Mountain resort airports hit turbulance in attempts to grow number of flights, seats
November 22, 2013
How important is air service?
Total economic output at commercial resort airports:
- Aspen-Pitkin County Airport: $841.1 million
- Eagle County Regional Airport: $635.9 million
- Gunnison-Crested Butte Regional Airport: $98.5 million
- Montrose Regional Airport: $221.8 million
- Telluride Regional Airport: $78.5 million
- Yampa Valley Regional Airport: $299.3 million
Source: 2013 Economic Impact Study for Colorado Airports.
This is the first in a series on the challenges mountain resort airports face.
Mike Berland has nearly 9 million frequent flyer miles between United and American Airlines. When you fly that often, convenience is key.
Berland, of Westchester County, N.Y., has a condo in Vail and typically flies a winter nonstop flight to the Eagle County Regional Airport from either Newark, N.J., or John F. Kennedy Airport in Queens, N.Y. The Eagle airport is only convenient, however, when there's a nonstop service option, he said.
"You can't count on a connection to Eagle," Berland said. "When you're a frequent flyer, you first think about what kind of airplane it is. Big planes are more reliable."
Berland is one of countless mountain flyers with specific criteria for choosing when and where to fly. Among flyers' criteria are nonstop service, costs, weather and the size of the aircraft. For some, a two-plus-hour drive to Denver over high mountain passes during a snowstorm is worth it if hundreds of dollars in fare savings are at stake.
Mountain resort airports with commercial air service have to fight hard for flight service so second-home owners like Berland and thousands of skiers can enjoy easy access each winter — they're the flyers whose money supports local economies the most.
Most airports have to offer airlines what's called a minimum revenue guarantee before the airlines will consider adding service to the market, making the negotiating process tricky when compared with major markets where airlines naturally want to be. Mountain airports also have limitations in terms of the type of aircraft that can land and take off, as well as wind concerns, high-altitude air density, terrain obstacles and weight restrictions. It all equates to a variety of challenges that mountain airports constantly face. Throw in massive consolidation in the airline industry — American Airlines and U.S. Airways got the green light to merge from the Department of Justice this month, which means an industry that had 10 major U.S. airlines 12 years ago now has four dominating the market — and a loss in available seats becomes another major concern as airports look to the future.
The EGE Air Alliance, a nonprofit group that raises money to support air service into the Eagle County Regional Airport, raised $400,000 earlier this year in order to bring in a summer flight from Houston. The amount was negotiated between United Airlines and the alliance, but if the flight would have made more than $400,000, the alliance would have paid nothing.
Because it was a new flight, and the alliance got a late start with its fundraising and marketing efforts, the entire $400,000 was necessary, said Chris Romer, president and CEO of the Vail Valley Partnership, which oversees the alliance.
The negotiated minimum revenue guarantee takes into account everything from flight crew costs to landing fees, overhead and fuel. If United Airlines would have made $200,000 on the Houston flight, the alliance would have had to cover only the difference in order to meet the guarantee. The flight filled 62 percent of seats, however, and the industry standard is upwards of 80 percent. The alliance is optimistic next summer's flights will sell more seats.
Nearly every mountain resort airport relies on minimum revenue guarantees in order to maintain or grow air service. In recent years, a trend seen across the region is a loss in available seats on commercial flights, with a few exceptions.
When flights turn out to be wildly successful, the guarantees are phased out. The EGE Air Alliance once subsidized a summer American Airlines flight from Dallas, for example, that is now thriving on its own.
Jackson Hole, Wyo., has a mountain resort airport with broad-based community support. The Jackson Hole Air Improvement Resources board, or JH Air, which more or less operates like the EGE Air Alliance does in Eagle County, has been able to build a successful flight service program over the years to a point where less than 20 percent of the flights this coming winter are subsidized, said JH Air chairman Mike Gierau. It took a lot of work to get to that point, though.
When Jackson Hole businesses started pledging money for flight service more than a decade ago — before JH Air's existence — Gierau remembers hearing that business owners who contributed to the revenue guarantees would get their money back if the flights made enough money.
