It was made quite clear by Bob Montgomery, Vice President of Properties for Southwest Airlines, that if it weren’t for St. Joe, Southwest Airlines wouldn’t be coming to Panama City. The discussions between St. Joe and Southwest Airlines began over a decade ago. One of the things that was explained to me a short while ago was that Southwest Airlines can go where ever they want to go; they just pick an airport, and the airport accommodates. I was told that Southwest coming to Panama City made absolutely no sense from a business perspective and the prospect encompassed more risk than a company like Southwest would be willing to take. But, what if the risk was mitigated by a third party? That was their ticket into our market.
Read on for all the facts.
{+}
Rumors were flying around over the summer that St. Joe offered to give Southwest $10 million. A comment was made here on pcbdaily.com that $10 million was peanuts for a company like Southwest. And while I don’t necessarily disagree, a little subsidy money never hurts, even if it isn’t lining the pockets of SWA.
Of course, it should be noted at this time that the agreement for Southwest Airlines to come to Panama City is more complex than St. Joe offering a little incentive. The entire arrangement is only grounded by St. Joe’s offering, but it actually consists of several moving parts and pieces (more on that another time).
So, what did it take to woo the coveted Southwest Airlines to our beaches? The commitment from St. Joe involved money to the tune of $26 million over the course of 2 years. Specifically, St. Joe agreed to pay Southwest Airlines up to $14 million the first year of operations and up to $12 million the second year. Conversely, if Southwest operated at a profit, they’ve agreed to share that profit with St. Joe.
What does all this mean? Well, to put it simply, Southwest Airlines has a fixed cost (well, it varies a little based on fuel costs) to operate its jets. Given their experience, they’ve estimated approximately how much it would cost for them to bring service to the Northwest Florida Panama City International Airport. Therefore, Southwest agreed that if St. Joe will pay up to $14 million in the first year and up to $12 million in the second year to ensure no loss in revenue, it would make sense for them to service and build a market for our area.
By now, I’m sure you read the opinion piece I wrote refuting Carlton Proctor’s Pensacola News Journal article discussing his disagreement with Southwest “[ignoring] its long-standing and highly successful business plan,” citing that they were “bought” by St. Joe. Bought sounds like such a nasty term, used in this context; it insinuates a negative connotation in that mitigating risk is a bad thing.
The reality is risk-mitigation is a good thing, just ask any insurance professional. If one can stand to turn a profit with little or no risk, what’s wrong with that? Isn’t that the capitalistic American Way? Southwest is a publicly traded company and has a duty to please its share-holders. An opportunity to expand market share, increase customer reach, grow the company and in turn increasing revenue all while mitigating risk sounds great to me if I was a shareholder!
But, I digress, on to the details.
St. Joe has agreed to pay Southwest quarterly payments if Southwest operates at a loss for the first 2 years of a 3 year agreement. At the end of the agreement, either party can terminate if certain criterion are met. If St. Joe has had to pay in excess of the agreed amounts they can back out. If Southwest Airlines “actual annual revenues attributable to the air service at the new airport are less than certain minimum annual amounts established in the agreement,” they can back out. Furthermore, 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”
The idea here is to have a fair and equitable agreement that is mutually beneficial for both companies with the ultimate benefactor being Bay County and the Northwest Florida Regional Area. Sure St. Joe stands to make a profit with all of their land surrounding the airport, but shall we go back into the publicly traded company Capitalistic American Way discussion again?
It makes sense when two companies plan to increase market share and generate more revenue that if they can work together to decrease risk, that they do in fact do that. For both companies, it is about managing risk. St. Joe decreases their risk in holding all that land with the opportunity at future development by partnering with Southwest to bring more people into the market; and Southwest decreases their risk by accepting payments from St. Joe so that their cost to enter a market is little to nothing with an opportunity to grow substantial profits in the future.
Who wins with this? We all do.
PCBDaily 
thanks for the updates…but can someone let us (the out of town folks) know who is “St Joe”?
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Fair enough, Christine. sometimes the expectation of everyone knowing all the “players” is assumed, and for this, I apologize.
