"Florida airport considers 'revenue guarantees' to lure regional jet service"

Friday, March 19, 2004

Naples Airport Authority considers 'revenue guarantees' to lure regional
jet service
By JOHN HENDERSON
The Naples (FL) Daily News


A proposal might be made to Delta Airlines guaranteeing that it would
make a profit if it started jet service between Naples and Atlanta. 

The Naples Airport Authority, which has not had much success in luring a
regional carrier to offer service at the airport, on Thursday decided to
enter into negotiations with a consulting firm to develop such a
proposal to sell the carrier on offering daily jet flights out of the
Naples Municipal Airport. 

The board proposed paying $9,500 to Sabre Airline Solutions to outline
possible "revenue guarantees" that could be promised to Delta if ticket
sales don't fill jets to the degree the company wants. 

A revenue guarantee is basically a promise that the routes will make a
certain profit. If ticket sales don't cover the profit margin, then a
subsidy covers the difference. 

The most likely source of the subsidy, at least at this point, is the
business community, which has expressed an interest in supporting a
marketing effort to lure a regional carrier. 

The Federal Aviation Administration forbids airport authority revenues
that are generated from fuel sales and leases to be spent for this
purpose, but an agency rule change has been proposed that might change
this, according to Ted Soliday, the executive director of the authority.


Authority member Peter Manion explained to fellow authority members on
Thursday that 340 airports in the country only offer 4 percent of the
overall air service. And all these airports are all clamoring to get
service back to their communities since the Sept. 11, 2001, terrorist
attacks on the United States. 

He said this has given airline carriers real leverage in demanding
incentives from airports. He said Delta has announced six more regional
routes this year, and all of these were at airports offering revenue
guarantees, not to mention other incentives such as abating landing
fees. 

"The airlines clearly are in a seller's market. I think it's important
we recognize that," Manion said. 

Manion said he recently attended a conference in Daytona Beach where
airport operators listened to airline companies tell them what it takes
to be considered. 

"You get to the top of the heap by giving them a revenue guarantee, and
that's how they make their decisions. There was no bones made about
that," Manion said. "They (airlines) don't need to take any risks if
they have got 340 airports looking for service, and they are the only
game in town." 

Funding for revenue guarantees also could come from a highly sought
Department of Transportation grant that the authority applied for last
year but was not awarded. Naples Airport spokeswoman Gail Cureton told
authority members that they plan to apply for this grant once again this
year. 

But Manion said he was not counting on this. 

The Federal Aviation Administration is an arm of the federal Department
of Transportation that is offering the marketing grant. And the FAA has
been withholding grants to the authority as the result of its insistence
to ban Stage 2 jets from using the airport. 

"Whether we would be in line for that (grant) relative to our other
problems with the FAA, we have no way of knowing at this point in time,"
Manion said. 

Beth H. Anderson, an analyst with Sabre Airline Solutions, said that
company plans to evaluate what type of revenue guarantee might be needed
to lure Delta service to Naples. She said they will learn what type of
revenue guarantee Delta is looking for, how many flights they might
offer, and how long it would take to deplete a subsidy pot. 

"We want to determine (at) what level will those (subsidy) funds be paid
out. We can run some numbers," she said. 

She said the data from the study should show how much the business
community might have to shell out, if anything, as a revenue guarantee
to lure Delta to Naples. 

Manion said it has been difficult for him to get an clear answer from
Delta as to exactly what type of revenue guarantee it is seeking. 

"We'll essentially be paying Sabre) to get us the answer we need,"
Manion said. "Now, maybe we can get it ourselves, but I'd certainly be
inclined to spend a small amount of money (on the consulting firm), and
if we don't get it (the answers), we don't pay. But we've got to have
that answer." 

Even though the local business community has expressed an interest in
possibly buying up blocks of tickets if a regional jet service were
offered, it has been difficult for the authority to come forth with a
proposal without regional carriers clearly outlining what they want,
Manion said. 

"We really can't go to the community. We really don't have a clue as to
how much we're talking about, and that's what we're trying to get," he
said. 

Authority members agreed that Sabre would not be paid anything toward
the consulting work until the answers the authority is seeking about
revenue guarantees were answered. 

The authority is trying to bring in regional jet service at a time when
many factors are making that a difficult mission. 

Since the terrorist attacks, there have been spans where there was no
scheduled commercial service at all at Naples Municipal. Today, there is
only one carrier offering scheduled commercial service at the Naples
airport, Cape Air's nine-passenger airplane rides to Miami International
Airport and Key West. 

Authority members feel the community wants regional jet service to major
airline hubs such as Atlanta.


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