US border ‘low cost’ airport attracts Canadian passengers

USD128 to park the car, USD70 to fly

Price is key to this particular exodus. In one example quoted in a Canadian newspaper, a passenger claimed his airfare to Chicago (on Southwest Airlines) cost USD60, taxes included, and USD70 return from Buffalo. By comparison he pointed to a claimed USD128 just to park his car for six days at Toronto’s Pearson International Airport. Another important factor is the compactness, convenience and simplicity of the airport.

These are the same factors that encouraged the development of low cost airports in the UK, notable examples being Liverpool (Northwest England), Doncaster-Sheffield (Yorkshire & Humber region) (both Peel Airports) and Glasgow Prestwick (Southern Scotland, operated by Infratil Europe). Examples in mainland Europe include the cost-border traffic attracting Weeze Airport (on the Dutch/German border but principally in competition with Dusseldorf Airport in Germany) and Bratislava Airport (in Slovakia but chasing passengers from Vienna and neighbouring regions in Austria and other countries). Finland’s Lapeenranta Airport targeted budget traffic to and from Russia’s second city, St Petersburg, but is yet to make that breakthrough; only flights to Helsinki operate presently and just 23,000 passengers used the airport in 2008.

Many budget airports have reached a stage of maturity

Many of these budget airports appear to have reached a stage of maturity quite quickly and traffic is often found to be stagnating, even allowing for the effect of the economic downturn. In fact, it increasingly looks like Infratil will sell its 90% stake in Lubeck Airport in the Schleswig Holstein region of Northern Germany, one that serves as a low cost alternative for the Greater Hamburg region, Germany’s second most populated. Traffic expectations were not realised even if there have been delays in the provision of important infrastructure. Meanwhile, Hamburg’s own ‘primary’ airport has grown strongly.

So why should Buffalo Niagara International Airport fare any better? The whole North American region has been slow to adopt the European/Asian ‘low cost airport or terminal’ principle, owing largely to the fact that it is most often the case that the airlines themselves operate the important infrastructure at airports that passengers see, such as check-in and gate control. And they react to the needs and wants of those passengers, who have always regarded air travel as being a cut above other methods of travel, with rail (both local and Amtrak national services) and bus (Greyhound, Trailways etc) coming somewhat lower in the order of comfort expectation. (However, this may change as the Obama administration, which, barring a disaster, looks to be in place for the next seven and a half years even if currently popularity ratings are no better than the same stage of the George W Bush era, rapidly switches attention to improving the rail network. USD8billion has already been allocated to developing key trunk corridor routes in a first tranche of investment).

But for now that is why it is difficult to distinguish between a ‘budget’ US airline like JetBlue or even a ‘ultra low cost carrier’ like Spirit, and a European legacy airline. In fact the comfort and ambience onboard JetBlue will usually trump that of the economy cabin on British Airways, Air France and Iberia every time.

Unashamedly modelled on Ryanair

The only exception to the rule so far was Skybus, the Ohio-based LCC that was unashamedly modelled (perhaps a little too much so) on Ryanair and which ceased operations in Apr-2008, less than a year after it started. That airline was to be reincarnated in the form of Jet America, based in Virginia and, which like its ultra low cost predecessor, would probably have used previously unheard of ‘secondary’ airports like Portsmouth, New Hampshire; Greensboro, North Carolina; and Bellingham, Washington State – airports whose common denominator was their distance from the major metropolitan areas they were supposed, Ryanair-like, to serve. However the Jet America launch has now been cancelled.

While speaking of exceptions, the only distinguishable exception to the ‘no low cost airports in the US’ rule is the recently opened and privately financed Branson Airport in Missouri, where, because the airport was developed with private capital and no federal grants, it has far more commercial freedom than other airports, since it is not constrained by federal airport grant assurances. (It must comply, though, with all FAA and TSA safety and security requirements.)

In the absence of grant agreements, the airport can offer time-limited exclusive deals to the first airline that establishes service on a route to and from Branson. Instead of charging landing fees, it charges airlines a per-passenger fee that applies to all services - including ground handling. Airlines serving Branson won't have to hire their own ground staff. Airport personnel will do all the ground tasks, such as processing passengers and loading bags.

As a result, the airport company has a financial incentive to expand the number of passengers, and to make sure they have a positive experience. So even though the airport has given an exclusive deal to one company, Enterprise Rent-a-Car, it has an interest in ensuring Enterprise does not charge monopoly rates.

Underpinning all this is a 30-year deal with the city (which is highly dependent on tourism) under which the Branson municipality pays the airport company USD8.24 for every passenger it brings in. To the extent that the airport expands the tourism market, the city will in theory benefit from increased sales tax revenue.

One in three passengers is Canadian

But to return to Buffalo, approximately one of every three passengers flying in and out of Buffalo now is Canadian, up from about one in four passengers just a couple of years ago. At peak holiday times the proportion of Canadians rises as high as 40%. In 2008, Buffalo Airport handled about 1.8 million Canadians, according to the Niagara Frontier Transportation Authority, the airport operator.

