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Best Practices for Air Service Development P A R T I I
An effective ASD program begins with an honest assessment of the airportâs existing services, as well as the facility itself, to identify how the air service can best be improvedârealistically. This evaluation needs to encompass not just an analysis of current and historic passenger traffic patterns and fares, but also a comparative evaluation of what services are offered at other nearby airports and similarly sized airports elsewhere. In this chapter, the techniques used to measure and analyze air service are discussed in order to provide insight into how best to define, address, and correct any deficiencies. What are the airportâs current services and how are they performing? Before the airportâs air service can be improved, the ASD team needs a complete picture of the air service currently offered and how well it meets the needs of the traveling public. This evalu- ation involves analyzing passenger and airline data in the airportâs top origin-and-destination (O&D) markets as well as conducting a more subjective assessment of how convenient and com- petitive it is to fly into or out of the airport. Destinations and Load Factors Regardless of the size of the commercial airport, the person(s) tasked with marketing and/or new business development should conduct a periodic review of the airportâs existing air services. This review should encompass not only scheduled flights by commercial airlines, but also flights by charter carriers to quantify which destinations are being served and how well. It is best to keep a running time-series comparison of the number and airport name of nonstop destinations served. Close attention should be paid to any market seasonality. For example, does an airline provide nonstop service between the airport and Orlando or some other leisure destination only during the peak winter and spring break seasons? U.S.DOT has a large database that is used to analyze patterns of O&D travel. This database is populated by the information large airlines are required to report on a sampleâ10 percentâof all tickets sold. This rule applies only to airlines domiciled in the United States and not to for- eign carriers. (However, these data may capture information on passengers who purchased a ticket on a foreign carrier whose code-share flight is operated by a U.S. carrierâfor example, a passenger with a Lufthansa ticket flying from Chicago to Frankfort on the United code-share flight). The O&D data thus provide a statistical estimate of the number of passengers who travel from an airport and where they go. U.S.DOT releases the data on a quarterly basis, usually with a three- to four-month lag time. 57 C H A P T E R 5 Taking Stock of the Situation The first step in improving an air- portâs air service is developing a complete picture of the service it currently offers and how well that meets the needs of its travelers.
The O&D data, which is market specific, can show whether there is a substantial amount of traffic in the target market despite the lack of nonstop service. This data shows the origin, desti- nation, passengers, revenues, average fare, average yield, and itinerary distance for the target market as well as any connecting market traffic that might flow over an airlineâs hub. Table 5.1 shows some basic information for the top 25 destinations from Providence, Rhode Island [T.F. Green Airport (PVD)]. However, users need to note that because the data are sampled, they are also subject to statis- tical sampling errors. In smaller markets, because the total number of tickets sampled can be small, the sampling error can be correspondingly large. Estimates of traffic in certain smaller markets may be statistically questionable. Another important dataset that U.S.DOT issues is the âT-100 data,â which is segment specific. These data show the departure airport, arrival airport, departures, onboard passengers, available seats, RPMs, ASMs, and load factors. (See for example Table 5.2.) U.S.DOT requires that all carriers that fly international and domestic operations to/from/via the United States provide operational statistics on those services. This rule applies to both scheduled and nonscheduled (e.g., charter) flights, as well as passenger and cargo flights. U.S.DOT releases T-100 data each month, with a three- to four-month lag for domestic service. Analysts can use these data to determine the extent to which load factors on critical market segments are relatively high or low. Load factors represent the average number of seats filled with (paying) passengers on a nonstop flight. High load factors can be interpreted either as a sign that the market is performing relatively well for the carriers, or that loads are so high that passengersâ choices may be limited, especially during peak times of the day, week, or year. In that manner, 58 Passenger Air Service Development Techniques Daily Each Way Rank PVD Market Passengers Revenues Average Fare Nonstop Service 1 BWI 731 $58,788 $80.39 Y 2 MCO 660 $75,965 $115.10 Y 3 PHL 421 $35,293 $83.87 Y 4 TPA 403 $46,146 $114.43 Y 5 FLL 267 $33,478 $125.24 Y 6 MDW 199 $23,411 $117.80 Y 7 ORD 189 $28,141 $148.98 Y 8 PHX 184 $27,081 $147.43 Y 9 LAS 169 $27,040 $160.30 Y 10 RSW 140 $17,059 $121.85 N 11 LAX 132 $22,034 $167.17 N 12 PBI 125 $14,097 $113.13 N 13 DCA 118 $29,864 $253.93 Y 14 DTW 115 $19,097 $165.88 Y 15 BNA 108 $14,927 $138.30 Y 16 CLE 108 $13,172 $122.50 Y 17 SAN 96 $17,835 $185.84 N 18 CLT 93 $18,310 $197.77 Y 19 RDU 93 $10,731 $115.99 N 20 JAX 87 $10,524 $121.55 N 21 PIT 85 $9,994 $117.91 N 22 ATL 74 $18,533 $252.15 Y 23 DEN 73 $12,474 $171.21 N 24 ORF 68 $8,311 $122.34 N 25 SFO 67 $12,379 $184.58 N Note: Data for year ending June 30, 2008. Table 5.1. Top 25 destinations for Providence, RI, passengers.
high load factors may act as an inhibitor to traffic growth in the absence of new air service, offer- ing support for the contention that new flights in the target market will allow normal market growth in the community to be better accommodated. The T-100 data include information for both scheduled and nonscheduled (e.g. charter flights) operations. The data are reported on an âas-flownâ basis. That is, if a commercial sched- uled flight from New York City (JFK) to Los Angeles (LAX) makes an unexpected stop en route in Kansas City (MCI), the data will record that the flight required two segments, JFK-MCI and MCI-LAX, and will not appear in the nonstop JFK-LAX data. The T-100 and O&D data are available from both public and private sources. High-level data are available to the public online through the U.S.DOTâs Bureau of Transportation Statistics (BTS). These traffic and operational data are also available on a subscription basis through other private U.S.DOT-authorized providers, such as Dallas-based Database Products and OAG BACK Aviation Solutions. Route Deficiencies Having learned where the airportâs passengers go, the next step involves assessing how they get there and how routes might be improved to provide more convenient service. Nonstop Markets Hub-and-spoke systems emerged as the most efficient means for connecting passengers between two different locations. Passengers often do not care for connecting over hubs, but hubs do allow airlines to aggregate traffic in ways that make serving many smaller communities pos- sible. Only a certain number of markets will support nonstop service. Point-to-point nonstop flights require substantial demand in the local market to justify such service. An airportâs route deficiencies include those markets that could potentially support but cur- rently lack nonstop service. When route deficiencies are evaluated, it is important to realistically assess the marketâs potential for nonstop service to other hubs. Those hubs may provide new connecting possibilities (e.g., cities not already served on a one-stop basis) or other passenger conveniences. Additionally, a realistic assessment should be made of whether the market might generate sufficient demand for point-to-point service, perhaps to a large leisure destination such as Las Vegas or Orlando. (Other factors, such as the possibility of stimulating traffic or address- ing leakage, also figure into an airlineâs evaluation of the viability of nonstop service on a given route. These factors are discussed in detail later in this chapter.) The assessment should also consider international connections. Hubs that used to provide only regional or national access now provide access to international cities, often through an air- lineâs global partners. The three major global alliancesâoneworld, SkyTeam and Starâhave established a wealth of connecting opportunities in global markets. Some airports may find that they lack nonstop service to major international gateways that would link them to the world at large. This lack of service also constitutes a route deficiency. Taking Stock of the Situation 59 Carrier Onboard Passengers Seats ASMs (000) RPMs (000) Load Factor American Airlines 69,549 84,258 71,532 59,048 83% United Airlines 234,787 279,130 236,988 199,337 84% Note: Data are for year ending September 2008; passengers are both inbound and outbound. Table 5.2. Example of T-100 data for travel between Providence and Chicago OâHare. Passengers may not care for con- necting over hub airports, but hubs allow airlines to aggregate traffic in ways that make serving small com- munities possible.
Circuitous Routes Circuitous routings involve itineraries where passengers travel in a less-than-direct manner between their origin and destination airports. Flight schedules from smaller airports to a final destination frequently involve circuitous routings via major hub(s). Circuitous routes add to passenger travel times. Take the example of Walla Walla, Washington, which is served only by Horizon Air to Seattle. Passengers traveling anywhere else on Horizon or another airline must âbackhaulâ over Seattle before proceeding to their âdownlineâ destination (see Figure 5.1). A passenger from Walla Walla traveling on Horizon to Denver must first fly west to Seattle before turning around and flying back to the east. If O&D passenger estimates warrant, the airport could approach an airline to propose new nonstop service to a different hub that would provide better (i.e., less circuitous) connections to the south or east. This might include service on a Delta Connection flight to Salt Lake City or a United Express carrier over Denver. Flight Frequency, Times, and Total Travel Time The number of daily nonstop flights between a city pair can have a direct effect on that marketâs relative attractiveness to the traveling public. Business travelers generally prefer to travel early in the morning and in the late afternoon to maximize time at their destination. Leisure passengers may travel at any time of day. If sufficient passenger demand exists, a typ- ical minimum flight complement in a city pair is three flights per dayâmorning, noon and evening. In many leisure markets, one flight per day may be sufficient to match the market demand. 60 Passenger Air Service Development Techniques Figure 5.1. Backhauls from Walla Walla.
Although network airlines previously scheduled the flight connections at their hubs to mini- mize passenger connecting times, hub connect times of one to two hours are now common. While this schedule lengthens total elapsed travel time, it provides a more realistic measure of traveling across the country or around the globe, and allows some leeway for operational irreg- ularities (flight delays, cancellations, or re-routings.) To create some leeway in their operations, airlines have also increased their scheduled flight block times to allow for extra ground and/or flight time related to congestion, weather, or other sources of delay. In a report on flight delays, the U.S.DOT Office of Inspector General reported that, between 1988 and 1999, the 10 major air carriers reporting to BTS increased their scheduled flight times on more than 80 percent of their domestic routes (1,660 of 2,036 routes). From 1988 through 1999, those schedule changes added nearly 130 million minutes of travel time for air passengers (9). Excessive travel times can arise from infrequent nonstop service between a smaller airport and a hub, coupled with long layover times at that hub. This is especially true for very small airports that rely on nonstop service to one hub. An airportâs geographic relation to its closest hub air- port can also lead to backhaul flights, as illustrated in the preceding Walla Walla example. Multi- stop itineraries also create excessive travel times. Taking Stock of the Situation 61 CASE STUDY Adding service to another hub to reduce circuity Lawton, Oklahoma, is the third largest city in the state. Its airportâs catchment area includes a population of nearly 350,000 and two large military basesâFort Sill and Altus Air Force Base. With service only from American Eagle Airlines on Saab 340s, the Lawton Metropolitan Area Airport Authority estimated that it lost 72 percent of its passenger traffic to Oklahoma City (88 miles to the northeast) and Dallas/Fort Worth (184 miles south). Fares to eastern destinations were high in comparison to other nearby airports. In conjunction with a local public-private partnership, the airport authority won a U.S.DOT SCASDP grant in 2005 to support new nonstop service to Atlanta pro- vided by Delta Air Lines. The new service would par- ticularly help move military personnel to eastern U.S. destinations. Lawton began its efforts in 2001 when it identified Atlanta in a passenger demand survey as its top desired new hub. The airport authority hired consul- tants to complete two additional analyses to quantify its passenger leakage and top markets from the catch- ment area. Both studies found Atlanta to be the number one destination for the catchment area. The airport authority believed that adding Deltaâs regional jet service to Atlanta would greatly improve access to the air transportation system by providing another nonstop destination and more domestic and international connections. Delta would also provide competition in the market, giving the community more choices and most likely lower overall airfares. The 2005 grant provided $525,000 of revenue guar- anteed to Delta or any airline that would serve the market for one year with a route to the east. Delta finally launched its new service in March 2008, but only after Lawton increased the size of its revenue guarantee to $1 million. The City and its Chamber of Commerce also launched a 90-day promotional campaign to support both Delta and American. That effort focused on the out- bound market and was aimed at reducing leakage to Oklahoma City and Dallas/Fort Worth. The airport reported positive results. In February 2009, however, Delta announced that it was discontinuing the service as part of its 10 percent reduction in domestic capacity. Another key factor was that American had won government contracts for carrying military personnel. Lawtonâs airport manager noted that 70 to 80 percent of the airportâs traffic was military. Delta dropped service in April 2009.
It is important to periodically review the flight connections that exist between an airport and its top O&D markets to ensure that connection times are reasonable via intermediate connect- ing points. Hub Congestion A passengerâs experience at the hubs to which an airport connects is another important aspect of air service and influences the relative appeal of flying out of an airport. Major network airline hubs have become increasingly congested over time with large banks of flights. At certain airportsânotably Chicago OâHare, Newark Liberty, and New York JFKâcarrier operations became so congested that U.S.DOT administratively restricted the number of flights. U.S.DOT decided that the problems of airline over-scheduling and delay were so great at those airports that the only way to fix the problems was to impose an absolute limit on the number of operations that airlines could make in any given hour. (U.S.DOT lifted the restriction on the number of hourly flights at Chicago OâHare International Airport in September 2008.) When hubs get particularly congested or if weather conditions deteriorate, service to small communities is often affected. Carriers may try to operate their larger aircraft and sacrifice the schedules of regional affiliates. Moreover, air traffic problems associated with intermixing smaller aircraft with larger aircraft (e.g., wake vortex restrictions and departure patterns) can further complicate the departure process of all aircraft. The resulting effect of a hubâs arrival and departure delays causes arrival and departure delays at ensuing small community airports. Figure 5.2 illustrates the hubs served from Burlington (Vermont) International Airport (BTV). A majority of those hubs are congested, and on-time arrivals and departures have suffered as a result. When flights do not depart those hubs on time, on-time arrivals and departures at Burlington also suffer. Air Carrier Issues Passengers come to associate the performance and convenience of the air carriers at an airport with the desirability of the airport itself. Examining issues such as air carrier pricing, capacity, air- craft type, and reliability helps to identify and prioritize potential improvements in air service. First, however, the ASD team should consider the airlines servicing its airport within the con- text of the aviation industry, as discussed in Chapter 3. What are the dynamics of airlines serv- ing the airport as well as other nearby airports? Are the airlines facing financial difficulty? How focused are they on costs? Are airline mergers being discussed? How could that potential consol- idation affect the airport being evaluated? Pricing The prices that airlines charge for services they provide at an airport have a substantial impact on passenger demand, especially for leisure travelers. Business travelers are more likely to accept the fares as listed, particularly if flying to an alternative airport would add significant ground travel time. That does not mean, however, that they are not sensitive to pricesâespecially if there are other issues associated with the carrierâs service (e.g., difficult connections over congested hubs). If prices at an airport are significantly higher than those for comparable service at a competing airport, it may experience a notable loss of passenger traffic. Figure 5.3 illustrates the significantly different airfares available from three competing airports for service to Denver in October 2008. Available Seating Capacity All U.S. network carriers own or have a partnership with regional carriers to provide connect- ing service to their hubs from smaller cities. (The network carriers also use their regional partners 62 Passenger Air Service Development Techniques Airports should periodically review existing flight con- nections between their facility and top O&D markets to ensure that connection times are reasonable. Passengers equate the performance and convenience of carriers with the desirability of using an airport. Consider: â¢ How many seats are available, and how many of those are filled? â¢ Which of the airportâs nonstop markets have experienced sig- nificant changes year-to-year in the number of nonstop seats offered? â¢ What effect has that had on O&D passenger demand in those markets?
Taking Stock of the Situation 63 DTW: 87% On Time ATL: 76% On Time IAD: 76% On Time CLE: 81% On Time ORD: 77% On Time PHL: 80% On Time BTV: 77% On Time JFK: 67% EWR: 67% On Time Source: BTS on-time departure data, October 2008. Figure 5.2. Many of Burlingtonâs connecting hubs suffer from congestion and delay. Figure 5.3. Lowest average one-way airfares between Denver and Des Moines, Omaha, and Sioux City. NW = Northwest Airlines, UA = United Air Lines, F9 = Frontier Airlines Source: Travelocity, for departure on October 15, 2008.
to âfill frequenciesâ between larger cities where mainline jets also fly.) Those regional carriers use turboprop aircraft or regional jets. Compared to smaller mainline aircraft, these turboprops or RJs have fewer seats, which are carefully priced and managed for sale by the major airline. Such actions reduce the availability of discount fares in the market. Smaller aircraft can also make it challenging for larger commu- nity groups (e.g., school or church groups) to travel together, as there simply are not enough seats on the aircraft to accommodate them. Most regional jet aircraft with less than 70 seats are flown in single-class (i.e., economy-only) configuration. Some regional jet aircraft in the 70- to 100-seat range also have a premium (business-class) cabin. Aircraft Types The size of aircraft that carriers use and the mix of aircraft serving the facility can influence the traveling publicâs perception of the quality of service offered at an airport. Generally speaking, the traveling public prefers larger aircraft, and jets are preferred over turboprops. The advent of the regional jet in recent years has brought jet service to smaller communities previously served by only turboprop aircraft. However, commercial flights over shorter distances (i.e., less than 500 miles) are more economically well served using turboprop aircraft, which tend to be far more fuel efficient than jet aircraft. But, as noted in Chapter 3, except in the smallest markets, the num- ber of turboprop aircraft in service in the United States has declined significantly over time. The size of aircraft serving an airport can also affect the use of or need for jet bridges and gates. The footprint of a regional jet is significantly smaller than that of a narrowbody or widebody jet. Increased regional jet and turboprop service also impacts the need/desire for jet bridges versus ground loading. Reliability Airline and aircraft reliability can weigh heavily in a passengerâs perception of a travel experi- ence. If an airport experiences chronic delays in arriving and/or departing flights, the issue must be addressed with the operating carrier. Lack of attention to this operational reliability can lead passengers to avoid flying the perpetually tardy carrier; they may choose another carrier at another airport. In the end, both the carrier and the airport suffer. Burlington (Vermont) International Airport acknowledges that it benefited from JetBlueâs service to JFK, yet it also was forced to recognize that for some time during early 2007, JetBlueâs operations at JFK suffered significantly because of congestion and delays. Passengers appreciated the low-fare service, but did not care for connecting at JetBlueâs crowded JFK facility. Flight delays there meant that the last flight back to BTV often arrived hours after it was due. Figure 5.4 summarizes the issues that were most commonly identified by surveyed airports as their major air service problems. Where do key community groups want to fly? After understanding the current situation at the airport, the ASD teamâs next step is to exam- ine demand by determining who the major travel groups in the community are and where they travel. Key community stakeholders are those corporations, organizations, and prominent indi- viduals who have a vested interest in the quality and quantity of commercial air service at the air- port. They are the largest companies in the area that funnel their business air traffic through the facility being assessed. They include the Chamber of Commerce and economic and tourism development agencies. Local travel agencies can also provide insight into the patterns of the local traveling public. 64 Passenger Air Service Development Techniques Consider: â¢ What aircraft mix serves the market? â¢ How has this mix changed over the past few years? â¢ Has the use of smaller aircraft led to more nonstop destinations served at the airport? Consider: â¢ How often do your airline opera- tors fly on-time? â¢ Why are flights late in departing your airport? The key community stakeholders are those corporations, organizations, and prominent individ- uals who have a vested interest in the quality and quantity of com- mercial service at the airport. Solicit input and feedback from them.
How can this information be most easily gathered? The ASD team can solicit the input and feedback of the core stakeholder constituency, involve them in the process, hold meetings with them to discover what their key outbound destinations are, and solicit their opinions regarding their perceived air service deficiencies. Identifying the core stakeholders of the community, requesting their input and acknowledging them as essential participants in achieving the ASD goals and objectives will connect them to the process, and build loyalty in their support of the airport. How are a facility and its costs assessed? The air service available at an airport is not the only factor on which airlines and passen- gers form their opinions. The airportâs physical characteristicsâon both the airside and the groundsideâcan also be critical determinants of whether carriers serve there, and whether passengers come. Construction projects, travel time, traffic congestion, public transport ease and availability, and general perception of the passenger experience all influence those decisions. Airport Fees Landing fees, ground rental rates, and other handling fees reflect the cost of operating the overall facility. These rates lie within the airportâs span of control and can be used as a means of negotiation with airport users, both public and private. It is important to establish a landing fee structure that is fair, equitable, and transparent to the user community. When establishing the fee structure, the mix of operations between scheduled and nonscheduled flights (both passen- ger and cargo), as well private and military aircraft that may utilize the airport should be consid- ered. Some carriers have traditionally been especially sensitive to these costs, and all carriers are Taking Stock of the Situation 65 0% 10% 20% 30% 40% 50% 60% 70% 80% Circuitous routings Turboprop rather than RJ Difficult connections Inadequate capacity Unreliable service No low-cost carrier Top destinations not served non-stop Fares too high Percent of airports surveyed Figure 5.4. Major air service problems at small community airports. Consider: â¢ Should airlines be required to pro- vide their own ground handling? â¢ Can this function be in-sourced and provided at a cheaper cost to the airlines? An airportâs physi- cal characteristicsâ on both the airside and groundsideâ can be critical determinants of whether carriers serve there, and whether passen- gers will come.
concerned about them now in light of the overall financial condition of the industry. It is impor- tant to provide the facilities that the resident airline operators desire and are willing to pay for. Expensive work projects at the airport that are not supported by the resident airlines lead to increased fees and may be resented or challenged by those airlines. An airportâs fees must be competitive with peer airports in the region. If an airport is able to provide lower fees than competing airports, it may create a competitive advantage in attracting new air service to the airport. Carriers may also be sensitive to ground handling costs. In smaller markets with limited flight frequency, ground handling costs can seem relatively high on a unit basis. Sometimes airlines insist on providing their own ground handling, and if this is the case, then it is important to respect their wishes. However, this is a cost with which the airport can assist a potential new airline. Non-aeronautical revenue can have a substantial impact on the bottom line of an airport oper- ating budget and therefore on the rates and charges to airlines. This revenue can come from concessionary/vending fees, garage/lot parking, rental car fees, and revenues from other busi- nesses located on the airport property, such as a business park. Prior to visiting an airlineâs headquarters to pitch a new service from the airport, the ASD team should have a clear understanding of the real costs that the airline will incur in providing that service. The cost of doing business in the airline industry has increased substantially in recent years. These business costs represent real costs that the operating airline cannot avoid and must incur. The ASD team should carefully consider what steps might be taken to reduce the airlineâs cost of doing business at its airport by identifying the cost factors that are within its control ver- sus those that are controlled by the airline. Infrastructure Constraints Airport constraints include the physical and geographic obstructions that may impact opera- tions at the airport. An airport located in a mountain valley must contend with the mountain obstructions for flight take-off and landing procedures. Airports with relatively short runways will not be able to handle operations other than turboprops. Noise abatement initiatives by local authorities can also influence airport operations. Older airports located in dense population areas are often constrained by the urban sprawl surrounding them and are limited in their phys- ical growth potential. Runways The number and lengths of the runways have an obvious and major impact on the volume and nature of aircraft operations at the airport. Larger aircraft require larger runways. Runway alignment relative to prevailing wind patterns also influences operations. Dual parallel runways are a unique asset that can substantially increase flight capacity and reduce delays, but this lux- ury is usually not found at smaller airports. Smaller communities may often face the situation of having relatively short runways. FAA and aircraft manufacturers provide considerable technical guidance on minimum runway length requirements for different types of aircraft. Obviously, it is critical that airports understand the effective operating lengths of their runways and what that may mean for an ASD effort. Infrastructure The available infrastructure at the airport will dictate the level of flight and passenger activity that the facility can accommodate. The number of gates, the amount of tarmac space, the square footage of the terminal building, and a number of other factors influence passenger throughput. 66 Passenger Air Service Development Techniques Airports should carefully consider what steps can be taken to reduce airlinesâ cost of doing business there. Consider: â¢ Are there any obstructions that require special pilot procedures? Noise abatement procedures? Power-back? Parallel runways? Parallel take-offs/ landings? â¢ Does the commu- nity support airport expansion?
