An Evaluation of the Kansas Affordable Airfares Program: Fourth Edition to Account for Fiscal Year 2016 Prepared for the Kansas Department of Commerce by: Arthur P. Hall, Ph.D. Executive Director Brandmeyer Center for Applied Economics School of Business, University of Kansas December 2016
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An Evaluation of the Kansas Affordable Airfares Program: Fourth Edition to Account for Fiscal Year 2016
Prepared for the Kansas Department of Commerce by:
Arthur P. Hall, Ph.D. Executive Director
Brandmeyer Center for Applied Economics School of Business, University of Kansas
December 2016
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Executive Summary The Kansas Department of Commerce commissioned the first edition of this report in response to a 2012 directive from Kansas Legislature. The Legislature asked for an independent review of the Kansas Affordable Airfares Program (KAAP), which is financed, in part, by the State Affordable Airfare Fund. KAAP is the continuation (and expansion) of a 2002 program initiated by the City of Wichita known as FareFares, which provided a revenue-guarantee contract to AirTran airlines as an inducement for AirTran to enter the Wichita market with its low-cost business model. At the time, average airfares in Wichita had been running about 23 percent higher than the national average. An organization known as the Regional Economic Area Partnership (REAP), a consortium of city and county governments, has the statutory charge to manage KAAP. Among REAP’s managerial duties is a requirement to annually “evaluate and present a report on the effectiveness of this program.”
In response to a debate between REAP and the Legislative Division of Post Audit (LPA), sparked by an LPA audit dealing with REAP’s 2008, 2009, and 2010 annual reports, legislators sought additional review of the KAAP program. K.S.A Chapter 175, Section 78 of the 2012 Kansas Session Laws requires the Kansas Secretary of Commerce to “conduct an independent review of the financial reports submitted by REAP as well as an analysis of the data used by REAP.” This report is the fourth such independent review.1 This report, like the third edition, extends the framework developed in the second edition, which developed a somewhat different framework than the first edition in order to complement the market and programmatic history discussed in the first edition. The second report had to addressed three new developments: (1) the integration of AirTran’s operations into Southwest’s operations following Southwest’s acquisition of AirTran in May 2011, (2) the exit of Frontier Airlines from the Wichita market, and (3) the popular American Eagle flight service from Garden City to Dallas. This fourth report, like the third, takes a closer look at the competitive context created by the maturing of Southwest’s operations in the Wichita market. Key Findings • Revenue guarantees granted to specific airlines can work to alter the market structure related
to a specific airport. The evidence is unambiguous—based on Wichita’s introduction of the FareFares program in 2002 and Garden City’s use of Affordable Airfares funds (leveraged by federal funds related to the Essential Air Services program).
• The State government’s participation in the revenue-guarantee programs is not critical to
their success; the $5 million in annual State appropriations used to finance the Kansas 1 The first, second, and third review, titled, respectively, “An Evaluation of the Kansas Affordable Airfares Program,” February 2013; “An Evaluation of the Kansas Affordable Airfares Program: Second Edition to Account for Fiscal Year 2014”; and “An Evaluation of the Kansas Affordable Airfares Program: Third Edition to Account for Fiscal Year 2015” are available on the publications page of the Center for Applied Economics, University of Kansas School of Business: http://business.ku.edu/centers/center-applied-economics.
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Affordable Airfares Fund could be redeployed to fund alternative State priorities without significant loss of benefits to the regions now participating in the KAAP. This statement is supported by the following points:
1. At least 50 percent of the state tax funds used to finance the KAAP come from taxpayers that likely never receive commensurate consumer benefit from the expenditure of those funds. The benefits that accrue from the use of the funds are more regional than statewide.
2. The revenue guarantees typically used in connection with Wichita’s Eisenhower
Airport (formerly named the Mid-Continent Airport) amount to about 1.5 percent of the combined budgets of the City of Wichita and Sedgwick County. That small fraction declines to about 1.0 percent or less when other government budgets from the Regional Economic Area Partnership (REAP) membership are included in the calculation. The revenue guarantees used for the Garden City program, which is, in part, a partnership of local governments in southwest Kansas, amount to less than 0.2 percent of the combined budgets of Garden City, Dodge City, Liberal, Finney County, Ford County, and Seward County.
3. The original market conditions that gave rise to Wichita’s FareFares program (which
evolved into the Kansas Affordable Airfares program) no longer exist. Wichita is served by all of the major airlines, along with Allegiant Air—an airline operating a truly low-cost business model. Over the past decade, the airline industry seems to have adopted business models that places a greater emphasis on managing capacity (and, by extension, the number of flights). Indeed, the general trend of managing capacity helps explain Southwest’s announcement last year that it will restructure its direct flight offerings out of Wichita. Two of the subsidized routes were not working. True to its business heritage, Southwest seems to be searching for service offerings that offer value to Wichita travelers without the need for subsidies. Market conditions, after 15 years of evolution, have arguably made the KAAP obsolete—at least as it relates to service from Wichita’s Eisenhower Airport.
4. Garden City’s experience with American Eagle provides a case study of how markets
can work (allowing for the possibility that a revenue-guarantee might be a useful catalyst for “jump starting” the process). Garden City used some of its Kansas Affordable Airfares funding to induce American Eagle to offer flights from Garden City to Dallas. Demand has been so strong that KAAP funds have not been required for the 2014, 2015 and 2016 fiscal years—and the subsidies paid previously amounted to about $15 per passenger, an amount 70 to 80 percent less than the per-passenger subsidies Wichita has paid over the past several years.
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Background (and Timeline) • In 2001, the City of Wichita established the so-called Fair Fares program to help attract low-
cost airlines to provide flights to and from the Eisenhower Airport. AirTran Airlines began service in May of 2002. AirTran received revenue guarantees under the FareFares program from 2002 to 2006.
• In 2006, the Kansas Legislature established the State Affordable Airfare Fund (K.S.A. 74-
50,150). Beginning in fiscal year 2007, the State Affordable Airfare Fund has been funded by a $5 million transfer from the State Highway Fund (except in FY 2013, when the transfer came from the Economic Development Initiatives Fund). Relative to this report, key elements of the law stipulate (emphasis added):
• “The moneys credited to the state affordable airfare fund shall be disbursed as an annual
grant by the secretary of commerce to the regional economic area partnership (REAP) and shall be used for the development and implementation of a program to provide more air flight options, more competition for air travel and affordable air fares for Kansas, including a regional airport in western Kansas. Each annual grant shall be matched by moneys received by the regional economic area partnership (REAP) from local units of government or private entities on the basis of 75% from the state affordable airfare fund to 25% from local units of government or private entities.” [REAP is a consortium of city and county governments in the south central region of the state.]
