Proposal Under the Small Community Air Service Development Program, Docket DOT-OST

Transcription

1 Proposal Under the Small Community Air Service Development Program, Docket DOT-OST Submitted by: The Grand Forks Regional Airport Authority DUNS# Congressional District: ND00 August 2, 2011

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7 TABLE OF CONTENTS 1 Executive Suummary Proposal Highlights... 2 Air Service Issue... 2 Solid Plan With a Defined Schedule... 3 Broad Community Support For The Project... 3 Strong Ability to Implement Project... 3 Multiple Sectors of the Community Will Benefit from the Proposed Plan Air Service Environment... 5 Existing Catchment Area... 5 Air Service Background... 6 Proximity to a Competing Airport... 9 Factors Affecting Air Service Past air service development efforts Air Service Existing and Historical Historical Air Service Air Service Background Air Service Needs and Deficiecies Air service issues Underserved Market High Airfares Strategic Plan Air Service Action Plan Public-Private Partnership Project Goals Proposed Air Service Strategy Anaylsis and Forecasts Air Service Support Plan Marketing Plan i ICF SH&E

8 Target Market Marketing Budget Timeline Landing Fee Waiver Project Continuation/Sustainability Alternate Plan Strategic Plan Implementation and Funding Funding Plan Schedule and Monitoring Alternate Planning Start-Up Period and Sustainability of the Market Defining Success Legal Sponsor Financial Controls Appendix A: Community Support ii ICF SH&E

9 1 EXECUTIVE SUMMARY The Grand Forks Regional Airport Authority is proposing a Small Community Air Service Development Grant in the amount of $300,000 to accompany the community and airport funding in the amount of $441,000 to provide a revenue guarantee for service between Grand Forks and a second major hub airport like Denver and/or Chicago O Hare with service from a 50-seat regional jet operated by a major carrier or an affiliate of that carrier. The Grand Forks International Airport (GFK) services a large catchment area that includes northeastern North Dakota and northwestern Minnesota. The Grand Forks metropolitan statistical area (MSA) is the third largest in North Dakota with a population of 97,190. Grand Forks is the home of the University of North Dakota and the world s largest flight school that trains pilots from all over the world. In recent years the Grand Forks market has seen substantial growth with the introduction of a low cost carrier, however, a lack of competition, high ticket prices, unpredictable schedules and backhaul routes for westbound travel are driving passengers to competing markets. Grand Forks currently ranks 4th amongst markets in the Central Region for highest average fares. Current daily non-stop service to Grand Forks is provided by Delta Air Lines with a 50-seat regional jet to Minneapolis-St. Paul International Airport. Grand Forks has seven daily flights to Minneapolis but the Airport Authority has recently been notified by Delta that the flights will be decreased to six in September. As the 3rd largest city in North Dakota, Grand Forks has the least amount of daily non-stop destinations and frequencies of the Big 4 airports in North Dakota. Grand Forks was the only City in North Dakota to suffer a decrease in service despite having the highest load factors of the Big 4 Airports. A lack of competition is making the decrease possible for the incumbent carrier. The City of Grand Forks and the surrounding catchment area is growing, not to mention recent news of a potential loss of two Essential Air Service (EAS) markets, each within 70 miles of GFK, has caused the community to overwhelmingly support our grant application. The Growth Fund Committee from the City of Grand Forks has offered $200,000 cash to add to the Airport Authority s $110,000 cash in request of $300,000 from DOT. With the addition of a potential land fee waiver and in-kind donation from the CVB and Chamber, the total grant application is for $741,000. That equates to a cash percentage of 49 percent DOT, 33 percent non-airport cash and 18 percent airport cash. The total project percentage equates to 40 percent DOT funds to match 60 percent local funds to solidify daily non-stop service to a second major hub airport with a revenue guarantee to minimize potential startup losses to the air carrier. We feel we have a commitment from our public-private partnership that proves public support and paves the way for a successful grant ICF SH&E

