Southwest Announces Panama City (Florida, not Panama)

There is a lot of route news for Florida fans this week, but the biggest of all is that Southwest has announced its newest city . . . Panama City. No, this is not the airline’s first foray into Latin America. It’s the other Panama City. The one on the panhandle of My (Likely Wrong) Impressions of Panama CityFlorida. The one in the heart of what they call the Redneck Riviera. Huh? Apparently Panama City is not exactly the kind of place that I had pictured in my mind (at left).

This is a huge departure from the recent Southwest new city trends. Remember, we’ve seen big city airports this year – LaGuardia and Boston alongside Minneapolis and Milwaukee. This move into Panama City takes a different tack. In fact, it makes Southwest look a lot more like AirTran than Southwest.

The Panama City Metropolitan Statistical Area (MSA) has a whopping 164,000 people. Yikes. But if you add in the Pensacola (2.5 hours away), Tallahassee (2.5 hours away), and Ft Walton Beach (2 hours away) MSAs, you end up just over a million people. All of those towns may have their own airports, but only Pensacola has a low cost carrier. They see 4 flights a day from AirTran. So is there enough demand for this to work? Southwest seems to think so. Or maybe they just don’t care.

How can I say that? Well, take a little look at the deal they’ve put together. The St. Joe Company is a huge developer (largest landowner in Florida, apparently) that’s working on some massive projects along the panhandle. One of those is a brand-spanking new airport that’s rising from the swamp. It will open next May (and that’s when Southwest will start service). St. Joe wanted to make a big splash with the new opening, so they’ve given Southwest a sweetheart deal. Check out the 8-K. (Thanks, Airline Biz)

The so-called “Strategic Alliance Agreement for Air Service” between Southwest and St Joe puts down some guarantees. St Joe will get the following:

  • Southwest guarantees that it will keep at least 2 flights a day to four cities (no cities have been announced yet)
  • Southwest will share profits with St Joe
  • Southwest will not start flying to any airport within 80 miles (that includes Ft Walton Beach), and if they fly to an airport within 120 miles (that appears to include Tallahassee and Pensacola), there are penalties

Those are some pretty hefty commitments. What is Southwest getting in return?

  • If Southwest loses money on these routes, St Joe will make up the difference every single quarter for 3 full years (St Joe can cancel if the payment is more than $14m the first year and $12m the second)
  • An agreement will be signed between Southwest, the Bay County Tourist Development Council, the Panama City Beach Convention and Visitors Bureau and the Beaches of South Walton Tourist Development Council to develop marketing efforts
  • Southwest will sign an agreement with Coastal Vision 3000 to get free room nights at rental properties to use for marketing purposes

This does sound like a good old-fashioned air service guarantee scheme on steroids. That’s why I say this is very much something out of AirTran’s playbook and not Southwest’s. But will it work? It might. There is a lot of really nice, new development in this area that definitely wipes away the Redneck Riviera name. At this brand new airport, it’s possible that this guarantee will help “prove” to Southwest that it is in fact a profitable market. If that’s the case, Branson must be calling Southwest right now asking how they can play this game as well.

This one is definitely out of left field, but I guess they don’t have much to lose.

[Original image: http://www.flickr.com/photos/jsclark/ / CC BY-SA 2.0]


15 Responses to Southwest Announces Panama City (Florida, not Panama)

  1. David SFeastbay says:

    I know airports can lure new carriers or more service by offering lower or no landing fees for a period of time, or maybe smaller terminal least fees, etc., but is this the first time that a private land developer will pay an airline (or major airline) money to cover any short falls to cover their operating costs?

    I mean it may be a new airport, but it’s replacing one already there so their has been people flying to Panama City for a long time. The Branson airport was a whole new venture by a city to lure more visitors since the nearest airport was I believe Springfield. But this is an airport replacement so this deal just seems odd to me.

    But other airports/airlines will be keeping an eye on it that’s for sure.

  2. Eric says:

    St. Joe’s business model is a Field of Dreams…build it and they will come.

    Well…in the Panhandles case, they cant come by air unless they are willing to pay dearly for a handful of RJ flights from ATL or MEM. That is where Southwest comes into play….in theory this arrangement will expand the ‘Red Riv’s ‘ catchment area beyond the 1 day driving distance perimeter.

    I hope it works out for them….St. Joe has been hit hard with the real estate collapse. Looking down the road at Gulfport and Harrah’s underwriting attempts to secure P2P air service, there is no guarantee of success.

  3. Trent880 says:

    Worked for Dubai! Well, it did…

  4. David Z says:

    A bit off-topic to this, but a true story.

    A friend of mine told his company’s travel group to book a flight for him for Panama. Note: he said only “Panama”.

    Company travel agent booked him a flight for Panama, confirmed, friend took flight. Only to find out upon landing it was for Panama and not Panama City, Florida.

