Cost Relief Finally Comes to XNA

Slowly but surely, travelers who fly through Northwest Arkansas Regional Airport are getting some relief.

XNA, ranked the 32nd-most expensive airport in the United States by Forbes in February, has received long-sought breaks in airfare to Dallas and its first discount carrier.

American Eagle slashed its Dallas fare out of XNA from around $350 to $150 for advance purchases in January, and on March 12 Allegiant Air announced it would begin nonstop service to Los Angeles beginning May 22.

Allegiant, a low-cost carrier based in Las Vegas, will make the LAX flight available two days a week on Mondays and Fridays, with an introductory one-way fare of $99 that will eventually go up to $119.

Both the Dallas and Los Angeles fares are comparable with Tulsa, which has advance purchase fares to those destinations for a respective $130 and $238. The LAX service also replaces the current nonstop service out of XNA that American Eagle will end on April 7.

As gas prices have receded by 50 percent or more and travelers of both business and leisure alike seek deals, driving to Tulsa to take advantage of fares that can be as much as 46 percent lower than XNA is becoming more common.

Securing a discount carrier is the first step toward bringing down fares in the long run.

“Bringing competition is key to that,” said XNA director Kelly Johnson. “It will help us now and moving forward. We’ll pick up travelers we were losing to other facilities.”

Now that XNA has lost its nonstop service to Miami – the jumping off point for most cruise and Caribbean travel – a family of four could save as much as $630 on airfare by driving to Tulsa.

“It depends on why they’re traveling,” said Courtney James, owner of Gulliver’s International Tours in Fayetteville. “The family of four is more likely to travel to Tulsa. The business traveler may be more stubborn.”

Business Balking
But even the business traveler is now balking at high fares at XNA as the economy turns downward and it made news last summer when the Arkansas Democrat-Gazette reported that several XNA administrators including CEO Scott Van Laningham flew out of Tulsa because of a $600 price difference.

Wal-Mart Stores Inc., one of the biggest reasons XNA exists at all, has also been sending its travelers to Tulsa and even Fort Smith when fare differences are greater than the cost of paying mileage and per diem.

XNA saw its first annual decline in passenger traffic during 2008, down 4.4 percent overall with a one-month dip of 16.6 percent in November. In January, the only month for 2009 available, XNA had a 21.7 percent decline year-over-year with nearly 20,000 fewer total passengers.

And while deplanements declined slower than enplanements in eight of 12 months during 2008, incoming traffic dropped faster than outgoing in January in a sign fewer business travelers are coming to XNA.

Renee Greenhaw of Gulliver’s, whose husband is an attorney, said more firms are doing video depositions rather than travel. A video deposition that may cost $1,000 is still a bargain compared to a $1,200 refundable fare for an attorney. Greenhaw said attorneys usually pay as much as three times extra for the refundable fare because court dates change and depositions can be canceled.

“Many businesses have done that,” Johnson said of travel cuts. “We can’t blame them for that. We understand the decisions customers make and why they’re made. Our job is to make sure we have the service the public is looking for.”

Allegiant, founded in 1997, is a strong performer in the airline business. Its shares trade for around $40 after its initial public offering of $24 per share in 2006. That’s more than the share price for all the other air carriers combined, and it holds a net cash position instead of net debt.

Allegiant’s net income has increased from $8.7 million in 2006 to $35.4 million in 2008 and it posted a 10 percent year-over-year increase in passenger load during February.

Johnson said it was too early to tell if the reduced Dallas fare is improving passenger traffic, but anecdotal evidence is good so far.

“We got more complaints about Dallas than anything else,” Johnson said. “We have heard from the public that this [reduced price] is a great fare. Now we’re getting positive comments.”

As part of its negotiations with American Eagle to lower the ticket prices, XNA is conducting an advertising push to get the word out.

At Cincinnati/Northern Kentucky International Airport, named the most expensive airport in the country by Forbes, hub carrier Delta has finally gotten the message. It announced fare reductions in February of between 5 percent and 60 percent that will impact 80 percent of the travelers at CVG.

Having lived for years with higher fares boosted by the local presence of Procter & Gamble, Kroger, Toyota USA and Fidelity, CVG is planning an even bigger PR push.

“We’re getting the message out to local passengers to come back,” said CVG spokesperson Barb Schempf. “Some of them are mad. They’ve had a lot of anger built up for years and are used to going out of other airports. We really have to campaign to fly Delta again and look at us as a choice.”

Plugging Leaks
The example of CVG isn’t a perfect analogy to XNA, but they do have a few things in common.

For one, both are mainly utilized by business travelers and therefore carriers feel no incentive to price fares competitively when convenience is a cost many businesses will bear – at least in good times.

At CVG, Delta allows no group discounts because it can generally fill its flights with business travelers paying full fare.

The travel agents at Gulliver’s have come across this problem when trying to book travel for University of Arkansas sports teams and have often had to avoid CVG all together.

XNA has alternatives in Tulsa and to a much lesser extent, Fort Smith, which has destinations to Dallas, Memphis and Atlanta in common.

CVG is surrounded by five regional airports, including Dayton, Columbus and Louisville.

Schempf said it was not uncommon for Cincinnati residents to drive 90 minutes to Dayton for a lower fare and hop aboard a Delta flight back to Cincinnati before proceeding to their final destination.

Then a couple years ago, AirTran began flying out of Dayton and a trip to Orlando was as low as $120 compared to $500 out of Cincinnati.

Now Delta wasn’t just losing a chunk of its fare, it was losing the customer all together much like American Eagle loses out when a Northwest Arkansas resident flies to Dallas on Southwest rather than leaving from XNA.

Origin and destination statistics are used to measure “leakage” by comparing a customer’s home address to where a flight originates. A customer with a Benton County ZIP code who flies out of Tulsa would be considered a “leaked” customer.

In Cincinnati, average leakage to other airports was around 10 percent to 12 percent while Delta had its Simplifare program. After getting rid of the program when it emerged from bankruptcy reorganization in 2004, CVG’s leakage jumped to between 28 percent and 30 percent.

In January, CVG had a 30 percent drop in passenger traffic that may have been Delta’s needed wake-up call.

“We were constantly beating on their door about the issue,” Schempf said. “The straw, potentially, was the economy. They knew if they didn’t do something, the leakage would be even greater here.”

After witnessing a drop in passenger traffic last spring, XNA did its own leakage survey and found it was losing 13 percent.

“Our big loss is to the Dallas market,” Johnson said. “We want to capture that market, but it’s been difficult to compete with it. Southwest is 90 miles away and American Airlines matches their fare to DFW. We worked with our partners at the airport looking at that fare.

“Hopefully we’re keeping more people off the road and putting them in the air.”