Tucson International Airport has lost nonstop flights to New York after what was supposed to be a temporary suspension.
But that isn’t stopping local business leaders from continuing to vie for new flights to the Big Apple — despite the loss of $3 million in revenue guarantees pledged to entice American Airlines to launch its flights to John F. Kennedy International Airport.
American suspended its Tucson-JFK flights in May, after nearly seven months during which the airline failed to fill enough seats to turn a profit. The suspension of the JFK flights was announced in January as a way to preserve the guarantee fund after the Tucson route burned through more than $1 million in funding in the first few months.
American initially planned to resume the route in mid-December and possibly continue the flights seasonally.
Though in some months the route nearly reached its nominal goal of 80 percent of seats filled, the passenger shortfall persisted and ate up the rest of the guarantee by the time flights ended in May.
“We are not going to be returning to Tucson from JFK, and that is basically due to market demand,” said Nichelle Tait, an airline spokeswoman.
Tait was noncommittal about a return of the JFK flights by American, which still flies nonstop from Tucson to Chicago O’Hare, Dallas/Fort Worth, Los Angeles and Phoenix.
“There’s a constant evaluation of our international and domestic networks, kind of just seeing what works and what doesn’t work,” she said. “You can never say never, but we’re always evaluating our networks.”
Local businessman Bill Assenmacher and Tucson Metro Chamber CEO Mike Varney led an air-service task force to entice American to launch the JFK flights.
Assenmacher says he believes the JFK route could have reached the break-even point given more time to raise public awareness of the flights.
Other factors included keen price competition from other carriers in direct response to American’s launch and the size of the airplanes American flew on the Tucson-JFK route.
“I think we’ve learned a lot with the American Airlines situation. The greatest thing is that we cannot control the price of airfare being sold on the open market,” Assenmacher said at a Tucson Airport Authority board meeting last Wednesday.
“There’s tremendous competition,” Assenmacher said. “Some of the airlines kind of pick on each other to try to make someone pay for the fact they’re picking up new service.”
American had expected to be able to charge a small premium on its JFK fare for the luxury of nonstop service, Assenmacher said.
But he said not enough passengers were willing to pay that premium — though in some cases it was only $15 or $20 — amid lower fares with one-stop service through Phoenix, for example.
Compared with a decade ago, passengers are more focused on finding the cheapest possible fare they find online.
The use of somewhat smaller planes would have also helped, Assenmacher said.
American was flying the 160-seat Boeing 737-800 on the flights over the winter, and there were plans to switch to the 128-seat Airbus 319 from June to September, according to details of the air-service revenue agreement provided by Pima County in response to a Star public-records request.
“The data proves we can run a flight 70 to 80 percent full, and I think if we were to have a crack at a more-efficient plane, which is maybe a slightly smaller plane and maybe a slightly lower-cost target, we think we will be able to pick up a new carrier fairly easily,” Assenmacher said.
American’s revenue guarantee was strongly supported by local business leaders and organizations, including Visit Tucson, the area’s main convention and visitors’ bureau, and major hotels and resorts.
The Hilton El Conquistador and other entities owned by Humberto Lopez and his HSL properties committed a total of $250,000, and Loews Ventana Canyon Resort, JW Marriot Starr Pass Resort & Spa, Westin La Paloma and several other hotels kicked in another $250,000 combined, according to documents obtained from the county.
New York was a top target for new nonstop air service because of its importance as a gateway for the East Coast convention market.
Visit Tucson kicked in $250,000 for the revenue guarantee and spent $350,000 on marketing and advertising in the New York market to kick-start the flights, CEO Brent DeRaad said.
N.Y. visitors spend most
The stakes are high, DeRaad said, because New York visitors stay longer and spend more than visitors from anyplace else.
New York is Tucson’s top market for visitor spending in revenue per night at about $864 and revenue per stay of nearly $3,400, according to a visitor analysis conducted last year.
“I certainly wish we had a little more time for the flight to prove itself,” DeRaad said. “We were starting to see a little bit of traction within the meetings market, which really excited us.”
The Tucson Airport Authority, which operates TIA, is unable to provide revenue guarantees under federal rules.
But the Airport Authority offers other incentives to any airline offering new flights on an unserved route, said David Hatfield, senior director of air service development and marketing for the Airport Authority.
The Airport Authority gave American $150,000 for marketing, and the airline was eligible for up to $200,000 in landing fee waivers and $200,000 in terminal rental credits over the two-year deal. The Airport Authority bought billboards and other ads locally.
Similar incentives helped TIA attract a new Alaska Airlines nonstop to Portland, Oregon, in 2013 and a new Alaska route to San Jose, California, that starts later this month.
But overall, it’s a tough sell.
“Basically, the airlines because of the position they’re in, are more risk-averse than ever,” Hatfield said.
“We know enough about what happened with this flight that this can be successful, but its just going to take some time.”
BUYing IN
A number of local business leaders pledged their own money, including Assenmacher, who committed $750,000 and said he’d make up any shortfall as he collects on the other pledges.
Pima County pledged $100,000 and the city of Tucson promised $75,000, or about 6 percent of the overall guarantee fund, according to documents provided by the county.
Some of that money is being paid through a reallocation of bed-tax money that funds about 85 percent of Visit Tucson’s $9 million annual budget through the city and county.
Tucson’s revenue guarantee was similar to others around the nation, Assenmacher and other supporters said.
Examples include Albuquerque, which amassed a $6 million air-service revenue guarantee fund that helped the city attract a JetBlue nonstop to New York a few years ago that is still flying today.
Assenmacher said the American air-service and revenue-guarantee contract is similar to others in the industry and was reviewed and negotiated by the Sixel Consulting Group, which had been consultant to TIA when it was hired by the Chamber.
The JFK setback comes as Mexican startup carrier Aeromar abruptly decided to end service to Tucson last week after a seven-month run.
But local airport, tourism and business leaders aren’t giving up.
Assenmacher said the Chamber is forming a new air-service task force and airport officials are is still in talks with several airlines, including JetBlue, which offered overnight “red-eye” flights between Tucson and JFK that ended in 2008.
Talks also are underway to establish a new air-service guarantee fund using proceeds of bed taxes or other taxes on visitor services, Assenmacher said.
Such an arrangement is used in other communities to help boost tourism without raising general taxes, he said, adding that it could take the form of a new improvement district or piggyback on the current bed-tax system to provide $2 million to $3 million annually for air-service improvements.
The goal is to create a new task force this fall to study the final JFK data and formulate a sustainable new air-service fund, he said.
“Most of the places we compete against, let’s just take Las Vegas and Reno as an example, they are collecting money from visitors with a car-rental or hotel tax, and that money is going into something into the equivalent of a Visit Tucson and used to promote tourism as well as any airline subsidies,” Assenmacher said.
