Small Community Air Service Development Grant Program

Transcription

1 Grant Application Under The Small Community Air Service Development Grant Program DOCKET OST DUNS # Congressional District #18

2 2 Table of Contents I. OVERVIEW... 3 THE AIR SERVICE ISSUE... 3 APPLICATION OF THE GRANT... 3 II. SUMMARY OF PROPOSAL... 5 THE SOLUTION: UNITED EXPRESS SERVICE TO IAD... 5 COMMUNITY SPONSORSHIP... 6 STRUCTURE OF THE GRANT... 6 III. INTRODUCING LATROBE... 7 A REGIONAL AIRPORT SERVING A SIGNIFICANT POPULATION... 7 LATROBE DEMAND IS STRONG... 7 NORTHWEST AIRLINK SERVICE TERMINATION... 8 LATROBE AIR SERVICE RECRUITMENT... 9 CONTINGENCY MARKETING PLANS... 9 IV. OUTLINE OF GRANT-SUPPORTED SERVICE...10 OPERATIONAL PROJECTIONS...11 V. STRUCTURING THE GRANT...13 A REVENUE GUARANTEE NOT A SUBSIDY...13 MARKETING AND PROMOTIONAL ACTIVITIES...14 EXAMPLE OF PLANNED ADVERTISING PROGRAM...14

3 I. Overview The Arnold Palmer Regional Airport of Latrobe, Pennsylvania, (LBE) represented by the Westmoreland County Airport Board, herein applies for a grant under the 2009 Small Community Air Service Development Program. Latrobe is a market that has proven to viably support scheduled air service. Yet shifts in the structure, economics, and strategies of the US airline system have resulted in the airport suffering loss of all air service at the end of July The Northwest AirLink flights to Detroit were increasingly affected by spiking fuel prices and weakening connecting traffic at the carrier s hub at Detroit Metropolitan Airport. The Arnold Palmer Regional Airport is now negotiating with Pinnacle Airways to operate two daily flights under the United Express brand to the United Airlines connecting hub at Washington/Dulles International Airport. This service would reconnect the region served by LBE to the national and global air transportation system. This resumption of scheduled air service would once again put Latrobe on a more even playing field in regard to recruiting and retaining industry and jobs. The Air Service Issue Latrobe fully understands the challenges of recruiting new air service in these difficult economic times. However, one of the objectives of all carriers today is to access new and untapped revenues. This proposed United Express service fits that template. First, the US Airways hub at Pittsburgh, fifty miles to the west of Latrobe, is now a fraction of its former size and is continually being reduced in size. This has leveled the playing field between PIT and local service at LBE. Second, there is strong demand for access in the LBE region to the nation s capital. Third, the geographic position of LBE and its proximity to Washington make the United operation at IAD a viable omni-directional hub. Application of the Grant In this document, Arnold Palmer Regional Airport proposes a grant in the amount of $ 400,000, to be matched with $100,000 in hard local funding, to incubate and support the initial start of United Express Service to Washington/Dulles International Airport. In addition, the Airport is offering the carrier $20,000 in in-kind funding for local marketing of the new service in Western Pennsylvania.

4 4 The forecasts accomplished by the Airport indicate very strong potential for near-term traffic build, reducing the risk to the Program s funds. The Airport and the community wish to thank the Department for this opportunity. All correspondence regarding this document should be directed to: Mr. Gabe Monzo Airport Manager Arnold Palmer Regional Airport 148 Aviation Lane Latrobe, PA Tel. (724)

