Tuesday, November 25, 2014

Looking for LUV

Author's note: I first wrote this late last winter and filed it in the "get-it-off-my-chest-but-don't-post-it" category; however, with the recent news of Frontier Airlines ending service from our local airport, this immediately jumped to mind.  With a few edits, I was able to update the original writing to the present time it is being posted.  Please note that the expressions here are strictly my own; I am not representing any entity other than myself.

Okay…so I had a little free time on my hands, and, being A.D.D., that’s never a good thing.  As I pondered a trip to a warmer climate last winter during Central Illinois’s deep freeze, I again was reminded of the somewhat dismal flight options at our area's disposal.  BMI (Central Illinois Regional Airport) is just what its name tells us…a regional airport.  It was likely set up primarily as a spoke in the hub-and-spoke systems for most major airlines.  When AirTran (AirTran was the carrier, but Southwest had purchased AirTran and was beginning the merger changes) pulled out of BMI in 2012, however, the competition took a major hit.  Being an economist, I fully understand the decision to do this.

That doesn’t imply that I like it, though.

From what I have gathered, one of the primary reasons for Southwest not continuing service at BMI was that the demand likely would not be strong enough to sustain viability.  Initially, I agreed.  Then the A.D.D. got to me, and I started thinking a bit more on this.  Bloomington is just about equidistant to St. Louis (170 miles) and Indianapolis (173 miles).  Chicago’s Midway airport is a bit closer at 127 miles away.  The argument could be made that one in Central Illinois could simply drive to one of these three airports to fly Southwest; however, when you look at the metropolitan(ish) areas in central Illinois, the population base gives a more compelling factor for flights to/from BMI.  For example:

Bloomington/Normal:                                     131,000
Peoria (around 45 miles away):                      115,000
Decatur (46 miles away):                               75,000
Rantoul (50 miles away):                                 13,000
Champaign/Urbana (51 miles away):               124,000
LaSalle/Peru/Oglesby (63 miles away):               23,000
Springfield (66 miles away):                            117,000
Danville (81 miles away):                                  81,000
Galesburg (85 miles away):                               32,000
Charleston/Mattoon (97 miles away)                 40,000

All of these metro areas are closer to BMI than to MDW, STL, or IND.  That’s around 750,000 potential customers.  Throw in a conservative estimate of an additional 80,000 people living in smaller towns within that radius, and there are easily over three quarters of a million people closer to BMI than to any other airport that Southwest serves.  I could expand the radius to include the 380,000 plus people in the Quad Cities, (yes, at 142 miles, Bloomington is closer to the Quad Cities than Des Moines, Chicago, and St. Louis), and the population soars to well over 1 million potential customers.   My estimates apparently are very conservative – a 2011 article in the Decatur Herald-Review stated that around 1.8 million residents lived within 90 miles of BMI.

Compare that to places such as Manchester, NH (56 miles away from Boston’s Logan International Airport and with a population of 110,000…even with surrounding areas, it does not come close to BMI's customer potential).  Albany, NY is 107 miles to BDL (Hartford/Springfield…serviced by Southwest).  Some may say that Syracuse is close to Albany, but the Orangemen fans can take Southwest flights out of the closer Rochester airport.

The argument could still be made that they wouldn’t be able to fill the seat on the planes.  Let’s assume that the equipment arriving into BMI would be the 737-700, with a capacity of around 137.  If all flights originated at BMI (as the hub-spoke flights do), then filling multiple departures with that many passengers would be a very daunting task.  Southwest doesn’t follow the typical hub-spoke system, however.  They are more point-to-point oriented, and, if BMI is an intermediate stop rather than an originating flight, then many of the seats are already accounted for with passengers remaining on the plane to continue on to a subsequent destination.

Here are some numbers from when AirTran flew out of BMI.  BMI passenger counts were in the 550,000 range.  AirTran accounted for around 40% of that, which gives us around 220,000.  That includes both inbound and outbound passengers, so divide that total by 2, and we’re at 110,000.  Divide that by 365 days, and the daily departure number appears to be around 301.  This number may seem a bit small, but, when I worked at the old BMI terminal for Frontier and AirTran, the vast majority of those passengers were heading to MCO with the rest connecting through ATL to another city.  Back then, AirTran did not in any way cover the destination cities that Southwest currently reaches…the increase in destinations would undoubtedly increase ridership by a significant amount.  Throw in the notion that the departing flights will already have a portion of seats already filled, and I think a case could be made that they could have nearly 100% of the seats filled for several BMI departures/arrivals.

