"AirTran has history of jump-starting troubled airports"

Monday, October 18, 2004

AirTran has history of jump-starting troubled airports
AirTran Airways, which starts service at Sarasota-Bradenton airport Dec. 17,
typically has a big impact on airports to which it flies.
The Sarasota (FL) Herald-Tribune


Sarasota-Bradenton International Airport will receive an early holiday
present Dec. 17, courtesy of the federal government and AirTran Airways.

If the Orlando-based discount carrier's experience elsewhere is any
indicator, local travelers will enjoy lower fares and more flights to choose
from when AirTran begins its Sarasota-Bradenton service nine weeks from now.

At Sarasota-Bradenton, officials are hoping AirTran's history in such
midsized markets as Wichita, Kan., Akron, Ohio, Tallahassee and Pensacola
will reverse 15 years of local passenger and carrier declines.

"It's basic economics," Sarasota-Bradenton Chief Executive Fred Piccolo
said. "It's a matter of pricing pressure. It puts pressure on other carriers
to compete to keep ridership."

Ridership and flights have been in short supply at Sarasota-Bradenton.

Since 1990, Sarasota-Bradenton's passenger count has eroded by 50 percent,
or more than 1 million passengers annually, even as the region's population
has grown by nearly a quarter.

At the same time, five major carriers have abandoned the airport, and the
number of cities featuring non-stop service has fallen by 75 percent.

Meanwhile, some 1.6 million travelers a year drive an hour north and fly
from Tampa International Airport. The so-called passenger "leakage" costs
Sarasota-Bradenton an estimated $14.4 million a year.

By spring, the airport's balance sheet had become so precarious that leaders
were hinting that Sarasota-Bradenton was in danger of defaulting on its $40
million in bond debt.

To stop the nose-dive, the federal government in late August awarded
Sarasota-Bradenton a $1.5 million grant, part of a $4 million incentive
package that AirTran will receive to advertise flights and guarantee
revenue.

>Like Sarasota-Bradenton, Wichita Mid-Continent Airport's air service had
"flat-lined" in the late 1990s.

Although it served roughly 1 million passengers a year, its fares were
consistently ranked among the highest in the nation.

According to an airport survey, the high ticket prices prompted 44 percent
of Kansas travelers in the Wichita market to seek flights in Kansas City, or
even outside the state, three hours away in Tulsa, Okla., or Oklahoma City,
Okla.

To counter that trend, Wichita officials went after discounters AirTran and
Frontier Air in late 2001, armed with a pledge from roughly 400 area
businesses to buy at least $7 million worth of seats.

With AirTran, the city and economic development officials went even further,
promising $3 million in revenue guarantees and marketing help.

AirTran began service to its hub in Atlanta and Chicago from the 50-year-old
airport in May 2002, joining so-called "legacy carriers" like Delta,
American, United and Northwest airlines.

The existing carriers complained the airport was deliberately trying to
dilute their market share. Airport officials saw it differently.

"When AirTran came in, every airline here became a low-cost carrier," said
Steve Flesher, the Wichita airport's service development director.

A year later, the city provided AirTran with $1.5 million in support, and in
May, the airline and the city agreed to an additional $2.5 million incentive
package that runs through 2005.

Flesher said the airport considers the money "an investment," and points to
the estimated $200 million that consumers have saved, largely because of
AirTran-inspired discounts.

"There's no difference between the incentives provided to AirTran and
industrial revenue bonds for bricks and mortar businesses or tax credits for
investors," Flesher added.

"The idea wasn't to push anyone out or re-allocate the carriers," Flesher
added. "The idea was to grow the market and we did."

In 2003, Wichita set a passenger traffic record, with 1.43 million
passengers. This year, it expects to eclipse that record and break 1.5
million.

Delta and United have responded, too, by adding flights. In all, daily seat
availability is up 26 percent since AirTran began flying.

Flesher believes that in time, Wichita will have 4 million passengers a
year.

AirTran began flying out of the Akron-Canton Airport in 1996, slowly
building a customer base at what was then a small, moribund air hub.

Six years later, Akron-Canton was a thriving, viable airport teaming with
travelers. Officials estimate that AirTran's discount pricing saved
passengers $270 million between 1996 and 2002.

"They are largely responsible for our incredible growth over the past six
years," Airport Director Fred Klum in early 2002.

In June 2002, the federal government awarded Akron- Canton a $950,000 Small
Community Air Service Development grant, which, like Sarasota-Bradenton, the
airport used to subsidize AirTran and expand service.

Earlier this year, the Ohio airport reported that passenger traffic in 2003
shattered records. For the year, Akron- Canton had 1,164,755 passengers, 30
percent more than the year before.

AirTran fared even better. Its passenger count was up 80 percent in 2003
from the year before. Today, four in 10 Akron-Canton passengers travel
aboard AirTran planes.

Carriers like Delta, USAir and Northwest have benefited, too. Their
passenger counts rose an average of 9 percent from 2002 to 2003, according
to Akron-Canton statistics.

"We are trying like crazy to get better fares and more airlines," Pensacola
Regional Airport Marketing Manager Marie Frank lamented in February 2000.

Traffic counts at Pensacola, the largest commercial airport on the Gulf
Coast between New Orleans and Tampa, had been taking a slow dip for years,
and 1999 was no exception. Passenger counts fell 4 percent that year, to
545,887, and the downward trend seemed destined to continue.

