Effects of Airline Industry Changes on Small- and Non-Hub Airports (2015)

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10 C H A P T E R 1 1.1 Introduction With the continued evolution of the U.S. airline industry, it is important to examine the potential outcomes for smaller airports in terms of the levels and types of commercial air service likely to be available. In turn, these airports will have to communicate with their surrounding communities about what is happening and understand the likely effects on travelers and cargo shippers as well as the effect of air service changes on local businesses, government, and the local economy. Airport leaders will be asked to stem reductions in current air service and/or obtain new services. The objectives of the ACRP Project 03-29 research were to 1. Identify and quantify the effects of changes in commercial airline service on small- and non-hub airports and the communities they serve, resulting from airline consolidation, fleet realign- ment, and other industry factors 2. Develop strategies for achieving and maintaining desired commercial service at these airports in response to changing market conditions and airline business plans To achieve these goals, airports must understand the economic forces affecting the U.S. airline industry and how these forces affect airline decisions about air service at specific airports. Airport staff also need information on which actions are most likely to result in retaining and expanding air service. To this end, the research team for this project undertook a series of case studies that focus on airports and community economic development bodies, as well as an airline survey and other outreach to airports and airlines. The work presented in this guidebook identifies and evaluates the strategies available to airports and communities that can be used to retain and attract air services, provides specific examples of programs used by airports in the past, and presents what might best meet airports needs moving forward. These strategies include • Assistance provided to air carriers within allowable FAA guidelines on the use of airport revenues • Assistance provided to airlines by local communities to offset costs or to guarantee revenues • Use of federal and/or state financial assistance • Other strategies to maintain or enhance community access to the scheduled air transportation system, including options to access other airports Exhibit 1-1 provides a schematic view of the work program that identifies each task undertaken and the relationships among them. The research team also used focus groups, online surveys, and web-based meetings to obtain additional insights during the project. Using the Guidebook

Using the Guidebook 11 1.2 Organization of the Guidebook This guidebook has the following additional chapters: • Chapter 2: Literature Review of Airline Industry Trends • Chapter 3: Data Analysis, Airline Industry Changes, and Case Study Selection • Chapter 4: Air Service Development Programs • Chapter 5: Case Studies • Chapter 6: Focus Groups • Chapter 7: Lessons Learned • Chapter 8: Assessing Changes in Airport Service • Chapter 9: Strategies The following paragraphs present the chapters in greater detail. Chapter 2 presents the results of the Task 1 literature review. This review focused on the following primary topics: • Recent history and performance in the U.S. aviation industry • Effects on airports serving small communities • Links between local economic development and air service Exhibit 1-1. Task schematic.

12 Effects of Airline Industry Changes on Small- and Non-Hub Airports For the literature review, the research team assembled copious information going back to 2001 to assess air travel industry trends and changes, including the effects of consolidation, eco- nomic cycles, and fuel prices on airline economics and air services. In addition, the research team reviewed the role that air service plays in the local economy (e.g., enhancing tourism, providing efficient connections to the nation’s and world economies, and attracting new companies and making existing ones more efficient). The research team also examined the sustainability of air service in different contexts (e.g., rural and remote airports and regional centers of business and government) and the roles of connecting hubs. Chapter 3 presents information on data analysis, airline industry changes, and case study selec- tion. The study population included airports classified as small- or non-hub at any time during the study period (2001 to 2013). Only airports in the continental United States were included in the study population. Airports in Alaska, Hawaii, and U.S. territories were excluded because they have unique qualities that make comparisons to airports in the continental United States difficult. For the Project 03-29 research, only small-hub and non-hub primary commercial service airports as defined by the FAA (i.e., those with more than 10,000 annual boardings) were examined. Small-hub airports are those whose share of total annual boardings in the United States are between 0.05% and 0.2%. Non-hub airports are those whose share is less than 0.05% of boardings. This chapter first presents relevant information on various data elements, including different measures of scheduled commercial service, community demographics, market data, and airport financial data. This is followed by a description of how the list of case study airports was developed for examination under Tasks 4 and 5. The research team used a data-driven approach incorporat- ing the results from the data analysis to select a final list of six small-hub airports and six non-hub airports as follows: • Small-hub airports – Burlington International Airport (BTV)—Vermont – Akron-Canton Airport (CAK)—Ohio – Northwest Florida Beaches International Airport-Panama City (ECP)—Florida – Phoenix-Mesa Gateway Airport (AZA)—Arizona – Bozeman Yellowstone International Airport (BZN)—Montana – Hector International Airport-Fargo (FAR)—North Dakota • Non-hub airports – Toledo Express Airport (TOL)—Ohio – Redding Municipal Airport (RDD)—California – Augusta Regional Airport (AGS)—Georgia – Charles Schulz-Sonoma County Airport (STS)—California – Monterey Peninsula Airport (MRY)—California – Asheville Regional Airport (AVL)—North Carolina From this list of airports, the research team identified five airports that had particularly note- worthy community involvement (either positive or negative) or innovative incentive programs. These five airports—Fargo, Toledo, Redding, Sonoma County and Asheville—were selected for more in-depth study using focus groups. In addition, the research team examined a statewide program in Kansas that primarily affected Wichita Mid-Continent Airport (ICT). Chapter 4 discusses ASD programs. Small airports need to understand the underlying forces driving the future of airline services in the United States. In addition, they must be aware of the actions that they and their communities can take to retain and attract air services. This chapter focuses on approaches and tools that local economic development officials can use to attract new service or retain current service in their communities. Topics examined here include the typical

