Southern Airways Express Serves Small Cities… And Makes Money

Government Regulation

My ongoing, unorganized series looking at the demise of small city service in the US has been pretty depressing. Sure there are some ideas on how to help mitigate the destruction, but that’s often more theory than anything. Today, however, is different. Little Southern Airways Express is reinventing small city service in Pennsylvania, and the airline is actually making money doing it. Sure that requires Essential Air Service funding for the model to work, but not everyone can make a go of it even with that. I spoke with Chairman and CEO Stan Little as well as Chief Commercial Officer Mark Cestari about just how this was all coming together.

I suppose I should start with the obvious question… who the f*&@ is Southern Airways Express? It’s actually the cobbling together of two airlines, each only a few years old. Southern Airways Express had it routes down south where it flies primarily from non-sterile private terminals to small cities in the Essential Air Service (EAS) government-funded program. While that network does well for the airline, it’s the newest addition to its network that’s really proving to be different. Southern bought Sun Air Express in March 2016 and has been building out its Mid-Atlantic network ever since. Take a look at this route map.

As you can see, Southern absolutely smothers Pennsylvania from one end to the other with regular, scheduled service touching Pittsburgh and Baltimore (using sterile gates unlike down south). And yes, some of those cities are very close together with service that has not been successful in the past. (Remember Altoona?) So how has this worked? Scale seems to be the absolute key to this.

Scale to Spread Fixed Costs
Southern is the second largest airline in Pittsburgh (by departures, obviously not passengers) with a surprising 34 daily flights. In Baltimore, it has built up to 18 a day so far. Most of the routes flown are EAS-supported, and that means EAS funds pay for the ticket counters and gate space. With that base, Southern only has to consider its variable costs when adding another flight. That not only allows Southern to come in as a low bidder on new EAS routes, but it also helps justify the addition of non-subsidized routes.

For example, non-EAS service from Pittsburgh to Harrisburg, the first nonstop to the state capital in years, is only viable because the fixed costs are already taken care of in Pittsburgh. With this base, Southern expects to grow a lot more, mostly through new, unsubsidized routes.

Scale to Improve Reliability
Reliability has long been a problem for small city operators. This becomes even more pronounced when airlines go to far flung destinations where there’s only a single route. Stan called this his Thief River Falls rule. “We’re never going to bid on Thief River Falls to Minneapolis and have one plane that is 1,000 miles from the rest of the fleet.” Having a strong focus within Pennsylvania means it can properly build-out its operation with spare aircraft, parts, and alternate transportation options to ensure much better reliability. It sounds like last year was rough operationally as the company built out its footprint, but things are now running well.

Scale to Get Big Partners
Mark likes to use a retail analogy when talking about airlines. The legacy carriers are the department stores, and he wants to work with them. So what is it that the consumers of department stores want? They want a seamless experience. That means Southern needs to get an interline agreement that will allow people to check bags through and have a single ticket. Getting an interline agreement is no small feat, but when you have the scale to offer 34 daily flights in Pittsburgh, other airlines begin to take notice. Apparently the announcement of a big interline partner is imminent.

Scale to Provide a Better Schedule
Having these two hubs on the west and east means many of these cities can be connected in both directions. That leads to increased demand (fewer people driving to the hubs), and it means Southern can provide a better schedule to people who aren’t just going to Baltimore or Pittsburgh but are connecting beyond. Southern has seen great growth in passenger numbers where it has put this strategy into place.

The Airplane That Enables Scale
Southern operates 19 Cessna Grand Caravans with 9 seats each. It’s a small airplane, but it’s the only one that actually enables Southern to create the scale it needs to make this work.

Compared to other 9-seaters, the Caravan is the most cost-efficient airplane around, and Stan believes it is the reason that the whole operation works. These airplanes have only 1 engine and aren’t pressurized, so cities actually have to waive that requirement thanks to EAS rules. Stan says that’s never been a problem, and while it’s unlikely to work everywhere (the high altitude of Denver comes to his mind), it’s perfect for a lot of routes.

Compared to larger 19 or 34 seat airplanes, it’s a no-brainer. The small number of seats enables more frequencies, something the locals strongly prefer. And it also allows the airline to fly under Part 135 instead of more restricted Part 121 operations. That makes it easier to find pilots and cheaper to run the operation all-around. But it’s the pilot thing that really matters the most considering the looming shortage in the industry.

