On Thursday, according to Reuters, an American Airlines executive testified before a congressional subcommittee that “airport screening delays have caused more than 70,000 American Airlines customers and 40,000 checked bags to miss their flights this year.”

Kansas City International Airport (MCI) uses a private security firm rather than the TSA, and I wrote to American Airlines to ask if they tracked the number of flights missed as MCI due to security. Their media representative quickly responded that they do track it, “but at the current time, we haven’t seen an issue at MCI for American.”

Proponents of building a new, $1.2 billion terminal at MCI are going to show pictures of as many long lines as they can at MCI to justify the expense. But there are long lines all over the country—even in new, single-terminal airports. At least for one airline, MCI is not seeing the problems that are occurring elsewhere.

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In fairness, my colleague Joe Miller recently wrote that there are some reasons why a city might rightfully consider building a new terminal. The cost of current maintenance may be more expensive than a modern replacement, or a new terminal may be needed to accommodate increased traffic. Neither of those apply to MCI. While our traffic is up moderately, no one is arguing that we need to build for increased capacity. In fact, the new terminal proposal from the Aviation Department would reduce the number of gates we have now.

No one is arguing that the costs of maintaining the current MCI are prohibitive, either. Supporters of a new terminal seem to have strictly cosmetic concerns.

As for doing what we want airports to do, MCI is serving admirably. Consider the recent developments.

• In 2014, MCI picked up service from Spirit Airlines, and Seaport Airlines added service. Southwest announced that service to Ronald Reagan National Airport in Washington, D.C. has been approved.
• In 2015, Spirit started offering direct nonstop flights to Los Angeles. Allegiant Airlines will be flying nonstop to Florida from MCI, and Southwest offers new direct service New York LaGuardia, and Orange County, California. American Airlines added nonstop flights from Kansas City to Miami.
• And in 2016, Frontier Airlines will add flights to Atlanta, Chicago, and Philadelphia. Southwest recently expanded service in the form of direct flights to San Antonio.

In January, the Star catalogued some of MCI’s gains, including that annual traffic has grown each year since 2012 with the terminal we have now. Supporters of a rebuild point to possible (but by no means certain) increases in traffic as a result of a new terminal. But as Miller concluded in 2014:

To sum it up, the airlines (and common sense) say that building an expensive new terminal will not increase demand for air travel. Quite the contrary, the higher costs to airlines and passengers may mean fewer flights. Even if we agree with business leaders that MCI requires more amenities, certainly there is a cheaper way of providing these than a $1.2 billion new terminal plan. The cost is so much greater than the supposed benefits that the plan looks more like a vanity project than a sound investment.

In short, Kansas City’s airport is doing well. It has won high marks for its convenience; we’re unlikely to suffer the long waits seen at other airports because MCI does not use the TSA for security. Importantly, airlines seem eager to come and expand their service (despite their claims to the contrary). It is unlikely that Kansas City could improve on this. In fact, in taking on mountains of debt we risk losing the competitive advantage that many of us now take for granted. 

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Supporters of a new terminal lamented this pause and argued that voters were not sufficiently informed of what was before them. Some even propose a more aggressive public education campaign. Sadly, this is what serious policy discussions often come down to—not thoughtful exchanges of ideas, but rather an uncompromising proposal stubbornly marketed and shouted in various ways at a busy public. And if they still don’t agree . . . shout louder!

In fact, after years of public debate, voters in Kansas City (and everyone who uses the airport) knew exactly what was being asked of them. Few issues have been discussed in more or at greater length than the airport. There have been numerous public meetings, TV and radio segments, and print news articles on the matter. A group of citizens even collected signatures to make sure the public had a vote. The public knew exactly what was being proposed.

Because MCI is a cheap airport for airlines to serve, we get more service. We have more direct flights than other markets our size. American Airlines and Southwest continue to expand service and in recent years we’ve attracted additional smaller discount airlines such as Allegiant and Spirit. These are not warning signs of a failing airport.

There are risks to taking on big builds. In Sacramento, San Jose, and Cincinnati, localities invested heavily in new airports. They increased airline fees to pay down the debt and saw airline service decline. This is a simple enough economic reality: when you charge more for something, you sell less of it. It really is that simple. Any effort to improve MCI must make sure that we retain our competitive advantage: a cheap and convenient airport.

Those in St. Joseph and across the region have a stake in the matter, but they won’t have a vote. Frequent travelers would be well served to make sure their friends in Kansas City are educated on the benefits and risks of a new terminal.

