Flight Blog

Oct 09 2007 Airport Fees BY adminTAGS How the Airport Works

 

Jake inquires, "Is the building of the new airport going to raise airport fees for the airlines? If so, this certainly isn't going to make SGF more competitive to lower rates to draw travelers to SGF from TUL, MCI, STL. Any comments on this is appreciated."

 

Fees at our airport go up three percent a year in the current terminal and that will continue in the new terminal. Landing fees are currently at $1.06 per 1,000 pounds. Exclusive use space (offices, ticket counters) have an annual rent of $32 per square foot. Joint use space (ramp, gate, tug areas) is assessed using a formula which results in an average rate of $35.55.

 

These rates are dirt cheap. It's one of the reasons why we have such good service for a small market. In fact, the Federal Aviation Administration has told us that we ought to raise rates. We've respectfully declined!

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People ask me what we do to attract airlines. I’ve touched on this several times, but have never brought it together in one posting. Here’s what we do:

 

  1. We talk to airlines on a regular basis and provide information. The first and most important thing airlines care about is passenger numbers. How many people use the airport and what do the trends show?
  2. We make airlines aware of our incentive program:  A) marketing incentive: maximum of $50,000 available for additional or new service. B) We routinely waive landing fees, gate fees and common use rental fees for new airlines entering the market. The waiver of fees is temporary, but long enough to let the airline establish service. C) Ground services. We are one of a handful of airports in the country to offer ground services to the airlines and it's at least part of the reason why we have service to five of our 12 destinations: Atlanta, Cincinnati, Orlando, Las Vegas and Tampa/St. Petersburg. More on this in a minute…
  3. Besides courting the airlines, we court people (potential passengers) living within 70 miles of the airport. We try to make them aware of the airport and what it offers. We do this through speaking engagements and advertising. The goal is to get more people to use the airport—remember—airlines care about passenger numbers. The more the better.

Getting back to ground services—the following is adapted from a story published several months ago in the airport newsletter. It should give you a good idea of why our ground service program is so important.

 

An Unremarkable Sight

 

Delta/Comair flight 4303 creeps into Gate 4 at the Springfield-Branson National Airport (SGF). When it stops, several workers begin servicing the plane and unloading luggage. It’s a scene repeated thousands of times every day across the globe. It would be unremarkable except for one thing: these workers don’t work for the airline or a contractor--they work for the airport.

 

The fact that SGF offers the service doesn’t sound like a big deal, but it is. “We were one of the first airports, if not the first to provide it,” says Gary Cyr, SGF director of aviation. “When you think about it, they’re not only servicing the plane, they’re engaged in economic development.” pushback.jpg

 

Airplanes need many things when they land: baggage unloaded and loaded, water tanks filled and lavatories serviced. It’s generically referred to as “ground services.” Airline employees and private contractors perform it in most corners of the aviation world. But at SGF the airlines have the option of using airport employees. From the airline’s point-of-view, it’s a good way to cut cost without affecting customer service. From the airport’s perspective, it’s a lure that can attract new airlines or entice an existing airline to add service.

 

An Accidental Occurrence

 

This story couldn’t be told if TWA was still in business. The bankrupt airline was bought out by American in 2001. Its absence at SGF meant more than a loss in airline service: TWA was the only airline in Springfield willing to provide ground services for large charter airplanes. Those charters were typically full of Branson tourists. Charles Jackson, who was TWA’s manager at SGF when the airline folded, had an idea. “I pitched airport management the idea of forming a department that would service the charters.” A month later SGF was in the ground service business and Jackson worked for the airport.

 

The first challenge: equipment. There’s the cost of the tractors (called tugs) that pull luggage carts; the truck that deices planes in cold, wet weather; the tug that pushes an airplane away from the gate—the list goes on and on. “An airline can easily spend half-a-million dollars to set up shop at a given airport,” says Jackson. He convinced American to sell TWA’s old equipment for less than $10,000.

