Public Airports Can't Pay Airlines, Redux

 

In response to an earlier post, about Southwest Airlines providing service in Branson, Keven writes:

"Okay, after reading all of this I’m still confused about why SGF can’t lure in SWA. I have a family member living in Columbia, MO. They said right now the Columbia City Council really wants to have a second destination added out of COU. Mike Boyd the same guy that advises SGF said that providing an airline a revenue guarantee is really the only way Columbia service can be expanded out of COU in the near future. So, my confusion is why SGF says that BKG only has the air service they have now is because they provided an airline subsidy and can do so only because they are privately owned. Columbia though is publicly owned just like SGF and apparently it is perfectly legal for them to subsidize air service, but SGF claims that they cannot. I don’t want to come across as being on the attack but, I just want to know more about this. I really like the SGF airport and despise the Shack of a terminal in Branson. If I were SWA I would fly out of SGF to serve the Branson market. (SGF-HOU, SGF-BWI, SGF-MSP, all sound great to me). I agree, SGF has a great modern terminal and a larger local population base with interstate connectivity. One more thing . . . if Columbia is able and does subsidies a new destination provided by another airline I think Delta will have to seriously consider asking for the same privilege or pulling out of the market all together. Yes, they obviously have been profitable which is why Columbia does not participate in Essential Air Service anymore. But I think there is something to be said about an even playing field and loyalty between airport and airline."

It is confusing Keven, thanks for asking. I'm sure you're not the only person who has wondered the same thing. This confusion is helped along by inaccurate newspaper reporting. I'm fairly sure you (or your family member) read a story from last week's Columbia Tribune. Among other things the story says, "A revenue guarantee is an agreement between an airline and an airport that a route will make a certain amount of revenue for the airline and that the airport will offer a certain amount of money as an insurance policy in case the airline loses revenue in providing service to an airport. The Pittsburgh International Airport, for example, was able to start nonstop service to Paris through Delta after offering a $9 million revenue guarantee, according to a 2011 report in The Patriot-News, a Harrisburg, Pa., newspaper."

The Tribune also writes, "An air travel consultant { Michael Boyd } told business and government leaders yesterday that a second destination city for Columbia Regional Airport would be more likely to result from a revenue guarantee for an air service provider than from a terminal expansion."

Here's the deal... Boyd is saying that a revenue guarantee would have to come from somewhere... What I'm sure he didn't say is that the guarantee would come from the airport. So what about that "somewhere?" Where else can revenue guarantees come from for service at public airports? There are two sources:

  1. The Essential Air Service (EAS) program. This is federal funding that's used to bring air service to small communities that wouldn't have the service otherwise. Joplin has EAS service.
  2. The second funding source doesn't really have a name. It's money that comes from the community — meaning local businesses, or government entities, such as the county or state.

Probably the biggest example of this "community" approach is the AirTran (soon to be Southwest) service in Wichita. Under a four party arrangement, the State of Kansas, Sedgwick County, and the City of Wichita, pay AirTran several million dollars a year to provide service. Note who doesn't pay: the Wichita airport. So, when Michael Boyd told the folks in Columbia that "a second destination city for Columbia Regional Airport would be more likely to result from a revenue guarantee," he was talking about some sort of "community" funding. He was not talking about the airport providing the money.

Let's get back to that reporting in the Tribune that said the Pittsburgh airport paid Delta $9 million for service to Paris... The money actually came from the State of Pennsylvania, and the Allegheny Conference on Community Development. That's according to the Pittsburgh Tribune. What I said in the original post still stands: " The Springfield airport is a publicly owned airport, which receives federal funding. Under federal aviation law it’s illegal for an airport, which receives federal funding, to pay for airline service." Hope this makes sense — it is complicated. More questions? Please ask!

 

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