Proposal Under the Small Community Air Service Development Program

Transcription

1 Docket DOT-OST Proposal Under the Small Community Air Service Development Program Small Community Grant Proposal Application of The Yellowstone / Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Legal Sponsor: Gallatin Field Airport Authority DUNS Number: Tax ID No.: Congressional District Code: 00 August 2, 2011

2 TABLE OF CONTENTS 1 Executive Summary Public/Private Partnership Applicant The Air Service Development Goal of the Yellowstone/Big Sky/ Bozeman Coalition The Proposed Air Service Development Plan for this Federal Grant Application Implementation and Administration of this Proposed Project Precedents for Grant Awards to Seasonal and Tourist Dependent Small Communities Contact for this Application Bozeman s Air Service Market Bozeman s Airport Service Area Bozeman s Existing Air Service Bozeman s Air Service Development and Changes, Bozeman s Air Passenger Traffic Yellowstone/Big Sky/Bozeman Coalition s Air Service Development Plan Air Service Development Activities During the Past Five Years Bozeman-New York Air Service Development Plan Administration of the Proposed Program The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page i

3 1 EXECUTIVE SUMMARY 1.1 PUBLIC/PRIVATE PARTNERSHIP APPLICANT The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport, (hereinafter referred to as the Yellowstone/Big Sky/Bozeman Coalition ) is submitting this application for a federal funding grant under the Small Community Air Service Development Program. Neither Bozeman nor members of this Coalition have previously applied for or been awarded any grants in previous years under this program. The Yellowstone/Big Sky/Bozeman Coalition currently consists of the following public and private sector organizations: Public Sector Gallatin Field Airport Authority ( Bozeman Airport ) Bozeman Economic Development Council Montana Tourism Corporation Private Sector Organizations Yellowstone Club/Discoveryland Big Sky Resort Additional Bozeman area resorts and businesses have also been actively involved in Bozeman s air service development and are likely to participate in this Coalition. The Gallatin Field Airport Authority is the legal sponsor of this application and will be responsible for all administrative requirements of the proposed project and federal grant. The Airport Authority has led air service development activities for the Bozeman Airport for many years. Over the past five or more years, the two private sector organizations listed above have participated extensively in Bozeman s initiatives to develop new and additional air services, -- and with great success. Since 2005, seven new airline routes have been instituted on either a seasonal or year-round basis, six of which are currently operated. These include nonstop services to new destinations by incumbent airlines (Delta and United) as well as service from new airlines (Frontier and Allegiant Air). Yellowstone Club/Discoveryland and Big Sky Resort have been instrumental in providing financial inducements through revenue guarantees for the development of several of the new routes that have been obtained. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 2

4 The principal role of the private sector members of the Yellowstone/Big Sky/Bozeman Coalition will be to provide the locally generated funding for the revenue guarantee program that is proposed in this application. 1.2 THE AIR SERVICE DEVELOPMENT GOAL OF THE YELLOWSTONE/BIG SKY/ BOZEMAN COALITION The Yellowstone Region served by the Bozeman airport is one of the fastest growing regions in Montana. Over the past decade, Bozeman s airport service area population has been growing at the average rate of 1.5% per year, as compared to 0.9% for the State of Montana and the U.S. The tourist and visitor industry in the region has been a major driver of economic growth, as well as the development and expansion of other businesses. The availability of nonstop flights that by-pass traditional connecting hub routings is critical to the growth of tourist and visitors to the Yellowstone Region. In recent years, new nonstop services have been established in the Chicago, Atlanta, San Francisco, Los Angeles, Las Vegas and Phoenix markets, and competitive nonstop service in the Denver market. Several of these markets are served on a seasonal basis (peak winter and peak summer months). Two of the more recent yearround markets are served with less than daily service. New York is currently Bozeman s 6 th largest O&D passenger market, and the largest market without nonstop service. Four major airlines that have hub networks at either Newark or JFK Airport and can potentially offer convenient connecting services for other major East Coast cities, such as Washington and Boston, which rank as Bozeman s 10 th and 12 th largest O&D passenger markets. The Yellowstone/Big Sky/Bozeman Coalition s goal is to obtain nonstop service in the New York market, initially for the peak Summer and Winter season, and eventually on a year-round basis. 1.3 THE PROPOSED AIR SERVICE DEVELOPMENT PLAN FOR THIS FEDERAL GRANT APPLICATION Over the past 18 months, the Gallatin Field Airport Authority and members of the Yellowstone/Big Sky/Bozeman Coalition have met with each of the four airlines that are the most likely candidates to provide New York-Bozeman nonstop services and have presented detailed service proposals, traffic and financial forecasts and discussed potential incentives that may be possible including financial guarantee plans. Based on these discussions, the Coalition believes that nonstop service can be obtained with a reasonable financial risk sharing plan. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 3

