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Should Ohio pay to attract new international flights? Pittsburgh did

August 4, 2018

Should Ohio pay to attract new international flights? Pittsburgh did

CLEVELAND, Ohio – British Airways announced last week it would start flying between London and Pittsburgh next spring, a flight that Cleveland Hopkins International Airport officials admit they would love to have landed.

One of the reasons they didn’t: the state of Pennsylvania is paying the airline $3 million over the next two years to operate the route.

Ohio hasn’t subsidized commercial air service in recent years, although a group of aviation executives in the state is hoping to change that.

The Ohio Aviation Association, which represents dozens of airports in Ohio, including Cleveland’s, hopes to educate and influence government leaders about the importance of new air service, particularly international service, with the goal of getting the state to create a fund to subsidize or otherwise entice new air service.

Pennsylvania has such a fund. So do Indiana, Michigan and Kentucky.

“States all around us are recognizing the importance of aviation, the importance of air service,” said Stacey Heaton, executive director of the OAA. “It’s an economic development issue. It’s key to the state of Ohio, which is the birthplace of aviation.”

The fierce competition for new international service may be particularly swayed by economic incentives, said Heaton. In addition to Pittsburgh’s new London service, she cites as an example new service from Indianapolis to Paris on Delta Air Lines, which started in May. Indiana is paying Delta up to $5.5 million over two years for the flight.

Airports in Ohio, including Cleveland, do provide financial support to airlines that are starting service. Cleveland Hopkins International Airport, for example, is providing $500,000 per year for two years to both Icelandair and Wow Air to support new service to Reykjavik.

U.S. airports are restricted by Federal Aviation Administration rules on what the money can be spent on. Airports, for example, can waive landing and other fees, and assist with marketing a new flight. But they cannot directly subsidize new flights.

In recent years, states have become bigger players in the competition for air service, according to Russell Mills, director of the Center for Regional Development at Bowling Green State University, who has researched the use and effectiveness of air service incentives in the United States.

According to his research, 17 states offer some kind of air service incentive funding, and several others are considering it.

States pay for these incentives in different ways; Pennsylvania’s air service incentive money comes from casino revenue, which is also helping to pay down Pittsburgh airport’s debt and fund a new terminal.

“Pittsburgh has a dedicated funding source from the state,” said Mills, who is vice president of the OAA board. “I can’t tell you how big of a deal that is.”

Mills said airlines don’t make decisions entirely based on financial incentives. Indeed, British Airways may well have chosen Pittsburgh without the state’s $3 million contribution.

Among Pittsburgh’s advantages: The airline already had a relationship with the city, having previously operated a Pittsburgh-to-London route back in the 1990s.

Pittsburgh also has strong ties to Oneworld, the airline alliance that includes British Airways and American Airlines. Once a hub for US Airways, which merged with American in 2013, Pittsburgh maintains a large base of American frequent fliers.

Finally, Pittsburgh has proven it can support several transatlantic routes, including a Delta Air Lines flight to Paris, a Condor flight to Frankfurt and Wow Air to Iceland. All began with some kind of incentive package.

“Incentives are a portion of the total package, but the best way to gain new service is to sell the region with stakeholders and partnerships that best show the region’s attributes and assets to an airline,” said Bob Kerlik, vice president of media relations for Pittsburgh International Airport.

British Airways did not respond to questions about how it made its decision to fly from Pittsburgh. But the airline has received similar economic sweeteners from several newly served U.S. cities, including Nashville.

European carriers, immune from FAA rules except in the United States, tend to negotiate more aggressively for incentives, Mills said.

Mills believes those investments are almost always worth it. “These flights have a huge economic return, particularly international service,” he said. The Pittsburgh airport estimates the economic impact of the British Airways flight at $57 million a year.

Generally, incentives are designed to assist routes only in the first year or two, until they get established.

Industry consultant Robert Mann said these incentive programs aren’t always a smart investment because subsidized routes don’t always succeed. And even if they do, this increasing competition among airports may not be wise, he said.

“All it’s doing is playing to an airline industry that is increasingly profitable and frankly, not in need of this kind of subsidy,” said Mann, the owner of R.W. Mann & Co. outside New York City. “When you look at it from 30,000 feet, it sure looks like a race to the bottom to me.”

Airports that don’t come up with incentive packages, however, are at risk of being left behind, said Tory Richardson, the executive vice president of the Columbus Regional Airport Authority, which oversees John Glenn Columbus International Airport.

Richardson believes that Columbus has been passed over for new routes because the airport couldn’t come up with as generous of incentive packages as airports in nearby states. Depending on how you define the region, Columbus is one of the largest cities in the country without nonstop service to Europe.

Richardson, a past president of the OAA, supports the organization’s efforts to get the state more involved in air-service development.

“Whether you want to be or not, you have to be,” he said. “You have to play the game or you’re going to get passed by.”

According to Richardson, a group of Ohio airport executives met several years ago with representatives from JobsOhio, the economic development arm of the state. The goal was to educate state leaders on the economic impact of air service. Those talks didn’t yield any concrete results, but Richardson said it’s important to try again.

The organization is advocating for the creation of a $15 million state fund that could be tapped for air service incentives. Association leaders are reaching out to both major party candidates for governor, as well as members of the Ohio legislature, to seek support.

“Ohio has to recognize that other states are in this game because they know it’s good for their state,” he said. “If Ohio chooses not to invest, that’s fine. But at least it will be an educated decision.”

Cleveland airport officials, too, think financial support from the state would aid Hopkins in landing new service.

“It would be to everyone’s benefit for the state to play a larger role in air-service development,” said Todd Payne, chief of air-service development and marketing for Cleveland Hopkins International Airport.

Cleveland lost out to Pittsburgh two years ago, when Wow Air announced new service between Pittsburgh and Reykjavik. A year later, Wow decided to fly from Cleveland, too. Wow’s service to Iceland from Cleveland Hopkins started in May.

Interestingly, Cleveland’s incentive package to Wow ($1 million over two years) is larger than Pittsburgh’s ($800,000 over two years). But the sources of that revenue are different.

Meanwhile, Payne said airport officials are in regular contact with numerous carriers about bringing additional service to Europe, including International Airlines Group, the parent company of British Airways.

He believes Cleveland makes a strong case for increased European service, particularly with the opening of a new Cleveland Clinic facility in London in 2021.

What would make it even stronger, he said: Financial help from the state.

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