Flying Low

Flying Low

ECONOMY by Jean Gruss | Editor/Lee-Collier

Tourism has been one of the few economic bright spots on the Gulf Coast, but the airlines' woes may crimp the industry's growth. One potential salvation: international visitors.

The Gulf Coast's airports are the lifeblood of the hospitality industry. So when passenger traffic drops hoteliers pay attention.

We all know what's behind the nearly daily reports of airlines cutting back service: persistently high oil prices. Already, Southwest Florida International Airport reported a nearly 10% drop in passenger traffic in April compared with the same month a year ago. At St. Petersburg-Clearwater International Airport, 30% of the airport's passenger traffic could vanish when discount airline USA 3000 pulls out in August. At Tampa International Airport and Sarasota-Bradenton International Airport, officials are just hoping airlines don't pull out or cut service too dramatically.

With the airline industry projected to lose $6.1 billion this year if oil prices stay high, it's hard to imagine Florida remaining unaffected. "How will June and July do?" wonders Tony Lapi, president and chief executive officer of 'Tween Waters Inn on Captiva Island near Fort Myers. "If the seats aren't available and the deals aren't there, [visitors] aren't going to hop down."

Further up the coast, hoteliers are reporting a slow start to the summer season. "Leisure is definitely soft and reservations are way behind what they were a year ago," says Tim Bogott, president and chief executive officer of Trade Winds Island Resorts on St. Petersburg Beach.

Hoteliers are reporting last-minute bookings reminiscent of the travel patterns that emerged during the last recession that followed the terror attacks of Sept. 11, 2001. "People do not seem to be making early commitments," Bogott says.

So far, hoteliers aren't seeing European vacationers in the numbers they were hoping for even though international-passenger traffic is one of the few bright spots. For example, international-passenger traffic rose 4.2% at Tampa International compared with a domestic-passenger decline of 1.5% in April.

A big advantage for Gulf Coast airports is that none is a hub airport at the mercy of a single airline's fortunes. "We have been lucky. We're a spoke in everybody's hub," says Robert Ball, executive director of Southwest Florida International Airport in Fort Myers.

What's more, low-cost carriers have become the leading passenger carriers at Gulf Coast airports, which may insulate them better from the economic distress hitting "legacy" carriers such as American Airlines. At Tampa International, Southwest Airlines is the largest passenger carrier with just 27% of the market. Even though JetBlue is the largest carrier at Southwest Florida International Airport, the airline carried just 13% of passengers through the Fort Myers airport in April.

Airlines cut service

High oil prices have forced many airlines to cut all but their most profitable routes. They're also mothballing fuel inefficient planes and replacing larger jets with smaller regional jets.

"Where we're going to end up I don't know," concedes Ball. "The price of oil changes everything."

The climbing price of oil has forced six airlines into bankruptcy and the commodity now represents the largest portion of airlines' costs, replacing labor. "There has to be consolidation and liquidation," says Ball, who is projecting an 8% decline in the number of passengers at the Fort Myers airport this year.

So far, Gulf Coast airports have been affected unevenly. While Fort Myers and St. Petersburg's airports are projecting passenger declines, Tampa and Sarasota haven't been as hard hit yet.

"For the next few months I expect we'll be a little bit on the negative side," says Trudi Carson, director of air service development at Tampa International Airport. Tampa has an advantage over other Gulf Coast airports because one third of its passenger traffic is business-related and less vulnerable to declining consumer spending.

"I think at the end of the year if we can remain flat we've done well," says Fredrick Piccolo, president and chief executive officer of Sarasota-Bradenton International Airport. Roughly two-thirds of Sarasota's airport passenger traffic is carried by legacy carriers, which may put it at greater risk to cut backs than other Gulf Coast airports dominated by low-cost airlines.

At St. Petersburg-Clearwater International Airport, it's not clear how well charter business will hold up. If oil prices fall, discount airline USA 3000 will likely return. "I use to say my crystal ball is cloudy. Now, my crystal ball is broken," says Noah Lagos, that airport's director.

Airfares likely to rise

With smaller planes and fewer seats, airport officials say it's only a matter of time before fares begin to rise materially. At what point will airfares rise to the level that materially cuts passenger traffic? "I don't know where that threshold is," concedes Ball.

This is no small matter. Florida's tourism industry has grown on the tonic of low airfares and plentiful flights.

So far, April's nearly 10% drop in passenger traffic at Fort Myers' airport has not yet translated into a corresponding drop in hotel occupancy. Tourism taxes were down 5% in April in Fort Myers, but that may have had more to do with the fact that Easter fell earlier in March this year, says Suya Davenport, executive director of the Lee County Visitor & Convention Bureau.

The drop in visitors doesn't necessarily correspond to financial losses for hoteliers, however. "There are fewer visitors yet spending is up, which is telling us the more affluent travelers are still coming," says Clark Hill, general manager of the Naples Hilton. Hill says a friend in Houston recently paid $250 round-trip for air travel to Fort Myers with just a few weeks in advance.

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Facing a domestic decline in passenger traffic, Gulf Coast airports and hoteliers are targeting Europeans in the hopes that they offset the drop in American travelers. But hoteliers won't know whether that effort is successful until summer or fall, the traditional travel time for Europeans.

"We haven't seen that result yet," says Bogott. "We're seeing some increase, but not major."

Europeans are also concerned about high transatlantic airfares and economic uncertainty that has spread globally. "They know the package when they get here is going to be very good, but how much is it going to cost to get here?"

In Naples, Hill expects Germans in late summer and fall. "We should be able to replace domestic demand with European travelers," Hill says. So far, he's seen more British than German tourists.

One positive is that Europe is deregulating its airlines, which may be more service to the Gulf Coast. "They're going through the growth we had in the early '80s," says Ball.

Once Europeans travel to the U.S., they tend to stay twice as long and spend more than their American counterparts. "Some of them come over with one suitcase and go home with three," Davenport says. In Lee County, international visitors spend an average seven days compared with three to four nights for domestic travelers.

Hoteliers on the Gulf Coast also are targeting people who would rather drive than pay a high airfare. For example, the Lee County Visitor & Convention Bureau is spending 64% of its annual media budget to attract instate visitors. That includes billboards on Florida's east coast and radio and television ads in Tampa and Orlando.

"Gas prices are high, but it's a half tank to Fort Lauderdale, so it's still doable," says Hill. The Naples Hilton has a promotion that includes two nights with two motor scooters to zip around Naples. "We have to meet those challenges and get creative," he says.

GULF COAST AIR PASSENGER TRAFFIC

April April YTD YTD

Airport 2007 2008 change 2007 2008 change

Tampa International 1,779,365 1,754,743 -1.38% 6,800,147 6,818,667 0.27%

Southwest Florida Int. 924,919 834,689 -9.76% 3,631,278 3,472,897 -4.36%

Sarasota Bradenton Int. 172,526 170,109 -1.40% 661,102 689,493 4.29%

St. Pete-Clearwater Int. 68,636 81,617 18.91% 262,128 343,487 31.04%

TOTAL 2,945,446 2,841,158 -3.54% 11,354,655 11,324,544 -0.27%

REVIEW SUMMARY

Trend. Softening airport-passenger traffic

Impact. The hospitality industry may feel the airlines' woes this summer.

Key. Airports are targeting international markets and tourism officials are hoping more Floridians will spend vacations in the state.