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Does Airport Ownership Structure Affect Air Service?

 

2014.03.04 – Short answer: no. For the curious among you, read on.

This morning, we noticed this article from Syracuse, New York about the ownership transfer of Syracuse’s airport from the city to an independent authority. While there are many reasons why such a move might make sense, what caught our attention was the following:

“The Syracuse Regional Airport Authority … now has full control of the airport, a change that is expected to make the facility more efficient and attract more flights.”

[Disclaimer – We are not experts on Syracuse per se] The ownership change may well make sense for any number of reasons; but we don’t believe it will have much long-term effect on the level of air service.

Regular readers are familiar with our Airline Network Strategy Matrix, demonstrating that what airlines tend to look for in deciding whether or not to add capacity to a market is either:

  • better financial performance than the alternatives; or
  • some strategic benefit beyond the short-term financial result

A market that promises neither of these will have a hard time generating much new service without generous incentives (that often fail to produce long-term, sustainable service anyway). The root cause of the challenges of a market like Syracuse (and most medium- and small-hub airports are in a similar situation – we’re not picking on Syracuse)  is that it probably can promise neither superior financial performance, nor a strategic benefit. The Syracuse MSA:

  1. Has a relatively small population, ranking 80th in size among all US MSAs according to 2012 Census estimates
  2. In the percentage of households with income above $75,000 per year, which comprise the key air travel demographic, has less-than-eye-popping demographics (source: 2008-2012 American Community Survey 5-Year Estimates)
  3. Does not appear to have a destination brand strong enough to drive the kind of inbound demand that airlines ignore at their peril

As a former airline marketing and commercial planning director, we know how we would assess additional capacity in markets like this – skeptically: items 1 and 3 together speak to low strategic value; items 1 and 2 together would tend to predict low financial performance versus alternatives; and in every case that we reviewed, in committee, the case for investing additional service at an airport, not once can we recall ownership structure being anywhere in the discussion. It’s not that ownership and airport costs are irrelevant; it’s just that they’re dwarfed by two considerations that have dominated airline decision-making since 2007 – unit revenues, which are a product of the market’s demand for the service, and fuel prices.

Communities that want to attract more and sustainable air service over time should focus on what they can control or affect to increase demand for their brands from airlines. Short of offering free fuel, what communities can affect is passenger demand. Though it isn’t always easy, there are many ways to do this, depending on on the market, including: competing with other nearby airports for originating or destination passengers; increasing the local base of flyers by attracting more high income relocation to the area; increasing demand for the area tourism through a coordinated destination marketing campaign. Note that the last two require a community-wide effort, as Federal law prohibits airports from spending airport funds on general economic development, or on tourism other than for promoting the airport and its services.

We’ve worked with airports and communities in which each of these options, and others, have made sense and been chosen. What’s not on the list? Airport ownership structure.

How do you see this? Let us hear from you…

 

 

 

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