C. YAMPA VALLEY REGIONAL AIRPORT ENPLANEMENT ANALYSIS

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1 APPENDIX C

2 C. YAMPA VALLEY REGIONAL AIRPORT ENPLANEMENT ANALYSIS A critical part of any Master Plan study at an airport with airline service is the analysis of that air service, its history, current status and projected growth. This analysis must be done in the context of where the airport fits in the regional air service environment (nearby airports that constitute the Airport s peer group and nearby hub airports that may be both an important source of the Airport s air service and a primary catchment leakage point). Airport Air Service Master Plan analysis must also be done in the context of overall strategies and trends in the domestic airline industry. This report has been prepared as a means of forecasting demand for airline passenger service by looking at the market from the airlines perspective. This will supplement the FAA methodology in order to identify the preferred forecast growth rate with enhanced accuracy and confidence. It will also provide the scenarios under which observed conditions and demand levels could be different from these projections. C.1 DOMESTIC AIRLINE INDUSTRY TRENDS The domestic airline industry was deregulated in In the post-war era prior to that time ( ) the industry had literally been born and grew up, made possible at first by war surplus aircraft and a large pool of skilled labor capable of operating them, then by rapid technological advances including turboprop and turbojet engines, all occurring amidst a period of rapid economic growth in our nation. The Deregulation Act of 1978 removed most of the economic rules and regulations under which the domestic industry had developed. Instead of rigid rules about which carrier could fly where and which fares could be charged, basically any carrier could fly anywhere and charge what they wished. In addition, the doors of the airline clubhouse were removed; now anyone with enough funding could gain DOT and FAA approval, buy or lease some airplanes, and become an airline. The special club of two dozen or so airlines that had previously held Civil Aeronautics Board (CAB) Certificates of Public Convenience and Necessity was no longer special; anyone with a little money and a business plan could join. And many did. The domestic airline industry grew rapidly as dozens (over the entire period of the 198s to the 2s, hundreds) of new airlines took to the skies to challenge the incumbent trunk airlines (United, TWA, Pan Am, etc.) and local service airlines (North Central, Frontier, Ozark, etc). Deregulation brings freedom of entry, but it also brings freedom to fail. Many airlines, both new entrants (PeopleExpress, Midway) and senior members of the pre-1978 special club (Pan Am, TWA, Braniff) went out of business or merged into other carriers. Initially, in the period from the 198s to today, every failure or merger simply brought forth more new entrants and there was no clear trend of consolidation. Also initially, new entrants did not fully grasp that failure to bring innovation, to differentiate their new entrant product from that of incumbent industry players, was likely going to lead to their own failure. In other words, build a better mouse trap, or at least a different mouse trap. DRAFT 12/16/213 C-1

3 The period from the 198s to today also brought huge changes to small community air service nationwide. Congress, hesitant to pass the 1978 Deregulation Act, covered that bet by creating the Essential Air Service program, which was designed to preserve small community air service with direct subsidies to carriers against the fear that a deregulated airline industry would abandon, wholesale, rural America for the bright lights and large populations of New York City, Chicago and Los Angeles. Some of this did occur, with the local service airlines of the 198s moving to all jet fleets and taking on long haul big city routes. However, a whole new industry of regional airlines was born, flying 9- to 5-seat turboprops, and these carriers covered any and all rural cities that a Frontier or North Central may have abandoned. Today, 35 years after deregulation, distinct trends in domestic air service are: consolidation in all sectors of the industry, segmentation of the air travel product (and business strategy) by carrier type, and an overall continuing decline in small community air service. Each of these trends has an impact on the long-term composition of Yampa Valley Regional Airport air service. C Airline Industry Consolidation In 1978, at the dawn of deregulation, there were 24 certificated U.S. airlines. While some were very small, one-route airlines, like Aspen Airways, most were either national or at least regional in network size. There were another 118 commuter airlines, smaller carriers operating 9- to 19-seat piston and turboprop aircraft. And there were 5 intrastate airlines, those operating mainline jets but only in one state, such as Southwest in Texas (at that time) or Hawaiian in Hawaii. Table A CONSOLIDATION OF THE DEREGULATED DOMESTIC AIRLINE INDUSTRY CAB Certificated Airlines 24 Network Airlines 9 Network Airlines 8 Network Airlines 4 Intrastate Airlines 5 New entrants of all types 16 New Entrants of all types 12 Value Airlines 3 Hybrid Airlines 3 Ultra Low Cost ULCC 3 Commuter Airlines 118 Network Regionals 25 Network Regionals 19 Network Regionals 1 Independent Regionals 25 Independent Regionals 11 Independent Regionals 7 Total 147 Total 75 Total 5 Total 3 Carriers listing schedules, by type, in the OAG on July 1 of each year By 199 new terms were in use to describe an airline by the type of product it offered and business plan strategy it pursued. Large airlines with national reach were called network carriers. Every other jet airline fell one way or the other into the term new entrant carrier. In 199, after twelve years of deregulation, there were nine network airlines (United, Pan Am, TWA etc.), sixteen other jet airlines ranging from rapidly growing low-fare Southwest to rapidly growing first class cabin Midwest Express. The number of regional carriers had shrunk to about 5 and the term intrastate was obsolete. During the 199s the relationship between network carriers and regional carriers changed. Many regional carriers became, in effect, franchise operators, flying their smaller aircraft with the brand, paint scheme and airline code of a network carrier. This allowed network carriers to extend their networks into rural American without using their larger and more expensive mainline jet aircraft. This franchising trend accelerated with the advent of 3- to 5-seat regional jets. The regional carrier industry grew very rapidly in the 199s due to the addition of large DRAFT 12/16/213 C-2

4 regional jet fleets, with many surviving regional carriers opting to become invisible and just operate regional jets under contract for a network carrier in lieu of offering independent branded service. Ten years later, in 2, there were 8 what could be called network carriers, the number of other jet airlines of all types was about 12 and the number of regional carriers was down to about 3. The events of 9/11/21, and the significant economic recession that followed, accelerated industry change and consolidation. The incredible roller coaster that was also rapidly accelerated change in the domestic airline industry. The first half of 28 saw strong traffic and record fuel prices. Three jet carriers and three regional carriers closed their doors during this period, succumbing to staggering fuel costs. During the second half of 28 and into early 29, the economy went into severe recession. Airline traffic and revenue saw the largest drop in history. Fuel prices also collapsed, with fuel going from $15 a barrel in July of 28 to $35 a barrel for a time in March of 29. The stage was set for a rapid industry consolidation and significant shifts in carrier strategies. In 213 there are four remaining true network carriers. In 214 there will be only three with the government approval of, and consummation of, the merger of American and US Airways. The number of other jet airlines has shrunk to only nine. The other group has split into distinct types of airline product and business plan. One benefit of deregulation was carrier freedom to design and offer wide varieties of travel products and travel pricing. Thus we have value carriers like Southwest and bare bones ultra low cost/fare carriers like Spirit. The number of regional carriers is down to about seventeen, ten of which entirely or primarily operate regional jet aircraft under contract to a network carrier, using the brand of that carrier. The once mighty independent regional airline industry, that had over 1 companies in the commuter carrier era (1978), is reduced today to seven small airlines, with their primary revenue source being Essential Air Service (EAS) contracts. C Airline Product Segmentation Deregulation has allowed for experimentation in carrier product offerings. This has ranged from luxury-inthe-sky business models to the barest of bones type high density seating with every conceivable aspect of air travel that can be, offered at an additional fee. Since deregulation there have been numerous attempts at an all premium product offering, notably Air Atlanta, Midwest Express and Trump Air. Although Midwest had a 25-year run and significant stretches of profitability, neither it nor any other all premium product airline has survived. The original low cost carrier, Southwest, is now more like a network carrier in many ways and is now labeled a value carrier. Other value carriers offering network type attributes but not conventional (high) network pricing include jetblue and Virgin America. DRAFT 12/16/213 C-3

5 In recent years the most domestic traffic growth (and industry leading profitability) has come from the ultra low cost carrier (ULCC) sector, led by Spirit Airlines and Allegiant Air. While the precise business formulas of these two carriers vary slightly, both offer extremely low basic fares that only entitle a passenger to passage on a flight. Anything else, from a seat assignment to an in-flight drink of water, involves an extra fee. Spirit generally targets daily service on routes between big cities in direct competition with major airlines while Allegiant focuses on small cities and two or three times per week flights to major leisure destinations. Both are prime examples of successful innovation in the domestic airline industry. Frontier Airlines, under new ownership, appears to be planning to become the third domestic ULCC in the near term, which may cause changes in its service and product strategies at its home airport of Denver. Network carriers have also offered domestic service innovations. An example is lie-flat seating and all premium service on select transcontinental flights between major cities. Another network carrier innovation, actually copied from low cost carriers, is seasonal and even day-of-week schedule adjustments to allocate capacity more precisely to demand and shift capacity by season or day of week to where demand is strongest. This innovation actually benefits seasonal markets in that network carriers have more flexibility to provide service by season or by day of week. DRAFT 12/16/213 C-4

