LOUISVILLE, Ky. (WDRB) -- Louisville business leaders have formed a nonprofit group aimed at attracting direct flights to cities like Los Angeles and Boston by temporarily subsidizing airlines who agree to add the routes.
The group, called Louisville Regional Airlift Development, Inc., plans to offer major airlines like United, Delta, Southwest and American Air guarantees worth as much as $1 million to $3 million per-route for adding direct service to certain cities from Louisville International Airport.
The guarantees would be drawn only if the airline fails to generate revenue through fares on the new route and for only a pre-determined period, such as the new route’s first year, said Luke Schmidt, a Louisville-based management consultant working for Louisville Regional Airlift Development.
Louisville’s corporate leaders have long considered the lack of direct flights from Louisville International as a barrier to economic development.
Companies are reluctant to put their headquarters in cities that take a day of flying to reach the west or east coasts, the thinking goes.
Based on the final destinations of Louisville fliers, direct service to Los Angeles is the group’s top priority, followed by Boston, Schmidt said.
“We are going after targeted, important routes that we believe will be successful,” he said.
The group’s officers and board include prominent businesspeople such as David Jones, Sr., co-founder of Humana, Inc.,; attorney and investor Ed Glasscock; and Brown-Forman heiress and public relations executive Sandra Frazier.
The temporary subsidy – called a “minimum revenue guaranty” – has succeeded in attracting permanent routes in Columbus, Ohio (Southwest service to Oakland, California); in Indianapolis (United service to San Francisco); and in Manhattan, Kansas (American service to Chicago and Dallas), according to Schmidt.
“This is a tool in the toolbox we have never had in this community,” Schmidt said.
In an example provided by Louisville Regional Airlift Development, the group would raise funds to establish a $2 million reserve on which an airline could draw to make up any shortfall between its actual fares for a new route and a monthly revenue target of $1 million. The arrangement would be in place for a year.
If the airline generates at least $1 million each month through seat sales, the $2 million reserve would not be touched.
“It is really a targeted us of the funds to assist in getting a new route up and running,” Schmidt said.
Schmidt declined to comment on how much the group has raised and its contributors, though he said it is “close” to having enough to guarantee one route.
At least some taxpayer money is involved.
Louisville Metro government contributed $200,000, approved in the city budget for the fiscal year that started July 1, said Chris Poynter, spokesman for Mayor Greg Fischer.
The Kentucky Cabinet for Economic Development is also an “investor” in the new group, according to a press release. A cabinet spokesman said details of the state’s contribution will become public after approval by the Kentucky Economic Development Finance Authority on Thursday.
Greater Louisville Inc., the metro chamber of commerce, provided “ two rounds funding for development and operations of this important new group,” CEO Kent Oyler said. GLI would not say how much it provided, however.
Schmidt said the group has attained charitable nonprofit status from the Internal Revenue Service based on its economic development mission.
That means contributions to Louisville Regional Airlift Development are tax-deductible, even if the money ultimately ends up helping the bottom lines of the country’s largest airlines.
Schmidt compared revenue guarantees to the tax breaks that states typically offer to land big factories or corporate headquarters.
“This is a highly competitive thing,” he said. “There are lots of communities that want more service.”