Southwest Airlines lost millions on its Dallas and Chicago routes from Wichita during its first eight months of service here, information from Sedgwick County said.
The airline posted a loss of $6.83 million from July 2013 to February 2014 on the two routes to Dallas Love Field and Chicago Midway, the information said.
Southwest’s service from Wichita to McCarran International Airport in Las Vegas, meanwhile, made money – $57,600 – during the same period.
With the losses, Southwest tapped into the Kansas Affordable Airfares Program, which allows it to collect up to $6.5 million a year in revenue guarantees to help underwrite its losses.
Southwest received the full amount.
In return for the contract, Southwest must provide at least four daily round-trip flights a day from Wichita.
“The continuation of the state’s Affordable Air Fares program is important in the efforts of Wichita and the State to compete in economic development efforts with communities around the country,” said Wichita Airport Authority director of airports Victor White. “These kinds of incentive programs are becoming more commonplace in many areas of the U.S. as the competition for scarce airline resources and assets heats up.”
Southwest spokesman Dan Landson declined to comment on the specific routes or dollar figures.
But the airline is working to develop a self-sustaining operation in Wichita, Landson said.
“What we are seeing is a progressive build on the traffic during the first year of service,” Landson said. “When you start service, there is a little bit of a learning curve just in general. From there you see the growth in terms of load factors, and that’s where the robust air service offering comes in... We’re there to serve the community.”
One airline industry consultant called the results in Wichita “not a great performance.”
The routes, however, should do better over time, said Robert Mann with R.W. Mann & Co., especially since Southwest is expanding its routes this month as the restrictive Wright Amendment expires. the amendment constrained flights from Dallas Love Field.
“On the other hand, what airlines try to do these days is try to deploy the assets (their airplanes) in markets where they produce the best benefit of the network,” Mann said. “If this is a subsidy market, it’s obviously not producing as well as some, perhaps not as well as any.”
In addition, the airlines have a “pretty short fuse” for tolerating losses these days, Mann said. Without the guarantees, Southwest may not continue its Wichita service at some point, he said.
“That’s probably keeping them around,” Mann said.
Southwest, which bought AirTran Airways, began service in Wichita in the summer of 2013, replacing AirTran.
And it took over the subsidies that had once been AirTran’s.
AirTran began service in Wichita in 2002 after being offered a revenue guarantee by the city of Wichita to help woo it to town to lower costs.
Under the Kansas Affordable Airfares Program, the state provides a grant of $4.75 million. That is matched by $1.75 million of local funds, which is split between the city of Wichita and Sedgwick County.
Under the contract now in effect, Southwest is paid the difference between its costs and revenue each month that total costs exceed revenue.
Southwest may adjust the service to address market, weekend and seasonal changes in demand, the contract states.
Sedgwick County is contractually responsible for the guarantee, which expires June 30, 2015, unless it is extended.
Mike Boyd, an airline consultant with the Boyd Group, is not optimistic about Southwest’s long-term presence in Wichita.
The service isn’t working for Southwest, “other than Las Vegas, which is a slam dunk.”
Southwest has about a 68 percent load factor – how full its planes are – on the Dallas and Chicago routes from Wichita, Boyd said.
That’s an under-performing number, he said.
“I don’t think it’s going to change,” Boyd said. “It is what it is.”
At the same time, Southwest has a shortage of planes.
“They’re leasing planes from China and Alaska Airlines and everybody else they can find,” Boyd said. It also has to retire the older planes
“A market that doesn’t perform is probably going to hit the sticks.”
Southwest isn’t a low-cost airline anymore. Its costs have risen, he said.
“They’re not in the business of being Mother Teresa,” Boyd said. “They have to have those airplanes where they make money. ... The fact is, Wichita is not a long-term viable Southwest market.”
Wichita has some time, however.
“You’ve got at least 12 months before they do anything,” Boyd said. “I think it would be prudent to prepare for reality.”
Local officials think Wichita is in a position to improve the numbers for Southwest, as a federal law known as the Wright Amendment expires.
“I think we’ve already seen some evidence of how they’ve introduced a new level of competition for rates out of the Wichita airport,” said Gary Plummer, president and CEO of the Wichita Metro Chamber of Commerce. “We’ve seen an impact on fares, not just Southwest fares, but other airlines’ fares. That’s probably the major way they’re impacting the business community.”
With the lifting of Wright Amendment restrictions, Wichita fliers will have better connections and more access to destinations through Southwest, he said.
“We’ll probably see a significant impact on their traffic when that occurs,” Plummer said.
Without the revenue guarantees from the state and local governments for the first year years Southwest is in the market, Southwest might not be here, he said.
“I think that was an important part of their (Southwest’s) decision,” Plummer said.
Still, “I think there’s still a question in some people’s minds about how long (the revenue guarantees) might continue,” he said. “We’re certainly working to make sure it continues in the shorter term. It’s harder for us to predict what the more intermediate future holds on that.”
The Chamber is meeting with state legislators and officials about the importance of the program.
Average fares decreased to Las Vegas, Chicago, Dallas, Houston and Minneapolis since Southwest entered the market in June 2013, airport officials have said.
On the flip side, fares to Atlanta and Denver have risen dramatically with the exit of service from Frontier and AirTran Airways.
Fares for flights to Dallas experienced the biggest drop, airport officials said recently, saying the average cost declined 55 percent.
One-way fares fell from $262 in the first quarter of 2012 to $118 in the same period in 2014, they said.
Chicago fares for the same period fell 31 percent, while the average fare to Houston fell 21 percent, and there was a 6 percent decline in fares to Las Vegas.
Along with lower fares, passenger traffic to those destinations increased significantly, the airport said.
Southwest constantly evaluates its routes and whether there’s enough growth to sustain them, add to them or move an aircraft someplace else, Landson said.
“It starts months and months out,” he said. “We’re always looking at everything.”
Next week, Southwest’s new expanded schedule takes effect as the Wright Amendment expires. The amendment required airlines flying from Dallas Love Field to make a stop in Texas or in a nearby state included in the amendment before flying on to another destination. That was to protect the finances and service at the Dallas-Fort Worth airport, which was new when the requirement took effect.
Southwest is adding seven new destinations from Dallas on Oct. 13, eight on Nov. 2 and two in January, Landson said.
That should help traffic in Wichita, Landson and Mann said.