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October 1, 2010
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Filing a New Flight Plan

Over the past three decades, the Cincinnati/ Northern Kentucky International Airport (CVG) has helped transform the Northern Kentucky region from a rural Cincinnati suburb to a vibrant, fast-growing economic player that is home to internationally competitive companies.

By Feoshia Henderson

A Delta Air Lines jet lands at Cincinnati/ Northern Kentucky International Airport last month. A downgrade of Delta hub operations at CVG has decreased passenger traffic by two-thirds from its peak in 2005

Over the past three decades, the Cincinnati/ Northern Kentucky International Airport (CVG) has helped transform the Northern Kentucky region from a rural Cincinnati suburb to a vibrant, fast-growing economic player that is home to internationally competitive companies.

Northern Kentucky remains one of the state’s economic engines, fueled by a first-class airport, but times have changed and passenger flight operations are far off their 2005 peak. In response, region leaders are working on plans to retool, raise competitiveness at the airport and maintain its vibrancy.

The effort they launched could yield new state economic incentives that benefit air operations at all three of Kentucky’s major commercial airports.

Delta Air Lines, which brought a hub operation to CVG in the 1980s, carries nearly 90 percent of the flights there today and has dominated the airport, for good and ill. The fall 2008 Delta-Northwest Airlines merger led to a major decrease in service at what was once Delta’s second-largest hub; passenger flights are down more than two-thirds from their 2005 peak. In addition, homegrown connector airline Comair, a Delta subsidiary, will slash its fleet from 96 planes to 44 in the next two years, taking local jobs with it.

However, airport and business leaders across Northern Kentucky are crafting a new vision for CVG. Officials at the airport, which is located in unincorporated Boone County, are designing a strategy less dependent on Delta and well-heeled business-class travelers. Leisure travelers are getting attention. They’re working to pull more dollars from non-flight sources like parking, shopping and dining through an airport loyalty program.

And local leaders are working to bring a lower-cost airline to Northern Kentucky (Jet Blue and Southwest are the most prominent), which they believe will bring needed competition to CVG. Delta’s dominance has led to the airport consistently having some of the most expensive airfares in the country.

“CVG is here to serve the community and not only one airline,” explained CGV Chief Executive Officer John Mok. “For many people, there hasn’t been a distinction (between the airport and Delta) because one airline has been so dominant. … (But the) airport is not going to leave if an airline leaves town.”

Kentucky’s two other large airports in Lexington and Louisville have also joined the low-cost carrier crusade. All three airport heads recently went before an interim joint legislative committee in Frankfort – created by a resolution passed at the end of the regular 2010 legislative session – to request a state economic incentive package that would encourage another carrier to locate in the state.

“The three largest airports were sitting at the table, and legislators were pleased to see there was a partnership where there had been some competition,” said Northern Kentucky Chamber of Commerce President Steve Stevens, who testified in support of the incentives, too. “They saw that we’re working on the same team here. If all airports were improved with an additional carrier or two, it would just help us all.”

There’s been no specific price tag for incentives, which could include a mix of corporate and commonwealth dollars to lessen a carrier’s state startup costs. Inducements could include marketing assistance, lease rent abatement, landing-fee waivers, tax abatements and workforce development assistance.
It’s in the state’s best interest to attract the best service possible for its airports, said Eric Frankl, executive director of Blue Grass Airport in Lexington.
“Everybody is seeking more destinations and lower fares,” Frankl said, but airports are limited in the inducement they can offer individually.

There is competition across the nation for flights and airline service, and inducements are common. Incentives in Portland, Ore., included a $10 million corporate commitment and $1.1 million from the city and state; in Pittsburgh, the state and a private development organization offered up to $9 million; and in northwest Florida a private developer offered $14 million.

The incentives envisioned in Kentucky would offset startup costs, not offer ongoing support for an airline, Mok said.

At the Kentucky Cabinet for Economic Development, which last year rolled out an expanded set of incentives targeted primarily at bolstering manufacturing operations in the state, officials also are assessing options for giving a lift to CVG and its sister airports.

“The cabinet has been authorized to study the potential benefits of developing an incentive program for the purpose of attracting commercial airlines to existing Kentucky airports,” said Mandy Lambert, director of marketing and communications with the cabinet. “That study is currently under way and expected to be presented to the Interim Joint Committee on Appropriations and Revenue and the Interim Joint Committee on Transportation by Dec. 1, 2010.”

Last year’s incentives revamp was “a huge, huge help to the economic development community in Kentucky,” said Charles “Skip” Miller, executive director of the Louisville Regional Airport Authority. It is prompting state companies to invest in operations to improve competitiveness and preserve jobs.
But those tools apply more to capital costs, Miller said, and attracting new air service will require a focus
on operations.

Officials with the three major airports were asked to suggest ideas that would benefit all the state’s airports and that would not require upfront cash outlays by the state, he said.

Miller said the airport chiefs have submitted three suggestions to the joint legislative committee:

• Change tax-increment-finance rules so they can apply to non-capital-intensive projects and make them applicable to attracting or enhancing commercial air service.

• Look at allowing airport operators or authorities to establish new operating units under their umbrella that can provide stand-alone ground handling service, ticket service and other support needs that could lower entry costs for an airline.

• Establish a revolving loan fund that could help Kentucky airport authority boards pay for setting up a comprehensive market program, which might include abating airline payments for terminal leasing and landing fees, and backing up components such as minimum revenue guarantees made to airlines.