5 The specifics of any service plan will depend significantly on the carrier that operates the service. However, the Coalition is confident that with the proposed amount of funds available for a revenue guarantee, which is $1,725,000 ($1.0 million federal grant and $725,000 local contribution), nonstop service can be established on a seasonal basis in the New York-Bozeman market. We expect that this level of funding will support a two-year service period with 2 to 3 weekly round trips during each of the peak summer and peak winter periods. Section 3.2 of this application more completely describes the air service development plan for the New York-Bozeman market. 1.4 IMPLEMENTATION AND ADMINISTRATION OF THIS PROPOSED PROJECT The Gallatin Field Airport Authority will be the legal sponsor of this project and will be responsible for the administration of this program, which is more fully described in Section PRECEDENTS FOR GRANT AWARDS TO SEASONAL AND TOURIST DEPENDENT SMALL COMMUNITIES The DOT has awarded Small Community Air Service Development grants to a number of small communities whose economies are highly dependant on tourism and visitor industries, including communities whose air service needs are highly seasonal. Over the years, awards have been made to the following communities that are similar in many respects to Bozeman: 2002 Hailey, ID (Sun Valley), $600, Taos/Ruidoso, NM, $500, Gunnison/Crested Butte, CO, $200, Steamboat Springs, CO, $500, Durango, CO $750, Panama City, FL $575, Tunica, MS, $500,000 The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 4

6 1.6 CONTACT FOR THIS APPLICATION The contact person for all communications with respect to this application is: Scott Humphrey Deputy Airport Director Gallatin Field Airport 850 Gallatin Field Rd Ste 6 Belgrade, MT Scott.humphrey@gallatinfield.com Contacts for key private sector organizations of the Coalition are: Steve Adelson Managing Partner Yellowstone Club/Discoveryland sadelson@discoverylandco.com Meg O Leary Big Sky Resort moleary@bigskyresort.com The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 5

7 2 BOZEMAN S AIR SERVICE MARKET 2.1 BOZEMAN S AIRPORT SERVICE AREA Bozeman s Gallatin Field Airport (BZN) is a non-hub airport located in Gallatin County in Southwestern Montana. Gallatin Field serves a 9-county market area which has a population of approximately 233,000. Gallatin County and its five adjacent counties represent the core service area and has a population of 132,000. The secondary service area (as defined by the Montana DOT) includes three counties within a 90 minute drive of BZN with a population of 101,000. Gallatin County has been the fastest growing county in Montana over the past decade with its population increasing by 32%, or an average growth rate of 2.8% per year. The population of Bozeman s entire airport catchment area has grown by 16% since 2000, or an average annual rate of 1.5% per year. This compares to an annual population growth rate of 0.9% for the State of Montana and the total U.S. for the same period. Exhibit 2.1 Bozeman s Airport Carchment Area Bozeman s Airport Catchment Area Population Silver Bow Lewis and Clark Meagher Broadwater Jefferson Gallatin BZN Madison Park Sweet Grass vs vs County Population Population Change Change AAG AAG Gallatin 89,513 89,51321,68221, % 2.8% Park 15,636 15, % % Jefferson 11,406 11,406 1,357 1, % 1.3% Madison 7,691 7, % % Broadwater 5,612 5,612 1,227 1, % 2.5% Meagher 1,891 1, % % BZN Primary Service Area Area 131, ,74925,007 25, % 2.1% Lewis and Clark 63,395 63,395 7,679 7, % 1.3% Silver Bow 34,200 34, % % Sweet Grass 3,651 3, % % BZN Secondary Service Are Are101, ,246 7,315 7, % 0.8% Total BZN Catchment Area Area232, ,99532,322 32, % 1.5% Total Total Montana Montana 989, ,41587,22087, % 0.9% Source: Gallatin Field Airport Master Plan Update, 2007 and US Census 2010 Bozeman is the gateway to the Yellowstone Region which is an attractive visitor destination with year round activities and a growing area for second home development. Gallatin Field is the closest commercial airport to Yellowstone National Park which is approximately a 90 minute drive from Bozeman. Yellowstone is the 4 th largest U.S. National Park in terms of visitors attracting approximately 3.3 million visitors annually. Bozeman is also the most convenient airport to several world-class ski The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 6

8 resorts. Big Sky, Spanish Peaks, Moonlight Basin and Yellowstone Club are resorts within 45 minutes of Bozeman. Exhibit 2.2 Bozeman is the Gateway to the Yellowstone Region BZN Unlike many other non-hub airports in the U.S., there are no significantly larger air carrier airports which serve the Bozeman/Yellowstone area. The closest FAA small hub airport is Billings, which is approximately 150 miles (2 ½ hour driving time) west of Bozeman. However, the level and patterns of air service for interstate travel at Billings are similar to those at Bozeman. The principal difference in service is that Billings is a hub for regional EAS service to/from about six small communities in Montana. As a result, there is no significant leakage of traffic from the Bozeman catchment area to the Billings airport or any other airport. As a practical matter, the Bozeman/Yellowstone area is entirely dependent on Gallatin Field for commercial air travel. 2.2 BOZEMAN S EXISTING AIR SERVICE Five airline brands currently serve Bozeman with a total of 151 weekly departures to 10 destinations. Delta and United are the two major network airlines and both serve Bozeman with a combination of their own mainline aircraft as well regional jet aircraft operated by regional carriers under the major airlines code. Frontier and Allegiant Air are both low cost carriers that began service to Bozeman in Horizon Air is a regional airline that flies nonstop to Seattle. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 7

