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Mixing Business with Leisure

By Mark Green

Vision Airlines saw an opportunity for growth in the Louisville market and has added six destinations in the past two years.

Retraction, reduction, realignment, oh my. Even before the current economic downturn, airlines experienced particular and marked challenges, from fuel costs to labor disputes to achieving critical mass on flight capacities. Many of the larger airlines have turned to mergers and strategic partnerships – Delta-Northwest-KLM and United-Continental, notably – to keep costs grounded and passengers in the air.

Some smaller airlines, which can be even more vulnerable to the same pressures faced by the big boys, are turning their attention to specialized leisure routes and partnering with hotels and resorts at the destinations to create convenient, cost-effective packages for consumers and a niche in the market for themselves.

Considering the decision by Delta beginning in 2006 to greatly reduce service at Memphis and Cincinnati-Northern Kentucky – two hubs frequently utilized by flights from Kentucky – the market’s offerings have diminished, leaving commonwealth travelers to make tough choices with fewer options and, often, higher costs.

“What we’re seeing here in terms of airline providers in our marketplace is, generally speaking, what’s going on around the country and that’s generally a retraction or retrenchment of providing seats going out into the first and second quarters of next year,” said Skip Miller, executive director of Louisville International Airport. “The airlines have taken a very conservative approach to the inventory they’re putting out there for the first six months of 2012.”
Seven mainline carriers serve Louisville, and several regionals have “codeshare” agreements allowing them to sell seats on those carriers’ flights. They will fly fewer jets into and out of Louisville next year.

“Our market has seen about a 3.7 percent reduction in the coming year,” Miller said. “Many of the competing markets that we measure ourselves against have also seen those same kinds of reductions and even more so.”

There are reductions across the board, but more steady, business-oriented flights tend to be retained, while volatile vacation routes are an easy cut.

A?case in point is the situation at Cincinnati-Northern Kentucky. There have been steep reductions by Delta for six years, going from more than 600 daily flights to fewer than 150, and the demolition of unused concourse and terminal facilities is under consideration. On the brighter side, Travel & Leisure magazine in August rated the airport the safest in the nation based on FAA reports. And Delta just announced additional flights beginning early in 2012 from Cincinnati to Atlanta and to Detroit, as well as flights via Salt Lake City to Portland and a connection to Oakland, following requests for service from the business community.

Business community has influence
Delta’s response to those requests bodes well for the market and is consistent with typical planning for service, according to Miller.

“When you’re looking at air service to a community, you have to kind of prioritize what you do, and our first priority is always to make sure that our business community has open and sufficient lines of communication to be able to go anywhere around the country, quickly efficiently and cost competitively,” said Miller, who acknowledges that a diverse offering is still the best way to capture the market. “To have a market with a broad cross-section of all of those carriers is ultimately what you want to have. That’s the best position to be in, and we have all three of those classes of carriers here in Louisville.”

One reason the airport has maintained diverse flight offerings is its partnership with Vision Airlines, which recently announced three new flights from Louisville. The airline started in 1994 as a charter flying tours from Las Vegas to the Grand Canyon and gradually expanded. Last year, leisure travel became a new route focus.

“We look for leisure routes at this point or underserved routes, and then we try to find the right partners in those markets and markets that are responsive,” said Bill Maloney, business development director for Vision. “One of the reasons we put such an emphasis on Louisville is that it didn’t have such great destinations anymore, and Louisville had a lot of people who were paying high fares. So we thought that was a great opportunity.”

Vision’s formula has been slow, steady growth combined with a keen attention to industry details and diversification.

“It was organic growth (from charter to leisure carrier),” Maloney said. “But the nice thing about doing this – as opposed to if we had focused on just one area – is it is a challenging business and it is a changing business, so by being a little bit diversified and by being family owned, we’ve been able to do a lot of things that other airlines have not been able to do.”

Leisure carriers tend toward very specific scheduling tailored to vacation travelers rather than maintaining a schedule of frequent flights for which there often is not enough market support.

“(Leisure carriers) don’t offer multiple flights per day,” Miller said. “In fact, they’ll offer flights to those kinds of markets just several times a week, just one flight a day maybe three or four times a week. It’s very limited; it is very leisure oriented.”

