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Cheaper fares, non-stop flights lure passengers away from Madison

Mike Ivey  —  6/11/2008 9:55 am

For UW-Madison engineering Professor John Scharer, a visit from his daughter who lives in New York usually means a drive east on Interstate 94 to Milwaukee's General Mitchell International Airport.

It's nothing against the Dane County Regional Airport. Scharer simply can't justify the additional cost of the plane tickets to Madison.

"For her family of four to fly into Madison right now is an extra $500," he said. "Even with $4 gas, I can pick them up in my VW, which gets 32 miles to the gallon, and still come out way ahead."

Scharer isn't alone in eschewing the hometown airport these days. As fuel prices send airfares higher, more Madisonians are driving to Milwaukee, Chicago or even Rockford to save what can amount to hundreds of dollars in travel costs.

In fact, the most recent Air Travel Price index from the U.S. Department of Transportation's Bureau of Transportation Statistics ranks Madison as the 4th most expensive airport destination in the nation, with an average fare of $426.

Only Anchorage, Alaska ($539), Cincinnati ($532) and San Francisco ($428) ranked higher based on fares from the last quarter of 2007. The national average for domestic airfare was $330; Milwaukee ranked 45th among the 100 busiest airports at $327.

Those high airfares are one reason the number of passengers going through Dane County Regional Airport has fallen by nearly 10 percent from its peak in 2004. The decline comes despite some $95 million in recent upgrades, including a new $30 million, three-level parking ramp with 1,240 spaces scheduled to open later this summer.

At the same time, passenger counts at Milwaukee's Mitchell are up 8.9 percent over the past 12 months, boosted in part by new service from Midwest Airlines and budget carrier Air Tran. Traffic out of Madison is down 4.6 percent over the same period; nationally, traffic is up 1.8 percent.

The bottom line for a lot of people, said Ben Hutchison, a local independent agent and owner of Travel-Ease, is that "it's hard to justify paying another $200 to add on Madison. They'd rather go through Milwaukee or Chicago."

The issue of "leakage" or travelers choosing an airport outside their home area has long been a problem for the Madison airport. A 2006 survey from Mead & Hunt found the number of local passengers using Dane County Regional has fallen to 59.1 percent, down from 63.1 percent three years earlier.

Chicago O'Hare now grabs nearly a quarter of the Madison market, with Milwaukee's Mitchell Airport taking another 14.4 percent, up from a 12.5 percent share in 2003.

"It's something we're continuing to try to deal with but there are no simple answers," Dane County Regional Airport director Brad Livingston told local business leaders recently during a luncheon sponsored by the Wisconsin Innovation Network. In fact, Madison area businesses provide a steady stream of traffic for the airport even as leisure travelers look elsewhere.

To stem the passenger decline, the airport has been running radio and print advertising touting the convenience of the Madison facility, one of just a dozen U.S. airports that operate without support from local taxpayers.

"Fly out of Dane County Regional Airport and you can avoid the mad dash to that busier hub so frustratingly far away," the ads read.

Still, no one can fully explain Madison's higher fares, which are set by the airlines. As the dominant carrier here with a 43 percent market share, Northwest Airlines generally sets the price and other airlines follow suit.

"The reason they charge that much is because they can get it," said travel agent Hutchison, who testified before Congress some 35 years ago warning about problems that would eventually come from deregulating the airline industry.

Sharyn Wisniewski, marketing manager at Dane County Regional, said Madison fares are actually in line with peer airports like Des Moines or Grand Rapids. She said Dane County airport's own data show that the average fare one-way for Madison is $177, compared with $178 for Des Moines and $173 for Grand Rapids.

"Also, we do not have a low-cost carrier operating out of the airport, which puts competitive pressure on other airlines to lower prices," she said.

Wisniewski also noted there is only a $57 difference between Madison in 4th place and Pensacola in 20th place on the BTS fare survey, which some airline professionals say doesn't present the best information.

"Even if you use the BTS figures, we're not talking huge dollar differences," said Wisniewski. "Airlines set the basic fares based on a number of factors."

Michelle Aguayo-Shannon, a spokeswoman for Minneapolis-based Northwest, declined to speculate why Madison airfares are among the highest in the nation.

"In this environment, I don't think you're going to find any airlines willing to talk about fares," said Aguayo-Shannon, who also would not comment on whether Madison could be facing future service cuts.

Mike Brophy, spokesman for Midwest Airlines, said the Milwaukee-based carrier is happy with Madison. Last summer, it added a non-stop flight from Dane County Regional to Kansas City.

"We're not really looking at adding more service to Madison, but that's OK," said Brophy. "It's a good city to be in, with the varied economy."

But analysts say as airlines continue to consolidate, smaller airports will see reductions in the number of flights and number of seats. Airlines don't like partially full flights and will adjust the size of the planes if numbers are consistently down.

Nationally, the number of passenger seats for small hub airports like Madison has dropped on average 9.2 percent since 2000, according to Mead & Hunt.

At the same time, large hubs like Chicago or Detroit have only seen a 1.5 percent drop in seats since 2000. Part of that is the emphasis on the more lucrative international service offered from larger airports.

Moreover, with oil heading toward $140 a barrel, jet fuel now makes up about 20 percent of airlines' total costs. Short-haul airlines typically get lower fuel efficiency because take-offs and landings consume higher amounts of fuel.

