Flight Blog

Feb 26 2008 Greetings from San Antonio BY adminTAGS Southwest

 

I'm blogging from Texas this evening because I'm attending a national air service conference sponsored by the American Association of Airport Executives. This is one of the conferences where you get a chance to talk to others in the airport/airline industries and find out what's going on across the country.

 

This afternoon I listened to a speaker that I know many of you would find interesting: the director of network strategic planning for Southwest Airlines, Lee Lipton. I know if some of you were here you would chew his ear about the absence of Southwest in the Springfield-Branson market. For those of you who haven't followed these past blog conversations, click here and here and catch-up!

 

Anyway, one point made by Mr. Lipton caught my attention because it vividly illustrates the financial conundrum facing all U.S. airlines. According to Lipton, Southwest presently has to sell the first 95 seats on every flight BEFORE the flight makes money. That's 95 seats out of 137 on every flight — the 96th passenger puts the flight in the black. Put another way, if the flight is 69.3 percent full (these percentages are called "load factors"), the airline only breaks even.

 

It wasn't that long ago that most airlines were modestly content with a 70 percent load factor. What's changed? Energy prices. I hate to think about what it's like right now for those airlines that aren't as efficient as Southwest...

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John has several questions about the leakage posting:

 

"12% leakage sounds really good. But, just a retired truck driver being curious...how did you guys figure out that is was 12%. Did you survey residents? I also noticed that the report said that 13% of the 8 million people that visit Branson fly, but only 10% of those fly through Springfield? That number seems low...how did you figure that. Do you think that if the airport raises that number...say to 50% will you be able bring more low fare airlines and lower existing prices for us locals?"

 

The 12 percent figure comes from two separate studies:

 

  1. "Traffic Capture Analysis" conducted by the Boyd Group, a nationally recognized aviation consulting and forecast firm. The company conducted the study in the 4th Quarter of 2007 and used data gathered from about 145 airports, including Springfield. The data for each airport includes the population of each airport's service area and demographic information. Simply put, an airport can expect to have a certain number of passengers based on the personal income of the service area. The study also looked at the number of passengers in comparable markets and at Branson tourism data.
  2. "Resident Market Survey" conducted by Jenry Henry and Associates in the 3rd Quarter of 2006. This was a telephone survey of people living in the service area of the airport (a 70-mile circle around Springfield). Based on survey responses, the survey concluded that "nearly 85% of resident commercial airport customers flew out of SGF on their last commercial flight."

Bottom line: we have two studies, done independently of one another; each using different methodology, that reached the same conclusion.

 

As for the question concerning Branson tourism... The Boyd Group Study looked at Branson tourism data and at departing passenger survey data generated at this airport. Departing passenger surveys are done three times a year at the airport. Surveyors ask departing passengers a bunch of questions, including, "purpose of trip?"

 

Do I think capturing more Branson bound tourists will help lower fares? Sure. Assuming there are a million Branson bound fliers to capture. But I have to point out that the question is based on the assumption that there's a total of 1.03 million passengers out there flying to Branson and that the Springfield airport is capturing 103,000. The study considers both of these numbers "generous" and I agree.

 

What tends to get lost in discussions about Branson tourism and airports in one simple demographic fact: the average household income of a Branson visitor is $59,800 (according to 2007 Branson tourism data). The average household income of a typical flyer is $93,400 (according to the Travel Industry Association).

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faucet2.jpg Today I have some really good news to report: our airport has seen an 18 percent decline in the number of customers leaving the market to fly from other airports. The news comes from a leakage study we commissioned late last year. The results just came in. “Leakage” is the aviation term used to describe customers leaving the market to fly from other airports. It’s typically caused by two things: cheaper fares at other airports and more non-stop destinations.

 

The last time we did a leakage study was in 2005. The finding back then was that 30 percent of our potential customers were leaving the market to fly from other airports. A study in 1997 reached the same conclusion. We expected that the new study might show some slight improvement, but the 18 percent decline blew us away.

 

What does the finding tell us? It tells us that Springfield fares are still high, but not as high as they used to be. It also says that the vast majority of customers are deciding the difference in price isn’t worth the drive to airports in Kansas City, St. Louis or Tulsa.

 

The study cites two reasons for the improvements: the addition of Allegiant Air service in April 2005, and the addition of Delta service to Atlanta in December 2005.

 

As many of you know, Allegiant flies from here to Las Vegas, Orlando and Tampa. Round trip tickets are sometimes as low as $200. Before Allegiant’s arrival, it cost twice or three times as much to reach those cities. As for the impact of Atlanta service, that has less to do with cost and more to do with connections. The service makes it much easier to connect from Springfield to the East Coast and Europe. 12 direct destinations. While the study doesn’t mention it, I think that’s another reason for the leakage improvement. Nine of those destinations are big hub airports. This makes it possible to reach most places from Springfield with only one connecting flight.

 

What’s the practical, real world impact of this improvement? I think it’s a strong selling point for new or additional service. As the author of the leakage study put it, “Airlines generally prefer existing strong capture rates rather than the potential to recapture traffic with new service. In the age of $95 oil, most airlines don’t want to work any harder chasing passengers than they have to and most are also risk adverse."  

 

Bottom line: when we’re talking to airlines we’ll use this study to show them the strength of the market. If you give us the seats, we’ll fill them.

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Greg wonders, "What effect if any does seasonal airfare have on us. I notice when booking a recent allegiant trip that sometimes flights are only 2 days a week while other time 4 days a week."

 

The number of people traveling by air peaks in the summer; trends down through the fall and hits rock bottom in January. Take a look at the graph. This shows the pattern for Springfield in 2007. In January there were 54,438 total passengers. In June: 85,354. December: 69,758. 2007graph.gif

 

The January 2008 number will be similar to the same month last year. With few exceptions our graph always looks something like this and the same is true for the industry as a whole. The airlines counter the winter downtime by lowering fares and cutting flights. This is what Greg noticed with Allegiant.

 

Here's a tip for the savvy air traveler: start looking for the bargain January/February fares in November and December.

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Dustin wants to know: So how will the transition to the new terminal take place? Will there be all new loading bridges for the passengers or will the existing bridges be transplanted? Also, any word on new food/beverage vendors in the new terminal? And getting back to the "un-named" airline that was supposed to begin servicing SGF (the one that went so far as to sign a ground handling contract with the city), what ever happened to them?

 

The transition will occur over three months and will begin at a date yet to be determined. When we hit that three month window, the six loading bridges at the current terminal will be taken down and moved to the new terminal. Some of the bridges will be rehabilitated. They will join the four new bridges at the new terminal. During the three month window we'll have to ground load all planes at the current terminal. That means passengers will be outside, walking up and down airplane steps.

 

As for food in the new terminal, that's yet to be determined.

 

As for that unnamed airline that I mentioned back in August, it was a small charter airline based in Rockford, Il. They told us they planned to fly several times a week between St. Louis, Dallas and Chicago with 737s full of Branson bound tourist. We haven't heard from them in several months.

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