Spurred by a recent double-digit drop in traffic at Denver International Airport, city officials are exploring the use of a controversial carrot to lure discount carrier Southwest Airlines: a subsidy funded by the state aviation fuel tax.
Mayor Wellington Webb and aviation director Jim DeLong will travel to Southwest's Texas headquarters next month to deliver a high-level sales pitch. But the airline promises to be a hard sell. The carrier continues to insist that DIA is too expensive to use--and any carrot tempting enough to attract the low-cost giant may have to be gold-plated.
Denver's ongoing effort to woo airlines to DIA has taken officials as far afield as London and Frankfurt. But the most familiar path they've traveled is to Southwest's three-story command post in downtown Dallas. DeLong has already flown there several times in a desperate attempt to spark interest in DIA, and sources say his past discussions with Southwest executives have at times been heated.
However, faced with dwindling traffic flow in an airport saddled with nearly $250 million per year in bond debt, the city apparently considers Southwest worth fighting for. By offering frequent service to popular destinations at rock-bottom prices, the airline has been consistently profitable--a rarity in the dog-eat-dog aviation world. Drawing it to Denver would not only boost sagging passenger counts, it would bring badly needed competition to a market dominated by United Airlines.
As Denver travelers know all too well, the loss of Continental Airlines' hub here left many local passengers at the mercy of United, which hiked fares dramatically on many routes. Higher rates have discouraged people from flying, one reason passenger traffic fell 11 percent this September from the same time last year.
"The advantage [of luring Southwest] would be stimulation of traffic at DIA," says Diane Koller, the city's deputy director of aviation. "Low-cost fares encourage people to fly. Frontier Airlines has shown that."
Koller won't reveal the formal proposal the city plans to make to Southwest next month, but she acknowledges that the fuel tax is under discussion. The state would have to okay the use of those revenues to bring Southwest to Denver.
Last year the state collected $5 million in aviation fuel-tax revenues at DIA, and the city collected $6.9 million.
The last time airport officials floated the idea of using fuel-tax money to subsidize an airline was a plan to use $30 million as collateral to help MarkAir expand its fleet of airplanes and move its corporate headquarters to Denver from Alaska. City officials were gung-ho to do the deal; they backed away only after a New York bond-rating agency strongly objected to the planned subsidy.
MarkAir went out of business last month and still owes Denver more than $3 million, including $1.6 million in airport taxes that it collected from passengers but never forwarded to the city.
By contrast, Southwest is a pillar of financial stability. But while the airline acknowledges that Denver is an attractive market, it says DIA is just too expensive to use.
"In our system, it costs us an average of $3.50 to board a passenger," says Pete McGlade, Southwest's vice-president of schedule planning. "At DIA, it costs about $18. The cost issue is a showstopper. They're trying to sell a Rolls-Royce, and I can only afford a Mitsubishi."
However, McGlade says the airline is always open to hearing Denver's proposals. If not for the cost, he says, coming to Denver would be a slam dunk for the carrier. "It could do marvelous things for us because of its location," notes McGlade. "We would find the Denver market attractive."
Koller says Denver's central location is a potential draw to Southwest. "Since they're built up so much on the East Coast and West Coast in terms of route structure, they need someplace in the middle of the country," she says. "Yes, this is one of the most expensive airports in the country, but airport costs are only 5 to 7 percent of an airline's operating budget."
Airport officials also are talking to two other discount carriers, ValuJet and Reno Air. However, a subsidy to Southwest or anyone else would likely draw fire from existing DIA carriers. Denver-based Frontier Airlines will soon be DIA's number-two airline behind United, and it looks warily upon any potential city inducements to Southwest.
"If they made offers to Southwest and not the other carriers, it wouldn't be fair," says Frontier president Sam Addoms. "Large companies have distinct advantages over small ones. Would Southwest be a competitor of ours? You bet."
And while DeLong and other Denver officials continue to rack up frequent-flyer miles to Dallas, most industry analysts remain skeptical that Southwest will ever fly out of DIA.
"It's Denver's wet dream to try to get them up there," says Scott Hamilton, editor of the Dallas-based trade journal Commercial Aviation Report. "The cost of operating out of DIA isn't conducive. Also, the all-weather airport has proved to be anything but. If Denver had a cheaper airport and better weather, you probably would see them up there."
Hamilton adds that Southwest is probably too focused on major investments it has made in other markets to seriously consider serving DIA. "Southwest has made a big commitment to put planes in Florida," he says. "They have other fish to fry, at less cost. For Denver to suggest Southwest is coming is just plain wrong.
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