St. Joe is a publicly traded company that owns around 600,000 acres in the state of Florida. They used to be the most largest single holder of land in the state of Florida, but that title was recently relinquished to another Florida company. St. Joe is more commonly known for their signature developments such as Watercolor and Watersound in Northwest Florida. you can see http://www.joe.com for more details on them.
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Thanks Jason for the explanation. Because of you and all of your efforts with PCB Daily, we out of towners (who own property in PCB) have learned more about PCB than through any other source.
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Very well said Jason, as always!
I for one am ecstatic SWA is finally coming here…so many of my family members alone have already started planning vacations here that havent been in years because of the high cost to just get to our beautiful area. Plus, for selfish reasons; Im sick and tired of driving 5 hours in any given direction to get the nearest direct flight for my kids to Baltimore! yay!
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It’s great to have SW coming to P.C. but the fact remains we had this airport shoved down our throats . We don’t want or need it. It was always about St. Joe and this proves that point further. We were told about some aerospace company coming here to build airplanes and all the jobs and endless B.S. but it was always about increasing the value of JOES land. The taxpayers are paying for this airport and we are all taxpayers. Capitalism is fine as long as it isn’t funded by the taxpayers.
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Why so angry Joe?
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The notion the “we” dont want or need it is pretty generalized; everyone I know personally is happy about it, as far away as Dothan as they will be feeling the positive effects.
But I do understand how some people would view it otherwise…there are always two very valid sides 🙂
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Great analysis!
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Christine…per Wikipedia, and in a nutshell:
“The St. Joe Company (NYSE: JOE), located in Jacksonville, Florida is a land development company and Florida’s largest private landowner, owning about 805,000 acres (3,260 km2) in the state.[1]”
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thanks CaraDee!
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Sure it has always been about JOE. However, in a State that has lost its luster and faces many challenges as its residents head for the border and potential residents decide to relocate elsewhere, JOE will be the driving force in transforming the region from zero growth to the next place to be in Florida. Yes, JOE will be rewarded financially and so will business owners, property owners and others that have an interest in seeing this region expand. The area already boasts beautiful beaches, great climate, and reasonably priced housing. Now throw in accessability, creation of jobs, and a major marketing campaign by JOE and you have a recipe for unprecedented growth for decades to come. I applaud JOE and I hope that their share price quadruples. They have a vision and a plan to succeed.
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Be grateful…..3 years from now you will see the changes. 1. hopefuly the European market will open and “They will come”, Air France, Lufthansa and British Airways wll carry along with Southwest airlines. 2. Shops, restaurants, motels, businesses will increase and bring much needed revenue. 3. Springbreakers will fade away and be replaced by family vacationers. 4 Entertainment will come to this area, driving more vacationers to the area.
Am I dreaming?……Not realy, just hoping all forces will work together to make it a reality.
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I was rather ambivalent about a new airport and the progrowth hype it fed on, but the I read buried somewhere in all this discussion about the new airport is the fact that the FAA would not approve expansion of the old one.
That fact alone makes it mandatory to start looking for a new airport.
We got a deal on something we were going to need anyway, and St Joe has stepped up to the plate to help malke it work for all of us.
As for “buying” the SouthWest service, buck up Proctor, it happens all the time – with stadiums and football teams for example. The government mitigates the risk, you get a team. Or in other areas – the manufacturer provides national advertising, and the dealers carry their goods. But this time, we did not have to use our taxpayer dollars to get the airline. Sorry if that upsets you.
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Actually, John, your comment can be taken a step further in that if you look at the flight plan maps for Tyndall Airforce Base and Eglin Airforce base (or so I’ve been told) in coordination with their portions of the restricted air space, all in conjunction with available land, the plot the new airport is going on is really the only option.
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A great series of articles on the airport and the participation of St. Joe. I for one am in favor of the synergy between these companies and our diverse community. Joe has traded many acres of prime wetland to secure the permits for this project on such a fast track and as citizens we will reap these benefits far into the future.