• “Annually, beginning by January 15, 2008, at the beginning of each regular session of the
legislature thereafter, the regional economic area partnership (REAP) shall evaluate and present a report on the effectiveness of this program to the house of representatives committee on appropriations and the senate committee on ways and means.”
• To date, REAP has submitted eight annual reports (2008-2015). • In February 2011, the Legislative Division of Post Audit (LPA), published a report titled:
“Affordable Airfares: Reviewing the Benefits Claimed as a Result of State Funding to Lower Airfares.” According to LPA’s scope-of-work statement (p. 18): “Recently, legislators have expressed an interest in knowing whether those reports [from REAP, 2008-2010] can be relied upon to present an accurate assessment of what is being accomplished with the money.”
The LPA report addressed the following question and presented the following conclusion:
Question: “Has the Regional Economic Area Partnership used reasonable methods to
evaluate the effectiveness of the Program, and do its reports accurately present what is being accomplished with the State grants?”
Conclusion: “Since 2002, Wichita, Sedgwick County, or the State has sponsored some form of
affordable airfare program with the goal of reducing airfares and increasing air travel in Wichita. Overall, air travel indicators have improved significantly since 2002, indicating that the program has achieved those goals. However, as we have
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noted in this report, claims regarding the greater economic benefit of the program including creating jobs and generating revenues for the State, have been greatly overstated. Funding for the program is scheduled to end at the end of fiscal year 2011. If the Legislature decides to continue funding the program, it should consider ways to create greater oversight on the part of the State.”
• The 2011 REAP annual report began to incorporate REAP’s reactions to the LPA
recommendations and conclusions.
• K.S.A Chapter 175, Section 78 of the 2012 Kansas Session Laws requires the Kansas Secretary of Commerce to “conduct an independent review of the financial reports submitted by REAP as well as an analysis of the data used by REAP.” This report is the third such independent review.2
• The first independent review concluded that REAP’s past annual reports accurately capture
the general results of the FareFare and KAAP programs. However, the reports continue to compare current airfares with airfares experienced in 2000. That comparison has been illegitimate for many years. In the year 2000, relative airfares in Wichita reached their highest level over the past 2.5 decades. Maintaining the comparison of market conditions in 2000 with market conditions of the past several years is misleading. Yet the most recent REAP report (FY 2015, p. 7) continues this tradition. A proper analysis must account for market evolution over the past 16 years.
2 See footnote #1.
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A Summary of Government Data Sources
A key element of the legislatures request to the Department of Commerce involves “an analysis of the data used by REAP.” The 2011 LPA report recommended using data produced by the U.S. Department of Transportation. REAP makes use of several of these sources. REAP also sometimes uses data provided by the Wichita Airport Authority and airfare data published on internet sites. Each of these data sources has legitimacy, depending on the context of the research questions involved. However, this review agrees with the LPA recommendation. For most research questions, the most appropriate (and comparable) data is collected and made public by the U.S. Department of Transportation, Research and Innovative Technology Administration, Bureau of Transportation Statistics (BTS).3 A brief description of the databases used in this report follows: T-100 Domestic Market (All Carriers): This table contains domestic market data reported by both U.S. and foreign air carriers, including carrier, origin, destination, and service class for enplaned passengers, freight and mail when both origin and destination airports are located within the boundaries of the United States and its territories. T-100 Domestic Segment (All Carriers): This table contains domestic non-stop segment data reported by both U.S. and foreign air carriers, including carrier, origin, destination, aircraft type and service class for transported passengers, freight and mail, available capacity, scheduled departures, departures performed, aircraft hours, and load factor when both origin and destination airports are located within the boundaries of the United States and its territories. Origin and Destination Survey, DB1B—Market: This table contains (directional) origin and destination markets from the Origin and Destination Survey (DB1B), which is a 10% sample of airline tickets from reporting carriers. It includes such items as passengers, fares, and distances for each directional market, as well as information about whether the market was domestic or international. The file also reports operating and ticketing carrier information for flight segments within the directional market. This table is related to both the O&D Segment and Ticket files by the unique Market ID on each record. Origin and Destination Survey, DB1B—Ticket: This table contains summary ticket-level data from the Origin and Destination Survey (DB1B), which is a 10% sample of airline tickets from reporting carriers. It includes such items as the reporting carrier, number of passengers, ticket fare, and total miles flown for each itinerary, as well as information about whether the itinerary was domestic or round-trip. This table is related to both the O&D Segment and Market files by the unique Itinerary ID on each record. Small Air Carriers—Schedule T-1: This table contains historical information, from the third quarter of 1969, pertaining only to flights performed in scheduled service (nonscheduled and charter service data are not collected). This data reflects the origin-destination of the passenger traffic itineraries on the reporting carrier’s route system, for the quarter. This data does not reflect traffic by flight segments or stages, and does not reflect traffic by individual flight number, but does reflect the total origin-destination passenger traffic on the reporting carrier’s route system. 3 http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/subject_areas/airline_information/sources/index.html
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Introductory Statements Regarding Economic Policy The data from both the Wichita Eisenhower Airport4 and the Garden City Airport support the argument that revenue guarantees provided to airline companies can significantly shape the market offerings at the airports using such guarantees. There is room for debate, however, over whether the State government should participate financially in the revenue guarantees, as it does under the Kansas Affordable Airfares Program. In general, the benefits are regional not statewide. A substantial number of Kansas taxpayers help pay for the Affordable Airfares program with no commensurate consumer benefit. Moving the program back to a regional funding model could better align the cost-benefit-related economic incentives and allow for alternative uses of the State government’s funds. As argued in the evaluations dated February 2013, August 2014, and December 2015 an analysis of the Kansas Affordable Airfares Program cannot be separated from the Wichita FareFares program, because KAAP is (analytically speaking) a continuation of the market-changing results of the FareFares program. The entry of AirTran Airlines into the Wichita market marks the defining analytical event. (However, the more recent revenue guarantee offered to American Eagle Airlines in conjunction with flights from the Garden City airport is more directly related to the Affordable Airfares Program, although the evolution of the federal Essential Air Service program also had an important influence.) For the sake of analysis, this evaluation (as with the past three evaluations) will assume that AirTran would not have entered the Wichita market without the subsidies/revenue-guarantees offered by the FareFares program. It will also treat Southwest’s entry as essentially a continuation of the service provided by the two primary carriers supported throughout Wichita’s history with FareFares and the KAAP: AirTran Airlines and Frontier Airlines. From an economic policy perspective, the Wichita FareFares program and the transformation of this program in the Kansas Affordable Airfares Program can be thought of as a “collective action” problem. Note this reliable Wikipedia entry: “The term ‘collective action problem’ describes the situation in which multiple individuals would all benefit from a certain action, but has an associated cost making it implausible that any one individual can or will undertake and solve it alone. The rational choice is then to undertake this as a collective action the cost of which is shared.”5 If a revenue-guarantee contract is the only method of securing “low-cost” air service options or regular flights to specific destinations, then the creation of that service is the measurable value of resolving the collective action problem. A review of news reports related to AirTran Airlines suggests that a component of its early business model was to actively engage select communities in a manner that worked to resolve a collective action problem related to low-fare air service. AirTran sought revenue guarantees from many communities other than Wichita. AirTran would enter a market with low-cost service if it could gain enough confidence that the promised service was financially viable. 