Working the leisure niche
Leisure carriers also often employ a strategy of partnerships with local resorts and tours to create packages that entice the traveler with deep discounts, acting almost as an all-in-one travel agency.

“It’s a niche that’s been carved out,” Miller said, “and we like to think that it adds induced growth to our market because it adds people who would have otherwise driven or not have traveled at all but for these ultra-low-cost airfares and tourism packages.”

Lexington also has seen increased routes by smaller, leisure airlines, said Eric Frankl, executive director of Blue Grass Airport.

“It really has evolved, up and down and up and down. It’s been a very tumultuous decade so far,” Frankl said. “For example, Delta used to have direct service (from Lexington) to Orlando; they don’t any more, but Air Tran does.
And Allegiant has service to Orlando now. It’s a different product, different aircraft, obviously different airline, but we still have service to that market.

“And there are some that, obviously, we don’t. We used to have service to Cleveland; we don’t (any longer). We don’t have service to Cincinnati and Memphis because those are no longer hub airports.”

Allegiant also recently added a Las Vegas route – a major addition considering Blue Grass Airport’s limited West Coast access – and Fort Lauderdale in November, so leisure travel and vacation packages from Lexington are growing.
However, Frankl is aware of the challenges for an air service market like Lexington, and is cautious when discussing the future.

Fuel costs ground some carriers
“It’s just so expensive to get into (the air service) business, and there’s just so much risk because of oil (prices) and things people don’t control,” he said, adding that 35- to 50-seats regional jets often serving smaller markets are less and less economical – especially if they aren’t full.

Allegiant’s smallest fleet plane is a 130-seat MD-83, which when full can be a better option for the leisure routes. Larger carriers, like Delta, do still fill smaller planes to carry passengers to one of their still-existing hubs.

“If you have a 100-seat or 150-seat aircraft, what’s going to happen in markets like ours is you may only have one flight a day or two flights a day because you don’t have the volume of people. But if you have a 50-seater – in the case of (flights to) Atlanta we have seven or eight frequencies a day – and that makes it very convenient for the traveler to make connections and to come back and go at the schedule they prefer. Some of those (worries regarding the future) are concerning when those number of seats go away, perhaps the flexibility of a schedule may not be as great as it is today.”

Blue Grass Airport is served currently by Air Tran, Allegiant, American Eagle, Delta, United-Continental and US Air plus regional codeshares. For travelers around Central Kentucky, it’s hard to beat Blue Grass Airport. It’s often a shorter drive than Louisville or Cincinnati, and its lighter volume means there’s plentiful, close parking, and it’s often easier and quicker to check in and pass security than at larger airports. But convenience sometimes involves a tradeoff – higher price, fewer routes or more stops on a trip.

Frankl still says Lexington has a lot to offer consumers.

Success is a balancing act
“This community, for the population size, is very blessed with the amount of service and the number of destinations it goes to. It’s probably more than most communities our size,” he said. “The airlines have to provide good fares and good schedules, and if they do, obviously the people in our community need to support the product. If we can get that right balance, Lexington will be alright going into the future.”

So what will the future of air service look like? It’s hard to say. A new ABC?television show this year is set against a backdrop of 1960s air travel on the now-defunct Pan American Airlines, and the scene is one of luxury (and legroom) rarely seen in travel these days. Looking through that lens, it would be hard to imagine the events that have transpired to create the current market. But it is a business, after all, and business always presents challenges, so the travel trade has some decisions to make.

“I think we’re in for an interesting year in 2012, and we have planned for that accordingly,” said Miller. “It will be interesting to see how it all unfolds in terms of mergers and in light of some retrenchment of airlines and in light of a continuing sluggish economy.”

“There’s still a high demand for air travel, and there’s still thousands of untapped routes, so it’s just a matter of carriers like us – and even bigger carriers – to find the right mix of price and routes and frequency and making it work with the economics,” said Vision’s Maloney. “If you just look at the history of the space, there’s been a lot of change over the years. You’ve seen big brands come and go. You’ve seen mergers. You’ve seen changes in regulations.

“Yes, I think the industry is going to change. I don’t know what those changes are going to be, but I know that 20 years, 30 years, 50 years from now, people will still be flying. It’s just a matter of what type of equipment they’re on, what brands they’re flying and what sort of regulation and government involvement. I don’t think anyone knows.”

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