Like many I do worry about the changes which will be wrought by this easing of access but the timing is good with a current slow growth economy to implement the smart land use planning for the whole region. Now is the time to shape & implement very strong environmental, water use, height and density codes to see us through the next 25 years of growth while the pressure is manageable.
Keep up the great reporting..
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I’m am excited to hear all the bloggers that are “on their way” to our area. There are plenty of
beautiful gulf-front accomodations at reasonable prices awaiting you. The untapped market
here are the air travelers. The large southeast “drive market” is already sold on the area and
will pass that down for generations to come. But the SWA news gets even better. There is a
large tract of land on the north border of the new airport owned by a company who has ties to the Walt Disney Corp.The rumor of some sort of “theme park” coming here has been going on as long as I can remember. Well ,now we can officially open the rumor mill again. There is speculation that negotiations are going on behind “closed doors” and that it involves all the parties above. Remember, these companies think billions not millions. They have 50 year plans, not 5 year plans. Now throw in the mix of the possiblity of casino gambling and you have got a recipe for
success. I bet they’ll even throw in a “do nothing” public vote just to let us regular folk feel like we’re involved.
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I have an associate in the airline industry in Scotland who has flown into Sanford (Orlando) for years. He claims that they have watched and waited for an opportunity for direct flights to our area. Check the record. Approx. 34% of foreign real estate visitors and investors come from the UK.
I can’t wait for SWA to post the flight schedule!
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The comment on property taxes led me to wonder, what percentage of the property taxes paid in Bay County are actually paid by residents on their residence? I may be overestimating, in my mind, the amount that are actually paid by the owners of the condos for second homes and rentals.
I am thrilled with St. Joe and SWA. I think we need to be grateful that there is hope of an upward turn. I think PCB had taken a hard hit, way before the economy went sour, by the overbuiding. Then we were hit with the bad economy and sunk even further. This combination has put me in the falling values for more than twice as long as the rest of the nation. I say, any amount of hope helps me sleep at night.
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Hi Bob,
I expect many Europeans and Asians would love to discover our area and the huge beach bargains we are in comparison to south Florida. It would be great to see the airport siphon off some of Hartsfield Jackson’s burden and become a mini-hub for SW in concert with a Mexican or South American airline. I know many pie in the sky ideas have been floated but our region is ripe for an explosion of outside interest. We sometime forget how beautiful our area really is.
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I am thrilled to hear that Southwest is coming to Panama City. I semi-retired in Mexico Beach and still have cases in San Diego. I have tried Delta – too expensive and I dislike Atlanta; then Northwest – two stops and a claustrophobic plane with too many people on it. I will never fly either airline again. About 4 years ago I discovered that I could fly from Jacksonville to San Diego [with only one stop] for about 98.00 each way! So, that is what I have been doing. I make this trip numerous times a year and am really looking forward to being able to get on a Southwest plane in Panama City. They are a great airline that does not penalize you for changing plans. Thank you St. Joe for arranging to have Southwest service the Forgotten Coast.
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Please, no more rumors about a Theme Park or Casinos coming to Northwest Florida. I’ll believe it when I see it. Sounds good but these rumors have been discounted many times. It just comes across as someone trying to give false expectations in order to create some unwarranted hype to further someone’s interests (i.e. sales job!).
Lets keep it real,
Chris
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As someone who lives west of the Rockies but has business interests in your area, I agree with Carolyn and believe that west coast visitors are an untapped, overlooked market that SWA will open up.
I didn’t know the Emerald Coast existed until a meeting took me to Ft. Walton Beach 10 years ago. I’ve been to Hawaii and up-and-down the west coast. What you had was nothing like I had ever seen and I was sold on the area. However, the cost of flying to the area (especially PCB) was ridiculous.
While the focus on what the new airport will do for Bay County has been a focus, it will really drive South Walton through the roof. Unless you could afford to charter into DTS, getting to SoWal by air was just a pain. The long drive to PFN (and high fares) or the longer drive to VPS.
I’m at a total loss regarding the claim that SWA “sold out” to St. Joe at the expense of PNS and VPS. To those who want to stand by the claim, I give this analogy:
Let’s say that the job market has your particular field of expertise in very high demand and three solid employers are vying for your services. All three would require you to make a very expensive cross-country move for the job. Would not you negotiate down to the last minute with each of them, trying to extract the very best deal?