6 Table A DOMESTIC AIRLINE BUSINESS STRATEGY AND SERVICE SEGMENTATION SUMMARY Airline Type Examples Characteristics Network Value ULCC Hybrids American, United, Delta & US Airways Southwest, jetblue & Virgin America Spirit & Allegiant, Frontier pending Alaska & Hawaiian Hybrid airlines are generally regional in nature, having grown to major carrier status by focusing on one region of the country. Hybrids have characteristics of both network carriers and value carriers. C Declining Small Community Air Service Domestic rural air service is in decline. Key reasons for this decline are: a decline in the operating economics of the aircraft fleet typically assigned to small community service, industry consolidation, budget challenges and eligibility rule changes in the EAS program, and the growth of low fare and value carrier services at hubs, major cities and medium-sized cities that draw traffic from large catchment areas. Regarding operating economics contributing to the decline in rural air service, some factors are: Increases in fuel costs in smaller planes fuel is a much higher cost per seat than in larger aircraft Fleet age no new small airliners are being built, the existing fleet is aging and age related operating costs are climbing New FAA regulations, especially related to pilot qualification, duty and rest Broad national and international network Focus on hub operations Participation in global alliances Large size, hundreds of aircraft, multiple hubs Broad fleet, from 3+ seats to 5 seats Compete on brand and service, fares typically higher Network with focus on key major cities Mostly domestic operations, limited international service Large to medium size Standardized fleet, typically one or two types only Compete on brand, service and fare Low frequency or less-than-daily serivce offerings Formula works in both large cities and small towns Primarily targeting leisure or cost conscious traveler Standardized fleet, typically one or two types only Compete on price, brand & loyalty secondary or irrelevant Regional focus Characteristics of both network and value carriers Active in alliances and codeshares leveraging regional brand Standardized fleet, one or two types, plus regional partners Compete on brand and price DRAFT 12/16/213 C-5

7 One result of the declining economics of small community air service is less network carrier interest in rural markets. This disinterest varies by carrier, with Delta appearing most determined to reduce its service footprint in rural areas and American appearing most interested in retaining or even expanding its rural footprint. Figure A US REGIONAL AIRLINES 37-5 SEAT FLEET DEPLOYMENT August, /5 Seat Carrier Aircraft AA DL UA US SkyWest ASA/ExJet Air Wis 7 7 Mesa Am Eagle Pinnacle PSA Republic Chautauqua Shuttle Am TSA Total 1, Scope Limits Seat Fleet 215 Unknown Unknown? ? One sign of shifting network carrier rural air service strategy is the ongoing decline in 5-seat regional jet fleets. While some have pronounced this aircraft type dead, that is a misreading of what is happening. A few years ago there were six network carriers, each with a large fleet of 5-seat regional jets to serve multiple hubs. Today there are four network carriers and in 214 there will only be three as American and US Airways merge. As network carriers have merged they have also reduced the number of hubs where overlap allowed, with the best current example of this being Delta s elimination of hub operations at Memphis. The remaining network carriers are all upgrading their larger regional jet fleets (aircraft with 65 to 9 seats). All of these actions reduce the need for 5-seat aircraft. Thus the network carrier group has found itself currently with about 1, 5-seat jets when it will need, by the timeframe, fewer than 5. This does not mean the aircraft type is going to disappear. Rather, it means it will find a new, more focused mission for network carriers, primarily small city hub feed routes and other hub routes of between 2 and 5 statute miles. Larger regional jets, with 65 to 9 seats and dual first class/coach cabins, will assume most network carrier routes over 5 miles that had been flown with 5-seat equipment. Regarding industry consolidation and the decline of rural air service, some factors are: DRAFT 12/16/213 C-6

8 Fewer network and regional carriers means fewer air service options for small cities Fewer network carriers means fewer hubs, with declines at formerly robust hubs at Memphis and Cincinnati as prime examples With fewer network carrier competitors, the remaining network carriers can be much more selective about how they offer their service product in rural areas. Instead of competing with five other network carriers for traffic in a region, a network carrier today is competing with three, or perhaps only two. The decline of smaller hubs means the remaining network carriers will focus more operations at the larger hubs, such as Chicago ORD or Atlanta ATL. The economics of hub access come into play because, for example, Delta might be able to justify a certain small community service into a low cost and uncongested Memphis hub but cannot justify retaining that same city to the much larger and more congested Atlanta hub, where gate and runway space is at a premium. Budget issues with the EAS program are also contributing to the decline of rural air service: EAS subsidy costs are soaring and new EAS eligibility rules are reducing the number of cities in the program. Uncertainty about the EAS program is discouraging carriers from participating, which reduces the number of bidders for EAS routes, which drives up subsidy costs, which reinforces uncertainty about program funding, a downward spiral As EAS subsidized services decline, larger rural airports sometimes benefit as passengers from the catchment area of the formerly EAS supported airport drive to nearby regional airports that might have one or two network airlines and regional jet services, or even mainline services. The rapid and nationwide growth of value and low cost carries has contributed to rural air service declines: Taken as a group, Southwest, jetblue, Frontier and Spirit blanket almost the entire country with low fare air service Generally, the network carriers match, sometimes with modest premiums, the price offerings of the low fare group Thus airfares in many major cities, and even in larger regional population centers, have declined, at least measured against inflation This puts intense pressure on airfare pricing at rural airports near the major cities; pricing must be competitive with the option of driving one, two or even three hours to a major city with low fares and nonstop flights This downward pressure on airfares (revenue) at rural airports collides with the aforementioned dramatic increases in the economic cost of providing rural airport service The situation in the Denver region is a prime example. Southwest entered the Denver market in 26, overlapping significant nonstop service by network carrier United and low cost carrier Frontier. Since 26 the result has been intense fare competition at Denver, to the benefit of the entire Denver metro area, and in 212, ULCC carrier Spirit Airlines entered the Denver market with low frequency service on several major Denver routes, including Chicago, Dallas and Las Vegas. DRAFT 12/16/213 C-7

9 Figure B DENVER REGION AIRPORT TRAFFIC & REVENUE Year 25 vs 12 Months Q1 213 Denver Change Q1 Number Percent Domestic Traffic 2,396,66 26,95,71 5,699,5 27.9% Domestic Seats 51,998,611 6,338,998 8,34, % Avg Fare $ $ $ % Revenue $2,975,668,727 $3,954,543,893 $978,875, % Denver Regional Airports Change Q1 Number Percent Domestic Traffic 1,968,32 1,567,67-4,65-2.4% Domestic Seats 3,43,456 2,399, , % Avg Fare $ $ $ % Revenue $325,698,853 $28,881,75 -$44,817, % Denver Regional Airports are Colorado Springs, Cheyenne, Laramie, Pueblo, Scottsbulff However, for nearby airports like Colorado Springs, Pueblo, Cheyenne, Laramie and Scottsbluff, the low fare competition at Denver has increased local leakage to that airport and led to general declines in the amount of air service offered locally, resulting in less traffic and airline revenue at those airports as a group. Comparing 25 (the last year prior to Southwest s entry into Denver) to the 12 months ended 3/31/13 shows the amazing growth in traffic and service at Denver and the declines in the same metrics at the group of regional airports near Denver during that period. While Denver traffic is up 28% and service (measured by seats available) is up 16% in the period, for the regional group traffic is down 2% and seat count is down 21%. Average fare is only up 4% at Denver in the period while it is up only a modest 8% in the regional group. However, the airlines serving the regional airports are generating almost $45 million less revenue in 213 than in 25 (-14%) while at Denver nearly $1 billion in additional domestic passenger revenue (+33%) is being generated in 213 vs. 25. In summary, all three of the major trends discussed here impact air service options for Yampa Valley Regional Airport. Industry consolidation reduces the number of airlines capable of serving the market or being recruited to serve the market. Industry product and business plan segmentation (and accompanying innovation) does potentially introduce different types of air service as options for Yampa Valley Regional. Declines in rural air service, especially in small or EAS cities, does not directly impact the Airport, but the decline in the number of carriers in that business sector does again reduce new air service options for the Airport. DRAFT 12/16/213 C-8

