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VOL. 127 | NO. 97 | Thursday, May 17, 2012

MEM to Offer $1M in Airline Incentives

By Bill Dries

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The Memphis-Shelby County Airport Authority unveiled and approved an incentive plan Thursday, May 17, of up to $1 million to attract competing air service at Memphis International.

The airport’s board of commissioners passed the resolution in hopes that incentives for round-trip daily service to major domestic, regional and international markets will bring more carriers to and lower airfares at the airport, a perennial top five facility in terms of airfares for years.

“I think this is the first step in our flight plan to get there,” said airport board chairman Arnold Perl.

High airfares have become more acute with cutbacks in air service at Memphis International by Delta Air Lines Inc. that started last August and an overall rise in airfares caused by the spike in fuel prices in the last two years.

The new incentive plan, crafted with InterVISTAS Consulting Group, takes effect July 1, the start of the airport’s new fiscal year. Funding will come from the airport’s reserve funds.

The incentives are topped with free landing and terminal building fees and advertising allowances that vary across the three tiers. The total incentive pool for domestic air service with 100 seats and up is $500,000, followed by $350,000 for new international service and $215,000 for new regional service on aircraft of less than 100 seats.

The terms specify that it must be service that an airline or its partners have not provided in the last year and the new service must continue for at least a year.

Airport authority president Larry Cox said the provisions were crafted with the goal of sustainable air service instead of airlines providing such service on a temporary basis to get the incentives.

“If you served or your partner has done it in the last six months, you are not eligible,” he said, and added Delta could qualify for some but not all of the incentives. “Suppose (Delta) wanted to do a daily to San Francisco – hallelujah. There is an opportunity for Delta which I hope they take advantage of. We do cap it so that not one airline can get the whole amount.”
Barney Parella, executive vice president of InterVISTAS, said the incentives are aimed specifically at nonstop service, not the connecting flights that are what generates most of the passenger traffic at Memphis for Delta and others.

“The incentives are focused on city pairs,” Parella said. “We’re specifically looking for nonstop service to other cities and that’s the way its going to be most effective in terms of improving competition. There are lots of ways for people to fly from Memphis to destinations that connect. The real plus is to be able to provide incentives for nonstop service whether it is competitive or whether it’s the first time to a market not previously served.”

InterVISTAS makes a “business case” for new air service to airports from existing carriers at the airports or new carriers to the airports. It uses computer models to forecast load factors, traffic cannibalization and the impact of competition, among other items.

InterVISTAS also explores new routes the airlines might use as well as represent airports in negotiations for incentives.

The company, which is based in Bethesda, Md., and has foreign offices as well, has worked with the airport authority for years.

The airport authority board kicked off its public campaign for better air service at the end of March. It began with a ceremony celebrating the start of US Airways’ daily nonstop service between Memphis and Washington.

“This is the start of building service back in Memphis,” Perl said at the time.

For months before that, he and Cox have said little about increased Southwest Airlines service beyond saying they have been having discussions with the Dallas-based airline that recently bought AirTran and is converting the existing AirTran flights at Memphis International to the Southwest brand.

Cox recently said that while there might be hope for increased Southwest flights, Memphis International is unlikely to become a Southwest focus city.

Parrella said Thursday the cuts in Delta service, which are part of a corporate strategy of permanently reducing capacity regardless of whether fuel prices drop or stay the same, provide an opportunity for competition that is otherwise hard to foster at airports that serve as airline hubs.

“Hub airports generally have this issue of being less conducive to new competitive air service,” he said. “What’s driving the Memphis opportunity is really the reduction of services by Delta Air Lines. The smaller the hub is the more potential there is for somebody else to come in and be successful and be sustainable."

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