Small Cities Wheeling and Dealing to Land Discount Airlines--for Jobs and Tourists

Nothing burns Pete Austin like the ads. He can’t watch TV, listen to the radio, open the newspaper without seeing an advertisement for AirTran, the discount carrier with bargain fares.

Cheap flights are fine, but the ads infuriate Austin because he knows AirTran is not paying for them. The city of Wichita is. He is. And he flies planes for a competing airline.

“The city is essentially using my tax dollars to try to eliminate my job,” he fumed.

Wichita officials don’t see it quite like that. They frame their unprecedented $5.1-million subsidy of AirTran as a gambit to create jobs by bringing in affordable flights--and on them, tourists, conventioneers and business travelers. They also hope that reasonable air fares will encourage existing businesses to stay put.

Wichita’s lavish subsidy for the Orlando, Fla.-based AirTran ups the ante in a fierce bidding war that has erupted around the nation in recent years, as small and midsize cities vie to woo budget airlines to their gates.

Over the last few years, dozens of communities--from Albany, N.Y., to Stockton, Calif., from Eugene, Ore., to Tallahassee, Fla.--have fought to attract low-fare carriers. A few have succeeded without dipping into public funds. Many others have spent freely on incentives, buying the airlines equipment or picking up the tab for aggressive ad campaigns.

The latest, and most controversial, trend: deals, like Wichita’s, that promise the airlines a certain profit in their first year or two of service--with any shortfall to be made up by the city.

The wheeling and dealing for budget airlines has raised tensions in some cities. But there’s also a great deal of enthusiasm, because when the deals work, they work spectacularly--driving air fares down as much as 40% and attracting more fliers in a surge of spending that ripples through the local economy. Business booms for local restaurants, hotels and taxi services. Airport parking fees, concession sales and rental-car taxes soar. As Duane Patrick, a county commissioner from central Kansas, said with a grin: “You can’t fleece ‘em if they’re not here.”

As full-fare carriers cut flights, add fees, even edge toward bankruptcy, attracting discount airlines is “taking on a new sense of urgency” in cities hoping for economic growth, said Jamie Baker, an airline analyst with JPMorgan.

“Smaller communities are desperate for the service,” added Elise Eberwein, a vice president of low-budget Frontier Airlines.

Wichita was one of them. The city of 315,000 has been served by half a dozen major carriers. But fares were among the highest in the nation. A last-minute trip to St. Louis, a flight of barely one hour, cost more than $1,200. A vacation to Tampa, Fla., purchased well in advance, would set you back $1,500.

Fares were so high that even executives on expense accounts routinely drove three hours to airports in Oklahoma or Missouri. “This market has been raped and pillaged,” said Tom Ritchie, who runs a construction company.

“It was the No. 1 topic in Wichita,” added Mayor Bob Knight. “It was enraging to anyone who had to fly.”

Vowing to “do whatever it takes” to win discount flights, Knight pledged to cover up to $3 million of AirTran’s losses in its first year of service and up to $1.5 million the second year. He promised to subsidize the airline’s fuel if the price rises. And he committed $600,000 to promote the new service with ads, billboards and even an e-mail newsletter. The enticements worked: AirTran launched service to Atlanta and Chicago in May.

A second discount carrier, Frontier JetExpress, will begin flights to Denver today, supported by a $500,000 subsidy, plus $100,000 in ads.

Since AirTran began flying, the bland beige halls of Mid-Continent Airport have hummed with record traffic. The last-minute trip to Chicago that used to cost $1,300 is now $315. The $1,500 advance-purchase flight to Tampa is now $227. Officials estimate that passengers will save a total of $60 million over the next year. In a turnabout that has folks here chuckling, residents of Oklahoma are now driving to Wichita to catch flights.

Yet a handful of sharp critics here and around the nation are raising objections to deals like the one that has transformed Mid-Continent Airport.

For years, airport authorities have offered to upgrade terminals or write off some landing fees to attract coveted carriers, such as Southwest. Guaranteeing an airline a profit on each flight, however, seems to some a quite different--and quite dangerous--proposition.

“We aren’t venture capitalists with money to throw at a prospective carrier that thinks there might be a market here but doesn’t want to take the risk to find out,” said Mike LaPier, director of the Central Illinois Regional Airport in Bloomington, which does not offer airlines incentives.

