Moving up on the radar
Virginia claims two of the country’s fastest growing airports. Business is up thanks to more discount carriers, but planes are getting smaller.

by Brett Lieberman
for Virginia Business
February 2006

In Virginia, airline choice improved dramatically last year with leisure and business travelers picking up cheaper fares as more discount airlines set up shop. In many cases, travelers had to give up a little legroom to get the lower fares with smaller, regional jets becoming the most common way to travel at some airports.

Cramped jets that seat 30 to 50 passengers now are handling some nonstop flights from Norfolk International Airport that formerly were served by spacious, 200-passenger Boeing 737s. At Richmond International, nearly 70 percent of the flights are by regional jets.

While the shift to smaller planes once would have been viewed as a black mark by corporate recruiters who link a city’s cosmopolitan flair with regular jet service, that’s not the case today. Business is booming at many of the state’s airports. In fact, record numbers of passengers embarked from Virginia airports last year, taking advantage of lower fares prompted by competition from discount airlines such as AirTran, JetBlue and Southwest.

Fares at Washington Dulles Inter-national Airport, for example, dropped 30 to 65 percent in the first quarter of 2005 thanks in large part to the launch of low-cost Independence Air. Fares as low as $29 helped the airport move from being the sixth most expensive U.S. airport to the 25th. Those fares are gone now, though, with Independence closing for business last month, after 19 months in the air.

Despite the failure of Independence and the uncertain fate of other financially troubled airlines, airport managers are cautiously optimistic that business will continue to trend up in 2006. “We have very little to complain about,” says Jim Smith, executive director of Newport News/Williamsburg International Airport, where passenger numbers have soared nearly 140 percent since Sept. 11, 2001, to reach more than 1 million in 2005. The boost puts Newport News and Dulles in the big leagues, with these Virginia airports ranking among the nation’s top airports in the country in terms of growth.

One of the engines behind that growth has been AirTran Airways, which has surpassed US Airways to become Newport News’ dominant carrier. AirTran also returned to Richmond International last year, helping it lose its reputation as a high-fare airport. Overall, ticket prices dropped 15 to 60 percent, a welcome change after years of having some of the highest fares in the country. A second discount airline, JetBlue is scheduled to begin service to Richmond next month. Lower fares around the state help business travelers who can pick up cheap direct flights on short notice to major destinations.

Still, Virginia air service faces a number of challenges, largely because of national trends. U.S. airlines, which have lost more than $40 billion during the past five years, are cutting the number of domestic flights and seats they offer. Also, several airlines are in bankruptcy, and aviation experts predict further consolidation in the industry. (US Airways, formerly based in Arlington, recently emerged from bankruptcy court after merging with Arizona-based America West). The combination of high fuel prices and fewer passenger seats may prompt airlines to raise fares.

“Fares are what drive the industry,” says Kenneth R. Scott, executive director of the Norfolk Airport Authority. “If we see a significant increase in fares we will see a decrease in the number of passengers that fly, particularly the leisure flier.”

The demise of Independence Air could have an effect on passenger volume and fares at Washington Dulles International Airport. The former United regional commuter quickly became the airport’s second busiest airline behind United. Independence carried nearly 5.7 million passengers from November 2004 through October. By comparison, JetBlue, the third busiest airline, carried only 950,742 passengers.

Independence closed in early January after failing to find a buyer or new investors. “We’ve had an unusual couple years in terms of Independence,” says James E. Bennett, president and CEO of the Metropolitan Washington Airports Authority, which runs Dulles. Independence helped identify a market that Bennett believes other carriers will compete to capture.

Dulles remains the state’s busiest airport, but it faces increasing competition from smaller airports such as Richmond. These airports are trying to position themselves as competitive with Dulles on fares while having fewer hassles with security and traffic congestion.

Dulles also faces some competition from small general aviation airports such as Stafford County Regional Airport, which is taking aim at the corporate jet set. Officials expect a new interchange off Interstate 95 to offer travelers better access to the airport. “They can land here and get a car and go to Washington, Richmond, Fredericksburg or wherever they are going easier,” says Ed Wallis, the airport manager.

Nationally, many smaller airports are served by only one or two commuter services for major airlines. Airport managers worry about losing service or seeing higher fares, which would make their airports less competitive. However, many of Virginia’s airports have bucked the trend because of the competition from low-fare carriers. “You can build it and hope they come, but at the end of the day it’s all about fare structure,” says Jon Mathiasen, president and chief executive at Richmond International Airport.

Competition is expected to remain strong at Richmond, with the addition of JetBlue flights.

To keep costs down and be attractive to airlines and travelers, airports are trying different strategies. Newport News, for instance, has positioned itself as a value airport. Its parking rates — $1 an hour to a max of $5 per day — are the same as they were a decade ago. The average fee for security and costs tacked onto tickets is $5.50 at a small airport, but only $1.67 at Newport News.

To better control its future, the authority that owns Dulles airport wants to buy the Dulles Toll Road from the commonwealth and extend Metro rail service to the airport on an accelerated schedule. “We have more financial flexibility than I think the commonwealth does, and we also have experience doing very large projects,” says Bennett, pointing out the ongoing expansion at Dulles and the $1 billion overhaul and new terminal that opened at Ronald Reagan Washington National Airport in 1997.

The proposal by the Washington Metropolitan Airports Authority, which operates both airports, would dedicate 100 percent of the toll road revenues to operating the road and expanding the Metro to Dulles and Loudoun County. The long-delayed rail proposal, which could cost as much as $4 billion, is critical to Dulles’ continued growth because it would ease traffic congestion. That development would make it easier for travelers to reach the airport, and reduce future parking demands.

Dulles also is constructing an underground train system and walkways to replace the Star Wars-looking shuttles that transport passengers to departure gates. The $4 billion project is being funded by bonds, passenger facility fees of up to $4.50 per ticket and grants from the federal Aviation Trust Fund. The project is scheduled to be finished in 2009.
Richmond International likewise is continuing a $300 million expansion project. Later this year, the departure level of a new terminal in Richmond will open, and the entire building is expected to be completed by mid-2007.

Ironically, as the airports have become more posh, the accommodations in some planes have become more Spartan in the shift from mainline jets to regional jets. The narrower cabins offer less headroom, and passengers sometimes must walk out onto a windy tarmac to board planes not served by jetways. “The convenience factor is not what it once used to be,” says Mathiasen, Richmond International’s chief executive.

On the other hand, as airlines reduce their fleets of spacious jets, some have upped the frequency of the smaller regional jets. This means more travel opportunities, a benefit that is particularly helpful for business travelers. Norfolk, for example, now has six daily flights to Chicago instead of three.

And, as regional jets increase their share of the passenger market, airlines are beginning to use slightly larger, more efficient aircraft that will offer passengers more comfort. For example, Air Tran’s new Boeing 717s and JetBlue’s new Embraer E190s will seat 70 to 100 passengers.

As the airline industry continues to downsize, the big worry for airlines and airports alike is attracting enough passengers to assure profitability. The challenge for the airlines is to downsize enough to boost the bottom line, while still generating enough business to drive the industry forward. These days many airlines would settle for a soft landing, and many passengers don’t mind giving up pillows and other perks if it helps the industry keep fares low.