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Columbia discussed revenue guarantee with United Airlines for Chicago flights

Friday, December 7, 2012 | 6:00 a.m. CST

COLUMBIA — Columbia officials have been talking with United Airlines about providing new flights between Columbia Regional Airport and Chicago O'Hare International Airport since at least April, emails obtained by the Missourian show.

The city and United considered two drafts of contracts — one in May and one in September — that included revenue guarantees similar to the one American Airlines received in October for providing new flights to Chicago and Dallas-Fort Worth.

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In the end, Columbia made a choice between United and American, City Manager Mike Matthes said.

"The terms of (American's) air service agreement were slightly better, but fundamentally, it boiled down to something very simple — Dallas and Chicago, two destinations instead of one," Matthes said.

On May 15, Matthes sent Martin Kammerman, United's senior manager for market analysis, a draft of an agreement for United to begin service between Chicago and Columbia. As part of the agreement, Columbia would compensate the airline for $1.5 million in revenue losses per year for two years and would provide at least $200,000 in promotion for the flights.

In an earlier email, Matthes told Kammerman that the city had begun gathering contributions from local leaders to form an escrow fund to cover the guarantee. That guarantee, however, was the one the city ended up giving to American Airlines.

"There was one effort to create an escrow fund," Matthes said.

A second proposed contract that Kammerman emailed to Matthes on Sept. 4 called for beginning twice-daily flights between Columbia and Chicago O'Hare International Airport with 50-seat aircraft. Columbia would have guaranteed the airline minimum revenue of $11,715 per round-trip flight, plus $4.97 per passenger and 1 percent of passenger revenue, for the nine calendar quarters after the flights began. The guarantee was to be capped at a total of $3 million.

City officials seemed surprised by the numbers in United's offer. "This seems steep to me," Matthes wrote in a Sept. 7 email to Mead & Hunt consultant Ron McNeill, Public Works Director John Glascock, Mayor Bob McDavid and Airport Manager Don Elliott.

According to a Sept. 13 email written by Matthes, the Columbia City Council also considered the amount too high. "The initial reaction I'm getting from my Council ... is surprise at the amount of the segment revenue target," Matthes wrote.

A segment refers to a single flight between Columbia Regional and O'Hare.

Third Ward Councilman Gary Kespohl said he was aware that the city had been negotiating with United and that the amount the airline requested for a revenue guarantee was higher than that requested by American Airlines. He did not remember the council expressing disapproval over high numbers in the United contract.

McNeill, who has advised the city on its negotiations for passenger air service, said city officials had been speaking for years with several airlines, including United, American, SkyWest and Trans States, about beginning flights between Columbia and Chicago.

They had little success until the past year, when United and American began to show interest.

"Strategies change, economics change and another thing I think changed is they saw the success of Delta," McNeill said. The city never seriously discussed flights to Chicago with Delta because it has no hub there, he added.

Delta Airlines, citing angst over the city's decision to give American a revenue guarantee, has decided to end service to and from Memphis International Airport and Hartsfield-Jackson Atlanta International Airport in February.

With both airlines interested in adding flights to the airport, the city could choose between the two. "It doesn't usually turn out that way," McNeill said.

City officials wanted flights to Chicago to allow for easier transportation for international and out-of-state MU students, the emails show. On April 23, McDavid and Matthes gave a presentation to United executives in Chicago that cited MU's 1,943 international students.

"United Airlines service to Chicago will satisfy the University of Missouri's unmet demands to the Far East for Mizzou's largest contingent of Asian students and faculty," McDavid wrote in a May 2 email to United's Kammerman.

Recent emails suggest the negotiation with United is ongoing. "We are still interested in COU," Kammerman wrote to Matthes in a Nov. 7 email. Matthes forwarded that email to McDavid on Nov. 11.

Kammerman indicated that American's once-daily flight to Chicago "poorly connects" and that Delta's decision to discontinue flights to Atlanta improves the situation for United. He suggested that United has "strong connections" to Chicago and to mid-Atlantic destinations such as Washington, D.C.

Matthes thinks a deal with United is still possible. "The conversation is never over," he said. "If there's anything I would ask you to put in there," he told a Missourian reporter, "it's that the conversation is never over."

United is examining the performance of the airport to decide whether to begin service, Matthes said.

"I'm going to use an airplane metaphor. United's position is a holding pattern. They're going to wait to see how American does."

There is no current effort to raise money for a new revenue guarantee, Matthes said, and he was unsure whether the city would offer United a guarantee as part of a future deal.

"There are ways to be creative with air service — landing fees, advertising," he said. "However, revenue guarantees have become the industry standard around the country."

The city's biggest priority for a new destination is Denver, Matthes said.

"We try to match up destinations with the highest volume of demand," Matthes said. "We did a market study twice. The second time, No. 1 was Denver. That's why we are focusing on Denver in the future."

Mayor Bob McDavid, who was in Denver on Thursday, declined to comment for this story, citing ongoing negotiations with airlines.

Supervising editor is Scott Swafford.


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