Despite best efforts to get this piece placed in the New York Times, I was unsuccessful. So when that does not work, use your own vehicle they say. I wrote in response to Joe Sharkey’s recent column titled: Losses at Smaller Airports Are Unlikely to Be Reversed - NYTimes.com.
I read with interest Joe Sharkey’s column on March 31, 2014 regarding air service losses at the nation’s smaller airports. In the interest of disclosure, I was a co-author on the MIT studies cited in the story and am an executive in a consulting firm that assists communities of all sizes attract air service.
Sharkey begins with “Air travel has a lot of new realities.” What a colossal understatement. Unfortunately, he only references surface issues and fails to mention the many structural forces that are having a profound impact on service levels at the nation’s smaller airports.
The simple economic issue affecting airline decisions to serve smaller markets is the price of jet fuel. It is the price of jet fuel that caused the nation’s air service providers to engage in a strategy of “capacity discipline” whereby fixed costs needed to be cut in order to mitigate higher input costs. Operationally, the number of seats per aircraft will continue to increase in order to best maximize revenue and amortize these costs. Not all communities have a sufficient demand base to support the larger equipment.
The US government has also taken some legislative and regulatory actions that contributed significantly to the unintended consequence of less air service at smaller airports. And now we have a shortage of pilots willing to work for the wage offered by the industry’s regional service providers that only further exacerbates the issue.
It is suggested in the article that small communities need to be told the truth about the realities of remaining a node on tomorrow’s air service map. The market is telling the truth about tomorrow and it is a difficult message for many small communities. But the market told the truth about the viability of the nation’s network carriers in the early 2000’s and inevitably every one of them except Continental filed for bankruptcy protection in order to fix a broken model and live to fight another day. There were casualties as well.
But, in an industry that is rapidly changing, what is the truth? And, how long will that “truth” be the truth? This much we know: Airline service is critical to a community’s economic development and it is incumbent on communities to try to increase their service. If, in the short-run, that means offering incentives, then so be it.
The second “truth” is that nature abhors a vacuum. Currently, the aircraft industry is not producing aircraft that are economic for some of the markets at small communities. If it makes economic sense to revisit a small airframe, then the market will build a replacement. That too is the truth.
Sharkey’s column references incentive programs being tried in Tucson and Reno. As the industry structure changes, so must approaches in economic and air service development. Airports tout the economic activity they enable in their local communities. If airports enable, then airlines facilitate. The future will likely involve re-investing a portion of that economic activity back into air service. Airlines will likely require some risk mitigation guarantee for the airline to provide the service – not to all markets but likely to the smaller markets that remain on the map – at least until the local market demonstrates its viability
Airline service is expensive and capital intensive. Airline debt holders and shareholders demand returns on their respective investments. Those calculations are easy to quantify. So too will it be easy for airports and economic development agencies to find it easy to quantify a return on their investment. If an airport drives economic activity of $100 million and is being asked to invest $5 million to ensure that the remaining $95 million remains in the community, then it is an investment worth making.
But if a community is happy to drive to a competing airport as Mr. Sharkey is, then people should understand that air service is a use it or lose it proposition and no amount of incentive can change the air travel consumer’s behaviors. Retaining the air service a community has today will prove to be very hard business and will face some difficult odds. We are still some years away from a catharsis – so there is time to chase various alternative solutions instead of ghosts.
William S. Swelbar
Executive Vice President
InterVISTAS Consulting LLC