Tuesday, January 24, 2012

Tiny Airline Cashes In on Small Cities

By JOEL MILLMAN
The Wall Street Journal

PORTLAND, Ore.—SeaPort Airlines Inc. has carved out a niche in the Pacific Northwest by opening, and sometimes dropping, service to small cities usually bypassed by other carriers.

The tiny, closely held airline, which relies partly on a patchwork of subsidies, has a fleet of nine-seater Cessna and Pilatus propeller planes.

SeaPort's destinations include Pendleton, Ore., a busy agricultural hub between Portland and Boise, Idaho. Its flights save travelers bound from Pendleton to Portland hours of motoring along Interstate 84.

It has been less successful in the Oregon cities of Newport, Salem and Astoria, which invested thousands of dollars in subsidizing daily air service, only to experience days when barely any passengers showed up.

The airline has since pulled the plug on those flights, as it did in December on its service between Idaho Falls and Boise, after just five months.

"I'm not saying they took advantage of us," says Idaho Falls' aviation director Len Nelson. "We just overestimated the depth of their commitment."

SeaPort, which has developed a reputation for linking up with cities in exchange for cash subsidies, then dumping them when those subsidies expire, says it has to be nimble in deploying its planes between a mix of subsidized and non-subsidized routes.

"We're starting more routes than we're closing," says SeaPort President Rob McKinney .

Mr. McKinney says that on the company's few federally subsidized routes, which include Pendleton to Portland, the airline is saving taxpayers money by using planes smaller than some of the jets that used to serve these markets and which rarely flew full.

The federal subsidy program dates back to airline deregulation in the 1970s and was designed to guarantee a minimum level of scheduled air service to cities that had it before deregulation. The subsidies are likely to be scaled back, however, under a compromise funding bill for the Federal Aviation Administration slated for congressional action next month.

SeaPort doesn't disclose its revenue, but says it is profitable and its traffic is growing—to 97,000 passengers last year from 93,000 in 2010. The airline also does business as Wings of Alaska out of Juneau, and operates sister units in Arkansas, Texas, Kansas, Missouri and Tennessee.

SeaPort, whose operators arrived from Alaska in 2008, is slated to receive nearly $3 million in federal subsidies over two years under its current contract for Pendleton and got public subsidies of $4 million for the two years it served Newport and Astoria.

Though the Idaho Falls service didn't benefit from federal subsidies, the city waived terminal and landing fees to attract SeaPort's business.

"I'm a free-market person," says Mr. Nelson, the director of the Idaho Falls airport. "If there aren't enough people to support a route, that's just how it is." Nonetheless, he says he regrets that Idaho Falls didn't lock SeaPort into a long-term contract, as other cities have.

Fliers from his region of about 190,000 people still can fly to San Francisco, Denver and Salt Lake City, Mr. Nelson adds, "but it hurts our economic development not to have a quick connection to our state capitol," four hours away by car.

In 2009, Newport and Astoria used grants from the state of Oregon, matching federal funds and local money to bring in SeaPort. Newport Mayor Mark McConnell says SeaPort would overnight aircraft in Newport after flying down from Portland, and local motel owners issued vouchers to the pilots for rooms.

The pilots had a key to the terminal, to open up for the 4:30 a.m. flight," Mr. McConnell recalls. "They'd turn on the lights and turn on the coffee machine."

Mr. McConnell says SeaPort tried to make a go of things for a few months after the subsidies ended but ultimately decided there wasn't enough demand.

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