At the end of the day, one employer promises to pay both all your moving expenses and pay off the entire mortgage on your present house (so you don’t have to be stuck with it in a down market). That’s the one you go with. You didn’t sell out. You made a wise business decision.
I give SWA an excellent chance of sticking around after the first two years. The recession will be over, Bay County (and SoWal) will continue to get hotter and hotter. SWA will be able to still charge more per seat-mile than on other routes and fly full planes. I predict the routes will be breaking even by spring 2011.
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Chris, amen to the theme park rumors!
I moved up here, bought land in Holmes county by the assurances of a realtor who SWORE the market was going to take off because of Jim Fowlers wildlife-inspired theme park, and it was being built any day now, etc etc.
Needless to say, that was three years ago….guess whats happened to that property value, that I paid top dollar for? Im only glad I didnt build.
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More details on the SWA deal…. there is some info you may not have read or known about…
Southwest Airlines announced on October 21, 2009 its intent on beginning service to Northwest Florida – Panama City International Airport in May 2010 when the new airport is scheduled to open. Southwest announced its intent is to capture some of the 16,000,000 tourists that visit the Panhandle by car each year.
This service is a result of five years of negotiations between Southwest and the St. Joe Company, who is developing 71,000 acres in the vicinity of the new Airport. It includes St. Joe covering losses up to $26 million over the first two years of service. The new service is also tied to $42.5 million in marketing assistance and free room nights
It is anticipated that Southwest will provide two daily flights each to four destinations. Most likely the destinations will include Nashville, Baltimore/Washington D.C., Houston and Chicago Midway.
According to St. Joes’ Security and Exchange Commission Form 8-K Filing, a few of the conditions of the agreement are:
1.the term of agreement extends for a period of three years after the commencement of Southwest’s air service at the new airport. The agreement provides St. Joe any Southwest losses up to $14 million in the first year of service, or $12 million in the second year of air service. The third year is subject to negotiation. Southwest may terminate the agreement if its actual annual revenues attributable to the air service at the new airport are less than certain minimum annual amounts established in the agreement.
2.the execution of satisfactory agreements between Southwest and the Airport Authority authorizing Southwest to use and lease space at the new airport and to receive any cost mitigation measures that may be available from the Airport Authority;
3.the execution of an agreement between Southwest, the Bay County Tourist Development Council, the Panama City Beach Convention and Visitors Bureau and a the Beaches of South Walton Tourist Development Council, no later than 30 days from the date of the agreement, regarding the coordination of marketing resources and efforts for the new air service;
4.the execution of an agreement between Southwest and Coastal Vision 3000, no later than 60 days from the date of the agreement, regarding the establishment of a program through with Southwest would receive available room nights free of charge at various rental properties in Northwest Florida for use in the marketing efforts for the new air service;
According to the October 22, 2009, Pensacola News Journal, the Panama City area also offered millions of dollars in community support that includes $22.5 million in bed tax revenue to pay for marketing, advertising and vacation packages; and a minimum of $20 million for free hotel rooms from Coastal Vision 3000 a regional membership group of businesses, hospitality operations and tourism and civic organizations. Hotel owner and developer Julian MacQueen has pledged 45,000 free room nights to Southwest.
David Beckerman, Vice President, Market Intelligence, OAG Aviation Solutions, the Airport’s Air Service Consultant, believes the new service is expected to have very little negative impact on Tallahassee and in fact may be beneficial to Tallahassee. He cites Panama City being a leisure market versus Tallahassee being a business market, with the two entities competing for different passengers. He believes that if Southwest stimulates the tourist market in the region, it will stimulate other economic growth in the region, which will spill over to Tallahassee.
The alliance between Southwest and St. Joe Company, two private entities is similar to other airline deals that bring tourists to gambling and casino destinations. The magnitude of the alliance, however, may be unprecedented.