9 The following summarizes Bozeman s current scheduled air services: Delta provides year-round service principally to its hubs of Minneapolis and Salt Lake City. Delta also provides a weekly seasonal flight to Atlanta during both the winter and summer seasons. United operates year-round service to its hubs of Denver and Chicago O Hare Airport. Both routes are served with a mix of mainline and RJ aircraft. United also provides daily nonstop flights to San Francisco and Los Angeles on a seasonal basis. SFO is served in both the peak winter and peak summer months, and LAX during the summer. Frontier Airlines provides two daily nonstops to Denver on a year round basis with 90-seat regional jets. Horizon Air operates two daily nonstops to Seattle with 70-seat Q400 turboprop aircraft. Allegiant Air operates two weekly flights to Las Vegas and two weekly flights to Phoenix- Mesa Airport. Exhibit 2.3 Bozeman s Scheduled Air Service, August 2011 Bozeman s Nonstop Service August 2011 Nonstop Marketing Weekly Aircraft Market Miles Carrier Dep't Types Atlanta 1,628 Delta Chicago 1,174 United , 319, 320, 320, CR7 CR7 Denver 512 United , 319, CR7, CR7, CRJ CRJ Denver 512 Frontier E90 E90 Las Las Vegas Allegiant Allegiant Air Air 2 2 MD-80 MD-80 Los Angeles Los Angeles United United 7 7 CRJ CRJ Minneapolis Minneapolis Delta Delta , , 320 Phoenix Phoenix Allegiant Air Allegiant Air 2 2 MD-80 MD-80 Salt Lake City Salt Lake City Delta Delta CRJ CRJ San Francisco 807 United 7 CRJ San Francisco 807 United 7 CRJ Seattle 550 Horizon Air 14 DH4 Seattle 550 Horizon Air 14 DH4 Total Weekly Departures 151 Total Weekly Departures 151 Source: OAG Schedules Aug. 2011; Allegiant Air website The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 8

10 Because of its geographic location, most of Bozeman s nonstop routes are in the medium to long haul range. Nine of Bozeman s 10 nonstop routes are over 500 miles; six routes are over 800 miles, with Atlanta being the longest nonstop market served at just over 1,600 miles. Bozeman s air services are provided with a mix of narrowbody mainline jets, regional jet aircraft with 50 to 90 seats and large 70- seat turboprop aircraft. Regional jets currently comprise 64% of Bozeman s scheduled departures and 48% of the total seat capacity; narrowbody aircraft account for 27% of departures, but 44% of total seat capacity; turboprops account for 9% of departures and 8% of seat capacity. Exhibit 2.4 Distribution of Bozeman s Scheduled Air Service by Aircraft Class Schedule Departures Scheduled Seats Turboprops 8% Mainline Jets 27% Turboprops 8% Mainline Jets 44% Regional Jets 48% Regional Jets 65% Source: OAG Aug and Allegiant Air website The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 9

11 2.3 BOZEMAN S AIR SERVICE DEVELOPMENT AND CHANGES, Bozeman has been active and highly successful in promoting air service development at Gallatin Field over the past 5 or more years, as reflected in the schedule history (based on August schedules) shown in the following Exhibit. Exhibit 2.5 Bozeman s Nonstop Service by Market, Summer Schedules, Summer (August ) Schedules Change Market Seats/Flts Percent Weekly Seats Denver 1,890 2,190 2,136 4,300 4,446 2,990 3,302 1,412 75% Minneapolis 2,422 2,940 2,940 2,940 2,724 2,632 2, % Salt Lake City 4,396 2,850 2,450 2,470 2,490 2,120 1,950-2,446-56% Seattle 980 1,470 1,960 1, , % Chicago ,092 1,140 1,452 1,542 1,542 n.c. Atlanta n.c. Detroit n.c. San Francisco n.c. Los Angeles n.c. Las Vegas n.c. Phoenix n.c. Total Seats 9,688 10,388 11,067 13,215 12,064 11,968 11,982 2,294 24% Weekly Flights Denver % Minneapolis % Salt Lake City % Seattle % Chicago n.c. Atlanta n.c. Detroit n.c. San Francisco n.c. Los Angeles n.c. Las Vegas n.c. Phoenix n.c. Total % Source: OAG August schedules; Allegiant Air Website. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 10

