Angel at the Airport

Wichita is providing a discount air carrier with a $5 million subsidy in an effort to bring cheaper air service to its airport.
by | December 2002
 

For somebody who travels a lot, I live a long way from any airport. From my house, it's 45 miles to Santa Barbara, where regional jets can whisk me quickly (though expensively) to places like Salt Lake City and Denver. It's 60 miles to Burbank, where Southwest Airlines takes me up and down California on a regular basis. And it's 70 miles--and a lot of hassle--to flights out of Los Angeles, which can take me anywhere in the world.

I live in an affluent county of 800,000 people, so you'd think I would have a better alternative closer to home. But somehow it doesn't work out that way. There's no jet service anywhere in my county. Although it's only a 10-minute drive to Oxnard Airport, once I'm at that tiny facility all I can do is fly on United to LAX. The runway at Oxnard is littered with the carcasses of small regional airlines that have failed in their attempts to lasso us locals and take us to regional hubs such as San Francisco, Las Vegas and Phoenix.

So as a traveler I felt a little envious recently when I read about Wichita's "Fair Fare$" effort, designed to bring low-cost airlines into Wichita's relatively small market. Wichita's problem was not a lack of air service but a lack of cheap air service. Major air carriers serve Wichita, but fares are so high that Wichitans regularly drive three or four hours to Kansas City and other major air markets to save money.

In response, Wichita did something no city had ever done before: It provided AirTran, a discount air carrier, with a subsidy of $5 million. The city agreed to subsidize AirTran up to $3 million the first year and $1.5 million the second year; to hold AirTran harmless for the fuel cost increases; and to pay for AirTran's advertising campaign.

The result is a mixed bag so far. Wichita has cheaper air service now. Other discount airlines have entered the market, and prices have gone down a lot. But at the same time, AirTran is chewing through the public subsidy faster than anyone expected, and there has been considerable public controversy about the tactic.

The basic question in the Wichita air service situation is the same one that underlies so many economic development decisions: Which pieces of economic infrastructure are so essential to a city or a region that they must be maintained--even at public expense--if the market does not provide them? You can ask this same question not only about air service (or cheap air service) but also about convention centers, sports teams, airports, rail service, job skills and so on.

This has become a more difficult question in recent years because the federal government has largely withdrawn from the debate (even though it still provides much of the money). Going back almost 200 years--to the transcontinental railroad and before--the federal government has usually proven willing to pay, cajole, influence and sometimes even force private businesses to create and maintain this infrastructure. But in the past 20 years or so, things have changed.

One of my most vivid memories as a young reporter was attending a meeting of the Civil Aeronautics Board in Washington, D.C., back in 1979. As I watched the board's chairman, Alfred Kahn, implement his vision of economic deregulation of airlines, I didn't realize the magnitude of what he was up to. By eliminating the regulatory requirements that airlines serve certain markets at certain prices, he was laying the foundation for efforts such as Wichita's today. If we do not have a national policy that forces internal subsidies within industries such as airlines, then cities and regions will use anything they can dream up to get what they think they need--or they will risk falling behind in the ruthless economic game that we play in the United States.

Since state and local governments can't effectively regulate national industries, it's no surprise that they will use subsidies in all kinds of creative ways, including giving direct payments to individual companies they want. Over the years, I've generally argued that it's a bad idea to lay all your chips on an individual business, and that cities and states are better off investing in the assets required for any business to succeed--the transportation system, the labor force. After all, you can't guarantee how the market will respond to any individual business' products.

But are some industries so vital and so concentrated that they're different? Is there no other way to get good air service at a good price than to simply subsidize the airlines directly? Maybe, thanks to Alfred Kahn, it's the only way to get the job done. Or maybe the Wichita gambit can best be viewed as a way to prime the pump: Stimulate latent air travel demand in Wichita with lower prices. After all, Southwest and other discount airlines have done this all over the nation in larger markets. Maybe Wichita can do the same, and then remove the subsidy when the market is booming.

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