The fact that air traffic grew faster in the rest of the nation than it did in Missouri could be taken as meaning that Missouri is lagging the rest of the nation in growth. But in reality, most of Missouri’s airports—including Kansas City International (MCI), Springfield-Branson (SGF), Joplin Regional (JLN), and Columbia Regional (COU)—grew faster than the national average, in the case of Springfield, Joplin, and Columbia much faster (at 8.4 percent, 11 percent, and 16 percent, respectively). Springfield’s recent growth may be enough for it to regain its small hub airport status, which SGF lost following the recession. The performance of Missouri’s largest airport, Lambert-St. Louis International (STL), dampens the state’s overall numbers. Despite a concerted push to get more flights, STL’s passengers actually decreased by about 0.6 percent last year.

The poor performance of STL compared to other airports in Missouri and nationally may be in part due to a relatively weak recovery in the Saint Louis area. It is well understood that underlying economic conditions mostly determines total airline traffic in large cities. However, Saint Louis did see some positive economic growth in 2014, along with a large increase in employment.

Another factor that may affect STL’s ability to gain both flights and passengers is cost. STL’s cost per enplaned passenger, at almost $15, is about three times the costs at MCI or SGF. Higher costs can mean fewer or more expensive flight options, dampening demand. STL’s elevated prices mainly stem from massive debt taken on to build a new runway in the early 2000s, planned when the airport was still a TWA hub.

STL’s leadership, unlike those at another Missouri airport, see the airport’s high costs as a major hurdle toward increasing traffic and are taking aggressive steps to bring in more revenue and rein in costs. This includes leasing out unused land to local businesses and attempting to attract more national and international cargo shipments.

Whether or not these strategies will succeed is as yet unknown. But perhaps the lesson from STL’s experience for all Missouri’s cities is that if their airport provides what it needs at a low price, it will be in the best position to contribute to, and benefit from, better economic growth.

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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.

The post A Guarantee for More Flights Out of Columbia Regional Airport appeared first on Show-Me Institute.

Airports in Missouri already are self-sufficient and/or receive significant federal and state funds. Missouri’s largest commercial airports, Lambert-St. Louis International, Kansas City International, and Springfield-Branson, are capable of financing any reasonable capital improvement projects without aid. In addition, these airports receive federal money through the Airport Improvement Program and the Passenger Facility Charge. Missouri’s largest airports do not need sales tax money.

Missouri’s smaller commercial airports, though not self-sufficient, already receive significant local, state, and federal aid. For instance, Columbia Regional Airport received $8 million in federal grants in the past three years and is slated to receive an extra $350,000 in the next five years from state airport grants. This is on top of a regional revenue guarantee scheme to entice airlines to fly out of Columbia without risk of financial losses. Joplin’s airport received $13 million in federal grants in the past three years and expects $10 million in state aid over the next five years. It also is a beneficiary of the Essential Air Service (EAS) program, which is essentially federally subsidized airline service.

Eleven of the proposed sales tax recipients are general aviation airports. While they may serve a useful purpose to local businesses and recreational fliers, these airports already are heavily subsidized. For example, Camdenton Memorial Airport is a small airport that plans to spend almost $826,443 in the next year with less than $100,000 of user-generated revenue. The remaining funds will come from the city coffers and federal or state grants. Without any sales tax money, this small airport with only 30 based aircraft is scheduled to receive $5.85 million in aid.

Simply put, like much of Missouri’s transportation system, airports already have effective funding mechanisms. For the smaller airports, it is probably too effective, unless you love enormous subsidies for small assets.

The fact that cities and counties plan to spend general sales tax money on Missouri airports is another reason the proposed Amendment 7 is terrible public policy.

The post Missouri’s Airports Don’t Need Sales Tax Money appeared first on Show-Me Institute.

Meanwhile, the Columbia, Mo., aviation department also wants to build something new. It is a much smaller market and as a result, the plans are much more modest. But the report that officials provided to the public actually includes several different alternatives and a comparison of each.

Mind you, Columbia Regional Airport’s leadership has some of its own bad ideas, including airline incentives, tax increase proposals, and flawed assumptions about growth. But  officials haven’t hid alternatives from the public.