12 In 2005 Bozeman had nonstop service to only 4 major hub destinations United served Denver, Northwest served Minneapolis, Delta served Salt Lake City and Horizon Air served Seattle. Since 2005, new nonstop service has been instituted in 7 new markets, 6 of which continue to be served in Over this period, Bozeman s summer season seat capacity has increased by 24% and its scheduled departures have increased by 14%. New service on a number of these routes have been obtained through incentives and revenue guarantees similar to that which is the focus of this Small Community Air Service Development grant application. In 2006 United began a single daily service to Chicago O Hare Airport. This service has now been increased to 16 weekly nonstops. In 2006 Delta instituted 2 weekly flights to Atlanta in the peak summer and winter seasons. Delta has continued these seasonal services with frequencies ranging from 1 to 3 flights per week. In 2006 Northwest began summer and winter seasonal service to Detroit with one weekly roundtrip. This service was operated through In 2007 United began summer and winter seasonal service to San Francisco, initially with one weekly flight. This service has been increased to daily flights in 2010 and In 2008 United also added a seasonal weekly nonstop flight to Los Angeles. This service has also been increased to daily service, although is presently operated only during the summer season. In 2008 Frontier entered the Denver market providing 3 daily Q400 roundtrips by its regional carrier. Frontier now provides 2 daily roundtrips with 90-seat regional jet aircraft. In 2008 Allegiant Air began year-round nonstop service to Las Vegas with two departures per week and has continued this service through the present time. In 2010, Allegiant instituted two weekly roundtrips on a year-round basis to Phoenix-Mesa airport. The Bozeman community has been instrumental in working with airlines to provide new services at Bozeman. Private sector organizations have contributed to incentive packages that have provided revenue guarantees and/or direct financial support to induce some airlines to offer some of the new services. For example, revenue guarantees have been provided to attract Delta s service to Atlanta, Frontier s service to Denver and Horizon Air s service to Seattle. What has been important is that the revenue guarantees negotiated have rarely needed to be used, almost all the new service BZN has received over the last decade has become self-sustaining. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 11

13 The Bozeman market has generated the traffic support needed to sustain services in both new and long standing routes. In CY 2010, the average load factor for all scheduled flights at Bozeman was 79.2%. Eight of the 12 nonstop carrier routes operated during the year achieved load factors of 80% or higher. Exhibit 2.6 Bozeman Average Load Factors by Carrier Routes, CY 2010 Reporting Dept Onboard Load Market Carrier Perf Psgrs Seats Factor Denver United 3, , , % Minneapolis Delta 1, , , % Salt Lake City Delta 3, , , % Denver Frontier 1,269 70,439 95, % Seattle Horizon Air 1,259 65,819 95, % Chicago United ,976 65, % Las Vegas Allegiant Air ,769 31, % San Francisco United ,045 25, % Atlanta Delta ,991 18, % Los Angeles United 148 4,749 7, % Phoenix Allegiant Air 32 4,194 4, % Detroit Delta 35 3,749 4, % Grand Total 12, , , % Source: USDOT, Database Products, T100. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 12

14 2.4 BOZEMAN S AIR PASSENGER TRAFFIC Traffic Growth Trends Bozeman s air passenger traffic nearly doubled during the 15-year period with annual enplanements growing from 186,685 to 365,210, or an average annual growth rate of 4.5%. Bozeman s enplanements recorded positive growth each year from 1995 to 2005, with the 10-year annual growth rate of 6.0%. This steady growth trend was interrupted in 2006 with a 5.3% decline due mainly to the Chapter 11 bankruptcies and service reductions of Delta and Northwest Airlines in late At the time, these two airlines accounted for approximately 60% of Bozeman s total enplanements. Bozeman s traffic rebounded with its historic growth rates in 2007 and 2008, but declined slightly in 2009 due to the economic recession. However, Bozeman s traffic has again rebounded with strong growth. In 2010, Bozeman s enplanement grew by 6.6%, and traffic has grown by 12.7% for the first six months of At this rate, Bozeman s enplanements will exceed 400,000 for CY Exhibit 2.7 Bozeman Air Passenger Enplanements, 1995 YTD June , , , , , , , ,000 50,000 0 Bozeman Growth from Year Enplanements Prior Year , , % , % , % , % , % , % , % , % , % , % , % , % , % , % , % 2011(f) 411, % Jan-Jun , , % Average Annual Growth % Source: Bozeman Airport Record The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 13

15 Bozeman s Top O&D Passenger Markets Exhibit 2.8 shows the CY 2010 O&D passenger traffic for Bozeman s top 25 O&D markets. Nine of the top 12 O&D markets have nonstop service on either a year round or seasonal basis. The three markets that do not have nonstop service are all Northeast U.S. markets. New York is the largest O&D market without nonstop service with 27,660 passengers and is followed by Washington with 22,700 passengers and Boston with 14,830 passengers. The Bozeman-New York market generates more local O&D passengers than either Minneapolis or Chicago which have 3 and 2 daily nonstops, respectively. It is also larger than Atlanta which supports summer and winter season service. Although most of Bozeman s top O&D markets are also connecting hubs for the carriers providing the service, the candidate airlines for nonstop New York-Bozeman service also have connecting hubs at either JFK or Newark airports which could draw traffic from Boston, Washington and other East Coast cities. Exhibit 2.8 Bozeman s Top 25 O&D Passenger Markets, CY 2010 CY 2010 Aug 2011 O&D Nonstop O&D Weekly Rank Market Miles Passengers PDEW N/S Depts 1 Denver , Seattle , Las Vegas , San Francisco , Los Angeles , New York 1,897 27, None 7 Minneapolis , Chicago 1,182 23, Atlanta 1,637 22, Washington 1,769 22, None 11 Phoenix , Boston 1,985 14, Dallas/Fort Worth 1,162 14, Portland , Orlando 2,008 10, San Diego , Houston 1,406 10, Philadelphia 1,847 9, Nashville 1,432 8, Detroit 1,395 8, Sacramento 728 7, Kansas City 958 7, Salt Lake City 348 6, Charlotte 1,732 6, Anchorage 1,876 6,530 9 Subtotal Top , All Other 285, Total 698, Source: USDOT O&D Survey; OAG Aug 2011; Allegiant Air website The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 14

