How a coalition plans to use incentives to attract more nonstop flights to Louisville

Frontier is the most recent airline to announce the addition of a nonstop flight at the Louisville International Airport. | Courtesy of Frontier Airlines

The Louisville Airport Authority, Greater Louisville Inc. and the city’s economic development arm Louisville Forward have all lobbied for new and increasing air service out of Louisville. Now, a new nonprofit coalition will formally bring those efforts together under a single umbrella.

On Monday, business leaders, investors and government officials announced the formation of a coalition called the Louisville Regional Airlift Development, a nonprofit that aims to attract more nonstop air service out of the Louisville International Airport.

Luke B. Schmidt, president of Louisville-based consultancy firm L.B. Schmidt & Associates, will lead LRAD’s air service development project.

“The genesis of this project really came from a number of regional and local business leaders and community leaders. I think there has always been a desire for more air service,” Schmidt, who also is a councilman for the city of Prospect, said in a phone interview.

LRAD’s officers include venture capitalist Koleman Karleski; Ed Glasscock, chairman emeritus of Frost Brown Todd; Sandra Frazier, CEO of Tandem Public Relations & Marketing; and Michael Mountjoy, a partner at Mountjoy, Chilton & Medley. The full board has 19 business and economic development leaders.

In additional to simply lobbying, LRAD plans to bring something new to the table – a minimum revenue guarantees fund. The fund would work like this: An airline would agree to offer a nonstop flight to a particular target city, and in return, LRAD would agree to cover any shortfall in expected revenues for a set period of time.

This graphic lays out some of the reasoning behind the creation of LRAD. | Courtesy of LRAD

For example, if the airline expected to earn $1 million a month from a nonstop flight but only earned $800,000, then LRAD would write a check for the $200,000 shortfall that would come out of the minimum revenue guarantees fund. However, if the airline earned $1.1 million one month while the contract is valid, then the $100,000 would be credited to the fund. Should the airport on earn $900,000 the next month, then the fund wouldn’t give the airline any money.

The organization’s leadership, which includes the Kentucky Cabinet for Economic Development, hopes the fund will help the city attract nonstop flights to Los Angeles and/or Boston, LRAD’s top two target cities.

“This is the first of its type in Kentucky, so the partnership and the consultant Luke, who is sort of leading the effort, looked very carefully at data and efficacy of similar agreements in other cities and how that has worked, and they’ve been quite effective,” Jack Mazurak, communications director for the Kentucky Cabinet for Economic Development, told Insider in a phone interview. “It has proven itself as a viable mechanism to do this. …We are looking forward to attracting bids from airlines that will improve the Greater Louisville area.”

The fund helps eliminate some of the risk involved adding another air service, Mazurak said, and bolsters economic development in the state by easing travel for business leaders and investors, not to mention benefiting everyday travelers.

“This LRAD example is another example of this business-minded thinking and how do we address economic development and workforce development issues in the state to really push us ahead,” he said.

The contract to cover any deficit could last one or more years, but Schmidt said it is not supposed to be a long-term contract. As part of its call to action, LRAD also will ask people to commit to using new nonstop routes to help ensure that the flight continues even after the contract ends.

“Our feeling is that there are certain markets that are not serviced out of Louisville, including L.A. and Boston, where we know the demand is pretty high,” Schmidt said. “Our intent is not to go after a market with lean numbers.”

Schmidt said he and other LRAD leaders used numbers tracked by the U.S. Department of Transportation to determine demand for nonstop flights to different cities. Those number look at passengers flying out of Louisville and do not include the estimated 500,000 passengers who choose to drive to Nashville or Cincinnati for better flight options.

The money for the minimum revenue guarantees fund will come from private and public entities. No pledged money will not be collected until a contract for a new air service is executed.

LRAD will encourage people to use newly added air service to ensure that nonstop flights to key cities remain in Louisville. | Courtesy of Allegiant Air

“We would like to see support from a wide variety of sources,” Schmidt said, added that the money could come from “anybody that flies and uses the airport.”

LRAD will oversee the execution of a contract with an airline.

“There will be a lot of oversight starting with our board of directors,” Schmidt said. “Our intent is not to burn through a lot of money and wish it had been successful. We will be monitoring it very closely.”

He added that in any contract, LRAD will be given the right to audit an airline’s books if need be.

It’s unclear how much money the fund will have, at least initially. Louisville-Jefferson County Metro Government has already allocated $200,000 toward the fund in the fiscal year 2018 budget. Mazurak told Insider that he was unsure exactly how much the state will contribute to the fund but that any allocation must be approved by the Kentucky Economic Development Finance Authority.

Any funding remaining in the minimum revenue guarantees fund would be returned to the investor entities on a pro-rata basis.

Other cities that use similar funds to attract flights include Columbus, Ohio; Indianapolis; Columbia, Mo.; Manhattan, Kan.; Tucson, Ariz.; and Columbus, Ga.

Natalie Chaudoin, public relations director for the Louisville Airport Authority, said the authority was playing a supporting role to LRAD.

“We are limited by our guidelines, federal regulation guidelines, as far as what kind of incentives we can offer,” she told Insider, adding that the authority is happy to work with outside groups to draw new or additional air service to the city. “It’s a win-win anytime Louisville can enhance its air service offers.”

Since 2007, the authority has offered the same rent and advertising incentive packages to airlines that plan to offer flights to cities on that the authority’s board of directors has identified as high priority. The value of the incentives depend on whether the new air service is daily, seasonal, nonstop or less than daily, Chaudoin said, among other factors.

For example, she said, an airline that offers daily service to a high priority city would receive an up to $375,000 credit toward airport rental rates and in-airport advertising over a two-year period. For fiscal year 2018, the authority budgeted $825,000 total for incentives.

“We have a very robust incentive program that is open to attract new business,” she said.