What will Southwest Airlines bring to Grand Rapids

October 8, 2010
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What the proposed purchase of AirTran Airways by Southwest Airlines will mean for the convention business here isn’t clear yet and may not be for a while. Southwest officials recently said they will spend $1.42 billion to buy AirTran, which has daily service to and from the Gerald R. Ford International Airport.

“It’s too early to tell,” said Experience Grand Rapids Executive Vice President George Helmstead of how the acquisition will impact the hospitality industry.

“Where we fall short is the number of flights coming in and out. If they can pick that up, it would be good — and they could,” he said of Southwest, which carries more passengers than any airline in the nation.

Experience Grand Rapids President Doug Small said those who plan national conventions look at a city’s air travel as a key factor in determining where a group should meet. Many concentrate on air fares and the number of total seats coming into a locale’s airport to make sure that delegates can get to a city, while others look at the number of non-stop flights.

Small said the number of non-stop flights offered from GFIA is competitive with the cities his group vies with for meetings. He also said the total number of flights taking off and arriving at the airport — 120 or so each day — is also a good figure for his group’s purpose.

“Airports, though, tend to look at departures only. In the case of our airport, the number they give us is departures. We have 60 departures a day. In a competitive study we did, the closest city to us still had 23 more departures than us, and that was the Virginia Beach-Roanoke area,” said Small.

“We’re a community that has a lot better infrastructure than them, and Omaha, which is another (city) with about 25 more departures than us. From a convention-infrastructure package, we’re well ahead of the game. What (national meeting planners) want to know is the number of total seats available. If you look at total seats, we don’t compete,” he said.

Small said having AirTran here has helped lower fares at the airport, which is now competitive on the price to fly. Small said medical groups are more interested in the number of non-stop flights than total seats, and the airport meets that requirement. “They don’t like to connect. If that’s the case, we can compete quite strongly against our competitors,” he said.

“More groups that we’re bidding for look at non-stops and fares. In that case, we’re favorable,” he said. “It’s those groups that are looking for total seats — (that) is where we are at a bit of a competitive disadvantage, outside of Michigan.”

Analysts have said that it will take up to two years for Southwest and AirTran to completely merge. Small said he was a bit nervous about the upcoming consolidation because Southwest tends to appeal more to leisure travelers, while AirTran caters more to business travelers. Experience GR wants to draw more of the latter here, and the bureau isn’t sure what type of traveler will be the focus for the new airline when the merger is completed.

As for sales, Helmstead said his team has about six convention bids that should be decided upon soon. “Our pace is still at a slow pace as we go into 2011 and 2012,” he said. “We have a lot in the hopper. We just have to get them confirmed now.”

Small said hotel occupancy in August was up by 18.7 percent from the previous August and was at 54.2 percent on a year-to-date basis, which is up from 50.6 percent last year. “That’s an area where we still have a ways to go,” he said. He added that hotel-room revenue was up by 5.2 percent from last year. “Things are getting better. Things are heading up.”

But not for Kent County, as collections on its 5 percent lodging excise tax are down by 7.6 percent this year from last year. Robert White, former county fiscal services director and current consultant to the Convention and Arena Authority, said at the current pace the county will only collect $4.3 million from the hotel-motel tax.

The difficulty in that for the county is that it has a bond payment this year of $5.4 million for the construction of the DeVos Place convention center. “There is a big struggle at the county to make that debt service,” White said.

The bonds, which covered about half the building’s cost of construction, are of the zero-coupon variety and the debt service rises by 3.8 percent each year. The hotel-motel tax was expected to cover the payments. But to meet the payment this year, the county has transferred $1.8 million from its general fund to the lodging excise tax budget.

“This will be the third year the county will be augmenting the hotel-motel tax,” said County Administrator and Controller Daryl Delabbio. The county’s general fund is facing a deficit of $9.2 million for2011.

For the first two months of this fiscal year, July and August, the convention center was $473,923 in the red. At the end of August, the building had $294,983 in total operating revenue from 42 events and $768,906 in total operating expenses.

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