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Southwest Airlines, city have held talks

  • The Wichita Eagle
  • Published Friday, April 30, 2010, at 12:03 a.m.
  • Updated Thursday, June 17, 2010, at 6:33 a.m.

Southwest Airlines has been exploring whether to expand into Wichita.

Local government and Wichita Mid-Continent Airport officials have been in talks with Southwest for at least the past year and a half, said a source who asked not to be identified because they are not authorized to speak on the subject.

Conversations have included initiating service from Wichita to Las Vegas, Dallas and to Chicago through St. Louis, the source said.

Southwest Airlines spokesman Chris Mainz confirmed that the airline has been in conversations with Wichita, but he said he didn't want to give a false sense of hope that the airline would come here.

He declined to give details of the conversations and said the airline talks with many different airports.

"We constantly look at markets we don't serve, and that happens to be one of them," Mainz said of Wichita.

Wichita Airport Authority air service and business development manager Valerie Wise said the airport and Southwest have a good relationship.

"They are very aware of our market," Wise said. "We continue to talk to them, and the fact that they continue to listen to us, I think, shows an interest in our market."

City Manager Robert Layton said that the city has pursued Southwest and other low cost airlines for a long time.

But, he said, the last serious discussions he is aware of happened at the end of last year.

"There's nothing active right now with Southwest," he said.

Incentives

Sources say Southwest will want incentives to begin service here.

"You're going to have to make it worth their while," one source said. "They want a lot of incentives."

One source said the amount of incentives Southwest is seeking for Wichita is reasonable: $3 million to help with start-up costs and other money in revenue guarantees to help cover losses for at least the first two years.

Wise would not discuss incentives other than to say they're the nature of today's airline industry.

"That's just the way this industry has evolved, especially with high fuel prices and (the) economy,'' she said.

Panama City Beach, Fla., is the only new destination Southwest has announced this year, Mainz said. According to the Dallas Morning News, real estate developer St. Joe Co. will subsidize at least the first two years of Southwest's service there, guaranteeing that the airline breaks even.

The developer can terminate the agreement if payments exceed $14 million in the first year or $12 million in the second year, according to the Morning News.

Southwest wanted to announce the Wichita service in December and begin it in June, the source said. But officials couldn't come up with the money in time to meet an October deadline, he said.

Now, there's a new deadline of September for service to begin in June 2011, the source said.

Economic impact

Wichita State University's Center for Economic Development and Business Research prepared a study in September for the Wichita Airport Authority, which is the Wichita City Council, called "Economic and Fiscal Impact of XYZ Airline on the Wichita MSA."

Jeremy Hill, the center's director, said he was not given the identity of the airline. A source, however, said it is Southwest.

Southwest's entrance would have a positive economic and fiscal impact, the report said. Frequent service to a variety of destinations at competitive fares translates into a high level of passengers using the airport. That kind of service attracts new businesses and stimulates employment at existing companies, it said.

The arrival of "XYZ airline" would increase airport activity 33.5 percent in its first year of business, 37 percent in the second year and 39 percent in the third year, the report said.

Besides increased business activity and passengers, it also would generate higher sales, concessions, parking revenue, wages and employment.

In a worst-case scenario, the entrance of the airline in the study would add roughly 7,000 direct and indirect jobs in Wichita over a three-year period.

"Good airline service is an important factor in urban economic development," the study said.

A second study, not done by WSU, projected travelers would save $29.5 million a year from Southwest's entrance in the market. That's based on 2008 passenger levels and projected Southwest fares.

Airport passenger traffic was estimated to increase 25 percent when the market matures in five years, the study shows.

WSU associate professor of marketing Dean Headley said Southwest makes an impact on markets it serves.

"Whenever Southwest shows up in a market, they tend to stand that market on its ear a little bit," Headley said.

"They don't come in lightly. When they think about going someplace, they're committed."

Its arrival, however, could cause problems with other low-cost airlines serving Wichita: Allegiant, Frontier and AirTran Airways. From Wichita, Allegiant flies to Las Vegas, Los Angeles and Phoenix; Frontier flies to Denver; and AirTran has three daily flights to its Atlanta hub.

"How many low-fare carriers can this market support?" Headley asked.

"We might lose an airline or two out of it.''

Airline consultant Mike Boyd agrees there could be a downside. With Southwest's entrance, there is a risk AirTran could leave Wichita, he said.

The city, county and state have given AirTran revenue guarantees to help underwrite losses since it arrived in 2002.

The state provides $5 million a year to AirTran. The city and Sedgwick County contribute $1 million apiece.

The Kansas Legislature agreed to provide the money every year for five years. That's set to expire June 30, 2011. The Legislature must appropriate the money each year, but it has not yet approved next year's payments.

"We love AirTran," said Sedgwick County Manager William Buchanan. "AirTran has served us well."

Having AirTran and Southwest means "you'd be throwing a lot of money at two airlines rather than one," Boyd said.

And while there's a lot of expectations that Southwest will lower fares when it comes to a market, that's not necessarily so, Boyd said.

"They're not going everywhere," he said.

Contributing: Brent Wistrom of The Eagle Reach Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com.

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