Seeking a new Frontier: Airport officials aren't deflated by loss of airline -- South Bend (KSBN), Indiana

SOUTH BEND - Appearances can be deceiving.

Some in the community expressed shock when it was announced earlier this month that Frontier Airlines would leave South Bend after Sept. 9 because of low bookings. Most thought the airline was packing in the passengers. But for the low-cost carrier, the numbers just weren't high enough.

Frontier, which has been operating out of South Bend Regional Airport since October, offered four flights per week to Denver. And in the past several months the lowest percentage of seats filled on a Frontier flight was 79 percent, and the airline was averaging a load factor -- the percentage of seats filled by paying passengers -- in the mid-to-upper 80s.

"For Frontier, that's not good," said Michael Boyd, an aviation consultant with Boyd Group International, an air service management firm in Evergreen, Colo. The airline's typical load factors are at least 90 percent elsewhere, he said, adding that South Bend might not be large enough to support a low-cost carrier.

No one is pleased that Frontier reached this decision, said Mike Daigle, executive director of the South Bend airport. But, he adds, "we understand it."

Operating model
 
South Bend isn't the only airport where Frontier has recently canceled service.

In March, it announced that, effective Sept. 8, it was pulling out of Gerald R. Ford International Airport in Grand Rapids, where it had been offering one flight per day since May 2010. It also stopped service May 14 at Columbia (Mo.) Regional Airport, only seven months after it started in that market. Service was also cut in Colorado Springs, Colo., and Akron, Ohio.

In each case, Frontier cited low load factors as its reason for leaving.

This is because the airline must maintain high load factors on all of its flights in order to make up for its low airfares.

In the discussions South Bend had with Frontier before it entered the market, Frontier said it needed to have load factors consistently in the high 80s or low 90s to break even, Daigle said,explaining that "an average of 15 passengers more per flight would have made this work."

Some days the flight had no open seats, he said, and other days the numbers were much lower.

"During the slow months it just wasn't enough to carry it to year-round service," he said, explaining that other carriers charge more per seat and so they can have a lower load factor and remain profitable.  "Frontier was not in that situation," he said.

In June, Frontier reported that its nationwide load factor averaged about 94 percent, considerably higher than its South Bend average. In comparison, Allegiant Air, which typically has some of the highest load factors in the industry, had national load factors of 90.6 percent in June.

"Typically, it is very difficult for airlines to achieve load factors above 90 percent," wrote Adam Levine-Weinberg in a July 9 story for The Motley Fool, a multimedia financial-services company that focuses on investing.

Recently, in an effort to raise its load factor, Frontier cut its capacity by 20 percent, he said, eliminating many underperforming routes. Capacity cuts, he explained, tend to boost load factor on the remaining flights, since travelers have fewer options.

Unfortunately, South Bend was one of those underperforming routes.

"We talked with them briefly about going from four days to three days," Daigle said, but there wasn't a lot of support for that. Daigle explained that dropping a flight means that the airline loses some of its connectivity and market share.

"Some people believe that if you can't support an airline at the value of four to five times a week, it will fail because there is not enough market demand."

He explained that Allegiant is very successful with its single flights each week to given destinations because it has a different operating model than Frontier.

"It's not the same because they don't do connectivity like Frontier," he said. "They provide a different product. It's really point-to-point marketing and it's very focused. You can fly from here to Vegas and then take another airline from there."

Boyd, the aviation consultant, suspects that Frontier probably also had to discount its prices to fill the seats it did. So, even if the airline had consistently high load factors on the South Bend-Denver route, it probably would not have earned a high enough profit.

And the airline had to accept help to remain in South Bend as long as it did.

More than a year ago, the Department of Transportation awarded the airport a small community air service development grant of nearly  $1.1 million to establish a westbound service. When the airport was in negotiations with Frontier, it offered a maximum of $750,000 to enable

the airline to offer service for a year. A total of $749,999 was spent to support the route while Frontier attempted to turn a profit.

"Even with grant support they couldn't make it," Boyd said. "There is not enough traffic."

Impact on South Bend

Meanwhile, Frontier's decision will have both positive and negative impacts on current and future discussions with airlines interested in doing business in South Bend.

"None of this happens in a vacuum," Daigle said. Airlines are interested in what other airlines are doing. They keep track of who is expanding and who is entering or leaving a market. It gives them the information they need for their own operations.

"A lot of times when a service doesn't succeed, people try to assign fault," Daigle said. He doesn't think anyone -- airport, airline or community -- is to blame. "We've seen some success, but it wasn't enough to work."

Now, the airport can take the data gained from this experience and put it into its business model. Denver was never in South Bend's Top 10 destinations before Frontier, Daigle said. "We are going to take that new data and find out who else would be a good provider for that service."

He feels that the numbers show that Denver could be a viable destination for South Bend.

"Many times we have to prove a market before we can go and find a service provider who is going to be here for the long term," he said.

A portion of the Department of Transportation grant money is left and Daigle said that the airport will evaluate whether it can be used to help attract another service.

"There are some steps with any federal grant to do those things," he said.

Boyd thinks it will be difficult for South Bend to pull in another carrier for the Denver route. He explained that there aren't any low-cost carriers out there that could replace Frontier.

"Spirit won't consider the area and Southwest has pulled out of bigger markets than that," he said, but added: "Don't get misled by Frontier pulling out. There is nothing wrong with the community. You just don't have a market for that. You don't a market for London either."

Despite that, Boyd believes that the air service at South Bend is healthy and strong.

"It's not about the direct access," he explained. "It's about getting where you want to go. Could someone get to South Bend from Tokyo in one stop? Yes. Could someone get to South Bend from Tucson in one stop? Yes.

"From that perspective, South Bend has outstanding service."

Story:  http://www.southbendtribune.com