Airline Industry Changing

March 23, 2007
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GRAND RAPIDS — The passenger airlines are trying to figure out how they are going to operate in the world ahead — a world that is going to be driven by lower fares.

For the last five years, the legacy carriers have been going through bankruptcies, and many of them are still in bankruptcy protection. They got out of balance and found they couldn't compete with the start-up low-cost, low-fare carriers, so they're reworking their business models and using bankruptcy to lower wages and benefits, reduce staff and bring down their overall cost of doing business, said Kent County Aeronautics Director James Koslosky. And while the airline industry is busy remaking itself, there's another big change on the way.

"There is revolutionary change coming in the way the civil aviation system operates," Koslosky said. "The air navigation system in this country has been a ground-based, World War II technology, a very labor intensive technology-based system. The industry wants to go to a satellite-based system for air traffic control and in-flight navigation."

There are sizable efficiencies to be gained by the changeover, but it will take billions and billions of dollars and 10 to 20 years to fully implement the system, Koslosky said. That work has to begin now because current ground-based technology is not sustainable and not as safe as satellite-based technology, he said. But there are questions of how the industry will get there and how it will be paid for.

Federal Aviation Administration programs are currently up for reauthorization. The air traffic control system is supported by aviation user fees and excise taxes. Modernizing the system is going to take more revenue, and the great debate is how much the airlines should pay for it.

Considering how dependent the nation's economy is on air transportation for moving people, cargo and freight, the changeover to a satellite system has to get underway, Koslosky said. He is involved in steering committees in Washington that are trying to come to a consensus about how to move forward and craft the appropriate legislation.

In the general aviation arena — all the air travel outside of the commercial airlines — recreational and personal flying is down because of the price of fuel, but business flying is up.

"Business is turning to general aviation to move their people around because they can't afford to have their executives tied up and sleeping in airports," Koslosky added, noting there are a number of companies in West Michigan that have their own airplanes. He said a new era of general aviation is going to develop over the next five to 10 years with the manufacture of "very light jets," or VLJs. He said the airport is presently working with tenants to redevelop its general aviation facilities, many of which are 40 to 50 years old.

Over the last three years, GeraldR.FordInternationalAirport lost about 12 percent of its flights and about 20 percent of its seats due to airline bankruptcies. Nationwide the airlines have cut more than 20 percent of capacity as part of their restructuring plan, so Ford International is not the only airport impacted by the loss of seats; every community is similarly situated, Koslosky said. Some of those seats have come back slowly, and the airport still has a good level of air service, with six major airlines connecting to 15 hubs, Koslosky said. There are 120 to 130 flights in and out of Ford International every day.

What Ford International doesn't have is a low-cost carrier that provides fare competition. The low-cost ATA used to operate out of Ford International but it went out of business and that's when fares started creeping up. According to Koslosky, five years ago the average air fare was around $140 one way; now it's just under $200 one way. The higher average fares coupled with the loss of seats has resulted in a flattening of air traffic at Ford International. Air traffic was down 3 percent last year, and Koslosky anticipates only a 1 percent to 2 percent increase this year.

"We still have pretty good air fares out of Grand Rapids, but compared to peer cities that have low-fare carriers, we are out of balance and we need to get back into balance," he remarked.

For several years now, Ford International has operated an air service marketing program aimed at retaining existing air service and attracting new service. The air service marketing team is aggressively pursuing a low-cost carrier, and it meets with various carriers on a regular basis. It's not just an airport effort; it's a collaborative effort to sell West Michigan that includes the Grand Rapids Area Chamber of Commerce, The Right Place Inc. and the Grand Rapids/Kent County Convention and Visitors Bureau.

Koslosky is convinced the airport will be successful one day in snagging a low-cost carrier because West Michigan is a prime market for low-fare carriers. But there are two impediments, he said: the state's economy and the fact that Grand Rapids is not well known outside of Michigan

"That makes it very difficult to convince people of all that we have here," he said. "So we have this dilemma of getting over this hurdle of who, what and where is West Michigan," he said. "We remain optimistic about Michigan and believe in its potential."    

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