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Not for Sale

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CHAPTER 2 Understanding the Role of Air Service Development Air service generates significant economic activity in a community. But good air service--an array of flights appealing to travelers--doesn't just happen. In fact, market and industry forces (discussed in detail in Chapter 3) tend to discourage airlines from expanding air service, partic- ularly to small communities. However, by taking an active, professional approach to air service development, those smaller airports and communities can often provide the information and conditions to encourage airlines to retain or expand air service to that community. For many communities, investing in air service development significantly improves their return on investment in airport infrastructure. Further, involving a broad base of community leaders in air service development assists the community in understanding what is required to support existing or new air service. What is air service development? "Air service development" is a broad term that encompasses a variety of activities with the ulti- mate goal of retaining existing air service or improving air access and capacity in order to develop the economy of a community or region. ASD requires For the purposes of this guidebook, ASD involves all activities directly related to enhancing commercial passenger service at an airport. It includes understanding the local community, what understanding the drives its economy, and recruiting community and business leaders to participate in efforts to flexibility an airport "sell" the community to the airlines. It includes understanding the air service and fares that air- has in extending lines offer, and how the service, fares, and facility compare to those of nearby airports. It also involves understanding the cost and revenue issues that influence carriers' decisions on which financial and markets to serve. ASD requires understanding the flexibility an airport has in extending finan- non-financial cial and non-financial incentives to carriers--both those already serving the facility (incumbents) and those being recruited. ASD encompasses understanding what carriers value most and what incentives to they want to know about the community. It includes knowing how to make and present a sound carriers. business case to airlines. And it includes understanding how to evaluate ASD efforts and revise them as needed. Why is air service development important? Commercial air service is valuable as an economic driver in the community. Adequate air service is a prerequisite for attracting investment and generating employment. Air travel also brings new visitors and incremental spending in local hotels, attractions, and other businesses. Air service is directly related to the amount of economic activity in an area, and additional flights contribute 22

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Understanding the Role of Air Service Development 23 to a community's economic well being. The FAA has reported that, in 2006, civil aviation activ- ity within the overall economy contributed 11 million jobs, $1.2 trillion in economic activity, and 5.6 percent of the gross domestic product (1). On a local level, it has been estimated that one narrowbody flight can produce the equivalent of $4 million annually in gross domestic product and more than 50 person-years of employment. For an overview of the relationship between overall economic activity and the demand for air transportation, see, for example, Airline Management: Strategies for the 21st Century by Paul Stephen Dempsey and Laurence E. Gesell (Coast Aire Publications). Competition for air service increases during difficult economic times. Airlines are grounding Communities have certain older aircraft because they are costly to operate and because there is inadequate demand to fill the planes at price levels that are sustainable (see discussion in Chapter 3). Older legacy air- to compete lines are fine-tuning their networks to leave only the profitable markets. Marginal markets-- aggressively for which may often include smaller cities or those dominated by another carrier--are being targeted air service-- for cuts. Those communities need to understand the fundamental drivers of air service and what they can do to convince airlines that their location still represents an opportunity. Communities particularly during have to aggressively compete for air service. difficult economic In addition, airline mergers and bankruptcies are affecting service to many communities. For times. example: When Mesa Air Group, Inc., decided to cease operation of its Air Midwest subsidiary in June 2008, service to 20 cities was affected. Although other operators replaced the service from Air Midwest at some locations, Mesa Air Group's decision to terminate service to Prescott and Kingman, Arizona, resulted in the termination of all scheduled services at those two airports, which had been previously linked with intrastate service to Phoenix. When Billings, Montanabased Big Sky Airlines ceased operations in March 2008, it ended a history of service to many smaller communities in Montana. Big Sky had connected five small cities--Glasgow, Glendive, Havre, Miles City, and Wolf Point--to Billings through the Essential Air Service. As of November 2008, service to those locations (along with Lewiston's service to Denver) was still on hiatus until Great Lakes Aviation could ramp up its new service. Similarly, the merged Delta and Northwest Airlines may "rationalize" their combined net- works. In situations where both carriers serve smaller communities, the merged carrier may drop one of those routes. This occurrence is especially likely if a small community is relatively close to hubs for either Delta or Northwest, because the cost of operating aircraft over short distances is high. During upswings in the industry, smaller cities compete for service from a limited number of During upswings aircraft. If an airline deploys an aircraft to one small community, it may mean that another small community does not get that service. in the industry, smaller cities To address such changes in the industry, many small communities operate ASD programs. ASD efforts can help communities design strategies to retain their existing service or develop new compete for service in existing and emerging markets. ASD programs provide the interface between the air- service from a lines, airports, and the community. They work with the major businesses and other economic drivers in the local community and region to help ensure that travel needs are met and to help limited number the airlines better understand the existing market opportunities. They help ensure that the air- of aircraft. port serves as an effective economic engine for the community and region. Because of the intense competition among small communities for limited airline resources, small communities likely need to offer some form of financial incentives to attract targeted airlines to the community. Participation by community leadership in air service development initiatives establishes the credibility of the financial incentives offered to target airlines.