When embarking on airport expansion projects, it is important to optimize usage of available infrastructure. Gates Gate usage influences the efficiency of the facility. LCCs such as Southwest Airlines try to use gates 8 to 10 times each day where possible. At smaller airports, where there are fewer flights, gates might be used by only 2 or 4 flights per day. Gate usage is another area in which airline operators can be steered toward greater cost savings. When feasible, airlines can sometimes share gate space and avoid incurring the full cost of using a dedicated gate. Some airports do not assign specific gates to specific airlines and instead employ a common usage plan among their airline operators. Ticket Counter and Office Space Ticket counter and back office space is another area in which the airport can assist its airline operators in achieving cost savings. Airlines require a certain number of check-in positions for processing their passengers. If counter space is limited, airlines will sometimes share the space to increase efficiencies and decrease costs. It is important to learn whether airlines require exclu- sive use of their counter and office space or are willing to share to reduce costs. Security (Passenger, Baggage, and Cargo) Passenger security procedures have received increased visibility, especially following the events of September 11, 2001. The Transportation Security Administration (TSA) mandates certain space requirements to accommodate their passenger- and baggage-screening process. Airports with older terminal facilities are often constrained. Newer facilities can better plan for the increased security space. How does the airport compare to its peers? To obtain a realistic perspective on the service at the airport being evaluated, its demograph- ics, traffic, and operations are best compared with similar airports. Points of comparison may be nearby airports with which the facility competes for passenger traffic, or other airports or com- Taking Stock of the Situation 67 CASE STUDY Physical limits constrain operations Tweed New Haven Regional Airport (HVN) serves a market area of roughly one million people in southern Connecticut. However, only US Airwaysâ using turboprop aircraft flying to Philadelphiaâ provided commercial service at the airport. The airport authority estimated that with that one carrier, it captured only 3 percent of its potential market. Most of the population in the area drove to Bradley International (Hartford County, CT), 56 miles away. The airport authority recognized that Tweed New Havenâs relatively short 5,600-foot runway and other physical obstructions would constrain the ability of airlines to operate jets at the airport profitably. Runway limits and other obstructions meant that cer- tain jets could not carry a full passenger load. Many airlines targeted by the airport authority indicated that the airportâs infrastructure must be enhanced prior to serious discussions. The airport has initiated work on its updated master plan that calls for significant upgrades to the runway, safety areas, terminal, and roadways, all of which would allow jet operations to hubs such as Atlanta and Chicago. Small airports can be prone to inflat- ing their true market potential. Consider: â¢ What are competitive strengths/ weaknesses of the airport relative to competing airports in the region? â¢ How good is highway access to/from the airport? â¢ How good is highway access to/from compet- ing airports in the area?
munities of similar size. Such a comparison will allow the ASD team to assess whether its area is adequately served and whether it might have a reasonably realistic expectation for additional service. This comparison is sometimes referred to as a âSWOT analysisââa review of the strengths, weaknesses, opportunities, and threats of the facility. One pitfall of operating a smaller airport is that it becomes easy to aggrandize the marketâs potential and perhaps view it as something greater than it actually is. Therefore, sober inventory and analysis of the airport is important. The ASD team should emphasize its competitive strengths relative to other airports in the region, but also acknowledge its weaknesses relative to the competition and take steps to mitigate those shortcomings. Defining the Catchment Area The airportâs catchment area is defined as the geographic reach of the airportâs service area. Practically put, the airportâs catchment area encompasses the land area within which people choose the airport as their preferred airport to begin and/or end their air travels. The primary component of this equation is accessibility, i.e., how fast and easy is it for the traveling public to get to and from the airport relative to their other available options. Additional factors such as traffic, service levels (nonstop vs. connect), preferred airlines, parking, etc., also figure into the equation when a passenger chooses an airport for their travel needs. An airportâs catchment area overlaps with those of nearby airports, particularly in urban areas that are served with multiple airports. Some airports are more focused on domestic services, while others may include international operations. Issues that affect the boundaries of a catch- ment area include the proximity to other airports, road network quality, drive times, traffic con- gestion, airfare levels, flight frequency, and breadth of nonstop service. Each of those factors can influence the travel choices of residents within the catchment area, as well as the choices of those business and leisure travelers who visit the catchment area from other cities. Figure 5.5 illustrates 60- and 90-minute drive times and the airport catchment areas at Cleveland Hopkins International and Akron-Canton airports. Those airports also compete to some degree with Pittsburgh Inter- national and Port Columbus International. An airportâs catchment area can change over time as the services offered at both that airport and its competitors change, or as the ease of driving between locations changes (e.g., with the completion of a new highway or bridge). For example, Akron-Cantonâs catchment area grew substantially following the introduction of service by AirTran, whose low-fare pricing lured people 68 Passenger Air Service Development Techniques CASE STUDY Hayden, Coloradoâs operational advantage Yampa Valley Regional Airport (HDN), located in Hayden, Colorado, serves the aviation needs of the mountain communities of north central Colorado. Yampa Valley Regional is close to the world-famous Steamboat Springs ski resort, just 25 miles to the east. The airport is situated in the wide open Yampa River valley and, as such, enjoys a competitive advantage relative to other airports in the Colorado mountain region. The airport lies at an elevation of 6,602 feet, with a runway 10,000 feet long and 150 feet wide. It has no natural obstructions at either end of the single runway, thereby allowing take-offs and landings in both directions, depending on wind conditions. Airports in other Colorado mountain communities may be hampered by mountain terrain that allows only one-way in and out operations. Flights destined to other mountain airports may divert to Yampa Valley Regional when conditions deteriorate at those facilities, providing a strategic advantage for this airport. An airportâs catch- ment area is defined by its proximity to other airports, the quality of highway access, flight frequencies, fares, and nonstop service. Consider: â¢ How geographi- cally isolated is the subject airportâs catchment area? â¢ Does a nearby airport enjoy LCC service that could siphon off some of the subject airportâs natural catchment traffic?
from outside of Akron-Cantonâs traditional catchment area who might have previously used Cleveland Hopkins International instead. Understanding the nature of the airport market being evaluated (i.e., the mix of inbound versus outbound traffic) also helps clarify the airportâs catch- ment area relative to alternative airports in the general region. Assessing the Strength of a Catchment Area The strength of an airportâs catchment area is reflected in the extent to which it âcapturesâ all of its local traffic. Conversely, the airportâs catchment area can also be assessed by estimating its âpassenger leakage,â the extent to which it loses passenger traffic to nearby airports. Passenger Leakage Leakage is defined as the volume of passengers from the ânaturalâ catchment area that are lost to other airports. It is the volume of passenger traffic that has opted to fly to or from a competing airport. Identifying sources of and reasons for leakage are crucial if an airport hopes to win back that traffic to use its facility. Passengers may decide to use another airport for a number of reasons: â¢ Nonstop versus connecting service: The other airport may have service from an airline that offers nonstop service to the passengerâs destination. The service from the airport being eval- uated would require a connection. â¢ Flight frequency: Flights at another airport are at far more convenient times or, more simply, flights are available, which allows business travelers greater flexibility. â¢ Airfare differences: Fares at another airport may simply be more affordable, for any number of competitive reasons (e.g., the presence of an LCC or greater competition among network carriers). â¢ Preferred airline: The other airport may be served by an airline for which the traveler has some preference. This preference may be associated with the travelerâs frequent flyer program, or it may be that a traveler is simply boycotting an airline for personal reasons. Taking Stock of the Situation 69 Figure 5.5. Overlapping catchment areas for Cleveland Hopkins International and Akron-Canton airports. An airportâs catch- ment area changes over time as ser- vices there and at nearby competing airports change. Changes in high- ways can also affect the catch- ment area. Passenger leakage: the volume of pas- sengers from an airportâs ânaturalâ catchment area lost to competing airports.
â¢ Other reasons: All else being equal, passengers may prefer to use a different airport for any number of other reasons unrelated to the air service available at the airport being evaluated. These reasons may include parking rates, ter- minal amenities, or outside factors completely beyond the airportâs control (e.g., highway construction, a nearby outlet mall, or Aunt Millieâs nearby residence). There are a number of ways to estimate the total amount of leakage that occurs at individual airports. A âlicense plate surveyâ is a commonly recognized way to check an airportâs catchment area; it involves visiting the airportâs parking lots and noting the number of license plates from different areas. Passenger leakage can be estimated by performing a license plate survey in the parking lots of nearby airports. If the state includes some county indicator on the license plates, this survey can be relatively straightforward. If not, however, license plate numbers would have to be recorded, and coop- eration from the state department of motor vehicles would be needed to cross-reference the county of residence from its own files. This can be very costly. ASD teams also can get data on flight reservations or bookings by analyzing data from the Marketing Information Data Transfer (MIDT) database. These data are generated by a computer reservation system (sometimes referred to as a CRS or Global Distribution System) and include such information as origin, destination, airline, connecting air- ports (if any), passengers, and fare. Using those data will thus show which airports passengers from particular areas (e.g., zip codes) booked flights on. It also can provide a much more detailed overview of passenger fares by fare cat- egory than can the U.S.DOT databases, which in turn can help measure the business and leisure travel components of the target market. However, the MIDT data cover only flight reservations; passengers may not actually have made the trips. A further limitation on the MIDT data is that it does not include bookings made directly with airline web sites, which now generate a significant percentage (variously described as 30 to 50 percent, depending on the source and the time period) of bookings for domestic U.S. travel. Reverse Leakage Reverse leakage is defined as the volume of passenger traf- fic that uses an airport even though they reside or work in the natural catchment area of another airport. The same reasons that may cause a passenger to leak from the subject airport to a competing airport can also induce a passenger to use the subject airport. While reverse leakage benefits the subject airport, the ASD team should be mindful that the airports leaking passengers to its airport will likely work to decrease that loss of passengers. 70 Passenger Air Service Development Techniques Detailed example of one airportâs method to gather data on its catchment area In Daytona Beach, Florida, the airport authority wanted to develop better information about the origination of its traffic base. Similar to many other airports, Daytona Beach International Airport (DAB) has surveyed the license plates of its parking lots. However, the airport decided to try a different approach for obtaining the same type of information. The airport partnered with Embry-Riddle Aero- nautical University to develop a zip code kiosk. The kiosk, placed in the hall before the TSA secu- rity checkpoint, asks passengers to enter their five-digit zip code. Data are then summarized by Embry-Riddle students for airport staff to use. The kiosk is clearly marked as being run by the Daytona Beach International Airport as part of its efforts to expand air service. The airport estimates that it captures zip code information for 25 per- cent of its passengers at the TSA checkpoint. Combined with mapping software, this tool has helped the airport understand from where in Florida it is drawing passengers. The data also help the airport authority better manage expec- tations with regard to a realistic catchment area to target. Data from the kiosk report also help the airport better understand its top inbound markets to the Daytona Beach area. With that information, the airport is better positioned to leverage the participation of hotels and local tourism agencies in developing financial and marketing-based incentive programs.
Benchmarking One of the most effective ways to gauge an airportâs relative strengths and deficiencies in air service development is to benchmark its catchment area demographics and air service with com- parable peer airports and their respective service areas. Benchmarking is a widely accepted busi- ness practice used to analyze progress against objectives and to compare the productivity and performance of one organization against others. Airports worldwide have adopted financial and quality of service benchmarking as a management tool to enhance efficiency, improve service, and drive down costs. Depending on a facilityâs number of staff, and their skills and experience, this type of project may be best conducted by an ASD consultant, who can create a quality sam- ple size from his/her airport client and contact lists. Airports Council International (ACI) has issued some reports on benchmarking that may be useful in informing an ASD teamâs approach and effort (10). ACI listed several categories of air- port performance that can be benchmarked: â¢ Traffic activity [e.g., total passengers (originating and connecting), total operations] â¢ Physical facilities (e.g., land area, runways, taxiways, apron; terminals, concourses, gates, park- ing spaces) â¢ Aeronautical chargesâairfield (e.g., landing and take-off fees, gates fees, environmental fees) â¢ Airfield, terminal, landside processing efficiency (e.g., runways, taxiway, aircraft processing efficiency; terminal passenger flows and processing efficiency) â¢ Aeronautical-related chargesâterminal (e.g., ticket counter space, loading bridges, baggage processing/handling, passenger lounges) â¢ Quality of community airline service (e.g., number of airlines, routes, and frequencies, aircraft types and fleet mix, competition and airfares) ACI also lists several other performance variables that may be useful to examine as well. Part of the challenge of an effective benchmarking exercise is determining which airports should be selected as peers. In many ways, that selection may depend on the particular interest of the ASD team. At a minimum, the ASD team should understand how its airline service met- rics rate against other airports in its immediate vicinity. Should a more in-depth benchmarking be needed, the ASD team may need to engage outside help either to analyze its own metrics or to get data on and analyze its airportâs performance against other facilities. Summary â¢ Before an airportâs air service can be improved, the ASD team needs a complete picture of the air service currently being provided and how well it is meeting the needs of the traveling public. Obtaining this complete picture involves assessing destinations, load factors, and how convenient and affordable flights are. â¢ After understanding the current situation at the airport, the ASD teamâs next step is to exam- ine demandâwho the major travel groups are in the community and where they travel. â¢ Assessing the facility is an important step. The airportâs physical plant characteristicsâon both the airside and the groundsideâcan also be critical determinants of whether carriers serve there, and whether passengers come. â¢ To obtain a realistic perspective on the service at the airport being evaluated, its demograph- ics, traffic, and operations are best compared with similar airports. Taking Stock of the Situation 71
The vast majority of airports surveyed did not have a separate budget for ASD activities. 72 Before establishing goals and selecting techniques, ASD teams must have a clear understand- ing of the resources availableâboth human and financialâfor advancing an ASD program. This chapter discusses the range of resources that may be available and the merits and potential draw- backs of each. For a community to undertake a proper ASD program and for that program to have a reason- able chance of success, it must be appropriately supported. Successful ASD needs both financial and human resources. Two general areas of financing are available to meet an airportâs ASD funding needs: revenues generated by the airport itself and revenues derived from other sources, such as private corpo- rations, tourism organizations, and government at various levels. The overall commitment of the (non-airport) local community to air service needs is reflected in the resources that it is will- ing to dedicate to ASD. The other critical resource that airports must have for an effective ASD effort is people with the expertise and commitment to help. Most small community airports have capable staff already working at the airport who can fill important needs. But to be successful, ASD efforts usually must rely on a task force or team approach that includes other local professionals and outside consul- tants. The skills and expertise that consultants can bring to ASD issues can be complemented by local professionals who bring the background and insight into the communityâs strengths. What sources of airport revenues may be available to fund ASD? The vast majorityâmore than 75 percentâof the airports surveyed did not have a separate budget for ASD activities. Most reported that their ASD efforts were part of the airportsâ mar- keting budget. Generally, marketing budgets are a subitem of an airportsâ operations budget. Airports have a number of different sources of potential revenue that could be used, at least in part, to improve their air service offerings. These sources include funds that would come from in-terminal revenue sourcesâsuch as passengers; airlines; concessionaires; advertisers; and air- line, airport, concessionaire, and government workersâas well as non-terminal sourcesâsuch as air freight companies, maintenance organizations, fixed-base operators, aircraft manufactur- ers, and land rentals. Airport Budgetary Sources Airports that accept any federal monies are restricted by law, regulation, and various agree- ments on how they can use revenues generated by airport operations. The Airport and Airway C H A P T E R 6 Identifying Available Resources to Enhance Air Service
Improvement Act of 1982, as amended [Title 49 USC Section 47101(b)], requires all airport owners and operators receiving federal assistance to use revenues generated by the airport for the capital or operating costs of the airport, the local airport system, or other facilities owned or operated by the airport sponsor that directly relate to the air transportation of passengers or property. Any other use of airport revenue is considered a revenue diversion. The law also requires airport operators to charge fees for use of the airport âthat will make the airport as self-sustaining as possible under the circumstances existing at the airport. . . .â The FAA has generally interpreted this provision of the law to require airport sponsors to charge fair market value rents for non-aeronautical uses of property. For aeronautical uses, the FAA requires airport operators to recover the airportâs cost of providing aeronautical services and facilities to users. Aeronautical use includes any activity that involves, makes possible, is required for the safety of, or is otherwise directly related to the operation of aircraft. The FAA is responsible for monitoring airport sponsorsâ compliance with airport revenue use requirements. The FAAâs âPolicy and Procedures Concerning the Use of Airport Revenueâ describes the prohibited and permitted uses of airport revenue and outlines FAAâs enforcement policies and procedures. Table 6.1 highlights some potential sources of revenue to support an ASD program. Passenger Facility Charges In place at nearly all domestic airports receiving airline service, PFCs have become one of the most significant sources of airport revenues, especially at many large- and medium-hub airports. At a maximum rate of $4.50 per enplaned passenger, even at smaller airports the total can grow very quickly. This funding source is most often used for so-called âbig ticketâ capital expenses, such as terminal or runway expansion projects. Other Financial Resources Other sources of revenue that are not derived directly from an airportâs operations may be available to support an ASD program. These include governments at various levels as well as local stakeholders, such as local resorts, economic development agencies or councils, and tourism organizations. Perhaps the most important sources of outside (non-airport) funding are private corporations and related associations. The Private Sector The most important contributions for ASD effortsâwhether financial or nonfinancialâ come from local businesses. The greater the involvement of private corporations, the greater is the likelihood of success in retaining existing or attracting new service. Corporations may be able to assist with funding ASD efforts. If the business travel needs of their employees are not being met, it can be in the best interest of local businesses to support improved air service. Corporations also can assist local ASD efforts by participating in task forces or providing information on the travel demands of their employees. Corporations often have the best knowledge regarding inbound and outbound business traffic in terms of numbers, destina- tions, average fares, seasonality of travel, and travel budgets. This information can be extremely valuable in helping an airline to understand a marketâs characteristics. The information can come from corporate travel departments, trade associations, and chambers of commerce. In particular, local businesses that are largely dependent on travel and tourism can be instru- mental in financially supporting ASD efforts. This can include resorts, hotels, convention/ visitors bureaus, and area attractions. They understand as well as anyone that improving air Identifying Available Resources to Enhance Air Service 73 The greater the involvement of private corpora- tions, the greater is the likelihood of success in retaining existing or attract- ing new service.
service can be in an entire communityâs best interests, and are thus often willing to underwrite ASD programs. In examining changes in air service with the contributions made by the private sector in sup- port of ASD efforts, the study team found a statistically significant relationship between the amount of resources contributed by the private sector to ASD efforts and changes in departures and passenger enplanements. In other words, as participation from the private sector increased, so did a communityâs air service. 74 Passenger Air Service Development Techniques tnemmoCmetI/yrogetaC Airside fees Landing fees One of the principal sources of revenue for an airport. Terminal rentals (a) Ticket counters (b) Gate holdrooms (c) Jet bridges (d) Baggage claim areas (e) Offices (f) Crew rooms These are airline expense items that, together or individually, can easily be quantified and subsequently waived for a period of time as an incentive for an airline to begin new or additional services at an airport. Terminal concessions (a) Restaurants: Whether fast food/take-out, table service, or sports bar, restaurants can generate a substantial amount of revenue for an airport. (b) Specialized services: These facilities cater to a relatively narrow group of travelers with specific business or personal needs. They include airline clubs, business centers, cell phone/Wi-Fi providers, post offices, medical services, and auto services. (c) Advertising: Various organizations see great value in advertising to a captive audience of airport passengers that generally have highly sought-after demographic characteristics. Advertising includes signs and video displays throughout the terminal. (d) Rental car fees: Revenues from this source can be significant because rental facilities tend to be land intensive. Many airports have upgraded their offerings to make the time that passengers spend in an airport more pleasant. Stores, restaurants, and services that passengers are acquainted with in convenient locations throughout the terminal can stimulate greater passenger use and increased airport revenues. Terminal concessions can also be a competitive advantage in areas where passengers have choices among different airports and a strong selling point when discussing possible new service with the airlines. Non-terminal concessions (a) Passenger parking: An airportâs parking facilities can generate a great amount of revenue if passengers perceive them to be easy to use, convenient and efficient. (b) Taxi, limousine, and hotel shuttle bus: The revenue derived from these sources may depend on the level of economic activity in the area immediately surrounding the airport. Fees include pick-up fees and waiting area rents. A wide array of other uses of airport property that are related to airline passenger travel can contribute meaningful amounts to airport revenues, especially the more land intensive among them. Other non-terminal concessions (a) Air freight facilities, usually including substantial ramp and loading dock space, for both passenger and all-cargo airlines (b) Maintenance facilities, including substantial ramp space, for both flight and ground equipment (c) Fuel depots that are most often overseen by either airlines (individually or in a group) or oil companies (d) Aircraft-manufacturing facilities require extensive hangar and ramp space as well as the use of the airportâs runways (e) Fixed-base operators with hangars and ramp space to cater to the needs of itinerant business or private aircraft (f) General aviation facilities for local private pilots (g) Hangars to store and maintain aircraft (h) Flight training facilities such as classrooms and simulators (i) Land uses that are not aviation related but are compatible with airport operations and can generate significant revenues for the airport. These may include industrial facilities that can benefit from access to the airport; farming that uses land set aside for noise and safety buffers but that would be incompatible with other uses in proximity to the aviation facilities, especially runways; and natural resources that can be extracted from airport land with little or no surface footprint. Table 6.1. Potential sources of revenue.
Airports can also partner with private organizations that are sources of information that will be valuable in attracting or recruiting air service by helping an airline to understand a marketâs characteristics. For example: â¢ Chambers of commerce can provide detailed information about a communityâs business environment, tax structure, and attractiveness to new businesses. â¢ Tourism organizations often have some of the best knowledge regarding inbound leisure traf- fic, including numbers of travelers, seasonality of travel, and the amount of money spent by such travelers. Convention & Visitors Bureaus (CVBs) may also be able to provide informa- tion on total visitor nights spent, rooms filled, trips made, and spending patterns. CVBs can be local or regional in nature. Local tourist attractionsâwhether historical, entertainment, natural, or otherwiseâcan be great sources of information. â¢ Travel agents can provide aggregate information about local travel patterns. Federal Government The federal government is likely to be the largest single provider of outside funding received by an airport. One can argue that much of what U.S.DOT and the FAA do supports air service development at small communities (e.g., providing air traffic control, making grants to airports for infrastructure improvement, or providing subsidies to carriers to operate the Essential Air Service program). However, the program that most directly supports ASD efforts at small and non-hub airport communities is SCASDP. SCASDP provides grants to help small communities achieve sustainable air service. Through fis- cal year 2007, U.S.DOT issued more than 200 SCASDP grants totalling approximately $100 million Identifying Available Resources to Enhance Air Service 75 CASE STUDY Colorado Springs The Colorado Springs Airport (COS) serves a catch- ment area of approximately 610,000 people and lies less than 100 miles south of Denver International Airport, a hub for United. The airport is served by eight airlines and handled over two million arriving and departing passengers in 2007. Colorado Springs Airport has made a concerted effort to attract additional business and economic growth. Chief among these efforts is the Colorado Springs Airport Business Park, which encompasses nearly 1,000 acres on the airport property. The park opened in 2005 and has attracted a number of aviation-related businesses. The business park is located 25 minutes from downtown Colorado Springs and 5 minutes from the airport terminal. The park is managed by a public-private partnership and offers businesses incentives such as a foreign-trade zone, enterprise zone, personal property tax credit, and sales tax exemption. A number of aerospace, military, and related businesses have located at the business park. In November 2007, Frontier Airlines announced that it would create a new maintenance base at the airport, with a 100,000- square-foot facility designed to handle maintenance of the mainline Airbus fleet. The $25 million project will take 12 to 18 months to complete and will serve as a base for 225 airline professionals. The City of Colorado Springs assisted in attracting Frontier to the airport with a tax-exempt special facility bond. Linked with the new maintenance facility, Frontier announced that it would commence nonstop service between Colorado Springs Airport and its hub at Denver International Airport, providing convenient, low-cost connections to cities across the country, as well as Mexico and Canada. Thus, Colorado Springs Airport was able to accomplish two goals: (1) generate additional business revenue at the airport and (2) increase airline service to the airport to achieve its ASD objectives. Frontier launched its Colorado Springs Airport service in April 2008. Airports can part- ner with private organizations that are sources of information that will be valuable in attracting or recruiting air service by helping an airline under- stand a marketâs characteristics.
to small and non-hub airport communities. SCASDP grants have ranged from $20,000 to $1.6 million and have funded a wide range of air service initiatives. Congress has recently been providing $10 million per year for SCASDP. In September 2008, U.S.DOT announced that it would award another $6.8 million in grants to 16 communities. Most of the grants provided have been used to fund var- ious marketing or revenue guarantee projects, according to a recently released report from the U.S.DOTâs Office of the Inspector General (11). State Government While state governments usually do not offer the same types or amounts of funding as the federal government, they can still play a vital role in assisting a community to attract new air service. Several states support their airports in vari- ous manners. Members of the National Association of State Aviation Officials (NASAO) organize, promote, and fund a wide variety of aviation programs across the nation. Many of those programs are more directed at planning, opera- tions, infrastructure development, maintenance, safety, and navigational aids, but some also support ASD efforts, espe- cially at smaller airports that receive commercial service. States also may be able to assist more indirectly through various tax abatement programs, economic development grants, and job training programs. ASD teams should be aware that pursuing any of these programs to help with air service development will require long-term sustained effort and an ability to deal with administrative complexity in return for a very uncertain payback. Local Government Most small airports tend to be operated by local governments, though some are entities of regional authorities. Airports tend to be self-sustaining enterprises to the greatest extent possible, so local government contributions to the airport may be relatively limited (e.g., to some employee salaries). However, local economic development authorities may contribute to ASD efforts. Military While not usually a source of funding, local military officials can be helpful in providing guid- ance regarding the travel needs of their personnel located near an airport. For example, bases that have significant training facilities and that may have benefited from the Base Realignment process may generate significant travel demand. This information may be somewhat general because of security reasons but is still of value. In-kind Contributions In-kind contributions do not require a cash outlay by the community but can nonetheless pro- vide an important benefit to the airport. The key is to identify the companies or organizations that are willing to make such contributions as part of a communityâs effort to attract new air ser- vice for the general benefit of the community. 76 Passenger Air Service Development Techniques Steamboat, Colorado In Hayden, Colorado, the Yampa Valley Regional Airport serves a catchment area of approximately 40,000 people. The largest city in the area is the resort community of Steamboat Springs. Yampa Valley Regional Airport lies 141 flying miles or 205 driving miles west of Denver International Airport. Traffic at the airport is highly seasonal; peak inbound demand and service occurs during the mid-December to early-April ski season. The Steamboat Ski & Resort Corporation has worked closely with other local businesses and the Yampa Valley Regional Airport for more than 20 years to increase airlift into the relatively remote resort area of northwest Colorado. The ski resorts them- selves contribute another $1 million annually in support of the same effort. The Steamboat Springs Chamber Resort Association is another active pro- ponent of ASD initiatives. The Steamboat Ski & Resort Corporation budgets $2.5 to $3.0 million in annual funds to support airline revenue guarantees and marketing. The Steamboat Ski & Resort Corporation has an employee who is dedicated to promoting the ASD needs of the community. This partnership has enabled the airport to strengthen its ties with the airlines serving the airport. Major initiatives undertaken with state assistanceâ such as tax abatement or job training programsâwill require long-term sustained effort.