4 The name of the Wichita airport changed from Mid-Continent to Eisenhower in late 2014. 5 http://en.wikipedia.org/wiki/Collective_action#Collective_action_problem
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(Note that Southwest Airline, which acquired AirTran’s assets in 2011, became successful following a much different business model, one based on finding markets that did not required subsidies/revenue-guarantees. Southwest had to field a variety of inquiries related to that practice after it purchased AirTran.6 Allegiant Airlines, which offers limited flights from Wichita to select destinations in the southwestern United States at lower fares than airlines subsidized under the Affordable Airfares Program, seems to be following Southwest’s original business model.) The Wichita FareFares program began, conceptually speaking, as a private-sector oriented approach to resolving the collective action problem. According to the Legislative Post Audit report (p. 18) referenced in the Background section: “The original campaign was to generate $15 million in pledges ($5 million per airline) from area businesses to provide the start-up support that the airlines would need to become established at the airport and compete with other airlines. Businesses were asked to pledge 25%-50% of their annual travel budget to the campaign. Once the airlines were established, each business’ pledge would be converted to a line of credit that could be used to purchase fares with a Fair Fares purchase card.” The final structure of the FareFares program involved the City of Wichita and then Sedgwick County. Government action is one way to resolve the collective action problem, but not a necessary way. The evolution of the FareFares program into KAAP shifted a major portion of the funding from the local government to the State government, but maintained a requirement that local governments contribute at least 25 percent of the funding. The apparent rationale for State government involvement was the argument that the benefits of the FareFares program extended beyond the Wichita metro area. Legislative testimony from George R. Kolb, Wichita’s City manager, after arguing the proof of concept demonstrated by the Farefares program, stated that: “It is now time for the State of Kansas to become financially involved in this crucial program to maintain and expand the scope of affordable airfares at Mid-Continent [Eisenhower] Airport.”7 To support his argument, Mr. Kolb offered a table (titled: “Catchment Area Savings with Affordable Air Fares”) listing a small set of Kansas counties that shared in the benefits of lower airfares made possible with FareFares. The dollar savings listed on the table are said to be based on the percent of passengers from the listed counties that used Wichita Eisenhower Airport. However, neither the table nor the testimony explains the methodology used to generate the passenger count. One possibility for methodological interpretation shows up in the 2008 REAP annual report.8 It shows a map based on a parking lot survey during the 2007 Thanksgiving travel season. The survey apparently counted 1,274 vehicles. Of that number, 14 percent of the vehicles indicated out-of-state travelers, 76 percent came from counties that would be loosely identified as REAP counties (except for Saline, which is included in the calculation because it helps illustrate the regional nature of the benefits, despite the fact that Salina chose not to belong to REAP), and 10 percent came from counties outside the REAP area.
6 See, for example, Molly McMillin, “Southwest Downplays AirTran Comments,” Wichita Eagle, September 22, 2011. http://www.kansas.com/2011/09/23/2028308/southwest-spokesman-downplays.html#storylink=misearch 7 George Kolb, legislative testimony on SB 475, Senate Ways and Means Committee, February 2, 2006. 8 REAP, Kansas Affordable Airfares Program Fiscal Year 2008 Report.
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These survey data suggest that the benefits that may accrue from the revenue-guarantee contracts offered by FareFares and the KAAP are much more regional than statewide. With the successful entry of American Eagle into the Garden City market (and the Garden City KAAP allocations in
place), this argument has even more validity—for both the REAP geography and the southwest Kansas geography. From an economic policy perspective, it is fair to ask why the State government should help fund the revenue guarantees that provide benefits to distinct regions of the state rather than the state as a whole. Map 1,
which is generally consistent with the parking lot survey map in the 2008 REAP annual report, provides a general illustration of the basic argument. The shaded counties represent 54 percent of state-level taxes paid for the four tax years 2010 through 2015.9 This percentage represents a conservative estimate of the share of state taxpayers that pay to fund the KAAP but do not receive any benefits from fund expenditures. Of course, no guarantee can be made that not one person from the shaded counties use the Wichita or Garden City airports. However, as a counter point, it is highly likely that a great many people in the unshaded counties do not use the Wichita or Garden City Airports. No doubt the existence of the $5 million State Affordable Airfares Fund has been convenient to the programs run through Wichita and Garden City, but the dollars involved could be readily managed by the budgets of the regional governments. Table 1 illustrates the dollars spent on FareFares and the KAAP. The $6.5 million sum used for the revenue guarantee in Wichita amounts to about 1.5 percent of the combined budgets of the Sedgwick County and the City of Wichita. Expanding the denominator to incorporate the budgets of the rest of the REAP members would lower that number to about 1.0 percent or less. To date, the City of Garden City has provided the local match for the KAAP. However, if Garden City, Dodge City, Liberal, Finney County, Ford County, and Seward County shared the full cost of $333,333, the revenue guarantee to American Eagle Airlines would amount to less than 0.2 percent of the combined budgets. 9 Kansas Department of Revenue, Annual Reports for years 2010, 2011, 2012, 2013, 2014, 2015. http://www.ksrevenue.org/annualreport.html
Allen
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Map 1: Residents Paying for Kansas Affordable Airfares Program with No Benefits
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As a matter of policy principle, the data in Table 1 helps illustrate the misaligned cost-benefit incentives created by the State government’s funding of a predominantly regional benefit. The AirTran revenue guarantee in the State government’s 2010 fiscal year (2009 to 2010) provides for an uncluttered calculation. In that year, AirTran received the full $5 million State subsidy provided by the KAAP. REAP area local governments financed the remaining $1.5 million. The average roundtrip AirTran ticket paid by travelers was $284.48. The per-passenger subsidy to AirTran amounted to $107.56; of that subsidized amount, the State (via KAAP) paid $82.74, or almost 77 percent of the subsidy. Taxpayers in the shaded counties on Map 1 paid $44.68 of the State’s portion for each passenger flying AirTran out of Wichita.