16 Bozeman s Airline Market Shares Bozeman is served by five airline brands. In 2010, two major network airlines accounted for 76% of Bozeman s total enplanements Delta with a 43% market share and United with a 33% share. (These figures include regional airline services operated under the major airline s brand.) Frontier and Horizon Air each had a 10% market share and Allegiant Air enplaned 4% of the traffic. Exhibit 2.9 Bozeman s Airline Market Shares, CY 2010 Horizon 10% Frontier 10% Allegiant 4% Delta 43% United 33% Source: Bozeman Airport Records Bozeman s Air Fares Based on a comparative analysis of average fares in selected Bozeman markets with average fares in national markets for the corresponding distance categories, Bozeman s fares appear reasonable in relation to the benchmark median fares. It is evident that low cost carriers, such as Allegiant and Frontier have a competitive impact on reducing fares in the Bozeman markets that they serve. For example, the average fares in the Bozeman-Las Vegas and Phoenix markets are more than 40% below the benchmark fare and the Bozeman-Denver average fare is 20% below the benchmark fare. The average fares in Bozeman s in other top markets that are not served by LCC s are also generally in line with the national benchmark fare for the distance category, as are the markets that are served on a seasonal basis. The average fare in the top three Bozeman-East Coast markets, none of which have nonstop service, range from 4% to 14% higher than the benchmark fares for their distance category. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 15

17 Exhibit 2.10 Analysis of Average Fares in Selected Bozeman Markets, 4 th Quarter 2010 Bozeman Market Ratio Benchmark Fare BZN to BZN BZN 4Q10 Mileage Median Benchmark Distance O&D Psgrs Ave Fare Category Fare 1/ Fare Principal Hub Markets DEN ,900 $ $ MSP 871 6,200 $ $ CHI 1,182 5,130 $ $ SEA 542 9,420 $ $ SLC 341 1,930 $ Allegiant Markets LAS 701 8,910 $ $ PHX 854 6,410 $ $ Seasonal Markets ATL 1,637 5,080 $ $ SFO 807 3,780 $ $ LAX 902 3,410 $ $ East Coast Markets NYC 1,897 4,430 $ $ WAS 1,769 3,360 $ $ BOS 1,985 2,550 $ $ Source: US DOT O&D Survey, 4 th Quarter It may be noted that this fare analysis is based on a limited market sample and time period (4 th Quarter 2010) and did not attempt to consider market characteristics other than distance for the fare comparisons. The national benchmark fare in this analysis was the median fare for all markets within the mileage band in Table 1 ( Top 1,000 Domestic Markets ) from the DOT Domestic Airline Fares Consumer Report for the 4 th quarter The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 16

18 3 YELLOWSTONE/BIG SKY/BOZEMAN COALITION S AIR SERVICE DEVELOPMENT PLAN 3.1 AIR SERVICE DEVELOPMENT ACTIVITIES DURING THE PAST FIVE YEARS Working cooperatively with other private and public sector organizations in the Bozeman Yellowstone region, Gallatin Field Airport Authority has led air service development activities to obtain additional air services for many years. The Airport Authority regularly meets with its incumbent and prospective airlines to discuss and promote its air service needs. With the population and economic growth that has taken place in the Yellowstone Region since the 1990s, the demands for additional airline service have also grown rapidly, with service needs not only in hub routes, but also the need for nonstop service to additional destinations. For example, as recently as 2005 Bozeman had nonstop service to only four major hub markets Salt Lake City, Denver, Minneapolis and Seattle, and no additional services in peak winter or peak summer months. With the development of expanded visitor and tourist facilities in the region, as well as other economic activity, there was a growing for air services to points well beyond Bozeman s traditional hubs. At this time, private sector organizations became much more involved in Bozeman s air service development activities. Organizations, such as the Bozeman Chamber of Commerce, developed significant amounts of research relating to the region s economic activities and growth potential to assist air carriers in their analysis and evaluations of market demands not available from other sources. Resort organizations such as the Yellowstone Club, Big Sky and other ski and summer resorts and residential communities conducted surveys of their visitors that documented origination markets, means of travel and other attributes useful in determining air service demand. As detailed in Section 2.3 of this proposal, these air service development activities were instrumental in obtaining new services in 7 additional nonstop markets since Although the Airport Authority itself did not provide any direct financial support for new services, some of the new routes were supported with revenue guarantees and significant marketing support provided by several of the private sector resort organizations and more recently with an FAA approved incentive program that mitigated first year airport costs. For example, Delta s seasonal service to Atlanta and Frontier s entry into the Denver market were supported to some extent by direct financial commitments by the resort industry. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 17