A number of firms could provide financial support: â¢ Airport van companies, which could offer a certain number of free trips between the airport and area hotels for crews that overnight in the community â¢ Information technology companies, which might be able to provide free or reduced-rate ser- vices (for instance, installing computers at ticket counters and gates and in offices) to airlines starting service to a new community Identifying Available Resources to Enhance Air Service 77 CASE STUDY Fly Wyoming The State of Wyoming strongly supports and recog- nizes the importance of air service to its economy and its growth potential. It legislatively created an Air Service Enhancement Program in 2004 to support air service at the stateâs 10 commercial airports. The state appropriates $3 million annually for its WY Aeronautics Commission. Because the program has seen such positive results of enhanced air service in the state and much of the granted money has been reallocated back into the Air Service account, the program now receives $1.5 million annually. The commercial airports can apply for funds to enhance the level of air service but are required to match funds. Examples of how local airports have used the stateâs funding include: â¢ Upgrade equipment or increase frequency with existing carriers, â¢ Add new carriers and/or new hubs with Minimum Revenue Guarantees or risk sharing based on load factors, â¢ Assist airports in upgrading from a CAT IV to a CAT III classification, and â¢ Produce marketing and promotional endeavours for airlines providing new service to a Wyoming community. Another initiative made possible through the U.S.DOTâs SCASDP was the state-wide âFly Wyomingâ marketing campaign that highlights the convenience of local airline service to increase passenger awareness and use of Wyomingâs commercial airports. The state believed that efforts to enhance airline service were incomplete without a state-wide marketing component. Research revealed that air service in Wyoming was improving as a result of community initiatives and partnerships developed through the stateâs Air Service Enhancement Program. However, public awareness of the improve- ments was low, and the âFly Wyomingâ marketing campaign was developed to promote the positive aspects of flying into and out of Wyoming. The cam- paign is targeted at both in-state and out-of-state business and tourism travelers. The ultimate goal of the campaign is to facilitate increased airline service and ridership and to eliminate the perception that âyou canât get there from here,â for both in-state and out-of-state travelers. The $1 million campaign was funded 80 percent through the grant from SCASDP. The remaining 20 percent was funded through a combination of the Wyoming Aeronautics Commission, air service partner contributions, and a combined $100,000 in commitments made by 10 airports.
â¢ Ground handling companies, which could provide a certain amount of baggage, fuelling, or de-icing services â¢ Hotels, which may be able to provide discounted rooms for crews How much do other airports devote to ASD? The study team asked airports how much they devoted annually to their ASD efforts, includ- ing contributions from non-airport sources. Of particular interest was the scale of resources that airports of various sizes committed to ASD efforts, and how much the private sector was contributing. As Table 6.2 shows, reflecting their considerable differences in air service activity and the amount of economic activity in the surrounding area, small hub airports were generally able to provide more airport-originating funds than non-hub airports for ASD efforts. Contri- butions from the private sector and the federal government tended to be greater for non- hub airports. What types of human resources are needed for successful ASD efforts? Having access to knowledgeable and talented human resources is critical to being able to keep existing air service and attract new service. These are the people that deal with the airlines and the public on a day-to-day basis and thus understand what both constituencies need to make the airport work for them. Many smaller airports have some in-house staff with the background and expertise needed for ASD programs, but many more do not. The surveyed airports relied on both in-house staff and local professionals to manage their ASD efforts. Most employed ASD consultants to provide the sort of analytic expertise and assistance that the airports do not have available. Figure 6.1 summarizes the results from that survey. 78 Passenger Air Service Development Techniques Category of ASD Resources Hub size Airport âCoreâ Resources1 Airport âExtraâ Resources2 Private Sector Contributions Federal Contributions Non-hubs $53,000 $100,000 $350,000 $500,000 Small hubs $125,000 $125,000 $250,000 $480,000 All hubs $70,500 $100,000 $325,000 $500,000 1 âCoreâ resources are financial resources devoted to ASD-related salaries, data costs, and other expenses normally associated with basic ASD, such as conference attendance and travel costs to visit airline headquarters. 2 âExtraâ resources are those affiliated with particular types of incentive programs, such as minimum revenue guarantees, subsidies (e.g., fee waivers), and marketing efforts, particularly where airport funds are used to match non-airport funds. Note: The numbers are not additive. For example, not all airports received federal assistance, and not all applied resources to âextraâ ASD efforts. Thus, one should not add the numbers across and suggest that the median amount of resources applied to ASD by all hubs in the survey to be $995,500. Source: InterVISTAS survey of airports conducted in the fall and winter, 2007-2008. Table 6.2. Median amount of resources applied to ASD, by hub size and category of assistance.
Staff Expertise Most airports have staff members who have a great deal of experience in the primary job func- tions necessary to attract new air service: â¢ Marketing personnel can help an airport understand which travelers are already using its facility and how to convince those who arenât doing so to reconsider their travel habits. â¢ Public relations personnel are crucial to helping an airport get its message out to its current and potential travelers as well as to its key stakeholdersâlocal or regional government, air- lines, travelers, and its employees. â¢ Airport operations personnelâsuch as police, fire, and airfield maintenance teamsâare vital to the smooth running of the airport itself, which is fundamental to many carriersâ interests in launching new service at a community. â¢ Accounting personnel are necessary for an airport to understand its revenue-generating capa- bilities as well as the costs associated with its continued operationâfigures that potential new entrant airlines will want to understand. â¢ ASD professionals would coordinate the talents available at the airport, help organize the community in support of air service, and conduct the analyses that are critical to convincing an airline to continue its operations or begin service. However, most small community air- ports do not have staff with this expertise available in-house. Outside Resources Small airports donât have to do the work of attracting new air service alone. There are many ways for them to expand their ASD teams to take advantage of the unique capabilities of non- airport people and organizations with specialized expertise. These people and organizations have different talents that are not often available among airport personnel. Identifying Available Resources to Enhance Air Service 79 0% 20% 40% 60% 80% 100% Marketing professional Mayor or local gov't official Other Consultants Airport staff Figure 6.1. Percentage of ASD teams with in-house staff and other professionals.
ASD Consultants Air service consulting firms exist to bring new air service to their client communities and air- ports. They are staffed with experienced professionals with vast aviation industry knowledge and numerous industry contacts. They also have the technical expertise in route traffic and financial forecasting and in developing presentations that communities can give to airlines. Virtually all ASD consultants have worked for at least one (and often several) airline, airport, trade association, or manufacturer at some point in their career. Thus, they have first-hand, inside knowledge about how the industry looks at market possibilities. They generally under- stand what is required to attract the attention of a target airline and what the airline wants to see in a presentation by a community or airport. Consultants can also help assemble, analyze, and package information about the local marketâ data that the airlines generally do not gather themselves. Information about local economic conditions can be important in an airlineâs decision-making process because it gives insights into a communityâs underlying economic strength. Consultants also bring unique skills and expertise to ASD issues: â¢ Domestic and foreign airline industry contacts. The universe of people who deal with ASD issues for airlines and airports is relatively small. ASD consultants who have progressed through the aviation industry during their careers have developed contacts through profes- sional interactions. These contacts can include staff who handle route/network-planning responsibilities at various airlines. Such contacts ease the process of arranging meetings and can improve the communication between airports and airlines. â¢ Understanding of the data. Understanding the data is one of the most important requirements for an ASD consultant because it provides the basic foundation of a traffic and financial forecast that is presented to an airline. Consultants are experts at working with traffic, yield, operations, and financial data; information from myriad industry databases; and company financial reports. â¢ Forecasts accepted by airlines. The experience gained by ASD consultants throughout the course of their careers gives them a broad understanding of the type of information desired by airlines when considering new service at a community. This is reflected in the consultantâs previous success in helping attract new service on behalf of other airports. Local Professionals Local professionals usually have a keen understanding of the most important characteristics of and changes in a community. This insight is often the type that airlines cannot obtain simply by looking at data that they have immediately available to them. Local professionals can also pro- vide some specialized services in or oriented to the local market that the ASD consultants might not be equipped to provide, such as local media, marketing, and public relations. Focused Airport Support Task Force ASD task forces are able to bring together individuals, corporations, and other organizations that have an interest in keeping a communityâs existing air service and attracting new air ser- vice. It can help to convince an airline that the local community truly supports their airportâs efforts to attract new air service. These task force members usually come from a wide variety of local organizations: â¢ Major local corporations usually generate higher-yield travel and have travel patterns that can help to determine needed routes. â¢ City/county economic development authorities help to generate new local businesses and inbound travel. 80 Passenger Air Service Development Techniques Most consultants have professional experience with an airline, airport, trade association, or manufacturer. They will have inside knowledge on how the industry looks at market possibilities.
â¢ Convention and visitors bureaus, and tourism authorities understand the inbound business and leisure markets. â¢ Hospitality industry consists of mainly hotels and restaurants. â¢ Chambers of commerce are forums where local businesses can jointly provide guidance regarding their air service needs. Summary â¢ ASD programs must be supported by adequate financial and human resources. â¢ Financial support may be available from numerous sources, including airport operations budgets, the local business community, federal grants, state programs, and other area stake- holders. â¢ In-kind contributions and other partnerships also can be valuable resources for ASD teams. â¢ Successful ASD teams comprise a range of professionals who contribute specialized skills. These professionals may include in-house airport staff, consultants, or other local professionals. â¢ Engaging an ASD consultant taps into a wealth of industry knowledge and contacts and helps focus ASD efforts. â¢ A broad-based airport support task force can be extremely valuable in building support forâ and establishing the credibility ofâASD programs. Identifying Available Resources to Enhance Air Service 81
The community should be an inte- gral part of develop- ing ASD goals. 82 Defining goalsâexactly what type of air service improvements a community is seekingâis the heart of an ASD program. Ensuring that those goals are realistic is vital to actually achieving them. This chapter discusses the major types of ASD goals and the conditions under which they might be appropriate for a specific airport. It also provides techniques for validating goals through an objective reality check. What is the overall process for identifying goals? Air service goals must be developed within the context of how the industry is performing and its emerging trends, as discussed in Part I of this guidebook. Considerations include changes to airline business models, external factors that affect carriersâ costs, and regulatory changes that may affect ways in which air carriers can expand. Understanding the aviation industry is essen- tial not only for establishing goals, but also for prioritizing actions as shorter term or longer term. The community should be an integral part of developing ASD goals. The ASD teamâs role is to effectively communicate the market assessment and industry knowledge to the community as context for the goal-setting process. When the community is appropriately informed and involved, their input is more valuable and their ASD expectations are more realistic. As discussed in Chapter 6, the best way to involve the community in ASD is to work with key stakeholders on a regular basis. Pursuing ASD goals should always begin with an airportâs incumbent carriers. Incumbent carriers have a good understanding of the communityâs traffic patterns and are a first line of opportunity for adding new serviceâwhether more frequencies, larger aircraft, or most commonly, service to a new point or connecting hub. However, service from incumbent air carriersâwhether a mainline network carrier, an LCC, a regional affiliate of a network carrier, or a low-fare niche carrierâcan be a double-edged sword for ASD efforts. The service is a great marketing tool for the airport if it is heavily used and the carrier has expanded service over the years. However, the service also could be relatively unchanged over time. Pursuing new air service with incumbent carriers can be difficult at times, particularly because a small airportâs ultimate goal is to expand its frequency and pricing options. Usually incumbent carriers at small airports have been sustainable over time due to loyalty, attractive flight schedules, and connectivity to hubs (and beyond destinations) that are of interest to the community. If the incumbent carrier is unwilling to expand at the airport or does not serve the target des- tination, then the community will need to pursue a new carrier. Adding service may be appeal- ing for additional network carriers who have hub structures because a new connection from the airport may introduce new connections and shorter itineraries to an array of destinations. If an C H A P T E R 7 Establishing and Validating ASD Goals
incumbent carrier has not responded to the airportâs need to keep fares lower than or competi- tive with those available at similar-sized airports, the community may want to seek a low-cost or niche carrier. Finally, ASD teams must remember that each air carrier that either serves the community or is a target for new air service has a specific business model and operates differently than other carriers. ASD teams must tailor their goals to the unique circumstances of their market and the air carriers they are targeting. What are the categories of ASD goals? The airports surveyed identified several general categories of ASD goals: â¢ Retaining existing service â¢ Adding service to a new destination â¢ Adding frequencies to current services â¢ Lowering fares/introducing new competitive service â¢ Improving service reliability â¢ Upgrading aircraft â¢ Increasing access to global networks Retaining Existing Service Retaining existing service by incumbent carriers was the top goal identified by the airports sur- veyed (Figure 7.1). Retaining service is important in and of itself and also for an airportâs ability Establishing and Validating ASD Goals 83 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% Retain Existing Service Add Service to Other Hubs Add Frequencies Lower Pricing Improve Service Reliability Upgrade Aircraft Used Percent of airports surveyed Figure 7.1. ASD goals for incumbent carriers.
to recruit additional or expanded service. Retaining air service is necessary for both the business and leisure sectors of air service markets. In fact, in the current environment, retaining existing air service may be the most impor- tant goal for many smaller communities. It should not matter whether an airport is 200 miles away from a competitor or within 40 miles of three airport competitors; an airportâs ability to retain air service will always help the ASD team develop new service with incumbent carriers. The industryâs overall financial condition, potential mergers or consolidations, labor issues, changes in fleets, and proposed congestion pricing at some airports are among the many rea- sons that existing air service may be re-examined by air carriers. If the incumbent air carrier has warned the ASD team that a route may be underperforming, service at the airport may be threatened. If an airline announces that it intends to restructure its hubs or fleet, smaller communities need to understand the implications for retaining air service: â¢ A major air carrier closing one hub (e.g., St. Louis) and shifting traffic to another affects an ASD teamâs goals because the new hub may be more congested, ultimately affecting the travel experience for those using the small airport. However, small communities are better off if traf- fic is reassigned to a new hub than if all air service is lost. â¢ A regional carrier deciding to remove a certain aircraft type from its fleet or reassigning a fleet to a different hub can lead to a change in ASD goals as well. Todayâs environment of high fuel costs makes it even more critical to monitor air carrier fleets and related impacts on ASD goals. The possible negative impacts of losing incumbent carrier service should be a stark warning to small airports nationwide. In response to the deteriorating economy, several airlines announced withdrawals from markets that they had served for many years (see Table 7.1). Although an incumbentâs leaving may open the door to a new entrant, small airports will face additional hur- dles in overcoming negative market impressions that either the community is too small to sup- port service or that the market is too competitive for a carrier to have sustainable business. If the incumbent has served the marketplace for many years, it will be difficult for the community to argue for another carrier to enter the market. If the incumbent has been in the market for only a short time, the community can argue that the problem was due to the carrierâs marketing plan, or that the air carrier simply did not give that route enough time to turn a profit. Short-term stays on routes by incumbent carriers could have been caused by an air carrierâs reorganization, either for financial reasons or fleet changes. Adding Service to a New Destination Successful ASD teams understand the balance of continuing to work to retain air service while developing new services. Now more than ever, communities realize that bringing in service that 84 Passenger Air Service Development Techniques Location Airline Pulling Out Service Cut Toledo US Airways 2004 Newburgh, NY American 2007 Bakersfield American 2001 San Luis Obispo American 2008 Sarasota Continental 2008 Fort Wayne US Airways 2004 Hilton Head Delta 2008 Table 7.1. Markets that lost incumbent carrier service over the last five years (service lasted a minimum of five years). Why work hard to retain current air service? â¢ Serves as a key marketing tool in developing new services â¢ Helps maintain links needed between airport and business community The possible negative impacts of losing incumbent carrier service should be a stark warning to small airports nationwide. Hurdles grow exponentially if an airport loses all scheduled service.
will directly compete with their current services could be harmful to the sustainability of their market. ASD teams need to consider a number of issues: â¢ Will new air service significantly overlap with the airportâs existing service from other carriers or make its current service less sustainable? â¢ Will service to a different connecting hub create a new directionality of air travel out of the ASD teamâs community? â¢ Will service to a new connecting hub create many new one-stop opportunities? Are these new opportunities important for passengers within the airportâs catchment area? â¢ Will new service improve the customer service experience for the airportâs passengers? â¢ How will new service affect the potential that the community has for attracting new entrant carriers? Small communities often need to pursue new air service because of changes to the mainline carrierâs hubs. After Delta closed its hub at Dallas/Fort Worth International in September 2004, some communities in the Midwest sought new westward connections via Deltaâs Salt Lake City hub. Similarly, after US Airways downsized its Pittsburgh operation in November 2004, the air- line shifted service from many small communities to Philadelphia International. However, for some communities, that was a directional backflow. In addition, the flights increased the level of congestion at Philadelphia International. For many of these communities, a new goal of adding air service to US Airwaysâ hub at Charlotte Douglas International offered a realistic alternative to supplement Philadelphia services. Incumbents will scrutinize the goal of service to a new destination. They understand that adding new service will divert current passengers and revenue from the existing service. By assessing the situation through the techniques outlined in Chapter 5, an ASD team should iden- tify traffic and revenue dynamics that help support the argument that expanding incumbent air service will add incremental benefits. ASD teams also need to account for competitive service offerings at nearby airports. The recent loss (or gain) of air service to a particular region or from an air carrier at those nearby air- ports will affect the opportunity of the ASD teamâs community to add new service. ASD teams should assume that if their airport is working toward developing air service by an incumbent to a new location, and if competitive airports have the same incumbent carrier, then those airports may have the same air service goals as well. Understanding that likelihood enables ASD teams to be better prepared to campaign for new service. In the survey of ASD teams, gaining new service to a new destination was a top motivator for seeking service from new air carriers (Figure 7.2). Surveyed airports were essentially evenly split between obtaining that service from an LCC or a legacy carrier. Communities simply wanted the new nonstop destination. Bringing in LCC service as an alternative to existing ser- vice has also been a major goal of small airports because of the fare dynamics and community feedback. Adding LCC Flights to New Destinations Lower fares entice both business and leisure travelers to larger, more distant airports where more carriers offer services. Because of this price differential, many small airports ranked very high the goal of bringing a low-cost carrier into their market. LCCs do not have a history in small communities. Rather, LCCs tend to serve only airports in or around larger metropolitan areas, which provide a critical mass of passenger traffic and an ability to enter markets with multiple frequencies. Thus, small communities are less likely to have service from carriers such as Frontier Airlines, Southwest Airlines, JetBlue Airways, and AirTran Airways. Establishing and Validating ASD Goals 85
Still, certain small communities have been successful in gaining LCC services. In many of these examples, that service has been into a connecting hub (i.e., Frontier and its regional partners adding services to Denver or AirTran adding service into Atlanta and Orlando). A significant amount of passenger leakage from small communities to larger airports is due to the availability of lower-fare services to key leisure and business destinations. Connecting small communities with key leisure markets has long been a challenging goal. Hub networks, the lim- ited range of turboprops, and airline business models prohibited these services from fully grow- ing. The current marketplace has seen a growth in these types of connections due to new busi- ness models from niche carriers, a changing regional aircraft fleet, and new marketing techniques by airport communities. One such niche carrier, Allegiant Air, has been developing a route network that connects top leisure destinations (Las Vegas, Orlando, Phoenix, Tampa Bay, and South Florida) to small com- munities with less-than-daily service (Figure 7.3). Allegiantâs use of relatively large aircraftâ older MD-80s (see Figure 7.4)âworks in part because it does not operate those routes on a daily basis. Small-community ASD teams throughout the country that are losing access to key net- work hubs and experiencing high average fares regard attracting Allegiant and similar niche car- riers as a potential goal for their community. Unique service patterns that rely on point-to-point traffic have created opportunities for small communities, which mostly rely on hub connectiv- ity. Survey respondents around the country have identified niche carriers as a way to proactively expand service, while making it sustainable due to new and creative partnerships between the air carrier and the community. Figure 7.5 illustrates how new niche LCC service at Roberts Field-Redmond (Oregon) Municipal Airport stimulated local traffic to Las Vegas. Allegiant Air introduced twice weekly nonstop services to Las Vegas in March 2007. In response to Allegiantâs low fares, traffic in the Las Vegas market doubled. Average fares in the market dropped by 30 percent. 86 Passenger Air Service Development Techniques Figure 7.2. ASD views on goals for new entrants. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% LCC nonstops to new markets Legacy nonstops to new markets LCC competitive alternative to existing service LCC access to key leisure points Legacy: competitive alternative to existing service Other Legacy: other access to key leisure market Percent of airports surveyed
Establishing and Validating ASD Goals 87 Figure 7.3. Allegiantâs system connects smaller community airports with major leisure destinations. Source: Image courtesy of Allegiant Air. Figure 7.4. Allegiantâs 150-seat MD-83.
88 Passenger Air Service Development Techniques Developing New Legacy Carrier Service to New Destinations If an airportâs market assessment indicates that LCC service is unlikely in the near term, the ASD team should examine service from a new network carrier. The business traveler mix may be strong and showing signs that it could grow if more services were added. For these airports, adding new service on another legacy carrier to a new connecting hub becomes a realistic goal. Service to a different hub may also introduce new connections that were previ- ously unavailable. In addition, as noted previously, when a major carrier reorganizes its hubs, small communities may need to develop strategies to move their traffic and service over a dif- ferent hub. CASE STUDY Akron-Canton Airportâs recruiting an LCC Akron-Canton Airport (CAK) in North Canton, Ohio, is a small hub airport in northeastern Ohio that serves as an alternative airport to the Greater Cleveland metropolitan area. The airport has a marketing campaign that follows a set of realistically developed ASD goals. Prior to 1996, Akron-Canton Airport was served by four carriers with nonstop service to four locations. In the early 1990s, airport management decided to start working toward increasing enplanements by bringing in low-cost air service to northeastern Ohio. The area around Akron-Canton is fiercely competi- tive with Cleveland Hopkins International Airportâ 55 Interstate miles to the northwest (a hub for Continental Airlines)âand Pittsburgh International Airportâ110 Interstate miles to the southeast (then a hub for US Airways). In the mid-1990s, nearby Youngstown-Warren Regional Airportâ65 Interstate miles to the eastâwas also served by three carriers to three locations. Akron-Canton Airportâs initial goals were to attract a low-cost carrier to the market for either business or leisure destinations. After hard work, the airport wel- comed AirTran Airways with service to Orlando. In April 1997, the airport attracted ValuJet Airlines with an average of three flights a day to Atlanta. After ValuJet and AirTran merged, their services to Atlanta and Orlando continued under AirTran. In the face of this new low-cost competition, Delta Air Lines added additional service to Akron-Canton in August 2001. The airport was still under a million passengers at this point but maintained realistic goals of developing air service. After the events of September 11, 2001, Delta con- verted its services out of Atlanta from mainline aircraft to CRJ regional jets. Akron-Canton Airportâs next ASD goal was to develop new low-cost service to key business-focused markets. The U.S.DOT awarded the airport a SCASDP grant in 2003 which helped AirTran commence service to New York LaGuardia in 2004. With an overwhelming response from stakeholders, CAK was able to apply all of the grant funds to market- ing (i.e., none were used in the revenue guarantees). With an amended agreement, CAK was also able to apply some of the SCASDP funds to support AirTranâs service to Boston. At the end of the agreement cycle, CAK returned $230,000 to U.S.DOT. The success of the program with AirTran helped CAK proactively look to its next goal of creating new westward low-cost service for both the airport and its community. Service by Frontier Airlines to Denver began in June 2006. With the downturn beginning in 2008, CAK focused on retaining its existing service. However, the airport has set some new goals that include working toward limited international service to nearby regions such as Canada, Mexico, and the Caribbean. The airportâs goals are not âpie-in-the-skyâ by any means. The ASD team realizes that, as a small alter- native airport in a large metropolitan area such as Greater Cleveland, CAK can have two low-fare carri- ers, but only with hard work. CAK has effectively developed itself as a low-fare, small facility, easy-to- use gateway for Northeast Ohio residents.
