"South Carolina Offers Airlines $50 Million Incentive to Create Air Hub"

Thursday, June 10, 2004

South Carolina Offers Airlines $50 Million Incentive to Create Air Hub
The Charlotte (NC) Observer


Hoping to help create jobs, South Carolina is dangling a $50 million
carrot to any airline willing to establish a hub in Charleston or
possibly elsewhere in the Palmetto State.

The money, which would be raised through a bond sale, would offset the
cost of an airport expansion. To be eligible, a carrier would have to
offer at least 20 departing flights a day year-round and at least 70
percent of its seats on jets that can carry 100 or more passengers.

At this point, none of the airlines serving any of the four largest
airports in the state provide service at those levels. Most rely on
smaller regional jets and offer fewer departures a day, including
airlines such as Independence Air, a new carrier about to start service
in Charleston.

Clare Morris, a spokeswoman for the state Commerce Department, and Will
Folks, a spokesman for the governor's office, declined to say whether
the state had any particular airline in mind when the legislation
authorizing the bond sale was approved in the General Assembly and
subsequently signed by Gov. Mark Sanford.

Michael Boyd, one of the country's leading airline consultants, said it
was "illogical" for the state to consider building a major new terminal,
unless it was in advance-stage negotiations with a carrier.

"An airport is not a hub, an airline creates a hub," Boyd said. "The
thing to do is get the airline first and then do the airport."

Definitions of what constitutes a hub vary, but most airlines have
between one to five airports through which they route most of their
passengers.

By building a route system branching out from a centrally located
airport, a carrier can more efficiently connect small and medium-sized
communities that might not have enough passengers to support a number of
different nonstop routes.

Some airlines have strayed from the hub approach, but they generally
don't serve as many markets as traditional carriers.

The legislation authorizes the state Budget and Control Board to issue
up to $50 million in general obligation bonds to construct, enlarge or
renovate terminal facilities. The funds can also be used to buy land and
equipment. The state will issue the money only if a carrier agrees to
use the new facilities as a hub for five years, or until the debt on the
project is paid off, whichever comes first.

Under the legislation, it will be left to the state Secretary of
Commerce to recommend, based on any interested airline's financial
health, whether the government should help finance any airport
construction project.

Directors of the state's four largest airports -- in Charleston,
Columbia, Greenville and Myrtle Beach -- said this week they had not
heard about the legislation or any recent airline negotiations involving
the Commerce Department or state lawmakers.

"I don't see anyone out there now that would qualify," said Garrett
Jackson, executive director of the Greenville-Spartanburg airport.

The airport provision got through the Statehouse as part of an unrelated
bill, S1075, creating incentives to revamp abandoned textile facilities.

Rep. Bobby Harrell, a Charleston Republican, tacked it onto the textile
legislation April 28 -- 12 days after it passed the Senate -- in a
meeting of the Ways and Means Committee, which he chairs. The amendment
was rejected at first because it wasn't germane to the textile bill, but
Harrell eventually got it attached.

Harrell said the amendment was passed to him by the Commerce Department,
which was "thinking in terms of Charleston" when it drafted the
legislation.

"When Commerce Department asks for something, we try to get them what
they want," Harrell said. "I don't know that they were thinking of a
particular airline, but they've always got a lot of stuff going on, so
it would be best to talk to them about that."

Commerce officials, however, declined to provide specifics. 

Sen. Phil Leventis, a Democrat from Sumter who sponsored the textile
bill, remembers the amendment coming from the Commerce Department. But
when asked whether the department was negotiating with an airline
interested in developing a South Carolina hub, Leventis said, "I think
they were hoping for something, but I can't be sure."

Sen. Robert Hayes, a Rock Hill Republican who also had his name on the
bill, said he was not made aware of any ongoing state negotiations with
airlines. Hayes did not question the need for the airport-hub amendment.

"I remember it being added in, and I'm sure if they added it, they must
have had a reason," Hayes said.

The only airline that has a hub of sorts in the state is Hooters Air,
launched out of Myrtle Beach in March 2003 with service to Atlanta,
Baltimore and Newark. A new 14-gate, 300,000-square-foot terminal is
being built in Myrtle Beach, in part to accommodate Hooters. The
building will cost about $185 million, according to Bob Kemp, director
of Horry County airports.

"I haven't heard about (the bill), but I would be very interested in
it," Kemp said. "Hooter's is a very significant element of the
expansion."

But with only 10 takeoffs a day, Hooters wouldn't qualify the Myrtle
Beach airport for the state money.

Getting an airline hub would represent a big coup for the state.

South Carolina's relatively small population -- about half of either
North Carolina or Georgia -- and the state's close proximity to other
hub airports, such as those in Atlanta and Charlotte, would make it hard
for a carrier to fill planes here.

Even the Charlotte metro area is too small to support a hub on
population alone, according to consultant Boyd. US Airways' hub at the
Charlotte airport stays viable because it draws a high share of business
travelers.

"When I hear somebody say we're going to build a hub airport, I think,
'Why don't you build a seaport in Nebraska, that'll work well, too," "
Boyd said. "There are carriers that might want to do something, but
usually they want to do it in a place where there's a lot of people, and
there just aren't (enough) in South Carolina. ... And in the Carolinas,
where are you going to connect people from?"

The list of hub projects that have crashed and burned since the airline
industry was deregulated in 1978 is long.

Now-defunct Trans World Airlines, which declared bankruptcy three times
from 1992 to 2001, shut down hubs in Kansas City and New York City along
the way. Continental Airlines closed its Denver hub in the mid-1990s
when it was struggling with bankruptcy. And in the past 10 years,
American Airlines cut its losses on hubs in Raleigh-Durham, N.C., and
Nashville, Tenn.

There are now about 30 hubs nationwide, but with competition tight in
the beleaguered airline industry, most airlines have been trying to trim
their operations rather than expand.

In the fall, US Airways announced plans to shut down most of its flights
in and out of its Pittsburgh hub, a decision that would cut almost
17,000 jobs in the region, according to a study commissioned by the
carrier. United Airlines is considering shutting down one of its five
hubs as part of its bankruptcy realignment.

"It's not likely that anyone will open a new connecting hub of any
size," Boyd said. "It costs too much and it's too much of a risk."


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