City of Tallahassee Background Information
The City of Tallahassee in October 2001 provided AirTran, a low-cost carrier, a guarantee of $3,700,000 that spanned over two years. Unfortunately, AirTran was not able to secure sufficient market share and withdrew after the third year. Currently, the City, County and State are providing Delta Air Lines a $1,500,000 guarantee for Intra Florida service to Fort Lauderdale, Tampa and Orlando. An insufficient volume of passenger traffic for the Orlando and Tampa services has resulted in this service being terminated, after six months of operation. The service continues to Fort Lauderdale.
Over the last decade, city elected and appointed leaders, business representatives and representatives of the governor’s office have met with Southwest Airlines to attempt to bring this airline to the Tallahassee Regional Airport. The consistent feedback from Southwest has been the Tallahassee market size did not fit the airline’s business model.
The Tallahassee Regional Airport provides air service to nine destinations – Miami, Fort Lauderdale, Palm Beach, Tampa, Orlando, Dallas, Memphis, Charlotte, and Atlanta, with service provided by American Airlines, Delta, USAir and Continental / Gulfstream.
Contact
Michelle Bono, 891-8200 or Ken Austin, 891-7885
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Jason
I’ve worked at the SLC International for 13 years and YES it is a freaking $$$ game. The Tax base and that amount is based on passenger participation. The more the better. Our Airport is now completely paid for and has $158 million in the bank ALL from the PAYING passenger well and a little Federal money.lol Delta already paid into it’s hub there, so that Money has been distributed. We were surprised when Republic Air won the bid for Forntier instead of Southwest. WOW who would think.
Panama City now with the New Airport will open up growth opportunities. Which in turn will generate more commerce and jobs for the well deserved area. I think Southwest will fair well. It is a beautiful area, and Yep like me and many other Utahan’s we will be showing our frozen Butt there in the winter to do a little defrost
Along with this growth I’m hoping the City/County developers are planning for the future growth to the community. It wont happen over night but in due time. Take a look at Ft. Walton Beach It gets pretty crazy .
I my self am waiting to move there after this housing market takes a turn, and get a place there a job and some of that WARM Panama City Hospitality. That’s what I’ talking about
Thanks for the update
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If you are counting on Europeans you better not hold your breath. Europeans are looking for more then a line up of high rise condos, free beer and wet T-shirt contests. Panama City Beach needs to grow up before you’ll see Europeans flocking to these shores. There are finer areas for them to visit, Naples, and Marco island to name two.
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And cruise lines. Don’t forget the cruise lines that are coming. These realtors will make up anything. Fedex is moviong here too.
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How could anyone not support a new airport? St. Joe will benefit as they should, but all of us that call this home will benefit as well. It reminds me of the old saying…”some people would complain if you gave them a gold bar that it weighed too much”.
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I don’t understand why so many people are excited about Southwest coming to the area. A low cost airline brings LOW COST PEOPLE!!! The spring breaker population will explode. Every trailer trash scumbag who can’t afford to DRIVE to PCB will now climb on a Canyon Blue Southwest jet and trash up the beach even more. The airlines that currently serve the area will pull out and there will be even less service than there is now.
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Rob, this is a pretty strong statement you are making. I would love to see your sources that support your argument.
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Jason, Look at what has become of air travel in the last 20 years. People who used to drive or ride the bus now fly thanks to the low cost carriers. This in and of itself brings a certain class of people. Southwest flying to PCB will bring them in greater numbers. As far as sources you need to around the airline industry to see that Southwest and Jet Blue drive down prices for a while then when other carriers cannot compete they leave. This will leave PCB with the four destinations that Southwest serves. The people posting about flying direct to PCB crack me up. Does Southwest have a magic formula for not having to make connections? If you live in one of the FOUR yet to be announced cities good for you. If not welcome to your DIRECT flight to somewhere other than your final destination!
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Still a bunch of yakking, but no solid sources. There are documented case studies that discuss the “Southwest effect” and the explosive effect Southwest has on an area when it comes into market. Name some airports that have lost carriers because SWA has “pushed” them out of market. Name some destinations that SWA has entered that have ultimately ended up worse off because of it.
