When Boutique Air raised its ticket prices in Cortez this summer, some customers accused the airline of unfair pricing. The reality is more complex.
Boutique started serving the Cortez Municipal Airport in October 2016, offering nonrefundable $59 flights and refundable $149 flights to Denver. In early August, those one-way prices increased significantly, to $129 for a nonrefundable trip and $249 for a refundable trip.
When some Boutique tickets rose above $300 in mid-August, consumers responded. Boutique and the airport received negative feedback. Ticket sales dropped from a yearlong high of 774 in June to 601 in August, a 22 percent decline that airport manager Russ Machen said was unusual for the busy summer season.
Accusations of price gouging surfaced on Facebook.
But so far, the airline has not raised prices enough to justify that claim.
Boutique’s original contract proposal, submitted to the Cortez City Council and the U.S. Department of Transportation in 2016, promised four round-trip flights per day to Denver and Phoenix for an average price of $110. According to Boutique’s marketing manager, Michelle McNulty, the average price of all fares sold from October 2016 through Aug. 20 was $105.96. However, she said company policy does not allow her to release daily prices for the 10-month period. Caitlin Harvey, of the Department of Transportation’s office of public affairs in Washington, D.C., said the department did not have the data on Cortez fares from 2017. Allen Kenitzer, a public affairs official at the Federal Aviation Administration’s office in Washington, said the FAA doesn’t track ticket price data.
Boutique CEO Shawn Simpson said his company increased prices for two reasons: to pay its bills and to increase Cortez air traffic. Behind the scenes, Boutique Air faces the same costly obstacles as many other small airlines that serve rural communities.
Like most rural airports, Cortez receives annual Essential Air Service subsidies from the U.S. Department of Transportation. Boutique Air’s contract with Cortez calls for more than $3.5 million per year in subsidies, equal to almost $300 per passenger. It’s the second-largest subsidy that Boutique receives nationwide, after its Canyonlands Field airport in Moab, Utah, according to DOT.
Simpson said the airline gets larger subsidies for those airports because they are so far away from major population centers, which are classified by the EAS as large or medium air hubs. The closest medium hub to Cortez is 256 miles away in Albuquerque, but Boutique doesn’t fly there from Cortez. For Cortez fliers, the closest Boutique hub is Denver, almost 300 miles away.
“Because of the distance, it makes it more expensive to operate flights,” Simpson said.
Because it costs so much to get planes and pilots to rural airports, large subsidies and high ticket prices often go hand in hand in cities like Cortez. According to Boutique’s contract proposal, the company expected to incur about $4.8 million in operation costs per year in Cortez, while receiving $1.4 million in revenue from ticket sales. With the EAS subsidy covering most of its expenses, the airline expected to make a 5 percent annual profit. But Simpson said that because of unexpected costs, such as repairs on planes, he’s not sure the company will make that goal this year.
“We’re on target to get close, but it might be less than 5 percent,” he said.
Simpson said the price increase was largely motivated by profit, but he said he also hoped it would help the Cortez airport.
When a rural airport seats 10,000 people on airplanes in a calendar year, it is considered a “primary commercial service airport” and becomes eligible for $1 million in federal funding, according to the FAA. Boutique wouldn’t receive any of that funding, but Simpson said the airline tries to help airports meet the goal as a goodwill gesture to communities it serves.
For Machen, 10,000 enplanements present a win-win scenario for the airport and the airline.
“We reach that, and we get $1 million,” he said. “And any business owner that sells more product will make more money.”
Simpson said the number of flights from Cortez has increased so much since Boutique moved in that he believes the airport could meet the $1 million goal.
Despite the decrease in ticket sales in August, Machen said he still expects about 8,200 enplanements by the end of the calendar year,nearly double the 4,564 enplanements of 2016. Simpson said most Boutique flights from Cortez are 70-80 percent full, which is very successful for a rural airport. By contrast, flights at Alamosa Municipal Airport, which Boutique started serving at the same time as Cortez, are about 60 percent full, he said.
“When you have planes that are 60 percent full, that indicates the market’s not strong enough to add more flights,” Simpson said. “When flights are 80 percent full, that indicates people are willing to pay more money to fly, or there are people in the community who want to fly and haven’t been able to.”
He said some of the increase could be attributed to Telluride Regional Airport’s closure from April 3 to June 23, which led some people from that area to fly from Cortez.
But adding flights to Boutique’s schedule would also add costs, which would have to be covered by ticket revenues. That’s why, Simpson said, the company decided to “test the market” by raising prices, to see how much people would be willing to pay for more flights.
It was because of the lower demand on display in Alamosa, Simpson said, that Boutique offered its introductory fares longer there. On Aug. 24, flights from Alamosa to Denver still started at $59. The rates had gone up by Aug. 29, but some fares were still cheaper than comparable tickets from Cortez. A refundable flight Tuesday to Denver was listed at $249 on Boutique’s website. Non-refundable flights ranged from $89 to $199.
Simpson said Boutique likely won’t charge more than $300 for one-way flights, and expects prices to stabilize at current rates.
In 2018, the two-year airline contract at the Cortez airport will be up for bidding again. But city staff said Boutique has kept its promises.
“I think so far, they’ve done what they said they were going to do,” City Manager Shane Hale said. “They’ve been a good airline, and the city’s really pleased with them.”
According to data released by DOT, Boutique Air performed 1,825 flights to and from Cortez from October through August, out of a scheduled 1,863. Machen said the airline has canceled fewer flights than its predecessor, Great Lakes Airlines, which he said has led to increased ticket sales. According to data from the flight-tracking site flightaware.com, Boutique flew 97.9 percent of its scheduled flights from Cortez to Denver in 2016, compared with 91.4 percent of scheduled Great Lakes flights, and with an average of six passengers per flight compared with Great Lakes’ five.
Only time will tell whether the current demand and higher ticket prices will be enough to get Cortez to the 10,000-enplanement mark.
“Out of our airports, Cortez probably has one of the best shots at this,” Simpson said.