DEAR FRIENDS AND CUSTOMERS,
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