 

For the first two-and-a-half-years, Jackson and the new department serviced charters. Then, in April 2004, Delta decided to come to town with daily flights and it needed ground services. Jackson’s department bid for the service and won. This was a significant step forward—not only was SGF servicing an airline that had a daily schedule, it was saving the airline a significant amount of money.

 

Rapid Growth G4atsgf.jpg

 

Fast forward to April 2005: Allegiant Airlines, a low cost carrier providing niche service to vacation cities, wanted to start flying between SGF and Las Vegas. The airline had flown charters to Springfield, so it was familiar with the airport’s ground handling. Jackson pitched the airline a bold idea: SGF would provide “below wing” and “above wing.” In industry slang, “below wing” refers to ground services. “Above wing” refers to the staff at the ticket counter and gate. Allegiant jumped.

 

Now SGF provided below wing for the charters, Delta, and Allegiant and above wing for Allegiant. This was unchartered territory--the challenges mounted. Every airline has its own rules and standard operating procedures. The SGF staff had to learn them for each airline. “I had to send people out-of-town to each airline’s training classes,” says Jackson. load.jpg

 

Within a month of beginning service to Las Vegas, Allegiant doubled the number of flights. Then in October it added service to Orlando. As the work load increased, the size of the SGF service staff increased. It currently has 24 members handling at least 43 flights a week. “It’s not a huge revenue stream, but it helps develop airline service,” says Mark Roy, SGF’s business director. The program has done so well that airports across the country are paying attention.

 

For the past year-and-half SGF representatives have been in demand at airport conferences. “There’s extremely high interest from both airports and airlines,” says Jackson. “The airline representatives are saying, ‘yes, this is what we want airports to do!’”

 

Cyr is now asked to speak on the subject on a regular basis. Airport representatives jammed the room at a recent meeting of Airports Council International. Managers from bigger airports, including Orlando and Raleigh-Durham, asked questions and wanted more information. Cyr sums up the conference this way: “airport ground handling was all the buzz.”

 

Follow these links for more information on airport ground handling: Airport or FBO? and Springfield Success.

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faucet.jpgGood thoughts and questions this morning from Watcjer. Got enough here for a book! Let's go through them one by one...

 

1) I think the "leakage" of thirty percent is underestimated. Maybe I don't travel in moneyed circles because almost EVERYONE I know drives to another airport to fly to their destination.

 

I hope you're wrong about leakage being underestimated. Care to guess how many people thirty percent is? It's a painful number: 181,877.

 

Aviation consults have a formula for coming up with this number. Our most recent leakage study was delivered at the end of 2005 by the Boyd Group. Here's how it approximates leakage, and I'm quoting from the study, "The Boyd Group uses two ratios, enplanement-to-population and enplanement-to-EBI [EBI is the per capita Effective Buying Income of people living the metro area], as general indicators of how much traffic a particular airport is capturing relative to total demand created in the market...the Boyd Group compared the Springfield-Branson region to four other Standard Metropolitan Statistical Areas that have similar populations and per capita EBI. When compared to the similar markets, it is estimated that the Springfield-Branson SMSA is generating approximately 614,100 annual enplanements. During the 12-month period ending September 30, 2005, the airport enplaned 432,223 passengers. The above formula indicates that the airport is capturing approximately 70% of the traffic generated by the primary service area."

 

2) Sam Walton understood low prices. People go where they can get the best deals, LOTS of people.

 

I agree. Allegiant Airlines' presence in Springfield is a perfect example. Here's a sample of its growth numbers in Springfield:

 

  • July: passenger numbers up 87% over the same month last year
  • May: passenger numbers up 41% over the same month last year
  • March: passenger numbers up 34% over the same month last year

Allegiant has done more for this market than just provide low fares: in my opinion it has generally raised awareness of the airport in the market and it has proven that the demand is here when the price is right. If the airline can maintain and improve its market performance over several years, I think it can help us convince other low cost carriers (LCCs) to try the market. Having said that, I would be remiss if I didn't point out that comparing Allegiant to other LCCs is an apple to orange sort of comparison. Remember--the Allegiant business model is unique. It has a very small fleet and it does not provide daily service.