Scale and Southern’s Unique Pilot Proposition
Having scale with a fair number of flights in small cities, Southern was able to do something really strange with its crews. Instead of basing its pilots in the big hubs, it opened pilot bases in its tiny outstations. Operationally, this did wonders. Southern would have had trouble attracting pilots to fly in Pittsburgh, but in a place like Bradford, Pennsylvania, it’s a different story. It doesn’t need a ton of pilots in each city, so it recruits locally.

Stan gave me the example of a 40-year-old lawyer in Bradford who retired and started flying for Southern. He lives in Bradford, is home every night, and isn’t likely to fly for anyone else with that kind of life. Southern needed to find 100 people like this, and it did.

It has also gone to the other end of the spectrum for pilots. In Part 121 operations, a pilot is forced out at the age of 65. Southern, however, can pick those pilots up and have them act as experienced pilots for a few years to help train the young ones who are starting up. Everyone wins.

Pilot Strategy is Key to the Schedule
Having pilots based in small cities brought with it a hugely important benefit beyond making it easier to recruit pilots. It allowed Southern to run a far better schedule. Now with pilots starting out in the small city, Southern can run early morning flights to the hubs with late returns. Since the pilots live in those small cities, they’re in their beds every night. With pilots based in the hubs, the only way to do an early morning flight out of the small city with a late return was to put pilots up in a local hotel. But paying to have 2 pilots stay in a hotel just to fly no more than 9 people out the next morning simply doesn’t work financially.

It’s a whole different ballgame with pilots living in those small cities. The ability to fly out in the early morning and back in the late evening (along with other options during the day as well) means that there is better connectivity in the hubs, and not just to legacy carriers.

Southern Sees Value in Low Cost Carrier Connections
An interline with a big legacy airline is important, but it’s not everything. Back to Mark’s retail analogy, the low cost carriers are like the Big Box Stores, and they do a ton of volume at low prices. That’s especially true in mid-size cities with former hubs like Pittsburgh and Baltimore. And Southern wants to work with them too.

So far, Southern sees 30 percent of its connecting passengers actually connect on to a low
cost carrier. Low cost carriers don’t do interline agreements in a traditional sense, so how can Southern work with them? First, the airline keeps fares low. You might be able to charge someone $200 if she’s a business traveler flying in the local market. But if someone is flying from Altoona to Pittsburgh and then on a $99 Spirit ticket to Florida, the Altoona-Pittsburgh flight just can’t cost that much.

Second, Southern has low change fees and no bag fees. It has tried to align itself with Southwest’s model, especially in a place like Baltimore. If someone misses a flight or has an issue, then there isn’t a ton of friction preventing people from getting where they need to go on an alternate flight. Passengers don’t like having separate, unrelated tickets in case things go wrong on one, but Southern makes it clear that it’s willing to work with passengers so they aren’t left out in the cold. With the frequency it has, Southern can make travelers feel even more comfortable.

It All Adds Up
Looking at all these pieces together, you find a successful airline that, according to Stan, is making money now. Sure, that does mean taking a lot of government money to post a profit, but others have tried and failed to even make that work. If we’re going to keep EAS around, then this looks like a promising model that can work in at least some places. These small cities in Pennsylvania now have some of the best service options they’ve had in years, and the passenger numbers should support that. My plan is to find someone in one of these airports who is willing to talk about how things look on that side of the equation.

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43 comments on “Southern Airways Express Serves Small Cities… And Makes Money

  1. The headline is rather misleading. The only reason they are making money is because they are accepting massive government subsidies. This short distance service really isn’t feasible and the government needs to put a fork in it already rather than fiddling around and trying to figure out how to provide a service that no one really wants. Most of the routes on that map are quickly and easily and driveable, and some have bus service as well. We don’t need empty airplanes on those routes.

    1. “Most of the routes on that map are quickly and easily and driveable,”

      Drivable on interstates built and maintained with massive government subsidies? That kind of drivable?

      1. Yup, but you can do the math and you will see that the government subsidy per passenger mile is much lower for the interstate system than for the EAS program.

    2. The problem with looking at an airline route map is that it’s easy to assume that everything is a straight line. Maybe it is in the air, but on the ground it’s a different story. Yes, Baltimore to Hagerstown is an easy 75 minute drive on I-70. But Hagerstown to Pittsburgh is a tougher four hour drive through the mountains. And Morgantown to Baltimore is even harder. While EAS might be a sore point with some, it is still a valuable service. There seems to be this idea that people who live in small cities are second class citizens who should still be using wagon trains. And by using 9 seat planes, I doubt there are many empty seats. I’m no aviation expert, but I’m sure the major carriers have gotten their share of government assistance benefiting big city customers over the years. Small market cities and customers deserve no less.

