The Airfare War is Over

TRAVERSE CITY – When asked what he tells those clamoring for lower airfares out of Traverse City, Cherry Capital Airport Director Kevin Klein responds, "You have lower fares now." And thus is Klein's challenge: how to educate the public about a rapidly changing industry, demonstrate leadership in his new role while explaining he has no control over what airlines charge, and articulate that the fare battle is over – and we already won.


First consider the backdrop: The airline industry has transformed. In the '90s, we witnessed consolidation, as some 30 commercial air carriers shrunk to fewer than a dozen. Over the past several years, most of those remaining airlines have been in and out of bankruptcy (including Delta, United, and the former Northwest and US Air). The result is a group of giant corporations not so concerned with competition or market share; they crave profitability.


First consider the backdrop: The airline industry has transformed. In the '90s, we witnessed consolidation, as some 30 commercial air carriers shrunk to fewer than a dozen. Over the past several years, most of those remaining airlines have been in and out of bankruptcy (including Delta, United, and the former Northwest and US Air). The result is a group of giant corporations not so concerned with competition or market share; they crave profitability.

"They are looking solely at profitable bottom lines," says Mike Boyd, an airline industry expert. "They are not looking for more passengers, but what some passengers bring – revenue."

TC's Kevin Klein takes it one step further: "They now realize the best way to be profitable is to park aircraft. It's pure economics, given the high cost of fuel and operation of an aircraft, as well as the capacity of seats."


So how do the airlines balance making money with serving the public's appetite for travel? "Regionalization is the biggest reality now," says Boyd. "The economics of air transportation have changed. The airlines can't make money flying to Jackson or Pellston."

Airports in smaller markets are feeling the heat as airlines try to focus on larger population centers and more profitable routes. Pellston, Alpena, the Soo, Manistee, Escanaba, and Muskegon airports already are – or soon will be – operating under "essential air service" (EAS), meaning the airports are subsidized by the federal government. Though EAS was passed by Congress in the 1970s as a transitional program for a few dozen airports after deregulation, the program still exists and is now utilized by more than 100 small airports nationwide.

To further accelerate the move to regionalize, manufacturers are no longer producing the smaller, 50-seat regional jets so familiar to Traverse City travelers. The result? The airlines are slowly retiring their smaller fleets and moving toward larger airliners with 100-plus seats – planes that can't land on shorter runways at smaller airports.


"[Regionalization] is great news for Traverse City," observes Boyd, a Michigan native who consults with dozens of airports nationwide. "You'll become the dominant airport in the region. You'll just continue sucking more and more traffic from Manistee to Gaylord to the U.P."

It appears to be an inevitability that Cherry Capital Airport – given its proximity, regional population, airport facilities, runway lengths, and strong tourism draw – is indeed headed for a bright future. Instead of relying on government subsidies or hoping to avoid cuts or airlines pulling out, Traverse City stands to become a regional powerhouse. That's good news for Kevin Klein.

"Basically there are ten major airlines who are part of three global alliances. We have airlines from all three alliances here, so we have superb connections worldwide," he says. There are so many places that just can't say that anymore."

Airlines across the nation are scrambling to justify their existence, build traffic, and convince airlines to come – or stay, he says.

"Take a look at a map of airports in Michigan," Boyd pointed out. "Airports overlap all the way across. You have Saginaw, Flint, Kalamazoo, Lansing, and Grand Rapids. At some point soon, airlines are going to go to one or two, but not all. And you have the same situation in northern Michigan."

Some communities have chosen to tax residents to support their airports, while others — including Grand Rapids — have developed private partnerships of wealthy business owners who pool resources to keep airline service. But Klein is quick to point out that only "real markets" will survive the airlines' push toward profitability.

"When DeVos pulls money together with Meijer, Steelcase, Haworth and others, that attracts the airlines. But that's a false market. If a market truly cannot support air service or a specific carrier, sooner or later, it will go away."


