Carolina Journal News Reports
CHARLOTTE — In 1998, 14 North Carolina communities had scheduled airline service. Today it is only nine. Even that figure may be reduced in the future, as recent trends in the airline industry make it increasingly difficult for smaller communities to maintain meaningful air service even if incentives are aggressively used.
Toward low-cost carriers
Since being deregulated in 1978, the U.S. airline industry has been largely dominated by airlines that follow a pricing model built upon market segmentation. So called “legacy” carriers, such as American, Delta, and US Airways, use a complex array of fares in an attempt to maximize their revenues. For travelers booking at the last minute or who don’t stay over a Saturday night, fares are often brutally high.
Legacy carriers also operate mainly hub-based systems. The United States is a large country and contains a multitude of population centers. Even in smaller communities, there exists a demand for airline travel. The problem is there aren’t enough people going to any given location to fill even a single flight a day.
Airlines can serve this general demand for air travel by operating large connecting points (“hubs”) where passengers from outlying cities (“spokes”) change planes to reach their desired destination.
New Bern is a classic example. In the third quarter of last year, the top travel destination was New York City at 27 flyers per day. Six additional markets averaged at least 10 people a day. US Airways serves this demand by funneling people through its Charlotte hub. The seven flights a day to Charlotte is the only airline service New Bern has.
In recent years, the legacy business model has been attacked by “low cost carriers.” The low-cost -carrier model, best exemplified by airlines such as Southwest, ATA, and AirTran, is to control costs and offer a simpler fare structure with last-minute fares that are more affordable.
Low-cost carriers typically focus on point-to-point service, serving city pairs with enough demand to fill up planes with minimal amounts of connecting traffic. They also generally do not offer flights to smaller cities. The presumption is that travelers from smaller markets will drive to bigger cities to catch a flight.
Independence Air, the newest low-cost carrier to serve North Carolina, highlights the trend. By October, it will offer a combined 31 daily flights to Raleigh, Greensboro, and Charlotte, and no flights to anywhere else in North Carolina, from its Washington Dulles Airport base of operations.
Low-cost carriers have about a 30 percent share of the domestic air-travel market. This is projected to grow to 40 to 50 percent by 2010.
While low-cost carriers have done well recently, legacy carriers have struggled. The two legacy carriers that provide almost all the state’s air service to markets besides Charlotte, Raleigh, and Greensboro are both in immediate danger of filling for bankruptcy protection. Delta Airlines, which serves Asheville, Fayetteville, and Wilmington, has lost $5.6 billion since 2001.
The situation at US Airways is bleaker, with an analysis for its pilot union indicating the carrier likely will go out of business by the spring unless it can further reduce costs. US Airways serves New Bern, Asheville, Fayetteville, Greenville, Goldsboro, and Wilmington from its Charlotte hub. The carrier has dropped flights to Hickory, Winston-Salem, Rocky Mount, Kinston, and Southern Pines in recent years.
The only service by carriers other than US Airways and Delta to cities outside the Piedmont are four Continental and Northwest flights to Asheville.
Offering incentives to attract service
Given that the market will likely not provide additional service to North Carolina’s smaller airports, communities have sought to use incentives to attract flights. The meager results to date illustrate the difficulty these communities face in attracting minimal even airline service.
In 2003, Hickory, Wilmington, Kinston, Fayetteville, New Bern, and Moore County (Southern Pines and Pinehurst) formed a consortium to seek additional airline service. The goal was to lure Corporate Airlines, a commuter air carrier, to fly from its communities to Raleigh. Raleigh is a spoke, though one with considerable service and low fares. Corporate was interested in flying the routes but only if the communities provided substantial incentives to cover projected losses.
The cities and Corporate eventually reached agreement on a $5.4 million incentive deal. Corporate was to offer at least three daily round trips between Raleigh and the six cities using 19-seat Jetstream turboprop aircraft. The communities themselves would provide $1.8 million in incentives to Corporate. The amount individual airports agreed to contribute varied widely, with the communities without existing air service offering far larger amounts to help get the service going. Kinston committed $280,000, and Hickory offered $339,000. Moore County committed just under $1 million. The three cities with existing flights each offered less than $100,000 in incentives.
The consortium hoped to obtain the remaining funds through a grant from the federal Small Community Air Service Development Pilot Program. SCASDP awards about $20 million a year in funds to smaller communities to attract additional airline service. The consortium’s application, however, was only partially successful. It was awarded $1.2 million, not the $3.6 million it had hoped for. The flights never began, as Corporate refused to fly the routes for only a combined $3 million in incentives.
New Hickory service
Hickory has since offered more money to attract airline service of a different sort. In May, the city announced a tentative agreement with Southeast Airlines. Southeast is a Florida-based scheduled charter airline that specializes in serving leisure markets and generally flies from secondary airports. It serves St. Petersburg, Fla., not Tampa. Southeast’s few flights in the Chicago area land at Gary, Ind., not Chicago’s O’Hare or Midway airports. The limited air service at these airfields makes it difficult to find connecting flight to other destinations. The carrier also does not fly on Tuesdays.
Hickory will provide $450,000 in incentives as part of the deal. The airport has also obtained a federal grant for infrastructure improvements to support the flights.
“This will make us an even greater hub than we already are,” Millie Barbee, president of the Hickory Metro Convention and Visitors Bureau, said to the Hickory Record.
The flights to Hickory would not be Southeast’s first attempts to establish service to the state. The carrier flew to Charlotte from St. Petersburg in late 2000 and early 2001. The flights were not successful in large part because few travelers were aware Southeast was serving Charlotte. In an attempt to prevent a repeat, Hickory’s incentive package includes $250,000 on advertising.
A flight to St. Petersburg could begin as soon as February or March.
Lowrey is a Charlotte-based associate editor at Carolina Journal.