Airport’s retention efforts pay off

The days of driving out of town to catch a flight appear to be over for many air travelers.

In 2009, the Sioux Falls Regional Airport estimated it captured 55.5 percent of market share. At that time, 29 percent of potential passengers flew out of Omaha. Eight percent went to Minneapolis.

Fast-forward to 2015, and there’s a significant shift.

An updated leakage study recently released found Sioux Falls capturing 86 percent of market share. Minneapolis draws more passengers – 7.6 percent of the Sioux Falls market – than Omaha, which has dropped to 5.5 percent.

“We’ve made pretty stark improvements in trying to keep our local passengers,” said Dan Letellier, the airport’s executive director.

Dave Nelson, the chairman of the airport authority, agreed.

“It’s something to be very proud of,” he said. “There’s good news at the airport. Good things are happening really on all fronts, and it’s great to see that because we’ve been through other times. It’s hard to see people driving down the interstate and leaving our city to find a cheaper fare.”

By next spring, the airport projects its annual capacity will be up 6 percent year-over-year.

“Sioux Falls is a very strong and profitable market for most airlines,” said Mike Lum, an air service strategy and development consultant with Sixel Consulting Group, which works with the airport. “Given the capacity increases we’re seeing in Sioux Falls between now and end of the first quarter 2017, airlines are very bullish right now on Sioux Falls.”

Retaining service, much less expanding it, is a continual endeavor, though. The airline industry is facing a pilot shortage that has started to effect Sioux Falls in some ways, including its effort to attract nonstop service to Seattle.

“You can talk about Salt Lake or Seattle or Charlotte, and the airlines say, ‘That’s great; however, we have trouble flying our existing route,’ ” Letellier said. “We’re just trying to tread water and keep the flights going. For us, being able to stay consistent or a few percentage points ahead in available seats is where we’re at today.”

Swaying passengers

When Frontier Airlines entered the Sioux Falls market in 2012, it had a significant impact on airfares and, by extension, passenger retention.

Travelers who were driving to Omaha to fly Southwest Airlines started sticking with Sioux Falls as the major carriers dropped fares to compete with Frontier, Lum said.

“And Southwest doesn’t have the low fares it once had,” he added. “They’re still low, but they’re not as low as they were eight years ago.”

The average one-way domestic fare in Sioux Falls at the end of last year was $218, compared with $197 in Minneapolis and Omaha, for example.

“If you’re a family of five that could save $400 or $500, you’ll probably drive to Minneapolis to save that, but if you’re a couple going to Vegas for the weekend, you’ll probably fly out of Sioux Falls. Business travelers are more likely to fly out of Sioux Falls,” Letellier said.

As airlines add capacity, fares also tend to drop, Lum said.

“The larger aircraft will help,” he said. “Generally what’s happening with American and United is as they retire 50-seat regional jets they’re replacing them with 70- or 76-seat regional jets, and generally the capacity does get bumped up.”

Sioux Falls has invested in marketing, too. An air-service committee established several years ago through Forward Sioux Falls.

“What we really learned was increased destinations, increased number of flights are absolutely a function of people in seats,” said Dr. Dave Kapaska, regional president and CEO of Avera McKennan and a member of the committee. “We took an approach that if people in seats were most important, how could we help with that?”

The committee marketed to potential travelers living within a 60- to 90-minute drive of Sioux Falls, he said, focusing on the convenience of flying out of Sioux Falls and airport improvements such as more parking.

“Our intention is that will continue,” he said.

An enhanced area for U.S. Customs also is helping air travel, he added.

“Customs at the airport is very important for Canadian and Mexican business, but even Japan, China, Korea, we do a lot of business with those folks,” Kapaska said. “That ability allows companies with a significant international footprint an important access point, so we’ve worked hard on that.”

Another opportunity to develop air service may include charter flights to countries that have been pre-approved by the U.S. Customs and Border Protection to fly directly back and forth from Sioux Falls. Those include destinations in Aruba, the Bahamas, Bermuda, Canada, Ireland and the United Arab Emirates.

“That’s my goal to work on next,” Kapaska said. “It’s another opportunity to enhance the travel opportunities and the whole look of the airport.”

Seeking pilots

Jeremia Nicholson is pursuing a profession that’s increasingly in demand.

He moved to Sioux Falls this summer from St. Cloud, Minn., to train at Sioux Falls Flight School.

“That was the sole reason for my coming to Sioux Falls,” said Nicholson, a Wyoming native who estimates he is about a month away from earning his private pilot license.

From there, he plans to buy an aircraft, hire an instructor and become an instrument-rated commercial pilot.