Given these numbers, it is clear why travelers using the Wichita Airport view the KAAP as a success. On average, those who flew AirTran perceived a market price of $284.48 on a ticket that actually cost $392.04—and taxpayers from the shaded counties of Map 1 paid 11.4 percent of the full cost. (Chart 4 below illustrates that AirTran often received higher per-passenger fares than its competition when subsidies are included.) Consequently, the actual opportunity cost associated with resolving the collective action problem discussed above, from the perspective of the likely regional beneficiaries, appears much lower than it really is. Better programmatic decisions may be possible if the regional beneficiaries bear the full cost of the program. REAP has consistently argued that the FareFares and the KAAP program have created large consumer benefits. As the following market evaluations show, the revenue-guarantees can produce results that the taxpayers of the regions may enjoy. If regional taxpayers perceive the benefits REAP claims, they should support revenue guarantees funded by local governments.
Table 1: A History of FareFares and KAAP Payouts to Participating Airlines ($Millions)
2002 to
2003
2003 to
2004
2004 to
2005
2005 to
2006
2006 to
2007
2007 to
2008
2008 to
2009
2009 to
2010
2010 to
2011
2011 to
2012
2012 to
2013
2013 to
2014
2014 to
2015
2015 to
2016 Mesa Maximum 0.50 Paid 0.39 AirTran Maximum 3.0 1.5 2.5 3.5 7.0 6.5 6.5 6.5 6.5 6.5 6.5 Paid 3.0 1.3 2.4 2.4 6.9 6.4 6.55 6.5 6.5 6.5 6.5 Frontier Maximum 0.90 0.5 0.5 0.33 Paid 0.87 0.5 0.5 0.33 Southwest Maximum 6.5 6.5 6.5 Paid 6.5 5.3 3.5 American Eagle
Maximum 0.33 0.33 0.33 0.33 0.33 Paid 0.33 0.33 0 0 0 Source: City of Wichita; Sedgwick County, Division of Finance; Director of Aviation, Garden City Airport
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An Evaluation of the Wichita Market The Wichita FareFares program, which evolved into the Kansas Affordable Airfares Program, arose out of a set of unique conditions in the Wichita air travel market in the late 1990s. Chart 1 illustrates the general nature of those conditions. Chart 1 presents quarterly trends in Passenger Counts on outbound flights from Wichita’s Mid-Content Airport and the number of outbound flights. (The most consistently comparable data for outbound flights begins in 2000.) Note the relatively low passenger counts from 1993 to the first quarter of 1995 and then the sudden jump. The jump in passenger count corresponded with the entry of Kansas City-based Vanguard Airlines into the Wichita market, a company with a low-cost business model. The entry of Vanguard caused the average airfare for flights out of Wichita to drop substantially.10 Fares stayed relatively low until Vanguard exited the Wichita market in the second quarter of 1997.
After Vanguard exited the market, average fares began to escalate back to pre-Vanguard levels and passenger counts began to decline. Relative to the largest 200 airports, Wichita airfares reached their highest level in the year 2000. The economic recession of 2001—compounded by the negative air-travel consequences of the 2001 terrorist attack in New York City—together with relatively high fares created the market conditions shown in Chart 1: relatively low outbound flight options and relatively low passenger counts.
The Wichita FareFares program developed as a response to the market conditions at that time. An evaluation of the Kansas Affordable Airfares Program does not make sense without this historical context. That explains why REAP’s annual reports related to KAAP always (and 10 Arthur P. Hall, “An Evaluation of the Kansas Affordable Airfares Program,” February 2013, p. 16
Chart 1: Quarterly Outbound Passenger Counts and Flight Counts from Wichita
Source: U.S. DOT, Bureau of Transportation Statistics: T100-Market, T100-Segment, and Small Air Carriers—Schedule T-1
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Passenger Count (Left Axis) Outbound Flight Count (Right Axis)
AirTran entry underFareFares Program(May 2002)
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inappropriately) makes reference to current air fares in the Wichita market compared to air fares in 2000, even though the KAAP program did not begin until the State’s 2007 fiscal year. KAAP merely continued—but at about double the government outlays—the market conditions initiated by the FareFares program. Chart 1 indicates that the entry of AirTran into the Wichita market had essentially the same result on passenger count as the entry of Vanguard several years earlier. We cannot know if AirTran would have entered the Wichita market without the revenue guarantee offered by FareFares or if it would have exited the Wichita market without the much larger revenue guarantee offered by the KAAP. However, the data illustrated in Chart 1 indicates that following the implementation of FareFares, the passenger count on flights originating out of the Wichita Airport have followed a relatively stable cyclical pattern. The KAAP has as one of its goals “more air flight options.” If this goal is measured by the count of outbound flights, then Chart 1 indicates that the program may not be effective in accomplishing this particular goal, at least as it relates to air travel from the Wichita Airport. Outbound flight counts clearly and persistently declined after Wichita introduced the FareFares program and the declining trend seems to have stopped—and stabilized—only recently. However, the decline was an industry trend that no realistic government or private program could combat. The trend illustrated in Chart 1 for Wichita shows the same pattern for all domestic flights in the United States.11 The 2015 REAP report pointed out the same fact.12 Indeed, the trend offered one solid explanation for why Southwest purchased AirTran. As Bruce Allen, Professor Emeritus of Business Economics and Public Policy, Regional Science, and Transportation at the Wharton School, argued a few years ago: “the most recent wave of consolidation among the legacy carriers, along with the Southwest-AirTran combination, may reflect a decision by companies to compete by limiting capacity rather than waging price wars that destroy earnings throughout the entire industry.”13 The most important recent change of market conditions, from a Wichita perspective, came when Southwest announced that it will alter its direct flight routes. In April of 2016, Southwest said it will stop its direct flights from Wichita to Dallas and Chicago and replace them with direct flights from Wichita to St. Louis and Phoenix.14 (The 2016-Q3 data used for this report clearly reflects this change.) The change in Southwest’s flight offerings indicates that revenue guarantees may no longer be necessary; the Wichita market—in the context of the ever-changing airline industry—has evolved beyond them. Southwest built itself into the “world's largest low-cost carrier” without
11 Bureau of Transportation Statistics, T-100 Market and T-100 Segment data. http://www.transtats.bts.gov/Data_Elements.aspx?Data=1 12 Sedgewick County, Kansas Affordable Airfares Program: 2015 Annual Report to the Kansas Department of Commerce, June 11, 2015. 13 Knowledge@Wharton, “By Acquiring AirTran, Will Southwest Continue to Spread the LUV?” October 13, 2010. http://knowledge.wharton.upenn.edu/article/by-acquiring-airtran-will-southwest-continue-to-spread-the-luv/ 14 Dan Voorhis, “Southwest to Cut Direct Flights to Chicago, Dallas, Add St. Louis, Phoenix,” Wichita Eagle, October 27, 2015.