5 5 II. Summary of Proposal The Arnold Palmer Regional Airport is applying for a grant to be applied toward reestablishing scheduled air service for the over 100,000 people within the service area of Latrobe, Pennsylvania. The airport has strong air service demand, but has been buffeted in the past decade by a number of airline industry shifts that have constricted service. US Airways reduced its connecting hub at Pittsburgh, eventually ending service to Latrobe as a result. In very large part thanks to a 2004 Small Community Air Service Development Grant, Northwest agreed to serve Latrobe from its Detroit hub. However, a bankruptcy at the carrier, operational problems at the Airlink operator, and a merger with Delta combined to end that service in One of the major reasons was that subsequent to the merger, Delta opted to significantly reduce the number of SF-340 turboprops in the fleet. The Solution: United Express Service To IAD Arnold Palmer Regional Airport has worked tirelessly to ascertain a viable replacement for the now-ended Northwest Airlink service. In those efforts, discussions have been opened with Pinnacle Airlines, which operates a fleet of 34-seat Saab-340 turboprops through its subsidiary, Colgan Air. Pinnacle has expressed interest in serving Latrobe under the United Express brand, with flights to the United hub at Washington/Dulles. The Airport and the Community are excited about the potential for this new service: The United brand is relatively well-known and strong in the region, part of which is due to the fact that the carrier had a close code-sharing arrangement with US Airways, the dominant airline name Western Pennsylvania. The relatively short distance to Washington/Dulles International Airport (139 sm) represents a short flying time and hence low sector costs to access the United hub. Washington/Dulles represents an omni-directional connecting hub for Latrobe. The Northwest Airlink service represented

6 6 significant back-haul flying for consumers connecting at Detroit to points in the East. Based on forecasts accomplished by the Airport, it is expected that the proposed service can reach sector profitability well within the requested one-year grant period. Community Sponsorship Arnold Palmer Regional Airport and Westmoreland County join in sponsoring this application. The Airport will be responsible for administration of the grant, and for monitoring the performance and contract compliance with the air carrier. In addition the Airport will conduct the following activities: Subsequent to the award of the grant, development of a detailed term sheet and operational requirements to the air carrier Negotiations with the carrier in regard to specifics surrounding the service, ground handling, and other issues Preparation of all required documentation and reports attendant to the grant award. Structure of The Grant The funding requested is $400,000, with a 25% local cash match of $100,000. In addition, the community is providing $20,000 in in-kind support for marketing and advertising to assure the success of the new service. The full $500,000 will be allocated as follows: Grant Program Funding Revenue Guarantee Hard- Dollar Marketing Totals Latrobe Local Match $96,000 $4,000 $100,000 SCASD Grant $384,000 $16,000 $400,000 Totals $480,000 $20,000 $500,000 Note that the $20,000 hard dollar marketing will be in addition to a like amount in in-kind marketing in Western Pennsylvania.

7 7 III. Introducing Latrobe A Regional Airport Serving A Significant Population The Latrobe airport is located approximately 60 miles east of Pittsburgh s Allegheny County Airport and 40 miles east of downtown Pittsburgh. The eastern outer ring of Pittsburgh suburbs are only 20 to 25 miles distant, and significantly closer to LBE than to PIT when drive times are considered. Pittsburgh metro area congestion separates LBE from the PIT airport. During the 1990s, LBE generated as many as 60,000 annual O&D, at high fares. The United Express service proposed herein forecasts about one third of that figure, yet with flights over a stronger connecting hub. Approximately 177,000 people live within 30 minutes of Arnold Palmer Regional Airport. Westmoreland County, in which LBE is centrally located, has a population of 370,000. This significant population faces a long and often congested drive in order to access air service at Pittsburgh International. Latrobe Demand Is Strong As part of the ongoing reduction of US Airways operations at PIT, Latrobe s air link to that hub was ended July 11, 2004, after nineteen years. Service had consisted of four round trips using 19-

8 8 seat equipment. At one time, the carrier had offered as many as nine round trips to PIT. Latrobe O&D passengers peaked at 60,000 in This clearly shows that the proposed United Express service is entirely viable. More tellingly, that was at a time when the nearby US Airways PIT hub was at its peak with over 125 points served nonstop, causing strong leakage from the Latrobe service area. Today Pittsburgh has only 38 points with nonstop service. 1 Northwest Airlink Service Termination The Airport and the community are very appreciative of the Department s 2004 SCASD grant which made possible the successful recruitment of Northwest Airlink service to the NW hub at Detroit. A confluence of events took place between 2006 and 2008, however, that resulted in the loss of this service as of July 31, DTW was not optimal in its location, being well west of Latrobe, and making travel to eastern US destinations more time consuming. This was more than offset, however, by virtue of the strong west-oriented, and Asia-oriented traffic generated by Sony, Latrobe s largest employer. Unfortunately that plant was closed, and the strong international connecting revenues it fed to the Northwest system ended. The recession sharply reduced other corollary international traffic that supported the Northwest hub at Detroit. As a result, the size of the hub was reduced. Delta, which acquired Northwest in a 2008 merger, made the decision to substantially reduce the Airlink fleet of SF-340 turboprops. The combination of these events, plus high fuel costs, resulted in Delta/Northwest ending service to Latrobe. The community would again thank the Department for the grant that engendered this Northwest service, but emphasize that it was not ended due to lack of traffic or demand. As the Department knows well, airline industry events can and have resulted in loss of air service at a number of otherwise traffic-viable communities. Latrobe is one of them. 1 Source: Flight schedules filed with Innovata, LLC as of August 12, 2009.

