Biz community pledges help spur American Eagle's return

American Eagle entered the Duluth/Superior market in 1998, but discontinued service late last year, citing its unprofitability.

Confirming Eagle's return, airport executive director Brian Riks said the carrier lost $1.1 million in 2002, but its market share grew steadily over five years to about 23 percent.

Eagle provides regional jet service for American Airlines and the decision to leave Duluth/Superior was part of a cost-cutting strategy by American to redeploy smaller aircraft to its hub airports amid declining passenger traffic, Riks said.

A $1 million, three-year U.S. Department of Transportation grant awarded Sept. 24 to the Duluth airport is the catalyst for Eagle's return. Duluth is one of 34 successful applicants for the agency's Small Community Air Service Development Pilot Program grants. It will provide a revenue guarantee to help Eagle offset its losses associated with re-starting service.

The Duluth/Superior area business community also has pledged $400,000 of in-kind support to Eagle over the three-year period, including ticket commitments, lodging credits, promotional and marketing support.

Riks said the airport authority maintained contact with the carrier because of the extenuating circumstances behind its exit. He said chamber organizations and the in-kind commitments of businesses in Duluth, Superior and Hermantown that depend upon air service provided an important assist in Eagle's return.

There were 170 applications for the 34 grants, and Riks, Peter Bowler, Eagle's president, and Duluth Mayor Gary Doty all credited the influence of U.S. Rep. James Oberstar, D-MN, for the Duluth airport's successful application. Elected in 1974, the Chisholm native is the ranking Democrat on the House Transportation Committee.

Eagle's exit left Northwest Airlines and Mesaba Airlines, which provides regional Northwest Airlink service, as the only scheduled carrier serving Duluth/Superior. All Northwest flights terminate or connect through the carrier's Twin Cities hub.

Doty said the addition of a second carrier, and service to American's hub in Chicago, will be good for the region's travelers, and for Northwest, as well.

"Competition here will stimulate the market," Doty said. "We need a second airline in the community."

While Northwest's passenger volume is up 5 percent from a year ago when Eagle was still providing service, overall traffic has fallen 18 percent, according to the airport authority.

Chicago already is the No. 1 destination for passengers departing from Duluth International, Riks said.

The Eagle fleet includes regional jets produced by Bombardier Aerospace in Montreal, which is considering Duluth as a site for a planned maintenance base to serve carriers in western states. A base here would help Eagle efficiently rotate its fleet for maintenance.

A decision is expected within 60 days.

While Eagle has three years to use the grant and in-kind business support, it's expected to use the entire amount during 2004 in a drive to reach profitability. Its break-even point is a 65 percent load factor - the percentage of seats available actually sold - and its forecasts for the first year of operations predicts a 60 percent load factor, Riks said. "They intend to use the money to help fill that gap," he said.

The March resumption of service is scheduled to take advantage of the busy summer leisure travel season.

But revenue and profitability is a function of both load factor and pricing. And the reaction by area business travelers, who generally pay higher ticket rates, will be key to better financial results for Eagle's re-entry, Doty said.

"Business travelers have to realize that they need to use American Eagle as well," he said.

Riks said Eagle's schedule, virtually identical to its earlier one, will require the same work force. "They're going to bring 18 positions back," he said.

Eagle will begin taking reservations for the new service on Oct. 12.