According to a recent article on PennLive.com, when you type ‘airline’ and ‘revenue guarantee’ in a major search engine and you’ll find articles about airports nationwide that have used and are using revenue guarantees to expand or preserve air service.”
A revenue guarantee is money a regional organization commits to an airline up front in return for the airline bringing in new routes and flights,” according to the PennLive story. Generally, the revenue guarantee is based on the revenue an airline must earn to make it a viable route.
When it comes to airline revenue guarantees, there are always winners and losers as airports compete to attract an airline. Harrisburg International Airport came close to getting an airline to offer direct nonstop service to Denver, but lost its bid for that airline because “the region could not offer a revenue guarantee to the airline to cover the risk of financial loss from the airline providing the new service,” says Harrisburg Airport spokesman, Scott Miller.
Now Harrisburg is hiring a company to help the airport negotiate revenue guarantees with airlines in the future. Last year, “a regional economic development authority” based in Newport News/Williamsburg, Va., offered Frontier Airlines $1.2 million over two years in return for providing new service from that city to Denver.
Similarly, a two-year, $9 million revenue guarantee convinced Delta Air Lines to begin nonstop service from Pittsburgh International Airport to Paris in 2009.
Although it often requires a substantial sum of money to convince an airline to come to town, the business community generally understands the economic benefits an airline can provide.
Miller says the goal is really not to spend the money. That can happen if the airline is able to meet its revenue requirements without the subsidy.
Unfortunately, the problem is not always raising the initial sum needed to interest an airline, but rather the continued financial commitment to keep that airline around year after year if they are unable to generate sufficient revenue on their own.
Photo credit: Ben Mutzabaugh, USA Today
Via USA Today