I am going to make some assumptions that may or may not be accurate at all here…they are simply numbers that I am guessing at.  I'm going to be very conservative here and assume that 75% of the seats of a 737-700 are open for a departing aircraft. That comes to around 105 seats available for BMI outbound traffic.  Southwest’s load factor (percent of available seats occupied) seems to hover somewhere around 80%.  80% of 105 seats gives us 84 seats expected to be filled for each departure.  If the percentage of seats available is lower (i.e., if more people stay on the plane at BMI to continue to the next destinations), then this makes it even more attractive for Southwest.  With AirTran’s numbers from the previous paragraph, that means that Southwest could likely have the demand for 3-4 flights and maintain their system-wide load factor. This is assuming ridership numbers from AirTran in 2011.  With Southwest’s coverage, I think it’s a decent assumption that total passengers could very well increase.

How much that number will increase, however, is anyone’s guess.  If SWA started service in Bloomington, the increase could come from several sources.  First, it will without a doubt take passengers from existing BMI service.  Delta, American, Frontier (which just announced that it is pulling out of BMI), and Allegiant will all have to cut fares to maintain competitiveness or have their load factors drop.  If Southwest offers daily service, then it may potentially deal a fatal blow to Allegiant’s twice-a-week service to Orlando/Sanford.  Delta will likely find itself back in the situation where it had to compete for passengers when AirTran had service to BMI – this is a win-win for BMI passengers.  The second source of increased ridership will come from the decreased overall cost of flying, from the passengers' perspective.  Some people in central Illinois simply choose not to fly because of the limited options and/or they do not want to drive to IND, MDW, or STL.  BMI will be a shorter and less-congested commute than MDW, IND, and STL for a lot of people (see above).  BMI is a smaller airport that doesn’t have many of the headaches that are inherent with larger airports.  BMI also has free parking.  Southwest’s fares are typically on-par or lower than other airlines, and they have the free checked bags offer, which keeps the overall cost lower relative to other airlines’ final costs.  I teach my Principles of Economics students that “people respond to incentives” early on; if SWA began service to central Illinois, the incentive to fly out of BMI will attract a number of people who would otherwise simply choose not to fly.

Some may argue that starting service would, in effect, cannibalize the population base for IND, MDW, and STL.  The economist in me thinks that the demand would still be there for the larger cities Yes, I think some who would normally fly out of Chicago, Indianapolis, or St. Louis would instead choose to fly out of BMI.  I don’t think this would be significant number, though.  Even if it were, each of these metro areas have well over 1.5 million people to draw from, and the loss of passengers due to the impact from service starting at BMI would likely not be that much at all, assuming an even distribution of passengers flying from BMI instead of IND, MDW, or STL.  SWA alone has around 250 daily departures from MDW…spreading out a small number of lost passengers over that many flights will probably make any impact negligible.

The next question that I think logically follows would be the destinations that you could directly fly to from BMI.  The point-to-point system creates an interesting dilemma here. Even though it is point-to-point, there are still “gateways” that I noticed when studying the SWA route map.

  •      To get to many destinations along the east coast, a flight to BWI (Baltimore/Washington) would seem be the best fit.  The powers-that-be at BMI have always been looking for an eastern flight, and this could serve that role.
  •      The demand for flights to Florida has always been high (that was AirTran’s bread and butter when it flew out of BMI).  I think there might actually be enough demand for an originating flight from BMI to MCO (have a flight arrive from somewhere and RON (Remain Overnight) at BMI).  That flight could probably be pretty full most every morning.  With that many passengers departing for MCO, you’ll need as many seats arriving from MCO, so the RON could arrive late night from MCO.  Those visiting Florida (myself included…I’m a huge Disney freak) often want to leave for vacation as soon as possible and return later (gotta get those last few hours with Mickey).
  •       A west-coast gateway (or two) is definitely desirable, especially with Frontier pulling out of BMI.  The apparent gateways to the west via SWA are Phoenix (PHX), Denver (DEN), Houston-Hobby (HOU), and Las Vegas (LAS).  I think there would be enough demand for at least two westbound flights.  PHX would probably be the first choice for several reasons:
    •       PHX-BMI-BWI falls in line pretty well with little deviation from the most direct route.
    •       Arriving in PHX provides several short connections to the southwestern U.S. (e.g., California, Las Vegas, etc.).
    •       There currently is no direct service from BMI to anywhere near PHX (American currently has a nonstop to DFW and Frontier has/had nonstop to DEN four days week at one point).  Allegiant does offer service from Peoria to LAS two days a week as well as from Peoria to Phoenix/Mesa twice a week.  
  •      As for the other flight to the west coast…Denver might be the best pick.  The city itself is likely a destination for many, and, along with an additional option to get to California destinations, it can provide shorter flights to the northwest part of the U.S.  This could provide for additional service to MCO (DEN-BMI-MCO) if the demand for MCO is high enough.
  •      Houston, or any Texas destination for that matter, is interesting.  Some may say that DAL might be a good fit since it connects to so many cities; The repealing of the Wright Amendment (just Google it) leaves everything up in the air regarding a Texas destination, though.  Regardless, I think trying to fit a Texas arrival/departure and keeping it in line with using BMI as an intermediate stop for another destination is daunting.  BWI might work, but I don’t know if there would be enough demand for a second BMI-BWI segment (then again, Portland, ME…only 99 miles from Manchester, NH, can support 3 daily flights to BWI).  Texas-BMI-MDW…while it may line up geographically, I can’t see any way that the airline could make a profit for such a short flight with the cost per mile and the suppressed demand due to the short distance.  Right now, the only nonstop option between Texas and BMI that I can (kind of) see working might be HOU-BMI-BWI.
  •      Some may say that ATL would be another good one…why not, since Delta and AirTran both had nonstops before?  Well, Southwest was nothing short of jubilant when it gained access to ATL; however, it’s currently transitioning AirTran’s ATL hub into its point-to-point system.  SWA would still be competing with Delta for Atlanta passengers, which would likely decrease revenue passenger miles and load factors.  As I see Atlanta as more of a connecting city rather than a destination city for many, SWA could channel BMI passengers to MCO, BWI, or somewhere else if they wanted to end in ATL.

