Airline meeting points to need for increased funding for air service

“It is up to us to keep it going and keep it going strong”

By Alissa Johnson

Local airline experts hosted an informational meeting in Mt. Crested Butte last month to begin educating and engaging the public in their efforts to improve local air service.

The Gunnison Valley Rural Transportation Authority (RTA) and the newly formed Gunnison Crested Butte Air Alliance invited an airline expert to share industry trends and also introduced attendees to the ways the organizations hope to raise funds for the air program.

The message was clear: The local air program is in a better place. Flights are performing well and, thanks in part to a three-year grant, the RTA has been growing service.

But there are trends within the airline industry—such as airline consolidation and a move toward bigger planes—that put the squeeze on small airports.

Growing a more robust, year-round air service will require a larger budget, which is being sought from local businesses and may be requested of voters this fall. The RTA is considering a referendum to increase sales tax collections for air and bus service.

Industry trends put squeeze on small airports

Jeff Hartz is an airline consultant with consulting firm Mead & Hunt, which helped the Gunnison Crested Butte Regional Airport  (GUC) develop its master plan. He has over a decade of experience in the airline industry and opened the meeting by admitting that he flew into Denver and drove to Crested Butte.

“I didn’t fly into Gunnison because the schedule didn’t work well,” he said. “I would love it if you had a direct flight from Dallas.”

His is an experience that many people know. The flights in and out of the Gunnison Valley are often inconvenient or too expensive—both factors that can be hard to fix due to industry trends.

As Hartz explained, “The one adage in the airline industry is that it’s always changing, that’s the only constant.” Airlines also have a hard time making a consistent profit. Since deregulation, the industry lost roughly $20 billion over 35 years.

Recently, however, that’s changed. In the past five years the airline industry has made a combined profit of $25 billion and expects record profits in 2015.

“They’re making money because of consolidation. They’re making money because of higher airfare. They’re making money because of squeezing a lot of the smaller markets, markets like Gunnison,” Hartz said.

Among the changes that airlines are making is a transition to larger planes that are difficult for small communities to fill. Airline have also dramatically reduced the number of available seats—there are 50 million fewer seats available than there were in 2008.

What’s more startling is that four airlines control 85 percent of the domestic market: American Airlines/US Airways, which are undergoing a merger, Southwest Airlines/Air Tran, Delta Airlines, and United Airlines.

So while the number of passengers taking to the air has stayed constant, there are fewer flights available, more seats on those flights, and planes fly nearly full. As airlines look to boost profits even further, they are shifting away from small communities to large airports, and international to markets (as a result of pressure from low-cost carriers).

“That’s having this trickle-down effect in a lot of the small communities around the United States,” Hartz said.

And while it might be nice to fill their wake with those low-cost carriers, airlines like Southwest and Allegiant have also shifted toward large planes. Some have policies that make it impossible to serve small markets. Southwest, for example, can only serve markets with at least five daily round trips so employees can work full-time. That puts an airport like Gunnison out of contention.

Allegiant already serves Grand Junction and Montrose, making it unlikely to consider Gunnison. That airline draws passengers from a broader geographic area and isn’t likely to put in a new route so close to existing airports.

Local passenger demand is small

The Gunnison Valley feels like the heart of the Rocky Mountains, but if there’s one way to describe the catchment area—or the region of travelers that feeds the local airport—it’s small.

“In the grand scheme of things it’s probably one of the smallest catchment areas in the entire country for population. I’d be hard pressed to find another one that has commercial service with jets that has a population base as small as Gunnison-Crested Butte does,” Hartz said.

When you analyze travel patterns within that region, it’s clear that many people choose alternatives to flying in and out of the local airport. According to Hartz, 64 percent utilize Denver International Airport (DIA) and only 23 percent utilize GUC.

That leakage—or diversion of travelers to other airports—makes sense when you look at the factors that influence a traveler’s choice of airport. In addition to frequency of flights, which is the number one factor for business travelers, average fares greatly influence leisure travelers.