Last year, hundreds of businesses, individuals, and the Traverse City Chamber rose up to fight for lower airfares in and out of Traverse City. This is where Klein's biggest challenge comes in – educating the public about the basic air market fundamentals. He's quick to detail them:

1. "Think of the Grand Traverse Mall and JC Penney. That's the relationship an airport has with an airline. I have zero control over how much they choose to charge their customers."

2. "It's a matter of wants versus needs. We want lower outbound fares, but we need more inbound seats in our busy summer season. Between Horse Shows by the Bay, the Film Festival, and our high-end resorts, we have potential visitors with money to spend who cannot get here affordably." Klein points to a report from Grand Traverse Resort & Spa that shows 20+ conventions and groups that considered Traverse City but went elsewhere due to high inbound fares. One such organization actually reported Hawaii turned out to be cheaper than traveling into Traverse City. "That's jeopardizing our local economic development," Klein adds.

3. Actually, they're already here.


Back in May, Klein choreographed a series of meetings with Delta Airlines, presenting some hard facts about Traverse City.

"We showed them that they're leaking tens of thousands of passengers to Grand Rapids. And once someone drives to Grand Rapids, they have eight carriers to choose from. So we appealed to Delta from a business standpoint," he continues. "We said that in order to stop that leakage and for them to remain competitive, they should look at our outbound fares as compared to Grand Rapids."

Klein and his team hammered "fare discipline" with Delta, urging them to see the opportunity for fuller planes and more profits out of Traverse City.

And it worked. As of May, airfares out of Traverse City are significantly lower as compared to those in Grand Rapids.

"It was a big change," says Klein. "Maybe before Orlando was $450 from Traverse City and $250 from Grand Rapids. Now it's maybe $250 from Grand Rapids and $280 or $300 from TC. We're in the ballpark."

"Kevin got Delta to virtually match fare levels with Grand Rapids," says Boyd. "And that was a real victory. Things are more reasonable now."

So why didn't anyone notice? The clamor for lower fares continues even now, with a public largely unaware of the fare shift. Noted one local business owner, "I never heard a word. Seems like they could have told us."

One possible answer: the transition this summer from former Airport Director Steve Cassens to Klein's interim role. Now, as airport director himself Klein is making it known that while fares have changed somewhat, he's not done yet; inbound fares and seats remain "our first priority."


Klein and Boyd agree that Traverse City must embrace its strengths and leverage them with airlines. "Our strength will always be high-end leisure travel. We're helping attract people coming here who have money and spend money here that they wouldn't otherwise," Klein contends.

So his presentations to airlines recently have been focused on showcasing Traverse City and the region as a world-class leisure destination. He's been able, in specific instances, to get extra flight and seat concessions from airlines when warranted, including for thousands of incoming Horse Shows competitors in July and August, as well as for a few large conference groups at area resorts, for Interlochen students and families, and for the NHL Prospects Camp in September.

"When we have a specific need, we can get their attention. So we've been out talking to area resorts and businesses and letting them know: If you have a specific date or event, tell us. We can get an airline's help in bringing those people here [for that specific time]."


The battle to get a new airline or direct service to warm climes in the winter aren't completely dead. But Klein's plan is to build a strong inbound flight plan that will keep the airlines he already has here and profitable. Then?

"You prove yourself. They see that we told them more people would come if they could get seats, and they did. We told them people would fly from here instead of driving to Grand Rapids if we adjusted fares, and they are. So over time, we can venture and explain we have strong numbers going south in the winter," Klein says. "We take our inbound success, and build our outbound."

From all indications, that's going to take some time. Mike Boyd responds with a chuckle when asked if Southwest Airlines might consider Traverse City.

"Never. You have nowhere near the population, they need eight to ten flights a week – minimum – to justify service, and their union will not allow part-time workers. So no," he says firmly.

But a specialized charter air service for eight to 12 weeks in the winter, perhaps flying twice per week to Atlanta or Dallas … ? That might be more realistic in the future with smaller players like Allegiant or Sun Country.

For now, Klein's message is simple: "Fly from here, and don't take for granted what we have here." BN