 

The economics of other LCCs are different: they have bigger fleets and provide daily service.

 

3) Is there anyway the Springfield airport can give gate concessions to get in competitive airlines?  What can the airport do to make up the difference of what airlines consider low numbers of passengers.  Could we give them cheaper gates or cheaper gas or landing fees etc. possibly allowing ticket prices to drop? Then, hopefully enplaned passenger numbers would go up and the airline's revenue would shift from airport inducements to passenger ticket sales.

 

We do offer the sort of incentives you're talking about, plus more:

 

  • Marketing incentive: maximum of $50,000 available for additional or new service.
  • We have routinely waived landing fees, gate fees and common use rental fees for new airlines entering the market. The waiver of fees is temporary, but long enough to let the airline establish service.
  • Ground services. THIS IS A BIG DEAL! We are one of a handful of airports in the country to offer ground services to the airlines and it's at least part of the reason why we have service to five of our 12 destinations: Atlanta, Cincinnati, Orlando, Las Vegas and Tampa/St. Petersburg.

Ground service personnel do the following: guide the airplane to the gate, bring the jet bridge up to the plane, load and unload luggage, service the lavatories, etc. Historically, airlines have provided their own ground services. But in Springfield they have the option of contracting it from the airport for a significant savings. Please read the linked story; I'll do a post dedicated to ground services later in the week. One other thought before moving on: the commercial airlines negotiate their own price for fuel at this airport from Conoco-Phillips. Each airline has its own contract. The airport puts the fuel in the plane. The fueling charge is 10 cents a gallon.

 

4) ...is there a way for the city/government to help make up the revenue difference for airlines until passenger numbers go up?

 

I think I've mostly addressed this question. If you're alluding to big subsidies, like they do in Wichita, it's my opinion that we're not likely to see that tried in this market. The trick to subsidies is getting the service to the point where its self-sustaining. I'm not sure that's happening in Wichita.

 

5) Is there profit for Springfield airport in gas sales, gates, landing fees?

 

As I said, we charge for the service of fueling the plane. The airlines negotiate their own fuel deal with oil companies. We do charge landing fees and gate use fees. I'm not sure I'd call it profit--at least not in the traditional sense. What sometimes get forgotten is that it cost a lot of money to run an airport and the revenue has to come from somewhere!

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Chris has several questions: "Is it possible for SGF to lure cargo companies such as FedEx or UPS to setup a small operation at SGF? Springfield's location is quite centralized and has great access with transportation using I-44."

 

They're already here. We've got UPS, Federal Express, DHL, and I think I'm forgetting somebody. The Cargo Boys (as we call them) are located on the northwest side of the airport where they are out of sight of the general public. The bulk of their operations occur at night, between 11:00 p.m. and 6:00 a.m. The cargo fleet operating here includes 757s, 727s and an Airbus (can't recall which model). In 2006 our air freight movement was up 38% over the previous year, with movement of 47,490,274 lbs. Here are the percentage increases for this year, January thru July:

 

  • January +16%
  • February +16%
  • March +5%
  • April +4%
  • May +7%
  • June +6%
  • July +7%

Freight movement has trended up for several years. It's a integral part of the airport's revenue stream. Not only do the Cargo Boys lease space and pay landing fees, we receive federal funds based on freight movement.

 

"Another question, is about parking, will there be more long term lots and possibly a parking structure in front of the terminal? I remember people complaining about not enough spaces and the distance between the parking lot and the terminal. Is anything being planned to ease this problem?"

 

There will considerably more parking, with room to expand. There will not be a parking garage.

 

"Also, I am wondering how can the Quad Cities have LCC AirTran flying in and out of their area? Isn't the Quad Cities MSA comparable to Springfield's MSA in population size? Wichita also has AirTran flying there, though if I remember hearing correctly AirTran is given subsidies to fly in and out of ICT, if it weren't for the subsidies they would be losing money on that route."

