Air Service
Recommendation
Communities should recognize the changing economics of air travel, and not expend resources pursuing questionable attempts to attract or keep air service.
Background
Airline economics: The economics of the airline industry has changed dramatically in recent years, with the bar being raised for communities to retain scheduled air service. This is a trend that will continue in the future, with more communities likely to lose scheduled airline service over time. In addition, it will be difficult for communities outside of Charlotte, Raleigh, and Greensboro to attract additional air service.
Why aviation is a questionable expenditure for city and county governments
Diffuse demand. While there is demand for air travel from many communities, it is diffuse as it involves people going to a multitude of different final destinations. Only the state's top markets generate enough travelers to fill even a single daily flight to a single destination. To address this problem, airlines operate connecting points — hubs — which allows them to bring passengers going to different locations (spokes) to a single location and change planes to their final destinations.
Hubbing airlines. There was a time that communities like Charlotte (CLT) paid for having a hub through higher fares. The hubbing airline dominated the market, and there was limited competition as low-cost carriers usually only nibbled at the edges. Those days are largely over. Most travelers want to go to major destinations, and low-cost carriers like Southwest, Airtran, and jetBlue have increasingly focused on major markets. Charlotte has become much more competitive in past few years. U.S. Department of Transportation data show Charlotte flyers paying an average of a 15 percent fare premium in the third quarter of 2007 — still on the high side, but nowhere near as bad as the 38 percent higher prices at CLT of five years earlier.
Higher cost per average mile. The aircrafts used to serve smaller communities have a higher cost per average seat mile (CASM) as compared to the larger jets commonly flown out of Charlotte and Raleigh-Durham. To compensate for the higher CASM, airlines must charge a higher price to serve smaller communities. Unsurprisingly, many travelers bypass their local airport and drive to Charlotte or Raleigh to take advantage of the lower fares and greater variety of flights.
Greenville's airport manager recently estimated that 75 percent of the city's air passengers drive to RDU rather than using Greenville's five flights a day to US Airways' Charlotte hub. "We're selling convenience," he said. But at the higher prices, most costumers are not buying.
Some passenger planes are no longer being produced. The aircraft traditionally used to serve smaller communities, the 19-seat turboprop, is no longer cost-effective in most applications and is out of production. All of the 580 flights a day out of US Airways' Charlotte hub are now on aircraft that seat at least 37 passengers. Communities such as Hickory, Kinston, Moore County (Southern Pines), Rocky Mount, and Winston-Salem that can't generate enough passengers to support 37- to 50-seat aircraft have simply lost all service. Likewise, nonstop service between cities such as Raleigh-Asheville, Raleigh-Norfolk, and Raleigh-Charleston, S.C., that had relied upon 19-seat turboprops has also disappeared.
Larger planes are taking their place. In the medium term, the bar for air service will rise again. The smallest airliners now in common usage, those seating 50 or fewer passengers, have largely gone out of production in the last few years. Airlines are beginning to replace their existing fleets of 37- to 50-seaters with planes that carry 70 or more passengers. High fuel prices will accelerate this trend.
Limited time and place flights are not an economic development tool. An exception to the traditional hub-and-spoke model is provided by airlines like Allegiant Air, which offers flights a few days a week — and sometimes only seasonally at that — to popular vacation destinations like Orlando and Tampa Bay from secondary markets including Greensboro and Wilmington. While such flights are a welcome development for leisure travelers going to high-demand spots, they offer essentially no opportunity for connections to other cities. As such, these flights offer nothing for business travelers and cannot be considered an economic development tool.
New entrants have a tough time. The airline industry has traditionally not been kind to new entrants, and offering government incentives to startups doesn't change that equation. Among the latest startups to fail was Skybus Airlines. Despite having been in business for all of five months and operating five planes at the time, Piedmont Triad International Airport (PTI), regional economic development groups, and the state still offered Skybus up to $57 million in October 2007 to establish its second focus city at PTI. The airline's PTI operations ramped up in January, hit 18 flights a day in March, and the carrier shut down in early April, even after millions in taxpayer money was spent on advertising.
Air-taxi service is questionable. The "next big thing" in air service for smaller communities is air-taxi service. In 2007, the N.C. Department of Transportation in a consortium with 11 smaller communities was awarded a federal grant to market this solution. The highly respected aviation-consulting firm The Boyd Group had this to say about air-taxi service last year: "Then we have the air-taxi solution, where supposedly some entity will get a fleet of Cirrus or Eclipse or Adam aircraft, and take advantage of all that pent-up demand in underserved small communities. It's the latest mantra. It's the solution to the future. It's also complete hogwash" (emphasis added). To underscore the point, Adam Aircraft filed for Chapter 7 bankruptcy (liquidation) in February 2008.
Fewer private pilots. Despite increases in population and income, the number of private pilots nationally continues to decrease. In 1980, there were 827,000 active pilots. Today it's just under 600,000. High fuel costs are all but certain to reduce the number of student pilots who obtain their pilot's license in the future and the amount of flying that existing private pilots do. Though each airport's situation is different and must be evaluated individually, the continuing decline in general aviation makes government attempts to cater to private pilots a problematic strategy going forward, especially given the high fue prices and the potentially high cost and large land area required for infrastructure improvements.
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