Airline Turmoil and the Springfield-Branson Market

 

Airlines cut service left and right. Fuel prices rise. Fares go up. Airlines add another passenger fee; customers scream bloody murder. Amid the uproar are persistent questions—here’s an example from Ryan:

 

“With the airlines all cutting capacity and pulling flights off the market, won't that raise fares? What's going to happen to Springfield-Branson; the fares are already high, how much higher can they go before people stop flying?”

 

Good questions. Let’s answer them by getting some perspective…

 

You’re hearing a lot about capacity cuts. They’re portrayed in most media reports as something new. In reality, airlines have been making capacity cuts since the first quarter of 2006. In 2005 fares were at historic lows (when adjusted for inflation). Cutting the supply of seats made fares go up. Take a look at this graph. It plots our number of flights for the past three years; flight numbers are on the vertical axis.

 

flightsgraph.001.jpg

We were flush with flights in 2005. Then in 2006 we had seven months with double digit flight cuts. We finished 2006 with an overall decline of 25-percent! But guess what? Our 2006 enplanements (people getting on an airplane) were down just 2-percent. So how does that jive? In 2005 the airlines had too many seats in the market—more than they could sell. By tightening up supply, they were able to raise fares. And people kept flying (mostly). This is the situation we’ve been in since the first quarter of 2006.

 

What has changed in the past few months is the huge jump in fuel prices. The airlines could respond by cutting our flights more—they could even eliminate a destination. We all have some understanding of why that might happen. Here are some of the reasons why it might not:

 

  • The Springfield-Branson air market is robust—meaning that the airlines haven’t had a problem filling seats in the market; our passenger enplanement numbers have grown 25% since 1999.
  • Our 2007 leakage study shows our airport has seen an 18 percent decline in the number of customers leaving the market to fly from other airports. As the report put it, “Airlines generally prefer existing strong capture rates rather than the potential to recapture traffic with new service." This report was handed to each of our airlines in February.
  • Our airport offers every airline the option of using airport employees (meaning City of Springfield employees) to run their local operations. We provide the services for considerably less cost than airline employees. We were one of the first airports to provide this option to the airlines. We currently provide Delta/Comair with partial, behind the scenes service. We provide Allegiant with EVERYTHING: loading and unloading the plane; servicing the lavatories, putting passengers on and off the plane. When you step up to the Allegiant ticket counter, you’re talking to a City of Springfield employee. Our abilities and reputation are outstanding. In summary: we help airlines improve efficiencies, customer service and the bottom line.
  • Our airline fees are cheap. The landing fee here is $1.10 per thousand pounds. The lease rate for exclusive use space is $33 a square foot, per year. I’ve said it before, but I’ll say it again—these rates are dirt cheap. It's one of the reasons why we have such good service for a small market. The Federal Aviation Administration has told us that we ought to raise rates. We've respectfully declined…

But wait, there’s more… We’re in the geographic sweet spot—Springfield is less than 600 miles from the nine destinations serviced by regional jets (all distances in nautical miles):

 

  • Denver: 567
  • Dallas: 315
  • Minneapolis: 466
  • Memphis: 203
  • Atlanta: 480
  • Detroit: 564
  • St. Louis: 168
  • Chicago: 381
  • Cincinnati: 431

If these distances were 800 miles or more, we’d be in a pickle. That sort of mileage, combined with the price of fuel, makes it difficult for a regional jet to make money. But with a trip of 500 miles or less, it’s much easier for the regional jet to make money. Bottom line: in the airline quest to reduce service, our routes are not low hanging fruit.

 

Having said all that, I don’t want to mislead anyone. Even with all our strong points, and with everything we do to attract and keep airlines, I think we’ll be lucky if we get through the year without service cuts. And yes, I think we could lose destinations.

 

Ryan wondered how high fares can get before people stop flying…

 

That’s the question the airlines are wrestling with. They don’t know the answer. It’s a precarious balancing act. The only thing I know for sure is that it’s going to be a long summer…we’re going to find out just how strong our market is.

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