"We never got our money back," Gierau, a restaurant owner, said.
He thinks he may have gotten roughly $5 back for every $100 contributed one year, but that was it. Gierau and a few other business owners would later get together with the Jackson Hole ski resort owners to organize a more formalized funding structure — they knew that minimum revenue guarantees were and always will be a crucial part of the air service equation there.
At the Yampa Valley Regional Airport, which services Steamboat Springs, the only flights that don't have minimum revenue guarantees this winter are the commuter flights that connect in Denver, said airport manager David Ruppel, adding that one other United flight from Chicago is the only non-commuter route without a guarantee.
He remembers a time not so long ago — pre-economic downturn — when the airport and community weren't paying the full amount of the guarantees because flights were more successful. Although the community paid the full revenue guarantees through the downturn, Ruppel is optimistic about the future.
"We expect — as we see the economy improve and people come back to resorts, and as load factors improve — we won't be paying full caps and we'll probably have more money to put toward other flights," he said.
Regional airports can't always buy air service, though. Southwest Airlines doesn't traditionally offer seasonal service, so the economics come down to a lot more than a simple revenue guarantee for that airline.
"We are courted and in conversation literally with dozens and dozens of communities every year. And in a world now where we're combining with (AirTran Airways), we're now getting hit up from all over the world," said Brad Hawkins, spokesman for Southwest Airlines. "In order to have the economics work for a 737 — or several of them — to come in daily, year-round, the community has to be of a certain size."
The seasonality of resort towns makes it impossible under that strategy to gain Southwest service. It's a sad fact for the local residents in resort communities who would like more access to their local airports through lower fares. Local residents who commented on a Facebook poll about which airports they use collectively complained about the high fares at both the Eagle County Regional Airport and the Aspen/Pitkin County Airport.
"We'd love to see fares come down," said Greg Phillips, aviation director at the Eagle County airport. "Competition is one way to do that. … One thing we have to be careful about is if you bring in a low-cost carrier and all of a sudden they push down the price of flights, our good legacy carriers who stuck by us and have been with us all this time here — if you push the prices down to the point they're not profitable anymore, then you win the battle but you lose the war."
If an airport brings in a competing flight and the market can't support both flights, eventually one of the carriers will drop out, said Gabe Shalley, an EGE Air Alliance board member and the airline marketing manager for Vail Resorts. She spoke in the capacity of her Air Alliance role for this story and not her Vail Resorts' role.
Mountain airports are extremely vulnerable to air service decreases. When Frontier Airlines pulled out of Steamboat Springs in the 2011-12 winter it caused a 9 percent decrease in available seats. Frontier also pulled out of Aspen at the end of the 2011-12 ski season because the airline phased out the only airplanes in its fleet — the Bombardier Q400 — that were physically capable of flying into the Aspen airport, which delivered a big hit to Aspen's available seats that year — a loss of more than 20 percent.
"That created some market forces that had some undesirable outcomes," said Bill Tomcich, the president of Stay Aspen Snowmass and the community representative who builds relationships with the airlines alongside Aspen airport director Jim Elwood. "One of the reasons Delta decided to pull out in 2010 was because of stiff competition from Frontier and they weren't happy with it."
The Aspen/Pitkin County Airport does things a little differently with its airline relationships. They try to avoid revenue guarantee deals whenever possible, Tomcich said.
"We've always allowed the free market to determine the appropriate level of service here," he said.
The free market in Aspen also works a little differently. The posh resort town attracts guests with high discretionary incomes who support higher fares, which equals revenue for airlines. But that doesn't mean Aspen can just sit back and let the market determine everything.
"No airline will come into any resort destination without some sort of economic incentive package — that's just the reality of working with airlines today," Tomcich said. "Our job is to come up with a fair incentive package (such as marketing or waiving airport fees) that helps saw the needle in favor of launching aircraft into our airport versus somewhere else, but also create a foundation for them to succeed here."
Lauren Glendenning can be reached at email@example.com or (970) 777-3125.
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