Losing Air Service

Losing Air Service…It Could Happen to Your Community!

Losing Air Service…It Could Happen to Your Community!

Losing air service…it could happen to your community. I can’t tell you how many times I hear from communities the statement: “Why did we lose air service with XX Airlines…the Flights were always packed?!” Losing air service is difficult for a community’s economy.

THE HARD TRUTH:
The flights may have been full or close to it when the person flew, but overall the flights were often not full….
or
The flights were pretty full with high load factors in general but the flights didn’t have people paying enough for their tickets and didn’t have enough revenue on them. Airlines can’t go to the bank to pay their bills and hopefully make a profit with people in seats…if these people didn’t pay enough for their ticket.

If you want to get to a situation where you are not losing air service…these people in the seats also need to spend enough dollars with the airlines to cover costs and spend enough so there is an airline profit…butts in seats doesn’t always equate to enough dollars in the airlines bank account! If you need a dollar and you get 90 cents your losing money no matter how many passengers you carry and your increasing your chances of losing air service.

Very recently, Flagstaff Arizona announced that they were losing air service on Horizon Airlines to Los Angeles. Unfortunately a small community losing air service is not usually a big news item in these times of many airlines reducing capacity and service. What makes this incident of note, is that Horizon not a month or so before this discontinuance of service announcement, had advised Flagstaff that the flights were profitable!

You may ask how can a community be losing air service when the service is profitable?! The answer is actually simple and goes to THE BIG TRUTH of Airline Service Development…

“Profit alone doesn’t make community air service secure. Making a bigger profit than if the airline used the plane to fly to another community helps but also important is a profitable service that fits in with the airlines system and business plan!”

THE BIG TRUTH is exactly what Horizon shared with the Flagstaff community. Yes the flight was profitable…unfortunately for Flagstaff they were on the bottom of the profitability list of airports Horizon had service to at a time when Horizon was going to see a reduction in aircraft. Horizon had to cut service. Like a good business will…Horizon kept their most profitable service and cut service from their least profitable service communities when they have to make cuts…including cutting service from Flagstaff. It’s sad but profitability is not a protection against losing air service.

You may ask why doesn’t the airline just get more equipment?
If the service is profitable why not get or keep enough planes to fly all profitable routes? Good Question but with logical answers. In an industry that has reduced capacity and thus flights to get to an overall pricing power position needed to drive their whole systems to profitability…you don’t just casually add or keep planes and flights. Those extra flights could put too many seats in the system driving down system airfares and jeopardizing more of an airlines overall system flight schedules ability to make a profit. Many more communities would experience losing air service if the airlines put in too much capacity.
Additionally an extra aircraft isn’t an inexpensive thing to buy…Aircraft cost tens of millions of dollars and sometimes hundreds of millions of dollars. It is a costly asset and not something purchased like a box of pens. Aircraft of the right size and type are not always available to just buy and put into an airlines fleet. Also…if your lease is up on an aircraft it has to go unless you extend the lease, then you have to look at the costs of doing this. The extra costs of maintaining an extra aircraft type with maintenance, training etc…can move a profitable route to one that is non-profitable.
What is a community to do if even when their commercial air service is profitable they can experience losing air service?

“Airline Revenue Guarantees or other incentives can help especially if the community has a sustained ability to offer risk abatements.”
It turns out that Flagstaff originally offered subsidies and other start-up support to get the Horizon Los Angeles Flight in the first place. High six figure level support. Unfortunately, often, start-up cost abatements are only helpful as long as the communities funds are available. It’s an old story that often, the airlines will leave after these funds have been fully depleted. Revenue guarantees or other risk abatements can stopa community from losing air service.“Having professional airline management of service can give both an early warning system for a flight that is not doing well AND can offer expert guidance for maximizing flight loads and revenue to help strengthen your service to avoid flight cuts.”

Flagstaff’s funds were for start-up support. If they had an ongoing program with consistent funding source availability…Horizon could have gone back to Flagstaff and allowed them the chance to move them up the profitability ladder via extending a revenue guarantee and Horizon could have cancelled another communities service instead of their losing air service.Better still, with professional air service management Flagstaff could have gotten an estimate of how their service performed against other Horizon markets and taken proactive action to elevate their performance so that they were closer to the top in market performance and not the bottom. Knowing Flagstaff’s investment for air service was short-term and not a longer term support that was sustainable… Horizon cancelled the service and didn’t make the call about their planned discontinuance of air service until after executing on the decision.

If a community is generating a profitable service why would they even consider offering a revenue guarantee or other incentives?

In the present environment…there are fewer aircraft available for a growing number of communities who want the air service and the large economic development and activity that the air service can generate.

 

Let me put it this way…
If a flight drives $10 Million Dollars or more in economic activity in a community, investing $200,000 in a revenue guarantee or other incentive to keep the air service could make economic financial sense! The fact that in many instances, a community will add 1 more job for every 100 visitor arrivals by air is another benefit to air service. There are many trickle down benefits for not losing air service. 

In my role as Executive Director of the Telluride Montrose Regional Air Organization (Until Dec 2012) I’ve pursued, obtained and supported commercial air service via revenue guarantees that have delivered a strong return on investment. I’ve created benchmarks so that my community can decide what the ROI of an air service needs to meet to produce a satisfactory or better ROI and what other benchmarks a community should develop to best manage an air service development program that is worthwhile and drives strong community economic activity and impacts. A well run program can grow air service instead of experiencing losing air service.
Community Flights, my air service development consulting company can help communities evaluate air service development issues like revenue guarantees and other incentives…how to structure the incentives, how to acquire the incentives within the community, how much is right for how much air service etc…Small Communities in particular need to compete for the air service they can support and service they deserve…Community Flights can help decide a communities air service focus and develop and execute a strategy to meet the communities air service goals.
For help with your air service development, management or support and/or economic optimization contact [email protected]

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