10 C.2 COMPARISONS TO PEER GROUP AIRPORTS AND NEARBY HUBS (DENVER) About 7 airports have some form of scheduled air service in the United States. Exclude Alaska and there were about 5 airports with recorded airline traffic of some form in the 12 months ended 6/3/213. Denver ranks as the fifth largest U.S. airport in terms of domestic traffic with some 26 million annual passenger trips (not counting connecting passengers using Denver as a hub). As such, Denver s airport towers over all others in the intermountain west, Phoenix is the 12 th ranked airport with just over 2 million annual local passengers, Salt Lake city ranks 28 th with just under ten million annual passengers and Kansas City ranks 32 nd with just over eight million annual passengers. Thus the Steamboat/Hayden area is within about a 3.5 hour drive and a one hour flight of the fifth largest airline hub airport in the nation. C Peer Group Service and Traffic Comparisons Yampa Valley Regional Airport and five other Colorado mountain airports constitute a unique subset of the 5-plus lower 48 air service airports. Yampa Valley Regional s peer group in this case includes Aspen, Durango, Eagle, Gunnison and Montrose. With the exception of Durango, these airports have seasonal traffic demand and have significant reliance on inbound visitor traffic. Arguably, Telluride fits this characterization as well, but runway limitations restrict it to small turboprop service only, and it is thus significantly smaller in traffic than Yampa Valley or the aforementioned peer group of five airports. The six airports have a wide variety of air services with much of that service being seasonal, either winter only or winter/summer only (two-season). The one constant at all six airports is daily year-round service to Denver. Many winter only routes are also less-than-daily or weekend only. Many winter only routes are operated by the carrier with some form of local financial support, ranging from outright subsidy to various forms of risk mitigation. The financial support is typically orchestrated by the nearby ski resort company, under different funding methods. Figure A COLORADO MOUNTAIN AIRPORT NONSTOP SERVICE SUMMARY: DL UA or F9 AA UA AA UA AA or UA AA DL G4 AA or UA US or G4 AS UA AC Airport ATL DEN DFW EWR JFK IAH LAX MIA MSP OAK ORD PHX/AZA SEA SFO YYZ Aspen X X X X X X X X Durango X X X Eagle X X X X X X X X X X X X Gunnison X X X X Hayden X X X X X X X X X Montrose X X X X X X X X X Color Code Year Round Two Season Winter Only Summer Only Carrier Code AA = American, AC = Air Canada, AS = Alaska, DL = Delta, F9 = Frontier, G4 = Allegiant, UA = United, US = US Airways Service patterns do vary by airport market and by season. For example, Hayden got new Los Angeles winter season service the winter of and will introduce Seattle service (Alaska Air) the winter of This is the first winter season service from Seattle to any Colorado mountain airport. At the same time, occasionally seasonal services fail to achieve targeted traffic and revenue results and are discontinued. Examples of this would be Hayden Salt Lake City service with Delta and Hayden New York City (LGA) service, both of which ended after the winter season. DRAFT 12/16/213 C-9

11 Figure B PEER AIRPORT TRAFFIC INFORMATION: 12 MONTHS 213 Q1 City Domestic Traffic Avg Fare % Local Origin Aspen 347,73 $ % Durango 362,84 $ % Eagle/Vail 286,9 $ % Gunnison 58,91 $ % Hayden 182,98 $ % Montrose 147,99 $ % Group 1,386,54 $ % International Traffic Aspen 31,88 $ % Durango 13,7 $ % Eagle/Vail 32,4 $ % Gunnison 1,29 $ % Hayden 4,94 $ % Montrose 8,2 $ % Group 92,5 $ % Total Traffic Aspen 379,61 $ % Durango 376,54 $ % Eagle/Vail 318,13 $ % Gunnison 6,2 $ % Hayden 187,92 $ % Montrose 156,19 $ % Group 1,478,59 $ % Source: DOT Traffic Reports Among the six Colorado mountain airports, Hayden ranks fourth in domestic traffic and fifth in international traffic volume for the 12 months ended 3/31/213. Hayden s average domestic fare of $ is the fifth lowest in the group and its international average fare of $ is the lowest in the group of six and measurably below the group average of $ The group averages are elevated by the much higher domestic and international average fares generated at Aspen and Eagle/Vail. The chart at the right also has a column labeled % Local Origin. This is the percent of total domestic or international traffic that was recorded as being local in origin, as opposed to inbound origin traffic that would typically be visiting skiers or tourists. While the six-market group has an average local origin of 26.4%, Hayden s local origin is only 16.5% of total traffic. This is about the same as at Eagle/Vail and at Gunnison, but much lower than at Aspen, Durango and Montrose. DRAFT 12/16/213 C-1

12 C Local Origin Traffic Figure A LOCAL ORIGIN PASSENGERS PER POPULATION Total Local Catchment Ratio City Origin Traffic Population O&D/Pop Aspen 99,383 17, Durango 157,745 51, Eagle/Vail 47,113 59,281.8 Gunnison 9,521 15,48.6 Hayden 3,966 23, Montrose 45,933 41, Group 39,661 27, Total Airport Traffic to MSA or County Population Since the six airports serve regions with different populations and at different distances from Denver, (leakage) a comparison of local O&D traffic to MSA or county population is relevant. In the chart at the right the local origin passenger total for each airport for the year ended 3/31/213 is compared to the micropolitian statistical area population for that airport, or the county(s) population if no MSA is designated. The ratios derived from this vary significantly with Aspen generating 5.8 passenger trips (O&D) per MSA or county resident annually. Durango generates 3 O&D per resident and the other airports are about one O&D per resident or less. C Peer Group Snapshot of Capacity and Seasonality of Capacity Chart 2.1.3A shows market capacity (measured by seats offered) for each city for the winter peak month of March 213 in comparison to seats offered for the summer peak month of July 213. The chart also shows market load factor for all flights in and out for each month. At the far right on the chart is a calculation of the percent of July seats to March seats in each market, illustrating the difference, by market, in capacity offered in peak summer vs. peak winter. Chart A PEER GROUP CAPACITY AND LOAD FACTOR BY SEASON March, 213 July, 213 % July Seats City Seats Load Factor Seats Load Factor to March Seats Aspen 83, % 6, % 72.5% Durango 36, % 47, % 132.7% Eagle/Vail 116, % 24, % 21.4% Gunnison 19, % 6,5 76.3% 31.6% Hayden 62, % 12, % 2.6% Montrose 42, % 19, % 46.3% Group 36, % 172, % 47.8% DRAFT 12/16/213 C-11

13 Hayden s winter season seat count is 3 rd largest in the group but its summer seat count is 5 th largest. Hayden s winter load factor is comparable to that at Eagle, better than at Gunnison and about ten percentage points below that of Aspen, Durango and Montrose. Hayden s summer load factor is the lowest in the group and 15 to 2 percentage points below that of the group. In terms of the difference between summer and winter capacity offerings, Hayden s peak summer service level is 2.6% of its peak winter capacity, similar to the difference at Eagle/Vail. Durango actually had, in this comparison period, more summer service than winter service. C Peer Group Traffic and Capacity Seasonality Seasonality can be measured by the standard quarters of the year: January March, April June, July September, and October December. However this standard method does not exactly match up with the real seasons of Colorado mountain markets and their airports. In the case of these Colorado mountain resort cities, Winter is December March, Summer is June August and there are two shoulder periods, the two Spring months of April and May and the three Fall months of September, October and November. This measurement method creates unequal periods but it more accurately captures the market s allocation of traffic and capacity by peak and off peak period. Below is a chart measuring monthly and by-season traffic demand at Hayden and its peer airports for the three-year period Chart A DOMESTIC TRAFFIC: PEER GROUP SEASONALITY BY MONTH AND SEASON FOR Aspen Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 13.8% 13.1% 15.4% 5.% 3.5% 7.2% 1.2% 9.6% 5.3% 3.3% 3.% 1.5% By Season Winter Dec - Mar 52.8% Spring 8.5% Summer 27.% Fall 11.7% Durango Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 6.4% 6.4% 7.7% 6.8% 8.1% 9.4% 1.3% 1.5% 9.5% 8.9% 7.4% 8.5% By Season Winter Dec - Mar 29.1% Spring 14.9% Summer 3.2% Fall 25.8% Eagle/Vail Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 21.% 2.6% 23.4% 3.%.7% 2.6% 4.6% 4.5% 3.2% 1.3% 1.8% 13.3% By Season Winter Dec - Mar 73.8% Spring 3.7% Summer 11.7% Fall 6.4% Gunnison Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 14.6% 17.7% 19.3% 3.% 2.5% 4.1% 7.9% 7.5% 4.3% 3.1% 2.7% 13.2% By Season Winter Dec - Mar 64.9% Spring 5.5% Summer 19.5% Fall 1.1% Hayden Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 19.8% 2.8% 22.% 3.6% 1.9% 3.% 4.4% 4.1% 3.1% 2.6% 2.4% 12.4% By Season Winter Dec - Mar 74.9% Spring 5.5% Summer 11.5% Fall 8.1% Montrose Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 13.8% 13.1% 15.4% 5.% 3.5% 7.2% 1.2% 9.6% 5.3% 3.3% 3.% 1.5% By Season Winter Dec - Mar 52.7% Spring 7.1% Summer 25.8% Fall 14.4% In terms of traffic seasonality, Hayden and its peer group airports, except Durango, have similar seasonality of traffic demand. Among the peer group Hayden does generate the highest percent (74.9%) of its annual traffic during the four month winter season and the lowest percent (11.5%) during summer. Hayden s traffic distribution by peak season is nearly identical to that at Eagle/Vail. DRAFT 12/16/213 C-12

