Colorado Springs News, Sports & Business

Will incentives be enough to draw airlines to Springs?

WAYNE HEILMAN Updated: August 26, 2011 at 12:00 am

Finding a seat on most flights leaving Colorado Springs — at any fare — has become increasingly difficult during the past four years, and is likely to get worse as jet fuel prices continue to soar.

Colorado Springs has been hit hard by flight reductions and other capacity cuts as the nation’s airlines cut costs to cope with soaring fuel prices and, later, a deep recession followed by a tepid recovery. Though the Colorado Springs Airport has not been hit as hard as many other small and midsize airports around the nation, airport officials say the cuts have meant that inexpensive fares sell out earlier and sometimes force passengers to drive to Denver International Airport to catch a flight to the same destination.

Airport officials are using a package of incentives adopted in 2007 to win back some of the flights and routes that carriers have eliminated by showing they can profitably meet demand for additional flights. Officials have met with all five carriers currently serving the Springs and three others, including low-fare giant Southwest Airlines, to provide detailed information about local air-travel demand.

“Airlines are retracting to their hubs and focusing on their core business because higher fuel prices have made more and more routes unprofitable. They are circling the wagons around the hubs at the expense of smaller and mid-sized cities,” said Mark Earle, aviation director for the city of Colorado Springs. “This is a restructuring of the airline industry that won’t likely be reversed once the economy improves; it is a permanent change.”

Seat capacity wasn’t a problem in the mid-1990s, when Springs-based carrier Western Pacific Airlines operated a hub at the local airport, offering bargain-priced flights to more than two dozen cities. But WestPac was never consistently profitable and eventually moved its hub to DIA before filing for bankruptcy in late 1997 and ceasing operations a few months later.

Too small to be a hub

The nation’s major airlines responded by expanding flights in the Springs and lowering fares, but once WestPac shut down they raised fares and reduced service. By 2000, passenger traffic had dropped by about half of the WestPac-era peak. More flight cuts followed the Sept. 11 terrorist attacks and the 2002-03 recession, but flight levels and traffic stabilized at about 1 million outgoing passengers annually for the next seven years, thanks to new carriers the airport attracted to the Springs.

“The population of Colorado Springs is nowhere close to the size needed to support a hub, and WestPac proved it,” Earle said. “Airlines build hubs in large cities (typically a population of 5 million or more within 150 miles) where they need a huge operation anyway to support the local traffic, and they leverage that investment by operating a hub to pass connecting traffic through that hub. Typically, connecting traffic makes up 40-60 percent of the traffic at a hub.”

Just before the last recession hit in late 2007, jet fuel prices surged and airlines responded by eliminating marginal flights and routes. The fuel-price spike even killed a few airlines, including ExpressJet, a small startup operation of a regional commuter carrier that flew to three California cities from the Springs. What fuel prices started, the recession made much worse as both business and leisure travel fell sharply after the 2008 financial crisis.

“Fuel is the biggest single expense for every major airline,” said Michael Miller, vice president of strategy for the American Aviation Institute, a Washington, D.C.-based industry think tank. “Higher fuel prices have increased the cost of operating a flight between 30 and 50 percent from four years ago. Since airlines only have a 1 or 2 percent profit margin, the difference between making a profit or losing money on any flight can often be just one passenger.”

Since the beginning of the fuel-price spike and recession, airlines have eliminated nine flights and halted service to four cities out of the Springs – reducing the number of available seats by 12.2 percent. Capacity reductions have disproportionately hit small and mid-size airports, cutting the number of seats at small airports by 15.6 percent and at mid-size airports by 17.4 percent. By comparison, capacity at major hubs is down by just 6.5 percent and seat capacity at DIA increased 3.3 percent; it’s one of just 11 airports among the top 100 that boosted capacity between 2007 and 2010.

Military presence boosts traffic

Airlines also have responded by merging — Delta with Northwest, United with Continental and Southwest with AirTran. In some cases, mergers have reduced flights in cases where both carriers flew the same route. In Colorado Springs, that wasn’t the case, but the Delta-Northwest merger resulted in a 30 percent reduction in seats to Minneapolis because Delta replaced large Airbus aircraft on the route with smaller regional jets.

“The days of flights being only 50 percent full are disappearing,” said Gisela Shanahan, the airport’s assistant director for finance and administration. “Colorado Springs has fared somewhat better than airports of the same size because we have strong underlying traffic due to our economy and the influence the military has on that economy,” especially an expansion of Fort Carson.