      1. I find it a little disrespectful to correlate EAS opposition to discrimination of people from small towns. Cranky’s headline does deserve an asterisk because Southern Airways doesn’t make money in a true free market. While I agree there is no free market in commercial air travel it doesn’t change the facts of the discussion. As I’ve often commented, my feeling is EAS shouldn’t exist outside Alaska….maybe some island locations…where land routes are impossible. Nothing Southern Air serves falls into that category. If the bar for EAS were set at “difficult” drives or anything over 4 hours by highway I’m sure we can find more extreme examples than the western PA/WV region. I’ve personally been to several of the towns serviced and around the Pittsburgh region in general. Travel in a winter storm can be tough, but that can challenge a Cessna Grand Caravan as well. Travel in ideal conditions is downright easy compared to the mountain west where elevations are higher, population is less dense and distances to travel are much further.

        1. “doesn’t make money in a true free market”

          There’s no true free market in the world, so that’s an irrelevant distinction.

      2. According to Google Maps, Hagerstown to Pittsburgh is 2 hrs 48 mins right now. All on interstate. If that is too much, perhaps driving to IAD and flying from there is a better option?

        (I know nothing about the area, but I don’t necessarily want to subsidize everyone’s favorite little airport)

      3. “There seems to be this idea that people who live in small cities are second class citizens who should still be using wagon trains.”

        They can use what they want, but why should the taxpayers (who are mostly in the big cities) have to subsidize it? There are some benefits to living in a rural community (no traffic, less pollution) and some drawbacks. Higher transportation costs and less service is one drawback. Should the government also subsidize rent for those living in Manhattan and San Francisco, to make things more “fair” between urban and rural communities?

        “And by using 9 seat planes, I doubt there are many empty seats.”

        The EAS program only requires 10 passengers per day for an airport to participate. And yet, several communities have been kicked out due to not meeting this requirement. I haven’t been on these flights in particular, but load factors on EAS flights are generally very low.

        1. … because people in big cities forget how much the government spends on their OWN infrastructure. I think we’re already $2 billion into the Honolulu light rail, and its like 5 years off from carrying their first passenger? What about the cost of the Big Dig in Boston? Chicago’s perpetual highway construction?

          Its selfish of many to say EAS is a waste when we’re pissing away $20 million a mile for some other transportation-related projects.

          1. You can run the numbers, and see that on a per-passenger-mile basis, urban transit subsidies are much lower. When the Hololulu light rail is done, tens of thousands of people will be riding it every day. Same with the Big Dig and Chicago’s highways: tens of thousands of vehicles, or more, using them every single day. Per passenger, the subsidy is small. You aren’t seeing subsidies of dozens or hundreds of dollars per trip like you see on EAS.

            1. The per person cost may be lower, but the overall cost is enormously higher, which drives out all kinds of other spending.

            2. The per-person cost is what matters. Cost per taxpayer. $10 million is a lot more money to spend in a small town than a large urban area.

    3. Jim – The way I see it, it’s not Southern’s fault for finding a model that works. If the government is going to put the money out there, then Southern should absolutely try to build a business plan around that opportunity. It appears that Southern usually has a (if not “the”) low bid, so it does save money for taxpayers in one sense. And it provides a useful service to the locals, which is more than you can say in a lot of these cases. While I generally don’t support EAS in the lower 48, it’s more about principle than the actual money which is a drop in the bucket. If this model can create viable service for small cities, then it may well be worth the small price.

      1. Brett, I completely agree and I didn’t intend to fault the airline in any way for taking advantage of this. It’s really the government that needs to re-evaluate the program.

  2. Great post, Brett. I’d love to see more posts, Across the Aisle interviews, and podcasts on airlines like this.

    I’m not super familiar with that side of the industry, but the pilot strategy is a good one.

    That said, a bit of searching suggests that SAE is still basically looking for pilots who are willing to work for starvation wages in order to build hours, which I know is how many jobs in small planes like this work, and that makes a job that doesn’t require a move or crash pad all the more attractive and viable for pilots… The forum post I saw quoted $12 per flight hour (less than $1,000 a month) to start, and then $18 a flight hour (less than $1,500 a month) after 6 months, so the newer pilots flying for SAE are the lowest paid people at the airport if one factors in their total duty time (hope the pax don’t realize that the pilot in the right seat may be making minimum wage). The “Senior Captains” apparently start at $50k.