The growth in Canadian traffic is a direct result of Buffalo Airport's strategy to transform itself into a haven for low-cost carriers. During the mid-1990s, Buffalo was ranked the second-most expensive US airport for flights. Now, Buffalo is ranked the ninth-least expensive US airport according to a US Bureau of Transportation Statistics survey and the airport’s website claims it to be the fifth least expansive, with its “price to fly, per mile, at USD10.02, compared the US's most expensive major airport, at USD20.63.”

By comparison, about 546,000 people flew in and out of Ontario’s Hamilton International Airport last year. Hamilton, around 60 miles from downtown Toronto and Pearson International Airport, and in a heavily populated part of the province, was converted from a cargo airport specifically to challenge the high airline charge regime at Pearson and supported by the leading LCC, Westjet. It is owned by the City of Hamilton but managed under lease by Tradeport, a consortium that includes Vancouver Airport Services as majority shareholder.

But there are up to 112 daily flights at Buffalo, compared to the 10 or 15 a day at Hamilton Airport, depending on the day of the week and season. Nearly half of the passengers in and out of Buffalo fly on Southwest Airlines and JetBlue, both of which commenced service around a decade ago. It is reported that when JetBlue recently introduced new flights from Buffalo to Florida, the company noticed on the very first day that a third of the passengers were Canadians.

It appears that the Canadian airport fees and landing fees and taxes that customers don't have to incur when they fly out of Buffalo continue to tip the balance in favour of the US airport, despite the fact that border crossings can be tedious and time consuming. Another factor is the access to more destinations from certain US airports relative to what one might find locally in Canada.

Spreading to other parts of the US

Indeed, local analysts have observed similar trends developing in other parts of the US, for example a migration of Canadian air travellers from Montreal to Burlington, Vermont, and from the southern British Columbia mainland to Washington state (the home of the aforementioned Bellingham Airport).

Another advantage for Canadians flying from Buffalo to another US destination is that the flight is domestic not international, which means lower US fees and taxes - which are already cheaper than Canadian equivalents.

Richard Koroscil, President and CEO of John C. Munro Hamilton International Airport, acknowledges the threat, stating, "It's a concern to all Canadian airports in terms of our competitiveness with U.S. airports. We have an uncompetitive fee and tax structure in Canada that makes it more difficult for any Canadian airport." However, Mr Koroscil believes Buffalo's growing popularity has a much greater impact on Toronto’s than Hamilton's airport. In fact he argues that the Canadian domestic product on offer at Hamilton is sufficiently good that it lures Americans to cross the border the other way.

The best of both worlds

Buffalo's popularity with Canadian travellers provides the US LCCs such as JetBlue and Southwest with the best of both worlds. Their flights operate as domestic routes within the US but they are attracting Canadians without having to establish an international operation. By comparison, Air Canada appears to have made the strategic decision to seek out higher-paying business and first class passengers and to leave the cheap flights that appeal to price-conscious travellers to the LCCs in Buffalo. But just one look at the clear and present danger being faced by British Airways, which adopted exactly the same policy, focusing on a long haul business product at the expense of short haul leisure passengers that drifted into the welcoming arms of Ryanair and easyJet, should convince the Air Canada management to revise that policy forthwith, before the likes of JetBlue and Southwest come knocking on the door at Pearson, irrespective of the cost there.

For Buffalo and other aspiring low cost airports in North America the next acid test, just as it has been with AirAsia X and its expansion into long haul markets well away from its Kuala Lumpur base (e.g. London Stansted) will be the anticipated launch of Ryanair’s long haul operations, if it ever happens. During 2008 there was speculation that the first destination for such an airline might be Niagara Falls International Airport (NFIA).

Actually that airport is the one situated at Niagara Falls itself, four miles from the central business district (still within New York State, not on the Canadian side of the Falls); not the Buffalo Niagara Falls International Airport (BNFIA). Both have the same management. This sort of name confusion exists elsewhere in North America, the aforementioned Branson Airport in Missouri not to be confused with Springfield-Branson airport, some 50 miles away and which hitherto was the main aerial gateway to Branson and its tourist attractions.

In a further twist, NFIA, much smaller than BNFIA, currently handles ‘scheduled charter’ flights, for example a regular one to Fort Myers that ferries both US and Canadian citizens to Florida’s warmer climate during the winter!

NB: Low Cost Airport & Terminals updates from around the world are regularly provided in Peanuts! Weekly.

Background information:

Further Information on companies mentioned in this report can be found as follows:

• Hamilton and Toronto airports – Airport Investor Monthly (AIM) #28 – Feb-07
• Branson Airport – AIM #51, Jan-09 and AIM #55, May-09
• Low cost airports in general – the Low Cost Airports and Terminals report, now reduced in price by 50% to USD875.