Establishing and Validating ASD Goals 89 $0 $20 $40 $60 $80 $100 $120 $140 $160 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2002 2003 2004 2005 2006 2007 Average FarePassengers Annual Passengers Average Fare Source: InterVISTASâ analysis of U.S.DOT data. Figure 7.5. Allegiantâs entry at Redmond Municipal Airport doubled traffic to Las Vegas. CASE STUDY Expanding service with other network carriers Airports often seek service from different network carriers if they are looking for more connections to the global marketplace or if the current service is unsustainable due to delays or unfavorable routings. In 1997, Northwest Airlines decided to bring new service to three markets in Central Pennsylvania and Southern New York. These markets included Binghamton, New York; Elmira-Corning, New York; and State College, Pennsylvaniaâmarkets previously served only by US Airways to its Pittsburgh or Philadelphia hubs. These communities were ecstatic to see a new carrier enter their market because it meant access to a large Detroit hub that serviced des- tinations throughout North America, Europe, and Asia. The number of connections made in Detroit far outnumbered those made at the hub in Pittsburgh. Northwest developed these services over time, upgrading some from turboprop frequencies to regional jets. In 2002, US Airways entered bankruptcy reorganization and eventually made the decision in 2004 to shutter its Pittsburgh hub. US Airways shifted some of the Pittsburgh service to Philadelphia. The problem, however, was that US Airwaysâ connections over Philadelphia forced travelers into a directional backhaul and increased airspace congestion in the Northeast. Communities that had obtained service from Northwest suffered less of an impact because access to Detroit provided east-west flows. Northwest later added two more similar small communities to its Detroit hub portfolio in 2005âLatrobe, Pennsylvania, and Ithaca, New York. This example shows that for many small communi- ties an important goal may be improving the types of new entrant hub connections that can be made in their market, both in the short term and longer term.
Adding Frequencies to Current Service The greatest need for some communities may simply be additional frequencies on existing routes to help fill out service patterns and provide more connection opportunities at hubs. Developing more demand from the community through additional frequencies in the short term will also help attain new services in the long term. Because small airports generally face challenges in fare and capacity competition from larger airports, the goal of adding frequencies is usually to attract more business travelers. Connecting hubs have various banks of departing and arriving flights. By expanding access to those banks at the hub, the ASD team is incrementally giving its passengers additional opportunities for con- nections. Adding frequencies from niche carriers that may have less than daily service to a des- tination with no onward connections also can be an important ASD goal for a community. Lowering Fares/Introducing New Competitive Service Lowering Fares for Existing Service Small airports clearly offer passengers the ease of parking convenience, shorter lines, and shorter driving distances. Relatively high prices on airfares, however, are typical and often a key factor that causes passengers to use other airports. The extent that high airfares affect passenger traffic depends mainly on the geographic loca- tion of competing airports. In fact, even airports three hours away from a large hub airport should be concerned with airfares. Customersâespecially leisure passengersâare typically will- ing to make long drives in order to get cheaper prices. Airports that are within driving distance 90 Passenger Air Service Development Techniques CASE STUDY Adding frequencies to an existing location Dickinson Theodore Roosevelt Regional Airport (DIK) in North Dakota services western North Dakota, east- ern Montana, and northwestern South Dakota. With approximately 8,500 annual passenger enplane- ments, service at DIK is supported by the Essential Air Service Program. Although the airport is small, it still provides a lesson in how a community can add fre- quencies with an incumbent. In the early 2000s, Dickinson had two daily flights to Denver International Airport provided by Great Lakes Aviation, a code-sharing partner with both United Airlines and Frontier Airlines. Great Lakes operates the Embraer 120 Brasilia, a 40-seat twin- turboprop aircraft, for service between DIK and Denver International. Both Great Lakes and Dickinson Airport officials noticed an increase in demand traffic due to the oil sand exploration in western North Dakota. The airport and air carrier held strategic discussions to discuss ways to develop a third frequency. Both agreed that the airport should pursue a SCASDP grant to help support a third daily flight to Denver. With support from a U.S.DOT SCASDP grant in 2004, Great Lakes was able to operate a third roundtrip from June 2004 through December 2004. This trial period proved to be a great success. After the trial period Dickinson went back to two round trips a day. In November 2006, through the Essential Air Service Program, Great Lakes and the airport were granted three roundtrips. The basis for the increase was how well the third roundtrip was utilized during the trial period. The third roundtrip started in February 2007. It was immediately embraced by the community and during 2007 the airport saw a 40% increase in enplanements. Through October 2008, both total traffic and load factors increased compared to 2007, with October enplanements nearly 20 percent above October 2007 levels.
of a connecting hub also face price pressure because certain passengers may choose to drive to the hub rather than take a connecting flight. With gas prices and hotel costs increasing, it is espe- cially important that smaller airports make efforts to keep their prices competitive. The higher average airfares in small communities are generally due to the lack of competition in those markets (2). Airport officials and ASD teams nationwide are fully aware of the difficulty they face in trying to lower their average airfares. This awareness may be the reason why airports ranked lowering prices in the middle of their team goals. It is understandable that ASD teams would want to pursue lower prices as a goal, but the reality is that price competition from nearby airports and their air carrier offerings are difficult to overcome. Many small airports are focused on increasing service, frequency, and air carriers in hopes that new competition may spur lower prices. Introducing a Low-Cost Carrier In the cases of many small communities, the incumbent carrier may not be willing to intro- duce significant changes. Incumbent carriers typically favor playing it safe and keeping current hub connections in place. These current services to the hub are probably attracting an adequate level of passengers, making a revenue contribution to the carrierâs network, and providing pas- sengers with reasonable connectivity to the global network. Establishing and Validating ASD Goals 91 The Barkley Regional Airport (PAH) serves Paducah, Kentucky, and has a catchment area that includes western Kentucky, southern Illinois, southeastern Missouri, and northwestern Tennessee. The only scheduled carrier in the market is Northwest Airlink to Memphis International Airport. The airport previously had service to St. Louis and Nashville when those airports were larger regional hubs. Lowering prices remains a major goal of Barkley Airport to retain air service and to market the airport for potential future expansion of air carriers and destinations. Barkley Airportâs leakage is mainly to Nashville International Airport (150 miles away) due to lower fares being offered by LCCs and greater access by legacy network carriers. The Barkley Airport staff is aware that it has no control over the fares that Southwest Airlines can offer out of Nashville; how- ever, to inform the traveling community of how com- petitive its fares and service are and to help retain business passengers flying out of its airport, the staff developed an approach called BestFares. Understanding that Northwest serves both Paducah and Nashville over Memphis, the staff regularly tracks the differences in fares between both cities. The BestFares project tracks fares to the top 25 markets and includes an analysis on fuel costs and Nashville International Airport hotel costs. BestFaresâ focus changes weekly. One week the BestFare may be to New Orleans, the next to Houston, Texas. It may also show an increase or a decrease in comparison to other months. The airport sends its BestFares report to six Chambers of Commerce in its catch- ment area. The airportâs ability to educate its com- munity on the total costs of driving the 150 miles to Nashville has been valuable to key passengers using its Northwest Airlink service. It also has generated interest from the community in expanding air service at Paducah. Paducah has supplemented its BestFares effort with a communication link to sales staff representatives at Northwest Airlines to further understand fare dynamics. The airport and air carrier have come to many agreements on âright-sizingâ fares in certain markets to increase reservations on key hub con- nections. These agreements have proven to be mutually beneficial to both the community and Northwest. CASE STUDY Paducah, Kentuckyâs fare comparisons against Nashville
While small communities need to maintain positive relationships with incumbent carriers to stimulate fare competition, they may need to introduce service from LCCs with networks that rely on hub connectivity, such as Frontier at Denver and AirTran at Atlanta. Examples of new service provided by such LCCs include Frontierâs service at Hector International in Fargo (com- peting with United) and AirTranâs service at Charleston (South Carolina) International (com- peting with Delta). Seeking LCC service does not necessarily mean that the airport seeks to eliminate its current services. Every small community wants to keep both their network carriers and their LCCsâ Delta and AirTran, Frontier and United, and Allegiant and US Airways. But pursuing LCC ser- vice can create a conflict between the stability provided by network carriers and the possibilities raised by LCC entry. Introducing Competition by Legacy Carriers The majority of growth by legacy network carriers at small communities has been to connect- ing hub complexes. In todayâs marketplace, not many destinations can sustain competing ser- vice on two legacy carriers. The only exceptions are either large airports with more than one hub carrier such as Chicago OâHare (hub for American and United) or large multi-airport metro- politan regions where different legacy carriers fragment markets (e.g., New York City; Los Angeles; Washington, DC; etc.). Small communities understand the nature of nurturing current services, supporting market growth, and thereby stimulating an expansion of services to other connecting hubs. If a community such as Lincoln, Nebraska, already has service to MinneapolisâSt. Paul on Northwest Airlink, then it is not going to attract a competing legacy carrier to the same market. Communities have tried to access markets such as Chicago OâHare, Los Angeles, New York LaGuardia, and Washington National with more than two carriers but are often thwarted by burdens of market access, com- petitive strength, and slot availability. In most cases, seeking services to other hubs by legacy carriers is a more achievable goal. Complementing Existing Service A community is more likely to attract new air service to its target market if that market cur- rently receives only connecting service. That is, if the only service available between Point A (the communityâs airport) and Point C is via one or more intermediate hubs B, then the community airport stands a better chance of convincing an airline to serve that market on a nonstop basis. Few small communities can generate enough passenger traffic to support two airlines com- peting to provide nonstop service to a particular destination. In addition, there are an equally small number of situations where two carriers are logical choices to offer nonstop service in the same market from these communities. Introducing new nonstop service, on top of existing non- stop service, will likely harm relations with the incumbent airline and could also provoke a com- petitive response (see the following subsection). But the main reason nonstop service in a new market is more likely to be successful is because it will have a greater impact on the communityâs travelers by making another market much eas- ier to reach. It could also have the effect of introducing another airline, and potentially another airline alliance, to the community with all of the competitive benefits that that would entail. Anticipating the Likely Competitive Response An airport should understand that new service will likely generate some form of competitive response from its current carriers. But that should not impede efforts to attract new services and carriers to a community. As long as the proposed new services can reasonably be expected to be supported by the communityâs travelers, the airport can at least reasonably discuss the situation 92 Passenger Air Service Development Techniques
with its incumbents. The airport needs to anticipate what the reaction will be and how its pas- sengers might react. That can affect the ultimate viability of the service. Responses by incumbent airlines. Responses by airlines already serving your airport can vary widely depending on the nonstop market being entered, the incumbent carrierâs position in that market, the aircraft type to be used, and the importance of the revenue generated by the marketâs traffic to the incumbent. An incumbent carrier might make no competitive response at all if, for example, the target market is in a different region of the country than the current airline serves (at least on a non- stop basis). For example, Alaska Airlines/Horizon Airâs response at Redmond, Oregon, to Deltaâs entry from its Salt Lake City hub appeared generally passive; the two carriers did not compete in any nonstop markets, as Alaska/Horizon concentrated on the West Coast markets of Seattle, Portland, and Los Angeles. An incumbent may alter its frequencies or aircraft capacity in a market upon the entry of a competitor. For instance, in both of the Bloomington (Illinois) and Wichita to Atlanta markets, Delta increased the number of its flights in each market when AirTran began serving them. Similarly, Delta upgraded some of its flights from RJs to mainline jets in both the Mobile and Pensacola to Atlanta markets upon AirTranâs entry. In similar situations, the response may not entail service changes but may include fare actions to be competitive with the new service offering. For example, after JetBlue launched its nonstop service from New York JFK to Long Beach (California) Airport, American responded by match- ing the fares and offering double frequent flyer miles. In dramatic contrast, the response by an incumbent carrier facing nonstop competition for the first time, especially to one of its hubs, could be a virtual declaration of war to protect its mar- ket (and market share) at all costs. The most determined of such responses is sometimes consid- ered to be Northwestâs reaction to Reno Airâs inauguration of nonstop service in the Reno to MinneapolisâSt. Paul market in the early 1990s where U.S.DOT became involved to moderate Northwestâs actions. Similarly, Northwest defended its Michigan turf when Independence Air began flying between Washington Dulles and Lansing (Michigan) Capital Region International Airport. Even though Northwest did not originally operate in that market, it treated Lansing as if it were a hub route and put significant capacity into the market (which had never had nonstop service prior to Independence Airâs arrival), eventually helping to force Independence Air to abandon the market. Responses by airlines serving competing airports. New service at some smaller communi- ties could trigger a competitive response from airlines at nearby airports, especially if the two air- ports have overlapping catchment areas and the competing airports have larger population bases. A good example of this phenomenon occurred at Baton Rouge Metropolitan Airport after Delta Connection launched new nonstop service to Orlando International in 2003. Both Southwest and AirTran increased their own service to Orlando International from New Orleans International (about 70 highway miles from Baton Rouge). While Deltaâs Baton Rouge to Orlando service lasted for several years, it was eventually dropped because of the continued and growing competition at New Orleans, as well as Deltaâs significant reduction in its point-to-point flying in 2007, as illustrated in Figure 7.6. Another potential response at competing airports could involve leisure destinations such as Orlando and Las Vegas that may be perceived to be interchangeable. The theory is that there is only a limited amount of leisure demand at most smaller airports, so more service to leisure destinations from a nearby airport could fragment the smaller airportâs demand for such service and render its leisure destinations unprofitable, causing that service to be discontinued. Establishing and Validating ASD Goals 93
For example, Allegiant recently ended its twice-weekly nonstop service from Lincoln to Las Vegas. Southwestâs three daily nonstop flights to Las Vegas from Omaha, about 60 highway miles from Lincoln, may have contributed to Allegiantâs decision to drop its less frequent service. Improving Service Reliability In a magical world, every airline would run perfectly with on-time service. Each airport would be designed to handle foul weather situations without delay. Air traffic and airport congestion would not exist. The reality is rather different. Flights are delayed and cancelled because of main- tenance, weather, and congestion. Particularly at smaller airports that have less frequent con- necting flights, service reliability can become a major problem. Improving service reliability is an important goal for retaining passengers. After one too many cancelled or delayed flights, those travelers start complaining, âI donât want to fly through that hub anymoreâmy flight is always cancelled or severely delayed.â Many aspects of service reliability are completely out of an airportâs control. For instance, departure or arrival delays may often be caused by FAA air traffic control issues at a different air- port. Air traffic congestion in key large metropolitan areasâsuch as Chicago, New York, and Washington, DCâalso can affect operations at smaller airports, if FAA holds aircraft on the ground. Some small airportsâespecially Essential Air Service communitiesâexperience a related issue: they are dependent on service to a single hub that has its own operational reliability diffi- culties. For example, Williamsport, Pennsylvania, and New Haven, Connecticut, have service only from US Airways into its Philadelphia hub (Figure 7.7). When operations at Philadelphia suffer delays, service to Williamsport and New Haven suffers as well. 94 Passenger Air Service Development Techniques 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 August 2005 August 2006 August 2007 August 2008 Number of Departures Figure 7.6. Delta has decreased its non-hub point-to-point flying.
As a result, it can be very difficult for an individual small airport to tackle âimproving service reliabilityâ as an ASD goal. Small airports do work to improve operations and introduce efficien- cies, but those efforts are usually outside of their ASD programs. If service is suffering greatly from poor reliability to the hub, then the airport can have a goal to explore other options with a new entrant carrier. Collectively, small airports have an active voice through their trade associ- ations to maintain their access to congested markets and keep their piece of the pie. Upgrading Aircraft The economics of the regional aircraft industry is changing as advancements in fuel efficiency, range capabilities, and operational performance are influencing how small communities are served. Smaller turboprop aircraft and regional jets have been cut in some longer-haul markets, but carri- ers will continue to need and use them in the foreseeable future. If an airportâs market assessment shows that services on 50-seat regional aircraft are threatened, then the community may be wise to see if it can support service with larger regional aircraftâeven if it means less daily frequency. Regional aircraft manufacturers have introduced many improvements in new turboprop air- craft, particularly in terms of speed, vibration, and noise. Horizon Air, which has been a large operator of the 76-seat Bombardier Q-400 (Figure 7.8) in the Pacific Northwest, has praised the economics and passenger experience repeatedly. In the northeast United States, Continental Airlines has partnered with Colgan Airlines to introduce Q-400 service into closer-in markets of all sizes. Continental previously served those markets from its Newark hub multiple times a day with 37- and 50-seat RJs that contributed to delays in the local congested airspace. The Q-400 allows Continental better usage of scarce run- way capacity at Newark, cuts down on operational delays, and introduces more seats per depar- ture. For markets like Albany, New York, and Burlington, Vermont, these qualities work toward the goals of both upgrading aircraft and retaining service. Larger regional jetsâincluding the Embraer 170/175 family and the Bombardier CRJ-700/900 family (Figure 7.9)âhave been playing a dual role in many carrier fleets. For some communi- ties, they have replaced larger aircraft such as an MD-80 or 737, while in others they have replaced 50-seat RJs. If a communityâs market assessment indicates that its nonstop route network and frequency of service are unlikely to change, then a goal of upgrading aircraft would be a positive step. Larger Establishing and Validating ASD Goals 95 Figure 7.7. Some airports depend on service to a single hub.
regional jets can include a first class cabin, which could create additional benefits for business travelers who use the airport. It is paramount, however, to be able to demonstrate attractive mar- ket dynamics on the current services (high load factors, yields, passengers) before setting a goal of increased aircraft size. Increasing Access to Global Networks Todayâs aviation industry is truly global. One-stop connections can be made from South Bend (Indiana) to Beijing, from Cheyenne (Wyoming) to Frankfurt, or from Big Flats (New York) to Osaka. Carriers earn relatively high yields on these flights, and business travelers on those routes are often repeat customers who are less price sensitive. Access to both U.S. domestic and global route networks are key for a small community generating air service demand. 96 Passenger Air Service Development Techniques Figure 7.9. Embraer 170 in US Airways livery. Figure 7.8. Horizon Air Q-400 serves Kalispell, Montana, from Seattle.
Gaining additional service from incumbent carriers may mean increased access to major inter- national gateway airports. Some of those hubs, such as Chicago OâHare, Dallas/Fort Worth, Newark Liberty and Washington Dulles, support large amounts of domestic traffic as well. The major carriers there operate several banks of connecting flights to key large- and medium-sized metropolitan areas throughout the day. However, international operations tend to cluster at cer- tain times of the day. Moreover, Asia-Pacific arrival and departure times differ from European and South American times. Therefore, access to various âconnecting banksâ can be a key goal for small communities. What other goals support ASD? Opening a new station or expanded operation in a small community involves a significant amount of financial risk for an air carrier. An airport with a competitive structure of rates and charges and realistic capital improvement plans will be attractive to an air carrier that deems the airport attractive based on traffic trends and forecasts. If a small community has not illustrated Establishing and Validating ASD Goals 97 CASE STUDY Competing airports in central Illinois provide different connections to the world. Peoria, Springfield, Bloomington-Normal, Champaign- Urbana, and Decatur are within 50 driving miles of each other (Figure 7.a). Local business and leisure travelers may choose to fly from different airports based on their particular destinations and price sensitivity. For instance, airports that have connec- tions to Dallas/Fort Worth and Atlanta on American and Delta, respectively, have good connections to Latin America. Airports with good access to Chicago and Detroit have good connections to both Europe Figure 7.a. Map of central Illinois airports. (continued on next page)
that it can effectively manage its costs and maintain transparency among all carriers, then airport costs could become a final hurdle to starting new service. Realistic budget controlâtranslated to competitive rates and chargesâshould be a major goal for any small community working on air service. Air carriers want an airport that is going to be an active partner in ensuring that service is sus- tainable in a small community. That is not to say that an air carrier may seek incentives that are not being offered to other carriers, but that the airportâs goal should be to mitigate risk where needed while ensuring that federal regulations are met. A plan to develop the inbound and outbound markets will also demonstrate to the air carrier partner that the airport is willing not only to support service introduction, but also to work to develop the service during potential highs and lows of seasonality, operational issues, and com- petitive fare threats from other air carriers. A well-targeted marketing plan for a new service at the small community will also ease the minds of an air carrier seeking to introduce a new brand into the region. 98 Passenger Air Service Development Techniques CASE STUDY (Continued). and Asia. In addition, access to different connecting hubs or international gateway airports also means different connections for the major global marketing alliancesâStar Alliance, oneworld, and SkyTeam (Table 7.a). Travelers also have access to low-fare options at Bloomington-Normal (AirTran Airways) and Peoria (Allegiant Air). AirTran maintains a broad network out of its Atlanta hub to points throughout the United States. Table 7.a. Central Illinois region and its access to global networks. Airport Carrier Destination or Gateway Airport Beyond access to: Chicago O'Hare American Eagle Dallas Fort Worth Europe, Asia, Latin America Delta Connection Atlanta Europe, Latin America Atlanta AirTran Orlando Domestic U.S. (low-fare) Bloomington-Normal Northwest Airlink Detroit Europe, Asia Chicago O'Hare American Eagle Dallas Fort Worth Europe, Asia, Latin America Champaign/Urbana Northwest Airlink Detroit Europe, Asia Decatur American Eagle St. Louis U.S. Domestic Chicago O'Hare American Eagle Dallas/Fort Worth Europe, Asia, Latin America Delta Connection Atlanta Europe, Latin America, Asia Allegiant Las Vegas Detroit Northwest Airlink Minneapolis/St. Paul Europe, Asia Chicago OâHare Peoria United Express Denver Europe, Asia, Latin America American Eagle Chicago O'Hare Europe, Asia Springfield United Express Chicago O'Hare Europe, Asia, Latin America Source: Official Airline Guide, December 2008. Every small com- munityâs air service development program needs to include realistic budget controlsâ and competitive rates and charges.
These goals may not be clearly marked in ASD strategic plans for the year but they are vital to developing supplemental assistance across other airport departments (e.g., economic development, financial, operations). A well-maintained intra-airport partnership on tourism development, fiscal planning, and long-term investment will guarantee that potential air carriers recognize the likely viability of starting new or expanded service in the communityâs marketplace. What is the process for validating and refining ASD goals? Having thought through the range of possible goals, the ASD team must assess them critically to ensure that they are realistic for its community and would be seen as realistic by the targeted airlines. Otherwise, the ASD team wastes time and money trying to achieve something that the airlines will not consider. Proposals for new services should be reasonably within the capabilities of a community to support in a manner that will be profitable for the targeted airline. Suggesting services that the com- munity cannot support or that cannot be flown profitably will inevitably lead to disappointmentâ flights that will not survive long (if implemented at all) or provide few benefits to the community and the airline. In addition, such short-lived âsuccessesâ could hinder the community when it seeks additional air service in the future because the airlines will probably ask, âWhy will this route work now when it did not work before?â If your goals are unrealistic, it might be difficult to come up with an answer that the airlines will accept. Ensuring that Goals for New Service Align with Airlinesâ Capabilities Once the airport and community have determined what their top market targets are, they need to understand what types of new air serviceânonstop or connectingâwill best meet the needs of local travelers. In selecting airlines to target for that service, the ASD team needs to under- stand the types of services that the targeted airline(s) provide and make sure that they match the airportâs needs. The ASD team should use other communities as a guide or benchmark; for example, what type of service does the airline provide in similar communities? A community should avoid suggesting that an airline provide a type of service that it does not provide to sim- ilar communities elsewhere. It is almost always more difficult to convince an airline to change its practices for the ASD teamâs airport than it is to convince the airline that the same processes that work elsewhere will also work at the ASD teamâs airport. For example, US Airways announced in early 2008 that its Express operation would begin service to three Gulf Coast communities (Ft. Walton Beach, Florida; Gulfport-Biloxi, Mississippi; and Panama City, Florida) from its Charlotte hub with the same type of aircraft and with hub arrival and departure time being very similar. Furthermore, this new service was similar to existing US Airways Express flights to other cities in the region in terms of aircraft type and hub arrival and departure times. Choosing Between Hub-and-Spoke and Point-to-Point Service Deciding between targeting network (i.e., connecting) service and point-to-point service usually equates to a choice between legacy carrier service to a hub and LCC service to a major business center or a resort destination. Of course, that oversimplifies reality: Legacy carriers offer some point-to- point service (e.g., American from Austin to San Jose and Delta from Boston to New Orleans) while a few LCCs offer connecting service (e.g., AirTran at Atlanta and Frontier at Denver). Nevertheless, the choice of whether to target connecting or point-to-point service will be driven by the communityâs air service needs. In some cases, the community may elect to pursue Establishing and Validating ASD Goals 99 A well-targeted marketing plan can alleviate concerns about bringing a new âbrandâ into the area that new entrant carriers would have.
