Analysts: United Airlines flights to Atlantic City unlikely reverse city’s decline

When Gov. Chris Christie stood with the CEO of United Airlines last week to announce the arrival of the world’s busiest commercial passenger carrier to Atlantic City International Airport (ACY), he proclaimed, “It speaks volumes that a company like United Airlines recognizes the full and future potential of Atlantic City International Airport . . . The decision to bring air service to the seaside resort opens Atlantic City and ACY to the world.”

But two prominent Atlantic City analysts take a far more skeptical view that United, the latest in a string of major airlines to attempt service at ACY, can succeed where others have failed to reverse the well-documented downturn in the resort city’s fortunes.

Wayne Schaffel, a former Bally’s Park Place executive who now consults for New Jersey’s casino and tourism industry, warned, “It’s the 11th hour and Atlantic City needs airlines to succeed . . . They are the only hope Atlantic City has. Failure means the city will not be a viable business entity in 18 months.”

“Am I optimistic they’ll succeed? No,” echoed Tony Marino, a retired South Jersey Transportation Authority (SJTA) worker who compiled the official travel and spending statistics for Atlantic City for many of the past 25 years. “A couple of years from now United will quietly pull these flights.”

With gaming revenues off 40 percent from their peak in 2006, Moody’s Investors Service downgrading the city’s credit last week, and Massachusetts joining Pennsylvania, New York, Maryland, Delaware, and Connecticut to legalize gambling, it’s clear Atlantic City needs to do something to stay solvent. And fast.

So within months of taking over airport operations from the SJTA, the Port Authority of New York and New Jersey (PANYNJ) used its considerable leverage to convince United — the most active carrier in New Jersey and New York City — to begin running one flight per day to and from its hubs at Chicago O’Hare and Houston George Bush airports. Service starts on April 1, 2014.

Currently, Spirit Airlines is the sole company to fly regular routes through ACY. Though in the past Spirit scheduled direct service to Chicago, Atlanta, Boston, and Detroit, this offseason, it’s only flying nonstop to Florida and Myrtle Beach. Delta, USAirways, and Continental are among the major carriers to have maintained flights but all have left after approximately two years — when their public subsidies ran out. AirTran was the last to leave, in January 2012, after its acquisition by Southwest.

United officials say they’re receiving no subsidies and that it’s common for an airline to test out smaller airports like ACY. They point to last year’s terminal expansion and the addition of a customs and border patrol facility as reason to hope that if they land it they will come.

“Atlantic City is an important tourist destination,” said United spokesperson Mary Clark, who added that if the airline senses a demand, it will extend A.C. routes to new cities. “With the expanded and refurbished facility, there’s lots of potential.”

But analysts argue that most of the airport’s current passengers are South Jersey travelers leaving the area. If they’re visitors, they’re likely flying in to visit family, not to spend money in A.C.

These observers say most of A.C.’s tourists drive from a distance within 75 to 100 miles (down from the 250 miles of more halcyon years), and almost all of the city’s marketing efforts are directed at Philadelphia, New York and Baltimore. Schaffel argues those efforts are wasted on a client base already familiar with the city’s, offerings and aware that, unlike potential visitors farther away, Hurricane Sandy left this part of the Shore pretty much intact.

Instead, he insists that United and the Atlantic City Alliance (ACA), the agency created in 2011 and charged with promoting the city for a trial period of five years, must launch a heavy advertising campaign in Houston, Chicago, and their feeder markets. Because even though the U.S. Bureau of Transportation just named ACY as the American airport with the least expensive fares for the fourth year in a row, cheap fares aren’t enough to compete with the great gambling mecca of the west.

“Let’s say you’re in St. Louis and someone tells you to choose between two planes, and it’s the middle of February. One plane flies west to Vegas and one flies to Atlantic City. Which one are you going to get on?” asks Marino. He adds that A.C.’s one advantage over Las Vegas – its shoreline – doesn’t fly with travelers when it’s not beach weather.

A.C. doesn’t need to scavenge for patrons during beach season. Throughout peak season (and on weekends year-round) hotels stay at or near capacity. But as Schaffel and Marino point out — and marketing executives acknowledge — 12 casino hotels cannot survive on three months’ worth of revenue.

“In 1976, prior to casino gambling, Atlantic City was on the verge of collapse because hotels cannot stay in business for 12 months when they can only make money three months a year. This is the situation again; what should have happened in 1976 will occur in 2016,” Schaffel wrote in a far-reaching marketing proposal to the Casino Reinvestment Development Authority (CRDA).