19 Over the past 18 months, the Gallatin Airport Authority and private sector companies have become more closely coordinated in determining the Bozeman s air service needs and in marketing to prospective airlines. In February 2010, the Airport Authority decided that incentives were needed in the current economic climate to attract new or expanded air service and improve the airport s competitive position, particularly with respect to other resort communities in the Mountain Region. Accordingly, the Authority has established an air service incentive program to attract new nonstop service in markets that are currently unserved from Bozeman. Incumbent and new carriers are eligible for these incentives. For eligible services, the Authority may waive landing fees for a limited amount of time and provide a monetary payment for service to a new destination not to exceed $30,000. Several resort organizations that are now part of the Yellowstone/Big Sky/Bozeman Coalition also participate directly in initiatives to recruit new airline services and are able to commit more significant financial incentives. Since February 2010 the Coalition has met with a number of airlines regarding the institution of nonstop service to new destinations 3.2 BOZEMAN-NEW YORK AIR SERVICE DEVELOPMENT PLAN If the Yellowstone/Big Sky/Bozeman Coalition s Small Community Air Service Development grant application is awarded, the funds, combined with its own funding, will be used to offer a revenue guarantee to recruit an airline to provide nonstop service in the Bozeman-New York market. The rationale for the market selection and basis for the confidence that the revenue guarantee will lead to a viable and self-sufficient service is discussed below. Market Selection New York is Bozeman s 6 th largest O&D passenger market and its largest market that does not receive nonstop service. The Bozeman-New York O&D passenger market is nearly as large as the San Francisco and Los Angeles markets which support daily service on a seasonal basis and it is about 20% larger than Atlanta which also supports summer and winter seasonal service with mainline aircraft. The Yellowstone/Big Sky/Bozeman Coalition is seeking to secure nonstop service, at least several times per week during the peak winter and summer months. As shown in the Exhibit below, in CY 2010 the Bozeman-New York market generated 329 O&D passenger per week each way during the 1 st Quarter and 368 weekly passengers each way during the 3 rd Quarter. With nonstop service 2 to 3 times per week, significant traffic stimulation would be expected. Based on the actual experience of the Bozeman-Atlanta market, O&D passengers increased by 40% following the institution of nonstop service at similar frequency. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 18

20 Exhibit 3.1 Bozeman-New York Weekly O&D Passengers Each Way by Quarter, 2010 Source: DOT O&D Survey. (O&D Passengers per Quarter divided by 26.) In addition to local NYC-Bozeman O&D passengers, the carrier operating the service would also be able to attract passengers from other East Coast markets since the most likely candidates to provide this service each have connecting hubs at their New York area airports. Washington and Boston, which rank 10th and 12 th among Bozeman s domestic O&D passenger markets, as well as other East Coast cities, would likely contribute significant connecting passengers for New York-Bozeman nonstop flights. Expected Level of Service to be Secured with the Planned Revenue Guarantee Over the past 18 months, the Yellowstone/Big Sky/Bozeman Coalition has met with the four airlines that would be the most likely candidates to provide New York-Bozeman service. The airlines are United Continental from Newark and American, Delta and JetBlue from JFK. For these meetings the Coalition had its airline consultant prepare traffic and financial forecasts based on the carrier s aircraft types, route network at the NYC airport hubs and revenue and cost estimates that were all applicable to the specific carrier. Depending on the carrier s philosophy for serving seasonal markets, specific aircraft types and cost structure, the specific levels of service that may be provided with the revenue guarantee that would be available through this grant may vary by carrier. However, it is our best estimate that a $1,725,000 revenue guarantee ($1.0 million federal grant and $725,000 community commitment) would support an agreement by the airline to operate approximately 140 roundtrip flights. This number of flights would allow approximately 5 weekly round trip flights in each of the two 13 week winter and summer seasons during one year. Alternatively, it may support a two The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 19