“The jury is still out on these deals,” added David Beckerman, an airline industry consultant. “They can be successful. But if the community doesn’t have a strong economy to begin with, it won’t work. It’s not a panacea.”

Beckerman helped negotiate an incentive package for AirTran in Tallahassee: The city paid a $1.5-million subsidy, spent $250,000 on advertising and covered $350,000 worth of airport expenses, such as renting counter space. That won the city an initial year of service. Officials are still negotiating a pact for next year.

And critics are still angry.

“Am I upset that my taxes are providing a revenue guarantee for a multimillion-dollar company? Yes,” said Tallahassee resident Marshall Baldwin, the manager of a talk radio station.

Spokespeople for the major carriers talk little about the subsidies handed out to their competitors. Their employees, however, are not so circumspect. They point out that the discount airlines that tend to attract the most subsidies are also the only American carriers reporting profits these days.

“I don’t mind these airlines coming in, but make it a fair playing field,” fumed one United Airlines worker in Wichita who would not give her name. “We’ve been serving here for 25 years. Can’t they at least give us the same kind of break?”

Especially disturbing to some are the taxpayer-funded ad campaigns, complete with glowing endorsements from civic leaders. Such “marketing partnerships” are a staple of incentive packages across the country.

In Wichita, for instance, a prominent executive, Troy Carlson, called it “almost a patriotic city duty” to fly the subsidized airlines. To clinch the deal for Tallahassee, Florida Gov. Jeb Bush designated AirTran the “preferred carrier” for state employees.

In many other cities, airport directors and elected officials make regular rounds of Rotary Club suppers and Chamber of Commerce mixers, urging business travelers to fly the new airlines--even if they’re less convenient.

“They don’t tell people to go to McDonalds instead of Wendy’s, so why should they tell people to fly AirTran instead of American?” demanded Austin, the Wichita pilot. “It puts the city in a bad spot.”

City officials respond that they’d be in a worse spot if they didn’t promote the discount services they worked so hard--and often, spent so much--to woo.

Full-service carriers usually match, or even beat, the discount prices when an AirTran or JetBlue comes into town. And passengers often snap up those deals. Some may prefer a familiar airline, such as American or United. Others are eager to keep accumulating miles in frequent-flier accounts.

The result: The budget airlines introduced with such fanfare have trouble filling their planes.

It happened in Wichita in the mid-1990s, when Vanguard Airlines introduced discount service. It was hailed as the answer to the city’s high fares, but the carrier lasted just two years.

In Springfield, Ill., incentives offered in the spring of 2001 brought both full-service carrier Northwest and low-budget ATA to the Illinois capital (population 111,000). Northwest’s service to its Memphis, Tenn., hub lasted barely a year. ATA is struggling to fill seats to Chicago’s Midway Airport as passengers stick by the tried-and-true United flights to O’Hare International Airport.

“We try to tell our community, please, diversify your travel, spread it out among the airlines so everyone wins. But habits are hard to break,” said Eric Frankl, the executive director of Springfield Capital Airport.

To force travelers to try the new airlines instead of sticking with familiar names, many communities have established “travel banks.” Executives are asked to deposit a chunk of their firms’ travel budget in a special account. Participation is voluntary. But once the money’s in the account, firms can withdraw it only to buy tickets on the newest airline in town. That forces business travelers to fly on ATA or JetBlue even if American is matching the discount fares.

Wichita ran an aggressive travel bank campaign, with hundreds of volunteers walking door to door, asking business owners to participate. The bank collected a record $7.2 million.

Even with such overwhelming support--and the city-funded promotions--AirTran has faltered out of the gate. In its first four months of service, the airline has billed Wichita for close to $3 million in losses, burning through a subsidy that was supposed to last a year.

Worse still, AirTran’s passenger load slumped 11% in August, even as the airport recorded its second-busiest month, suggesting that travelers have abandoned the budget carrier in favor of other airlines that matched its discounts.

AirTran is bound by contract to stay in Wichita for two years, and city officials said they don’t intend to offer additional subsidies to offset the carrier’s heavy losses.

Still, they are starting to express concern, as they watch the airline run through its public financing without gaining loyal customers. They know only too well that if Wichita can’t support a discount carrier, there are plenty of other cities waiting, with incentives, in the wings.

As AirTran spokesman Tad Hutcheson put it: “There are more airports to serve than we have airplanes.”