both options concurrently. If the most important service deficiency is flights to a major hub air- port, the solution will generally call for legacy carrier service, with the added benefit of a vast array of connecting flights at the hub. In contrast, if the primary service deficiency is to a leisure market, the most likely candidate to offer new service in that market may be an LCC or niche carrier, in part because of the legacy carriersâ reluctance to offer much point-to-point service in the current operating environment. Considering Competitive Service When reviewing the service needs of a communityâs potential target market, it is important to know what competitive service is already being offered in the market on both a local and beyond basis. That is, which airline(s) offer service to the targeted destination and which airline(s) offer service to other destinations that could reasonably be flown via the targeted destination. If the community already has nonstop service in the target market, the ASD team must ensure that its market is sufficiently large to profitably support two airlines. This does not necessarily mean that the local market alone needs to be large enough for two airlines, but rather that the total traffic carried in the market will support two airlines. Such a situation is rare in small communities. For instance, Fresno had nonstop service to Denver on United Express. Using a SCASDP grant, Fresno attracted Frontier into the market. United objected strongly to the U.S.DOT that this was an abuse of SCASDP and a waste of fed- eral funds in a market that already had multiple daily nonstop flights. U.S.DOT took no action. Frontierâs service lasted about two years, ending in June 2007. Moreover, just because an airline agrees to initiate nonstop service to a desired target city, its success is not guaranteed. Other carriers can offer highly competitive service with through flights, online connections, and interline connections via other hubs or other markets. This situation is especially possible where potential nonstop service in a relatively distant target market will be competing against much higher frequency connecting services over one or more closer hubs. For example, Frontier began twice-daily nonstop service between Baton Rouge and its Denver hub in mid-2007, competing against much more frequent connecting opportunities at the closer hubs of Dallas/Ft. Worth (American), Houston (Continental) and Memphis (Northwest). But seven months later, Frontier abandoned the market, overwhelmed by the multitude of flight times offered throughout the day by the three legacy carriers, along with the draw of their respec- tive frequent flyer programs. Understanding and Quantifying the Strength of the Market Understanding where potential passenger traffic comes from is important. The target airline must be comfortable with the traffic forecast before it will commit its resources to add service in a new market. This traffic forecast includes the breakdown of local versus connecting passengers as well as business versus leisure passengers. There can be numerous sources for the incremen- tal traffic such as market stimulation, shifts in airline market share, and the recapture of traffic that had previously âleakedâ to other nearby airports. The target airline will want the rationale for such a traffic forecast to be spelled out clearly. As discussed in Chapter 5, the best and most reliable source of data available to the public comes from the U.S.DOT, which receives the data from filings made by the airlines pursuant to U.S.DOT regulations. Two key data sources are the O&D and T-100 Onboard databases, which communities can use to determine whether most of the new traffic in the target market will be incremental to the target airline, even if not to the community at large. These data are available to the public through commercial vendors as well as through the BTS TranStats website (www.transtats.bts.gov). 100 Passenger Air Service Development Techniques
Airports and communities also may be able to use other sources of information, such as a local economic development agency or chamber of commerce, to indicate community and business growth as exemplified by new business investment, growth in employees, and population immi- gration. However, this information tends not to offer details of travel in specific markets unless individual businesses share their travel patterns. Matching Aircraft to the Target Market Because aircraft have certain key performance characteristics such as capacity and range, the ASD team should determine what specific size and type of aircraft would meet its needs. That is, the community should understand how much and what type of capacity would be appro- priate for the proposed service. Obviously airports and communities should not propose a new service with an aircraft type that cannot properly and successfully operate in the target market. Suggesting the use of an aircraft that does not fit its market needs will lower the ASD teamâs credibility with the airlines and lessen the likelihood of new service being started. Of course, before a team meets with a particular airline, it should be sure that the airline (or its regional code-sharing partner) operates that type of aircraft or has the aircraft on order. Seating Capacity, Configuration, and Operating Range To the greatest extent possible, airports and communities should try to match the seating capacity of the aircraft proposed for the target market with the expected frequencies and traffic levels once the new service is implemented. This is usually an iterative process; the ASD team will have to produce several forecasts using different trade-offs of capacity versus frequency versus departure times to determine the optimum capacity and frequency mix at the best departure time(s) to attract the most passengers to the target market. If the ASD team believes there will be a significant amount of traffic likely to use a âpremium cabinâ (i.e., business class), it might suggest a two-class aircraft to serve the target market (assum- ing the target airline already offers such service). For example, Delta has code-sharing partners that offer two-class service with CRJ-900 aircraft (Figure 7.10). With enough premium traffic, a target market that might otherwise support three daily 50-seat RJs could perhaps be better served by two daily two-class 70-seat E170/CRJ-700 aircraft. The suggested aircraft must also meet an airlineâs operating criteria. For instance, despite the manufacturerâs stated range of 1,200 miles for a CRJ, United will only schedule such aircraft in Establishing and Validating ASD Goals 101 Figure 7.10. Delta Connection CRJ-900 with business and coach class seating.
markets up to about 1,000 miles. Knowing what aircraft will work for a given airline is very important for a communityâs credibility. Number or Power Levels of Engines Required for Specialized Operations The number or power levels of engines is most relevant for airports surrounded by severe mountainous terrain, such as Aspen or Telluride. The issue involves the ability of the selected aircraft to take off and climb in so-called âhot and highâ conditions where the combination of high ambient temperatures and a high airfield elevation reduce normal engine performance and thus might limit the payload-carrying capability of the suggested aircraft. Ensuring Airport Infrastructure Accommodates the Proposed Aircraft The ASD team also needs to ensure that its airport infrastructure and the aircraft it may be considering for new service are compatible. Aspects of the terminal, as well as jetways, tarmac, and runway length, should be considered in the compatibility evaluation. The airlines know the infrastructure requirements necessary to handle any of their fleet types at a given airport; there- fore, suggesting an operation that its airport is not capable of supporting will lower (or elimi- nate) the ASD teamâs credibility with the target airline. See Chapter 5 for additional information on assessing an airportâs facilities. Terminal The target airline, especially if it is new to the community, will likely have a number of require- ments that must be met to support any new service in the market: â¢ First, there must be sufficient ticket counter space available to handle the additional passengers that would be attracted to the new service without incurring significant passenger processing delays at the start of their trips. â¢ Second, there must similarly be sufficient baggage claim carousels (or other facilities) available to handle the new passengers and their baggage without incurring significant passenger delays at the end of their trips. â¢ Third, there must be sufficient gates and hold rooms available for the new passengers to board the new flights in the target market without creating undue terminal crowding. â¢ Fourth, there must be sufficient amenities (e.g., restaurants, shops) avail- able to provide for the personal needs of the new passengers without overcrowding the facilities available for current passengers. Of course, amenities are not a priority for all air carriers. Some LCCs are much more concerned about lower costs than passenger amenities. Those airlines believe that most of their passengers will readily sacrifice airport amenities for lower fares. â¢ Fifth, there must be sufficient office space available for the target airline to handle its required on-site office functions in a private and secure manner. In validating its goals, the ASD team must ensure that its terminal facili- ties are capable of accommodating proposed new service. However, that does not mean that every airport will have to build new facilities to attract new service to its target market. In fact, new facilities often cost a great deal of money, which is usually passed on to the airlines in the form of higher land- ing fees and facility rentsâand thus can actually be a deterrent to attracting new service. 102 Passenger Air Service Development Techniques The Sacramento Bee reported in May 2008 that airlines were upset with the plans of Sacramento International Airport (SMF) to build a $1.27 billion expansion, including a new terminal, hotel, parking garage, and people-mover tram. The newspaper reported, âThe Sacramento plan doesnât do anything for Southwest Airlines except raise our costs,â airline executive Ron Ricks complained. âIf Sacramento goes forward with this plan, given all the other economic headwinds the (airline) industry faces, it will lead to a reduction in flights and much higher airfares.â (12) The Sacramento Bee also reported that American Airlines was cutting one of its four daily Sacramento-to- Dallas flights because of what it called âsubstantial and unreason- ableâ fee increases (13).
Airside The proposed aircraft must be able to serve the target market while taking into account the runway characteris- tics of the airports at both ends of the route. These char- acteristics include runway length, runway width, runway load-bearing strength, airfield elevation, and approach and departure path obstacles. For instance, if one of the runways is relatively short (say, less than 4,500 feet in length such as at Hilton Head Island Airport or Key West International Airport), then an aircraft with strong short- field performance should be suggested to the airline. While runway characteristics will not be a contentious issue for most airports and routes, it nevertheless needs to be considered. Summary â¢ ASD goals should be developed with the ongoing involve- ment of the community and/or a broad-based task force. â¢ The most common ASD goals are â Retaining existing service â Adding service to a new destination â Adding frequencies to current services â Lowering fares/introducing new competitive service â Improving service reliability â Upgrading aircraft â Increasing access to global networks â¢ ASD goal-setting should begin with incumbent air- lines; retaining existing service is the top goal for most airports. â¢ It is critical to ensure that ASD goals are realistic in light of â The service airlines offer to similar communities â The strength of the airportâs passenger market â Aircraft performance characteristics â Airport infrastructure Establishing and Validating ASD Goals 103 Santa Rosa and its Horizon Q-400s Charles M. Schulz â Sonoma County Airport (STS) in Santa Rosa is the primary commercial airport serv- ing the North Coast region of California. This region includes five counties with an estimated catchment area population of over one million residents. Sonoma County Airport had a long history of com- mercial air service that pre-dated the industryâs deregulation. In the 1990s, United Airlines served STS with its Express regional affiliates to both San Francisco and Los Angeles. Enplanements at the air- port in 2000 exceeded 64,000. However, United ter- minated all service at the airport in October 2001. From then until 2007, the airport had no service. Sonoma County Airport faced two significant chal- lenges. First, the primary runway is shortâ5,115 feet long and 150 feet wide. Second, the community is relatively close to several larger airports with sig- nificantly more nonstop service options, including service from Southwest Airlines. Oakland Inter- national Airport, San Francisco International Airport, and Sacramento International Airport are all within roughly 100 miles of STS. Because of its runway limitations, Sonoma County Airport was restricted to service from turboprop operators. STS successfully recruited Horizon Air to operate Q-400s at the airport. Horizon launched service in March 2007 to Los Angeles and Seattle. It has since added more frequencies to Los Angeles and Seattle, as well as new destinationsâPortland, Oregon, and Las Vegas. The airport manager expects total traffic to exceed 200,000 in 2008.
104 C H A P T E R 8 There are several types of incentives that airports and communities can offer air carriers dur- ing air service development negotiations. This chapter discusses techniques that various small communities have successfully applied and describes their advantages and disadvantages. It also includes a brief discussion on FAAâs oversight of matters relating to airport rates, charges, and incentives. Finally, it discusses the conditions under which different types of ASD techniques may be appropriate. When air carriers are deciding whether to serve a particular community, they are making business decisions about whether to commit literally millions of dollars worth of human and capital resources to a market. Decisions of that magnitude are not taken lightly. With airlines financially strained since 2001 and with the U.S. economy having been stressed by high energy costs, problems on Wall Street, and a recession, airline managements are naturally risk averse. Communities and the airports they serve can help mitigate an airlineâs risk of introducing new service through various ASD techniques that either provide an assurance to the carrier that they will generate a certain level of revenue or significantly reduce some of the start-up costs involved with entering a new market or increasing the level of service at a market. Except in unusual circumstances, all smaller communities need to provide some sort of risk mitiga- tion to attract new or enhanced service. Airlines and communities increasingly recognize that expanding the service in their market requires a partnership in which both partners share in the risk, at least initially. ASD techniques can generally be divided into two broad categories: those designed to boost a carrierâs revenue through promoting passenger demand and those designed to induce carriers to supply air service by reducing their costs. Although both can produce the same result in the carrierâs bottom line, different carriers have expressed clear preferences for different types of incentives. Airports may also decide that they want to use both revenue-boosting and cost- reducing options. What revenue-related ASD techniques are available? Revenue-related techniques seek to ensure either that carriers generate a sufficient amount of passenger demand or that the revenue generated from the operations hits a minimum threshold. Minimum Revenue Guarantees Revenue guarantees are agreements that establish a target amount of revenue that a carrier will receive for operating a particular service to a particular destination over a given length of time. They may be expressed as a minimum amount that will be generated from passengers (ticket sales), Selecting Appropriate Techniques for Air Service Development Except in unusual circumstances, all smaller communi- ties will need to provide some sort of risk mitigation to attract new or enhanced service.
provided that the carrier meets certain operating requirements (e.g., completing 92 percent of their operations, with an on-time departure or arrival record of x percent). The guarantees are only paid out if passenger demandâand associated target revenuesâdo not materialize. The amount paid is equal to the shortfall. If the target is met, no funds are drawn down, which may actually be an indication of project success. The timing of the payouts can vary widelyâmonthly, quarterly, semi-annually, or annually. Revenue guarantees should contain performance requirements on the part of the carrier. For example, while the airport or community may be ensuring that they will meet traffic and revenue targets, they in turn need some assurance from the carrier that it will meet performance and reli- ability requirements such as mutually agreed upon completion rates and on-time performance requirements. Over the last few years, airports have increased the amount of revenue guarantees that they have awarded. As carriers increasingly drop service at many communities because of their ongoing financial hardships, more communities are competing to attract (and retain) air service, so the amount of revenue offered as incentives has increased. Revenues are generally stated as a set target. For example, Rhinelander-Oneida County (Wisconsin) Airport used a SCASDP grant to provide a revenue guarantee of $492,000 to sup- port nonstop service to Minneapolis. Rhinelander convinced Northwest Airlink to convert three of its four daily one-stops (via Eau Claire, Wisconsin) to nonstops. Because the service generated more revenue for the airline than had been expected, the airport was able to return nearly half of the revenue guarantee to U.S.DOT. In the survey, several airports reported using some form of revenue guarantee. Few were undertaken as the only type of incentive. That is, the revenue guarantees were usually combined with other forms of incentives, such as cost or fee waivers. Federal funds were often used to support the minimum revenue guarantees, thus effectively shifting the risk of the serviceâs possible failure to the federal government. The amounts of the guarantees ranged from $250,000 to $1.6 million. With fuel costs rising and passenger demand slipping, the study team would not be surprised if average revenue guarantees would approach $1 million. Advantages of Revenue Guarantees 1. Carriers like them: In the survey of carriers, five out of six carriers reported that revenue guar- antees were an effective means for attracting service. 2. Potentially low costs: If the project is successful, minimum revenue guarantees (MRGs) cost little or nothing. The airport serving Redmond/Bend, Oregon, won a $500,000 SCASDP grant to provide a revenue guarantee for Deltaâs new service to Salt Lake City, but load factors remained so high following the first 12 months of service that the airport returned the entire SCASDP grant to U.S.DOT. 3. Cash flow: Depending on how they are structured, MRGs can be paid at various times dur- ing the target period, and these pay dates can be negotiated in ways that can be more or less advantageous for a small communityâs cash flow. They may be paid only at the end of the agreed-upon period of air service, thus requiring no initial cash outlay. 4. Administrative ease with low administrative costs: The revenues that the contracted airline generated during the period are relatively easy to track. Risks or Disadvantages of Revenue Guarantees 1. Despite a communityâs best efforts to estimate how passenger traffic will respond to new service, there are no guaranteesâthe airport/community can lose the entire amount. Also, depending on the source of the revenue guarantee, it may not motivate the community to use the service. The U.S.DOT Inspector Generalâs office reported the example of a community that attracted Selecting Appropriate Techniques for Air Service Development 105
new air service during the period of its SCASDP grant, but traffic was lighter than expected, and the carrier providing that service abandoned the market as soon as the funds were expended. 2. Carriers can be wary of them, particularly in certain mar- kets. An official from one major legacy network carrierâs regional affiliate told an air service conference in 2008 that it was not entirely supportive of MRGs for the following reason: if the carrier used all of the revenue guarantee, yet pulled out because the service was not profitable, leaving the market would create a negative brand image that would be difficult to overcome, especially if the carrier still serves the market to another hub. 3. The changing economics of the regional industry may make some efforts simply not cost effective. New Haven, Connecticut, had the unfortunate experience of exhaust- ing the $1.6 million revenue guarantee it had assembled with the help of Yale University and other community partners. Delta accepted the revenue guarantee for RJ operations into Cincinnati. However, because of issues with New Havenâs primary runway (its 5,600-foot length and airfield obstructions), Delta experienced greater than expected payload restriction that forced its CRJ-200s to operate with less than full passenger loads. Coupled with rising fuel costs, the carrier simply could not generate the revenue it needed to make the route profitable and dis- continued service in January 2006. 4. Several of the surveyed airports that tried revenue guar- antees commented that they seriously underestimated how difficult it would be to raise money from local sources. The concept of a revenue guarantee is attractive; however, convincing local businesses, governments, and individuals to contribute funds can be a major challenge. Guaranteed Ticket Purchases (âTravel Trustsâ or âTravel Banksâ) Guaranteed ticket purchase programs effectively ensure that the target airline will have passenger traffic worth a certain volume of revenue, thus helping to mitigate some of the risk associated with attracting passengers to new or expanded service. Businesses or individuals deposit funds in a bank account that can be used only for purchasing tickets on the target airline during a given period of time. Advantages of a Travel Bank 1. A travel bank provides an undeniable indicator to the airline of the communityâs commit- ment to use the proposed service. It is especially a commitment indicator of the business com- munity, which often provides the greatest source of funds to the travel bank and the poten- tial clients of greatest interest to the airlines. It is a sure sign of the underlying demand for travel from a community. 106 Passenger Air Service Development Techniques Pensacolaâs travel bank Pensacolaâs travel bank was the product of a large community effort involving support from numerous community stakeholders. The Chamber of Commerce, Pensacola city officials, and airport officials conducted intensive outreach to the local community and persuaded 319 businesses to contribute $2.1 million for two yearsâ worth of prepaid travel on AirTran Airways. The local bank involved issued each participating business a debit card to draw funds toward the purchase of AirTran airline tickets. Using their debit card accounts, businesses could purchase tickets from travel agents, the Internet, and other distribution channels. If the businesses did not spend the funds they had allocated to the account within the two-year period, the remaining funds were transferred to AirTran, and the businesses received AirTran vouchers redeemable within one year. While Pensacola passengers can fly to any of AirTranâs destinations (via Atlanta), AirTran determines the flight sched- ule. The initial agreement stipulated that if AirTran reduced its flights to fewer than three per day, filed for bankruptcy, or sold more than 50 percent of its stock, then businesses participating in the travel bank could be released from the agreement. AirTran increased its flights from three to four in 2003. Airport officials credited the 50 percent drop in airfares along AirTranâs routes for the 26 percent increase in traffic in May 2002. In the survey of airports, few airports used some form of travel bank. When travel banks were used, they were usually combined with other forms of incentives, such as cost or fee waivers. Typical sizes of travel banks at the airports surveyed ranged from $500,000 to $700,000. However, as shown in the Pensacola example and elsewhere, travel banks can involve considerably more than $1 million.
2. Travel banks or ticket trusts also help new entrants over- come other market barriers to entry, such as incumbent carriersâ price cutting and the effect of the incumbentâs loyalty (i.e., frequent flyer) programs. Risks or Disadvantages of Travel Banks 1. Travel banks require a significant amount of local effort to organize and implement. For travel banks to be effective, they require a motivated business community, as well as grassroots organization, planning, and coordination. Putting together a travel bank requires a commitment of an airport staffâs resources and time (or that of a consultant) to meet with community business leaders and convince them to commit to travel with the carrier during the period. Depending on how the travel bank is structured, those contributions may or may not be refundable if the travel does not actually occur. 2. Airline acceptance of travel banks is not uniform. Accord- ing to a report on small community air service from GAO, mostâbut not allâairline officials were unfavor- ably disposed toward travel banks, citing the difficulty in administering them and their poor track record of success (14). 3. Beginning in 2005, U.S.DOT announced that it would not support travel banks for SCASDP grants. What cost-related ASD techniques are available? Cost-related ASD techniques are intended to eliminate or offset some of the start-up costs that carriers experience when they begin new service or enhance existing levels of service (perhaps by adding service to a new hub). Taken as a whole, the cost to begin service in a new market can be substantial. In 2003, Meadows Field (Bakersfield, California) Airport estimated that the equipment costs alone (e.g., electronics, telephones and data, furniture fixtures and equipment, etc.) associated with station start-up costs for new Continental service there approached $500,000. Cost Subsidies (Including Start-up Costs) Subsidies are a broad category of financial incentives that generally offset some aspect of an airlineâs costs of operation. Economics or business textbooks define a subsidy generally as an economic benefit (such as a tax allowance) or financial aid (such as a cash grant) provided by a government to support a desirable activity (such as exports or, in this case, air service to small communities). The basic characteristic of all subsidies is to reduce the market price of an item below its cost of production. Subsidies can include waivers of fees or discounted landing (or other fees) during a promo- tional period. Cash subsidies are paid without regard to the amount of revenue that a carrier may Selecting Appropriate Techniques for Air Service Development 107 Redmond, Oregonâs travel bank Redmond and Bend lie in the heart of central Oregon, the fastest-growing area in the state. It is also an important vacation spot in the Pacific Northwest. The area offers a wealth of natural beauty and recreational activities, along with more than 300 days of sunshine per year. The primary airport for this region is Roberts FieldâRedmond Municipal Airport (RDM). In recent years, RDM had enjoyed healthy year- over-year increases in traffic, but the catalyst for propelling RDMâs growth was the start of nonstop service between Redmond and Salt Lake City by Delta Connection (SkyWest Airlines) in 2005. Businesses and the traveling public responded positively to the new service, and passenger enplanements soared. RDM used a travel bank to convince Delta to commence the service. Local businesses, economic development agencies, and tourism agencies deposited $629,000 in committed funds into the travel bank, with a minimum deposit of $2,000. Travel bank participants then had 12 months to use their funds or the airline retained the money. Within three months of Deltaâs beginning service on the Redmond to Salt Lake City route, the 120 participants had used 70 percent of the travel bankâs funds. The travel bank proved successful because the ASD team was able to secure the business communityâs commitment early in the process. This commitment provided immediate passenger demand on the new service, which helped mitigate Deltaâs financial exposure and uncertainty. In the end, Deltaâs service was so successful that the airport had to return the $500,000 SCASDP grant, which was never tapped. The success of that program helped RDM attract nonstop service to Los Angeles, Las Vegas, and Phoenix.
generate during the agreed-upon period. Subsidies are generally a fixed amount, often with no con- nection to the eventual profitability of the route. Depending on how they are structured, subsidies may require no obligation on the part of the airline to use the funds to promote the new local serv- ice. Technically, the Essential Air Service program provides a ârevenue subsidyâ that is designed, in part, to assure the operating carrier of a set minimum-percentage operating margin. Examples of different types of subsidies include the following: â¢ Fee waivers (e.g., landing fees, terminal rents, gates, jet bridges). These are very common and may include waivers of landing fees and terminal rents for six months. Waivers may be for all fees or costs, or some fraction thereof. Waivers can vary depending on the size of aircraft. Charles M. Schulz â Sonoma County Airport waived terminal rents and landing fees for 12 months for Horizon Air. The airport valued that waiver at just under $100,000. â¢ Ground station costs. Airports can cover ground station costs for airlines as well, relieving them of the need to take on those costs themselves. For carriers proposing a relatively small number of operations, this can be a significant source of cost savings. (See sidebar.) 108 Passenger Air Service Development Techniques Ground station costs at Mobile, Alabama Prior to leaving the Mobile Regional Airport (MOB) market after September 11, 2001, United Express not only ground handled its own flights to Chicago OâHare and Washington Dulles, but also those of US Airways Express to Charlotte Douglas International Airport. Once United announced that it would leave Mobile, US Airways faced a quandaryâit would be losing its MOB ground handler but did not want (or could not afford) to provide the service itself. To avoid losing its US Airways flights in addition to the United service, MOB decided to enter the ground- handling business. MOB developed the Station Services program to pro- vide complete ground-handling services to any carrier, current or new, that would rather not do such work itself. In addition to covering flights by a new carrier at MOB and new flights by a current MOB carrier, this program allowed simply taking over a current carrierâs MOB ground-handling operation. The program was offered to all of the carriers that served MOB at that timeâContinental Airlines, Delta Air Lines, Northwest Airlines and US Airwaysâbut only the latter carrier accepted the offer. MOB developed a program that would cover all ground-handling functions at the airportâticket counter, baggage claim, gate and ramp services. MOB would own, operate, and staff the carrierâs entire station operation, and in return the carrier would pay a three-part charge to cover the pro- gramâs costs. This charge includes a per-passenger fee, a per-departure fee, and rental fees mainly for the use of ticket counters, gate areas, and baggage carousels. MOB used a $450,000 SCASDP grant to purchase equipment, hire and train staff, and set up a management system for the program. MOB can tie Station Services into its incentives pro- gram by waiving a portion (or all) of the fees for a period of time not to exceed one year, with the amount and duration of the waiver determined by the level of new services being offered. US Airways has used the Station Services program continuously since its inception at the end of 2001 for its three daily RJ flights from MOB to Charlotte Douglas. In addition, when American Eagle began service to MOB from its Dallas/Fort Worth hub in 2005 (replacing service that had been discontinued by Delta earlier that year), it decided to use the pro- gram as well. American Eagle continued to use the program even as it expanded its MOB service to include nonstop flights to its Chicago OâHare hub in 2007. In March 2008, American Eagle decided to operate, equip, and staff its station and discontinue use of the Station Services program, because, with five daily nonstop flights, its level of operation allowed economics of scale to be realized.