    1. Kilroy – Something to remember here is that lower wages don’t mean “starvation” wages in the way that they do for traditional regional airlines. The cost of living in DuBois or Altoona is a whole lot less than your typical pilot base. Further, there’s no need to spend money on a crash pad in a far flung city. Commuting costs are zero. The quality of life is much higher as well.

      1. Still, there is something wrong when a Starbucks barista hourly wage is offered to a pilot of a passenger aircraft.

        Perhaps the airline should install a tip bucket at the aircraft door? :(

      2. Very much agreed. I was trying to allude to that, but wasn’t very clear.

        A shortage of any occupation (pilots, truckers, doctors, you name it) generally means that the pay and lifestyle being offered aren’t decent enough to attract or retain people in the industry, especially given the costs and time required to obtain certification. I know that from what little I’ve seen, the “shortages” of pilots and truckers have put some upward pressure on wages.

        I give credit to SAE for realizing that hiring pilots who live in small towns (and leaving them based there) helps improve not only its schedules but also the relative quality of its wages. As with many other jobs (trucking comes to mind as something similar), many people are much more interested in a job at a given rate of pay (or sometimes even willing to take a little less pay) if it means they can sleep in their own beds every night and see their families.

      3. With all due respect, Cranky, I grew up in rural Pennsylvania, and these are shit wages there, too, especially considering the cost of the education necessary to fill these flying jobs.

        People forget that there’s a lot more to cost of living than the cost of a house. Many houses there are heated using fuel oil which is quite expensive. When I lived there, $400+ per month heating bills were common, as were $250+ per month cooling costs – if you had A/C at all. Cars, food, all the other trappings of life cost basically the same as anywhere else in the country. So, sure, you can buy a house for cheap, but most everything else costs the same.

        $12 a flight hour is not a decent wage for pilots, even in Braddock. Note the examples they give for their pilot pool – ex-airline pilots with pensions, and an attorney who had the financial independence to retire at 40, who is more than likely doing this more for a hobby than anything else.

        I do pay more to live in Orange County, CA compared to my income than my potential cost of living vs. salary in a place like Texas, but both my wife and I make six figures and have foregone having children, so it’s apples and oranges.

        1. Joe – Assuming the posted numbers are right, that $12 figure is only for 6 months. So it’s more like a probation in that case. It goes up 50% after that, or so the original comment suggests.

    2. The pay at Part 135 operators is always low – because its a training ground or stepping stone for many. Its just a part of career progression. Do you expect farm league baseball players to be paid $1,000,000 or more like their counter parts in the Cubs, Yankees, or Marlins?

      Smaller operators like Southern can & do pay better as you stick around longer. Management jobs typically compensate on par with the larger regionals, if not even some majors. Same with the flight crew department – I bet you the Chief Pilot at Southern isn’t making $45,000.

      But when you are first starting out as a pilot and work as a first officer, with your “training wheels” on, the pay is enough to cover rent, food, and some luxuries. It really can’t be aweful as I know friends who fly for other Part 135s driving around brand new BMWs and Mercedes. *shrugs*

      1. > I bet you the Chief Pilot at Southern isn’t making $45,000.

        SAE’s “Senior Captain Leaders” (which requires 10k total hours minimum of stick time and 15 years of Part 121 experience, among other things) get $50k base, plus additional benefits. Even if it works out to close to $100k all in, it’s still not that much considering the minimum experience required.

        That said, I totally understand that this is a small company, flying small planes, and the pay will never be in the same league as the major airlines or even the regionals. For pilots with experience looking to take a step back from the industry (a part time option is apparently offered) and to mentor young pilots, this may be a great opportunity.

        1. Kilroy – The Sr Captain Leader role is a different kind of animal. That’s really aimed at pilots who were forced to retire from Part 121 airlines because they hit the age of 65. As a Part 135 operator, Southern doesn’t have that limit so it can bring people in to let them extend their career.

          1. Thanks for the clarification. Makes sense. I could see that being a fun full-time or part-time retirement gig for an older pilot who perhaps wants to slow down a little but still keep flying.

  3. My daughter and other West Virginia University students fly Southern Airways to Baltimore. They also traveled to Washington Dulles before Southern discontinued the route. The customer service at Southern is outstanding. My daughter frequently changes her travel dates due to her school schedule and Southern is very accommodating. They are easier to work with than any of the network carriers.