Using the Guidebook 13 decision-making process that airlines go through when considering which routes to serve, a review of various types of community incentives available to local communities (e.g., minimum revenue guarantees and ticket banks), and discussion of FAA and DOT programs for small com- munity air service. In addition, the research team performed an online survey of small airport incentive programs; the results of that survey, including analysis of the structure and composi- tion of such programs, are presented at the end of Chapter 4. Twelve airports were identified as case study sites, and five of them were selected for more in-depth analysis based on focus group visits. Chapter 5 provides details on the seven case study airports that were not selected for further focus group analysis: • Burlington, Vermont (BTV) • Akron-Canton, Ohio (CAK) • Panama City, Florida (ECP) • Phoenix-Mesa, Arizona (AZA) • Bozeman, Montana (BZN) • Augusta, Georgia (AGS) • Wichita Mid-Continent Airport (ICT) Information about these airports, the data collection process used, and specific details regarding their levels of service and incentive programs are provided in Chapter 5. The five facilities selected as focus group airports are the subject of Chapter 6. These air- ports are • Toledo, Ohio (TOL) • Sonoma County, California (STS) • Redding, California (RDD) • Fargo, North Dakota (FAR) • Asheville, North Carolina (AVL) Chapter 6 presents the method used in the focus groups and detailed analysis of each airport, including analysis of their local air service and economic activity, history of air service develop- ment, and themes and general conclusions derived from the focus groups themselves. Chapter 7 provides a synthesis of the lessons learned from the ASD case studies and the focus groups conducted in five communities. Additionally, analysis of key variables surrounding the success of ASD efforts are presented to support the lessons learned. Key overarching findings are discussed, along with specific lessons learned relating to • Relationships between air service development and local economic variables • Origins of ASD efforts • Forming local coalitions • Identifying an air carrier and new destinations • Developing an incentive program • Meeting with air carriers and community leaders • Ensuring sustainability In prior chapters, airport service levels—described primarily in terms of non-stop flights and seats—are presented to help illustrate how small- and non-hub airports have fared as major changes in the industry have taken hold. Chapter 8 extends the understanding of the actual effect of these changes in terms of accessibility to the national air transportation network. For most small- and non-hub networks, an actual count of non-stop flights and/or seats pre- sents an incomplete picture of how effectively travelers can access the larger air transportation

14 Effects of Airline Industry Changes on Small- and Non-Hub Airports network. This is because in most cases such access depends on how those non-stop services mesh with the schedule banks of the major carriers’ hubs. For the current analysis, the research team undertook an analysis that specifically tracked both non-stop and connecting services from small- and non-hub airports (categorized as of 2013) to the 50 largest U.S. airports as well as 17 major foreign airports. The analysis is based on a proprietary Quality of Service Index (QSI) model that identifies and evaluates all non-stop, one- stop, and two-stop services that may be available from a given schedule of flights. Chapter 8 includes a direct comparison of the new QSI measure with more traditional non-stop service metrics at small-hub and non-hub airports and discusses QSI-based changes in service at the case study airports. A primary takeaway from the analysis is that access to the air transportation network from small- and non-hub airports has declined significantly on average, but can vary significantly across individual airports. The specifics of flight connection opportunities at major carriers’ net- work hubs are an important factor in determining the observed changes. While caution should be exercised when using any single metric to identify service levels, the analysis suggests that airports should go beyond simply counting the numbers of non-stop flights and should look closely at how those flights hook into the major carriers’ networks. Chapter 9 presents ASD strategies for airport managers and community leaders in communi- ties with small- or non-hub airports to use in retaining or attracting new air service. The strategies presented here were developed through a synthesis of quantitative data contained in Chapters 3, 7, and 8 and qualitative data presented in Chapters 4, 5, 6, and 7. Users of these strategies can customize their strategies based on their responses to a self-assessment tool that determines the specific needs and air service environment of the airport and community. Based on the results from the assessment tool, a detailed list of relevant strategies most likely to be effective can be tailored to enhance the specific ASD efforts needed to attract and retain service at the specific airport. In addition, Chapter 9 discusses the importance of uncertainty and risk in air service development that may result from factors such as global and local economic conditions, airline industry strategies and consolidation, the growth of LCCs, competition from other airports, and federal regulatory policy.