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Kevin Koster, a member of the Airport Terminal Advisory Group empanelled by the mayor two years ago to consider the wisdom of a $1 billion new terminal, reacted on Twitter,

A single terminal would have had to be completely evac. TSA told KCI task force this was advantage of current design

Back in March 2014, The Kansas City Business Journal reported that a TSA official did exactly that [emphasis added]:

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Branson Airport (BKG) made news in 2009 when it became the nation’s only privately constructed and operated commercial airport. Unfortunately, in large part due to poor timing, passenger levels were far below expectations and the project has been in financial trouble for the last couple years. The airport’s problems trebled when Southwest decided to halt service to the market last year.

Stripped of its only major airline, Branson Airport management has been trying to lure new service. To do that, the airport plans to use $1.5 million of private money and $500,000 of public money (courtesy of Taney County) to create a revenue guarantee for prospective airlines. If an airline agrees to serve Branson Airport and fails to turn a profit, this guarantee will make up the difference.

We’ve seen the use of revenue guarantees before in Missouri, notably at Columbia Regional Airport. The Columbia region provided a revenue guarantee to American Airlines, which prompted Delta Airlines (who was already serving the airport) to end service. In essence, publicly funded airline revenue guarantees take the risk of providing airline service from the private sector and give it to taxpayers. This is a questionable use of public resources, and it subsidizes air travel.

Even though Branson Airport is a private operation, a revenue guarantee would not be the first public support it has received. The city of Branson has paid a set amount to the airport for every out-of-town passenger that it has brought in, and Taney County helped the airport secure initial financing. With the airport on the verge of financial collapse, and the county now preparing to subsidize commercial air service, the question becomes whether the public should be invested in bailing out this private venture. Especially with nearby Branson-Springfield National Airport (SGF) growing briskly in the last couple years, it may be in the interest of the taxpayer to let the airport sink or swim on its own.

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The revenue guarantee was part of the deal that brought American Airlines to Columbia, and prompted Delta’s departure. The idea is simple: American Airlines is guaranteed a certain amount of revenue from flights out of Columbia. If that revenue level is not reached, the city of Columbia and other regional supporters have to pay the difference. It was supposed to give American Airlines the incentive to test the Columbia market. The new service, if successful, would be profitable enough to convince the airline to operate following the expiration of the guarantee.

There is good reason to be skeptical of this government interference in the commercial aviation market. First, it transfers risk from the private company (which raises the expected value, and hence their incentive to service the route) to taxpayers who may or may not ever use the airport. Second, a revenue guarantee can make it difficult for a competitor to enter the market without the same type of risk reduction. Delta Airlines left the Columbia market for precisely this issue. Third, a revenue guarantee can be difficult to take away without risking service reduction. This is because even if American rarely (if ever) uses the revenue guarantee the insurance that the guarantee provides is part of the financial equation that determines the amount of service.

But ending the revenue guarantee is no easy choice. Small airports across the country are having trouble attracting air service, as national airlines consolidate and reduce less profitable routes (a practice known as “capacity discipline”). Cities without regular flights are at a distinct disadvantage in attracting businesses and residents.

However, Columbia Regional Airport would likely be able to attract airlines without the guarantee, as it did before the city wooed American Airlines. The real issue is how many routes and where the routes would go. City officials have long had grand designs to expand the airport’s reach to the west, build a new terminal, and massively increase total passengers. They were, when they were chasing American Airlines, and likely will remain unwilling to let the private market interfere with realizing those goals. Residents will have to decide if city leaders’ goals are worth subsidizing the airlines and interfering in the transportation market.

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Here is a quick recap of recent events. This past year the airport enjoyed service from American Airlines, Delta, and Frontier Airlines. But American Airlines is now the only commercial airline staying in Columbia, as Delta already left the market, and Frontier exits in May.

Consulting firm Parsons Brinckerhoff will provide design services for the new terminal for $38,000. In a recent press release, Parsons Brinckerhoff hypes the new terminal and defends the need, stating that “Columbia Regional Airport has been experiencing growth and has seen an increase in the number of commercial airline service offerings.”

After reading that, I literally double-checked the date of the press release to confirm that it indeed said March, 28, 2013, and not 2012. While it is technically true that the airport has increased commercial airline service offerings, the statement leaves off the very important second half of that statement — the growth has stopped, and service offerings are much lower than they were a year ago.  It is like saying George Bush is president. It was true, at one point in time, but you are not going to find him at the White House today.