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Chart 2a and 2b: Select First-Leg or Final Destination Airports from Wichita Origin
Source: U.S. DOT, Bureau of Transportation Statistics: T100-Market
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Atlanta, GA: Hartsfield-Jackson Atlanta International Dallas/Fort Worth, TX: Dallas/Fort Worth International
Denver, CO: Denver International Chicago, IL: Chicago O'Hare International
Houston, TX: George Bush Intercontinental/Houston Las Vegas, NV: McCarran International
Minneapolis, MN: Minneapolis-St Paul International
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Chicago, IL: Chicago Midway International Dallas, TX: Dallas Love Field
Phoenix, AZ: Phoenix - Mesa Gateway Los Angeles, CA: Los Angeles International
St. Louis, MO: Lambert-St. Louis International Phoenix, AZ: Phoenix Sky Harbor International
Memphis, TN: Memphis International
Love
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subsidies.15 Southwest, true to its business heritage, seemed to be searching for routes that offered value to Wichita travelers without the need for subsidies. Table 1 helps to reinforce this point, given that Southwest claimed only $3.5 million of the possible $6.5 million of subsidies. The Southwest announcement regarding St. Louis and Phoenix represents but another new chapter in the changing patterns of flights out of the Wichita airport, as illustrated by Chart 2a and Chart 2b. The St. Louis and Phoenix routes used to be much more popular as the first-leg or final destination for Wichita air travelers.16 (Since reporting partial-year data for 2016 would offer misleading information, the data in Charts 2a and 2b stops in 2015. A full accounting of 2016 data, when available, will clearly show the shift in Southwest’s flight offerings.) In the 1990s, Trans World Airways (TWA) dominated the St. Louis route, until American Airlines purchased TWA in 2001. American attempted to maintain the route, but, as Charts 2a and 2b show, the traffic on the St. Louis route began to collapse after 2000—the same time that the Atlanta route began to surge. The surge resulted from the entry of AirTran under the FareFares program. America West Airlines dominated the Phoenix route throughout the 1990s. U.S. Airways acquired America West in 2005. Mesa Airlines became the primary Wichita-to-Phoenix carrier after the U.S. Airways acquisition of America West, because Mesa had established a code-sharing arrangement with America West in the 1990s, and that relationship continued with U.S. Airways. When Allegiant Air entered the Wichita market with its low-cost service to the Phoenix Mesa Gateway Airport, travel to Phoenix Sky Harbor Airport collapsed. Southwest apparently perceived an opportunity to rehabilitate the Sky Harbor route. The new Southwest route changes will follow-up on the other obvious route changes that took effect when Southwest Airlines purchased AirTran Airlines in May of 2011. The initial influence of Southwest’s entry into the Wichita market can be seen in Charts 2a and 2b. From the time the KAAP replaced the FareFares in 2006 until the full absorption of Airtran into Southwest, Atlanta Hartsfield (21%), Denver International (17%), Dallas/Fort Worth International (17%), Chicago O’Hare (15%), and Houston Intercontinental (7%) accounted for 77 percent of the first-legs or final destinations for flights originating at Wichita’s Eisenhower Airport. The large drop in passenger count going to Atlanta corresponded with a sharp increase in passengers going to the Southwest hubs of Chicago Midway and Dallas Love Field. The sharp drop in travel to Denver corresponded with the exit of Frontier (a KAAP subsidized airline, see Table 1) in November 2012 and a surge in passenger traffic to (or through) Las Vegas. The Southwest flights to Dallas Love Field, Chicago Midway, and Las Vegas McCarren were covered by the Transportation Service Agreement that formed the basis of the continuation of the AirTran subsidies to Southwest.17 15 http://en.wikipedia.org/wiki/Southwest_Airlines 16 The ambiguous interpretation of the passengers’ flight plans is unavoidable because the nature of the data in the T100—Market database, which accounts for all passengers. It counts passengers as “enplaned” and counts them through a connecting flight only if the flight number does not change. Since most connections result in a new flight number, the first-leg of the flight to a major hub airport will look like it dominates the “market,” even if most passengers do not have the hub as their final destination. 17 City of Wichita, City Council Meeting, August 12, 2014, Agenda Item No. IV-2, p. 23. http://www.wichita.gov/Government/Council/Agendas/08-12-2014%20City%20Council%20Agenda%20Packet.pdf
15
KAAP and the former AirTran Airlines Markets Chart 3 illustrates the effect on air fares on flights originating from Wichita once AirTran entered the market in 2002. The downward adjustment is unambiguous. The data in Chart 3 represents a weighted average of one-way fares to all AirTran destinations listed in the DB1B—Ticket database (see definition on p. 6). The calculations used to generate the charted-data weight air fares by passenger count to the specified destinations for passengers on AirTran and for passengers on all airlines other than AirTran.18
The inclusion of Southwest in Chart 3 shows the continuity in fares once Southwest entered the Wichita market after acquiring AirTran.19 Note from Table 1 that Southwest received the traditional revenue guarantee offered to AirTran. Despite this guarantee, Southwest never offered direct flights from Wichita to Atlanta—one of the prized routes historically used by REAP to support the consumer benefits of the KAAP. Only ExpressJet (doing business as Delta Connection) offered
18 Chart 3 (and other charts in the report) uses one-way fares because that approach makes best use of the data in the DB1B—Market database. Government statisticians essentially prorate the air fare per mile on a particular itinerary. A round trip from the Wichita Airport to a specific destination airport and back would show the same one-way fare for both legs of the trip. If a return trip takes a different type of route, then the air fare for the return trip will differ based on the difference in miles traveled. In general, a doubling of the one-way fare will provide a close approximation of the roundtrip air fare. Note that air fares in Chart 3, and other air fare-related charts throughout the report, have been adjusted for inflation to 2015 price levels, so the historical prices will appear higher than what the traveler actually experience in unadjusted dollar terms. 19 As far as the DB1B—Market database is concerned, AirTran effectively becomes Southwest in the third quarter of 2013, with a clear transition appearing in the second quarter data.
