Horry County to pay WestJet $551K

jrodriguez@thesunnews.comDecember 11, 2013 

— Horry County will pay Canadian airline WestJet a little more than $551,000 per their revenue guarantee agreement – an agreement local leaders doubt will happen again.

Though WestJet was not formally mentioned at Tuesday’s County Council meeting, the council did approve maneuvering money to ensure the funds needed to pay WestJet would not interfere with beach renourishment funds.

Mark Lazarus, chairman of the council, said the county collected $100,000 more in hospitality fees last year than anticipated, mostly due to higher hotel rates and some higher occupancy. He said although that may lessen the blow financially, the county still has learned its lesson with revenue guarantees.

“Not the way this one was done,” Lazarus said when asked if the county would enter a similar revenue agreement with an airline in the future. “What we’ve done in the past, and if you remember the Porter Air deal... we had that one on occupancy. We guaranteed them occupancy, not revenue. What that does is they have to manage their sales.”

Lazarus was referring to a 2010 load factor, or occupancy, agreement he helped coordinate with Porter Airlines for flights to Canada while he was part of the Myrtle Beach Area Chamber of Commerce. That agreement helped ensure Porter Airlines would fill at least half of its seats.

In the WestJet deal, the county entered into a revenue guarantee agreement that stated if WestJet did not make at least a 15 percent profit in its operating margin, the county would reimburse the airline up to $1 million. It was the first time Horry County had provided a revenue guarantee to an airline, which was a push to get more tourists from Canada to fly to the beach during summer months and not just their typical trek during the area’s off season.

The mark was off by $551,075. WestJet carried 4,636 passengers into Myrtle Beach during its six months of service this year, which ended in October, according to airport statistics.

Since WestJet was not familiar with the area, it began to create its own golf and accommodations packages, which proved to be too expensive for flyers, council has said. So, the airline did what it had to do to fill seats, which was reduce fares.

Lower rates meant lower profit. Lower profit meant the county was more vulnerable to having to pay WestJet for the lackluster season, which ended Oct. 23, under the agreement it signed with the county before the airline would agree to fly here.

The chamber will pay WestJet the money upfront and withhold accommodations tax dollars it usually would give the county until the debt is caught up. Accommodations tax dollars come from taxes tourists pay for stays at area hotels. The Myrtle Beach chamber distributes the money to area municipalities and the county to use on such things as promotion and advertising. The county is expected to have about $260,000 in that fund by the end of the year.

“So this deal with WestJet, if you did it as an occupancy instead of a revenue, we exceeded what we would have done,” Lazarus said. “But what happened was WestJet had elected to reduce their fares, which, under their agreement, why not? They were going to be guaranteed a certain amount anyway. I don’t see that happening again.”

And neither does Brad Dean, president and CEO of the Myrtle Beach Area Chamber of Commerce, who said via email “We recognize that airlines need proactive partners at the local level to help fill their seats, so we gladly consider all requests for support from established airlines,” Dean said in the email. “Rather than provide a guarantee of profits, we prefer to structure our support as a marketing partnership tied to occupancy levels that help offset the airline’s risk while ensuring an adequate return on our investment.”

Kirk Lovell, spokesman for the Myrtle Beach International Airport, said profit margin is big when talking to airlines to lure them to fly in and out of Myrtle Beach, and often the airport and county “need to figure out how competitive we want to be,” he said.

“Now if it comes down to an airline wanting incentives, the airport does actually offer an airline and airport incentive plan, which is approved by the [Federal Aviation Administration],” Lovell said. “In terms of West Jet, those type of agreements, we really would take that up the chain of command and let others decide if they want to go that route. We would present our best case and show that opportunity that we would have with that carrier both short term and long term, but really leave that decision to somebody higher up in our hierarchy.”

Lovell said although WestJet has not confirmed whether it will come back next year, it is allowing passengers to book flights on the airline’s website to travel from Toronto to Myrtle Beach in the spring, which is a good sign.

“All indications are there,” he said. “Considering it’s still on their website, that would make me believe that they’re going to come back because they did fly thousands of people here, which opened the market.

“Typically an airline will announce something in January. It is usually 60 to 90 days before the season actually starts. And then when a carrier decides not to serve a market, they don’t actually announce it. It just kind of goes away.”

Brie Ogle, media relations adviser for WestJet, said the financial matter between WestJet and the county is confidential, and it has not decided whether it will return next year.

Contact JASON M. RODRIGUEZ at 626-0301 or follow him at Twitter.com/TSN_jrodriguez.

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