21 year program with a frequency of 2 of 3 weekly flights each season for a two year period. This second alternative would be the Coalition s preference. The exact service frequency and length of time for the revenue guarantee program would be negotiated with the airline and may differ from the two alternatives described above. Competitive Bid Process Following the award of its grant application herein, the Yellowstone/Big Sky/Bozeman Coalition would institute a Request for Proposal (RFP) process inviting interested airlines to provide air service proposals for New York-Bozeman nonstop service. The proposal requirements would include the carrier s proposed schedules, which may include various schedule frequency alternatives, equipment type, cost estimates, and revenue guarantee requirements. The Yellowstone/Big Sky/Bozeman Coalition would then evaluate the proposal submissions and meet with one or more of the interested airlines to negotiate best and final proposals before making a final selection. The Yellowstone/Big Sky/Bozeman Coalition would have the professional and technical assistance of its aviation consultant, which has substantial experience in negotiating and implementing revenue guarantee programs for new air services, throughout the carrier selection process. Based on prior meetings and discussions with the principal candidate airlines for New York-Bozeman service, the Yellowstone/Big Sky/Bozeman Coalition is confident that it will receive viable proposals for this service. It is, however, difficult to predict the specific service plans that may be offered. 3.3 ADMINISTRATION OF THE PROPOSED PROGRAM Legal Sponsor and Program Administration The Gallatin Field Airport Authority is the legal sponsor for this grant application and will be responsible for all administrative aspects related to the proposed program. The Airport Authority will be responsible for the receipt, accounting and distribution of all federal and local funds that will used in connection with this program. The Funding Plan Cash Contribution The Yellowstone/Big Sky/Bozeman Coalition s funding plan for this grant application relates entirely to cash funds that will be used to provide a revenue guarantee to establish nonstop Bozeman-New York air service. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 20

22 The total amount of funding for this purpose is $1,725,000 from the following sources: Federal grant from the U.S. DOT: $1,000,000 Yellowstone/Big Sky/Bozeman Coalition minimum contribution: $725,000 The funding provided by local organizations will come primarily from the private sector organizations, with the largest shares provided by the Yellowstone Club/Discoveryland, Big Sky Resort and other resorts. As noted above, $725,000 will be the minimum contribution for this program. It is possible that with the federal grant award, additional contributions may be secured. In-Kind Contributions Additional In-Kind contributions are anticipated from the Gallatin Field Airport Authority and other local businesses and organizations. However, because of the procedures that the Airport Authority and other entities must follow to appropriate and budget financial and non-financial resources to specific future projects, the Coalition cannot make firm commitments on the value of In-Kind contributions at this time. With an award of the grant applied for herein, the Coalition is confident that additional contributions can be raised. These contributions would most likely be used for marketing and promotional purposes and not as part of the revenue guarantee. Funding Plan Summary To summarize, for the purpose of this grant application, the Yellowstone/Big Sky/Bozeman Coalition s contractual commitment will consist of only its cash contribution to the revenue guarantee arrangement. Therefore, the total recognized project amount is $1,725,000, with the local share of $725,000 or 42.0% of the total. Funding Assurances The Gallatin Field Airport Authority will serve as the coordinating party to secure the required local area funding that has been pledged. Upon notification of the award from the U.S. DOT, the Airport Authority will secure contractual commitments for the local funds that will be used for the revenue guarantee. A revenue guarantee agreement will not be executed with an airline until the source of all local funding has been firmly committed to the program. Timing of the Implementation of the Program It is assumed that that the federal grant awards will be announced during the Fall of When the Yellowstone/Big Sky/Bozeman Coalition is notified of its grant, it would immediately begin its RFP process to select a carrier. It is likely that the earliest time for services to be provided under the program would be the Summer 2012 season, followed by the Winter 2013 season. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 21

23 Administration of the Proposed Revenue Guarantee Contract and Program Upon notice of the federal grant award, the Airport will establish a specific project account to govern all activities of the program, including financial accounts and implementation activities. Quarterly status reports will be prepared as required USDOT that describe the progress in the RFP phase, including carrier selection and negotiations relating to the implementation of the air services. The revenue guarantee agreement to be negotiated is expected to include the following elements: 1. An agreed average cost per flight negotiated with the carrier for a given season. This average cost would include a specified base period average cost of fuel per gallon. 2. An agreed mechanism for adjusting fuel costs upwards or downwards based on an oil price index or other agreed method. 3. An agreed method of accounting for revenues assigned the New York-Bozeman flights. This is likely to be derived from the airline s normal internal flight segment profitability system. 4. The revenue shortfall would be defined as the costs of the service (average cost per flight times number of flights operated) minus the total revenues assigned to the flight. 5. The revenue guarantee would cover the revenue shortfall up to a maximum amount, which may be based on an agreed percentage of the total costs of service. For example, this maximum ceiling on the revenue guarantee may be 20% of total service costs (or a different negotiated rate.) 6. Revenue guarantee payments would be made on an agreed periodic basis, which would likely be on a monthly or quarterly basis. 7. The airline would provide an invoice for revenue guarantee payments accompanied by appropriate documentation of the billing. These are relatively standard elements of most airline revenue guarantee agreements. However, the exact provisions and terms of the agreement would be subject to negotiation and may vary from the above short description. It should be noted that because of the maximum revenue guarantee cap, the financial risk of the proposed service is shared by both the community and the airline. It is not simply a purchase of service. As part of the contractual agreement with the selected airline, the airline will be required to provide certain monthly operational and performance reports for the service covering traffic, revenues and operations. These reports will be reviewed by the Airport Authority and the Coalition to verify all The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 22