Chart 3: Weighted Average One-Way Market Fares to Reported AirTran Destinations, Before and After AirTran Entry (continuing with Southwest)
Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market
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non-stop flights to Atlanta after Southwest acquired AirTran. ExpressJet was by far the most important competitor to AirTran with regard to the list of AirTran destination—all east of Wichita. For flights out of Wichita, especially going east, ExpressJet
primarily did business as Delta Connection; however, it may have also offered eastern flights doing business as United Express (flying through Chicago O’Hare) or American Eagle (flying through Dallas/Fort Worth International). Chart 4 shows that ExpressJet, for flights to all of AirTran’s listed destinations, eventually became competitive with AirTran’s KAAP-subsidized air fare structure. However, ExpressJet never became competitive with the lower market fares that the KAAP subsidies allowed
AirTran to charge. In fact, if the per-passenger KAAP subsidies received by AirTran are averaged-out per quarter for each contract period (see Table 1), Chart 4 indicates that AirTran often received higher fares than ExpressJet. (Table 3, below, creates similar measurements comparing Southwest and its various competitors.) KAAP and the former Frontier Airlines Markets Chart 5 shows the trends in weighted average one-way air fares to listed Frontier Airline destinations in the DB1B—Market database that are west of Wichita, and shows the weighted average fare for non-Frontier flights compared with Frontier flights. As in the case of AirTran (Chart 3), the presence of Frontier in the Wichita market put unambiguous downward pressure on air fares. When Frontier operated flights to (or through) Denver, United Airlines, SkyWest, and Republic Airlines were the key competitors, with the latter two airlines doing business as United Express.
Chart 4: Weighted Average One-Way Market Fares to Reported AirTran Destinations, AirTran vs. ExpressJet
Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market; T—100 Market for total outbound passenger count.
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The point off the chart = $1,297.56
17
Chart 5 shows that from 2011 through the third quarter of 2012 United beat Frontier on price until Frontier’s last-gasp effort to remain competitive in the Wichita market.
Southwest’s entry into the Wichita market combined with the limited—but extremely price-competitive—routs offered by Allegiant may offer a more durable solution to affordable fares than subsidies to weak competitors. Southwest, with the addition of AirTran’s routes, recorded flights to 95 percent of the final, western destinations sought by travelers flying out of the Wichita Airport, according to data for Frontier destinations reported in the DB1B—Ticket database. As Table 2 shows, Allegiant offered weighted
average air fares to select western destinations that were at least 37 percent less than those offered by Frontier. Note on Chart 2b the increase in passengers traveling to the Mesa Gateway Airport in Phoenix. Allegiant accounts for this increase, which has almost completely displaced travel to the Sky Harbor Airport for flights originating in Wichita. Allegiant also offered much
lower fares to Las Vegas, a popular destination, as indicated on Chart 2a. As shown in Table 3 below, Allegiant Air has continued to compete on its well-defined routes, despite subsidized competition from Southwest’s flights to Las Vegas. Now, starting in early 2016, Southwest has challenged the Wichita-to-Phoenix market.
Table 2: Comparison of Average One-Way Air Fares, 2008-2012
Destination Frontier Allegiant Las Vegas $167 $104 Phoenix 165 89 Los Angeles 180 92 Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market Note: Allegiant flies into Phoenix’s Mesa Gateway Airport; Frontier flew into Sky Harbor Airport.
Chart 5: Weighted Average One-Way Market Fares to Reported Frontier Destinations, Before and After Frontier Entry (continuing with Southwest)
Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market
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KAAP and the Southwest Era For the time period encompassing 2013-Q3 through 2016-Q2, Southwest Airlines carried 18.8 percent of all passengers with flights originating out of Wichita, the highest percentage of any airline. The other airlines with the most competitive passenger shares include: ExpressJet Airlines (14.3%), SkyWest Airlines (13.5%), Delta Airlines (11.5%), American Airlines (9.7%), United Airlines (6.3%), Mesa Airlines (6.4%), Allegiant Air (6.1%), Republic Airlines (2.9%), Trans States Airlines (2.5%), Envoy Airlines (2.6%), and Endeavor (2.4%). People flying out of Wichita would experience ExpressJet, SkyWest, Republic, Trans States, Envoy, and Endeavor (formerly Pinnacle) as: American Eagle, Delta Connection, or United Express. When Southwest entered the Wichita market, it offered service to virtually all of the destinations served by AirTran and Frontier—the two airlines subsidized throughout most of the history of FareFares/KAAP. Table 3 provides detailed information to complement the trends in market fares illustrated by Chart 3, Chart 4, and Chart 5, except that it uses Southwest destinations as the benchmark. Table 3 was constructed by: 1. Identifying all of the Southwest trips with a Wichita origin listed in the DB1B—Ticket
database, for the time period 2013-Q3 through 2016-Q2. 2. Capturing all of the unique destinations associated with those Southwest trips and then
identifying what other airlines carried a substantial number of passengers to those same destinations.
3. Computing the average one-way market airfares identified for each of the select destinations and carriers.
The 23 cities listed in Table 3 accounted for 80 percent of all of the passengers in the DB1B—Ticket database—as isolated by the recorded Southwest destinations originating from Wichita. The database query procedure explains why Southwest accounts for a higher percentage of passengers in Table 3 (30.7%) than they do for the 18.8 percent total share of passengers with a flight originating from Wichita within the 2013(Q3)-to-2016(Q2) time period. Note that for the cities of Dallas, Chicago, and Phoenix, both the major and minor airports are included in the data. (Minor airports: Dallas Love Field, Chicago Midway, and Phoenix Mesa Gateway). The top panel of Table 3 reports the average one-way market fares for trips from Wichita to the select cities. For comparison, Column 2 of Table 3 adds to the average Southwest market fare the average one-way per-passenger KAAP subsidy received by Southwest—$17.67 (= 35.33 ÷ 2).20 The bottom panel of Table 3 subtracts the Southwest data in Column 2 (one-way market fare + one-half average subsidy) from the market fare offered by the select Southwest competitors.
20 The average per-passenger subsidy is derived by dividing the aggregate subsidy amounts reported in Table 1 by the total Wichita-originating passengers enplaned on a Southwest flight reported in the T-100—Market database.
19
Table 3: Average One-Way Fares from Wichita to Select Cities, Southwest vs. Select Competitors, 2013-Q3 to 2016-Q2
Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market.