â¢ Fuel into plane costs. Some airports reported subsidizing fuel costs for new entrant carriers during a limited start-up period, up to a maximum dollar amount. â¢ Staff training. Staff training costs can be significant especially for new markets during the start-up phase. Carriers often require new employees hired locally to undergo a significant amount of training in company policies and procedures. The cost of this trainingâinclud- ing staff time, materials, meals, and lodgingâcan run in excess of $100,000 depending on the number of staff to be trained. â¢ Crew lodging. New service often means that at least one crew member will spend the night in the community. Several airports surveyed had worked with local stakeholders to arrange discounted lodging for crew members. Advantages of Fee Waivers 1. Waivers have a direct measurable effect on a carrierâs bottom line. Start-up costs can be signif- icant (upwards of $200,000), so anything that lessens those costs contributes to shifting some of the market entry risks off the carrier. 2. Waivers are easy to administer. They can be handled largely through the airportâs finance or administrative office, which would be responsible for tracking operations and enplanements anyway. 3. Waivers that involve off-airport stakeholders can help unify the community in supporting air service development. Risks or Disadvantages of Fee Waivers 1. Cost waivers by themselves will not differentiate an airport from any other airport seeking a carrierâs attention. Most airlines regard some level of cost subsidy as a requirement for enter- ing a market. Providing cost waivers is a necessary aspect of attracting new service but is only one part of an incentive package. 2. Crew lodging-cost offsets require an airport to work with off-airport stakeholders, which intro- duces factors outside the airportâs control. Hotels may be able to offer some significant discounts (most major chains do), but this inevitably introduces incremental administrative burden. Marketing and Advertising Smaller communitiesâ airports usually face significant challenges in marketing their services to the populations in their catchment area and marketing their catchment area to inbound trav- elers and airlines. If those efforts are less than completely successful, travelers in the airportsâ catchment area may fly from other airports in the vicinity. When that happens, the airlines dis- cover that they can serve those same travelers without actually operating at the small airport. Most airlines do not advertise in small, local markets. Rather, they limit their efforts to major mar- kets (e.g., Chicago, San Francisco, New York, Washington) and their hubs, and to promoting the brand nationally (one hears George Gershwinâs âRhapsody in Blueâ and thinks of United Airlines). Marketing is the most common form of incentive used in ASD. It is designed to build awareness for a new service and to develop demand to the point that the service can become self-sustaining. The ASD marketing incentive is most commonly advertising and promotion conducted by the airport/community on behalf of the airlineâs new service (for either an outbound or inbound market). Less commonly, an airport/community will provide funding to the airline to offset mar- keting costs; network airlines seldom do âdestination marketing,â focusing instead on the brand. Marketing programs may or may not require a carrier match. [Note: A separate ACRP study on marketing small communitiesâ air service (ACRP Project 01-04) is currently in progress.] Marketing can cover any mediumâTV, radio, print (newspapers and magazines), bill- boards, Internet, or direct mailing. To market its Delta Connection service to Atlanta, the LawtonâFort Sill (Oklahoma) Regional Airport hired a professional advertising firm to help Selecting Appropriate Techniques for Air Service Development 109
110 Passenger Air Service Development Techniques 0 10 20 30 40 50 60 70 De c- 05 Ja n- 06 Fe b-0 6 Ma r-0 6 Ap r-0 6 Ma y-0 6 Ju n- 06 Ju l-0 6 Au g-0 6 Se p-0 6 Oc t-0 6 No v- 06 De c- 06 Ja n- 07 Fe b-0 7 Ma r-0 7 Ap r-0 7 Ma y-0 7 Departures 0 5 10 15 20 25 30 Load Factor Departures Performed Load Factor Figure 8.a. Big Sky Airlinesâ service from Walla Walla to Boise lasted little more than one year. Walla Wallaâs experience with non-hub flying Walla Walla Regional Airport (ALW) in southeast Washington serves a catchment area of approxi- mately 58,000 people. The closest competing airport is Tri-Cities Airport in Pasco, Washington, 52 miles to the northwest. Walla Walla has long been served by Horizon Air, with multiple daily flights to Seattle. In 2006, ALW used a $250,000 SCASDP grant to support Big Sky Airlinesâ efforts to commence nonstop service to Boise using 19-seat turboprop aircraft. The federal funds were used to pay for landing fees, pilot wages, fuel, and hotel costs. Unfortunately, the twice-daily service proved to be commercially unviable. As shown in Figure 8.a, passenger loads were unexpectedly low. Once the federal funds ran out, the carrier ter- minated the service. Airport officials reported that the experience left them somewhat disillusioned, and they were reluc- tant to seek service by another carrier. ALW officials felt taken advantage of by Big Sky, which exhausted the SCASDP funds and then left, creating the impres- sion that it had not been committed to the service from the start. In contrast, Horizon has served the community for a number of years, and that commit- ment is rewarded by the local community.
with a marketing campaign that it used on billboards near the airport, TV, radio, the local news- paper, and the airport website. On the day service was inaugurated, the airport hosted a party that was attended by local media, various VIPs, and Delta officials. Figure 8.1 shows one of the marketing advertisements used at Lawton to promote its new service to Atlanta. Advantages of Marketing 1. Marketing is always a good way to create awareness among the traveling public about new service. 2. Involving local advertising or marketing firms, along with the local media, as part of the ASD team or task force helps ensure some publicity for the airportâs successes. Those firms also may Selecting Appropriate Techniques for Air Service Development 111 Source: LawtonâFort Sill Regional Airport Figure 8.1. Marketing example from LawtonâFort Sill Regional Airport. Internet marketing at Fargo Hector International Airport (FAR) serves the FargoâMoorhead area of North Dakota and Minnesota. It has long been dominated by Northwest Airlines, which has multiple frequencies to its MinneapolisâSt. Paul hub. The airport has service from Northwest, United Airlines, Allegiant Air, and Frontier Airlines. The airport gained service by Allegiant Air in 2005 and prides itself on being a contender for expanded services by the carrier. In July 2007, Allegiant announced that it would open up new bases in Fort LauderdaleâHollywood (Florida) International Airport and PhoenixâMesa (Arizona) Gateway Airport. FAR representatives worked closely with the airline to generate interest in the community about new potential service to both of these locations. To help get the message out to the community about potential new service, FAR created a website, www. AllegiantAirFAR.com, where community members could vote for which destination they would like to see added at the airport. Even though the carrier would make the ultimate decision, the website became a useful tool for the Airport Authority to keep the community interested in the final selected destination. FAR representatives staged an event where they opened up a sealed box and revealed that the new destination would be PhoenixâMesa. Two people received free roundtrip tickets as a result of their participation. Allegiant has since added ser- vice to Orlando Sanford International Airport. This marketing tool generated additional information on the potential market prior to a route launch, was low budget and creative, and produced results. The direct link between the targeted audience and the commencement of sales on the new route bene- fited both the airport and airline. Both also used the event to create an e-mail list of targeted passen- gers for the route for future communication.
be willing to provide services at costs well below standard commercial rates. In-kind contri- butions can be very valuable. Small communities could leverage the marketing and public rela- tions expertise resident in some of their other key stakeholder organizations, such as the local chamber of commerce, economic development agency, or tourism board. 3. Internet-based marketing may allow the airport or carrier to build a mailing list of people who are interested in the services at the airport based on their visits to the airportâs website. Burlington (Vermont) International Airport, for example, actively marketed its services to potential French-speaking passengers in southern Quebec. The airport engaged a local pro- fessional marketing firm to put together a campaign that ran in Quebecois newspapers and on Canadian radio stations. Internet ads in French were also created. Figure 8.2 shows one such ad; a partial translation of the copy into English follows: âOur rank is high. Our fares? LOW. Much lower prices on fares compared to Canada. For more information or to book a flight, go to flyBTV.com.â In 2004, the Huntsville, Alabamaâs âLower Faresâ campaign directed passengers to its fly- huntsville.com website. Hits on the site increased by 417 percent. A SCASDP grant later sup- ported the âHuntsville Hot Ticketâ program. Passengers sign up for a fare alert program. That program sends e-mail alerts to customers when fare specials are announced. From the airportâs web site, they can then view the fares and book tickets directly. Customers can also participate in an airport frequent flyer program that offers incentives for passengers based on number of trips. Risks or Disadvantages of Marketing 1. Effective marketing and media campaigns require specialized knowledge that most small air- ports do not have in-house. Marketing is a complex topic with multiple dimensions (e.g., branding, packaging, and timing), particularly where services such as air travel are concerned. Airports may need to undertake specific types of marketing activities to create, maintain, or 112 Passenger Air Service Development Techniques Source: Burlington International Airport Figure 8.2. Internet marketing ad from Burlington International Airport focused on attracting French-speaking Canadians.
alter the attitudes and/or behavior of target audiences. Developing the media campaign, determining what and where the target audience is, and ensuring the campaign reaches the target audience are all challenging tasks. 2. Because many smaller airports do not have in-house staff with all the necessary skills, resources, and capabilities to conduct effective marketing campaigns, they usually need to contract this out. Media campaigns can be costly. 3. The effects of marketing can be difficult for many communities to quantify with precision. What should be measured? What are the best metrics to use? (See Chapter 10 on evaluating ASD efforts.) Non-Financial (in-Kind) Assistance A communityâs major stakeholdersâespecially any involved with the ASD programâmay be in a position to contribute various types of non-financial or in-kind assistance. In-kind assistance refers to products, goods, or services that otherwise might have to be paid for, but which can be donated by third-party providers instead. In the case of new air service, various types of in-kind assistance can represent a significant value for the carrier and can contribute toward creating and/or sustaining demand. Perhaps the most common form of in-kind assistance is publicity provided by local media. This publicity can include billboards and coverage in the local newspaper. If a carrier or airport had to pay for these at full market value, the cost could be quite significant. The value to the carrier can be much more than just the cost of the advertising if it helps create or sustain demand. Another valuable non-financial tool is reliable market information, which also can be used to reduce carriersâ risks. Airline planners tend to know less about small communities than larger ones, so the amount of incentive they require to operate there has to be larger to offset the uncertainty. By funding detailed professional research and providing airlines with the type of comprehensive market analysis they require, airport operators can drastically reduce an airlineâs risk of making an uninformed decision and potentially a multi-million-dollar mistake. The U.S.DOT Inspector Generalâs report on small community air service makes the same point (11). Advantages of in-Kind Assistance As noted above, involving local stakeholdersâwhether marketing, advertising, media, or other firmsâas part of the ASD team or task force helps broaden the communityâs involvement and improve the odds of the serviceâs success. Small communities could leverage the marketing and public relations expertise resident in some of their other key stakeholder organizations, such as the local chamber of commerce, economic development agency, or tourism board. Local resorts or hoteliers may also be willing to accommodate crew at a discount above and beyond those normally made available. Risks or Disadvantages of in-Kind Assistance In-kind assistance has very little in the way of risks and disadvantages, although airports need to be aware that they may surrender some of their control over advertising placement and content. Getting Help from ASD Consultants Consultants on air service development can prove to be extremely valuable for smaller airports that lack their own in-house ASD staff. Using the types of data discussed in Chapter 5, consultants can provide significant amounts of information on the industry to the airport manager, the ASD team, the airport board, and other local stakeholders. They can analyze changes in the local market over time and match that with developments in the industry. They can suggest strategies. ASD consultants also can prepare information and presentations for the airport to take to meetings Selecting Appropriate Techniques for Air Service Development 113
with airlines, whether at an airlineâs headquarters, conferences (such as the ACIâNA JumpStart conference), or other meetings. Advantages of ASD Consultants 1. Compared to the staff available at many airports, ASD consultants have the advantage of working on these issues all the time. That means that they are familiar with available data and maintain regular communication with their airline contacts. They are current on industry trends and conditions, and some also have extensive contacts in Washington (e.g., at U.S.DOT, FAA, and the Department of Homeland Security; with Congress; and with various industry trade groups such as AAAE, ACI-NA, and RAA). 2. Because they tend to be more removed from your local situation, ASD consultants can be âobjective brokersâ capable of providing straight answers to local political leaders. Elected officials do not always like to hear opinions from airport officials, but the same message from a third-party expert carries a different weight. 3. Consulting firms bring flexibility that a full-time staff does not. They can be hired for specific tasks or retained on an âon-demandâ basisâused only when their services are needed. Many airports retain ASD consultants on an on-call basis using multi-year contracts with an annual dollar maximum. Risks or Disadvantages of ASD Consultants 1. Because they may not be local to the airport, consultants may not be as familiar with local developments as airport staff. They should spend some time becoming and staying personally familiar with the community and its changing needs. 2. Hiring consultants means incurring out-of-pocket expenses rather than using internal resources. Costs associated with consulting can vary widely, depending on the scope and depth of services being purchased. In addition, consulting firms vary considerably in their size and scope of services, from larger multi-national firms to smaller, local firms. In addition, costs will vary depending on the service the airport might be purchasingâwhether a leakage study, a route analysis, some basic data on service at the airport over timeâand whether the consultant will be expected to accompany airport representatives to airline meetings. What are the legal issues regarding airport incentive programs? Several of the airports surveyed reported that they were concerned whether various types of incentive programs would comply with FAA guidance and requirements. Airports and the com- munities they serve need to understand the restrictions on how certain funds can be used for ASD efforts. These topics are complex and cannot be covered comprehensively in this guidebook. This guidebook can provide only general guidance. Consultation with the FAA or an aviation attorney should be sought for answers to further questions. Legislative Requirements Airport incentive programs must be consistent with various legislative and regulatory require- ments, most notably: â¢ Title 49 United States Code, section 41713, broadly prohibits any public organization from enacting laws, rules, or regulations that affect the price, route, or service of an air carrier. â¢ Title 49 United States Code, section 47107, requires that the airport be available for public use on reasonable conditions and without unjust discrimination, and air carriers making similar use of the airport be subject to substantially comparable charges. â¢ Title 49 United States Code, section 47133, prohibits the use of airport revenues generated on site from being used for anything except the capital or operating cost of the airport. 114 Passenger Air Service Development Techniques
In addition, as a condition for accepting federal funds, airports must also abide by particular grant assurances. Among those is the requirement that airports must not discriminate economically among users. Airports must be made available for public use on reasonable terms and without unjust discrimination to all types, kinds, and classes of aeronautical activities. FAA Policies The FAAâs policies toward using airport revenues to fund incentive programs are also articulated in two major policies. Revenue Use The âPolicy and Procedures Concerning the Use of Airport Revenueâ (15) makes specific ref- erence to using airport revenue as part of an incentive program. Under this policy: â¢ Expenditures for promoting an airport, promoting new air service and competition at the airport, and marketing airport services are considered legitimate costs of an airportâs operation. â¢ Cooperative airportâairline advertising of air service, with or without matching funds, is acceptable if there is no âunjust discriminationâ regarding access to the airport. â¢ Airport revenues also can be used to pay a share of the costs for other advertising and promo- tional activities, such as regional or destination marketing, if those materials include a specific reference to the airport. Paying direct subsidies to airlines from airport funds raises questions under the revenue-use requirement. However, the FAA does not preclude other community organizationsâsuch as chambers of commerceâfrom funding a program to support new air service. Rates and Charges The âPolicy Regarding Airport Rates and Chargesâ (16) lays out the major principles that guide airport operators, including the following: â¢ Rates, fees, rentals, landing fees, and other âaeronautical feesâ must be fair and reasonable. â¢ Aeronautical fees may not unjustly discriminate against aeronautical users or user groups. â¢ Airport proprietors must maintain a fee and rental structure that in the circumstances of the airport makes the airport as financially self-sustaining as possible. Evaluation Factors for Incentive Programs In general, there are several key factors that the FAA may examine when reviewing an incen- tive program against the statutes. Common Source or Management of Funds The FAAâs ability to exercise its statutory authority depends on whether the incentive program originates with the airport authority or an entirely separate legal authority and whether the funds used to support the incentive program are derived from airport revenues. If an airport is a municipal entity, any incentives offered by both the airport itself and the municipality may be considered to emanate from the same fundamental source. In this situation, the funds may be perceived to be fungible among municipal accounts, and generally under the control of a common entity. For example, if a municipal airport and the municipalityâs economic development agency cooperate to jointly fund and manage an incentive program, the FAAâs authority reaches to that program. If incentive programs originate with the airport/municipality and a separate legal authority (e.g., the state, a local business group, or the chamber of commerce), then the FAAâs authority does not reach to the latter source. Those incentive programs would be beyond the FAAâs reach. Selecting Appropriate Techniques for Air Service Development 115
However, the FAA believes that there needs to be clear separation of the management of such incentive programs. Where airport employees actively manage or oversee the incentive program on behalf of the local business group, the FAA may find that the independence of the airport/ municipality from the business group is blurred. Timeframes The maximum length of an incentive program is ambiguous, perhaps intentionally so. One year is clearly acceptable. In some cases, 18- and 24-month programs might also be acceptable. Incentives funded at least in part by SCASDP may last for up to three years. Incentive programs should have defined âstartâ and âendâ times. Dollar Limits Incentives can be limited by total dollar amounts, where the funds are available until exhausted. Likewise, a program can be structured so that the incentives are available on a first-come, first- served basis (open to all or to a limited number), where the program ends when the funds run out. New Entrant versus Incumbent Carriers Subsidies for new entrants are acceptable for one year to mitigate the risk of entering a new market. After that first year, the carrier is no longer considered a ânew entrantâ per se, but an incumbent. All incumbents are to be treated the same (under the âwithout unjust discriminationâ clause noted above). Low-Cost Carriers versus Legacy Network Carriers Incentive programs cannot be specifically directed to LCCs, nor can they specify that only legacy network carriers are eligible. Programs have to be offered on a non-discriminatory basis. Similarly, programs may not specify limits to airfares that would be offered by qualifying carriers. Capacity, Frequency, and Aircraft Types Incentive packages may require recipients to provide an increase in capacity in particular markets but cannot specify the equipment type (e.g., B-737, CRJ 700). Similarly, programs can require increases in capacity, but should not be written in such a way that only one carrier using one type of aircraft would qualify. Incentives can vary based on incremental increases in capacity. Incentives can be differentiated based on broad âbandsâ of aircraft capacity. For example, an air- port could provide a certain amount of money ($n) for a doubling of capacity in a given market or half that amount ($n * 0.5) for an increase of 50 percent in capacity in the same given market. The FAA does not favor incentives that would support an increase in aircraft size if the car- rierâs total capacity in a given market would decrease. For example, an incentive should not be used to support two daily operations with a 70-seat RJ (totaling 140 seats) replacing three daily 50-seat RJs (totaling 150 seats). Likewise, incentives should not support operations by larger aircraft (e.g., one 128-seat B-737- 700) replacing two smaller aircraft (e.g., 50-seat CRJs). Total capacity in the market may have increased, but it did so at the cost of frequency. Markets Markets are defined by airport pairs, not city pairs. Incentive programs can specify needs to serve high-priority markets, and incentives can be provided to carriers willing to serve those mar- kets, even if another carrier is already serving that market on a nonstop basis. This is consistent with FAAâs policy to support competition. Incentives also can be used for both domestic and inter- national service. 116 Passenger Air Service Development Techniques
Clearly, FAA policies and actions on airport incentive programs are topics that could fill their own guidebook. The study team cannot claim to offer unambiguous legal guidance on the topic. Questions should be directed to the FAAâs Airports Compliance Division or an aviation attorney. Which techniques should the airport use? There is no easy answer to the question of which technique(s) a particular airport should use in approaching ASD. As this guidebook has attempted to illustrate, there are numerous factors that the community should weigh in making this decision. The two remaining factors to be dis- cussed are the preferences of the air carrier(s) the community is targeting and what has worked in similar communities. Every air carrier has certain preferences regarding incentives. That is information that the community (or its consultant) needs to understand when considering meeting with an air carrier. At an air service conference in 2008, an official from American Eagle offered one way to look at the range of incentives. As shown in Figure 8.3, his award-themed hierarchy built on the most basic, fundamental types of incentive offers: fee or cost waivers (a âbronze medalâ). The value of the incentive rose to a âplatinum medalâ for a revenue guarantee. The different levels also reflect the amount of risk that the community is willing to share. Techniques Used by Other Airports Each of the ASD techniques discussed has been used by one or more of the airports surveyed. As shown in Figure 8.4, the most commonly used ASD techniques are marketing techniques, used in an effort to promote new air service to the community and to address problems with pas- senger leakage to other airports. Most airports also provide direct subsidies to reduce carriersâ costs. Most also have hired ASD consultants to provide some analytic and presentation support. About half of the airports surveyed used minimum revenue guarantees. Interestingly, more non- hub airports than small hub airports used MRGs. This situation likely reflects those communitiesâ recognition that they need to share in the carriersâ financial risk of serving smaller markets. Conditions Where Minimum Revenue Guarantees Might Be Effective Evaluations of revenue guarantees have been cautiously positive. The U.S.DOT Inspector General noted that, of all types of incentives reviewed, revenue guarantees tended to be the most success- ful (11). The Inspector General also pointed out that revenue guarantees were much more success- ful when applied to the introduction of new service rather than the expansion of existing service. Selecting Appropriate Techniques for Air Service Development 117 More Revenue Guarantees Ground and customer serviceRisk Sharing Start-up costs Fee / cost waivers, marketing funds Less Platinum Gold Silver Bronze Figure 8.3. Differing levels of incentives reflect different levels of risk sharing.
Industry officials believe that revenue guarantees can be used more effectively to target service from a true new entrant into a market rather than supporting new service from an incumbent (e.g., service to a new hub to improve directional passenger flow). Recall that the amount of funds needed to support a revenue guarantee has increased significantly over time. It is not uncommon now for airports to offer $1 million in guarantees, depending on the airline, aircraft type, frequency, and destination (stage length) at issue. Conditions Where Guaranteed Ticket Purchase Programs Might Be Effective The primary goal of the travel bank is to overcome certain barriers to entry and reduce the time it takes for a new entrant carrier into a market to break even. The key barriers to entry in small markets are usually marketing related. Key barriers include name/service/brand awareness and the established frequent flyer base that incumbent carriers have. Incumbents also may have purchase agreements in place with major local employers. Because the travel bank contract with individual businesses usually includes a âuse it or lose itâ provision, early use of travel bank funds (i.e., ticket sales) is promoted. A consultant with experience in travel banks noted that 80 percent of travel bank funds are typically used in the first three months of service. For travel banks to succeed, the local economy must be solid or the community will be focused on more pressing issues. In addition, because travel banks are a businessâairline proposition, the business community needs to have a sense of urgency about air service. If the business community is well organized and has that sense of urgency, it can create a travel bank. Organizing the travel bank also requires a local âchampion.â Travel banks have typically been organized by chambers of commerce or economic development councils, but they still need strong individual leadership 118 Passenger Air Service Development Techniques 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Other Hired consulting firm Marketing Assistance -- Carrier Match Marketing Assistance -- No Carrier Match Direct subsidies Guaranteed ticket purchase Revenue guarantees Non hubs Small hubs Total Figure 8.4. ASD techniques used by small airports.
to make them work well. Getting businesses and individuals to put their money behind an airline is a tricky task. Conditions Where Cost or Fee Waivers Might Be Appropriate Cost waivers are always appropriate when trying to attract service from a new entrant or to introduce service that would require local passengers to change established travel patterns. As noted previously, airlines consider subsidies to be prerequisites for new entry into any markets where the profitability of a service is uncertain. This is a simple matter of risk-sharing between the airline and the community. Airports and communities must be ready to offer cost waivers of 6 to 12 months to offset the carrierâs risk. Subsidies may also be considered appropriate in cases such as inbound charter operations, in which a local tourism development agency may wish to subsidize a loss-making air service, knowing that the subsidy amount will be made up for with additional tourist spending. Conditions Where Marketing and Advertising Might Be Appropriate In its analysis of the SCASDP, the U.S.DOT Inspector General noted that airlines operating in small communities typically have limited resources to invest in marketing designed to stimulate demand. The Inspector General reported that using funds for marketing programs in support of other programs like revenue guarantees or cost subsidies can stimulate demand by increasing awareness and reversing leakage. Using ASD funds for marketing without other efforts may not be as effective. That is difficult to say with certainty, however. Huntsville (Alabama) International Airport and community believe that enplanements and revenue increase each time they undertake a new media effort. Huntsville has relied extensively on various marketing campaigns over the years to combat traffic leakage to Birmingham, Alabama, and Nashville, Tennessee. All three cities are located on the same interstate highway, which provides easy access for Huntsville passengers to drive to alternative airports. Huntsville is located approximately 100 miles north of Birmingham and 120 miles south of Nashville. Huntsville devoted $100,000 to its âRocket City to Motor Cityâ campaign announcing new service to Detroit on Northwest Airlink in 2002, $50,000 to announce new nonstop service to New York on US Airways in 2003, and $100,000 to support its âSay Hello to Lower Faresâ campaign. Conditions Where Consultants Might Be Appropriate Almost without exception, the air carriers surveyed as part of this study agreed: smaller com- munity airports should retain a knowledgeable ASD consultant. The well-known air service consulting firms in the United States all have staff with airport and airline experience. They under- stand how airlines make decisions in markets; they are familiar with the information that airlines want to see; they have contacts at most if not all of the airlines that serve smaller communities; and they have experience in analyzing markets realistically. These firms also have conducted leak- age surveys, and theyâve worked with community stakeholder groups. They speak the language of air service development on a daily basis. Another option is to engage ASD consultants for only certain aspects of an ASD effort, such as completing leakage studies or route traffic and profitability forecasts. Using consulting firms is almost always appropriate if airports do not have the data and analytic expertise available in-house. For most smaller communities, that is usually the case. Techniques Peer Airports Have Used Tables 8.1 and 8.2 indicate what percentage of the 41 airports that participated in the project survey applied various ASD techniques. Table 8.1 shows what percentage of airports applied the ASD technique to the major underlying competitive problems that the airports identified. Table 8.2 Selecting Appropriate Techniques for Air Service Development 119
shows what percentage of airports applied the ASD technique in an effort to advance their highest priority ASD goals. Basic âmarketing and advertisingâ were excluded as one of the ASD techniques, because virtually every airport applied some form of marketing and advertisingâTV, radio, print, promotions, billboards, and/or Internet. For example, Table 8.1 shows that, of the airports that regarded inadequate capacity to be one of their key air service problems, 29 percent used a travel bank to try to attract new service. Similarly, Table 8.2 shows that, of the airports that regarded service to a new hub as one of its top priorities, 13 percent used a travel bank. As noted with each of the ASD techniques described previously, there are numerous examples of airports that achieved their objectives of retaining their existing service, lowering pricing, increasing frequencies, or adding service to a new hub or location. For example, LawtonâFort Sill Regional Airport is an example of an airport that has successfully implemented a revenue guar- antee to support service to a new hub. Obviously, just because a technique might have worked at one locationâfor example, Redmond, Oregonâs successful use of travel banks or Daytona Beachâs success with revenue guaranteesâ does not ensure that it would work at any given airport. Each airportâs situation is different. Fundamental economic conditions have certainly changed now compared to when these airports planned and implemented their ASD efforts. Further, just because an airport was successful with one ASD technique does not necessarily mean that the airport would not have achieved the same result with a different technique. 120 Passenger Air Service Development Techniques Identified Air Service Problems Revenue Guarantee (%) Travel Bank (%) Cost Subsidy (%) In-kind Contributions (%) Hired Consultant (%) 1764174116hgihootseraF 2782277165CCLnafokcaL 0544657176elbailernuecivreS Top destinations not served with nonstop flights 50 17 67 28 72 6544871198sthgilfsuotiucriC Difficult connections at hubs 80 13 80 53 67 Service not with mainline (i.e., large) aircraft 63 25 88 50 50 Service not with RJ 86 29 71 36 57 Inadequate capacity 65 29 82 41 65 3553748195rehtO Total respondents = 41 Highest Priority ASD Goals* Revenue Guarantee (%) Travel Bank (%) Cost Subsidy (%) In-kind Contributions (%) Hired Consultant (%) Retain existing service 59 18 68 45 64 Lower pricing 58 17 58 42 75 Improve reliability** 50 17 17 0 50 Need to upgrade service** 0 50 50 50 50 Add frequencies 46 15 62 46 69 Add service to a new hub 80 13 80 53 73 *Goals limited to those identified by airports as being their first or second priority. **Fewer than 10 airports identified these goals as among their first or second priority. Table 8.1. Percentage of respondents who used ASD techniques to address their air service problems. Table 8.2. Percentage of respondents who used ASD techniques to advance their air service goals.
