Monday, April 7, 2014

Why Small Airports Are in Big Trouble: As Airlines Cut Service, Prices Rise and More Travelers Drive; 'Rocket City' Fails to Break Out

The Wall Street Journal

By Susan Carey

April 7, 2014 4:12 p.m. ET

To reverse years of declining traffic and fewer flights, Huntsville International Airport last year decided to offer its few remaining airlines incentives if they enhanced service to the small, northern Alabama city.

The airlines were furious.

The plan, drawn up last summer, would set aside up to $5 million this year in potential rewards for airlines that added flights, lowered fares or otherwise encouraged Huntsville fliers to use its airport instead of air fields in nearby cities. But frustrated by what it saw as lapses in customer service, Huntsville also said it would charge different landing fees for airlines, depending on whether they met service thresholds, such as prompt luggage handling.

The airlines responded that Huntsville's plan violated federal law barring governments from interfering with airline fares, routes or service levels. They feared that the standards would unleash a patchwork of benchmarks at other airports, and Airlines for America, the industry's largest trade group, threatened to sue.

Huntsville backed down last month.

The episode highlights the huge difficulties that smaller airports have attracting service, which has dwindled outside the biggest cities as airlines cut less-profitable flights. U.S. airlines reduced the number of scheduled domestic flights by 14% from 2007 through 2012, with midsize and small airports the hardest hit, according to a study last year by the Massachusetts Institute of Technology. The airport in Des Moines, Iowa, lost 22% of its flights, according to the study. Flights decreased 24% in Burlington, Vt., and 28% in Columbia, S.C.

There have been a few success stories more recently. The two-gate Trenton-Mercer Airport near Trenton, N.J., without offering incentives has gone in two years from no commercial airline service to becoming the East Coast base for budget carrier Frontier Airlines Inc.

The MIT study found that the number of Huntsville flights dropped 18% over the five years through 2012.

 Rick Tucker, executive director of the Huntsville-Madison County Airport Authority, said his 14-gate facility was losing "hundreds of thousands" of passengers a year who drive less than two hours to Birmingham, Ala., or Nashville, Tenn., larger cities whose busier airports are dominated by discount carrier Southwest Airlines Co.

"We've got to do something," said Mr. Tucker, who has run the airport for 20 years.

Local officials said good air access enhances their ability to attract new jobs and compete for conventions and tourists. "We view everything we're doing through the lens of economic development," Mr. Tucker said.

Known as "Rocket City" for its role in U.S. space missions, Huntsville, with a population of 184,000 people, is thick with defense contractors and government agencies. The National Aeronautics and Space Administration runs the Marshall Space Flight Center in the city. More than 70% of the airport's passengers fly for business, Mr. Tucker said, meaning they tend to book at the last minute and pay top dollar. Washington, D.C., is the top destination.

Huntsville airport's traffic peaked at 635,500 passengers boarded in 2005 and hit 521,000 last year. It is served by Delta Air Lines Inc., United Continental Holdings Inc. and American Airlines Group Inc. 
Between them, they fly nonstop to just nine other airports.

Reduced competition at smaller airports often causes fares to rise. The U.S. Transportation Department regularly cites Huntsville airport as having the highest average domestic fares among the top 100 the department tracks, with round-trip fares averaging $559 in the third quarter of last year. The national average was $390.

Mark Curran, vice president of Huntsville operations for defense contractor L-3 Communications Holdings Inc., said Huntsville fares are so steep that his company conducts a lot of teleconferences, skips some trips and "micromanages" conference registrations so not too many staffers attend.

For personal travel, he tries to book "real early," Mr. Curran said. "Or if it's six to seven hours [by car], we're driving."

In 2010, Huntsville airport landed a $1 million federal grant and added $1.5 million in local funding to lure AirTran Holdings Inc., with its low-fare flights bound for Baltimore and Orlando, Fla. The airport waived AirTran's rent and landing fees, gave marketing support and provided a revenue guarantee if not enough fliers booked tickets. Such federally backed programs are fairly common, but are of limited duration and aimed at attracting an airline that will introduce new flights to targeted destinations.

But Southwest, which acquired AirTran in 2011, ended the Huntsville flights in 2012. Last year, partly as a result of the "airport's struggle to attract and maintain a low-cost carrier," Moody's Investors Service downgraded $52 million of the airport's revenue bonds to A3 from A2.

The Huntsville airport board's controversial "customer standards" program approved last summer would keep landing fees constant for carriers that met requirements such as having enough check-in agents and getting luggage to the carousel within 15 minutes of flight arrival. Airlines that fell short would have to pay 76% more, to a sum the airport said was its actual cost.

Rob DeLucia, associate general counsel of Airlines for America, said Huntsville's incentives for airlines already serving the city was akin to "choosing winners." That is illegal under the 1978 Airline Deregulation Act, which requires airports to treat all airlines equally, he said.

Joshua Schank, president of the Eno Center for Transportation, a nonpartisan think tank, said he agreed with the airlines. "It's not in the public's interest to have these bidding wars" because airlines would scoop up the incentives and cut flights elsewhere, he said.

The Federal Aviation Administration wrote a letter last August expressing concern that Huntsville's plan might run afoul of rules on incentive programs. The airlines that serve the city quickly threatened legal action.

The Huntsville airport board responded in January by reiterating that the customer standards didn't become mandatory until March. Then, to avoid litigation, the airport essentially capitulated last month, saying it would keep discounted landing fees in place indefinitely, even for carriers that fell short of service standards.

Airlines for America said it would postpone any litigation.

Huntsville's Mr. Tucker said the airport didn't believe it did anything illegal but now was focused on a bit of good news. American Airlines discounted some fares in the city. A person familiar with the carrier's thinking called it a routine sale and not a quid pro quo for the airport's decision about the landing fees. For the reduced fares, to 125 destinations, American requires a 14-day advance purchase and a Saturday night stay. Travel must be completed by May 21.

Mr. Tucker said he is using $350,000 of the incentive funds for marketing the discounted fares "to get the word out as far and as fast as we can." He said he hoped other airlines would take note.