Great Falls Aims to Prove Airline Pricing Analysts Wrong

(MoneyWatch)  Another one of the Small Community Air Service Development (SCASD) grants that caught my eye was that of Great Falls, Montana. Instead of looking to give airlines money to make routes viable, Great Falls wants to give the money directly to travelers to make fares lower and (hopefully) stimulate traffic. It's a bet against the way airlines do pricing today, but it could pay off if it shows real potential for stimulation from lower fares.

Great Falls says that fares from the airport are too high and it's losing people to Billings, a couple hundred miles down the road. In fact, the study that it put together identified a handful of markets that had high fares with similar levels of service when compared to other airports. In the end, the cities that are proposed to receive rebates are Chicago, Atlanta, New York, Boston, Orange County, Burbank, and San Francisco.

So what is the rebate? A whopping $35 per passenger. Not exactly a screaming deal, but it does help. It also acts as a huge marketing program for the airport. You could tell travelers a ticket is $400 but if you tell them it's $435 with a $35 rebate, it just sounds better. It also creates awareness.

In these markets, it is believed that 35 percent of travelers that should use Great Falls fly out of another airport. The Great Falls plan is expected to reduce that number 20 points and that should result in a significant bump in the number of air travelers. In theory.

I like this plan, because it gives airlines free market research with no risk to them. If the promotion works and a number of travelers come back to Great Falls, then the existing airlines might look at their pricing structures if lower fares could result in higher total revenue. It could also mean bigger airplanes. If not, there's always the chance that a low cost carrier like Frontier would consider coming into the market.

The key here is to get a lot more people traveling with low fares, but it's still not bad news if it doesn't happen. If more people show up because of this promotion, then it's good news for the airport and for the airlines since it could highlight an opportunity for growth. If more people don't show up, then it's a giant failure but there's no harm done other than money wasted.

It makes sense to offer incentives to travelers directly because that's the best way to prove that there is demand that the airlines are missing today. There won't be a perfect correlation with the increase in passengers by reducing fares, but it could still be persuasive. If just one airline sees a new opportunity, then it's a worthwhile effort.

Related:

• Samoa and Arkansas Win Federal Air Travel Subsidies
• Dumbest Cities to Receive Federal Airline Service Subsidies
• SCASDP Grants Have Been Awarded

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