14 Chart B DOMESTIC CAPACITY: PEER GROUP SEASONALITY BY MONTH AND SEASON FOR Aspen Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 14.4% 13.2% 15.3% 5.9% 3.8% 7.7% 9.2% 8.9% 5.% 3.2% 3.1% 1.3% By Season Winter Dec - Mar 53.2% Spring 9.6% Summer 25.8% Fall 11.4% Durango Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 6.4% 6.4% 7.7% 6.8% 8.1% 9.4% 1.3% 1.5% 9.5% 8.9% 7.4% 8.5% By Season Winter Dec - Mar 31.5% Spring 16.3% Summer 27.8% Fall 24.4% Eagle/Vail Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 21.% 2.6% 23.4% 3.%.7% 2.6% 4.6% 4.5% 3.2% 1.3% 1.8% 13.3% By Season Winter Dec - Mar 77.3% Spring 4.4% Summer 1.8% Fall 7.5% Gunnison Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 14.6% 17.7% 19.3% 3.% 2.5% 4.1% 7.9% 7.5% 4.3% 3.1% 2.7% 13.2% By Season Winter Dec - Mar 65.5% Spring 7.6% Summer 17.8% Fall 9.2% Hayden Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 19.8% 2.8% 22.% 3.6% 1.9% 3.% 4.4% 4.1% 3.1% 2.6% 2.4% 12.4% By Season Winter Dec - Mar 75.1% Spring 5.9% Summer 11.% Fall 8.% Montrose Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec By Month 13.8% 13.1% 15.4% 5.% 3.5% 7.2% 1.2% 9.6% 5.3% 3.3% 3.% 1.5% By Season Winter Dec - Mar 53.4% Spring 7.8% Summer 24.2% Fall 14.6% The measurement of capacity by month and season largely mirrors the measure of traffic by month and season. The airline industry is very astute at matching capacity to demand. Furthermore, in most of the peer group cities significant portions of winter season capacity are recruited by and in some manner financially supported by the local resort community, so a parallel between winter season traffic and winter season capacity, as percentages of market annual total, is a logical outcome. Hayden had 75.1% of its annual seat capacity operated during the four-month winter season in the measurement period. Another 11% of capacity is operated during the three-month summer period. The shoulder months of April, May, September, October and November have between 3% and 4% of annual capacity each. This distribution pattern of seat capacity is very similar to that at Eagle/Vail. Aspen, Gunnison and Montrose have between one half and two thirds of their annual seat capacity operated during the four month winter season. Again, Durango stands out as having a more or less even distribution of seat capacity by month, with the highest monthly allocation being in August at 1.5% of total annual seats and the lowest allocation being in January and February at 6.4% of total seats each. C Comparison of Peer Group Annual Trends in Traffic, Seat Capacity and Load Factor The past eight years have been some of the most turbulent in the history of domestic airline industry. The years saw the airline industry recovering from the shock of 9/11 and the economic recession that bracketed that tragic event. As was noted in the previous section of this report, the period saw fuel prices and industry traffic and revenue soar to record levels and then collapse, with industry revenue seeing the largest drop in history between Q2 of 28 and Q2 of 29. Also during this time industry consolidation, in all industry sectors, has accelerated. Airlines have become extremely careful with capacity expansion, especially in smaller cities. The airline industry s economic drama of the past eight years is reflected in the different traffic and capacity trends at Hayden and its peer airport group during the period. DRAFT 12/16/213 C-13

15 The chart below illustrates annual domestic traffic at Hayden and at each of its peer airports for the period Traffic is measured in passengers per day each way (PDEW) which reduces six or seven figure numbers to more manageable numbers by dividing by 73 (365 days in a year multiplied by 2). This does not change graph trends or relationships. HAYDEN AND PEER GROUP: ANNUAL DOMESTIC TRAFFIC PDEW Chart A Aspen Durango Hayden Eagle Gunnison Montrose Three of the six airports show a downward trend starting in either 27 or 28; Hayden, Eagle and Gunnison. Hayden is down 18% in the period, Eagle is down 2.9% and Gunnison is down 14.6%. Montrose traffic grew during the eight year period but 212 numbers slumped and ended up the same as 24. Aspen and Durango showed growth in the period with Aspen up 11.1% and Durango up 94%. The chart on the next page (2.1.5 B) illustrates annual domestic capacity at Hayden and each of its peer airports for the period Capacity is measured in total seats offered in the market per day each way (SDEW) which reduces six- or seven-figure numbers to more manageable numbers by dividing by 73 (365 days in a year multiplied by 2). This does not change graph trends or relationships. As with domestic traffic, Aspen and Durango show significant growth in seat capacity between 24 and 212 with Aspen up 23.4% and Durango up 77.1%. Montrose capacity, like its traffic, grew during the eight year period but slumped in 212 back to essentially the same level as in 24. Hayden, Eagle and Gunnison show declines in capacity during the eight year period with Hayden down 9%, Eagle down 5.6% and Gunnison down 14.6%. DRAFT 12/16/213 C-14

16 HAYDEN AND PEER GROUP: ANNUAL CAPACITY SEATS SDEW Chart B Aspen Durango Hayden Eagle Gunnison Montrose 1, Combining traffic demand and seat capacity allocation data will result in a measure of market load factor, or the percentage of airline flight seats that are occupied each year. HAYDEN AND PEER GROUP: ANNUAL MARKET LOAD FACTOR Chart C Aspen Durango Hayden Eagle Gunnison Montrose 8% 77.3% 77.% 77.8% 75% 7.8% 7% 66.8% 66.8% 65% 66.% 62.7% 61.9% 6% 69.9% 74.8% 69.5% 69.4% 71.4% 69.1% 68.3% 67.1% 68.2% 66.7% 65.8% 75.% 73.6% 73.1% 7.7% 68.% 69.3% 67.4% 68.9% 71.6% 66.7% 64.9% 67.7% 65.4% 64.6% 64.9% 64.2% 64.8% 65.9% 62.9% 62.5% 62.6% 73.8% 68.6% 68.2% 65.8% 63.8% 59.3% 73.3% 65.4% 64.1% 62.7% 59.7% 55% 54.1% 56.% 5% DRAFT 12/16/213 C-15

17 With the exception of Durango, Gunnison and Montrose, peer group market annual load factors are relatively stable in a narrow range of 65%, plus or minus a few percentage points. Durango s market load factor has climbed to 77.8% in 212 and is the highest in the group for the past two years. Montrose load factors also soared into the 7% bracket between 26 and 21, but have since declined to the 65% bracket. Gunnison load factors have underperformed the group every year and failed to crack 6% in each of those years. Compared to overall network carrier load factors, either system or just for regional jet operations, all the peer group airports underperform. Network carrier annualized system load factors are typically in the 8% range and regional partner load factors are in the 75% range. Hayden s market load factor during the period averaged 66%, with a high of 74.8% in 26 and a low of 62.6% in 21. At Hayden, Eagle and Gunnison a significant portion of total annual capacity is ski season related and operated under agreements between the local ski resort and the airline. In these cases market load factors mean less than if the service delivered adequate numbers of inbound skiers to the resort. Department of Transportation (DOT) average fare reports draw information directly from carrier traffic and revenue reports. Average fares are reported as one way and net of taxes and fees. Chart D shows the reported average domestic one-way net fare for each of the peer group markets by year. HAYDEN AND PEER GROUP: ANNUAL DOMESTIC AVERAGE FARE Chart D Aspen Durango Hayden Eagle Gunnison Montrose $264 $26 $247 $245 $239 $238 $24 $233 $229 $235 $22 $217 $219 $211 $213 $212 $215 $215 $25 $25 $24 $22 $28 $2 $199 $195 $24 $193 $27 $187 $22 $198 $193 $179 $192 $19 $181 $194 $185 $18 $177 $177 $174 $176 $175 $171 $177 $178 $173 $166 $175 $169 $172 $168 $16 $158 $16 $158 $154 $14 $ The group as a whole illustrates the roller coaster effect of airline revenue prior to, and after, the major recession of Peer group average fares were climbing steadily from 24 to 27 or 28. DRAFT 12/16/213 C-16

