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TRANSPORTATION
Airline industry takes its lumps: All eyes on 2005 for recovery or elimination
By Matthew French
Staff Writer
As it stands in early 2005, much of the airline industry is tottering either on the brink of bankruptcy or fully emerged in bankruptcy proceedings, and the same holds true for most of the airlines that fly into the Lowcountry.
At the beginning of the year, Charleston serviced only five commercial airlines: Delta, Continental, U.S. Airways, Northwest and United Express. When Independence Air came into the region mid-year, there was cause for much celebration.
Delta, U.S. Airways and United Express have each been embroiled in bankruptcy proceedings or warnings for the past several years. In early December, a Lehman Brothers Inc. analyst downgraded their industry forecast and cut ratings on Continental and Northwest, sending their stock prices further down. Continental prices reached their year-low price of $8.15 per share in late October, its third-worst closing in five years, and Northwest bottomed out earlier the same month at $7.44 per share, also its third-worst closing in five years.
Despite analyst warnings that one of the major carriers could conceivably go under in the next year, people continue to fly into and out of Charleston at a very brisk pace, according to David Jennings, chairman of the Charleston County Aviation Authority and attorney with Rosen, Rosen and Hagood.
“The air service in Charleston for the first 11 months of 2004 was great,” Jennings says. “We are right at a 12.5% increase over last year.”
The busy holiday travel season that starts at Thanksgiving also brought throngs to Charleston’s airport, with a reported 27% increase over last year’s travelers.
“Good things are happening and we’re confident it’s going to stay that way,” says Jennings.
But Jennings realizes that airlines are, for the most part, members of an industry in turmoil.
“Our hope, of course, is that all of the airlines that serve Charleston survive and begin to make money, because not many of them are [making money],” he says. “If an airline that serves Charleston did go out of business and one day just stopped flying, it would cause a short-term disruption in the market.”
Recent analyst speculation has focused on U.S. Airways, which has filed for bankruptcy twice in the past two years, and United, which has asked a judge to void some of its labor contracts to keep the company afloat.
Charleston, says Jennings, is well situated in that it splits its passengers nearly half and half between business travelers and leisure travelers.
“People are going to continue to vacation here whether each of the airlines that serve the area are flying a year from now,” he says. “If one does go out of business, someone will still carry the passengers.”
FLYi
The Charleston airport’s “Fly Charleston” campaign, launched in late 2003 to attract a low-cost airline to the area, is what attracted Independence Air in the first place. Now the Chamber of Commerce’s efforts have shifted from attracting low-cost service to Charleston to ensuring Independence Air’s success in the market.
Charleston at one point had another low-fare airline in AirTran, but the company left the Lowcountry about five years ago.
The past year has been difficult for nearly every major player in the industry, including FLYi Inc., parent company of Independence Air. Late in the year, rumors began to swirl that FLYi had quietly entered negotiations to resume flying as United’s regional carrier. Were that to happen, Independence would cease selling directly to the public and instead contract with United. FLYi wouldn’t comment on the rumors, saying simply that the company doesn’t respond to “speculation.” The company did say, however, that it is “in discussions with other airlines regarding potential strategic or business opportunities.”
Despite the hand-wringing, however, the discount airline—the only such airline to fly into Charleston—says it has no plans to cut back. In fact, the company last month expanded service to the Charleston area by adding nonstop flights to Tampa and Orlando, Fla.
Mary Graham, the Charleston Metro Chamber of Commerce vice president of public policy, says service in the region has expanded as other carriers fight to compete with Independence.
“Delta, most notably, has expanded its service. Competition is going toe-to-toe, and that means lower costs across the board and more options for passengers,” Graham says. “We’re still talking to other low-cost carriers, but most of them are waiting to see how Independence does and if Charleston embraces them.”
Graham says Charleston still needs another low-cost airline to foster further competition and to offer routes Independence currently doesn’t service through Charleston, most notably to Atlanta.
She also says an ongoing discussion about a possible pilot program to offer incentives to businesses and corporations to book their travel through Independence is in the works. That program, however, is still in the “discussion phase,” and no measurable steps have been taken to implement it.
“We’re waiting to hear from Independence to come here and announce it,” she says. “They haven’t implemented the program anywhere else, but were considering setting up a test market here.”
Parking woes
Ridership at Charleston Airport is up, translates into more people trying to park at the facilities, stretching the existing capacity to its limits. To alleviate the situation, the aviation authority is in the midst of an 18-month construction project to build a new parking garage immediately adjacent to the terminal. Completion is scheduled for October 2005. When finished, the new garage will add about 1,000 spaces to the current inventory.
“We anticipate construction will be completed in the fall prior to the holiday travel season,” says Jennings. “We knew that impacting one holiday travel season was unavoidable. But we did a lot of advertising to remind people that parking was going to be an issue.”
Jennings says parking is being handled as well as it can, with remote lots, valet service and shuttles doing extra work to make up for the inconvenience.
“This is major construction going on in the middle of an operating airport,” Jennings says. “Inconveniences are unavoidable, but we’re doing all we can to make it as painless as possible.”
Other transportation issues
This past year also featured a critical vote for the area’s beleaguered Charleston Area Regional Transportation Authority (CARTA), which faced further cutbacks. A ballot initiative voted on Nov. 2, which called for a half-cent sales tax increase in Charleston County to help pay for infrastructure repair, had serious implications for the public transit system.
Public transportation is traditionally a tough sell outside of the industrial Northeast and Midwest, and Charleston is no exception. A similar referendum passed in 2002 but later overturned by the state Supreme Court earmarked money for CARTA that never materialized. Since the overturning of the 2002 referendum, CARTA has managed to stay alive by getting $2 million in emergency state and federal aid and by slashing routes, raising fares and ending evening, weekend and holiday service.
The Nov. 2 initiative has passed once again but this time funding for CARTA was slashed, with more emphasis on financing infrastructure upgrades, parks and recreational facilities, and green space preservation.
Of the referendum’s $1.3 billion to be raised over 25 years, improvements to Charleston County roads, bridges and highways would get the lion’s share—83%, or $1.08 billion. Of that 83%, CARTA would get no more than 18% — about $190 million.
Although CARTA will receive a smaller portion than in the 2002 initiative, mass transit proponents say the referendum remains vital to CARTA’s existence.
Passage of the half-cent sales tax would create a “new CARTA,” with fewer routes than the old one but more effective service, claim the transit system’s supporters. The new CARTA will include a “Park and Ride” service, express buses, smaller buses in residential areas and revised routes that have yet to be determined, says Howard Chapman, CARTA’s executive director. But that new system must wait until the funds can be distributed sometime after May 1, the day the referendum goes into effect.
Even with that deadline, however, the increased sales tax is facing another legal challenge. Opponents of the tax again claim the ballot’s question was flawed, and demand it be overturned.
“We don’t expect them to win the lawsuit,” Chapman says. “The lawsuit is based on an issue which the Supreme Court heard two years ago, but didn’t act on.”
Chapman says CARTA has enough funds to stay in business into May, and will shortly be going to various banks soliciting bridge loans to pay for the service after the May 1 deadline, assuming the lawsuit has not yet been settled and funds are held up.
“We’re waiting for the Supreme Court to respond to the initial writ of certiorari,” Chapman says. “After that, they have many options. They can either hear the case or not. It’s entirely up to them.”
Matthew French is a staff writer for the Business Journal. E-mail him at mfrench@crbj.com.
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