“I’m going to use that license to do crop-dusting, and I have a job offer back in Wyoming for wildfires as well,” he said. “And I have a couple opportunities, too, in Montana and Oregon to fly for a charter company, so it’s definitely something in the back of my mind.”

A self-described “adrenaline junkie,” he said the chance to travel appealed to him.

“I love it,” he said. “It’s the opportunity to go anywhere around the country and get to see all the way from Florida to Nebraska and Montana and even other countries.”

The airline industry will need more people like him, however, if it’s going to meet projected passenger demand and comply with regulations that can make staffing challenging.

The 2016 Boeing Pilot & Technician Outlook, an often-referenced industry forecast of personnel demand, projects that 617,000 new commercial airline pilots, 679,000 new maintenance technicians and 814,000 new cabin crew will be needed to fly and maintain the world fleet over the next 20 years.

That includes the need for 112,000 pilots in North America by 2035.

“That’s probably the darkest cloud that hangs over air service, especially in small communities served by regional airlines,” Letellier said. “The situation is going to become more and more dire unless there are some changes to the pipeline of new pilots in the industry.”

Sioux Falls is “right on the bubble of being directly impacted by the pilot shortage,” he said. “You’re seeing that more in smaller cities.”

Pilots are required to retire at age 65, and the industry is anticipating “a huge bubble” of retirements in the next five years, Letellier said.

Add to that the fairly new requirements that, before being hired, first officers, or co-pilots, have been required since 2013 to have 1,500 flight hours compared with 250 hours.

In that time, more than 30 cities have lost all commercial air service. Cities in South Dakota in jeopardy of meeting the same fate include Huron, Pierre and Watertown, Letellier said. Sioux Falls has seen fewer regional airline flights during some parts of the year.

“We had three trips a day to Dallas on older 50-seat regional jets, with no first-class cabin, and now they go twice a day with new 76-seat aircraft that does have a first-class cabin,” Letellier said. “You’ve seen Delta do that with flights to Minneapolis as well.”

Federal legislation calls for an industry working group to evaluate the pilot shortage and make recommendations.

In the meantime, businesses such as the Sioux Falls Flight School see an opportunity.

Owner Clay Anderson recently contacted guidance counselors at Sioux Falls high schools and is planning a webinar to detail the demand for new pilots.

“It’s a great opportunity, and there’s very limited information out there. Our natural market in Sioux Falls is kind of the middle-age guy or gal interested in learning how to fly … but I’m trying to work more in the 17- and 18-year-old market,” he said. “At 17, you can get a private pilot’s license. You can take the FAA written test at 16 and start flying at 10 or 12.”

While a pilot’s starting salary used to deter some people, Anderson said he has seen entry-level pay double in the past five years.

“The scarcity is out there,” he said. “One of my flight instructors was hired at a regional (carrier) and signed a deal for $43,000. You might have some other things like a signing bonus if you can commit for two years. These guys are highly sought after.”

While major airlines also require a four-year degree, Anderson said that also might ease.

“My gut says the pendulum has to swing,” he said.

Making plans

Sioux Falls airport officials still would like to attract direct service to Seattle. Alaska Airlines eventually may add the flight, they said.

One recent victory added new direct service to Phoenix from American Airlines.

But the bigger strategy focuses on retention. Frontier, for instance, has changed its business model since coming to Sioux Falls and pulled out of several small markets. It stops service here during the winter but runs it the rest of the year.

“Sioux Falls is lucky we still have Frontier,” Lum said. “Retaining Frontier at this point is our key focus. If we were to lose Frontier, our fares would go up. There would be a whole lot less competition in the Sioux Falls market.”

The airport, however, also is preparing for the future. It recently wrapped up a two-year renovation to change the look of the lobby, expand the security checkpoint and redo how travelers move from one floor to another.

Two large mosaic tile murals will be installed in the lobby, and the airport made what Letellier calls a significant investment in local artwork that will arrive by the end of the year, “to really dress it up a bit.”

The airport is working with a parking consultant to determine long-range needs. A report is expected in October. It’s expected that the outlook will call for a parking ramp, possibly in 2021 but potentially sooner, Letellier said.

“We really are kind of at the limits of people walking, and even in winter we provide a shuttle,” he said. “The next step is to look at if we need a year-round shuttle or then need to look at a structure.”

It’s estimated the project could cost at least $20 million. And while the airport has no debt, a funding mechanism hasn’t been determined yet.

“It will help make our facility more user-friendly for passengers and make it a premier facility,” said Nelson, board chairman. “Having said that, there’s a lot of questions about where to put it, how to pay for it and questions about the need during those months when we have a bunch of empty spaces. But as our community continues to grow and our economy continues to expand … the demand for air service continues to increase.”

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Average one-way domestic fare at year-end 2015

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