18 Average fares paid in all markets dropped significantly in 29 and have since begun to climb again. Hayden reports the lowest average fare in the group in every year measured. Aspen reports the highest average domestic fare in every year measured, usually by a significant amount. In 212 Aspen is the highest at $264 and Hayden the lowest at $22. The rest of the peer group falls in between with 212 average fares ranging from $215 to $238. C Comparisons of the Hayden Market to Denver As was noted earlier, Denver is the 5 th largest domestic airport, measured by local traffic, with just over 26 million annual O&D trips. Denver is also a major connecting hub for United Airlines, Frontier Airlines and Southwest Airlines. Hayden is the 219 th largest domestic airport, measured by local traffic, with just fewer than 2, annual O&D trips. Denver is an important part of Hayden s air service. It is both the closest major airport and connecting hub and the primary leakage point for Hayden region traffic that does not use the Yampa Valley Regional Airport. DENVER DOMESTIC TRAFFIC, SEAT CAPACITY AND AVERAGE FARE: Chart A Seats SDEW Domestic PDEW Domestic Avg Fare 9, 8, 7, 72,281 71,231 76,612 8,56 82,885 82,438 83,897 83,644 83,361 81,99 $15 $151 $151 $16 $15 6, 5, 4, 3, $146 $139 26,822 27,941 $144 3,58 $146 $141 32,812 32,323 $13 31,85 $138 32,399 34,311 35,167 36,131 $14 $13 $12 Average Fare 2, $11 1, $1 The chart above shows Denver s domestic seats, passengers and average fare by year for 24 to 213, with 213 being the 12 months ended June 3, 213. Seats and passengers are expressed in daily total each way. The impact of Southwest s entry into the Denver market in 26 is clear. 213 seat capacity is up 15% from 25 (last year prior to Southwest entry) while domestic traffic is up 29% in the same period. Market average fare has been on a roller coaster ride but the 213 fare is only $7 higher (5%) than in 25. Since DRAFT 12/16/213 C-17

19 26 Denver has been one of the most competitive major airports in the nation, with United, Southwest and Frontier operating the airport as a major online connecting hub. Southwest has become the leader in market share of domestic traffic at Denver, followed now by United and Frontier. The three carriers combined have 77.9% of the Denver market for the 12 months ended 6/3/213. Chart B DENVER DOMESTIC MARKET SHARE Other, 22.1% Southwest, 31.1% Frontier, 2.3% United, 26.5% Eight other airlines hold a combined 22.1% market share. The three primary carriers have high levels of daily service. United offered an average of 365 daily departures per day at Denver in August of 213. Southwest offered a daily average of 161 departures and Frontier offered 19 daily flights in the same period. It is important to remember that an average Southwest flight at Denver in August of 213 had 145 seats and an average Frontier flight has 142 seats. United operates a significant level of regional services at Denver and its average flight had 88 seats in the period. Denver is both Yampa Valley Regional s primary hub and also its primary leakage point, the airport most often used as an alternative to the Yampa Valley Airport. While a major reason for leakage to Denver is the above illustrated high level of nonstop flights on ten domestic airlines, another reason is the measurable disparity in average fare paid at Yampa Valley compared to at Denver. DRAFT 12/16/213 C-18

20 DENVER VS HAYDEN: DOMESTIC AVERAGE FARE: Chart C Denver Hayden $22 $214 $22 $2 $194 $18 $172 $177 $178 $175 $16 $15 $154 $158 $14 $139 $146 $144 $141 $146 $138 $15 $151 $151 $12 $13 $ In 24 and 25 the average domestic fare gap between that paid at Yampa Valley and that paid at Denver was $8 to $11 one way. Since then the gap has widened considerably and in the most recent period, the 12 months ended 6/3/213, Yampa Valley had an average fare of $214 while Denver s as $151, a gap of $63 one way. When taxes and fees are considered and round trip travel is calculated, this gap was approximately $14 round trip in that 12-month period. The disparity grows much wider when first quarter, with all its inbound leisure ski traffic, is excluded. The gap between the Denver domestic fare and that paid at Hayden (excluding Q1 traffic) in the 12 months ended 6/3/213 is $11. DENVER VS HAYDEN: DOMESTIC AVERAGE FARE EXCLUDING Q1: Chart D Denver Hayden $26 $252 $24 $233 $241 $22 $2 $18 $168 $181 $23 $199 $211 $189 $29 $16 $14 $12 $139 $146 $144 $141 $146 $13 $138 $15 $151 $151 $ DRAFT 12/16/213 C-19

21 In summary, in terms of overall market size and service, Yampa Valley Regional Airport is in the middle of the peer group of Colorado mountain airports. The Airport s seasonality of traffic and service is similar to that at Eagle/Vail (a larger market) and at Gunnison (a smaller market). The Airport does not share a lot in common with Aspen and, especially, Durango. While Aspen is clearly a resort market airport, it has a much stronger summer, much more year-round service and much higher fares than at Yampa Valley. Durango, despite being a mountain airport, has market characteristics more like that of a year-round business market. The data presented above on Denver illustrates the intense competition at that major airport and the impact that competition has on Yampa Valley Regional, in the form of a wide and expanding disparity between average fares paid at Denver and those paid at Yampa Valley Regional. One of the keys to long term growth of airline traffic at Yampa Valley Regional will be the level of airline competition going forward, especially on price, at Denver. The intense focus on Denver by three airlines, United, Southwest and Frontier, makes it one of the most competitive large markets in the nation, and results in aggressive pricing on many routes. Should one of the three airlines that operate large scale hub operations at Denver reduce those operations, Denver airfare pricing will generally increase and the current wide gap between Denver average fares and Hayden average fares will narrow. A narrowing average fare gap will most likely make expanded Hayden air service economical, both winter seasonal and year round. C.3 HISTORICAL AIRLINE ACTIVITY The Yampa Valley Regional Airport can trace its air service history back to Airport construction began in June of The first air service, with Frontier Airlines Convair 58 turboprops (the first Frontier) began in October of In 1986 a runway extension allowed for larger aircraft and winter season mainline jet service began. A variety of commuter and regional airlines also served the airport in the 198s and early 199s. As detailed earlier, the evolution of the commuter airline industry into a much smaller group of airlines that mostly flew for network carriers under their brands occurred at Yampa Valley as it did nationwide. Today the Airport s only year-round service is that of United Airlines regional partner carriers operating 5- to 76-seat aircraft to the United hub in Denver. This study will look back at historical airline activity from 1993 to 212, a period of twenty years. It will analyze service, capacity, traffic and average fares for each year and by each year s winter quarter, and will examine trends for local origin traffic in comparison to that of the overall market. C HDN Airport Service by Route A total of 16 cities have had nonstop air service to Yampa Valley Regional Airport in the 2-year period of 1993 to 212. Seattle service, which starts in December of 213, will make the 17 th nonstop route. DRAFT 12/16/213 C-2

22 Chart A HDN NONSTOP ROUTE AIR SERVICE SUMMARY: City Atlanta X X X X X X X X X Chicago X X X X X X X X X X X X X X X X X X X X Cincinnati X X Cleveland X X X Dallas X X X X X X X X X X X X X X X X X X X X Denver X X X X X X X X X X X X X X X X X X X X Houston X X X X X X X X X X X X X X X X X X X X Los Angeles X X X X X X X X X X Minneapolis X X X X X X X X X X X X X X X X X X X X New York LGA X X X X New York EWR X X X X X X X X X X X X X X X X X X X X New York JFK X X Raleigh X X St. Louis X X X X X X Salt Lake City X X X X X X X X San Francisco X X Year round Winter All routes shown except Denver were operated winter season only. During each year s winter season service frequency varied from once per week to daily. This happens to be a good example of industry consolidation in that former airline hubs Cincinnati, Raleigh and St. Louis all briefly had winter season service to Hayden in the late 199s or early 2s. All three have since lost their hub status. Cleveland and San Francisco are still airline hubs but the service efforts apparently did not work financially. C Historic Capacity Analysis Air service at Yampa Valley Regional Airport has seen significant fluctuations in the years between 1993 and 212. In the twenty-year period market seat capacity is up 16%. However, inside that twenty-year measure there have been significant shifts, with capacity actually going down eight times year over year, including in four of the more recent five years. Capacity grew 67% in the first five years 1993 to 1997, grew again by 2% in the second five years 1998 to 22, grew again by 26% in the period 23 to 27 and declined in the most recent five years 28 to 212 by 18%. Increases and decreases have occurred in years where industry capacity may have shifted in the opposite direction. This is a clear indication that the recruitment and financial support strategies of the Ski Company in any given year can cause capacity to move against national or even regional trends. DRAFT 12/16/213 C-21