9 9 Latrobe Air Service Recruitment The Arnold Palmer Regional Airport has been aggressively working to build and grow air service at LBE. In addition to an active leisure charter program, the Airport did not rest on its laurels subsequent to successfully recruiting Northwest Airlink in Efforts included marketing efforts to add a second connecting hub in particular Continental at Cleveland to the Airport s route map. 2 Ongoing efforts have been made and will continue to be made with Delta and US Airways to re-enter the LBE market. The Airport fully understands that airline strategies do change and it is important to keep contact with these carriers. Contingency Marketing Plans The community is well aware that nothing is certain when it comes to air service. This has been proven by LBE s own experience over the past decade. Therefore, it fully intends to do all possible to assure that the Department s grant dollars are carefully targeted. It also has a contingency plan to support the United Express service after the end of the one-year grant period. These efforts will include direct marketing to key travel generators, in-kind support where necessary, and if warranted, continued risk-abatement funding. The bottom line is that the community is grateful to the Department for its support and will vigorously work to assure that the service proposed herein is a success both during and subsequent to the grant period. 2 Continental and Northwest had a strong code-share alliance. Therefore CO was a logical target to gain more service.

10 10 IV. Outline Of Grant-Supported Service The proposed service that the grant will make possible has several advantages over the recently-ended Delta/Northwest access to Detroit. It is less dependent on the contribution of international traffic that was provided by the now-closed Sony operation in Latrobe. It is omni-directional as a connecting point. Latrobe is just 139 miles from Washington Dulles, making trips to any part of the country easy as well as time-efficient. The close proximity to the IAD hub represents less flying time and hence less of a revenue hurdle to make the service profitable. United's IAD Hub Provides Excellent Omni-Directional Connectivity Latrobe Washington/IAD The proposal herein is to initiate two daily round-trip flights to the United hub at IAD, using the United Express brand. This will provide seamless service to not only United destinations, but also to points throughout the world served by United s Star Alliance partners.

11 11 Operational Projections The connectivity represented by the proposed service is very strong, allowing LBE-area travelers easy and fast connections over IAD. It is noted that this is far superior to what is offered today at Pittsburgh, and therefore the service will easily compete with the drive leakage in the region going to PIT. The Airport has analyzed the potential traffic and revenues that the service will generate to and through the United Airlines system. Based on industry-standard cost projections for the SF-340s which will be operated by Pinnacle/Colgan, the service has a very high probability of restoring viable air service at Latrobe. For the annualized year, the service is forecast to generate over 22,000 passengers, of which 18,915 will be flow passengers over the United hub. Annualized revenues are projected at $4.6 million. Total operating costs are estimated at $2.6 million. Using industry-standard hub traffic cost and revenue allocation methodology, this will equate $2.7 million in revenue applied to the LBE-IAD segment, making a sector profitability of $160,000 per year.

