More on Leakage and Airline Incentives

 

faucet.jpgGood thoughts and questions this morning from Watcjer. Got enough here for a book! Let's go through them one by one...

 

1) I think the "leakage" of thirty percent is underestimated. Maybe I don't travel in moneyed circles because almost EVERYONE I know drives to another airport to fly to their destination.

 

I hope you're wrong about leakage being underestimated. Care to guess how many people thirty percent is? It's a painful number: 181,877.

 

Aviation consults have a formula for coming up with this number. Our most recent leakage study was delivered at the end of 2005 by the Boyd Group. Here's how it approximates leakage, and I'm quoting from the study, "The Boyd Group uses two ratios, enplanement-to-population and enplanement-to-EBI [EBI is the per capita Effective Buying Income of people living the metro area], as general indicators of how much traffic a particular airport is capturing relative to total demand created in the market...the Boyd Group compared the Springfield-Branson region to four other Standard Metropolitan Statistical Areas that have similar populations and per capita EBI. When compared to the similar markets, it is estimated that the Springfield-Branson SMSA is generating approximately 614,100 annual enplanements. During the 12-month period ending September 30, 2005, the airport enplaned 432,223 passengers. The above formula indicates that the airport is capturing approximately 70% of the traffic generated by the primary service area."

 

2) Sam Walton understood low prices. People go where they can get the best deals, LOTS of people.

 

I agree. Allegiant Airlines' presence in Springfield is a perfect example. Here's a sample of its growth numbers in Springfield:

 

  • July: passenger numbers up 87% over the same month last year
  • May: passenger numbers up 41% over the same month last year
  • March: passenger numbers up 34% over the same month last year

Allegiant has done more for this market than just provide low fares: in my opinion it has generally raised awareness of the airport in the market and it has proven that the demand is here when the price is right. If the airline can maintain and improve its market performance over several years, I think it can help us convince other low cost carriers (LCCs) to try the market. Having said that, I would be remiss if I didn't point out that comparing Allegiant to other LCCs is an apple to orange sort of comparison. Remember--the Allegiant business model is unique. It has a very small fleet and it does not provide daily service.

 

The economics of other LCCs are different: they have bigger fleets and provide daily service.

 

3) Is there anyway the Springfield airport can give gate concessions to get in competitive airlines?  What can the airport do to make up the difference of what airlines consider low numbers of passengers.  Could we give them cheaper gates or cheaper gas or landing fees etc. possibly allowing ticket prices to drop? Then, hopefully enplaned passenger numbers would go up and the airline's revenue would shift from airport inducements to passenger ticket sales.

 

We do offer the sort of incentives you're talking about, plus more:

 

  • Marketing incentive: maximum of $50,000 available for additional or new service.
  • We have routinely waived landing fees, gate fees and common use rental fees for new airlines entering the market. The waiver of fees is temporary, but long enough to let the airline establish service.
  • Ground services. THIS IS A BIG DEAL! We are one of a handful of airports in the country to offer ground services to the airlines and it's at least part of the reason why we have service to five of our 12 destinations: Atlanta, Cincinnati, Orlando, Las Vegas and Tampa/St. Petersburg.

Ground service personnel do the following: guide the airplane to the gate, bring the jet bridge up to the plane, load and unload luggage, service the lavatories, etc. Historically, airlines have provided their own ground services. But in Springfield they have the option of contracting it from the airport for a significant savings. Please read the linked story; I'll do a post dedicated to ground services later in the week. One other thought before moving on: the commercial airlines negotiate their own price for fuel at this airport from Conoco-Phillips. Each airline has its own contract. The airport puts the fuel in the plane. The fueling charge is 10 cents a gallon.

 

4) ...is there a way for the city/government to help make up the revenue difference for airlines until passenger numbers go up?

 

I think I've mostly addressed this question. If you're alluding to big subsidies, like they do in Wichita, it's my opinion that we're not likely to see that tried in this market. The trick to subsidies is getting the service to the point where its self-sustaining. I'm not sure that's happening in Wichita.

 

5) Is there profit for Springfield airport in gas sales, gates, landing fees?

 

As I said, we charge for the service of fueling the plane. The airlines negotiate their own fuel deal with oil companies. We do charge landing fees and gate use fees. I'm not sure I'd call it profit--at least not in the traditional sense. What sometimes get forgotten is that it cost a lot of money to run an airport and the revenue has to come from somewhere!

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