Still, city leaders seem confident with their multi-million dollar plan. The Columbia City Council decided on Monday to transfer $1.2 million away from other city projects to fund the terminal, and plan to allot another $18.7 million to the project in the 2014 Capital Improvement Plan, in hopes that the federal government will agree to contribute a large portion of the total cost.

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Frontier just began flights from Columbia to Orlando, Fla., last November. American Airlines now will be the only provider at the airport — and the company receives a revenue guarantee for two years to provide service. So if American does not make a profit from this market, they can still dip into funds that Columbia will provide to make up for any lost revenue.

Delta Senior Manager Trebor Banstetter commented that revenue guarantees “can be a tool to perhaps get things started, [but] . . . airlines really like to see a service that can sustain itself and be successful, without having a guarantee in place.” He added that the most important thing when considering what a community can offer an airline is “having the community and the travelers embrace  the service and use it on a regular basis because without that it’s hard to justify operating the route.”

Banstetter makes the point that revenue guarantees and other subsidies are not sustainable. The only way to keep service at the airport is if the flight itself is profitable. Prior to 2008, Delta served the Columbia airport with revenue assistance from the federal government, as part of the Essential Air Service program to provide air service to rural airports. Delta continued serving the airport for the next few years, until it was no longer profitable (Delta reported a $900,000 loss in 2011). During this time, Columbia had two airlines and no city subsidies — and now it has just one, plus subsidies.

Columbia officials would be better served if they give up on the “40 in 2020” goal to have 40 percent of mid-Missouri airline passengers using the Columbia airport by 2020. The loss of Frontier and Delta are real indications that flying to Columbia is not profitable for airlines. Yes, it would be convenient for Mizzou students and others in the area to have affordable flights closer than Saint Louis or Kansas City. It might be difficult to conceptualize because we live in a world where the federal government subsidizes almost everything, but there are costs to doing business. We all face constraints in resources. Airlines cannot provide services to a market that is not profitable. How long will it take for Columbia officials to understand this?

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First, being pro-business is not the same as being pro-free market. Being pro-business can devolve into being pro-some businesses and anti-other businesses. For example, my colleague Kacie Galbraith wrote about the Columbia Regional Airport and the various incentive schemes city officials are cooking up to entice American Airlines to offer service there, at the expense of Delta. The proper response would have been lowering costs and burdens for ALL airlines and letting the free market determine which, if any airlines, might serve the Columbia region.

The Speaker has assured the taxpayers that there will not be anything like “Aerotropolis” coming down the pipe. That is great to hear. Yet, when Speaker Jones talks about “implementing incentives,” I get nervous. The biggest incentive for businesses to locate in Missouri would be a favorable environment for ALL businesses. The incentives that legislators talk about usually mean a new tax subsidy, taking money from one group of people and giving it to another.

I hope the House moves in the tax cut direction and away from the business incentive direction. I have blogged (a lot) about the benefits of eliminating the corporate income tax and the taxes on pass-through entities. As I mentioned before, the Senate seems disposed to pass some sort of income tax cut. If the House follows suit, it is possible to enact some meaningful reform.

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Well guess what happened. Delta declined the offer, and announced it will exit the Columbia market in February 2013.

I said it before and I will say it again: what were Columbia decision-makers thinking?

They interfered with the market by offering American a revenue guarantee, which is essentially a subsidy. Delta officials had to step up and say “hey wait a minute — this isn’t fair if we are competing with an airline whose flights are subsidized by the government. We cannot compete with that.”

Columbia then found itself in a lose-lose situation. The city would have been out another couple million dollars if Delta accepted a deal that matched American’s, forcing taxpayers to spend even more. Or, Delta would decide to leave an unfair market and the city would lose the options they worked hard to grow at the airport, which is what happened.

What happens in two years, when the revenue guarantee for American ends? Will the city extend the deal, or just hope that the market suddenly becomes profitable? It is not prudent to subsidize a market that would not survive on its own just because someone likes the idea of it. I hope this will serve as a memorable example of the damaging consequences of government intervention in the free market.

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Recent  news of the city of Columbia offering special incentives to American Airlines, but not to Delta, prompted Phil Garcia to write about the consequences of rent seeking (and even compared the situation to his children wanting more allowance). Garcia commented how rent seeking hurts competition and raises taxpayer burdens. Check out his excellent letter to the editor in the Jefferson City News Tribune — Your Opinion: Airport ‘rent-seeking’.

Also read our posts explaining why Columbia made a poor decision, and a related op-ed about how Columbia intends to pay for an airport expansion.