 

This is a good question and I can't give you an exact reason why. Trying to compare our market to that market is a tricky business. It's like comparing apples to oranges: every market is different. They each have their own peculiarities, demographics, industrial base, median income, etc.

 

Consider these market inconsistencies: the Quad Cities Metropolitan Statistical Area (MSA) is smaller than ours (about 25,000 less), but the airport moves more people. Our airport has 12 destinations, Quad Cities has eight. AirTran has been at Quad Cities since 1997 (when it was an even smaller market!). I would guess that the close proximity to the St. Louis and Chicago MSAs have something to do with all this. If I lived in out state Illinois or Iowa, I'd probably want to deal with the Quad Cities airport, rather than St. Louis or either of the Chicago airports. Also worth noting: the AirTran service between Quad Cities and Las Vegas is not daily. And I suspect that's true for the Orlando service. In this regard, AirTran is analogous to our Allegiant Airlines service. Allegiant provides us with low cost flights to Las Vegas and Orlando on a several-times-a-week schedule.

 

As for the sticky subjects of subsides... You're right. AirTran receives subsides in Wichita--several million dollars a year. And a similar arrangement has been made with Frontier Airlines. Are subsides a good thing? Depends on who you ask. I think the prevailing opinion in the national airport community is probably along these lines: it's very risky. If the subsides go away, the service is likely to go with it. And bottom line: can the service be built up enough so that subsides aren't necessary?

 

And a final thought on AirTran. Quad Cities moves about 884,000 people a year. Wichita moves 1.4 million. AirTran gets a subsidy to fly from the bigger market--go figure. Remember what I said about apples and oranges!

 

"Final question, do airlines sometimes charter flights to SGF for those who just want to visit Branson?"

 

You've got the right idea, but it works a little differently. A travel agency or group arranges a charter. They usually charter a plane with an airline that specializes in charters, but not always. Both American and Southwest have brought charters to our airport. The most recent Southwest charters carried college sports teams to Springfield. The number of Branson bound charters has declined in recent years for one main reason: the demographic group that swarmed Branson in the 1980s and 1990s is, to put in bluntly, dying off. This group, sometimes called the Greatest Generation, grew up during the Depression and fought World War II. They came here by the plane load, got on a tour bus, and headed to Branson.

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"Watcjer" pursues a couple of great questions in follow-up to last week's posting "Cheaper Fares in Tulsa:"

 

"I frequently fly to west coast. As usual...I can fly out of JOPLIN or FAYETTEVILLE cheaper than Springfield. I usually purchase on cheaptickets.com. At present, for a fall trip, I can fly out of either JLN or XNA for $343.00 roundtrip. It costs $510.00 out of Springfield. Why can they have competitive pricing? Are their markets larger too?"

 

The Joplin airport has Essential Air Service (EAS). EAS is a federally funded program which provides small cities with a "minimal level of scheduled service." Bottom line: Joplin's air service is subsidized by the federal government. In this case, two airlines are guaranteed a certain amount to fly from that market. Generally speaking, flyers pay a minimal fare. Here's a news story on the subject from the Joplin Globe.

 

Fayetteville is a different story altogether and I'm going to quote myself from an earlier post... The question can be answered in one word: Wal-Mart.

 

The NW Arkansas Airport benefits from the large concentration of national corporate offices in the area (Wal-mart, J.B. Hunt, Tyson Foods, etc.). This is why it's possible to fly nonstop from NW Arkansas to places like Miami, New York City and Los Angeles.  The service is provided due to the large number of business people making the pilgrimage to corporate Wal-Mart. Did you know that Wal-Mart requires potential vendors to come to Bentonville to make their sales pitch?

 

Earlier this summer the Wall Street Journal reported that that airport has the third highest ticket prices in the country due to all the business travel. Take a look at the coverage given the Journal story by a Fayetteville TV station. In 2006 Springfield moved 862,611 passengers. Northwest Arkansas moved 1,172,049. Bottom line: it's a bigger market, with a larger percentage of business traffic, which is driven by the corporate offices in the area.

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