Atlantic City International Airport’s record passenger levels, a key part of boosting the region’s gaming and tourism industries, may be at risk when subsidies for one of its two carriers expire.
A two-year agreement under which the airport’s operators provided millions of dollars in subsidies to AirTran Airways for the daily route to its Atlanta hub will expire in September.
AirTran has announced no changes to the twice-daily Atlanta route, which connects local flights to a national circuit. But the future of the flight ultimately rests with Southwest Airlines, which acquired AirTran in May, said Sharon Gordon, spokeswoman for the South Jersey Transportation Authority, which runs the airport in Egg Harbor Township.
Airport officials have not spoken to Southwest about its plans, Gordon said. But, she added, the SJTA has no plans to extend or enter into another so-called “risk abatement agreement” such as it has with AirTran.
“We will continue to do air service development, and meet and present data, and work with our community to bring airlines to our market, but the reality is, at the SJTA we just don’t have the funding for it (risk abatement),” Gordon said.
Under the agreement, which was sought by the SJTA in 2009 after it put out requests to airlines for a route with national connections, the authority guaranteed as much as $3.1 million a year in 2009 and 2010 if the Atlanta flights did not generate enough passengers and revenue for the airline.
In 2009, that financial safety net cost the SJTA about $2.5 million. In 2010, it was $1.5 million, the SJTA’s annual report shows.
Gordon said the incentive has been drawing more passengers, particularly after the routes were re-timed to offer quicker connections.
“The SJTA has ... been able to convince AirTran of the opportunity here in Atlantic City for air service development,” Gordon said. “We need to get the community engaged and show the airlines that we’ll be a profitable market.”
The load factor — a percentage measure that gauges average flight occupancy — has increased on AirTran flights into Atlantic City International, federal Bureau of Transportation Statistics data show.
Although the average flights in January and February are only half full, occupancy builds in spring and peaks in summer, federal data show.
Average occupancy on total AirTran flights into and out of Atlantic City increased from 63 percent in 2009 to 67 percent in 2010. The airline also had a route to Orlando it discontinued in July 2010.
From June 2010 to December 2010, average occupancy was 76 percent.
As airlines can be reluctant to start a new, unproven route, incentives have been used — at Atlantic City International Airport and airports nationwide — to induce more air service to different locations.
The risk abatement agreement with AirTran, which started in June 2009, is set to expire Sept. 7 after being extended in February. The extension offers as much as $1.4 million in passenger revenue guarantees.
Although AirTran was acquired by Southwest, the airlines operate separately and are gradually integrating.
“We evaluate routes on a daily basis, and we never really forecast what may or may not happen. Right now, we’re operating the route and we have to leave it at that,” said Christopher White, a spokesman for AirTran.
Whitney Eichinger, a spokeswoman for Southwest, said the airlines are still evaluating schedules and strategies as they merge during the next 18 months.
“In the coming weeks, we will have updates a bit more on what that strategy looks like,” she said. “Obviously, there’s careful consideration in the markets being served.”
The SJTA offers other incentives to airlines that bring new flights to the airport, such as waiving landing fees for the first year and providing cooperative marketing dollars for new flights, Gordon said.
For Spirit Airlines, the local airport’s main carrier, this included its routes to Boston and Chicago, she said.
The region’s tourism-dependent economy faces increasing gambling and tourism competition from other states. The airport is seen as an important avenue to bring visitors to gamble at the casinos, attend conventions, book hotel rooms, shop the stores and dine in the restaurants.
Atlantic City International has experienced historic growth in the past three years, reaching a record 1.4 million passengers in 2010, SJTA statistics show.
In the first six months of 2011, the airport drew 730,174 total passengers, about 12 percent more than the same period in 2010.
Airport officials credited much of the increase to the airport’s two carriers adding more destinations.
“We’re hopeful the community is going to get very engaged behind our existing carriers, and we’re hopeful this time next year we’re going to be seeing greater opportunities and more flights here,” Gordon said.
Subsidy agreements are becoming increasingly common, said Robert Mann, of R.W. Mann & Co., an airline industry analysis and consulting firm based in Port Washington, N.Y.
The agreements have been popular to locations with tourism interests and seasonal markets, he said.
AirTran in particular has been active in this, entering new markets with limited risk, Mann said.
The larger Philadelphia International Airport does not use those types of incentives, airport spokeswoman Victoria Lupica said.
The Atlantic City International market has used such guarantees in the past with mixed results.
With as much as $1.2 million in guarantees annually for the first two years, Continental ran a route from Atlantic City to Newark for four years before the route was stopped in December 1997.
Delta Air Lines was backed by $2 million in guarantees when it launched daily jet service from Atlantic City to Cincinnati in October 2002. Despite concerns the airline would pull out after the agreement expired in October 2003, the flight ran for several years afterward.
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