In addition, two carriers that serve Madison last week announced another round of job cuts. Continental Airlines alone has slashed 3,000 jobs while United trimmed 1,100. In total, the airline industry has now eliminated nearly 22,000 workers in 2008 as soaring fuel prices erode profit margins.

"Since these costs are being passed along to fliers through higher ticket prices, we will probably see a drop-off in the demand for air travel," said John Challenger, CEO of the Chicago-based Challenger, Gray & Christmas human resources firm.

Of course, fewer travelers mean fewer flights, which would prove a blow to officials at the Dane County Regional Airport who have worked hard to expand service.

Since 2004 under Livingston's direction, the number of non-stop destinations has doubled. And with its Frank Lloyd Wright-inspired terminal renovation, easy-walk parking and non-stop service to 15 locations including New York, Washington, Dallas and Atlanta, few cities this size enjoy such excellent air service.

But competition is coming from all sides, including Rockford, which boldly bills itself as Chicago-Rockford International Airport. Rockford is now advertising in the Madison market, offering up free parking along with non-stop service to Denver, Phoenix, Tampa-St. Pete and Myrtle Beach, although not on a daily basis.

Rockford also has non-stop service to Las Vegas via budget carrier Allegiant, a flight Madison enjoyed for a year before losing it.

"We're not trying to take business away from Madison but if you're already driving to O'Hare to catch a flight you might as well stop here," said Rockford airport manager Bob O'Brien, a Madison native whose resume includes a stint at Dane County Regional from 1979 to 1983 under previous directors Bob Skuldt and Peter Drahn.

Rockford, which had no passenger service as recently as 2002, is now the 215th busiest passenger airport in the U.S. and 19th busiest for air cargo. Madison is the 97th busiest passenger airport, according to the most recent figures.

UW Professor Scharer hasn't yet flown out of Rockford but does check the fares online, searching for a deal. In addition to visits from family, Sharer also travels for work and doesn't like to waste precious research grant dollars on pricey airfares.

"I'm just a maniac on this stuff," he said. "I'll use Google or the other search engines to try to find the cheapest flight."

Ironically, Madison's high fares are one reason analysts think it could survive the next round of service cuts. Ron McNeill, a consultant to Dane County Regional Airport with Mead & Hunt, said the high percentage of business travelers and the higher average fares could help buffer the airport from tough times ahead.

"I don't think you're going to see any new service added but many of those Madison routes are quite profitable," said McNeill. "Plus, you've got a higher percentage of business travelers, who are prized by the airlines."

Even with fewer passengers flying, using the parking ramps or eating in the restaurants, airport officials aren't worried about a significant drop in revenue. The airport -- which has a 2008 operating budget of $19.6 million -- has multiple funding sources, including leases from the industrial park along International Lane, landing fees charged to airlines and rental space.

"The airport also maintains a reserve fund for the very fact that there are highs and lows in the airline industry," said Wisniewski. "The airport will continue to operate on its own revenues, with no local property tax dollars, for the foreseeable future."

Airport officials and community leaders have long urged the local business community to "use it or lose it" when it comes to supporting the local airport. And by most accounts, the city's largest employers are stepping up to the plate.

American Family Insurance, for example, booked about 260 flights a week in 2007. Of those, about 5 percent were out of Milwaukee, with a handful out of Rockford or Chicago.

"Almost all of our flights are through the Madison airport," said Steve Witmer, a spokesman for the local insurer, which is the city's largest private sector employer with 3,550 full-time workers.

CUNA Mutual Group, which has about 2,000 employees here, will use other regional airports when fare or flight options make it worthwhile, said spokesman Rick Uhlmann. But the financial services provider also books about 300 flights monthly out of Dane County Regional, relying on "MSN" (the airport code) for the vast majority of its business travel.

"The most frequent flight we use is American's direct flight to Dallas-Fort Worth," said Uhlmann, noting that airport is just 10 minutes from the CUNA Mutual service center there.

Epic Systems, the Verona-based health care software developer with more than 3,000 employees, might qualify as the area's most frequent business flier. It books out of Madison almost exclusively, averaging on the order of 500 flights weekly, according to Epic's Matt Vogel.

"We try and do our part to support the local economy but flying into Madison also makes it a lot easier on people," he said.

For example, Epic software installer James King spends about half his time on the road and enjoys the convenience of the local airport.

"Believe me, I've been through a lot of airports and Madison is definitely one of the better places to fly out of," said King. "I still remember the first time I came here, flying in over the lakes and the Capitol. It was beautiful."

Community business leaders, especially in the burgeoning high-tech sector, also have pushed for non-stop service to Boston or San Francisco. But that appears unlikely in the current environment.

Still, there are steps airports can take to try to lure more service. They include waiving landing fees to help carriers mitigate the cost of entry into new markets.

"It can take a year or more for marketing programs, etc. to get people to change their travel habits and for a new market to ramp up to its mature potential," said consultant McNeill. "During this period carriers typically lose money and they are looking for airports and communities to share in this risk."

Dane County Airport does have a program where it will waive landing fees for up to 12 months and provide marketing funds up to $100,000 if carriers will add new nonstop service to specific markets. Some communities even go further, offering up straight subsidies, revenue guarantees or ticket purchase programs.

"These can be very aggressive offers, however carriers are not inclined to add the service if they don't think the market will ultimately be profitable," said McNeill.

Scharer is among those who'd like to see the airport take more aggressive action.

"Somebody just needs to light a fire under administrators, government and businesses to get the ball rolling," he said.

Mike Ivey  —  6/11/2008 9:55 am