ARE YOU INVESTING ENOUGH IN YOUR AIRLINE SERVICE SUPPORT?
AVOID THE AIR CANCELLATION SURPRISE!
Recent news stories show how timely investment in airport air service is critical for small communities
By Scott Stewart-Community Flights
Story #1 Published April 8, 2014:
United Airlines is shrinking its reach, and suspending a route direct from Monterey to Denver that’s been flying since 2005.
Story #2 Published April 7, 2014:
The announcement by SkyWest\United Airlines that it will cease service to the Crater Lake-Klamath Falls Regional Airport June 5 was a surprise Friday, especially in the light that so many city officials had been working diligently to increase passenger numbers.
Surprise…Surprise! – Should Small Communities be Surprised with Air Service Reductions!
Both of the stories elicited a reaction of surprise in the communities impacted: Klamath Falls and Monterey. The airline industry…always dynamic is even more so with airlines claiming pilot shortages due to recruitment issues based on new FAA pilot rules and regional fleet reductions raising the bar for success and sustainability of small community air service. The barrier for sustaining air service used to be profitability…now the question that needs to be answered in an air service environment of shrinking air service opportunity is…is your air service more profitable than it is, in other small communities!
United reported an 82-percent load on Monterey-Denver flights, compared to an average of 90 percent on other Denver routes.
Monterrey airport General Manager Tom Greer said in a statement. “This cancellation announcement took us by surprise.”
SkyWest currently provides daily air service to and from Portland and San Francisco. They have been providing that service since July 2008.
Praise should go to Airport Manager John Longley, City Manager Nathan Cherpeski and Discover Klamath Director Jim Chadderdon for having the foresight to try to boost passengers in a down market.
Strong Occupancy’s–Not the Key Air Service Success Metric–Timely Support Needed!
In the case of Monterey, you would have thought that 82% occupancy on the flights would have been a formula for profit and success on the flights. 82% load factor is near the 83% air industry average for all airports and above the 76% load factor average for airports that fly aircraft the size that typically fly into Monterey.
The problem is that airlines are evaluating community air service based on comparative profitability and total airline system contribution. While these market and system profitability metrics aren’t noted in the news articles that told the story for Monterey, I can only assume from previous discussions I’ve had with airline planners, Monterey was on the bottom end of markets for degree of profitability and in overall contribution of revenue to United’s system profitability. When United was forced to flight cuts due to the more restricted flight operations they could operate, Monterey-Denver service was likely cut due to its lower profitability level and/or contribution to the overall system when measured against other smaller market service.
In the case of Klamath Falls, they were doing the right thing with putting resources into a focused air service support effort to better position themselves in the airline market evaluation equation. Unfortunately, it looks like they may have gotten started too late and therefore weren’t able to produce results in a timely enough way to save their air service with United to Portland and San Francisco when United looked at where they would make their cuts.
The United Klamath Falls cancellation announcement is a reminder of the changing economic picture in the West. Cities and towns have to find ways to grow from within without hoping there is a silver bullet, or large industrial employer who will come in to bail them out.
I think it is fair to say that based on current air industry conditions with Klamath Falls, (Medford only 80 miles away with a lot more air service options), they may have ended up losing air service even if United had waited until after the summer to evaluate their market performance. I also think it is a fair comment to note that had Klamath Falls been actively building up their local and destination inbound visitor support of their service sooner, say in 2008 when this service started, they would likely have produced stronger flight occupancies and revenue by 2013. This may have also better positioned the Klamath Falls airport to survive the recent United cut of flight markets and operations.
Monterey, might want to consider going forward, a heightened focus on coordinating local efforts and in putting more resources towards building up the profitability and occupancies on their remaining flights even more, or they could look at the possibility of losing more air service. (Airlines will be retiring more and more aircraft currently serving small regional markets; at a pace that exceeds the taking on of replacement aircraft).
This leads me to a Third Story:
Gunnison Airport Increases Air Service Load Factor by 11% in winter 2014
Projected to increase flights by 5%-7% in winter 2015!
Gunnison Airport in Colorado; which serves a destination with a high leisure traffic draw from the Crested Butte Mountain Resort and other recreational pursuits in the region, had seen over a 27% passenger enplanement reduction from the 2008 winter through the 2013 winter. This downward spiral of passengers was also mirrored by a reduction in seat capacity and flight schedule options and occurred despite having over 70% of the winter air seat capacity revenue guaranteed.
As the years passed since 2008, both local and visiting passengers were seeing higher and higher airfares at the Gunnison Airport. These fare increases were driving air passengers to use other airports like Denver and Montrose, Colorado whose airports are much further away from Gunnison/Crested Butte than the Gunnison airport. (It becomes harder to attract volumes of destination leisure travelers the further away the destination airport is from the final destination).
The guests using alternate airports to get to Gunnison/Crested Butte spent fewer nights and fewer dollars in the region while many potential guests decided to not come to Gunnison/Crested Butte at all or chose other competing leisure destinations due to the cost and access challenges at the Gunnison Airport. With fewer air leisure visitors, community businesses struggled, seeing fewer guests and locals having fewer dollars in their pockets. This drove lower spending and business revenues and profits and many merchants went out of business. Community tax collections also saw lower increases year over year.