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I know Columbia Mayor Bob McDavid has a catchy-sounding goal of “40 in 2020” — meaning, to have 40 percent of mid-Missouri airline passengers using Columbia’s airport by 2020. But doling out subsidies is not the best way to strive for this goal.

The revenue guarantee enables American Airlines to break even on each flight. But what about Delta, which already services Columbia without subsidies? Let’s look at an example. Airlines have a minimum amount they can charge for each ticket before they start losing money — say it is $200. But because Columbia is helping American, that airline now can provide fares at $150. Delta, on the other hand, does not have this extra help and cannot lower its prices below $200. Which flight will passengers choose? Unless they have an unwavering love of the Delta Biscoff cookies, they will choose the cheaper American flight; and this is how Delta now will be at a disadvantage in the marketplace.

Delta officials know this, and already warned the city that they will expect a similar subsidy if the American deal goes through. I expect that we will now see a domino effect.  Chances are, Columbia will have to spend taxpayer money to keep Delta from leaving the airport, even though they were already providing service there for four years. There is also a third player. Frontier Airlines is scheduled to begin service to Columbia in a few weeks. They will have good reason to ask the city for a revenue guarantee as well.

The city created an artificial need for other companies to now require subsidies that previously they did not expect or request. Thank you, Columbia, for giving us an example of how subsidies can cause harm to a city.

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Incentives often appear to be an easy solution to spur economic development. But this plan is now backfiring for Columbia. Delta has served the Columbia market since 2008 —  without any special government incentives. Now that American has been offered a two-year revenue guarantee of $3 million, Delta is reconsidering its service to Columbia.

In a letter from Delta Senior Vice President Robert Cortelyou to Columbia Mayor Bob McDavid, he states, “While we welcome competition in the marketplace, this revenue guarantee puts Delta at a severe disadvantage by subsidizing American Airlines at Delta’s expense. This is unacceptable.”

Cortelyou emphasizes an important point. If Columbia gives a subsidy to one airline, it creates unfair competition and puts the other companies in that market (Delta and Frontier) at a disadvantage.

Delta officials did state that the airline will exit the Columbia market if they are not offered a similar package. Their threat exemplifies why cities like Columbia should not provide benefits to some companies and exclude others in the first place. If Columbia meets their demands, the city will waste even more scarce public dollars. There is no reason to bribe airlines to serve Columbia.  If there is passenger demand to warrant increased service to the airport, companies will provide it without subsidies, just as Delta has been doing. Doling out subsidies to these companies takes money and resources away from other actions that could be better investments for the city.

However, at this point, Columbia has dug itself a hole and the only option may be to provide similar incentives to Delta, if the deal with American goes through. The good news is that it would only be a two-year commitment. If city officials act prudently, they will prevent it from extending beyond two years.

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Here’s the back story: Evidently, government officials decided that two runways weren’t enough for Lambert. Construction on the runway began in 1998, and it continued despite several setbacks. (As the Riverfront Times aptly put it, “Still, the bulldozers rolled on.”) Following the 9/11 terrorist attacks in 2001, Trans World Airlines went bankrupt and American Airlines bought it. In 2003, American Airlines cut its operations in half at Lambert, and revoked the airport’s hub status. In the meantime, people flew far less than projected.

Unfortunately for Missouri taxpayers, this story doesn’t have a happy ending. The new runway did not reduce delays. Plus, with each passing year, Lambert saw fewer takeoffs and landings. Just one year after the new runway was built, only 5 percent of flights used it. Several airlines asked to avoid using the new runway altogether. Because it was built so far away from the terminal, planes had to taxi as many as three miles to the terminal, burning more fuel.

Not only did the project fail to bring the traffic it promised, it tore apart the city of Bridgeton. Government officials used eminent domain to move seven major roads, kick 6,000 people out of their homes, and bulldoze six churches and four schools in order to make room for a third runway.

Government does not have a good track record in steering economic development — particularly in the Saint Louis area. Studies repeatedly show that they fail to produce the results that they promise. Most recently, the East-West Gateway Council of Governments concluded that the Saint Louis government has provided $5.8 billion in subsidies to private development in the city, but doesn’t have much to show for it.

Expanding the airport didn’t work then, and there’s no compelling reason to believe that it will work now. (Remember: No formal agreement has been signed, nor has any study been completed.) Lawmakers are in danger of repeating the same mistakes, so they should take a longer look at this.

We have a shared goal: an economy that is thriving and attractive to new businesses. Lawmakers are sticking the same old policies (tax credits!) — even though they have been shown to fail. If lawmakers in Missouri were serious about growing the economy, they would abandon the failed policies of the past and take a different strategy.

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