Now, with convenience gambling keeping the retired slot player closer to home and away from A.C., properties desperately need to replace them during off-season weekdays. Who better to fill rooms, restaurants, and casino floors during these times than out-of-town conventioneers.

“Clearly the biggest opportunity for a hotel to grow its business is in conventions, (which can) attract people beyond the direct drive-in business,” says ACA President Liza Cartmell. But A.C. has a problem drawing anything but local and regional conventions. Not for lack of space, which is plentiful and growing with Harrah’s construction of the largest convention facility between Baltimore and Boston scheduled to open in 2015, but for lack of accessibility.

“The thing with conventions in Atlantic City is you’ve got to fly to Philly then drive an hour and half,” notes Senate President Steve Sweeney (D-Gloucester). Sweeney sponsored the legislation that created and funded the ACA and essentially gave the city five years to prove itself before top state leaders will entertain the idea of opening up other parts of the state to gambling.

“What you want is for people to come here and realize we’ve done a lot of good stuff,” he said.

But critics scoff at the idea that two 50-seaters carrying passengers from Houston and Chicago can jumpstart a surge in national convention bookings in a city that reportedly captures just one percent of the Northeast’s convention market. Spirit cancelled its daily run from Chicago for lack of sales, and Wayne says that United and other airlines must commit to bigger planes and new routes immediately in order for the idea to take off. If United’s first plane arrives with an empty seat on April 1, he says, the opportunity to sell this business plan as a profitable one will be lost.

“If they can’t sell out a 50-seat plane from Chicago, how will they do it from Phoenix?” he asks.

The only way new airlines will come is with staggeringly large subsidies, he says. The Port Authority is working on developing new business incentives but did not return several requests for comment. Last week, the board of the SJTA, which still owns the airport, was expected to vote on whether to allow the operator to move forward with the incentives but rescheduled the vote so that its attorney could further review the fine print.

A spokesperson for the SJTA referred questions about the subsidies to the Port Authority, but according to the meeting agenda, the authority is seeking to replace the current incentives program with two: one that would reward charter airlines for flying international flights into ACY and another that would provide undisclosed incentives to commercial airlines that establish new domestic routes or year-round international ones. The commercial plan calls for incentives to last two years.

However, Cartmell, of the ACA, which recently initiated its own $1 million per year incentive program to support planners who commit to at least 1,000 guest rooms for midweek off-season conventions, says two years isn’t long enough.

“Especially with conventions booking several years out,” she says, “two years isn’t enough time.” Marino concurs: “It’s never been hard to get major airlines to ACY. What has been so far impossible is to keep them after the subsidies run out.”

In his opinion, an airline receiving a major subsidy to operate flights — no matter how full — has no incentive of its own to advertise the service. So instead of using the time to market Atlantic City as a destination, airlines have applied their advertising dollars elsewhere. When the incentives dry up, so does the rationale for flight service.

“Even at the height of its popularity, airlines have discovered there is no market for people to fly to Atlantic City,” says Marino. “Now that the city is in decline, without subsidies why would anyone fly there?”

Cartmell says her agency is devising an advertising plan that will likely include direct consumer marketing and airline/hotel packages that urge conventioneers to extend their stay. United’s Clark says she’s not familiar with any advertising plans the airline may have.

According to Schaffel, advertising is a necessary start but not nearly enough. He says it will require bold thinking and action to delay bankruptcy for Atlantic City, which he predicts will occur as soon as 33 months from now. In his proposal to the CRDA and again last week in a conference call with ACA executives, he outlined the action he feels is needed. In order to save Atlantic City, he’s calling on Christie to negate his exclusive bet on it.

Instead of comping local players for rooms, food, entertainment and gaming, he posits, casinos should use that money to subsidize airplane seats on nonstop flights from 15 to 20 cities around the U.S. for a period of 10 years.

“The only way that sufficient funding can be raised for this effort,” he wrote, “is to actually go ahead and place a casino at the Meadowlands.”

He cites Jeff Gural, the Meadowlands’ owner and general manager, who has pledged to contribute a 50 percent tax on slot revenue in exchange for a casino license. This tax alone, Schaffel says, would generate $300 million to 350 million a year.

The result?

“Allowing Atlantic City to reinvent itself as a pure fly-in destination while the Meadowlands becomes the hub for drive-in traffic throughout the tri-state area,” he wrote.

Later, by phone, he concluded, “It is the only hope Atlantic City has.”

_____________________________________________________

NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.