T.F. Green prepares for turbulence

American Airlines’ announcement late last month that it is pulling its regional affiliate American Eagle out of T.F. Green Airport (PVD) in Warwick (READ MORE) might be only the start of the bad news.
Industry experts say the skyrocketing price of jet fuel is pressuring airlines to cut less profitable routes and shrink seating capacity across the country, and T.F. Green could experience the loss of more flights in the coming months.
The airport already has appeared on a travel industry group’s list of the top 50 airports at risk of losing service.
And even before American’s announcement, the number of seats available on planes leaving Warwick between now and January had been expected to drop 5 percent, according to the Official Airline Guide, a flight information subscription service.
“Until [the airlines] can get their arms around the jet fuel prices, there’s going to be additional pain,” said Kevin A. Dillon, president and CEO of the R.I. Airport Corporation, which operates T.F. Green. “And the fact that we’re a medium-sized airport with a sizable amount of service today – sure, we’re subject to cuts.”
For the time being, airport officials are buoyed by a recent decision by Southwest to add two round-trips to Florida per day from T.F. Green, one to Orlando, the other to Fort Lauderdale. Dillon said the addition “is a recognition of the strength of the Providence market.”
The additional flights, scheduled to start Nov. 2, will further increase the discount air carrier’s dominant market share at T.F. Green. In May, that share stood at 54.1 percent.
Although airport officials would prefer a diversified mix of airlines using T.F. Green, Dillon said it’s not unusual for an airport to rely heavily on one carrier. Southwest has a similar market share at Manchester Boston Regional Airport in New Hampshire.
“The other airlines want to do more, but it’s the economics of the industry that prevents them,” Dillon said. “That’s not the case with Southwest.”
Southwest is one of the most profitable airlines in the world, in part because of its ability to hedge the price it pays for fuel. The airline said last week that it has hedged 70 percent of this year’s supply at $51 a barrel. By comparison, the price of a barrel in the open market hovered around $140 last week.
Still, even Southwest is feeling the squeeze.
CEO Gary Kelly has forecast modest growth for 2009, and the airline is eliminating hundreds of underperforming routes and redeploying the planes elsewhere.
While fares have increased, Southwest has avoided adding the extra fees that competitors have been forced to charge. Spokeswoman Christi Day said last week Southwest has turned to other revenue generators, such as the Business Select ticket that allows holders to board first and get a free drink.
Day said Southwest’s schedule is set until January, and the restructuring of routes won’t affect T.F. Green, other than the addition of the Florida flights. But if the price of oil continues to climb, Day said, “There’s no telling what the future holds for us” after January.
Indeed, Kevin Mitchell, chairman of the advocacy group Business Travel Coalition, said that rising jet fuel prices could be catastrophic on the airline industry, with executives acknowledging that their economic models lose money with oil above $100 a barrel.
“As you start to head up into these uncharted waters, you have to be worried about every one of these carriers,” said Mitchell, whose group has placed T.F. Green on the list of airports at risk of losing service.
He’s certain more service cuts are coming, across the country.
Although the airlines so far have announced cuts to seating capacity that equal a 13- to 14-percent reduction industry-wide, Mitchell said, “almost every analyst says the cuts should be 20 to 22 percent with oil at $130 a barrel.”
Even without further cuts, passenger traffic at T.F. Green has lagged last year’s numbers. The airport’s 1.93 million total passengers between January and May represented a 1.6-percent decline from the same period a year ago.
Those numbers are critical to RIAC, because as much as 70 percent of the airport’s revenue is generated from passenger services, such as concessions, parking and car rentals.
Based on airline schedules submitted to the Official Airline Guide for the rest of the year, the number of seats on flights departing T.F. Green was expected to drop 4.7 percent – to 251,261 from 263,716 – with the biggest loss in seating capacity coming from Northwest Airlines (18.8 percent) and United Airlines (11.2 percent).
Dillon said American Eagle runs three regional 44-passenger jets to Chicago. But when that service ends in November, Southwest and United flights to that city will offset the loss.
Historical data indicate that American Eagle already had been losing both passengers and market share at T.F. Green.
In May, the airline’s local total was 6,506 passengers, or 1.5 percent of all passengers who passed through T.F. Green, according to RIAC’s monthly air-traffic report. That represented a 6.6-percent decline from American Eagle’s 6,965 local passengers in May 2007, when it had a 1.6-percent market share at the airport. By comparison, total passenger traffic at T.F. Green fell 3.3 percent year-over-year.
Despite the gloomy outlook in the airline industry, RIAC says it will push forward with long-term projects, such as the ongoing intermodal (rail station) project (READ MORE and a controversial runway extension plan. In fact, last month RIAC said it is investigating an alternative plan to extend the runway.
“I draw a parallel to what happened with 9-11, where there were a lot of airports that put all of their projects on hold only to find themselves a year or two down the road behind the eight ball in terms of trying to get those projects re-started,” Dillon said. “We have to continue to keep planning and move forward to make us successful for the future.” •