By reducing capacity, airlines gained more pricing power because they no longer had to discount seats as much to sell them, Earle said. That also meant that the least-expensive fares sold out more quickly. Now, fares on local flights go up sooner and to a greater extent, he said. That strategy, combined with increased fees for baggage and other services as well as aggressive cost-cutting, has put most airlines back into the black for the first time since the recession began.

Capacity cuts have reduced service to the Springs to a point where some local travelers can’t get seats on the flights they want, at least at a reasonable fare, Earle said. That has forced some travelers who want to fly out of the Springs, particularly business travelers buying tickets at the last minute, to drive to DIA to get an available seat to the same destination, he said. Capacity is still plentiful in Denver, where Southwest has added more than 100 daily flights since resuming service there in 2007.

So far, fares in the Springs haven’t gone through the roof, despite the capacity cuts. The average local fare at the end of the first quarter was up 8.3 percent from a year earlier to $409.32, slightly below the national average increase of 8.4 percent. The local average is 15.1 percent higher than the national average and nearly 30 percent higher than DIA’s average for the same period. The Springs average ranks 14th among the nation’s 100 largest airports.

Capacity cuts aren’t the only reason fares in the Springs are higher, said Mike Boyd, an Evergreen-based aviation industry consultant. The other reason: Flights from the Springs tend to be longer than average. When compared with the nation’s 100 largest airports on a cost-per-mile basis, local fares are the 13th-least-expensive, he said.

Earle and Shanahan said they are worried another fuel-price spike could reduce capacity out of the Springs still further, so they meet regularly with officials from the five carriers serving the Springs, as well as others such as low-fare carriers Alaska, Southwest and Spirit, to plead their case and discuss opportunities here. Those discussions have shifted in the past year or so from adding new destinations to restoring some of the seat capacity that has been cut, Earle said.

Goal shifts to restoring capacity

Airport officials are seeking additional flights or more capacity through larger aircraft to cities where seats are least available, including Chicago, Dallas, Los Angeles, Minneapolis, San Francisco and Washington, D.C., Earle said. That mostly means convincing at least one of the airlines that fly to any of the nine hubs now served from the Springs to restore previously made cuts.

Airport officials also are starting to make the argument that the city can support service to cities where no airline operates a hub. So called “point-to-point flying” is rare in an industry where most airlines organize their schedules around hubs that passengers must pass through to reach their ultimate destination.

“Every small airport only has service to hubs, but Colorado Springs is getting large enough to support point-to-point service to key destinations, though that doesn’t fit most airlines’ business models,” Earle said. “Nobody does that right now, but we look for new opportunities as airlines change or adjust their business models.”

Airport officials are seeking nonstop flights to top business-travel destinations not served from the Springs — including New York and San Diego, and restored service to Phoenix, a route U.S. Airways eliminated early last year (Allegiant Air offers twice-weekly service to a suburban Phoenix airport). To help convince airlines to add a flight or city, the airport offers incentives that include landing-fee rebates, income sharing and marketing help for up to three years.

Getting any airline to add service in a foundering economy is a tough sell.

Southwest is “always learning and exploring in our dialogue with airports we don’t serve, and Colorado Springs is in that group. We are always open to markets that have demand, need and fit our criteria,” said Chris Mainz, a Southwest spokesman in Dallas.

But he also noted that Southwest is in the early stages of merging with AirTran, which he says knocks adding new cities “way down the priority list.”

Alaska Airlines “never talks about markets we may or may not serve,” spokeswoman Bobbie Egan said.

Call the writer at 636-0234.

 

SPRINGS  VS. DIA

A study completed for the Colorado Springs Airport by Seabury APG, a Vienna, Va.-based consulting firm specializing in airline service, found that about 45 percent of the passengers in south-central Colorado, which includes Pueblo — nearly 1,000 passengers a day — drive to Denver International Airport rather than use the Springs airport.

The study supports the view of Mark Earle, aviation manager for the city of Colorado Springs, that capacity cuts are sending passengers to DIA — the routes with the greatest potential to add passengers are those where flights or entire destinations have been cut, such as Dallas, Los Angeles and Phoenix. Seabury also recommended the airport try to lure more passengers from cities south of the Springs along I-25 and a wide swath of central Colorado between Monument and Castle Rock.


The study, which cost $25,000 and analyzed ticketing data from last year, is done about every five years as a tool to show airlines the size of the potential market in the Springs, said Gisela Shanahan, assistant aviation director for finance and administration at the Springs airport.

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