Imagine how much time and energy would have been saved if Kansas City Aviation Department leadership did the same, allowing officials and the public to consider various alternatives. Instead, they’ve tried selling the public on a huge and unpopular plan that seems to purposefully conflate figures.

The post A Tale Of Two Airports appeared first on Show-Me Institute.

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.

The post Funny-But-Not-So-Funny Update On Columbia Airport appeared first on Show-Me Institute.

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.

The post And Over In The House appeared first on Show-Me Institute.

MidAmerica Airport in St. Clair County, Ill., was built in the 1990s with high hopes that business would materialize. Have you ever flown out of MidAmerica? Me neither. The airport failed to ever gain a significant amount of passenger traffic. The government provided subsidies to airlines that did fly there, and many still quickly left the market. Fast forward to today: the airport continues to operate. This is when I wish I could tell you that there was a miraculous turnaround and MidAmerica found a way to become profitable. Oh, how I wish. The airport is still open because it has more than $100 million of debt to pay off. Where would MidAmerica find the money to pay?

The Manhattan Institute just published an article about the growing number of new or expanded airports that are underused or virtually empty. It gave me a sinking feeling in my stomach when I thought about the future of the Columbia Regional Airport. We have written about the airport’s expansion plans and Delta’s recent departure from the Columbia market. The Manhattan Institute article points out that “… airport expansions often increase ticket prices, driving businesses away. After airports have built new facilities, they pass the expense on to passengers in the form of pricier tickets.”

I do not know what the future has in store for Columbia Regional Airport. But MidAmerica’s failure shows us that “if you build it, they will come” is not necessarily true. I am not in a position to say whether Columbia is in need of expansion or improvements. But I take Delta’s departure from the market as a sign that they do not see Columbia as an area for growth in air travel. Columbia officials need to evaluate whether there are real opportunities for growth. If there are not, then a costly government-funded airport expansion is not a wise decision.

The post Empty and Broke appeared first on Show-Me Institute.

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.

The post Dominoes In Columbia appeared first on Show-Me Institute.

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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McDavid says the renovation is needed urgently — it is a “crisis.” Let me tell you why this is not a crisis. (At all. Not even a mini-crisis. Or an omigod they cancelled ‘Jersey Shore’ crisis.)

As of Sept. 5, 2012, Columbia Regional Airport has a daily flight schedule that on average includes three outbound commercial flights at different times throughout the day. Starting Nov. 20, 2012, there will be two additional outgoing flights added per week, meaning one more flight on Tuesdays, and one on Saturdays. These two flights to Orlando, Fla., are the reason for the so-called crisis to build a new terminal, according to the mayor.

Now, I am not an aviation expert, nor am I proclaiming that the airport is not in need of renovation or repair. Yet, I can easily disagree with Mayor McDavid when he cites Mizzou’s Southeastern Conference (SEC) membership as another reason for airport expansion, because Mizzou athletics became part of the SEC this year.

He says that they do not “want to be known as the SEC school that has black-and-gold double wides welcoming you to Columbia.”

Does he think that every other SEC school’s city even has a commercial airport? (They do not. Tuscaloosa, Ala., for example, attempted to expand its airport and restore commercial service in the early 2000s, but discontinued all passenger service operations shortly thereafter.) Does being a member of the SEC count as a reason to spend $17 million on an airport? (My gut tells me no, but Texas A&M Coach Kevin Sumlin says “the SEC took over America,” so I assume he would say yes.)

You know, it is extremely important to keep up with those other SEC cities. I do not know if Columbia could survive being the only SEC city without a brand new performing arts center, a top poultry science program, or a national top 40 rodeo facility. Next time, I would like to see city officials provide researched and well thought out justifications for a multi-million dollar project — like studies on demand for air travel to and from Columbia, for example. Is that so much to ask?

The post Columbia’s Mayor Provides Flimsy Justification For Airport Expansion appeared first on Show-Me Institute.

It is exciting that the private commercial airport in Branson is expanding its operations; it is also exciting that at least some airline service in mid-Missouri can be operated at a profit without government support. Here is to hoping for much more of both!

The post More Good News for Aviation in Missouri appeared first on Show-Me Institute.