    Friend got flown back, rested, then eventually flew to Panama City. Don’t know what happened after that. :)

  5. David SFeastbay says:

    @ David Z:
    Funny but sad for your friend. But I’m sure a lot of people have found themselves going to Dallas instead of Dulles, Austin instead of Boston, Portland instead of Portland (OR/ME) and Springfield instead of Springfield Springfield or Springfield (MA/MO/IL/VT)…….LOL

  6. yo says:

    Don’t forget the chap that went to Auckland instead of Oakland.

    “Some folks may never lose a toe, but then again some folks will…like Cleetus the slack jawed yokel!”

  7. Cranky you missed one really important part from the 8K
    “It also provides that Southwest’s profits from the air service during the term of the agreement will be shared with St. Joe up to the maximum amount of St. Joe’s prior break even payments.”

    So basically St. Joe is giving them an interest free loan that is forgivable if the routes as a whole are not profitable. Basically, Southwest doesn’t have a bunch of skin in this one. but of course they want this to be profitable.

  8. Ron says:

    The current BMI pdf timetable lists flights from Manchester (lots of them), and then separately flights from Manchester (only to London, connecting at IAD, United codeshare). No countries, airport codes, or any other indication which Manchester. A previous edition a few years back also listed flights from Manchester to Manchester (also connecting at IAD, I believe), and the only way to figure out which was which was to look at the departure and arrival times.

  9. CF says:

    David SFeastbay wrote:

    I know airports can lure new carriers or more service by offering lower or no landing fees for a period of time, or maybe smaller terminal least fees, etc., but is this the first time that a private land developer will pay an airline (or major airline) money to cover any short falls to cover their operating costs?

    Well, I think the new Branson Airport might fall into that category, though I believe the airport is independent of any single land company. Still, most airports aren’t private, so it’s the public entity that will offer incentives.

    I mean it may be a new airport, but it’s replacing one already there so their has been people flying to Panama City for a long time. The Branson airport was a whole new venture by a city to lure more visitors since the nearest airport was I believe Springfield. But this is an airport replacement so this deal just seems odd to me.
    But other airports/airlines will be keeping an eye on it that’s for sure.

    You’re right. The nearest airport was Springfield and that airport will continue to operate. The old airport in Panama City was hemmed in by water or swamp or whatever that is there. So expansion wasn’t really possible if they needed it. St Joe is thinking really big here, though that doesn’t mean it will work.

    Nicholas Barnard wrote:

    Cranky you missed one really important part from the 8K
    “It also provides that Southwest’s profits from the air service during the term of the agreement will be shared with St. Joe up to the maximum amount of St. Joe’s prior break even payments.”

    Nope, I got that piece. Second bullet point.

  10. CF wrote:

    Nope, I got that piece. Second bullet point.

    Hmm, how I read the text “Southwest will share profits with St Joe” and “If Southwest loses money on these routes, St Joe will make up the difference every single quarter for 3 full years (St Joe can cancel if the payment is more than $14m the first year and $12m the second)” aren’t directly related, but per the 8k they are. Southwest only has to share its profits upto the amount of the break even payments that St. Joe has made. Separating them out makes it look like Southwest has to share its profits if it is profitable in the first quarter, which it doesn’t.

  11. CF says:

    Nicholas Barnard wrote:

    Hmm, how I read the text “Southwest will share profits with St Joe” and “If Southwest loses money on these routes, St Joe will make up the difference every single quarter for 3 full years (St Joe can cancel if the payment is more than $14m the first year and $12m the second)” aren’t directly related, but per the 8k they are. Southwest only has to share its profits upto the amount of the break even payments that St. Joe has made. Separating them out makes it look like Southwest has to share its profits if it is profitable in the first quarter, which it doesn’t.

    Ah, I gotcha.

  12. DAB says:

    Hello,

    Your times are off, making the Southwest case possibly more compelling. It doesn’t take any 2.5 hours to drive from Panema City to Tally despite google maps opinion (similar for FWB). Also, Dothan has a population and is at a reasonable range to PC.

    Two other factors disserve consideration as well:

    1) people in that part of the world are well used to traveling a considerable distance to find a reasonable air fare – I would guess they can reasonably draw in all of northwest Florida, most of south Alabama (really the same thing…) and a good bit of south Georgia at least as far as Thomasville (valdosta would probably go to Jax for their Southwest service). Example, people in tally today take Southwest out of JAX (which may not be a whole lot further than PC, I am guessing under three hours from FSU to JAX without any stops, and with reasonable attention to the speed laws) and

    2) I expect they will do a lot of business supporting spring break – I believe PC is still the top US destination, though it never was Ft Laud in the 70s since Cancun had already taken business when Daytona ran spring break out.

    Fort Walton may not be too much of a draw, though, since there are enough civilians traveling in and out of VPS with military connection that the flights there are usually somewhat reasonable.

  13. Brian says:

    @ David Z:

    Your friend didn’t know he was boarding an international flight? c’mon….

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