Fact Sheet: Agreement with Southwest Airlines and Panama City Airport
October 22
Following the announcement of Southwest Airlines to begin providing service to Panama City International Airport next year, The City of Tallahassee has received inquiries about the city's work to secure airlines, incentive agreements, etc. The following fact sheet is designed to answer these questions.
Southwest Airlines announced on October 21, 2009 its intent on beginning service to Northwest Florida – Panama City International Airport in May 2010 when the new airport is scheduled to open. Southwest announced its intent is to capture some of the 16,000,000 tourists that visit the Panhandle by car each year.
This service is a result of five years of negotiations between Southwest and the St. Joe Company, who is developing 71,000 acres in the vicinity of the new Airport. It includes St. Joe covering losses up to $26 million over the first two years of service. The new service is also tied to $42.5 million in marketing assistance and free room nights
It is anticipated that Southwest will provide two daily flights each to four destinations. Most likely the destinations will include Nashville, Baltimore/Washington D.C., Houston and Chicago Midway.
According to St. Joes’ Security and Exchange Commission Form 8-K Filing, a few of the conditions of the agreement are:
- the term of agreement extends for a period of three years after the commencement of Southwest’s air service at the new airport. The agreement provides St. Joe any Southwest losses up to $14 million in the first year of service, or $12 million in the second year of air service. The third year is subject to negotiation. Southwest may terminate the agreement if its actual annual revenues attributable to the air service at the new airport are less than certain minimum annual amounts established in the agreement.
- the execution of satisfactory agreements between Southwest and the Airport Authority authorizing Southwest to use and lease space at the new airport and to receive any cost mitigation measures that may be available from the Airport Authority;
- the execution of an agreement between Southwest, the Bay County Tourist Development Council, the Panama City Beach Convention and Visitors Bureau and a the Beaches of South Walton Tourist Development Council, no later than 30 days from the date of the agreement, regarding the coordination of marketing resources and efforts for the new air service;
- the execution of an agreement between Southwest and Coastal Vision 3000, no later than 60 days from the date of the agreement, regarding the establishment of a program through with Southwest would receive available room nights free of charge at various rental properties in Northwest Florida for use in the marketing efforts for the new air service;
According to the October 22, 2009, Pensacola News Journal, the Panama City area also offered millions of dollars in community support that includes $22.5 million in bed tax revenue to pay for marketing, advertising and vacation packages; and a minimum of $20 million for free hotel rooms from Coastal Vision 3000 a regional membership group of businesses, hospitality operations and tourism and civic organizations. Hotel owner and developer Julian MacQueen has pledged 45,000 free room nights to Southwest.
David Beckerman, Vice President, Market Intelligence, OAG Aviation Solutions, the Airport’s Air Service Consultant, believes the new service is expected to have very little negative impact on Tallahassee and in fact may be beneficial to Tallahassee. He cites Panama City being a leisure market versus Tallahassee being a business market, with the two entities competing for different passengers. He believes that if Southwest stimulates the tourist market in the region, it will stimulate other economic growth in the region, which will spill over to Tallahassee.
The alliance between Southwest and St. Joe Company, two private entities is similar to other airline deals that bring tourists to gambling and casino destinations. The magnitude of the alliance, however, may be unprecedented.
City of Tallahassee Background Information
The City of Tallahassee in October 2001 provided AirTran, a low-cost carrier, a guarantee of $3,700,000 that spanned over two years. Unfortunately, AirTran was not able to secure sufficient market share and withdrew after the third year. Currently, the City, County and State are providing Delta Air Lines a $1,500,000 guarantee for Intra Florida service to Fort Lauderdale, Tampa and Orlando. An insufficient volume of passenger traffic for the Orlando and Tampa services has resulted in this service being terminated, after six months of operation. The service continues to Fort Lauderdale.
Over the last decade, city elected and appointed leaders, business representatives and representatives of the governor’s office have met with Southwest Airlines to attempt to bring this airline to the Tallahassee Regional Airport. The consistent feedback from Southwest has been the Tallahassee market size did not fit the airline’s business model.
The Tallahassee Regional Airport provides air service to nine destinations – Miami, Fort Lauderdale, Palm Beach, Tampa, Orlando, Dallas, Memphis, Charlotte, and Atlanta, with service provided by American Airlines, Delta, USAir and Continental / Gulfstream.
Contact
Michelle Bono, 891-8200 or Ken Austin, 891-7885
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