAGS Misc.

 

Our August passenger numbers are in and the news is good: our total passenger count was up 13 percent, compared to the same month last year. For the year we’re up four percent. It’s our fourth consecutive month of positive growth and it comes at a time when many airports report negative growth numbers.

 

We began the year down 14 percent…now we’re up four percent…so for the year we’ve come 18 percent. It’s great news, but let’s ad some perspective. While our August 2009 numbers are certainly better than last year, they fall short of the three years before 2008. Take a look:

 

  • August 2009 total passengers: 73,499
  • August 2008 total passengers: 64,992
  • August 2007 total passengers: 76,859
  • August 2006 total passengers: 74,465
  • August 2005 total passengers: 79,866

This vividly illustrates just how bad it was last year at this time. And it shows that while we’re doing better, we’re still behind where we were two, three and four years ago (when the economy was doing better).

 

So, while things are good, we still have a lot of catching up to do. Or, to put it another way, the economy still has a lot of improving to do.

 

How is the economy doing? Most experts seem to agree it’s getting better. But be warned—there are still gale warnings out for the aviation industry….

 

Everyone in the industry expects a very weak 4th quarter. Delta reports that it expects yields will be down 11 to 14 percent in the quarter. Yield is one of the most important airline metrics: it’s the revenue generated per seat for each mile flown.

 

The International Air Transport Association says it expects the world’s airlines to lose $11 billion by the end of the year. The head of the organization says “the global economic storm may be abating…but airlines have not yet found safe harbor….”

 

Our aviation business consultant, the Boyd Group, thinks things may rebound in the 3rd quarter of next year. But with unemployment still going up we should expect air travel to continue being weak. As Michael Boyd puts it, “Employment is the foundation of air travel.”

 

Earlier this week the head of the Federal Reserve addressed the issue of employment. The New York Times reports Ben Bernanke as saying, ”The Recession is very likely over [but} it’s still going to feel like a very weak economy for some time, as many people will still find that their job security and their employment status is not what they wish it was…”

 

Yesterday the Springfield Business Journal reported the August employment numbers for Missouri: 9.5 percent. That compares to 9.3 percent in July.

 

Bottom line: don’t look for real improvement in the airline and airport industry until employment begins to rebound.


Sep 11 2009 Delta Shopping? BY sgf-adminTAGS Delta

 

News this morning that Delta Airlines "is in talks to invest in struggling Japan Airlines Corp and become its top shareholder..." Read the rest of the story from Reuters.


 

No items in seat back pocket? Say what? Yes, it's true. New York Times columinst Joe Sharkey provides an entertaining read on his encounter with a Skywest flight attendant:

 

...when I flew Skywest Airlines from Denver to Tucson, a grouchy flight attendant announced before takeoff that “according to F.A.A. safety regulations” passengers could place nothing at all in the seat-back pockets. Not a newspaper, a book or a pair of reading glasses.

 

First we've heard of this. And since Skywest flies for United here in Springfield, we thought we'd better pass it on.


 

Aaron has a question about our surging passenger numbers:

 

“As we all know everyone loves cheap fares, but it seems like this can be said even more so for Springfield, MO. Like you said, cheap fares are not just found in Southwest Missouri, but across the country. My question is since everyone else is getting these cheap fares why aren’t other airports seeing their passenger numbers soar like ours? Also, why doesn’t an airline like Southwest, AirTran, etc… take notice of the Springfield Branson National Airports surging passenger numbers during these cheap fare sales and try out the market? It only makes sense seeing our numbers. I’m sure we wouldn’t lose any more business to STL, KC, and Tulsa if that were to happen making our passenger numbers REALLY soar.”

 

These are really good questions. We’ve thought a lot about the first one: “why aren’t other airports seeing their passenger numbers soar like ours?”

 

Let’s begin with a caveat: trying to compare one air market to another is like comparing apples to oranges. Example: people chew on us about the fact that Fayetteville, AR has (or did have until the recession) daily non-stop service to Miami and Los Angeles. People say, “Fayetteville is smaller than we are and they have direct service, therefore the Springfield airport is screwing up…”

 

This point-of-view is understandable, but detached from reality. First of all, the population of the Fayetteville metro area is bigger than Springfield’s. That means more people to feed the airlines. Secondly, the Fayetteville metro is home to several huge corporate headquarters: Wal-Mart, Tyson and JB Hunt. These companies, and Wal-Mart in particular, generate thousands of business trips every year. If Wal-Mart went away tomorrow, Fayetteville’s daily non-stop service to the coast would disappear in a heart beat.

 

Ok. I tell you all that to make the point that comparing one market to another is pretty tricky. Every market is different. That being said, here are some thoughts about why our passenger numbers are soaring, while other airports aren’t.   ; )

 

  • The presence of Allegiant Air in the market has made a difference. It added service to Los Angeles in early May. It’s total May passenger numbers were up 56 percent in Springfield compared to the same month last year. Its low fares attract customers that normally wouldn’t consider flying.
  • The generally lower fares offered by all the airlines has made a difference, but here’s a key point: the lower fares probably have a bigger impact in smaller air markets (like ours). Customers who live in small markets are used to dealing with higher fares. So when fares go down they jump. Customers who live in big markets (like Kansas City) are probably not as price sensitive. Bottom line: lower fares have a bigger customer impact in small markets like Springfield.
  • Compared to other regional economies, our economy is in pretty good shape. That’s not to say that the recession hasn’t hurt us, but we are better off than many other areas.

