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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]

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