CVG attracting more business
Meanwhile, Delta lowered fares last year at CVG to lure back area travelers who had turned to airports in Louisville, Dayton, Columbus or Indianapolis to get better deals. The airport itself is launching a new loyalty campaign, which rewards fliers who shop and park at the airport with extra airline miles and other benefits – cheaper parking, for example.

The loyalty program is part of a major PR campaign, Think CVG First, that’s promoting the lower fares and convenience of flying out of CVG for locals who’d long abandoned the airport for competitors. Management estimates local traffic has grown by 200,000 since Delta lowered its fares.

CVG officials are now talking with interested budget carriers, though they declined to say which ones. Mok, however, appears confident that once funding and community support details are worked out, there will be at least one new budget carrier in Northern Kentucky.

“The question is not if, but when,” he said in September.

Late last month, a trio of congressmen added their voices to the campaign. U.S. Reps. Geoff Davis of Hebron, Ky., Jean Schmidt of Miami Township, Ohio, and Steve Driehauss of West Price Hill, Ohio, have written Southwest Airlines inviting the carrier to bring service to CVG.

CVG welcomed new Air Canada service to the airport in May. The airline’s Jazz subsidiary now provides two new roundtrips to Toronto, increasing daily nonstops between Cincinnati and Toronto from four to six per day.

In July, Northern Kentucky’s airfield celebrated the one-year anniversary of DHL Express’ return of its express-freight hub operations. The German-based international shipper has its North American hub at CVG, which means some 70 freight flights daily most days and 1,700 full- and part-time jobs.

FedEx has four daily flights.

“There are significant reasons why FedEx is in Indianapolis, UPS is in Louisville and DHL is in Cincinnati,” said Dan Tobergte, president and CEO of Northern Kentucky’s Tri-County Development Corp. (Tri-ED). “This is all because of their very proximate locations in the heart of the manufacturing base of the United States. Freight and freight forwarding at CVG certainly help to balance the revenue stream for CVG. The resurgence of DHL at CVG works well with CVG’s goal of diversification in service levels at the airport.”

From birth to boom to bust
As its name implies, the Cincinnati/Northern Kentucky International Airport originally was to be located in the much larger Queen City across the Ohio River. But because of a number of complicated political and practical issues – Cincinnati’s proposed site was prone to flooding and heavy river fog – Northern Kentucky scored a major victory when Newport Congressman Brent Spence secured federal funding for the airport in what then was a largely rural Boone County. An airfield was built in 1944 but paid for by neighboring Kenton County, which today still oversees airport operations through the Kenton County Airport Board.

By 1947, fliers could catch Delta, American Airlines and TWA flights from the Greater Cincinnati Airport, which didn’t see much growth until the 1960s, as larger aircraft made flying more comfortable, faster and affordable. Delta led the way with the airport’s first commercial jet service, and by the 1970s airport traffic doubled by more than two million.

The airport added two more terminals during the ’70s, and Delta birthed Comair, which would eventually become one of the largest commuter airlines in the country.

Then came the ’80s and ’90s boom when Delta’s growth exploded and CVG became a world-class airport, fueled in large part by Delta’s decision in 1986 to make CVG one of its hub operations. Within a year of the hub designation, Delta added more than 70 daily departures from the airport for a total of 126, including international flights to Europe (nonstop to Paris and London) and to Canada.

To handle the growth, the airport added a major new runway, a new Delta terminal, two concourses and updated infrastructure, including a new road system. During this time, more than 20 million passengers came through CVG annually by direct or connector flight.

The airport helped transform the Northern Kentucky business climate as well. Among companies attracted to Northern Kentucky in the boom years were Toyota Motor Engineering & Manufacturing North America, WildFlavors Inc., LaFarge North America Inc., Fidelity Investments and Toyota Boshoku America. Kentucky’s Ashland Inc. moved its headquarters to Covington from Eastern Kentucky in 1999, after considering moving out of the commonwealth. The airport was a major factor in keeping the company in the Bluegrass State.
It’s been estimated that the airport’s total economic impact was nearly 56,000 jobs and more than $4.5 billion in economic activity. (Those numbers haven’t been updated since 2003, but that impact is believed to now be much lower.)
Delta’s dominance at CVG positioned the airline to charge extremely high fares: By 2006, fares at CVG were 55 percent higher than the national average; in 2007 that gap jumped to 76 percent.

Things began to change quickly for Delta and CVG as the economy went into a steep dive and Delta merged with Northwest Airlines in 2008. Shortly after the merger, Cincinnati lost its hub status and Delta shifted much of its hub operations to Northwest’s Detroit hub.

Since the Delta merger, daily airport departures have decreased dramatically from 460 in 2006 to 225 in 2010. Passenger figures have dropped from 22.8 million in 2005 to 10.2 million in 2009, though local ridership has increased slightly in the last year. Delta shut down one airport concourse (leaving two open).

The airport offers 70 nonstop flights, down from 130, and just one nonstop European flight (to Paris), down from five. And though fares have dropped at CVG, they remain 35 percent higher than the U.S. average. That reality has forced local officials to reposition the airport for a new future.

“It has been one of the most accessible regions for air travel over the years,” Stevens said. “It’s got great runways, and it’s really very optimal for air transportation. It’s been enhanced over the years, and that’s made it really attractive because of those services, how many flights and destinations it offers. That’s still very attractive to many,” Stevens said.

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Lane Report Cover October 2010 In This Issue
Filing a New Flight Plan
Over the past three decades, the Cincinnati/ Northern Kentucky International Airport (CVG) has helped transform the Northern Kentucky region from a rural Cincinnati suburb to a vibrant, fast-growing economic player that is home to internationally competitive companies.
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