24 invoices related to the revenue guarantee provisions. All revenue guarantee payments will be drawn from the project fund account and ultimately apportioned at 58.0% federal funds share and 42.0% local share. Monitoring Progress of the Grant Program The Yellowstone/Big Sky/Bozeman Coalition will establish an Executive Committee to monitor the performance the New York-Bozeman air services and progress of the grant program. Periodic performance reports will be reviewed regularly to determine whether any adjustments or changes in the contracted services may be appropriate and mutually beneficial for the community and the airline. A member of the Executive Committee will be designated as the primary contact person to for day-to-day communication with the airline s designated representative, as needed. Promotion and Community Support Plans Beyond the Period Covered by the Federal Grant The Yellowstone/Big Sky/Bozeman Coalition fully expects that the proposed revenue guarantee program outlined here-in will lead to self-sufficient nonstop New York-Bozeman air service during and/or beyond the period during which the federal grant is available to develop the services. It is important to note that the Yellowstone Region community has previously provided revenue guarantees and has worked closely with air carriers to develop nonstop service in other markets and has generally been successful. In connection with this proposal, the Yellowstone/Big Sky/Bozeman Coalition will have a significant financial stake and vested interest in the success of this program. As one of Bozeman s largest O&D passenger markets and an important source of visitors to the Yellowstone Region, the Yellowstone/Big Sky/Bozeman Coalition has a long term interest in developing New York-Bozeman air service to its fullest potential. The specific market development strategy for the period after expiration of the revenue guarantee service would depend on an evaluation the market development at that time. However, at a minimum, we would expect that co-op destination marketing and promotional support would be available to promote continued traffic development. The Yellowstone/Big Sky Air Service Coalition / Bozeman Gallatin Field Airport Page 23

25 SMALL COMMUNITY AIR SERVICE DEVELOPMENT PROGRAM DOCKET DOT-OST APPENDIX C Page 1 SUMMARY INFORMATION All applicants must submit this information with their proposal, along with a completed form SF424 on A. APPLICANT INFORMATION: (CHECK ALL THAT APPLY) Not a Consortium Interstate Consortium Intrastate Consortium Community now receives EAS subsidy Community (or Consortium member) previously received a Small Community Grant If previous recipient: Date of grant: Expiration date of grant: B. PUBLIC/PRIVATE PARTNERSHIPS: (LIST ORGANIZATION NAMES) PUBLIC PRIVATE C. PROJECT PROPOSAL: (CHECK ALL THAT APPLY) Marketing Upgrade Aircraft New Route Travel Bank Service Restoration Subsidy Surface Transportation Regional Service Revenue Guarantee Launch New Carrier Start-up Cost Offset First Service Study Secure Additional Service Other (explain below)

26 D. EXISTING LANDING AIDS AT LOCAL AIRPORT: APPENDIX C Page 2 Full ILS Outer/Middle Marker Published Instrument Approach Localizer Other (specify) E. PROJECT COST: DO NOT ENTER TEXT IN SHADED AREA LINE DESCRIPTION SUB TOTAL TOTAL AMOUNT 1 Federal amount requested 2 State cash financial contribution Local cash financial contribution 3a Airport cash funds 3b Non-airport cash funds 3 Total local cash funds (3a + 3b) 4 TOTAL CASH FUNDING (1+2+3) In-Kind contribution 5a Airport In-Kind contribution** 5b Other In-Kind contribution** 5 TOTAL IN-KIND CONTRIBUTION (7a + 7b) 6 TOTAL PROJECT COST (4+8) F. IN-KIND CONTRIBUTIONS** For funds in lines 7a (Airport In-Kind contribution) and 7b (Other In-Kind contribution), please describe the source(s) of fund(s) for each.

27 APPENDIX C Page 3 F. IS THIS APPLICATION SUBJECT TO REVIEW BY STATE UNDER EXECUTIVE ORDER PROCESS? a. This application was made available to the State under the Executive Order Process for review on (date). b. Program is subject to E.O , but has not been selected by the State for review. c. Program is not covered by E.O G. IS THE APPLICANT DELINQUENT ON ANY FEDERAL DEBT? (IF YES, PROVIDE EXPLANATION) No Yes (explain)

28 SMALL COMMUNITY AIR SERVICE DEVELOPMENT PROGRAM DOCKET DOT-OST SUMMARY INFORMATION All applicants must submit this information with their proposal, along with a completed form SF424 on A. APPLICANT INFORMATION: (CHECK ALL THAT APPLY) Not a Consortium Interstate Consortium Intrastate Consortium Community now receives EAS subsidy Community (or Consortium member) previously received a Small Community Grant If previous recipient: Date of grant: Expiration date of grant: B. PUBLIC/PRIVATE PARTNERSHIPS: (LIST ORGANIZATION NAMES) C. PROJECT PROPOSAL: (CHECK ALL THAT APPLY)

29 D. EXISTING LANDING AIDS AT LOCAL AIRPORT: Full ILS Outer/Middle Marker Published Instrument Approach Localizer Other (specify) E. PROJECT COST: DO NOT ENTER TEXT IN SHADED AREA F. IN-KIND CONTRIBUTIONS**

30 F. IS THIS APPLICATION SUBJECT TO REVIEW BY STATE UNDER EXECUTIVE ORDER PROCESS? No Yes (explain)

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