23 Chart A AIRLINE SEATS OFFERED 1993 TO 212 AIRLINE FLIGHTS FLOWN 1993 TO 212 SEATS PER FLIGHT 1993 TO 212 Year Seats Percent Change Year Flights Percent Change Year Seats/Flt Percent Change , , , % , % % , % , % % , % , % % ,13-3.4% 67.2% , % 38.4% % -59.1% , % , % % , % , % % 2 37, % 2 4, % % , % 21 2, % % , % 2.4% 22 3, % -17.2% % 45.4% 23 35, % 23 3, % % , % 24 4, % % , % 25 4, % % , % 26 4,96 3.2% % , % 25.6% 27 5, % 45.% % -13.4% , % 28 4, % % , % 29 4, % % , % 21 3, % % , % 211 3, % % , % -18.4% 16.4% 212 3,57-1.7% -31.3% 237.1% % 18.7% -38.8% The middle set of columns above show the number of airline flights operated at Yampa Valley Regional Airport each year for the 2 year period. The number of flights varies significantly by year as well. This is a function of the size of aircraft operated and, by itself, is less of an indicator than total seats offered. The far right set of columns show the average seats per flight, an important indicator of the size of aircraft used for HDN service and 1994 saw only large mainline aircraft operated. The middle 199s saw average aircraft size (gauge) decline to as low as 51.1 seats per flight. Since then aircraft gauge has fluctuated between 7 and 9 seats per flight. Denver service is operated with 5- to 7-seat aircraft and the various winter seasonal services vary between mainline jets (124 to 16 seats) and large regional jets (65 to 76 seats). C Historic Traffic Analysis During the past 2 years Yampa Valley Regional Airport traffic has hovered in the 2, O&D per year range. The highest annual total traffic during the period was achieved in 27 with 269,61 total O&D passengers reported to the DOT. The lowest annual total in the period was recorded in 1995 with 164,74 O&D. The chart below shows domestic traffic by year, international traffic by year and then total traffic by year. Domestic traffic has posted declines each of the last five years while international traffic posted declines for six consecutive years 1998 to 23. DRAFT 12/16/213 C-22

24 Chart A DOMESTIC TRAFFIC 1993 TO 212 INTERNATIONAL TRAFFIC 1993 TO 212 TOTAL TRAFFIC 1993 TO 212 Year Traffic Percent Change Year Traffic Percent Change Year Total Percent Change , , , ,56-2.2% ,68 -.8% , % ,32-6.% , % ,74-6.5% ,98 1.9% , % , % , % -6.5% , % 36.4% , % -5.6% ,76 -.7% , % ,19-1.1% ,54.9% , % ,2.5% 2 211,6 4.7% 2 4,25-8.8% 2 215,31 4.4% ,36-1.3% 21 3, % ,92-1.4% 22 22,47 6.9%.7% 22 3,3-14.9% -53.% 22 25,5 6.5% -1.% ,72-2.3% 23 3,8 1.7% 23 2,8-2.3% 24 23, % 24 3, % , % ,42 5.% 25 5, % ,71 5.5% ,2 1.6% 26 5,58 5.5% ,78 1.6% ,73 6.7% 29.8% 27 6, % 127.1% ,61 7.1% 31.2% ,54-3.1% 28 7,56 9.9% ,1-2.8% ,8-9.7% 29 4,76-37.% ,56-1.5% 21 26,75-1.% 21 6, % ,7-9.2% ,37-1.6% 211 4, % ,18-2.3% ,91-6.6% -27.7% -11.7% 212 5,13 6.7% -25.4% 8.7% ,4-6.3% -27.7% -11.3% 1993 was a very strong year for HDN traffic, with the 219,82 O&D total not matched or exceeded until 24. If we exclude the anomaly of 1993, current traffic , even though declining each year, is still about 1% higher than for the comparable five years of 1994 to For the period 1995 to 2, domestic traffic showed modest growth. After a decline in 21 traffic again showed growth until 28 and has been in decline since that year. International traffic is only about 2% of total market traffic. This is an unusually low percentage. Partially due to the small sample size, international traffic has seen wide variance from year to year and that variance is not always consistent with that of domestic traffic. International traffic declined to as low 4,8 passengers in 212 but for the period averaged about 5,3 annual O&D. Reasons for the modest international totals, both actual and as a percent of market, include a small resident population base and limited international connections on existing HDN schedules. For example the Denver hub has very modest international service given its overall size. C Historic Market and City Pair Load Factors Summary Market load factors at Yampa Valley Regional Airport consistently trail industry averages. The Airport s annualized load factor for all carriers and all routes has underperformed the aggregate system load factor of the network airlines by about 2 percentage points each year since 29. DRAFT 12/16/213 C-23

25 NETWORK SYSTEM LOAD FACTOR AND HDN LOAD FACTOR: Chart A Network System Load Factor HDN Market Load Factor 1% 9% 8% 7% 6% 67% 62% 64% 66% 69% 7% 71% 72% 71% 72% 63% 62% 63% 66% 66% 67% 72% 7% 66% 79% 74% 76% 71% 7% 69% 7% 82% 83% 83% 84% 84% 85% 85% 75% 71% 67% 68% 65% 63% 64% 5% 4% 3% 2% 1% % Hayden Airport load factors are very much a product of the level of winter season capacity that is offered and on which routes that capacity is offered. For the 2-year period shown on all routes operated, the market load factor was 67%. Recent years have been roughly consistent with that number. The peak year for load factor was 26 at 75%. A few years have dipped as low as 62% or 63%. The load factor performance of individual routes is a more complex data summary. During the 2-year period sixteen city pair routes were flown at least one winter season. Six routes Chicago, Dallas, Denver, Houston, Minneapolis and New York Newark (ERW) had scheduled flight operations at least seasonally all twenty years. Atlanta has had service every winter since and Los Angeles had service each winter but then was suspended until the winter of Eight other routes have had service for some period during the twenty years but do not have it currently. Those are Cincinnati (former Delta hub), Cleveland (declining United/Continental hub), New York LGA (which had four winters of weak load factor performance 27 21), New York JFK (which had two winters of weak load factor performance 27 28), Raleigh and St. Louis (both former American hub sites), Salt Lake City (a modest Delta hub site), and San Francisco (a current United hub site). DRAFT 12/16/213 C-24

26 Chart B HAYDEN CITY PAIR AND MARKET LOAD FACTORS 1993 TO City LF LF LF LF LF LF LF LF LF LF LF LF LF LF LF LF LF LF LF LF Atlanta 76% 75% 8% 81% 76% 74% 67% 65% 69% 69% Chicago 7% 68% 64% 66% 71% 85% 5% 59% 59% 67% 66% 59% 64% 69% 63% 64% 56% 53% 62% 59% Cinninnati 44% 66% Cleveland 64% 67% 64% Dallas 68% 68% 71% 71% 75% 76% 74% 77% 81% 78% 72% 67% 7% 78% 74% 72% 68% 68% 69% 67% Denver 62% 55% 6% 58% 63% 69% 64% 59% 63% 63% 62% 71% 73% 76% 72% 62% 63% 69% 67% 58% Houston 75% 61% 55% 56% 63% 71% 75% 74% 77% 73% 71% 67% 71% 76% 73% 74% 73% 63% 72% 6% Los Angeles 54% 43% 54% 56% 7% 74% 46% 62% 57% 72% Minneapolis 65% 6% 6% 65% 66% 72% 62% 59% 66% 67% 73% 69% 75% 78% 75% 76% 64% 68% 71% 68% New York LGA 59% 5% 54% 57% New York EWR 67% 7% 56% 65% 77% 67% 74% 72% 69% 67% 64% 66% 72% 78% 83% 78% 79% 81% 78% 71% New York JFK 58% 4% Raleigh 39% 57% St. Louis 44% 52% 68% 58% 63% 74% Salt Lake City 7% 56% 57% 62% 57% 49% 46% 54% San Francisco 43% 33% Market 67% 63% 62% 63% 66% 72% 66% 67% 72% 7% 69% 66% 7% 75% 71% 67% 65% 63% 68% 64% The highest Hayden market annual load factor was in 26 with 75%. The period from 1998 to 27 saw annual load factors average 7%. For the five year period since 27 the annual average was 65.4%. C Historic Domestic and International Average Net One-Way Fares Consistent with national trends, Yampa Valley Regional Airport average fares, both domestic and international, have climbed significantly over the 2 year period 1993 to 212. Domestic average fare is up 36% from 1993 to 212. The biggest single year increase was from 25 to 26 when the fare increased 12%. The largest decrease was from 28 to 29 when the average fare paid dropped from $178 to $158, a decrease of 11%. Since 29 the average fare is up 28% ($158 to $22) and for the 12 months ended 6/3/213 (not shown) the domestic fare is up to $214, which is a 35% increase from 29. While these increases are consistent with national trends, they are not consistent with trends at Denver, where intense competition has held domestic average fare increases to only 16% since 29. (see page 16). International average fare is up 99% between 1993 and 212. Since Hayden generates a relatively small number of international passengers per year the sampling size is small and subject to significant variation year over year. Despite year to year variances up or down, the general trend is consistent with that of the region and the nation. DRAFT 12/16/213 C-25