Select CitiesSouthwest
Airlines
Southwest Airlines (plus 1/2 Average Subsidy)
Allegiant Air
American Airlines
Delta Air Lines
SkyWest Airlines
ExpressJet Airlines
United Airlines
Mesa Airlines
Am. Eagle Airlines
Passenger Count 31,327 13,657 13,426 9,124 9,475 8,878 7,881 5,644 2,622 Share of Count 30.7% 13.4% 13.2% 8.9% 9.3% 8.7% 7.7% 5.5% 2.6%
Las Vegas, NV $173 $191 $87 $216 $196 $201 $212 $191 $235 $237Chicago, IL 153 171 n.a. 283 200 197 233 202 242 211 Dallas/Fort Worth, TX 129 147 n.a. 159 n.a. 204 182 147 178 191 Houston, TX 198 216 n.a. 239 n.a. n.a. 269 n.a. 254 237 Orlando, FL 217 235 n.a. 246 243 250 239 231 247 264 St. Louis, MO 172 189 n.a. 219 512 236 257 464 246 221 Los Angeles, CA 217 235 102 253 222 243 320 254 273 252 Phoenix, AZ 223 241 85 269 257 257 302 245 289 339 San Antonio, TX 184 201 n.a. 193 159 222 205 193 221 257 Atlanta, GA 197 214 n.a. 206 302 252 311 207 226 224 Baltimore, MD 213 230 n.a. 237 227 252 267 260 277 244 San Diego, CA 247 265 n.a. 289 205 276 410 251 291 351 Nashville, TN 229 247 n.a. 230 241 255 265 228 266 242 Austin, TX 213 231 n.a. 221 n.a. 247 228 203 248 235 Washington, DC 213 231 n.a. 227 246 253 250 242 290 220 Seattle, WA 251 268 n.a. 303 353 306 320 277 339 314 New York, NY 225 242 n.a. 261 291 275 313 270 276 231 Tampa, FL 221 239 n.a. 248 254 254 258 240 240 302 New Orleans, LA 202 220 n.a. 213 252 259 228 222 249 320 Oakland, CA 231 248 n.a. 397 n.a. 287 532 360 254 231 Boston, MA 201 219 n.a. 248 259 260 267 263 286 229 Sacramento, CA 282 299 n.a. 334 451 298 341 279 314 424 Philadelphia, PA 227 245 n.a. 299 276 302 320 283 304 313
Las Vegas, NV -104 25 6 10 21 0 45 46Chicago, IL n.a. 112 30 26 62 32 71 41Dallas/Fort Worth, TX n.a. 12 n.a. 57 35 0 31 44Houston, TX n.a. 23 n.a. n.a. 53 n.a. 38 22Orlando, FL n.a. 12 8 15 4 -4 12 29St. Louis, MO n.a. 30 323 47 68 275 57 31Los Angeles, CA -133 18 -13 8 85 20 38 18Phoenix, AZ -157 28 16 16 61 3 48 98San Antonio, TX n.a. -8 -42 20 4 -8 20 55Atlanta, GA n.a. -8 88 38 97 -8 11 10Baltimore, MD n.a. 7 -3 22 37 30 47 14San Diego, CA n.a. 24 -60 11 144 -14 26 85Nashville, TN n.a. -17 -5 9 19 -18 19 -5Austin, TX n.a. -10 n.a. 16 -3 -28 17 4Washington, DC n.a. -4 15 22 19 12 59 -11Seattle, WA n.a. 35 85 38 52 9 71 46New York, NY n.a. 19 48 32 71 28 34 -11Tampa, FL n.a. 9 15 15 19 1 1 64New Orleans, LA n.a. -7 32 39 8 2 29 100Oakland, CA n.a. 149 n.a. 39 283 111 5 -18Boston, MA n.a. 29 40 42 48 44 67 11Sacramento, CA n.a. 34 152 -1 42 -21 15 124Philadelphia, PA n.a. 54 31 57 75 38 59 68
Price Difference: Southwest Competitior's Average One-Way Market Fare less [Southwest's One-Way Market Fare + One-Half of Average Subsidy]
20
Southwest offers the lower fares in 83 percent of the comparisons, when one-half of the average subsidy is added to the one-way market fare.21 Other than Allegiant—the truly low-cost airline in the sample—the differences in the fares follow few obvious patterns, except the lower fares offered by Southwest in all but a select few routes. Relatively speaking, Southwest has had charged much lower rates on the St. Louis route than on the Phoenix route. Time will tell how Southwest’s Wichita to Phoenix route will change the overall fare structure. An October 27, 2014 press release from Southwest22 announced one-way rates from Wichita to Phoenix for as low as $99. This rate will challenge the fare structure of Allegiant Air. Head-to-head competition is one thing. However, if subsidies to Southwest dis-advantage Allegiant’s unsubsidized business model, and such a disadvantage forced Allegiant to exit the Wichita market, that outcome would be antithetical to goals expressed in the Affordable Airfares legislation. Southwest’s press release also said the airline will offer one-way rates from Wichita to St. Louis for as low as $65. Competitive pricing for travel plans to (or through) St. Louis may once again make that city a major first-leg for Wichita travelers with eastern destinations. As of August 2016, Southwest had carried 26,375 passengers to (or through) St. Louis. 21 This procedure necessarily abstracts from the changes among time periods, and is meant to be illustrative. 22 http://swamedia.com/channels/Southwest-News-2015-October/releases/beat-the-heat-start-planning-now-for-spring-vacation?l=en-US
21
An Evaluation of the Garden City Market According to REAP’s fiscal year 2013 annual report, four of the five airports in western Kansas offered flights to Denver on the same airline.23 The Garden City Airport took advantage of KAAP funds to differentiate itself by offering flights to Dallas/Fort Worth International on American Eagle Airlines (which became known as Envoy Air in April of 2014, but still operates under the American Eagle brand name24). The evidence indicates that the Dallas service met with—and has continued to experience—strong consumer demand. Chart 6 documents the market response. Following the implementation of service to Dallas, the number of outbound flights from Garden City dropped substantially, but the number of outbound
passengers increased substantially. Chart 7 reveals that much of this traffic switched from Denver-bound flights, but a significant amount of the traffic was brand new passenger count from the perspective of outbound passengers using the Garden City Airport. Chart 7 also shows the first-leg or final destination airports for passengers originating flights out of Garden City. Over the time period shown, Denver, Dallas, and Kansas City have accounted for more than 90 percent of the traffic.
