Metro Pulse/Insights/Low-fare airline

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by Joe Sullivan

A concerted effort is underway to attract low-fare airlines to Knoxville. Its success could mean average fare reductions of 30 percent to 50 percent to destinations served by the low-fare carriers—reductions that typically get matched by other carriers once the low-fare competition starts.

While the primary emphasis is on cutting the cost of business travel and attracting new businesses to the Knoxville area, leisure travelers would also benefit, as would the city's new convention center. Its general manager, Bill Overfelt, ranks low-fare air service along with a convention headquarters hotel as the two major boosts needed to spur Knoxville's growth as a convention destination.

Spearheading the airline recruitment effort is a newly formed organization, East Tennesseans for Airfare Competition (ETAC). The list of some 30 companies who've gotten on board to back ETAC reads like a who's who of corporate Knoxville and includes Alcoa, Bush Brothers, Clayton Homes, CSI, CTI, Denso, DeRoyal, Pilot, Plasti-Line, Regal Cinemas, Rohm & Haas, Ruby Tuesday, Scripps Networks, and Sea Ray Boats. Initially, they've each contributed between $110,000 and $130,000 to support the effort.

The next stage of the effort, which is due to get underway imminently, is to enlist about 400 companies and governmental entities in East Tennessee to commit a portion of their air travel budgets to the prospective low-fare carriers for a period of time. First-year commitments in the $3 million to $5 million range are believed to be needed to attract each of the two low-fare airlines that ETAC is targeting, according to its chairman, Darrell Akins. He reckons this would amount to six percent to nine percent of the total air travel outlays of the companies involved.

The two airlines are AirTran and Frontier. From its hub in Atlanta, AirTran flies to 37 cities including most of the prime destinations served directly by the six major carriers now operating out of McGhee Tyson Airport. From its hub in Denver, Frontier has flights to 16 cites including all of the major West Coast markets. While the major carriers have continued to suffer big losses in the wake of September 11, AirTran and Frontier have managed to keep their heads above water. And both have new fleets (Boeing 717s in Air Tran's case; Airbus 319s in Frontier's) that give them the capacity to expand their route systems.

When AirTran served Knoxville once before, between 1998 and early 2000, its low fares were matched, and then some, by the majors in a competitive squeeze that led to AirTran's pulling out. After its exit, average fares between Knoxville and the 25 cities it then served rose by 40 percent between the fourth quarter of 1999 and the fourth quarter of 2000, according to data compiled by the Metropolitan Knoxville Airport Authority. These averages mask much steeper increases in some categories, especially short-notice business trips. For example, a ticket to Atlanta went from as little as $80 to as much as $800. On the other hand, trips booked more than 21 days in advance with a Saturday night layover were less affected.

What's the basis for believing that AirTran can be successful here now—or that Knoxville can succeed getting it to return in light of prior experience? The answer lies in the fact that there were previously no travel commitments of the sort ETAC is seeking now. Such commitments were pioneered in Eugene, Ore., and have recently succeeded in drawing low-fare carriers into a number of other cities including Rochester, Stockton, Tallahassee, and Wichita. Start-up promotional funding has also been part of the incentive package in some instances.

Just what form the commitments would take and for what period of time remains to be determined, Akins says. To help in formulating their terms, ETAC will soon be retaining a consultant. "Someone with experience in putting programs like this together, who knows what's worked and hasn't in other communities and is also knowledgeable about an industry that's in a state of flux," says Akins, whose public relations firm is very active in economic development.

That someone could well turn out to be Mike Boggs of the Eugene-based consulting firm Mead & Hunt. "We have worked on all five of the programs that are now in place, and Knoxville certainly has the population to be a candidate for one," he says.

Boggs is an advocate of what are known as "travel banks" that work as follows: Each of the participating companies places a predetermined percentage of its annual air travel budget in a bank account that can only be drawn upon to pay for flights on a designated airline at predetermined fares. Any money remaining in the account at the end of a year also goes to the airline on a "use it or lose it" basis. "I don't advocate going longer than one year," Boggs says. "That's sufficient time for old habits to have been broken, and if an airline's service is good, people will continue to use it." But he stresses the need for companies putting money on the line rather than merely making pledges. "The airlines view pledges like the proverbial check that's in the mail," he says.

So how good are ETAC's chances for meeting a mid-2003 target date for getting low-fare service? "AirTran has as much as said,'You get your package together, and we'll do it,'" claims the airport authority's vice president for marketing, Dave Conklin. As for Frontier, "That will be harder, but with the right package I think they'll find Knoxville a very attractive destination," Conklin adds. The nation's leading low-fare airline, Southwest, is not in the picture, he relates. "Southwest doesn't take incentives and said they would throw us out of the office if we approached them."

ETAC projects that a $3 million to $5 million investment can produce $100 million in airfare savings to McGhee Tyson travelers. But these savings are based on the assumption that lower fares will result in more air travel over which the savings will be spread. Airport authority data shows that the number of passengers, after remaining relatively flat during the mid-1990's, jumped by 22 percent during the two years that AirTran was here before (from 1.44 million in 1997 to 1.76 million in 1999). It's since fallen back to 1.43 million last year, but that decline was heavily influenced by the 2001 recession and the aftermath of September 11.

One risk in courting low-far carriers with a market share commitment would appear to be that it could jeopardize Knoxville's service by the majors. McGhee Tyson's 62 daily flights (to 16 cities) remain equal to the number prior to September 11, whereas nationally the number of flights has fallen by about 10 percent with further cuts in prospect. But Conklin waves aside the risk of losing service. "The opposite usually happens," he insists. "The majors go toe-to-toe and gain traffic as a result of lower fares."

ETAC is worthy of support. To express interest in participating or to get further information, contact Darrell Akins or Courtney Russell at (865) 637-0251. A website is also in the works.