Until November 2001, that is, when Pensacola provided AirTran $2 million to
enter the Florida Panhandle.

Although Delta had for years been the dominant carrier in Pensacola, with 49
flights weekly, AirTran scooped up 12 percent of passengers in its first
year of operation there.

And as AirTran business grew, fares fell, by an average of 28 percent to its
top 10 destinations.

At the same time, Pensacola's traffic leakage slowed, especially to
competing airports like Atlanta.

By May 2003, Pensacola Regional had rebounded.

"The Pensacola market enjoys a substantial advantage over other Gulf Coast
markets based on the presence of AirTran," PA Consulting Group, a Pensacola
Regional adviser hired to conduct an air service study, concluded in May
2003.

"AirTran's pricing, service levels and capacity should continue to drive
competitive responses by Delta and other carriers serving Pensacola and the
Gulf Coast in markets where these carriers compete head to head for
passenger traffic," PA Consulting added.

Moreover, just as was the case in Ohio, legacy carriers like Delta didn't
suffer when AirTran began flying. They grew, by matching fares and offering
additional flights.

"Delta has not seen its market share eroded by the introduction of AirTran,"
PA Consulting noted.

Even airports jilted by AirTran have kind words to say about the airline.

Tallahassee Regional Airport in 2001 served about 850,000 passengers, down
15 percent from six years earlier, the result of high fares and customer
leakage to airports as far away as Tampa.

In an effort to boost service, Tallahassee's mayor visited Delta and asked
the nation's third-largest carrier to increase flights at the city-owned
airport.

As elsewhere, Delta was Tallahassee's top carrier, with 60 percent of the
total market.

Delta executives listened politely and did nothing, according to airport
officials.

"They had the opportunity to bring low fares and they chose not to at the
time," said Ken Austin, Tallahassee's airport director.

Then, in November 2001, Tallahassee gave AirTran $2.1 million in revenue
guarantees and advertising dollars, along with a pledge that all city
employees would fly the airline when traveling for work.

Almost immediately, AirTran captured 15 percent of Tallahassee's passengers.

"Fares dropped across the board," Austin added.

Rather than abandon the market, Delta added four flights daily. The airline
slashed prices, too. USAir responded with increased flights as well.

By 2002, city and airport officials were so impressed with AirTran, they
offered the airline another $1.5 million.

By then, AirTran had generated roughly $25 million in annual economic
impact. Customers benefited, too. Airport officials estimated that the
airline had saved passengers about $75 million. Tallahassee's prices were
soon among the lowest of the 10 airports it tracked.

Even better, AirTran indicated it wouldn't seek a subsidy for 2004 because
its projections were being met.

But in June, Delta dealt a deathblow, adding service to Tampa and
undercutting AirTran.

A month later, AirTran stunned Tallahassee officials by announcing that it
would pull out of the city completely by Sept. 7.

"This is a blow and disappointment to us all," Tallahassee Mayor John Marks
said.

But rather than become bitter, Tallahassee officials praised AirTran.

"They left our market in good standing and they did everything they said
they would do," Austin said.

And a month after AirTran's exit, Delta expanded service, adding a flight to
New York. Even before AirTran left, Delta's market share had risen to 72
percent, thanks to frequent flier mile offers and competitive pricing.

More significantly, Delta is in the process of signing a 15-year deal to fly
out of Tallahassee, an agreement that doesn't require the airport to make
any concessions, Austin said.

This year, even without AirTran, Tallahassee Regional expects 1.2 million
passengers to pass through its turnstiles.

AirTran expects to begin flying from Sarasota-Bradenton to Atlanta and
Baltimore on Dec. 17, with discount fares starting at $79 one-way for coach
seats on direct flights.

Delta, by comparison, charges about $90 for similar seats to
Baltimore-Washington International from Sarasota-Bradenton, where it is the
largest carrier with about 75 flights a week.

AirTran officials have warned Sarasota-Bradenton officials that they should
be prepared to expand the airport's parking lot.

For its part, Delta claims it is ready to compete.

"Delta has said before that it will fiercely and fairly compete to keep its
position in that market," Delta spokesman Anthony Black said last month.

"For us, it's a competitive situation," Black added. "We're looking to
provide service to our customers, and we're going to do that regardless of
what other airlines enter the Sarasota-Bradenton market."

Neither Piccolo nor AirTran officials believe Sarasota- Bradenton will
become the next Tallahassee, eventually losing service.

"It's a significantly different market," AirTran Vice President of Planning
and Sales Kevin Healy said after the airline's official announcement about
local service.

"As a destination, we think Sarasota and Bradenton are very strong," Healy
added. "Tallahassee is wrapped around the Legislature and the school
schedule."

But September 2006 looms, the date agreements with Delta and other so-called
"signatory" carriers are set to expire at Sarasota-Bradenton.

Last month, Delta announced a corporate reshuffling aimed at staving off
bankruptcy. That restructuring includes whittling down service in Dallas/Ft.
Worth, and Delta intends to focus on Tampa, setting the stage for a
potential bailout from Sarasota-Bradenton.

AirTran has agreed to remain at Sarasota-Bradenton until September 2006.

Company officials won't say if they intend to seek further incentives to fly
Sarasota- Bradenton. The airline industry is too uncertain to plan more than
more than two years out, Healy said.


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