The average round trip fare at GUC is $512 before taxes. That’s hard to overcome, especially with DIA so close. There, competition between Frontier, United and Southwest has kept fares low.

Yet despite those challenges, the number of passengers moving through the local airport has stabilized. Like the national market, GUC saw a steep decline in the number of passengers after the economic downturn in 2008. Over the last two years, that number has climbed five percent each year.

“Any market where you end up flat over the last two or three years is a good thing. If you can grow, that’s phenomenal,” Hartz said.

Opportunities for growth at the regional airport

There are opportunities for growth. Hartz explained that as a community, the Gunnison Valley has desirable amenities that people will fly here for. He named two opportunities: establishing service to California and looking into the possibility of increased service to Dallas.

Dallas air service is already strong during the winter, and the drive from Dallas isn’t as easy as the drive from Denver. And many skiers already fly from California to Colorado ski resorts—just not Crested Butte.

Much of what Hartz said resonated with what local air leaders are doing to grow the market. Crested Butte Mountain Resort (CBMR) secured air service between Los Angeles and Gunnison next winter, and the RTA has been using a grant to establish more regular service to Houston.

County commissioner Paula Swenson, who is also chairman of the RTA, pointed out that this growth, combined with the stabilization of the local service, is a significant success.

“We as a community passed a tax [to support air service] in 2002, and we started ticking along pretty good,” she said. “In 2008 and 2009, we decided we were really going to jump into this. We went into a lot of markets and also cratered our economy about that time, too. So not only were we way out there, our load factor dropped.”

That left the RTA and CBMR to pay $1.8 million in revenue guarantees to the airlines, which are the ticket to play with the airlines. Without a guarantee that they will make a minimum amount of money (to be paid by the community if the flights don’t generate it), the airlines will go elsewhere. After paying such a large amount of money, Swenson says, the air partners were broke. That makes today’s picture that much sweeter.

“We’re extremely happy…We stabilized, we figured out where our markets were,” Swenson said. Now the time has come to look at increasing funding so the RTA can continue to grow air service.

Funding the RTA

According to Swenson, the RTA has about $1.2 million to work with every year, generated by a .35 percent tax in Gunnison and a .6 percent tax throughout the rest of the county. That’s 3.5 cents for every $10 in Gunnison and 6 cents for every $10 everywhere else. About half of those funds go toward ground transportation, and the remaining funds go toward the air program.

Swenson explained that in order to sign a contract with the airlines, the RTA must have the full amount of the guarantee in the bank; $500,000 doesn’t go that far.

“When we are talking about bringing in more and more service, that’s just one contract. We’ve got to find a way to fund this more successfully,” Swenson said.

As a result, the RTA is considering asking voters to increase the sales tax earmarked for transportation. Equalizing the tax across the valley would raise $250,000 to $300,000 a year—not quite enough, Swenson said, considering the demand for ground transportation for seniors and the need to replace buses in addition to growing air service. Raising the tax to one percent across the valley would bring in an additional $1.2 million per year.

“We can actually grow our air service with that. We haven’t decided if we’re going to go to a vote this fall, but that’s what we’re looking to do,” Swenson said.

In addition, a new non-profit started by Molly Eldridge of Red Lady Realty will be seeking support from the local business community. The Gunnison Crested Butte Air Alliance will raise funding to support the development of increased air service at GUC.

According to executive director Mary Burt, incentive programs are being developed to encourage businesses to give tax-deductible donations to the alliance. “With donations from CBMR and WSCU that top the list, it will be a great deal,” she said.

“These guarantees are not going away,” said Ethan Mueller, CBMR president. He pointed out that a winter flight performed well last year and made the airline a significant amount of money. He expected the revenue guarantee for next winter’s service to come down.

“It was the exact same as last year,” Mueller said. Given the $170 million economic contribution that airport makes to the local economy, he and other local air leaders seemed to agree: raising additional funds will be money well spent.

“It is up to us to keep it going and keep it going strong,” Swenson said.