Summary â¢ There are no guarantees in air service development, especially when economic conditions are as volatile as they have been in the past several years. One clear trend has emerged with how airlines provide service to small communities: carriers now see those communities as true partners in the success of the service and require them to participate in the financial risk of deploying the aircraft and crews on new services. â¢ In return, communities should remember that an airlineâs commitment of expensive aircraft and well-trained crews is just as much of an investment in their community as a manufacturing plant of similar value, and it should be supported accordingly. â¢ ASD techniques are the principal ways in which communities share in the financial risk. As they escalate in complexity and financial participation, they also tend to increase in the extent to which carriers appreciate them. â¢ Many smaller airports likely need professional assistance from ASD consulting firms to assist them with various types of analyses in support of these efforts. There are many different ways to work with consulting firms, not necessarily all expensive. Selecting Appropriate Techniques for Air Service Development 121
122 Communities and airports are often convinced that their region will âobviouslyâ support new service. How they go about communicating that belief to airlinesâwhich are naturally skeptical of any uncertaintyâcan substantially influence the carrierâs decision to operate there. Having defined their goals, identified resources, involved stakeholders, selected ASD techniques, and built the business case, the task now is to communicate the results in a compelling manner. This chapter discusses some ways in which ASD teams can approach this near-final step. What should ASD teams and communities expect? Just as it takes time for a community to prepare its ASD analysis, it can also take a long time to successfully make the case to an airline. It can even be a multi-year effort. Communities and stakeholders need to understand that the airlines are making decisions about where and how to deploy assets worth millions of dollars. Their planning horizon is relatively long, and decisions to move assets involve complicated financial and operational assessments. Decisions to add or expand service are not made lightly or hastily. Airlines frequently revise their rankings of cities to add to (and often subtract from) their net- works. Airports have several opportunities throughout the year to present their cases to the air- lines. Besides meetings at airline headquarters, airports have the chance to make their case to the carriers at several industry events throughout the year. Presenting your case to the airlines is not a âone-shot deal.â Moreover, presentations will differ depending on the nature of those meet- ings (e.g., industry conferences or headquarters meetings) and whether the target airline is an incumbent or new entrant. What information do other airports present to airlines? In the survey of airport officials, the study team found that most airports presented basically the same types of information to airlines. As illustrated in Figure 9.1, almost all airports surveyed reported that they presented a âbusiness caseâ to targeted airlines. Small hub airports consis- tently tended to present more information than non-hub airports. What data and information do the airlines want to see? Virtually all U.S. airlines have O&D, departure, and enplanement data that are at least as detailed and timely as anything that an airport can provide to them. Thus, the airlines are less interested in this readily available data. What they really want to see is information that they do not usually collect or to which they do not have easy access. This could include items such as local C H A P T E R 9 Making a Compelling Case to Airlines
Making a Compelling Case to Airlines 123 economic and demographic data, details about local businesses and their travel habits, informa- tion about local civilian and military government facilities, and local tourist attractions that drive inbound leisure traffic. The survey asked airlines about what mattered to them when examining small markets for new or additional service. They identified their highest priorities from a flight-scheduling and route-planning perspective, as shown in Figure 9.2. 0 20 40 60 80 100 Other Business Travel Information Research on Leakage Demographic and Economic Data Projections or forecasts Route analysis Business case to airlines PercentSmall hubs Non hubs Total woLhgiH ytiroirPytiroirP 54321noitamrofnifoyrogetaC Economic & demographic data Actual or potential market demand Airport operating cost data Airport infrastructure (e.g., gates, runways) Slots or congestion Incentive programs Figure 9.1. Information that airports present to carriers. Airlines want to see information that they do not usually collect or to which they do not have easy access. Figure 9.2. The kinds of information carriers are interested in according to survey results.
124 Passenger Air Service Development Techniques Local Economic and Demographic Information Airlines gather and analyze significant amounts of data, but they generally do not have in-depth demographic information on smaller markets. Some of the demographic data that the airlines usually want to see include specifics about changes in population, population density, average household income, and effective buying income. Business Activity The most important information about a community that most airlines want to see is the strength of local businesses together with their travel habits. Because business travel is the most desirable (i.e., profitable) component of the overall travel market for all of the legacy carriers and many of the LCCs, it is clear why this type of information is so valuable to them. Of course, there are exceptions to this concept as a few LCCs focus almost exclusively on leisure travel. The most important business information that a community can supply to the airlines includes the following: â¢ The names and descriptions of the communityâs largest and most prominent businesses â¢ Total employment at each of those businesses â¢ Inbound and outbound travel demand, especially to an airlineâs hubs and major cities â¢ Travel patterns of particular businesses/corporations â¢ The ratio between domestic and international travel in the aggregate as well as for individual businesses â¢ Information on existing corporate contracts and the willingness to enter into new contracts with the target airline â¢ Business feedback about the quality and desirability of current service â¢ The availability of financial support from the business community â¢ The existence of a business-backed airport support organization (such as an ASD task force) If the proposed new market is heavily oriented toward business travel, it is valuable to high- light the potential business travel patterns between both endpoints of the route. For example, a company that is headquartered near the ASD teamâs airport and has a large office or plant near the airport being targeted for nonstop service presents a compelling business synergy. Tourism Tourism information also can be useful to the extent that it details potential support from major tourism organizations. The most important tourism information that a community can supply to the airlines includes the following: â¢ The names and descriptions of the communityâs largest and most prominent hotels and resorts â¢ The number of rooms and the number of annual conventions at those hotels and resorts â¢ The names and descriptions of the communityâs largest and most prominent tourist attractions â¢ The inbound travel demand for those attractions, especially the ratio between domestic and international demand â¢ The names and descriptions of the communityâs largest and most prominent members of the local convention and visitors bureau â¢ The availability of financial support from the tourism industry For example, Hailey, Idaho, near the famous Sun Valley ski resorts, used a SCASDP grant to win service from Horizon Airlines to Los Angeles. After the grant expired, a local resort funded a min- imum revenue guarantee to Horizon. Horizon now offers the service without a grant guarantee. In addition, the grant helped convince Horizon to add another flight to a new destinationâ Oakland, California.
Government and Military The government and military component of a local economy tends to have a relatively lower impact on most communitiesâ travel demand than business and tourism components, but it gen- erally tends to be fairly steady in volume. The most important government and military infor- mation that a community can supply to the airlines includes the following: â¢ The names and descriptions of the communityâs largest civilian and military facilities â¢ The staffing levels at both types of facilities â¢ The growth plans at those facilities, including the impact of the governmentâs military base realignment and consolidation process â¢ The government- and military-related corporate inbound travel â¢ The government and military outbound travel to other facilities and bases, especially to an air- lineâs hubs and major cities Some communities such as Norfolk (see Figure 9.3) can have a large number of military and government installations in their areas, which can contribute to substantial demand for air service. Actual or Potential Demand Airlines the study team spoke with were quite clear: the most important information concerns the actual or potential demand at a community. While these data are generally available to the Figure 9.3. Norfolk is surrounded by government and military installations. Making a Compelling Case to Airlines 125
126 Passenger Air Service Development Techniques airlines, communities and airports need to present this type of data to a target airline in the most favorable way. Doing so will give a target airline a better understanding of the airportâs overall service levels and indicate how a target market fits in with the airportâs other service offerings. Four primary statistical areas should be covered: current service, current O&D market rankings, current onboard data, and passenger seasonality. Current Service These statistics will provide a target airline with (1) the number of airlines currently operat- ing at the airport; (2) the total number of destinations served, both domestic and international; (3) the number of flights offered by destination and by airline; and (4) the aircraft types flown in each market. Current O&D Market Rankings These market-specific statistics (see for example Figure 9.4) will provide a target airline with O&D rankings by route and by airline. The rankings can be based upon any number of items, such as airport name, airport code, passengers, passengers per day each way (PDEWs), revenues, average fares, and yields. Multi-quarter or multi-year trends for any of these items can also be shown. Current Onboard Data These operational statistics provide a target airline with data by route and by airline. The data can be sorted based upon any number of items, such as destination airport name, airport code, 0 50 100 150 200 250 MC O SA N OR D JA X TP A LA S LA X DF W BW I LG A SE A DT W MD W DE N FL L AT L EW R CL E ST L IAH PV D PH X SA T BO S BN A O&D Passengers Per Day Each Way Note: Data are for the 12 months ending March 2008. Figure 9.4. Example of top 25 O&D markets for Norfolk, Virginia.
passengers, departures, RPMs, ASMs, and load factor (see Figure 9.5). Multi-month, multi-quarter, or multi-year trends for any of these items can also be shown if important long-term trends can be established. Passenger Seasonality These statistics will provide a target airline with month-by-month variations in passenger totals. The information is useful in helping suggest any possible needs to change service levels in a target market during the year to reflect seasonal variations in passenger figures. This analysis can be performed using either onboard data or airport enplanement data. (See Figure 9.6.) Airport Costs Airport-related costs are one of the most important elements of a proposal for the airlines. Airlines need to know what costs they will incur at an airport in order to better match revenues to expenses. In addition to the absolute costs, your airport also needs to provide information on cost trends and benchmarks against competing airports. Target airlines usually want to understand the cost trends at your airport. These trends are influenced by many factors including national and even international events, as well as those fac- tors more specific to individual airports, such as passenger enplanements, concession income, other airport rental income, federal and state grants, and borrowing costs. It is also important that the target airline be aware of an airportâs plans that would impact its cost levels, most likely to cover terminal and runway expansion, or both. At both current and projected airport cost 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IAH (CO ) MC O (DL ) OR D ( UA ) LA S (W N) AT L (D L) CV G ( DL ) MS P (N W) MI A ( AA ) OR D ( AA ) DT W (NW ) ST L (A A) IA D ( UA ) DF W (AA ) CL E (C O) EW R ( CO ) JA X (W N) MC O (WN ) BW I (W N) MD W (WN ) CL T (U S) TP A (W N) JF K ( DL ) PH L (U S) PIT (U S) DC A ( US ) BO S (D L) LG A (U S) RD U ( US ) Load factor Note: Data are for the 12 months ending March 2008. Figure 9.5. Example of load factors by market for Norfolk, Virginia. Making a Compelling Case to Airlines 127
128 Passenger Air Service Development Techniques levels, a cost per enplaned passenger figure should be provided to the target airline, ideally with comparative figures for similarly situated airports. Airport Infrastructure An airline needs to be shown that the new service being proposed can be operated based on an airportâs current infrastructure (e.g., runways, tarmacs, holding areas, jetways, gates) or improvements that are now planned or under way. The airlines the study team spoke with did not consider this to be a major priority, because it was largely considered a âgivenâ that small communities would have adequate available runways and gates. However, information on any planned or potential construction would be important to convey to a target airline. Availability To begin service in a targeted market, an airline must know what facilities will be available on an immediate basis (i.e., prior to and at the inauguration of service), and, to the extent that changes to the available facilities are contemplated, on a near-term (perhaps three to six months) and medium-/long-term basis (beyond three to six months). Communicating facility availabil- ity to a target airline is critical because aircraft allocation, staffing, advertising, and financing of the operation must be planned and must occur at specific intervals to ensure the successful start of the new route. Construction Plans If airport infrastructure improvements are planned or under way, the target airline must be aware of those activities so it can understand the likely impact of those activities on its potential new service. The issues to be discussed with the airline include (1) the timing and location of the 0 50 100 150 200 250 300 350 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Passengers (000s) Annual average Note: Data are from Norfolk, VA, for 2007. Figure 9.6. Example of airport passenger traffic seasonality.
improvements; (2) the impact of the improvements on the target airlineâs operations; (3) over- all funding availability; (4) the target airlineâs contributions to the improvements; and (5) total other carrier contributions. Airport Slots If the airport is proposing new service into a slot-controlled airport, it should recognize that the targeted airline will face an additional complication beyond the normal route forecasting issues. For every flight added at such an airport, another one must be removed, thus making the routeâs forecast financial results much more criticalâan airline will not replace a more profitable flight with one that is less so. Fortunately, there are only a few slot-controlled airports in this country, and with the exception of the New York City area, they are located in regions that have other major non-controlled airports nearby that could meet a small communityâs service needs almost, if not equally, as well. Incentives Incentives or fee waivers have become an accepted fact of life for airports of all sizes trying to attract new service. For example, an airport may waive landing fees and terminal rental fees for the first year of service to defray start-up costs. Clearly, the type of service being sought and the size of the airport will directly affect the amount of waivers that target airlines will want to receive. These waivers are usually offered during an airlineâs first year of service in a target market, and they pro- vide help to offset some of the financial risk that the airline assumes while the market grows. The airport should include as part of its presentation a discussion of the incentive program or the greater ASD effort and whether the service being sought would qualify. Detailed Route Forecast The route forecast is a critically important part of any proposal that will be presented to a tar- get airline. It represents the culmination of the analysis that the ASD team has completed. It is an airportâs best estimate of how successful the new service will be. It essentially tells the airline how the new service could be operated, how it would compare to similar services by that or another airline, what the operational and financial assumptions and results would be, and whether it would be a meaningful contributor to an airlineâs bottom line. Thus, the final major component of building a realistic and compelling case to present to the airlines requires ASD teams to prepare the detailed route forecast. There are eight critical ele- ments of that forecast: the proposed schedule, the aircraft type, a comparison to similar new mar- kets, operating assumptions, financial assumptions, forecast operating results, forecast financial results, and a financial sensitivity analysis. Proposed Schedule To illustrate the communityâs desired departure and arrival times and indicate a basic under- standing of the target airlineâs operations, the route forecast should include proposed times of each flight in the target market (in both directions), as well as any potential connections at a hub airport, if appropriate. Figure 9.7, for example, illustrates the potential connectionsâwith departing timesâof a flight from Baton Rouge Metropolitan Airport (BTR) to Denver International Airport (DEN). Aircraft Type This part of the route forecast should include the aircraft type, the seating capacity, and the seating configuration (classes of service) of the aircraft projected to operate in the target market. Making a Compelling Case to Airlines 129
130 Passenger Air Service Development Techniques This level of detail indicates to the target airline that the community has researched the appro- priate capacity/frequency mix for the target market and understands the airlineâs operating phi- losophy in markets with similar traffic and operational characteristics. Comparison to Similar New Markets This part of the route forecast should include a comparison of the proposed route to similar routes flown by the target airline to strengthen the case for the target market. This route com- parison would show the frequency of service offered, the aircraft type flown in each market, the destinations served from each market, and the load factors achieved in each market for the rel- evant time period to emphasize the strength of the proposed service. In essence, a community would be asking the target airline to apply the same fundamental operating formula to the proposed market that it uses in similar communities. The theory is that it is usually easier to convince an airline to replicate the type of service that it has in place in similar markets than it is to successfully argue that a new operating formula should be devised. Operating Assumptions This part of the route forecast should include multiple critical operating assumptions so that the airline understands the basis for the ASD teamâs estimates and can better compare those assumptions with those it makes internally. These assumptions should include the following: â¢ The base year for O&D traffic â¢ The forecast year for O&D traffic (reflecting the first year of operations in the target market) â¢ Projected market growth rates â¢ Any âstimulation ratesâ (reflecting growth beyond normal rates due to the start of new or additional service and/or the introduction of lower fares, in the target market) â¢ Any adjustment to account for traffic in international markets carried on foreign carriers that is not reported to the U.S.DOT â¢ The projected departure completion factorâthat is, the percentage of all departures that the ASD team projects that the airline will complete during the year Flight Origin Destination Depart Arrive 9901 BTR DEN 600 745 9003 BTR DEN 1430 1615 9002 DEN BTR 1035 1400 9004 DEN BTR 1900 2225 PDX 0825 SEA 0825 SFO 0825 SNA 0825 ABQ 0830 BOI 0830 GEG 0830 LAS 0830 LAX 0830 PHX 0830 SJC 0830 SMF 0830 ELP 0835 TUS 0835 SAN 0845 SLC 0845 BTR 0600 0745 DEN Figure 9.7. Potential connections for new service.
Financial Assumptions As with the operating assumptions, this part of the route forecast should describe the critical financial assumptions made so that the airline understands the basis for the ASD teamâs estimates and can better compare those assumptions with those it makes internally. These financial assumptions include the following: â¢ The base year for fares â¢ The forecast year for fares (reflecting the first year of operations in the target market) â¢ Any fare adjustment factors (such as a fare premium for a marketâs first nonstop service or a fare reduction to reflect the introduction of new LCC service in the market) â¢ The source of the data (e.g., U.S.DOTâs Form 41 database) and base year for direct and indi- rect costs â¢ Any cost adjustment factors (such as revisions to one or more cost elementsâsuch as fuel or salariesâto account for known or expected cost changes since the base year) Forecast Operating Results This part of the route forecast shows the projected summary operating results for the target market. Key elements include the following: â¢ Local and connecting passengers â¢ Departures flown â¢ Revenue passenger miles (RPMs) and available seat miles (ASMs) â¢ Projected load factor (percentage of seats filled) â¢ Target airlineâs route market share â¢ Traffic diversion off of existing flights or services, if any Forecast Financial Results This part of the route forecast shows the projected summary operating results for the target market. Key elements include the following: â¢ Daily and annual passenger and freight/cargo revenues â¢ Daily and annual direct and indirect expenses â¢ Daily and annual operating profit â¢ Projected yield (passenger revenue per RPM) â¢ Passenger revenue per ASM (RASM) â¢ Cost (total operating expense) per ASM (CASM) â¢ Breakeven load factor (percentage of seats required to be filled for passenger revenues to equal operating expenses) â¢ Contributory beyond revenues, that is, revenues associated with additional passengers carried on connecting market sectors as a result of new service in the target market Financial Sensitivity Analysis The final part of the route forecast should include the impact of potential changes in the forecast RASM and/or CASM on the airlineâs forecast operating margin in the target market, if the actual operating and financial results should differ from the forecast. For example, as shown in Table 9.1, the âbase caseâ assumption is that a carrierâs CASM will be 13.85 cents, and it will earn an average yield of 20.39 cents, producing an estimated operating margin of 11.0 percent. The sensitivity analysis shows that if the CASM rose 5 percent to 14.54 cents and the yield did not change, the estimated operating margin would fall to 6.6 percent. If CASM was 14.54 cents and yield fell 5 percent to 19.47 cents, the operating margin would drop to an estimated 1.9 percent. Making a Compelling Case to Airlines 131
132 Passenger Air Service Development Techniques How should the information for presentations to airlines be organized? Presentations should be tailored to match the type of meeting that is taking place with the air- line representative. The depth of analysis can vary from airline to airline, so it is important to clearly understand your audience. Some of this information may be generic in nature and can be cross-utilized in other airline presentations, while other information should be highly customized for the target airline in question. Generally speaking, the more advanced the talks, the greater the level of specificity that should be included in the presentation. Many ASD teams struggle to organize material in a manner that flows logically. Following is a general guideline for the main topics that are typically covered in an ASD presentation. These presentations can vary depending on the length and objective of the meeting. Meetings at industry conferences such as JumpStart or Network are limited to 20 to 25 minutes, so a general rule would be to include no more than one slide per minute. Airline headquarters meetings are typically 60 to 90 minutes long, allowing greater depth in presenting the ASD teamâs business case. Table 9.1. Example of operating margin sensitivity matrix. Yield / RPM -10% -5% 0% 5% 10% 18.35 19.47 20.39 21.41 22.42 10% 15.23 5% 14.54 CASM 0% 13.85 -5% 13.16 -10% 12.46 11.0% 15.5% 19.9% 23.5% 26.9% 19.3% 22.8% 15.0% 18.7% 2.1% 6.5% 10.6% 6.6% 10.8% 14.7% 11.5% -2.8% 1.9% 6.6% 11.2% 15.9% -8.2% -3.3% 1.7% 6.6%
One option for presentation organization Figure 9.a is an example of a cover for an airline pre- sentation. ASD team presentations to airlines can be organized in many ways. The following is one option. Overview: General introduction to the airport and its catchment area. Highlight the things that make the airport special or different. Core demographic and economic information: Define the core catchment area population. Highlight demo- graphic and economic metrics such as per capita income, retail sales, unemployment rates, etc. Focus on the factors in which the catchment area performs better than the U.S. national average and/or nearby competing airport catchment areas. Convince the air- line that this market offers them the best opportu- nity for their next available aircraft. Local business development: Point out key business developments in the community, particularly with the areaâs largest employers. Discuss new economic activity and job growth. If the area is a leisure destination, highlight issues such as growth in hotel rooms, occupancy rates, and visitor arrivals. Traffic developments: Highlight the airportâs traffic growth trends. Provide at least five years of traffic statistics to illustrate trends. If passenger leakage is a significant problem, offer evidence in support of the marketâs true demand. Route opportunities: Provide the compelling business case for the specific route(s) targeted for new or enhanced service. Provide projections and forecasts of passenger traffic, with yields or fares and revenues. Highlight business relationships between the city pairs. Incentive program: If the airport has an established incentive program, provide a high-level overview of the program and highlight how the proposed new service could qualify. Airport developments/improvements: Tout the capi- tal improvement projects that have recently been completed and/or are under way. Highlight airfield and terminal improvements. Conclusions: Propose next steps, ranging from a follow-up conference call to an in-person meeting. If the meeting occurs at an industry conference such as Network or JumpStart, try to secure a follow-up meeting at the airlineâs headquarters. Figure 9.a. Cover of a Baton Rouge Metropolitan Airport pres- entation to Frontier Airlines. Making a Compelling Case to Airlines 133
134 Passenger Air Service Development Techniques How should an airline be approached? Figure 9.8 illustrates a common process that airports go through when approaching an airline for developing new service. It is important to remember that attracting airline service is not a âone shotâ event. Making an initial contact with an airline at an industry conference, and then following up with the airlines at a headquarters meeting, can be a fruitful approach. Securing air service may require a prolonged effort: a number of industry conferences and headquarters meetings may be required. Therefore, airports (and community groups) need to adjust their expectations accordingly and focus on establishing a rapport with the targeted airline. The ini- tial meeting is the first step in a process that may take a number of months or years. ASD-Related Conferences When a community is interested in attracting a new airline to serve its airport, the first point of contact is frequently an airline industry conference. These conferences provide an efficient way for airports and airlines to interact. The conferences provide a forum for short 20- to 25- minute sessions between airports and airlines. At those sessions, airports have the opportunity to present an overview of their arguments to airlines on why new service may make good busi- ness sense. However, airlines may decline an airportâs request for a meeting. They may have higher priority meetings with other airports. Also, certain airlines, such as Allegiant, have cho- sen to host their own invitation-only conferences. Generally, airlines and conference organizers prefer that an airportâs delegation not exceed two people, given the relatively short duration of the meetings. The ASD manager and the ASD consultant (if any) can present the relevant information. Figure 9.8. Sample ASD timeline.