  4. I feel like Southern would do well with the 9 seater doing CRW-MGW+connections to PIT/BWI as a gain. Lot of traffic between Charleston and Morgantown and if priced right could pick up some of that, plus game day traffic for WVU football and basketball.

  5. Not everyday you see a story on Southern. Thanks. It seems they have gotten their act together, pilots, aircraft, schedules, although 6 of the 9 small communities are on the proposed cut list. Yes, service exists only because of subsidy. If you can’t accept that, end of discussion.

    Why people travel to and from small communities is no different than why people travel to and from anywhere else. I live in the same size community next to Dulles, as is Lancaster, Pa, where I was born and grew up. There are all sorts of subsidies where I live now to get me to Dulles Without the EAS subsidy, there would be no air service to any airport to connect to the national air system for people into and out of Lancaster. People who still live in Lancaster would like to have air service just to get them to a mid- or large-size airport and anyone who needs to, wants to, would like to get to Lancaster, the same. If you think people who live in Lancaster or who are coming to Lancaster (think businessmen, doctors, lawyers, teachers, food and cattle and dairy executives, Lancaster relatives, and on an on), are going to drive 50-100 miles, or take a bus from some airport to get there, forget it. There are subsidies for reasons, and I happen to think subsidies for air service to and from small communites might just be one of them. Anyway, CF, appreciate your post.

    1. Jaybru – Yes indeed that many of these are on the cut list. But the argument by locals is that they’ve had such poor, inconsistent service that travelers haven’t taken the bait. Now with this service theoretically becoming more stable and useful, will it be enough to lift the fortunes of these cities?

      1. I have several business customers in Franklin, PA. The Southern Airways flights to PIT are a BIG help for them as there’s no charge to park at the Franklin airport and they’re in PIT in fifteen minutes. Much, much easier and cheaper for them to fly right to PIT and recheck bags than make the drive, find long-term parking, and pay the parking fee.

  6. For some small-city, unsubsidized service (or less-subsidized, depending on your perspective), here in Carlsbad we might — just might — get to see California Pacific take to the skies next year.

    In consideration of their previous demise-before-inception and the fleeting nature of other Carlsbad-serving airlines, I don’t have full hopes up. But if they do finally get off the ground, California Pacific will serve a small city with valuable service.

  7. An interesting case study would be a comparison between Southern Airways Express and OneJet in the Pittsburgh Market. Both airlines operate small aircraft providing service in the voids left behind after the US Airways dehub. While their business models are radically different combined they have led the charge on the dramatically expanded route map at PIT.

    1. means they go thru TSA screening. Non-sterile is when you walk from the counter, to the lounge, to the plane; like at a private terminal/fixed base operator for small jets & private planes.

    2. As context, often EAS is offered at such small airports that it’s not really worth setting up airport security and having pax go through it. So pax flying some Small Town to Big City get on the Cessna in Small Town without going through security, then presumably get pushed through security when they arrive at Big City and try to connect.

      The one time I took an EAS flight, I went through security at Dallas Love, but the airport I flew to (small town Arkansas) had no security and a “terminal” building that was the size (and approximate configuration) of my doctor’s waiting room.

  8. I am originally from a small town in between Bradford and Jamestown, so on my visits back, I’ve tried Southern several times, as well as Sun Air before them.

    This summer, I booked 4 SAE flights with connections to and from other carriers. They only ran 1 of those flights at the scheduled time, if at all, and the kicker was that they weren’t proactive about communicating changes.

    Hopefully an interline agreement will help mitigate connecting flight issues, but it’s hard to trust them after their terrible performance this year.

    1. Mike – Yes, it had a lot of problems last summer as it was ramping up and trying to build out the infrastructure. Now it’s supposed to be better.
      But I’ll get into that once I can talk to more small airports about their experiences.

  9. They really don’t cover a lot of Pennsylvania, Northeast PA around Scranton is missing completely. AVP has fairly good service to Philadelphia but nothing to Pittsburgh any more.

  10. Clearly, Jim has never had to make the drive from a “quickly and easily driveable” place like Altoona to either Pittsburgh—with two sets of tunnels and a major city between it and the PIT airport,it is a 3 hour pilgrimage, or BWI and the greater D.C. area, where even local commutes can take up to 90 minutes or more. Small cities deserve access to the national air transportation system. Southern is striving, and succeeding, at developing successful and scalable local service solutions.

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