RTA shakes up airline negotiation template 3 decks

Service out of Houston looking likely

It looks like the new United Airlines (the recently merged United and Continental Airlines) will provide nonstop daily service from Houston, Texas to the Gunnison-Crested Butte Airport during the 2011 holiday season.
The Gunnison Valley Rural Transportation Authority (RTA) discussed the proposed service contract at a board meeting on Friday, June 10. The discussion came on the heels of last week’s announcement from the RTA and Crested Butte Mountain Resort (CBMR) that American Airlines will provide direct service from Dallas for most of the 2011-2012 ski season.
But securing air service has required some creativity by the RTA and CBMR, reducing the number of direct flights during off-peak periods to make the most of rising revenue guarantees to the airlines. Direct flights from Houston would be reduced to Saturdays following the holiday season, and the American Airlines service out of Dallas would be cut a few Tuesdays beginning in January 2012. And at Friday’s meeting, the RTA went as far as to redefine the division of labor between CBMR and RTA airline consultant Kent Meyers of Airplanners, LLC.
Most of Friday’s discussions regarding contract negotiations with United and Airplanners took place behind closed doors during executive session. But the RTA did make two motions: to move forward with formalizing direct service from Houston and to accept a new contract with Airplanners at a significantly reduced fee of $2,000 per month, a reduction of more than 60 percent from the current $5,600 per month.
According to a follow-up interview with Meyers, United’s direct flight out of Houston would provide 32 round trips between Houston and Gunnison/Crested Butte, with daily service from mid-December until just after the first of the year. Exact dates have not been finalized, but the service would then continue every Saturday until the end of March. The schedule, according to RTA board chair Jonathon Houck, is an attempt to meet peak demand periods.
“We realize the importance of staying in markets until service roots itself and takes hold,” Houck explained. “What we realized when we looked through last year is where are the times we really need service?”
Continuing nonstop service on Saturdays, Houck said, will allow families and groups to fly nonstop into Gunnison-Crested Butte on arrival. If they don’t leave on a Saturday, they can take advantage of United flights to Denver on their trip home. It’s a scheduling strategy that works, according to Meyers.
“I’ve seen that work very well for a long, long time, even to the point where, when we first started air programs, it was very common to run aircraft eight times a week with two flights on Saturday because it was a peak demand day, and then give people options to fly back and forth [on the way home]…” Meyers said.
During Friday’s meeting, Meyers informed the board that a few resort communities are faring well with their air programs, like Mammoth in California.
“But that is a different kind of ballgame—they have 30 million people within an hour [of the originating airport],” Meyers said. Many resort communities, like Jackson Hole and other destinations in Wyoming and Montana, will see airlines start to pull back. Fuel prices that are off the charts and reductions in plane inventory challenge airlines’ ability to service resort communities.
“[Resort communities] are a leisure market… Airlines make a lot of their money on the business markets. When they serve big strong business markets and have to take planes out of those markets and into another, they might not make as much money,” Meyers said. “But on other side is demand from their client base that wants to fly to resort communities,” said Meyers.
Providing service to resort communities becomes a balancing act, and as fuel costs rise, airlines are less inclined to risk reduced revenues. That impacts revenue guarantees to the airlines, which impacts service. The minimum revenue guarantees (MRGs) made to the airlines for the 2011-2012 season are not yet public, but they have totaled more than $1 million both of the last two years.
According to RTA executive director Scott Truex, the RTA has committed to spending a minimum of $400,000 on the air program, an increase over the $325,000 paid during 2010-2011 program. The remainder will be covered by CBMR, which has taken a larger role in funding the air program since 2008-2009 when RTA budget shortfalls collided with rising airline guarantees. The resort has also played a larger role in contract negotiations, and that, according to Houck, lent itself to redefining the division of labor between CBMR and Airplanners.
“We’ve been looking everywhere at our budget, everywhere we spend money to make sure what we’re spending is appropriate, and right now CBMR has put in majority of [the budget] for air, and there are a lot of things Jeff Moffett does for CBMR that Kent does for us,” said Houck in a follow-up interview. “They’re providing a lot of these services, so this was a ‘Let’s reduce the amount of work Kent and the Airplanners is doing based on the fact that our need is lower right now.’”
Airplanners will advise the RTA board in contract negotiations with United Airlines, and CBMR will handle negotiations with American Airlines.
“We’re just trying to avoid duplicating services… Nothing in the dynamic changes in terms of how they work together. It does not signify a long-term shift,” Houck said.
The motion to accept the new contract passed on Friday, but it was not supported unanimously. Board member William Buck opposed the motion; when asked after the meeting why he voted against it, he declined to give an answer.
“That was a discussion that we had in executive session. I am not at liberty to discuss that,” Buck said.
The RTA will continue to finalize its contract with United in the coming weeks.