Airport approves incentive package for airlines to soften state increase in jet fuel tax
The Missoula County Airport Authority on Tuesday voted unanimously to offer an incentive package to commercial airlines serving Missoula to offset lost yields resulting from the state's increase in aviation fuel taxes.
The funding aspect of the package includes $50,000 set aside in marketing fees, though other incentives such as waived landing and terminal fees are also included.
“We're a little concerned that our long-haul routes that have a large fuel burn that operate in the off-season may be a little thin,” airport director Cris Jensen said. “We want to be sure that service is successful.”
The Legislature this session boosted the tax on aviation fuel by 3 cents. It also eliminated the pavement preservation grant once offered to commercial service airports, including Missoula.
While the latter can be overcome, Jensen said, the increase in fuel taxes could put certain routes at risk. Missoula, Bozeman and Billings have worked in recent years to grow their air service, and they all lobbied against the state measure, saying it could send the airlines that serve Montana to other markets.
“Nineteen different states in the nation now provide funds for airline incentives, so we're kind of going backwards in Montana right now,” Jensen said. “Our state really is providing disincentives at this point by increasing fuel costs.”
While 3 cents per gallon sounds small, airlines operate on a tight profit margin and longer routes, such as Chicago, Dallas and Atlanta – all served from Missoula, are generally less profitable.
Jensen said the fuel burn on longer routes runs around 450 gallons per hour. If a flight is three hours long, the costs add up and the profit margin per seat begins to fall.
Spread across all seats, Jensen said, the profit margin from Missoula averages around $13 per passenger. The yield grows smaller over the winter months when flights aren't as full. That makes the routes less profitable for the carrier.
“That's the challenge we're facing,” he said. “As it decreases their yields, it causes the airlines to start looking at other opportunities. We compete with airports all across the country for the limited assets the airlines have available. There may be other airports where the numbers look better than ours, so anything you do to make ours look worse is working against us.”
As approved on Tuesday, the revenue package will include $50,000 in marketing fees. Waiving the landing fees amounts to roughly $32,000 in revenue spread over 180 winter operations while waiving the terminal fees amounts to roughly $36,000.
The airport will also waive ground handling fees, so long as it provides the service.
“This is really for our long-haul markets of over 1,000 miles,” Jensen said. “This is an October through March incentive package. We're not looking at the summer. Those months stand on their own. This is for that time of year when those routes are a little thinner as far as revenue or terms of yield.”
For the past five years, the airport, Destination Missoula and local businesses have worked to compile an incentive package to increase the number of flights and carriers that serve Missoula.
That effort has met with success in recent years, culminating in flights to new markets, including Los Angeles, Dallas and Chicago. American Airlines entered the market two years ago, resulting in downward pressure on ticket prices.
In the fourth quarter of 2018, according to the Bureau of Transportation, Missoula had the lowest average fare in the state at $406. That marked an 11 percent decline in prices and saved Missoula passengers roughly $5 million.
“We got those lower fares for a reason,” said Jeff Roth, chair of the Missoula County Airport Authority.
“There's a big return on investment on this,” added board member Matt Doucette. “It's important.”