27 HAYDEN DOMESTIC AND INTERNATIONAL AVERAGE FARE: Chart A International Average Fare Domestic Average Fare $7 $6 $5 $559 $555 $537 $641 $649 $627 $617 $582 $554 $513 $493 $49 $455 $459 $438 $448 $434 $417 $424 $4 $326 $3 $2 $148 $164 $155 $159 $155 $153 $158 $158 $161 $149 $149 $15 $154 $172 $194 $22 $177 $178 $175 $158 $1 $ C Historic Traffic Origin The Yampa Valley Regional Airport, as a seasonal market supporting a major ski resort, sees primarily inbound traffic flows. Domestic traffic origin has climbed to 18% of total in 212. HAYDEN DOMESTIC TRAFFIC ORIGIN PERCENTAGES: Chart A Inbound Origin HDN Origin 1% 9% 8% 85% 91% 9% 87% 86% 89% 86% 88% 89% 88% 88% 85% 84% 85% 83% 83% 83% 83% 83% 82% 7% 6% 5% 4% 3% 2% 1% 15% 9% 1% 13% 14% 11% 14% 12% 11% 12% 12% 15% 16% 15% 17% 17% 17% 17% 17% 18% % DRAFT 12/16/213 C-26

28 Since first quarter produces significant inbound visitor traffic, a review of origin percentages for each year excluding first quarter shows that local origin traffic is about one third of total outside of ski season. HAYDEN DOMESTIC TRAFFIC ORIGIN PERCENTAGES EX FIRST QUARTER: Chart B Inbound Origin HDN Origin 1% 9% 8% 7% 6% 72% 78% 79% 73% 68% 73% 69% 69% 71% 7% 69% 68% 66% 67% 67% 65% 66% 67% 68% 67% 5% 4% 3% 28% 22% 21% 27% 32% 27% 31% 31% 29% 3% 31% 32% 34% 33% 33% 35% 34% 33% 32% 33% 2% 1% % The Yampa Valley Regional Airport produces relatively little international traffic. The percent of international traffic that is of local origin is much higher than with domestic traffic but still less than 5%. HAYDEN INTERNATIONAL TRAFFIC ORIGIN PERCENTAGES: Chart C Inbound Origin HDN Origin 1% 9% 93% 8% 7% 84% 89% 88% 86% 86% 8% 74% 6% 69% 7% 63% 67% 7% 62% 68% 71% 67% 61% 6% 64% 5% 4% 3% 2% 1% 16% 7% 11% 12% 14% 14% 2% 31% 3% 37% 26% 33% 3% 38% 32% 29% 33% 39% 4% 36% % As with domestic traffic, the percent of total international that is of local origin has grown significantly in 2 years, from 16% or less in the 199s to about 4% in recent years. DRAFT 12/16/213 C-27

29 C Historic Winter Season (First Quarter) Traffic and Service Historically, about 75% of Yampa Valley Regional Airport annual traffic and air service capacity occurs in the four-month period of December to March each year. About 63% of annual activity occurs during calendar first quarter, January to March. Since DOT reports on airline traffic are published in quarterly form this section will look at the past twenty years of first quarter market traffic, revenue and service. This will capture the bulk of the winter season visitor traffic, excluding that which occurs in December or may occur in very early April. The following analysis, charts and graphs focus only on first quarter traffic, capacity and average fare metrics for the twenty years 1993 to 212. First quarter air service capacity peaked at 1,438 seats per day each way in the first quarter of 28. This translates to about 259, airline seats operated during that quarter in and out of the Airport. First quarter airline traffic also peaked in the first quarter of 28 at 482 passengers per day each way. This translates into nearly 87, one way passenger trips that quarter in or out of the Airport. Over the twenty-year period first quarter domestic average one way net fare stayed in a narrow range between $138 and $156 until 27 and 28 when the fare jumped into the mid $16 range. This was followed by a dip to $141 in the great recession year of 29 and steady increases since with the first quarter 213 average fare reaching $197, a 4% increase in that timeframe. FIRST QUARTER TRAFFIC, CAPACITY AND AVERAGE FARE: Chart A Seats SDEW Domestic PDEW Domestic Avg Fare Seats and Passengers per Day Each Way 1,6 1,4 1,2 1, ,438 1,428 1,295 1,37 1,254 1,276 $197 $2 1,158 1,126 1,139 1,169 1,26 1,261 1,112 1,62 1,66 $ $179 $ $ $16 $163 $156 $157 $155 $152 $143 $152 $14 $141 $139 $143 $147 $143 $146 $146 $138 $14 $ $12 $22 Average Fare $1 DRAFT 12/16/213 C-28

30 Compared to the capacity peak of 28 capacity in first quarter of 213 was down 32%. Compared to the traffic peak of 28, traffic in first quarter of 213 was down 35%. First quarter load factor has been about 7% throughout the entire twenty year period. The highest first quarter load factor in the period was recorded in 1998 at 75% and the lowest was 61% in 21. The 213 first quarter load factor was 7%. There has been much greater variance in the number of flights operated per winter quarter over the twenty year period. Offered seat capacity, number of flights operated and average seats per flight are intertwined measurements. The number of flights operated has varied widely, from around 9 per quarter in to a high of 2,98 operated flights in one quarter just a few years later in However, during the period average seats per flight were around 15 while in 1997 it was only 69. Since 25, with the exception of 21, the average seats per flight operated during the winter quarter has been just over 1. This suggests a winter season balance between large (65- to 76-seat) regional jets or turboprop equipment and medium sized mainline equipment with about 13 seats. During the spring (second quarter) and fall (fourth quarter) seats per flight fall to between 5 and 6, reflecting the use of either 5- or 65-seat regional jets for the Denver service, which is the only service operating during most of that timeframe each year. FIRST QUARTER LOAD FACTOR, SEGMENTS AND SEATS PER SEGMENT: Chart B Segments Seats/Segment Load Factor Percent Segments and Seats Per Segment 3, 2,5 2, 1,5 1, ,98 2,418 69% 67% 67% 67% 64% 2,315 2,315 75% 76% 2,211 74% 74% 2,145 74% 7% 2,66 69% 2,259 1,96 2,213 64% 7% 7% 68% 68% 1,984 7% 66% 1,889 1,661 1,71 64% 61% 1,783 1,846 1, , % 9% 8% 7% 6% 5% 4% 3% 2% 1% % Load Factor Percent DRAFT 12/16/213 C-29

31 DOT domestic traffic data provides an estimate, based on a measurement of the origin of each reported ticket, of inbound traffic and visitors. C The Frontier Airlines Low Fare Service at Hayden During the winter of and during the winter of Frontier Airlines offered single frequency per day service between Hayden and its Denver hub, generating online connections to the dozens of domestic cities that Frontier served nonstop from Denver at that time. Service was provided primarily with E-19 jets seating 99 passengers. Traffic results for Frontier were very weak with a 6% load factor in first quarter of 211 and a 5% load factor in the first quarter of 212. Low fare carriers like Frontier operate on a high volume/high load factor business model and load factors in that range suggest very large operating losses for the carrier during those two quarters of operation. During these two winter quarters of single frequency per day operation Frontier only gained a 7% to 8% market share. Frontier s average fare was similar to that of American and Delta, some $21 lower than that of United in 211-Q1, and about $2 higher than that of American and Delta and $15 lower than United in 212-Q1. Overall, the impact of Frontier on the market in these two examples was modest. Chart A MARKET SHARE & AVERAGE FARE DURING FRONTIER SERVICE 211-Q1 212-Q1 Carrier Share Avg Fare Share Avg Fare American 33% $162 31% $163 Delta 21% $153 24% $162 Frontier 8% $167 7% $183 United 38% $186 38% $198 Market 1% $171 1% $178 C.4 PASSENGER ENPLANEMENT FORECAST The Yampa Valley Regional Airport has seen total annual passenger traffic fluctuate in the past 2 years between a high of 269,61 O&D in 27 and a low of 164,74 O&D in In the past three years traffic has averaged about 2, O&D annually. At the same time air service capacity, measured in seats offered in and out, has ranged from a low of 156,782 seats in 1994 to a high of 418,462 in 28. In the past three years annual seat capacity has averaged about 324,. C Current Air Service Routes, Carriers and Capacity The Airport has seen modest growth in new routes, with winter Los Angeles service being re-introduced in late 212 and Seattle winter service (the first nonstop service from any Colorado airport to Seattle) being introduced in December of 213. DRAFT 12/16/213 C-3

