How An Airport’s Revenue Guarantee to An Airline Backfired
A miniature golf venue North Myrtle Beach, South Carolina, in September 2013 with an Air Tropic aircraft landing nearby. County authorities made a deal to bring in WestJet flights, and they've been saddled with a big payment to the airline. Stephen Boisvert / Flickr
Every community wants it: An airline that decides to bring in tourists to the local airport. But, the economics of revenue guarantees to airlines can get very complicated if the parties don’t know what they are doing.
Former Horry County Department of Airports Director Mike LaPier’s handling of the WestJet agreement that is projected to cost the county upwards of $570,000 may have led to his firing, according to one council member.
Councilman Marion Foxworth said LaPier’s failure to coordinate an initial meeting between Canadian airliner WestJet, the Myrtle Beach Area Chamber of Commerce and Myrtle Beach Golf Holiday until two weeks before his firing may have led to the poor first year of passengers to and from Myrtle Beach and Toronto and could have been the “straw that broke the camel’s back.”
Foxworth opened the door to the discussion of LaPier’s shortcomings at Friday’s administration committee.
“I think we dug the hole for ourselves by not having the proper information from the agreement up front and not having proper oversight from staff after the agreement was consummated,” he said. Foxworth was referring to an agreement WestJet had with Horry County that stated if the airliner did not make at least a 15 percent profit in its operating margin, the county would reimburse the airline up to $1 million. Projections released earlier this month show the county may be on the hook for an estimated $570,000.
This was the first time Horry County had provided a revenue guarantee to an airline, which was a push to get more tourists from Canada to fly to the beach during summer months and not just their typical trek during the area’s off season. Brad Dean, president and CEO of the Myrtle Beach Area Chamber of Commerce, said late last week it’s not a type of agreement he sees the chamber entering in again.
When asked after the administration committee meeting to explain his comments of improper information and oversight, Foxworth said the agreement fell apart pretty early in the process.
“The original agreement had the airline, Golf Holiday and the chamber in a large, well-orchestrated package,” Foxworth said. “They never met face to face until two weeks before LaPier got fired. LaPier never put the two together.”
Contacted Saturday afternoon, LaPier declined to comment for this article.
Having all organizations and WestJet meet earlier would have helped coordinate more effective marketing plan, Foxworth said. It was unclear why the duty was left with LaPier to coordinate the meeting.
Dean said Saturday Foxworth is correct about the meeting at the end of the summer.
“As far as talking about the performance of the route, yes he is correct,” Dean said. “However, we did meet with WestJet previously and even before they agreed to fly Myrtle Beach… As far as never any coordination for marketing, that’s not correct.”
Dean said the chamber is on track to spend more than $200,000 in direct marketing related to WestJet’s Myrtle Beach route and WestJet has spent between $525,000 and $575,000 on marketing the same flights.
A call to Bill Golden, president of Myrtle Beach Golf Holiday, was not returned Saturday.
LaPier was fired Sept. 13 by County Administrator Chris Eldridge, who has not said publicly why the man serving in one of the area’s most vital tourism positions was fired without explanation. Lisa Bourcier, spokeswoman for the county, said she could not comment on LaPier beyond his start and end date, title and salary.
Since WestJet was not familiar with the area, it began to create its own golf and accommodations packages, which proved to be too expensive for flyers, Foxworth said. So, he said, the airliner did what it had to do to fill seats, which was reduce fares.
“The agreement allowed them to tinker with fare rates,” Foxworth said. “So it filled seats, but it changed all of the numbers.”
Lower rates meant lower profit. Lower profit meant the county was more vulnerable to having to pay WestJet for the lackluster year, which has a service end date of Oct. 23, under the agreement it signed with the county.
Dean confirmed WestJet partnered with Turico Holidays initially to offer Myrtle Beach packages and a combination of decreased fares and increased fuel costs played roles in the county having to owe WestJet money in the deal.
“It appears that the shortfall is due to the variance in the pricing structure and not the numbers,” Dean said. “This was not an agreement based on number of passengers. It appears that the fares were lower than initially projected. Also, increased fuel prices may have impacted WestJet’s profitability.”
Based on passenger numbers, as reported to the airport by WestJet, the airline has flown over 3,200 passengers to the Grand Strand from May through August. During August 2013, the airline flew more people to the market than any previous month; almost 1,060 passengers, according to a previously published report. A survey taken by the Myrtle Beach International Airport found that the nearly 2,000 first-time visitors to the Grand Strand had an estimated $6.6 million impact on the economy.
Dean said Friday the chamber is willing to use part of the county’s accommodations taxes that the chamber sets aside for out-of-market promotions to foot the bill. Currently that fund will reach about $250,000 by the end of the year. Dean proposed the chamber take future “set aside” money for the next five years to pay for the remaining estimated $320,000.
The administration committee sent the proposal, with a positive recommendation, to the full County Council. The council will vote on the measure at its Nov. 7 fall budget retreat. With three successful votes, the county would have the money available by mid-December, which is when WestJet should know an exact figure.
WestJet has not committed to bringing the service back next year, though a check of its website Saturday showed passengers can book one of the two weekly flights well into May 2014.
Brie Ogle, media relations adviser for WestJet, said in a Sept. 18 email to The Sun News, “WestJet does not comment on specific commercial agreements with local airport authorities.”
Foxworth said oversight at the airport came up three times during Friday’s administration committee.
“I think that’s part of why LaPier’s gone,” Foxworth said.
Contact JASON M. RODRIGUEZat 626-0301 or follow him at Twitter.com/TSN_jrodriguez. ___