Summing up the flights...I see the following as potentially viable flights:
  •       MCO X 2
  •              BWI X2
  •       PHX 
  •       DEN
  •       HOU

This gives 2 southeast flights to a high-demand destination, 2 east/northeast coast flights, a southern destination, and 2 western flights.  I know that I’m missing the northern part of the country…Delta has the control there with the old Northwest Airlines hubs at Detroit and Minneapolis.  I consider those as more hubs than final destinations, and SWA can probably route passengers to the final destination in other ways (similar to my earlier thoughts on ATL).

7 daily flights...80% load...75% of seats available...that comes to around 580 passengers per day.  More realistically, from my point of view, with only 50% of seats available (i.e., if more passengers do not disembark at BMI and remain on the plane), that number becomes around 385.  Why is this more realistic?  I think it is reasonable to assume that most of those departing BMI will ultimately return, so you'll need a comparable number of seats inbound as you have outbound.  While 75% is possible, I think the actual ratio is closer to 50/50 in terms of disembarking/remaining on the flight.  Compare that 385 number to AirTran's 301 passenger count with only 3 flights. 

Now, I’m not so na├»ve to think this is an easy thing to do.  There needs to be equipment, and not just aircraft.  The aircraft issue alone requires the logistical nightmare of pulling equipment off of existing routes and/or modifying routes to incorporate BMI.  Some of you might mention that Southwest ended service to Branson, Jackson, and Key West over the summer.  Branson and Key West were left-over markets from the AirTran merger; however, being that they were likely 717s or older 737s, they may already have those aircraft slated for sale/scrap.  There will also need to be TUGs, luggage carts, terminals at check-in and the gates, de-icing equipment, etc.  Add in a station manager and likely 6-8 customer service agents and 6-8 additional ramp agents most of the time (depending on the flight schedules), and it will definitely cost some money.  There’s also the issue of personnel in the form of the flight crew.  With only 1 overnight possibility, that should help the issue a bit, though there will always be a cost with a new airport.  SWA is probably still shuffling around as they reduce operations in ATL, so the cost might not be as significant as anticipated.  Put another way, there might be some equipment in ATL that is no longer needed and can be shipped to BMI.

Sooooo…what might a schedule look like?  Again, there are multiple options here.  One option would be to spread the flights out over 12 hours or so, like this:



This would have about 12 hours of activity, and you could contract out the cleaning of the R.O.N. to another airline’s staff.

Alternatively, another option would be to stack arrivals and departures together.  The morning MCO flight still heads out early, but the arrivals from BWI, HOU, and DEN all come in around the same time and then all depart for PHX, BWI, and MCO around the same time, with the same thing occurring in the afternoon flights.  This will allow for (GASP) BMI to serve as a connecting point for SWA (e.g., a passenger could arrive from MCO in the afternoon and connect to the BWI flight).  I don’t think BMI is currently set up to handle a format such as this, though.  There simply is not enough in the terminal to pacify layover passengers (though that might create the incentive to finally get more vendors in the terminal).  Also, more workers would probably be needed over a shorter time frame to cover the logistics of the gate/ramp areas.

I know…this is more pipe-dream than anything else on my part.   I am fully confident that the gurus at Southwest have looked at these numbers a lot over the past several years when they decided to pull out of BMI with the AirTran merger.   I’m sure that there are several costs and other factors that have not been mentioned here.  Still, it seems that there would be a strong demand for its service, and, with its comparable final bottom-line price relative to other air carriers, I bet SWA would be welcomed with open arms by a lot of people if they choose to start service in central Illinois.  Hopefully, BMI is still on their radar as a possibility, especially with the combination of Frontier’s ending of service and a location that weathers economic fluctuations rather well.

…besides, I want another good option to get to Florida as winter is again descending on us.