Vacation habits factor into Steamboat Springs air program performance
July 29, 2011
Steamboat Springs — If airline executives were running candy stores, Steamboat resort officials might pick and choose the days jets fly here from cities like Atlanta and Chicago to maximize the number of passengers on each flight.
But it doesn't work that way, Steamboat Ski & Resort Corp. Senior Vice President of Sales and Marketing Rob Perlman said Friday.
"Three or four times, airline execs have given us this speech," Perlman said. "They say, 'This isn't a candy store. You don't get to pick and choose just the ones you want."'
The resort community is close to persuading City Council to place a 0.25 percent citywide sales tax before the voters in November to increase revenues needed to continue enticing airlines to deliver vacationers here during ski season.
The program currently is funded in equal shares by Ski Corp. and the proceeds of a 2 percent lodging tax. Local businesses contribute $100,000 annually through the Fly Steamboat program.
Without new revenues, resort leaders say, they will soon eat through their reserves as they risk $3.35 million in revenue guarantees promised to five airlines for the upcoming winter. How much they actually end up turning over to the airlines depends on the business performance of the flights.
A tough bargain
When Ski Corp. executives negotiate annual contracts with the airlines that fly here in winter, they're dealing with companies intent on maximizing the return on their aircraft fleets, Perlman said.
That means in order to contract for ski season jet service, the resort must commit to daily service on direct flights from cities like Dallas, Houston and Minneapolis. They accept the fact that will be days of the week — Mondays and Tuesday, for example — when only a few vacationers want to get on a plane and fly to Steamboat.
"Most of our visitors want to take in a weekend while they are here," Ski Corp. Airline Program Director Janet Fischer said. "They want to arrive on Thursday, Friday or Saturday and go home on Sunday or Monday. They follow school vacation patterns. That's why we have to guarantee revenues to the airlines."
A quick look at some daily load factors this year make the point.
On Monday, Jan. 17, just 268 passengers were expected to arrive at YVRA, equaling a load factor of 26 percent. And the next day's projected arrivals were even lower — a 22 percent load factor.
The preceding Saturday had been much stronger, with 1,165 arriving passengers for an 84 percent load factor. And by Saturday, Feb. 26, load factors jumped to 96 percent with 1,334 arriving passengers.
Record revenue guarantees
The $3.35 million in revenue guarantees promised to airlines for the coming winter are potentially the most ever. However, the actual amount sent to the airlines is likely to be somewhat less than that based not just on how full the aircraft seats are, but also on how much people paid for their tickets.
Ticket prices combined with load factors ultimately determine a route's financial performance and whether Steamboat will pay the full amount of its revenue guarantees to each airline.
A flight's yield can be influenced by many factors, Perlman said, from jumps in aviation fuel prices to national recessions to snowfall patterns.
In winter 2005-06, when load factors were the highest in the 25-year history of Steamboat's airline program at 75 percent, yields also were strong.
"That was one of the best years ever for Steamboat," Perlman said. People were confident in their jobs and investments, and were willing to spend freely. And to help things along, the ski area had a strong early snow message with 83 inches of snow in November and 105 inches in December on the way to a 432-inch season.
That winter, available seats were down 4 percent, but passenger numbers jumped to 103,305 and the airline program paid just $257,992 to the airlines against guarantees of $2.52 million.
"We were also able to negotiate very favorable contracts that year," Fischer said.
The great recession was beginning to kick in during winter 2007-08, but Ski Corp. went into the season with a large number of reservations on the books and vacationers had yet to really feel the impacts of the economic downturn, Perlman said. Steamboat contracted for 162,700 seats, the most ever, and 111,201 passengers resulted. Still, load factors dipped to 68 percent, and the Steamboat airline program wound up owing $1.75 million against total guarantees of $2.45 million.
Air program performance struggled in 2009-10 as rising fuel prices converged with economic hardship, Perlman said. Available seats were reduced by 13 percent and the number of passengers slid by 10 percent to 87,549. The air program paid the most it ever has against its guarantees — $2.64 million, virtually maxing out the guarantee cap of $2.65 million.
It was a one-time event in winter 2010-11 that brought the air program a little breathing room. When an airline unilaterally added a larger aircraft to the Steamboat route, thus driving more passengers and yields against a fixed guarantee, the payment at season's end dropped to $1.9 million.
Fischer said the goal of the airline program isn't to maximize the balance sheet of the jet service, but to fill as many seats as possible. There are times when the latter goal is in conflict with the former. At times, Ski Corp. persuades the airlines to include reduced fairs in a travel package that drives vacationers into periods of soft demand, effectively lowering overall yields.
"As a company, we're more interested in filling as many seats as possible rather than trying to sell up to bolster yield," Fischer said.
To reach Tom Ross, call 970-871-4205 or email tross@SteamboatToday.com