Crested Butte Mountain Resort saw a highly disturbing situation as it regarded feeding enough visiting guests to the resort to deliver enough volume of guests to make their business model consistently profitable. They saw a downward spiral situation where low flight occupancies continued year over year producing lower flight revenues and a challenging environment to sustain Gunnison Airport flight capacities. The continued reduction year to year of flight capacity was making running their ski resort more and more economically unviable and so they hired professional air service support and development services from Community Flights to stop the drop in air seat capacity in the near-term and to help facilitate a stronger community air support effort that would lead to air service capacity growth in the longer term. From studies, Crested Butte Mountain Resort knew that air visitors were a big share of their overall skier days at the resort and these guests stayed longer and spent a lot more than drive visitors. They also saw that a reduced ability to bring in these skiers through air flights negatively impacted the resorts skier days and overall resort revenues, greatly challenging the resorts ability to consistently make a profit.
Community Flights came in and executed its air visitor capture program among other services aimed at increasing community ownership and engagement in the Gunnison Airport air program and also aimed at tourism entities and assisting their educating potential visitors about the positives of using the Gunnison Airport when making a trip to the region.
Community Flights built an airfare club that would notify opting-in members of every air deal into the Gunnison Airport. This often showed the total travel cost to the Gunnison Airport, when factoring in car expenses and extra hotel overnight expenses and that Flying to Gunnison was often less costly than using other alternate airports. It was also communicated that using alternate airports often increased the total travel time to get to the Gunnison/Crested Butte Region and showed that the Gunnison Airport was often the most convenient airport.
Community Flights also engaged local businesses to participate in a Fly Gunnison Airport club. These businesses would offer discounts on products and services to any visiting guest or local who showed them a boarding pass receipt from their flight to and from the Gunnison Airport. Guests and locals, choosing to fly to/from the Gunnison Airport instead of alternate airports, brought increased spending value when in the region and many times positively impacted their choice to come to the Gunnison/Crested Butte region and fly into the Gunnison Airport.
These actions caused more locals and visitors to check the Gunnison Airport First, when planning a trip to/from the area. While not all potential airport users ended up buying an air ticket to the Gunnison Airport for a trip to/from the area, this effort captured more of these potential trips to the Gunnison Airport and raised flight occupancies at the Gunnison Airport in winter 2014 by over 11% or 2800 passengers more than the airport would have seen if they produced the same load factor as they had in winter 2013. Most of these incremental passengers were visitors who via their direct spending in the area brought over $4 million dollars more in direct guest spending to the region for the 2014 winter season than would have occurred had the same flight occupancies occurred in 2014 than had occurred in 2013.
There are also positives with air service at the Gunnison Airport in the future from these community focused air support actions this winter. Projections are that an additional 2000 seats capacity may be added in 2015 winter increasing the ability of the Gunnison Airport to provide access to more potential visitors than in 2014 and therefore expanding the region’s air visitor capture and tourism economic activity possibilities going forward.
This means local businesses might see more spending visitors in the winter season and a movement to profitability (Survivability) and/or higher profits that allow them to expand and hire more employees. If these heightened community air service focused efforts can be maintained, many in the Gunnison/Crested Butte community are beginning to feel that an upward spiral of seat capacity and visitors can be sustained over many years, that can lead to better air service in the longer term for locals and visitors alike and more prosperity for local businesses and the community at large.
How can your Community Take Action to Achieve an Upward Air Service Spiral and Community Prosperity?
Investing in a heightened professional air service support effort that greatly raises the level of community engagement, now rather than later, is critical to helping a community achieve its full air service and economic potential. Klamath Falls shows us that waiting too long to take action can create a missed opportunity as it regards a community’s ability to out-compete another community’s air service profitability performance. Monterey shows it’s not just flight passenger occupancy’s that optimize the profitability of a communities air service and leads to a community sustaining their air service, let alone think of growing air service.
Producing a higher profitability and contributing more to an airlines whole system than other competing communities can serve as the best protection to your sustaining your current air service. Working with air service support and development professionals who speak the airlines language and regularly are staying on top of how your community air service is being viewed by the airlines and can help focus the community on taking the most effective proactive action, can keep your community positioned well in the eyes of the airlines and retain your community air service.
Communities should know that even with heightened air service focus and timely support actions, sustaining air service is not guaranteed. The air industry is not in a growth cycle and other factors are challenging the sustaining of service in many small and medium sized markets. There are also many other factors that go into airline schedule decisions. What is guaranteed is that in today’s airline industry, a community will often be both surprised and sorry if they don’t commit to heightened air service support in a timely manner to do all they can to avoid losing some or all of their air service flights. Once these flights are gone, they are extremely difficult (If not impossible) to get back!
Scott Stewart is the principle of Community Flights an air service support, development and management company that works with communities, organizations or businesses in leveraging the great economic asset that air service is for economic gain. Scott formed Community Flights in January 2013 in order to assist more communities, organizations and businesses, bridge the “air service understanding gap” with the airlines in order to create an airline and community win-win air service support and performance environment. More info about Community Flights can be found at www.communityflights.com. Scott Stewart can be contacted directly at scott@communityflights.com .