Many are hopeful of direct flights, but the promise of lower fairs isn’t directly tied to direct flights, just the carrier itself.
I don’t think you are correct in your assumptions. Even if SWA comes in with direct flights from Nashville at $100 one way ($200 round trip), you’re still talking about $1000 for a family of five. That doesn’t sound like the demo you are talking about. For most it would still be chaper to drive, but the cost increase (from driving) will be justified by the savings in travel time for others still.
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My case study is DFW. That used to be Delta’s 2nd largest hub. They have almost completely shut down service there. Is it just coincidence that Southwest call Dallas home? I know American still operates there but they almost can’t leave. That is their headquarters and they are so tied to Dallas that a move is almost impossible. Worse off? Try getting from Atlanta to Las Vegas. I used to connect through Dallas now there are times I have to fly to LA and then back to Vegas. Thats real convenient.
Look, I hope this is a good thing for PCB. I am a property owner and I want good things to happen. I don’t rent my place so I’m not worried about the demo that will be staying in my condo. I’m just trying to get people to look at the other side of the coin. Southwest is not the magic elixer that will save PCB. With every business move such as this there are positives and negatives, I just want folks to look a little deeper and understand there might be negatives to this story.
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Rob… dude…
1. Four flights per day will be around 600 people (400 of which will be visitors). Those who fly (even on low cost carriers) are rarely the trailer trash crowd. It WILL bring in upscale professionals who’s time is more valuable (IE it is more cost effective to fly vs. drive and save the time but spend the money). However, those who fly in will generally have a much higher disposable income. This isn’t just about bringing more people the the area. It is about bringing upscale visitors who spend more per day on their visit.
2. What you say about connections makes no sense. Unless you are flying to/from an airline hub, you are going to connect to get to most smaller destinations regardless of what airline you fly. I do predict that SWA will put a focus on serving cities they have lots of connecting flights out of. The key is to offer great one-stop service to PCB. One plane change is normal. Two changes starts to irritate people.
3. SWA serves Love Field and has been limited in the states it can serve from Love (something that changes in 2014). This can’t account for Delta cutting service at DFW. Delta cited route changes and the hub cut as cost-cutting measures. US Air is cutting their Las Vegas hub and 44% of their Vegas flights to save money. Has nothing to do with SWA. It is an industry trend.
4. From my home in Las Vegas to PCB, Delta makes me connect in Atlanta. That is hardly convenient. (Similar to ATL to LAS via LAX you are complaining about). That is just a fact of flying. P.S. Both AirTran and Delta have numerous non-stops from ATL-LAS daily, contradicting your claim that you can’t hardly find a non-stop between the two cites.
In general, I’m at a complete loss on the number of people who see SWA in PCB as a bad thing. Or won’t accept anything less than non-stop flights to every city SWA serves. The only people I could understand having that opinion are those who favor “no growth” for Bay County. And I imagine some long-time residents may feel that way. If that is behind some of the anti-SWA sentiment, come out and say it.
Anti-growth is a reasonable and understandable opinion and maybe worth debating. Strange anti-SWA arguments with no basis in reality or fact have my eyes rolling.
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not so!
there are lots of affluent and middle class people who will come to PCB and spend money renting Condos and on entertainment that are looking for an easier way to get to PCB. Right now if you don’t live within driving distance, it is a challenge to get there. Coming from the northeast, each time we come down we have to change planes in Atlanta and fly into Pensacola if we want a reasonably priced flight. It takes about 9 hours in all!
There are no direct flights to the current PC airport from the northeast.
The new airport is just what PCB needs and will help enhance revenue for the county, the condos and business owners. What a boost for the economy.
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Jason, thanks for your excellent reporting on the new airport and Southwest Airlines. I love how you scoop the jurassic press on these developments! Keep up the good work, I’m a huge fan.
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Maybe one of you optimists would like to buy my condo.
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Joe how come you dont come and enjoy your condo?
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Hey Jason,
Couldn’t agree with you more. The Southwest / St. Joe deal is just good business all around.
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how do the beaches look? still clean?
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still clean! You can keep an eye on our Facebook page: http://facebook.com/pcbdaily
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