While everyone struggles with the impact of rising prices, some
industries are hit more severely than others. Obviously a fuel dependent industry such as aviation is one. The cost of fuel has now become greater
than 50% of most airlines’ operating budgets. Personnel expense has been quickly eclipsed as the number
one cost in an unprecedented period of time.
Airlines have resorted to a number of steps to survive in
this uncertain market in which the true cost of fuel can no longer be defined. In an industry meeting two weeks ago,
CHO heard directly from airlines that NO costs are too small for review, NO
revenues are too small for consideration. Unlike the impact of “9-1-1”, there is not a clear end
to today’s economic uncertainty, e.g. how does an airline budget for oil when
the price has reached $145/barrel from $60/barrel in less than a year, and not
as a result of supply and demand, the customary economic standard?
Does this mean airlines are randomly reducing service? Not at this point. Airlines are systematically reviewing capacity
reductions thru consideration of fleet reductions by type of aircraft; and,
capacity or service reductions thru consideration of overlapping hubs or
redundant service as well as poorly performing routes.
What does this mean to CHO?
Customers at every commercial service airport have
already begun to see rising fares and the addition of ancillary costs-per bag
fees, costs for refreshments, fuel surcharges, seat charges, etc.
All airports will see airlines continuously re-evaluate
market performance, lowering their tolerance for loss. Poorly performing routes will lose some
or all frequency of service.
Airlines expect their airport partners to lower costs for
airlines and search for opportunities to increase passenger loads.
Airlines are expecting employees to help by driving quality
for their companies-extreme customer service for discriminate travelers-and
expecting airports to leverage the same expectation from airport employees.
If the cost of fuel continues to increase, expect continuing
havoc. However, if prices
eventually stabilize, capacity cuts should induce load factor and yield
increases, eventually resulting in revenue growth. Once fuel prices remain stable, airlines will benefit from
the lower overhead resulting from the cost cutting measures implemented during
this uncertain period.
What service changes have been announced at CHO?
At the industry meeting attended two weeks ago, US Airways
Express route management personnel stated CHO performs in the top third of
revenue production for the Express operation. United Express personnel stated CHO performs in the top half
of their Express carrier operation. Thanks to the economic stability of our community, CHO continues to
perform better than airports in many similar-size communities. Thus far, CHO has received the
following information:
Delta Airlines –
The two daily Cincinnati flights will be discontinued September 2008. Delta states poor load factor is the
reason, and promises to “concentrate” on the Atlanta flights.
Northwest Airlines – No changes have been announced and load factor has not dropped
significantly. CHO hears that
since Northwest and Delta flights do not overlap at CHO, and since both
airlines already share space and personnel, CHO should expect no losses from
the merger.
United Express –
No changes have been announced and 1 additional flight has been added for the
summer months.
US Airways Express – One LaGuardia flight has been removed for the summer, but CHO has been
informed the flight will return in September. Effective September, 2 Charlotte flights will be replaced by
2 Philadelphia flights.
Other – At the
same meeting, CHO met with other carriers, discovering that at least one new
carrier would have likely introduced new service late this spring if fuel
prices had remained stable, and intends to re-examine Central Virginia in the
future. Assuming this crisis
eventually stabilizes, this will remain a viable new market for CHO, hopefully in the near future.
What does this mean for our community?
Demand drives capacity cuts. Very simply put, “use it or lose” is the competition CHO
faces for its current service and frequency. Despite a 65% average load factor, the passenger loads for
the 2 Cincinnati flights were not enough to offset the fuel costs.
CHO faces very real threats from low fare competition in
Richmond. Carriers such as United,
US Airways and Delta have to manage fares in their Richmond stations to compete
with Air Tran and JetBlue. Unfortunately, they are not able to discount fares in Charlottesville to
compete with Richmond. While CHO
will work with our stations to point out significant fare disparities, it is
unlikely fares will ever match or come close to fares available in Richmond as
the result of the low fare carriers. However, as heard from the CEO of Air Tran, low fare carriers must
increase fares in order to survive in today’s market. Eventually, these increases will assist in bringing some
level of parity to low fare vs. mainline carriers.
Central Virginia is a vibrant community, managing this
economic crisis much better than most communities across the nation. A significantly lower unemployment
rate, lower foreclosure rate, continuing commercial development, UVA capital
development-all factors lending to the degree of insulation this area generally
enjoys as compared to others, which also benefits CHO. However, CHO depends on the community
to help maintain the level of air service enjoyed. In 2004, CHO contributed as much as $167,258,000 in economic impacts to the community. While not re-examined,
CHO’s statistics indicate these numbers grew from 2004 to 2007. Passenger traffic grew during the first
8 months of FY 2008, despite the initiation of service in Richmond by
3 discount carriers. Aircraft operations
at CHO continue to exceed 2007, an indication of the health of the local
economy. CHO also operates as a
stand-alone, self-funded entity, unlike many similar size, locally subsidized
airports. By choosing to use CHO,
you are helping us help the community – a partnership we all need to strive to
maintain.
We need AND appreciate your support. Please check back-we will continue to
keep you updated as the industry reacts to the economy around it.
Best Regards,
Barbara Hutchinson, Executive Director
