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Economy & Business

Can you get there from here? It's getting a lot harder

This article first appeared in the St. Louis Beacon, Sept. 22, 2009 - Travelers at Lambert-St. Louis International Airport making their way from an American Airlines gate to the main terminal may notice a brightly colored mural from the Convention and Visitors Commission asking:

"Where will St. Louis take you next?"

With last week's announcement by American that it will be making another drastic round of cuts in nonstop service, the question is sadly ironic. The list has shrunk yet again. The issue now is how bad of a hit the area will take financially as well.

"The immediate bottom line is that it's terrible," says Don Phares, a professor emeritus of economics and public policy at the University of Missouri-St. Louis.

"Even in the longer term and in the broader context, it changes the perception of the area as a place to come and visit, a place to have meetings or to locate. The perception is that it's bad and probably going to get worse. Everything is working on the down side."

Even for someone like Richard Fleming -- whose job as head of the Regional Chamber and Growth Association is to be a major cheerleader for the area and its advantages -- an upside to the American news isn't easy to find. Other airlines may come in to fill the gap, and he can give them a lot of reasons they should.

But for now, he admits, the picture doesn't look that great:

"This," Fleming says, "is the ultimate lemonade opportunity."

CAN YOU GET THERE FROM HERE?

Air travelers who remember the heady days when Lambert was the center of the TWA universe didn't know how spoiled they were. The airline flew in and out of St. Louis from practically everywhere, and nonstop service was taken for granted.

When American bought TWA in 2001, that cornucopia of convenience began to wither. Despite vaunted promises, St. Louis became a minihub, with nonstop service to 27 cities cut in 2003, when American slashed daily departures to 207 from 417.

This year, the airline continued to shrink its presence at Lambert. In June, American announced cuts that would go into effect by the end of November, with the number of daily flights dropping to 82. Last week, airline officias said that by April, that number will plunge even further, to just 36 daily flights to nine cities.

Nonstop service -- the longtime luxury that St. Louis passengers have been used to -- will be cut to cities like Atlanta, Milwaukee, Minneapolis, San Francisco, San Antonio, New Orleans, Newark and more.

So for a city that has long touted itself as being in the center of everything and easy to get into and out of -- St. Louis is all within reach -- what effect will the grounding of so many nonstop flights have on its ability to lure and retain companies?

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"Cutting flights does impact the attractiveness of St. Louis as a place to do business, particularly if you have a lot of sales functions or consulting functions" said Cliff Holekamp, a senior lecturer in entrepreneurship at the Washington University business school.

"It's not only an issue of convenience but one of time and money. If you have to spend time in airports waiting for connecting flights instead of being able to fly direct, you are costing your company time and money."

Adds economics professor Jack Strauss, director of the Simon Center for Regional Forecasting at Saint Louis University:

"Being in the middle of America doesn't mean anything if you have to fly to Kansas City, then wait two hours to fly back here."

Strauss said that St. Louis has not exactly been a strong engine for economic growth anyway, and the cuts at Lambert won't exactly reverse recent trends. Higher air fares that are likely to result from the service cuts won't help, either.

"There is a lot of economic evidence to suggest that having good infrastructure is important for a city's ability to lure businesses and get people to move here. There are synergies going on. One reason they cut us in the first place is that we're a declining market. Now, it's self-fulfilling."

And if past trends hold true, the bottom line will suffer. Jan Brueckner, formerly a professor of economics at the University of Illinois who is now at the University of California-Irvine, cites figures that show that for every 10 percent drop in the number of passengers who take off from a region, there is a 1 percent loss in local employment.

He admits that causality is hard to pinpoint, and "there is a chicken-and-egg problem here, because clearly employment generates its own air traffic."

Plus, he adds, "there are all kinds of other things changing at the same time, so you can't be sure that what you are seeing is the effect of the airline cutbacks as opposed to other things, such as hard times for a particular industry."

Still, he adds, St. Louis is "a great hub location, there's no question about it, and it's got the infrastructure. The saving grace in all of this is that you've got Southwest Airlines. Things could be worse, right?"

WHO WILL FILL THE VACUUM?

That's the kind of can-do outlook that Fleming at the RCGA is counting on, and like a good salesman, he has numbers to back up his argument.

"There are 12 destinations from which American is withdrawing that leave voids in nonstop service," he said. "Several of those are very key for the economic development of companies that already exist here, as well as others that we are in the process of recruiting.

"The reality is that for most of those markets, even on the flights that American is walking away from, service is justified. The combination represents 640,000 passengers that travel to those markets in a 12-month period, spending $108 million on tickets. Someone is going to fly those routes. Simply because American has chosen to say it does not work with its new business model does not mean that service is not viable."

Fleming notes that American is what is termed a "legacy carrier," an airline that has not gone through bankruptcy and still has to operate under a cost structure that harms its profitability. Those kinds of fundamentals, rather than anything inherently wrong with the market in St. Louis, are the reason it scaled back its operations here.

Industry analyst Hunter Keay of the Baltimore office of Stifel Nicolaus agrees. Just because American has chosen to grow and consolidate its hubs in Chicago and Dallas-Fort Worth does not mean that St. Louis cannot survive or thrive.

"You still have a major airport," he says. "You just are not generating enough local traffic to maintain a major presence there."

Fleming hopes that other airlines will backfill and snap up the nonstop routes that American is leaving behind. The obvious candidate, he said, is Southwest, noting that the airline has already begun wooing more business travelers with options like paying a little more money to get a better place in line for boarding.

"As companies in this economy are trying to economize and save operating costs," he added, "an awful lot more business travelers are flying on Southwest.

"Lambert and the business community here and the RCGA are going to have to roll our sleeves up and persuade other carriers they should serve those markets. It's not a wish. When you have 640,000 people already flying those routes, someone is going to serve that. At the end of the day, that's the bottom line for us."

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