Let’s move on to the second question:

 

"Why doesn’t an Airline like Southwest, AirTran, etc… take notice of the Springfield Branson National Airport’s surging passenger numbers during these cheap fare sales and try out the market? It only makes sense seeing our numbers.”

 

It makes sense to you Aaron, but it doesn’t make business sense to Southwest or AirTran. Why? This market doesn’t have a big enough population. Or, to put it another way, we don’t have enough people to fill the number of seats those airlines would want to sell.

 

Let’s begin with AirTran. That airline won’t fly into a market this small unless it’s paid to do so. That’s what’s happening at the airport in Branson—the airport is paying the airline to provide the service. AirTran has a similar arrangement in Wichita. As for Southwest, it’s a similar story, but with some key differences:

 

  • Airports can’t buy Southwest service. The airline doesn’t run its business that way.
  • The Southwest business model generally dictates that the airline won’t enter a market that has less than a million people living in the metropolitan area. That’s the customer base Southwest needs to do business. The Springfield metro population is approximately 420,000. We’re more than half-a-million people short!

Finally, whenever someone brings up the subject of Southwest I feel obliged to provide them with a couple of reality checks. Here they are, sorry!

 

Assuming that Southwest did decide to fly here, what market do you suppose it would fly to? It would almost certainly be its home base, Dallas Love Field. Have you ever tried to make a connection out of Love Field? It wouldn’t be the panacea that many people imagine.

 

And finally, Southwest isn’t as cheap as everyone thinks. According to well known aviation analyst Darryl Jenkins, of Embry Riddle University, Southwest is the lowest fare carrier in less than one-third of its markets. He says, “The illusion of low fare is better than a low fare and Southwest has the highest percentage of high fares of any airline.” If you’re skeptical about this, do a market by market comparison of fares and you’ll discover what those of us in the aviation industry already know: the mystique of Southwest has more to do with perception than low fares.


Aug 24 2009 The Fire Wall BY sgf-adminTAGS How the Airport Works

 

Over the weekend the Springfield paper printed a letter written by a citizen who is concerned about the airport’s new fire station. Rather than responding in the paper (and in the process helping to fan the flames and stir its pot further), let us offer a cool, objective response. Civil discourse, if you will.

 

The writer objects to the fact that the airport just built a new fire station at a cost of $4.5 million. He thinks the “pension commission should take note that there might be extra funds at the airport available for the pension.” Before addressing his concerns, let’s provide some sorely needed perspective and background.

 

The City of Springfield runs a retirement fund for Springfield firefighters and police officers. The fund is under funded. As a result, the city is scrambling to bring funding up to snuff. As part of the process to identify a solution, a “pension commission” was formed. Its mission: identify possible solutions to pension funding. Numerous remedies have been discussed, including cuts in city services, and the addition of new taxes. The entire issue has a lot of people on edge. Understandably so—especially with talk of new taxes during an economic downturn.

 

It’s against this background that the letter writer brings up the new airport fire station. His point simply put: should the fire house construction money have been used to fund the retirement pension? There’s a problem with this idea: it’s illegal, under federal law, for the city to dip into airport funds.

 

Here’s how it works—think of it as a financial fire wall between city finances and airport finances. It prevents the city from using airport funds. Why would the feds want a fire wall? Because it views airports as national resources whose financial interest must be protected. Or, to put it bluntly, the feds don’t want cities raiding airport coffers. Airports generate revenue (a tempting target). They are also very expensive to keep up and their infrastructure is worth millions of dollars. They have to maintain large reserve funds to deal with unexpected emergencies. In short, if a city raids airport funding, it could jeopardize the airport and the national air system. That’s why the fire wall is there.

 

The fire wall is one reason why the city can’t use airport funds, but there’s a second reason: the airport does not receive money from the city. The airport has to pay for itself. Here’s how it works…

 

The airport (meaning the land and facilities) is owned by the City of Springfield. The airport is managed by an independent 11-member administrative board. When I say “independent,” here’s what I mean: acting as an independent body, the board plans, develops, operates and maintains existing and future airport properties, and the overall management of employees. Airport Board members are appointed by the city manager, with confirmation made by the city council. The board operates the airport as a self-supporting enterprise function.

 

Enterprise funds are used widely across the country—here’s how the Minnesota Department of Administration defines it: A type of proprietary fund that is established to account for operations financed and operated in a manner similar to private business enterprises (i.e. water, gas, and electric utilities; parking garages; transit systems; or airports). For enterprise funds, the governing body intends that the costs of providing goods and services (i.e. operating expenses, including depreciation), to the general public on a continuing basis should be financed or recovered primarily through user charges.

 

Here’s how it works at our airport: daily operations are funded by money generated from leases and contracts with the airlines and other businesses using airport facilities. Money from the Federal Aviation Administration (FAA) is received on a matching basis for the funding of qualifying improvement projects. Federal funding is mainly generated by federal taxes on airline tickets, aviation fuel and cargo shipments.

 

Here’s the bottom line: no money comes to the airport from the City of Springfield. In fact, the airport pays the city for the following services: human resources, purchasing, finance and law. With the exception of these city services, which the airport pays for, all money generated by the airport must stay at the airport. It would be illegal, under federal law, to send the money elsewhere. Hope that all makes sense. We understand some people may not like it—we’re just trying to explain how it works. Questions? Please ask!