12 12 This traffic projection represents only about one third of the number of passengers that utilized Arnold Palmer Regional Airport in Combined with the fact that there is only a skeleton of the former US Airways hub left at PIT, it is felt that these projections are conservative. LBE - Washington/Dulles Key Statistics Nonstop Mileage 139 Aircraft Type Daily RT Flights SF RT Segments Sched/Yr. 1,248 Flights Completed 98.0% Block Time/Flight 1.1 Annual Block Hours 1,345.3 Annual Seats 41,583 Annual ASM 5,780,087 Estimated Cost Per Hour $1,933 Estimated CASM Estimated Route Cost $2,601,039 United ExpressLBE - Washington/IAD Financial Projections Passengers Net Revenue LBE Allocated Local Fare LBE-IAD $ ,964 $518,621 $518,621 Domestic Connection $ ,915 $3,896,288 $2,142,959 International Connect $ $222,344 $100,055 Onboard Traffic & System Revenue 22,344 $4,637,254 $2,761,635 Full Year Segment Projected Operating Profit $160,595 Segment RPMs 3,105,837 Segment Load Factor 53.7%

13 13 V. Structuring The Grant To recap, the community is requesting a grant in the amount of $400,000, with a 25% local dollar match, for a total of $500,000. This will be further buttressed by $20,000 in in-kind marketing and advertising efforts. A Revenue Guarantee Not A Subsidy The Airport understands that even where there appears to be strong net-new revenue potential, such as at Latrobe, airlines are entirely risk-averse. Therefore, incentives are necessary to attract new service. The proposal herein is for a set-level revenue guarantee for the operator, with pre-agreed cost factors. The proposed program would entail the following: Cost Determination. The Airport and the airline operator would agree upon a set, per-segment cost, with a fuel price adjustment. Revenue Target. A revenue target, including a reasonable profit hurdle will be established. This target would be the floor below which the revenue guarantee would kick-in. Above that revenue target, no funds would be paid. Revenue Determination. The Airport and the airline operator will establish how revenues are allocated to the program. Local LBE- IAD revenues would be predominantly allocated to the carrier. Connecting traffic prorated contribution would be negotiated in advance. Settlement. The preferred approach is to review and reconcile costs and revenues on a 90-day basis. The airline will supply LBE with the segments operated and the total revenues allocated to the program. Performance Standards. The carrier will agree to strict performance standards in regard to controllable delays and flight reliability. Failure to meet those pre-agreed standards will involve off-set penalties. Customer Service Standards. Because it is a small market, LBE is very vulnerable to consumer reaction in the event of customer service failures, the carrier will agree to standards regarding

14 14 baggage handling performance, check-in procedures, and response to customer complaints. Marketing and Promotional Activities A total of $40,000 (grant funds plus in-kind contributions) will be applied to a very focused marketing and advertising campaign aimed at building awareness of the new service and increasing brand awareness of United Airlines. Travel Generators in the region will be recruited to assist in communicating to colleagues and companies with whom they do business across the nation that Latrobe now has strong and convenient air service once again. Travel Management Companies. Large corporations have typically outsourced their travel planning to outside vendors. The marketing program will target vendors such as American Express and Navigant to build stronger national awareness of the new service. Community Liaison. A program of participation at civic meetings and governmental affairs will be implemented to widen the awareness of the program. Example of Planned Advertising Program The Airport already has an aggressive, and priced-out advertising program ready to implement to support the new service. The plan below entails over $14,000 of in-kind spending. RADIO KDKA Warm-a-thon Sponsorship (Pittsburgh area) Drive time slots. 4 live mentions during the broadcast and (2) :30 commercials Cost: $500 WCNS-AM (Latrobe) AM & PM Drive time. 32 spots total for 13 weeks Cost: $512 WFGI-FM, Froggy 95 (Johnstown, Indiana & Somerset) Four week schedule 1 spot each Mon., Wed. and Fri. during morning drive 3 spots per week for 15 weeks

15 15 Bonus: APRA will receive free morning news sponsorship Cost: $975 Production Cost: $300 TELEVISION WJAC-TV (Johnstown, Altoona & State College) Six week rotation Paid Program: a combination of :30 and :15 spots (92 total) Bonus: Added Value Schedule (on WJAC and RTN, an affiliate station) of :30 spots, 169 total (Value: $2,965) Mini Ads: :05 spots to run for three weeks (Value: $950) The combined schedule totals 321 spots over a 9-week period Cost: $8,000, Production Cost: $300 PRINT Around Latrobe A magazine for the Greater Latrobe area regarding local people and places, as well as business activity ¼ page ad and an article Cost: $315, Production Cost: $200 Latrobe Area Chamber of Commerce Community Resource Guide & Membership Directory A high quality, 4-color publication that will be circulated to all members of the Chamber, new community businesses and to the general public at the 2009 Chamberfest Expo Back cover ad placement Cost: $2,000, Production Cost: $250 Westmoreland Magazine (April Issue) A new periodical targeting upscale households throughout the county Front inside cover ad placement Cost: $1,340, Production Cost: $250