Most small airports cannot afford the time or the budget to attend every conference that is avail- able. Therefore, they must choose which conferences to attend, based on their ASD objectives and budgetary constraints. Each conference has a slightly different nuance and target audience. ACI-NA JumpStart JumpStart was launched in 1997 as a means for smaller airports to meet with multiple airlines in a conference setting. JumpStart is overseen by Airports Council InternationalâNorth America (ACI-NA) and occurs each June. The conference focuses on North American airlines and airports, although the breadth of attendees has grown to include some international airlines and airports. Smaller airports generally regard JumpStart as their opportunity to interact with major U.S. and Canadian carriers. A majority of small hub airports that were surveyed reported that they met with airlines at JumpStart, but less than half of the non-hub airports reported meeting airlines there. Network Network USA has been in existence since 2001. This conference is organized by Flight International, based in the United Kingdom. The focus of Network is North America, with increasing participation by international airlines and airports from outside the region. The March 2008 conference attracted over 120 airports and 65 airline planners, resulting in more than 1,000 one-on-one meetings. American Association of Airport Executives The AAAE conducts theme-focused conferences and events throughout the calendar year. These conferences are usually targeted at the regional level and focus more on airport operational issues than on air service development. The Great Lakes Chapter of AAAE usually hosts an annual ASD workshop. On occasion, AAAE and ACI-NA work together to organize a confer- ence or event. Headquarters Meetings Most of the airports surveyed reported that they presented their cases to the airlines directly at headquarters meetings, typically following initial contact at an industry conference. One of the challenging but strategically important aspects of setting up a business meeting between the airport and the targeted airline is deciding on the composition of the team. The nature and number of team members can vary depending on how advanced discussions with the airline have become. It is important to include information from the key stakeholders in the community, but not all stakeholders need to be present. Their information can be represented by an official from the local economic development agency or convention/tourism authority. However, the team should be strategically matched to the nature of the meeting. Representatives from the corporate commu- nity can be tactical additions to meetings with either incumbent or new entrant carriers. People to Include People who should be considered for being on the team for airline headquarters meetings include the following: â¢ ASD manager â¢ Airport director â¢ ASD consultant â¢ Representative from economic development agency (or equivalent) â¢ Representative from tourism authority (or equivalent) Making a Compelling Case to Airlines 135
136 Passenger Air Service Development Techniques Generally, airlines prefer that an airportâs delegation not exceed three or four people. Meetings are typically less than two hours long. Non-hub and small hub airports in the survey said that they often brought the following with them: â¢ Airport director or manager â¢ Consultant(s) â¢ Other airport official(s) â¢ Outside marketing professional â¢ Local elected officials (e.g., the mayor) People Not to Include Deciding who not to include can be difficult. Many airport employees are city employees. How does one say ânoâ to the mayor? Those who will add relatively little information not provided by other team members should be excluded. The relevant question is, What will it take to convince this airline to serve the com- munity, and who can best assist in making that argument? Generally speaking, from the airlinesâ perspective, elected officials are not considered to be helpful participants in a meeting. Political support can assist with finalizing the deal, but not in earlier discussions with the airline. When asked who they thought should attend meetings to discuss new or improved air service, air carriers said the following: â¢ Airport director or manager â¢ Consultant â¢ Not the local chamber of commerce (regarded as little more than a âcheerleaderâ for the com- munity) â¢ Not the mayor (regarded as generally adding no substance to the meeting) Appropriate Follow-up Effective communication is essential for successful air service development. The ASD process depends on building strong relationships with current and prospective airlines. A critical part of this is establishing and maintaining an open and ongoing dialogue with key airline planners. Year-Round Contact The ASD strategy should include consistent attendance at industry events and on-site airline headquarters meetings. It is important to remain on the radar screen of incumbent airlines, and to get on the radar screen of prospective airlines. Active participation in industry events and con- ferences can greatly assist in these efforts. It is important to gauge the level of interest of an airline in serving the airport and adjust goals and strategies accordingly, as repeated emails and phone calls could be counterproductive. On-Site Headquarters Meetings On-site headquarters meetings with incumbent carriers should not occur more frequently than once per year, and not less than once every two years. Such a frequency of face-to-face vis- its, supplemented by occasional telephone calls and email exchanges, should keep the airport abreast of key events at the airline and within the industry as a whole. The airport should pre- pare a formal presentation for this meeting, and the ASD consultant can assist in this task. Airline headquarters meetings generally last 60 to 90 minutes, so presentations that do not exceed 45 min- utes allow ample time for discussion.
Appropriate Budget Each airport should develop an ASD communication and travel strategy that matches the air- portâs budget. By analyzing the goals that the airport has set forth, the ASD team can weigh which carriers merit a headquarters meeting, which can be met at conferences, and which can be com- municated with via phone and email. Final Negotiations During the course of negotiations, the subject of incentives will likely arise. The increased competition among airports has resulted in airlines expecting that some type of incentive assis- tance will be provided to help offset start-up costs and enhance a carrierâs brand recognition in the ASD teamâs market. Once an airline has firmly established an interest in serving the ASD teamâs market, and per- haps even proposed a start-up date for the services, some negotiations may be necessary to agree upon the final details. Once an airline has bought into the business case to serve a particular route, the final details usually hinge on how to minimize costs and support marketing efforts. Summary â¢ Airlines are particularly interested in learning new information on the factors that underlie the actual or potential demand that an area may support, including demographic and economic data. Airport cost information is also important. â¢ The route forecast is an important part of any proposal that will be presented to a target airline. It represents an airportâs best estimate of how successful the new service will be. It essentially tells the airline how the new service could be operated, what the operational and financial assumptions and results would be, and whether it would be a meaningful contributor to an airlineâs bottom line. â¢ Industry events and conferences provide year-round opportunities to interact with airlines and strengthen communication. â¢ ASD teams should recognize the strategic importance of who they take to the meetings with airlines, whether at a conference or the airlineâs headquarters. Making a Compelling Case to Airlines 137
138 The final step in the cycle of ASD efforts is an evaluation of what has been accomplished. Such an assessment would provide a systematic, critical, and unbiased review and appraisal of the methods and procedures used, as well as the results obtained. Before starting a new ASD effortâ whether pursuing expanded service with the same carrier, a different carrier to a different desti- nation, or a yet-to-be-defined alternative, ASD teams must ask: What worked and what did not? Why is evaluation so important? The evaluation step is often overlooked as part of any program. But sound program manage- ment requires an evaluation to improve and build upon past efforts, whether they were success- ful or not. This evaluation should not be an exercise in assessing blame; rather, it is a critical com- ponent of the planning process and refining future ASD efforts, as shown in Figure 10.1. Evaluation âcloses the loopâ with the planning and implementation cycle. Measurement allows for improvement. How is effectiveness in ASD measured? Measuring the effectiveness of an air service initiative is conceptually straightforward, but can be very difficult to accomplish. The ASD program is generally gauged against the overall ASD goal. The basic conceptual question is: Was the airportâs ASD program responsible for the out- come, or were some other intervening factors major contributors? (See Figure 10.2.) Essentially, there are three key components needed to determine whether an ASD technique worked effec- tively or not: knowing exactly what the objectives were, measuring the outcomes, and account- ing for any other factors that may have contributed to or detracted from the efforts. Additionally, it is important to quantify the relative cost-effectiveness of the ASD program. No airport or community has an unlimited pool of resources that it can apply toward air ser- vice development. Each community (or airport, if no community funds are at risk) has to decide what the limits are on its investment in air service and what return on investment it considers adequate. Rigorous evaluations can become major econometric and financial studies. The study team is not presuming to describe in detail how an airport would conduct such a detailed analysis. To the extent that an airport or community is particularly interested in pursuing one, the study team would suggest engaging the assistance of the economics or business department of a local uni- versity, which might be able to help with the modeling as a teaching device. C H A P T E R 1 0 Evaluating and Improving ASD Efforts Sound program management requires an evalua- tion to improve and build upon past efforts. Measurement allows for improvement.
Evaluating and Improving ASD Efforts 139 Objectives Most ASD programs have relatively straightforward goals or objectives (e.g., adding ser- vice to a new hub). As discussed in Chapter 7, other commonly used objectives include the following: â¢ Retaining existing service â¢ Adding service to a new destination â¢ Adding frequencies to current services â¢ Lowering fares/introducing new competitive service â¢ Improving service reliability â¢ Upgrading aircraft â¢ Increasing access to global networks Progress toward these types of goals is easily measured. Other goalsâsuch as decreasing the amount of passengers leaked through various marketing effortsâcan require more complicated measurement to determine how well the effort succeeded. Other possible criteria against which the effectiveness of ASD programs is sometimes judged are not included here. For example, several airports reported that their programs were success- ful in part because their staff learned how to better plan and implement ASD efforts. Although that may be valuable, unless professional development was one of the formal ASD goals, judg- ing a program on that basis would not be appropriate. Identify deficiencies No Identify available resources Yes Revise program? Determine ASD goals Evaluate efforts Select ASD tools Present case to airlines Intervening factors? Previous situation ASD Program Great outcome Poor outcome Figure 10.1. Summary of the ASD process. Figure 10.2. Conceptual overview of an evaluation methodology.
140 Passenger Air Service Development Techniques Measuring Outcomes With the types of goals and objectives noted previously, measuring the eventual outcomes is relatively simple. Most common operational data will give a general sense of how the ASD program worked. (See Table 10.1) These data are available from the operating carriers and from U.S.DOT (see Chapter 5). For example, if a programâs objective was to add service from a new net- work carrier to improve passenger flows to a different part of the country or to add competition in one-stop markets, the most obvious measure is the total number of nonstop destinations served. The airport would also want to record the total number of (daily or weekly) departures, as well as some indi- cation of the total available outbound or inbound capacity, reflected in the number of available seats. Additional Measures Coupled with gaining the new service is how passengers reacted to the service. This evaluation would provide important feedback on the assumptions used in the business case (e.g., what the likely passenger response to new service over a particular hub would be, whether the new service would stimulate new travel or help re-capture traffic that was previously leaked to a nearby com- peting airport). For example: â¢ Did the service attract the number of passengers expected? What were the passenger loads? â¢ Did the service help reduce passenger leakage to other airports? â¢ Is the businessâleisure mix as anticipated? â¢ How do fares in connecting markets compare to those available before the service started? Considering the importance of maintaining existing service, particularly in difficult economic times, it is vitally important that the effects of any ASD program be considered on the incum- bent carriers: â¢ Did service to the new hub shift passengers from the incumbentâs connecting service? â¢ What happened to their load factors? Regardless of the airportâs goals or objectives, the key point to remember is that changes need to be measured that occurred not only with the targeted airline, but also with all traffic and ser- vice at the airport. Introducing any change in service may produce âripple effectsâ on other car- Goal/Objective Principal Outcome Measures Retaining existing service Departures Available seats Service from new entrant network carrier Nonstop destinations served Departures Available seats serutrapeDseicneuqerfgniddA serafegarevAserafgnirewoL Increasing access to global networks Trips with an international segment Improving service reliability Departures performed vs. scheduled On-time departures On-time arrivals Upgrading type of aircraft Available seats Table 10.1. ASD objectives and primary measures of effectiveness. Survey results Most responding airports indicated that they used basic operational data (e.g., departures, frequencies, or enplanements) to determine whether their programs were effective. Others reported that they either had no idea how to evaluate their programs or simply did not attempt any evaluation. It is vitally important to: â¢ Examine how pas- sengers reacted to the new service â¢ Consider the effects of any ASD program on the incumbent carriers.
riersâ service and passenger traffic. A full accounting of the results of the ASD program needs to incorporate considerations of those effects as well. Financial Measures Evaluation of the results of the ASD efforts should include a financial com- ponent. At even a relatively high level, the total cost per additional passenger or operation should be able to be calculated. That ânet costâ should include offsetting revenues derived from increased traveler spending on any conces- sions and parking. At the same time, itâs also important to bear in mind that air service is pro- ducing a significant economic impact on the community and region. There is a âmultiplier effectâ of dollars spent by both business and leisure travel. This effect is one reason why communities are willing to invest in attracting and retaining air service. For example, according to the Air Transport Association, the trade association that represents most large U.S. airlines, in 2005, every $100 in civil aviationârelated output generated an additional $275 in addi- tional demand, and every 100 civil aviation jobs generated 314 jobs in other industries. ATAâs estimates were based on information and a model from the U.S. Department of Commerce, Bureau of Economic Analysis. Challenges in Measuring the Outcomes of Marketing Efforts Many airportsâ ASD goals are linked to a marketing campaign. Several airports surveyed had engaged in various marketing efforts to re-capture a greater share of passengers that they were losing to nearby airports. Others were promoting service by a new carrierâwhether a mainline carrier, regional affiliate, or a niche carrier such as Allegiant. Airports also have tried to boost their local enplanements by marketing their own unique advantages and potential costs savings to travelers. For small airports these strengths might be free or inexpensive parking or the ease of traveling from an uncongested airport. Evaluating marketing efforts can be complicated. On the one hand, airports can simply track total enplanements to see if the number of passengers increased after the marketing began. That would provide a high-level measure of the result. Airports would probably want to get more in- depth information, however. Marketing is often directed at a specific market segment, so the air- port would want to understand the extent to which they reached those audiences, and whether the message achieved the intended effect. For example, an airportâperhaps working in conjunction with a local resort or attractionâ may decide that it would like to boost inbound traffic, which could be either business or leisure traffic. One market may focus on inbound leisure travel (e.g., Moab, Utah), while another may target luxury leisure travelers in conjunction with local resorts. For example, Hailey, Idaho, allo- cated $175,000 for marketing, including direct sales, direct mail, print advertising, Internet mar- keting, and radio advertising. Marketing was to be targeted at people living in the Los Angeles area who may be interested in visiting nearby Sun Valley and residents in the Sun Valley area who may be interested in traveling to Los Angeles for business or personal reasons. Sustained Changes The ASD team may have succeeded in attracting new service, but that may not mean that the ASD program was an unqualified success. Did the service become self-sustaining without finan- cial assistance? The U.S.DOT Office of Inspector General and GAO generally regard a program as being success- ful if the benefits (whether increased enplanements or new service) were sustained for 12 months. If the benefits were sustained for less than that, U.S.DOT regards the program as a âpartial success.â Survey results Roughly half of the airports that were surveyed reported that they also tracked financial effects of their ASD efforts. Measures were both revenue and cost related. For example, several tracked parking revenues and spending on concessions that correspond with changes in enplanements. Some tracked airport costs per enplaned passenger. Evaluating and Improving ASD Efforts 141
142 Passenger Air Service Development Techniques U.S.DOT provided an example of what it considers to be a âsuccessfulâ case study where a community attracted an additional carrier to serve a different hub, and illustrated the effects of new service with passenger enplanement and flight activity data (11). Figures 10.3 and 10.4 show enplanement and operations data from the U.S.DOT report that illustrate successful ASD efforts. In cases where the benefits disappeared at the end of the financial assistance, U.S.DOT consid- ers those programs to be âfailures.â It is difficult to disagree with that characterization. The ser- vice may have existed for some months and some in the community may have benefited from the service while it operated. But the bottom line is that the airport and the community invested great time and effort into attracting service that, for whatever reason, was not commercially viable. Several of the airports that participated in this project lost service during 2008. However, most small community airports lost service during the year. Some of that service had been in place for several years. Compared to November 2007, nearly every airport in the United States lost some service by fall 2008, according to schedules filed with the Official Airline Guide (OAG). Given Data from U.S.DOT (11). Data from U.S.DOT (11). Figure 10.3. U.S.DOT example of using enplanement data to evaluate ASD effort. Figure 10.4. U.S.DOT example of using operations data to evaluate ASD effort.
the volatility in fuel prices and the overall downturn in the national economy, these losses can hardly be considered a reflection on the airportsâ ASD programs. Questions About Causality Airports and communities naturally want to attribute positive outcomes to their efforts and negative outcomes to external events. More often than not, any outcome is the result of both. There are only so many events that are under the control or influence of the airport and the local community. With airline economics tied to national economic conditions, any significant change in a major external factor can affect passenger demand and revenues in a market. What is most important for airports to understand is that what may work well at one point in time may not work at another time, because of external forces. Several airports have lost service recently, despite long and productive ASD programs. In a number of markets [e.g., Daytona Beach, Bakersfield (CA), Baton Rouge], carriers discontinued service not because of anything that the airport may or may not have done, but because of a combination of factors, especially the increase in fuel prices. Who should conduct the evaluation? Most people have some difficulty objectively assessing their own efforts. People either tend to be too hard on themselves or they tend to regard their efforts as far better than third parties might have gauged. Ideally, the ASD effort should be evaluated by someone not directly associated with its design and implementationâa neutral third party would be best. But most small airports do not have sufficient staff resources with the time and capabilities to design and implement a rigorous evaluation. Who performs the evaluation then is an issue that each airport will have to handle internally, depending on its size and organization. Smaller airports will have little choice in what staff would be assigned the responsibility. Larger airports may want to ask in-house objective staff to do the evaluation. Airlinesâ financial conditions are tied to national eco- nomic conditions. Changes in the larger economy will affect passenger demand and revenues. CASE STUDY Taos, New Mexicoâs less successful efforts In 2002, Taos Regional Airport spent over $265,000 for advertising and promotion of its service by Rio Grande Air to Albuquerque using nine-seat Cessna Caravans, which had operated at Taos since 1999. (The service was also supported by a SCASDP grant, which helped fund a revenue guarantee.) The adver- tising and promotion component included billboards, newspapers, magazines, television, and radio adver- tisements. The advertising and promotion program was used to target the visitors who drive to the area, business travelers, and in-state tourists. Rio Grande continued to provide service to Albuquerque until June 2004, when the airline discon- tinued operations due to bankruptcy. An airline offi- cial from Rio Grande Air reported that the communityâs support had not sustained after the SCASDP funding was completed. But he also reported that there were many setbacks that the grant could not control, such as a drought in the region leading to a weak ski sea- son, a major forest fire that caused a drop in enplane- ments, and a drop in the overall economy. This case study illustrates the role of external factors in affecting the viability of air service. The marketing may have reached its target audience for some period of time; however, because airline profitability is often fragile (especially with small start-up air- lines), external events can have a major effect on the commercial viability of service. Airports and com- munities need to understand that what might have worked at one time in one place may not work as well at another time, due to external forces. Evaluating and Improving ASD Efforts 143
144 Passenger Air Service Development Techniques Marketing efforts may be particularly difficult to assess. Determining the extent to which various advertising or marketing campaigns produced a desired effect may require some form of passenger survey. Although some smaller airports may have staff capable of designing, implementing, and ana- lyzing surveys, most small airports contract out for their marketing cam- paigns. The study team would strongly suggest including some evaluation or feedback as part of the contract. Professional marketing firms are better able to survey target markets to determine the penetration of their messages. University economics and business departments also may be able to provide some assistance. When should an evaluation be conducted? Airports and communities must stay attuned to the aviation industry. Significant events can unfold rapidly, and communities need to be prepared to act accordingly. Therefore, airports and communities may need to reassess their goals and strategies on an ongoing basis, as circumstances warrant. Changes in the overall national economy, soaring or fluctuating fuel prices, decreases in capac- ity, and bankruptcies are ongoing issues with significant implications for an airport. It is most valuable for an airport to track its various air service performance measures regularly, as the data become available, so that it can base decisions on current information regarding how the ser- vices are operating and passengers are responding. There are two competing considerations to weigh with any evaluation. On the one hand, ASD efforts should be evaluated on an ongoing basis. Practically speaking, if some aspect of the pro- gram is simply not working, it makes no sense to wait several months to make adjustments. On the other hand, ASD initiatives and service improvement efforts can take several months to develop. It also can take additional time for any change to be recognized and acted on by the traveling public. Travel patterns and habits can be very difficult to alter. (This reality is the under- lying basis for establishing travel banks and minimum revenue guarantees.) Evaluations may need to allow several months for the public to understand and appreciate the differences in ser- vice options that are available at the airport before they accept and act on them. This time lag between service change and public reaction is particularly true if the goal was to improve the reliability of service. Several months may be necessary first to determine whether the service has in fact improved noticeably and then confirm that any improvement is not tran- sitory. How passengers react to improved service reliability can be even more difficult to assess. Many passengers who feel as if they were stranded or delayed âone time too oftenâ may be reluc- tant to use the service for quite some time. Ongoing evaluations will thus inevitably be preliminary. It would not be fair to judge the results before the service has had time to mature. The study team suggests an annual evaluation after which the airport and the community can fully assess the effectiveness of the ASD program and begin to make new or revised plans. Why do stakeholders need to be informed? Stakeholdersâparticularly those who have invested time and resources into the ASD programâ deserve to understand how well the ASD effort worked, and whether adjustments will be needed. Survey results The study team asked each airport to assess the effectiveness of its ASD efforts on a scale of 0 to 100. The average self-assessment score was 80. However, nearly three out of four respondents gave them- selves a score of 100. There was lit- tle difference among non-hub and small hub airports. Of the 41 air- ports surveyed, 40 indicated that the ASD technique(s) they used were appropriate. Ideally, an evalua- tion would be completed by a neutral third party not directly involved with the ASD pro- gramâs design or implementation. An annual evalua- tion is suggested, after which the airport and com- munity can assess whether to revise its plans.
Keeping them informed helps ground their expectations of progress toward ASD goals and addressing the underlying problems and competitive challenges. Many stakeholders who are not as involved in the aviation industry as officials at the airport are may have only a general percep- tion of developments in the industry and will need information from the airport on industry trends and how they may affect local air service needs. Many communities will not be aware of changes in relationships among regional and mainline carriers, fleet development, or the effect of fuel prices on RJs. Being able to update stakeholders on the results of efforts will help the ASD team consider whether alternative ASD techniques might be more effective in the future. Depending on the reaction of carriers to the last efforts, for example, the ASD team might want to consider addi- tional ârevenue-sideâ ASD techniques (if the carriersâ concerns focused more on the weak econ- omy) or on the âcost sideâ (if demand seemed adequate, but the carriers still held concerns about potential losses during the ramp-up period). Summary â¢ Evaluating results is an essential element of an ASD program, as it allows the ASD team to refine its approach. â¢ Several different measures of an effortâs outcome should be considered. Those measures include the immediate measures (e.g., Did service start? Did the carrier use a larger aircraft?) and other measures of passenger acceptance and airport revenues generated (e.g., incremen- tal parking fees). It is also important to assess the effects of changes on the incumbent service providers. â¢ Rigorously evaluating the effectiveness of marketing efforts can be quite complex. Most small airports that pursue a marketing campaign using an outside professional marketing or adver- tising firm should consider building some evaluation into the contract. â¢ Whether the service became self-sustaining is a critically important indicator of success. â¢ If possible, an evaluation should be done by individuals who did not directly participate in the ASD effort. Those who were involved tend to lack the objectivity that is preferable. â¢ Evaluation can occur on both an ongoing and periodic basis. Annual evaluations can be more formal than the preliminary ones that occur throughout the year. â¢ Stakeholdersâparticularly those that have invested time and resources into the ASD programâ deserve to understand how well the ASD effort worked, and whether adjustments will be needed. Keep them informed. Evaluating and Improving ASD Efforts 145
146 1. Federal Aviation Administration, The Economic Impact of Civil Aviation on the U.S. Economy, October 2008, p. 5. 2. U.S. Government Accountability Office, Commercial Aviation: Factors Affecting Efforts to Improve Air Service at Small Community Airports, GAO-03-330, January 2003. 3. Airports, June 5, 2007, p. 2. 4. U.S. Government Accountability Office, Airline Industry: Potential Mergers and Acquisitions Driven By Financial and Competitive Pressures, GAO-08-845, July 2008. 5. Bombardier Aerospace, Commercial Aircraft Market Forecast. 6. Merrill Lynch, âEnergy price rise poses material risk,â Merrill Lynch Equity Research (May 8, 2008). 7. McCartney, Scott, âAs Airlines Cut Back, Who Gets Grounded?â The Wall Street Journal (June 5, 2008). 8. U.S. Government Accountability Office, Commercial Aviation: Air Service Trends at Small Communities, GAO-02-432, March 29, 2002. 9. U.S. Department of Transportation, Office of Inspector General, Air Carrier Flight Delays and Customer Service, Report CC-2000-303, July 25, 2000. 10. Airports Council International, various benchmarking studies, http://aci-na.org/index/toolbox_bench marking_main 11. U.S. Department of Transportation, Office of the Secretary, The Small Community Air Service Development Program, Report CR-2008-051, May 13, 2008. 12. Bizjak, Tony, âAirlines say expansion is too big, costly,â Sacramento Bee, May 13, 2008, p. B-1. 13. Glover, Mark, âFight heats up on airport fees; American says increase forces flight cutback,â Sacramento Bee, May 30, 2008, p. D-1. 14. U.S. Government Accountability Office, Commercial Aviation: Initial Small Community Air Service Development Projects Have Produced Mixed Results, GAO-06-21, November 30, 2005. 15. âPolicy and Procedures Concerning the Use of Airport Revenue,â Federal Register 64, no. 30 (February 1999): 7696. 16. âPolicy Regarding Airport Rates and Charges,â Federal Register 61, no. 121 (June 1996): 31994. References