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Airports Do the Low-Cost Airline Tango

5 min read

The competition to attract low-cost airlines is significant.

While the average cost of domestic plane fares is expected to decline this summer by about $2 because of the low cost of oil, passengers continue to seek out low-cost carriers offering steeper discounts for fewer frills.

But only one low-cost airline, Allegiant, operates in Arkansas, with routes to a handful of destinations.

Executives at the state’s two largest airports, Clinton National Airport in Little Rock and Northwest Arkansas Regional Airport in Bentonville, say they are continuing to meet with all airlines operating around the country, including several of the low-cost variety.

But both say they are limited by the number of passengers traveling to and from destinations, known and measured in the industry as passengers daily each way.

Ron Mathieu, executive director of the Little Rock airport, said in an interview last week that all airports, including his, send staff to domestic and international conferences to court airlines. The bulk of discussions between the parties take place at those conferences, and those meetings, which usually include a sharing of data, sometimes lead to deals.

“In the last year and a half, two years or so, we’ve had the opportunity to meet and continue to meet with all of the low-cost carriers to try and attract them to Little Rock. That is how we were able to successfully bring Allegiant to Little Rock a couple of years ago and how, ultimately, we’ve been able to get them to expand their air service from not just Orlando but also to [Los Angeles],” Mathieu said.

Kelly Johnson, airport director at the airport in Bentonville, attended a conference last week in California where she made pitches. She said in an interview that the airport had 28 meetings with airlines last year.

“We have been aggressively working toward getting any new carrier … that we can. And that includes, actually, a focus on discount carriers,” Johnson said.

Airport-Airline Tango

Johnson said that she’s been trying for more than two years to give away $950,000 in grant money but hasn’t found any takers. The U.S. Department of Transportation Small Community Air Service Development Grant can be used as a revenue guarantee for a carrier to add a destination at the airport, she said.

But competition is tough when every other airport is doing the same thing.

“There are all kinds of new incentive programs that are being put together to try and entice these carriers to look at your community over the 400 others out there that are doing the exact same thing that we are,” Johnson said.

The Little Rock airport also offers incentives, including waiving landing fees, terminal rent and return fees. The airport will also pay up to $75,000 in marketing reimbursement for some airlines.

But Mathieu and T.J. Williams, the airport’s director of air service development, said every airline relies on data that show them whether a move into a new market makes good financial sense. Once established, the airlines continue to monitor those numbers to expand service or modify its fleet.

Williams said it was “very tough to say” how soon any of the other low-cost airlines may enter the market. She said that she’s continuing to talk with all airlines — and had 32 meetings last year — but said, “You’re looking at a trending situation.”

“It takes years for them to build confidence in your market based on the trends before they will allow one of their aircraft to service your market,” Williams said.

Williams said that most negotiations for a new airline to enter the market would last several years and most airlines want 10 years of data to show those trends. She said Allegiant’s passenger data will provide some information for other airlines.

“Allegiant is establishing a baseline of performance for the two markets they serve. So when other airlines are looking at that, they’re looking at the success of Allegiant and then they’re making the decision about whether or not they want to compete with Allegiant,” she said.

Low-Cost History

Allegiant isn’t the first low-cost carrier operating out of Little Rock.

Before the flurry of mergers that whittled eight major airlines down to four and a series of airline bankruptcies and other financial troubles, Frontier Airlines flew in and out of the capital city.

The airline’s money woes forced it to pull out of Little Rock in 2014, but Mathieu said Frontier was successful in offering service to Denver. When Frontier pulled out, United Airlines stepped up service to Colorado to fill the void.

“That’s the hardest part, when an airline tells you that they were doing well here and they wanted to stay and they want to come back, but their financial conditions are such that they had to make some difficult choices,” Mathieu said.

Allegiant, the only low-cost carrier in Little Rock, currently offers a flight to Orlando and plans to add service to Los Angeles this summer.

In northwest Arkansas, Allegiant has played a bigger role. Since moving into the market nearly five years ago, the airline now offers flights to three destinations: Las Vegas, Los Angeles and Orlando.

Laura Billiter, a spokesman for Allegiant, said in an email that the airline flies out of 105 cities across the country and that it was looking to add to those numbers with the addition of six aircraft that will join the fleet by 2017. She said that the airline is talking to airports about expanding, but noted that it does not have direct competition in many markets.

“Allegiant always looks to add or expand service in underserved airports that are cost-effective for our operations. In these airports, Allegiant has the opportunity to provide a low-cost, nonstop travel option to a popular vacation destination for local travelers,” Billiter said.

Market Share

Maybe not surprisingly, many travelers are seeking out airline fares that will save even more than the $2 already expected this summer.

John Grant, executive vice president at OAG, an airline data provider headquartered in Luton, England, said that low-cost airlines account for about 20 percent of all flights in North America. He said that several low-cost airlines have plans to operate significantly more flights during the summer of 2015 compared with the summer of 2011. For example, Allegiant plans to operate 36,664 flights this summer compared with 24,741 in 2011, a 48 percent increase.

Virgin America expects to operate 36,573 flights, a 34 percent increase, and Spirit Airlines projects 76,259, a nearly 91 percent increase.

“Much of the growth we see at the moment is in low-cost airlines,” Grant said in a phone interview last week.

William Swelbar is executive vice president at InterVistas Consulting Inc., which has offices in North and South America and Europe, and he’s a research engineer at the MIT International Center for Transportation. He said more airports are now using incentives to try to lure airlines. Those incentives can include waiving landing fees and helping out with marketing costs.

Swelbar said that airlines can be hesitant “without some sort of financial risk mitigation mechanism.”

“Until it is crystal clear from the underlying demand that a service will be successful, airlines are reluctant to start anything new that they do not believe will be profitable,” Swelbar said in an email.

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