16 16 VI. Summary The Arnold Palmer Regional Airport would summarize this proposal as follows: There is a service deficiency i.e., no service at Latrobe, despite the track record of the airport being able to support air service. The service this grant will make possible will not only restore air service, but will quickly retain the passenger base that was generated thanks to the 2004 award. The revenues generated are clearly able to support the proposed two daily round-trip flights to the United IAD hub. The data indicate that the proposed service represents a reasonable risk and a very high probability of success. The Airport and the community once again wish to thank the Department for this opportunity and look forward to a favorable determination that will bring scheduled air service back to Latrobe.

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21 Pinnacle Airlines Corp Nonconnah Blvd. Suite 100 Memphis, TN PNCL.com August 26, 2009 Mr. Gabe Monzo Executive Director Arnold Palmer Regional Airport 148 Aviation Lane Latrobe, PA Dear Gabe, It was a pleasure to meet with you last week. Thank for the visiting and for providing information regarding Latrobe. In the past year, our United Express operation has increased service from smaller markets in Pennsylvania and West Virginia into the United Airlines hub operation at Washington - Dulles International Airport. As we discussed, the scope and operational definition at IAD brings tremendous value to a spoke station. Even with the economic downturn, our passenger counts have improved year over year. Latrobe is a destination of interest. As a small market without service, there would be a building period for Customer development. Subsequently, we encourage your market to seek grant money for air service development and the use of these funds as a bridging mechanism to establish commercial viable air service. Please let us know if we can be of service in this regard. With Best Regards, D. Philip Reed, Jr. Pinnacle Airlines Corp. DPR/drt

22 APPENDIX B Page 1 of 3 SMALL COMMUNITY AIR SERVICE DEVELOPMENT PROGRAM DOCKET 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) x Not a Consortium Interstate Consortium Intrastate Consortium Community now receives EAS subsidy x Community (or Consortium member) previously received a Small Community Grant If previous recipient, expiration date of grant: B. PUBLIC/PRIVATE PARTNERSHIPS: (LIST ORGANIZATION NAMES) Public Private C. PROJECT PROPOSAL: (CHECK ALL THAT APPLY) X Marketing Upgrade Aircraft X New Route Personnel Increase Frequency Low Fare Service Travel Bank X Service Restoration Subsidy

23 APPENDIX B Page 2 of 3 Surface Transportation Regional Service Other (specify) X Revenue Guarantee X Launch New Carrier Start Up Cost Offset First Service Study Secure Additional Carrier D. EXISTING LANDING AIDS AT LOCAL AIRPORT: X Full ILS Outer/Middle Marker Published Instrument Approach Localizer Other (specify) E. PROJECT COSTS: 1. Federal Amount Requested: $400, State cash financial contribution: $0 3. Local cash financial contribution 3a. Airport cash funds: $100,000 3b. Non-Airport cash funds: 3c. Total local cash funds (3a. + 3b.): $100, TOTAL CASH FUNDING ( ) 5. Local funds contributed from already-existing programs or projects included in line3c. amount: 6. Local funds contributed from new commitments or new resources included in line 3c. amount: 7. Airport In-Kind contribution: $20,000 (amount & description) (Community Marketing) 8. Other In-Kind contribution: (amount & description) 9. TOTAL IN-KIND CONTRIBUTION (7.+8.): 10. TOTAL PROJECT COST (4.+9.) $520,000

24 F. ENPLANEMENTS: APPENDIX B Page 3 of , , , , , , , , ,219 G. 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. X c. Program is not covered by E.O H. IS THE APPLICANT DELINQUENT ON ANY FEDERAL DEBT? (IF YES, PROVIDE EXPLANATION) No X Yes (explain)