32 The Airport s only year-round service is the solid gray line to Denver. Four carriers will serve the Airport the winter of ; incumbents American (winter only), Delta (winter only), United (Denver year round, other routes winter only) and new entrant Alaska Air with winter service to Seattle. The most recent route terminations were in 21 when winter service to Salt Lake City and New York LGA was ended. This chart summarizes the Airport s air service for the 12 months April 213 to March 214. DRAFT 12/16/213 C-31

33 Chart A HAYDEN AIR SERVICE BY MONTH: APRIL 213 TO MARCH 214 Period Route Carrier Aircraft Capacity Flights/Period Seats April Denver United Various ,556 May Denver United Q ,231 June Denver United Q ,942 July Denver United Q ,337 August Denver United Q ,19 September Denver United Q ,52 October Denver United Q ,84 November Denver United Q ,686 Dec - Mar Denver United Q4/CR ,456 Dec - Mar Atlanta Delta A32 & 73/ ,848 Dec - Mar Chicago American E ,656 Feb/Mar Chicago United CR Dec - Mar Dallas American 73/ ,4 Dec - Mar Houston United 73/8 & ,614 Dec - Mar Los Angeles United CR ,544 Dec - Mar Minneapolis Delta E ,2 Dec - Mar Newark United A ,14 Dec - Mar Seattle Alaska CR ,2 Season All All All 95 2,18 2, Months All All All 88 2,99 263,248 Spring, summer and fall service to Denver the past year has been provided almost exclusively by United Express Q4 turboprop aircraft. United is in the process of reconfiguring these aircraft to a 71-seat capacity but during the summer of 213 some of the flights were flown with 74-seat configurations. Thus the average seating per flight during the period is shown as 72. April of 213 saw a broad mix of 5-seat regional jet, 66-seat regional jet and 71- or 74-seat Q4 equipment. United appears to have settled on the Q4 aircraft to be the primary equipment type going forward for Hayden Denver service. The winter season service is shown in blue with a summary of all winter season routes in gold. The winter services all start in the second half of December and end at the end of March. The two winter season services where the destination and carrier are marked in yellow are routes flown at the carrier s own risk, without financial support from the Steamboat Ski & Resort Corporation. All Denver services operated outside the winter period are also flown at the carrier s risk, without local financial support. The other winter season services, Atlanta, Chicago (American Airlines only), Dallas, Houston, Los Angeles, Minneapolis, New York Newark and Seattle, all receive financial support from interested parties in the Steamboat Springs/Hayden area. The financial support takes the form a Minimum Revenue Guarantee (MRG) program which assures the carrier that pre-defined carrier segment revenue targets will be met for DRAFT 12/16/213 C-32

34 each route for the season. Should any route fall short of its revenue target the community s MRG fund will make up the difference. The community s MRG obligations are capped at pre-set levels for each season. The total MRG fund size varies by season but can exceed $4,, per season. The MRG fund comes from contributions made by the Local Marketing District (funding from a 2% bed tax), from a.25% local sales tax collected in the city of Steamboat Springs, and via contributions from both the Steamboat Ski & Resort Corporation and from the Steamboat Springs Chamber of Commerce. In addition, the Steamboat Ski & Resort Corporation spends over $2,, annually on air service related marketing across a broad spectrum of media venues. The contrast between the spring, summer and fall services to Denver and the broad service pattern of mid- December to March is significant. Aircraft size varies between 66-seat regional jets on several routes to 169- seat 757s deployed by United on select Houston services. Winter season average gauge (seats per average flight) is 95 while in the off-season and summer it is 71 on the Q4 flights to Denver. C Top Domestic and International Markets For the most recent 12 months of reported DOT traffic data (period ended 6/3/213), the Yampa Valley Regional Airport generated domestic traffic in 234 domestic city pairs with 177,47 O&D passengers at an average one way net fare of $214. The top domestic market list has been consistent for the past five years, with Chicago, Houston, Dallas, Atlanta and one of the New York City airports holding the top five spots in some fashion in all five annual periods. Note that 213 in this case is the 12 months ended 6/3/213. Chart A TOP HAYDEN DOMESTIC MARKETS FOR YEARS City Rank Chicago Chicago Houston Chicago Chicago 2 Houston Houston Chicago Houston Houston 3 Dallas Dallas Dallas Dallas Dallas 4 Atlanta Atlanta Atlanta Atlanta Atlanta 5 New York LGA New York LGA New York EWR New York EWR New York LGA 6 Minneapolis New York EWR New York LGA Minneapolis Minneapolis 7 New York EWR Minneapolis Minneapolis New York LGA New York EWR 8 Boston Boston Boston Austin Austin 9 Philadelphia Orlando Tampa Boston Philadelphia 1 Tampa Austin Austin Tampa Boston 11 Orlando Tampa Philadelphia Orlando Tampa 12 Denver Philadelphia Washington D.C. IAD Philadelphia Washington D.C. IAD 13 Washington D.C. IAD Washington D.C. IAD Denver Washington D.C. IAD San Francisco 14 Washington D.C. DCA New Orleans Orlando Denver New Orleans 15 Austin St. Louis St. Louis St. Louis Orlando All of the top five cities had winter season nonstop service to Hayden during the period. DRAFT 12/16/213 C-33

35 For the same 12 months of reported DOT traffic data (12 months ended 6/3/213), Hayden generated 4,96 international passengers at a net one way fare of $568 to 84 destinations. Chart B TOP HAYDEN INTERNATIONAL MARKETS FOR YEARS City Rank Toronto Toronto Toronto Toronto London 2 London London Sydney London Toronto 3 Sydney Sydney Calgary Calgary Calgary 4 Vancouver Vancouver London Sydney Panama City 5 Caracas Edmonton Edmonton Vancouver Cancun 6 Munich Cancun Cancun Mexico City Sydney 7 Edmonton Bermuda Lima Cancun Grand Cayman 8 Bermuda Los Cabos Vancouver Buenos Aires Mexico City 9 Cancun Montreal Melbourne Lima Monterrey 1 Frankfurt Mexico City Mexico City Edmonton Vancouver Top international markets during the five year period were Toronto, London, Sydney and Calgary. Note that 213 in this case is the 12 months ended 6/3/213. Top ten markets such as Cancun, Los Cabos and Grand Cayman are most likely outbound leisure markets, reflecting vacation travel by catchment area residents. The other top markets listed are most likely inbound leisure markets with most traffic consisting of residents of those cities coming to the Steamboat Springs area for vacation activities. C International and Domestic Traffic by Region Over three quarters of Hayden s international traffic comes from Canada, Europe or either Mexico, Central America or the Caribbean. South American, Asia (including Australia and New Zealand) and the Middle East contribute much smaller shares while no traffic was recorded in this period with Africa. Chart A HAYDEN INTERNATIONAL TRAFFIC BY REGION 12 months ended 6/3/213 Region Traffic Percent Avg Fare Revenue Percent Canada 1, % $372 $476, % Mex/C America/Caribbean 1, % $368 $474, % South America % $91 $473,2 17.% Europe 1,9 22.8% $77 $77, % Asia % $912 $465, % Middle East 1 2.1% $1,179 $117,9 4.2% Africa.% $ $.% Total 4,79 1.% $58 $2,777,73 1.% For purposes of determining the nationwide distribution of Hayden domestic traffic, the country is broken into six regions, the Northeast, Southeast, South Central, Midwest, Intermountain and Far West. On an annual basis, Hayden domestic traffic during the 12 months ended 6/3/213 was distributed somewhat evenly among the four regions east of Hayden. The mountain region had negligible traffic contribution and the Far West region had a modest contribution. Revenue distribution approximately tracks with traffic distribution. DRAFT 12/16/213 C-34

36 Chart B HAYDEN DOMESTIC CONNECT O&D BY REGION 12 months ended 6/3/213 Region Traffic Percent Avg Fare Revenue Percent Northeast 37, % $229 $8,663,7 22.8% Southeast 41, % $21 $8,817,9 23.2% South Central 41,9 23.2% $213 $8,752, % Midwest 36,53 2.6% $191 $6,977, % Mountain 4,1 2.3% $214 $877,4 2.3% Far West 15,93 9.% $243 $3,87,99 1.2% Total 177,47 1.% $214 $37,958,76 1.% REGIONS OF THE UNITED STATES FOR DOMESTIC TRAFFIC DISTRIBUTION Chart C C Twenty Year Passenger Enplanement Forecast The past twenty years have seen a roller coaster of annual enplanement results for the Yampa Valley Regional Airport. This is a reflection of the nature of this air service market, seasonal and highly dependent on the winter season air service strategy of the Steamboat Ski & Resort Corporation. It is also a reflection of the turbulence within the domestic airline industry during that period, as outlined earlier in this report. Indeed, the annual traffic results of a winter season ski resort market is also dependent on something no one can control or predict, the amount of snow the resort area receives in a timely manner in order to be attractive as a destination for inbound skiers. DRAFT 12/16/213 C-35