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18 Passenger Air Service Development Techniques Sharing this guide- Further, airport officials may find that sharing this guidebook with key local stakeholders will help them better understand exactly what's needed for a community to attract and retain air book with key local service. Local businesses and government officials need to understand that air service is a busi- stakeholders will ness like many others (and unlike still others). For the business to be viable, revenues have to help them better exceed costs. They need to understand how they can influence both sides of the equation. understand exactly what is needed for How is this guidebook organized? a community to This guidebook is organized into three general parts. attract and retain The first part--comprising Chapters 1 through 4--provides an overview of air service devel- air service. opment and why it's important for many communities, given the financial and risk realities of the commercial airline industry. Certainly at this point in the industry's business cycle, U.S. air- lines are hemorrhaging cash in response to soaring fuel prices and their inability to recover those costs through fare increases. Airlines are deciding that if they operate aircraft, they lose money, and if they don't operate aircraft, they still lose, but they lose less. As a result, carriers are cutting operations. That often means smaller communities are losing service--frequencies from incum- bent carriers, all service from some carriers, or both. Part I highlights the existing strain on air- line financials, but in the context of longer term profitability cycles. The part also provides an overview of the regulatory parameters established by the Federal Aviation Administration (FAA) concerning airport rates and charges, and what's generally allowable in terms of the financial and non-financial assistance that airports and communities can provide airlines. Part II breaks down the process of air service development into discrete components. It system- atically outlines how communities that have been successful with ASD efforts have approached the task: The process starts with a diagnosis of the airport's competitive strengths and weaknesses, as well as an assessment of the physical facility's limits. This analysis includes key fundamentals of understanding the airport's catchment area and the markets of most interest to the airport's traveling public. The guidebook then examines the various resources that communities may have at their dis- posal for attracting and retaining air service. Those include financial and non-financial (e.g., in-kind) resources, as well as human resources. Next, airports and their stakeholders should focus on exactly what their air service goals ought to be. These are likely to differ depending on whether the focus is incumbent carriers (e.g., preserving service, re-timing operations, or perhaps upgrading aircraft) or new entrant carri- ers (e.g., attracting a niche carrier to serve a particular market, or attracting a different net- work carrier to provide new nonstop service to a hub that would improve directional flow). Reflecting the realities of passenger leakage, many airports are concerned about addressing the issue of high airfares. Even with carriers raising fares to cover part of their fuel costs, airports still ought to be conscious of the fares charged locally in relation to those at nearby compet- ing airports. The next chapter discusses how to develop a compelling business case for the carriers. When the airlines are sharpening their pencils looking for every nickel of cost saving or dime in addi- tional marginal revenue, the airport must present a realistic and defensible case. Part of making the case includes understanding the contribution that the airport and com- munity can make to the airlines. The guidebook examines the revenue- and cost-related incen- tives that smaller airports should consider extending to attract new or retain existing service. Airlines no longer look at such incentives as incidental niceties; they are fundamental require- ments. Airports at smaller communities that don't offer incentives simply do not attract air- lines' attention.