Airlines are slashing service to second-tier cities, but startups may pick up the slack
White Sulphur Springs, home to West Virginia's luxurious Greenbrier Resort, was already struggling from a drop in tourism amid the recession. But when Air Midwest pulled the plug on its service to Charlotte and Pittsburgh from Greenbrier Valley Airport in 2008—leaving the area without year-round air service—things went from bad to worse. "Our airport is the lifeblood of a small town like ours," says Katie Ickes, director of the Greater Greenbrier Chamber of Commerce.
Stung by high fuel costs and a sour economy, U.S. airlines have slashed domestic capacity by more than 10% since 2007—with the biggest cuts coming disproportionately at small and midsize cities. In the past 18 months alone, airports in nearly 100 cities, including Springfield, Mass., saw their last remaining carrier pull out (though some, including White Sulphur Springs, have regained limited service). Hundreds of other destinations have endured severe service cuts. With U.S. carriers on track to lose $1 billion this year, most are planning further cuts of up to 10% this fall. "There are going to be a lot of small cities that are no longer going to be able to justify scheduled air service," says Miami airline consultant Stuart Klaskin.
The steady erosion of air service could cripple already cash-strapped communities, making many scramble to offer subsidies and other incentives to retain their spot on the route map. In July, Delta Air Lines (DAL) informed eight small cities that they'll lose service later this year unless they're able to defray costs.
Many cities are fighting to hold on. The Mobile (Ala.) airport, for one, now handles the cost of running ticket counters and baggage handling. Others are offering incentives to ensure that carriers don't leave. In Wichita, airport officials recently raised $6.5 million in state and local grants to make sure AirTran Airways (AAI) keeps its three daily flights to Atlanta for another year. Intense lobbying in Washington has led to a measure, now awaiting a Senate vote, that boosts funding to subsidize service in small markets by 30%, to $175 million. "This is a matter of equity for rural America," says House Transportation Committee Chairman James L. Oberstar (D-Minn.).
Unlike in other countries, where state-owned airlines are required to serve a range of second- and third-tier routes, U.S. carriers can focus solely on those that make money. Serving smaller markets became less viable in the mid-1990s, when a series of commuter plane accidents prompted regulators to require that airlines make expensive safety upgrades. Rather than retrofit 19-seat turboprops, most airlines switched to 50- and 100-seat regional jets. Once fuel costs spiked, even those jets became too costly.
Critics contend that many U.S. markets are too small to justify scheduled flights. Ely, Nev., with a population of 4,041, received $1.8 million in federal subsidies last year. That's $4,500 for each of the 414 passengers who flew in and out of the city's airport. "For that money, taxpayers could have chartered a private plane for each of those passengers," argues Robert W. Mann, an airline consultant in Port Washington, N.Y. Says James Adams, manager of the Ely Jet Center: "We're paying taxes, too."
Some see opportunity in the cutbacks. SeaPort Airlines, launched last year with shuttle service between Portland, Ore., and Seattle, will use those federal subsidies to begin flights this fall in Memphis using 9-seat turboprops. "When other airlines get seven passengers, it's a tenth of their capacity. For us, it's almost a full plane," says SeaPort CEO Kent Craford.
Experts predict that the salvation may be a new breed of 6-seat air taxi services offering unscheduled service. Until then, business will have to make do with cars or trains.