Flights to Denver dropped to zero passengers beginning in the third quarter of 2013. Flights to Kansas City dropped to a few dozen per quarter, and then disappeared. The shift from Denver to Dallas resulted from a conscious design on the part of the authorities at the Garden City airport. As Rachelle Powell, Director of Aviation at the Garden City Regional 23 REAP, “Kansas Affordable Airfares Program Fiscal Year 2013 Report,” p. 14. 24 http://aviationblog.dallasnews.com/2014/04/american-eagle-airlines-becomes-envoy-air-today-april-15-2014.html/
Chart 6: Quarterly Outbound Passenger Counts and Flight Counts from Garden City
Source: U.S. DOT, Bureau of Transportation Statistics: T100-Market, T100-Segment, and Small Air Carriers—Schedule T-1
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Envoy Air doing business as American Eagleoffers flights to Dallas under the Affordable Airfares Program (Q2 of 2012)
22
Airport, stated in a news release dated November 14, 2011: “We’re excited about our service to Dallas, as it has been a goal for the community for the past 20 years.”25 The thought process involved with the regional plan was memorialized in the minutes of a REAP Board meeting on July 11, 2011, which is reproduced at length:26 “In presenting its proposal Garden City provided documentation in support of establishing the Garden City Regional Airport, with the cooperation of regional partners, as the Western Kansas Regional Airport by providing competitive jet service through American Eagle. It was noted that in the enabling legislation, House Substitute for Senate Bill 475 and the omnibus appropriation bill, Senate Bill 2968, it was expressly stated “including a regional airport in western Kansas.”
“In addition, the proposal specified that regional jet service in the western half of Kansas will boost enplanements from Kansas airport and prevent leakage to air carriers providing jet services from nearby states (Colorado and Texas). “Some specifics on the proposal are as follows: • The City of Garden City is one of three southwest Kansas communities that receive essential air service (EAS) funding for
commercial air service, and one of five in the western half of Kansas. All five communities are currently serviced by Great Lakes Aviation with Beechcraft 1900 turboprop planes with service to Denver. Enplanements are higher out of Garden City Regional Airport than the other western Kansas EAS and it has long been a priority of local leaders, the regional business community, and our U.S. Congressional delegation to
25 http://www.garden-city.org/DocumentCenter/Home/View/176 26 REAP Board Meeting, July 11, 2011, Item #4. http://www.wichita.gov/Government/News/Supplemental%20Documents/REAP%20Item%204.pdf
Chart 7: Select First-Leg or Final Destination Airports from Garden City Origin
Source: U.S. DOT, Bureau of Transportation Statistics: T100-Market
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look for ways to grow Garden City Regional Airport out of the EAS program and into a more commercially viable service provider.
• To that end, Garden City conducted a market analysis by Sixel Consulting in advance of
the 2011 EAS bidding cycle. This market analysis was used to recruit jet service providers in hopes of ultimately landing a carrier capable of capturing the significant market leakage to Amarillo, Denver and Wichita, and growing passenger load to a profitable level. Furthermore, it was a desire to attract an air carrier which would provide service to an international hub which best reflected where our passengers wanted to go.
• American Eagle is one of four airlines proposing service to Garden City. American
Eagle is the only proposal to offer a southern hub (Dallas – DFW) and is the only proposal to offer jet service. Unfortunately, this is the most expensive of the four proposals. However, it is the intent of the City of Garden City to present a regional funding solution to the U.S. Department of Transportation which underwrites the $1.3 million differential between the American Eagle jet service bid and the lowest turboprop bid. The proposal will incorporate regional partners and ultimately bring viable jet service to western Kansas, thereby making it the first truly regional airport in the western half of Kansas.
• While at the onset there would only be one carrier out of Garden City Regional Airport,
there still exists competition in western Kansas EAS communities and very competitive jet service out of Wichita Eisenhower Airport (which by the market study, most of the market considers to be their primary airport). The additional competition will help bring down pricing and make air travel a more affordable option.
• The primary use of funds is to assist in filling the gap between American Eagle’s
proposed cost to serve Garden City Regional Airport and the proposal to the USDOT. • Garden City Regional Airport also committed to providing current and historical data for
enplanements as well as enplanement numbers for other western Kansas airports with commercial service to provide analytical evidence of the “regional” nature of the service being provided. Garden City Regional Airport also commits to providing average daily fare information to validate the “competitiveness” of that service.”
24
Chart 8 documents the trend in average airfares from Garden City to Dallas following the agreement with American Eagle. As with the introduction of FareFares in Wichita, the downward adjustment in market fares is unambiguous. However, as the information in Chart 7 and the REAP Board Meeting minutes reveals, the population in southwest Kansas had a strong pent-up demand for travel to Dallas. The high demand plus the federal subsidies available to
Garden City under the Essential Air Service program helps explain why the per-passenger subsidies for flights on American Eagle were about 70 to 80 percent lower than the per-passenger subsidies in Wichita. In fact, as both Table 1 and Chart 8 show, the strong demand for air service to Dallas has mitigated the need for the Garden City Airport to use its KAAP funding in the 2014, 2015, and 2016 fiscal years. The funding provided through the federal Essential Air Service program has covered any revenue-guarantee shortfalls. The Garden City Airport has held the KAAP funds in reserve
as it pursues options that will serve the estimated 42 percent of travelers in its catchment area that drive outside of Kansas (often to Denver) in pursuit of more attractively priced airfares.27 Indeed, in July of 2016, the Garden City Airport sought—and received—approval to use $15,000 of its allotted KAAP funds to undertake a market study to investigate how it can improve its flight offerings to residents of western Kansas.28 The REAP annual report for fiscal year 2013 (p. 15) presents data that seemed to imply large savings in airfares from Garden City to alternative destinations following the implementation of
27 Telephone conversation with Rachelle Powell, Director of Aviation, Garden City Airport, December 13, 2015; and letter from Rachelle Powell to Robert E. North (Kansas Department of Commerce), May 8, 2015. 28 Private correspondence between the author and Rachelle Powell—and letter from the City manager of Garden City to Bob North of the Kansas Department of Commerce (dated July 6, 2016).
Chart 8: Inflation-Adjusted One-Way Airfares from Garden City to Dallas
Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market; T—100 Market for total outbound passenger count. Note: The actual payments to American took place on two specific dates: October 10, 2012 and May 10, 2013. For illustration, since money is fungible, the chart spreads the payments over the quarters of the relevant fiscal years.
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Charts 9a and 9b: Inflation-Adjusted One-Way Airfares from Garden City to Select Popular Destinations
Source: U.S. DOT, Bureau of Transportation Statistics: DB1B-Market
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the KAAP. The REAP report does not provide enough information to understand the basis for the implied conclusion. However, Charts 9a and 9b do not necessarily support the implied conclusion. On an inflation-adjusted basis, the airfares to eight of the most popular destination (as indicated by the DB1B database) seem to remain in the boundaries of passenger experience since 2007. There is no obvious change in market fare structure following implementation of the KAAP in the second quarter of 2012. One caveat to the information in Charts 9a and 9b involves the data collection process for the DB1B database. The data comes from a 10 percent random sample of passenger tickets. Other than Dallas, which had ticket count samples in the dozens, most of the select destinations in the charts had ticket count samples in the teens or single digits. These low sample counts could offer misleading information—but it would be hard to know if the bias is on the high side or the low side.
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