Thursday, December 28, 2017

What's That In the Sky? A Bird? An Airline!

Never bark at the Big Dog. The Big Dog is always right.

Ever since the first ENDOW socio-economic assessment report was published, I have characterized their commercial air service "capacity purchase" project as a state-run airline. Blog readers added the aptly invented WyoFlot label.

All along, ENDOW representatives, people from WYDOT (the government agency that stands to gain substantially from WyoFlot) and other proponents of this air service project have beaten their fists blue on their desks in adamant denial: no, this is not a state-run airline; this is not a state-run airline, this is not...

Gov. Matt Mead’s Endow economic diversification initiative has identified reliable air service throughout the state to be an important foundation for moving Wyoming away from a natural resource-focused economy. “Commercial air service is a significantly limiting factor,” Endow’s Jerimiah Reiman said earlier this year. “There’s a lack of air service particularly to global destinations.” 

Because the only businesses that can create new jobs in Buffalo, Dubois, Pinedale or Riverton are businesses that come in from out of state, and whose clients are in Abu Dhabi, Johannesburg, Melbourne and Stovokor. Who would ever think of such a ridiculous idea as a couple of local guys starting their own business in a garage somewhere? No... every educated, sophisticated person knows that the Cowboy boondocks are populated by tooth-bumped red necks who can't spell "cat". Right...?

See, that's why we need to import new workers to these communities (the ENDOW project calls it "diversifying" the Wyoming population) and then spend "tens of millions" of dollars educating them so they can work for businesses with clients in a galaxy far, far away. 

I mean, what would this state look like if we deregulated, made it easier, cheaper and more profitable for guys and girls growing up in Powell, Worland or Newcastle to start their own business, create jobs and do something good for their communities - without costing taxpayers money? 

We can't have that, now can we...? 

My mother grew up in a small village in northern Sweden, north of the Arctic Circle. The nearest town, 40 miles away, had neither a railroad nor an airport, but for some reason it lived on anyway. It is still there. 

Just a random thought on a Thursday morning. Back to the Tribune article (and here it comes...):
The Wyoming Department of Transportation presented an ambitious fix to the state’s reliance on commercial air carriers, who can currently decide whether and when to provide service — allowing the fortune’s of Cowboy State communities to rise and fall based on the whims of national corporations. WYDOT proposed effectively creating its own airline, determining which communities would receive service as well as schedules, ensuring, for example, that it was possible for business people to catch an early morning flight into Casper or Rock Springs.
I rest my case. 

For all these months, the governor's ENDOW group and its statist cohorts have been running around Wyoming with their hair on fire trying to tell everyone who would care to listen, that no-no-no there is no state airline coming. This is just a "capacity purchase agreement" and it won't cost taxpayers a penny. (They actually suggested that in direct correspondence, as recently as last week.) The only problem is that this "capacity purchase agreement" has every character trait of an airline hiring another airline to do the actual flying.

By the way, the Tribune actually called the WyoFlot idea an "airline" already on September 3, but since then has refrained from using that term. Until now. Obviously, no phone calls have been made to the Tribune editorial office from anyone in the vicinity of the Executive Branch. No such phone calls, which have not taken place, have been about educating the Tribune editors on what WyoFlot really is, namely not an airline. 

Of course.

Actually, today's Tribune article about WYDOT's proposal for "effectively creating its own airline", contains more see-I-told-you-so factoids. It offers numbers on subsidies for existing commercial air service, numbers that strongly suggest that my cost-to-taxpayer estimates have been right all along. The Tribune mentions $20 to $40 per passenger as a comparatively low number; for some airports the subsidy could theoretically run as high as $1,000 per passenger. 

We are, of course, not going to use the $1K number, but the $20-40 bracket is useful. Before we get to its significance, though, let us note again that the ENDOW-proposed WyoFlot operation is about purchasing capacity, not providing subsidies. A capacity purchase is by definition a fixed-cost agreement where the purchaser - you, me and every other taxpayer in Wyoming - pays for a fixed number of seats to be flown between Denver and Wyoming at a fixed frequency. Unlike the subsidy, the capacity purchase actually forces the provider of the money to control all commercial aspects of the operation. 

Alas, run an airline.

As I explained in my video the other day, the capacity purchase is about buying seats on commercial jets, regardless of whether there are any passengers in those seats, or the planes fly empty. In practice, the agreement between the capacity buyer (WYDOT with our money) and the capacity provider (the contracting airline) can be tuned so that the airline has some sort of incentive to actually fill the seats. That said, in order to keep the capacity flying, so to speak, the state government - by means of an already-existing unit at WYDOT - would have to keep the capacity provider protected against a decline in number of passengers. 

If they don't, they won't keep the capacity flying. 

I have it on direct confirmation from WYDOT that they want to buy 50-passenger commercial jet capacity per flight, per airport. This means that if their agreement with the contracting airline is such that the airline loses money on flying a 50-passenger jet compared to a 20-passenger turboprop, then WYDOT (by means of your money, and mine) will have to pitch in, cover the difference and keep those 50-passenger jets flying.

For this reason, the $20-40 per-passenger subsidy number is very interesting. With this as a low number, we can comfortably conclude that the $60-per-passenger ballpark figure I used in my video is right on target - if we assume that the capacity provider will be able to fill every single seat on every single flight, every day of the week, with a paying passenger. 

If not, the cost to the capacity purchaser goes up rapidly. For example, at 80 percent sold seats, on average, and an average one-way ticket price of $200, the capacity purchaser will have to shovel more than $65 million per year into WyoFlot. 

Already from the get-go I have estimated the annual cost of this project to $80-100 million. Nobody would be more thrilled than me if this number turns out to be too high. But I won't back down from it until someone presents me with convincing evidence that this is indeed way too high. 

Given that I have been right on the money - yes, pun intended - every step of the way for more than 18 months, so far, and given that today's Tribune article yet again confirms my analysis, I expect the WyoFlot'ers to come crawling my way as we draw near the legislative session. 

We will know more in a day or so, when ENDOW releases its final report. 

Keep your eye on the sparrow. 

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