Two pilots walk past the Bon Voyage retail store at the entrance to the B Concourse at Pittsburgh International Airport.
By Mark Belko / Pittsburgh Post-Gazette
With the way cities are competing for coveted air routes these days, the $800,000 being paid to Wow Air over two years to fly from Pittsburgh International Airport actually might seem like a bargain.
Consider, for instance, that Maryland is offering to pay British Airways nearly $6 million a year to maintain its nonstop service to London from Baltimore/Washington International Thurgood Marshall Airport.
In Columbus, the city and county ponied up a combined $1.7 million to attract a Southwest Airlines nonstop flight to Oakland, California. The money will be paid if the carrier doesn’t meet revenue targets.
And in Raleigh, North Carolina, local government and businesses have committed $1.1 million to support a nonstop Delta Air Lines flight to Paris. That’s on top of $1.25 million in waived airport fees and $500,000 to promote the new service.
All over the land, it seems, cities, counties, states, tourism agencies and others are offering millions of dollars in cash and other incentives to airlines to secure coveted routes, particularly to international destinations like London and Paris.
“It’s kind of the way the world works these days,” said William Swelbar, executive vice president of Boston-based Intervistas Consulting, an economic and financial consultant to airlines and airports.
It used to be that airports provided a fairly standard waiver of landing fees and marketing help to entice airlines. But now they and their partners are offering much more, as the competition for new routes intensifies.
That’s especially true in mid-sized markets like Pittsburgh, where a nonstop flight to a sought-after destination like London is seen not only as a way to cut travel times but as a driver for economic development.
“The secret’s out. Local airport service is one of the pillars of economic growth. Everybody knows that and everyone out there is trying to improve air service,” said Blair Pomeroy, a longtime aviation strategy consultant who has worked for airlines in the past.
While incentives always have been part of the efforts to attract coveted service, what has changed is the willingness by cities or airports to offer cash subsidies or risk sharing schemes to minimize the carrier’s financial exposure, Mr. Pomeroy said.
“Now it’s part of the game. You want a new flight to a big city, you’re going to have to come up with launch incentives, marketing, and risk sharing,” he said.
For the Allegheny County Airport Authority, that meant $400,000 in payments annually for two years to discount carrier Wow Air to provide nonstop service to Iceland with connections to Europe. The money is coming from the state Department of Economic and Community Development.
That’s in addition to two years’ worth of landing fee waivers, customary for all airlines that start new service from Pittsburgh. The airport also typically offers marketing support for new flights.
It also is paying Condor Airlines $500,000 over two years to start seasonal nonstop service to Frankfurt, Germany, and waiving two years of landing fees. The $500,000 also is coming from the state.
Not a new deal
The deals with Iceland-based Wow and German-based Condor aren’t the first time the region has offered money to attract an airline. The state and the Allegheny Conference on Community Development pledged up to $9 million in potential subsides over two years to Delta to offset revenue shortfalls to start nonstop service to Paris from Pittsburgh in 2009.
Delta has continued the flight on a seasonal basis since the subsidies expired. The airline received $5 million from the subsidy pool in the first year of the service. The conference, which was responsible for the first half of the subsidy each year, has not divulged whether it paid anything in the second year. The state was not required to make a payment in year two.
In addition to Wow and Condor, the airport authority has offered cash incentives to British Airways to start coveted nonstop service to London from Pittsburgh International, CEO Christina Cassotis said.
She would not divulge the amount but described it as “substantial.”
The airport lost out last month when British Airways awarded a London nonstop to New Orleans, with the city’s tourism bureau chipping in $1.4 million a year for three years to help with the flight.
Mr. Pomeroy believes New Orleans offered more than the county airport authority to attract the flight. But Ms. Cassotis said money was not the reason Pittsburgh didn’t get the route.
“We’re competitive. We didn’t get picked because our market to them didn’t make as much sense as New Orleans does. But I think we’re well positioned for the future,” she said.
Ms. Cassotis doesn’t mind shelling out cash to help airlines reduce their risk in starting international flights. But she draws the line at “revenue guarantees” such as those put in place to support the Pittsburgh-Paris flight and the Baltimore/Washington service to London. The Paris flight predated Ms. Cassotis, who did not become authority CEO until 2015.
“We don’t need revenue guarantees,” she said. “We have a good market.”
The Baltimore/Washington airport has been subsidizing its flight to London for the last decade, with payments varying from nothing last year to $5.5 million a year from 2009 to 2012. The payments come in the form of a grant from the Maryland Department of Transportation and are made if the airline doesn’t meet a certain return on sales.
Jonathan Dean, an airport spokesman, said the payments are a small price to pay, given that the flight to Heathrow Airport generates an estimated $125 million a year in economic impact to the state.
“London-Heathrow is the single most important transatlantic route for markets across the country. It is very important to our business community to ensure the viability of this nonstop connection to London-Heathrow and the initiative simply helps support the service,” he said.
Likewise, Titus Johnson, Condor’s North American spokesman, estimated that every time one of his airline’s planes touches down in Pittsburgh it will inject at least $300,000 into the local economy.
Robert Mann, an industry analyst and former airline executive, said incentives not only are used these days to entice carriers to start routes but as a “defensive posture to try to retain carriers” that are thinking of suspending a coveted service.
But Mr. Mann said there also is a risk involved in offering such subsidies. For instance, AirTran, now part of Southwest, ended service to Atlantic City in 2011 after two years worth of subsidies totaling $4 million expired.
In addition, Portland International Airport in Oregon offered risk mitigation and marketing support packages to attract Lufthansa to fly to Frankfurt only to see the airline end the route after six years.
“It can be a fool’s errand,” he said. “If there isn’t demand you providing subsidies isn’t going to provide any durable solution.”
Mark Belko: firstname.lastname@example.org or 412-263-1262.
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