10 2 PROPOSAL HIGHLIGHTS This Small Community Air Service Development Program grant application for the Grand Forks Regional Airport Authority/Grand Forks International Airport meets the criteria set out in Docket OST The Grand Forks Regional Airport Authority, the airport sponsor, is requesting $300,000 in federal assistance to facilitate the implementation of a $741,000 air service improvement initiative. The project goals are to continue the growth of Grand Forks air service, reduce the need for travelers to drive long distances, lower ticket prices, improve air service options and improve the quality of air service from Grand Forks International Airport. The Action Plan to accomplish these goals is to initiate daily nonstop service from Grand Forks International Airport. Current Delta Air Lines service through Minneapolis provides excellent connecting opportunities to the eastern US but indirect connections to the west result in high airfares. Allegiant service to Phoenix and Las Vegas provides for low cost fares to the west, however, they do not provide connection capabilities. Allegiant service has spurred a recent growth for Grand Forks and increased our catchment area significantly. Competition and an alternative to Delta Air Lines to Minneapolis with daily service to a major hub like Chicago and/or Denver will provide more options to the local air traveler, reduce airfares in the markets and decrease the need to drive to surrounding airports for air service. AIR SERVICE ISSUE Grand Forks International Airport has grown air service in the past three years with the addition of Allegiant. However, Grand Forks is still an underserved market with only one carrier providing daily service to a hub Airport. In the last year, Delta has been adjusting the flight schedule between six and seven daily flights. The unpredictability is causing passengers to seek more reliable daily service at other airports. Delta will pull the seventh flight in September, bring it back in November and December, and then pull it again in January and February. The net result of having only one daily commercial air service provider is high airfares, no alternative service options for air travelers, and the need for westbound air travelers to endure a circuitous routing to reach their destinations. In short, the market is underserved, the quality of air service is deteriorating, airfares are going up, and increasing numbers of the region s catchment area population are traveling to competing airports to board flights. It is the classic small community air service situation ICF SH&E

11 The prospect of continued air service reductions at Grand Forks International Airport would have serious consequences for the primary catchment area s population of over 105,741 and accompanying business, educational, and government institutions. This is especially difficult at a time when neighboring Essential Air Service Communities (EAS) are having their services drastically changed. The growth in our catchment area, as a result of the diminished EAS routes, requires better air service to accommodate these new passengers. SOLID PLAN WITH A DEFINED SCHEDULE The Action Plan is designed to interest an air carrier in providing daily nonstop service from Grand Forks International Airport to a major hub airport. Targeted hubs include Denver and Chicago O Hare serviced by United Airlines, Frontier Airlines, Southwest Airlines and American Airlines. Nonstop service will be supported by a comprehensive airline incentive program including: a revenue guarantee, fee waiver and a self funded marketing campaign. The plan is designed to mitigate the airline s risk and promote use of the service. With these strong incentives, it is anticipated that an air carrier will initiate service within the first 12 months of the grant. BROAD COMMUNITY SUPPORT FOR THE PROJECT The Grand Forks Regional Airport Authority, Grand Forks Region Economic Development Corporation, City of Grand Forks, Grand Forks/East Grand Forks Chamber of Commerce and the Greater Grand Forks Convention & Visitors Bureau (CVB), have formed a public-private partnership in support of this application. Non-airport sources will fund 27 percent ($200,000) of the $610,000 cash requirement of the proposed plan. The airport and the community will provide 60 percent ($441,000) of the total funding plan in the form of cash and in-kind services. Of the $441,000 local contribution, $310,000 is cash with the remaining $131,000 in-kind services. STRONG ABILITY TO IMPLEMENT PROJECT The Grand Forks Regional Airport Authority, Grand Forks Region Economic Development Corporation, City of Grand Forks, Greater Grand Forks Convention and Visitors Bureau (CVB) and Grand Forks/East Grand Forks Chamber of Commerce fully support this plan and have the ability to implement this project as proposed. Staffing and funding for the proposed plan has been committed by all private and public partners. The Grand Forks community has a strong desire and the population base to support this air service initiative. In short, all of the pieces are in place to implement the proposed plan ICF SH&E

12 MULTIPLE SECTORS OF THE COMMUNITY WILL BENEFIT FROM THE PROPOSED PLAN The Grand Forks International Airport serves a population of over 130,000. New Flyer of America, Marvin Windows & Doors, Phoenix Industries, and Cirrus Design depend on Grand Forks International Airport air service for access to the national transportation network for its staff and customers. Consulting, information technology, and financial services companies such as Brady Martz & Associates, Amazon.com, and Alerus Financial, also call the Grand Forks region home. These industries are highly dependent on air service and will likely suffer or consider relocating if adequate air service is not maintained in the area. The University of North Dakota, Altru Health System, city and county government, as well as local federal government employees represent government and institutional employees that use air service. Air service improvements at Grand Forks International Airport will benefit a broad section of the traveling public including businesses, educational institutions, and leisure travelers and meet the goals of the Small Community Air Service Development Program ICF SH&E

13 3 AIR SERVICE ENVIRONMENT Grand Forks International Airport currently has nonstop network carrier service to Minneapolis with excellent connecting service beyond to the east and southeast. Grand Forks also served with less than daily, nonstop service, to Phoenix/Mesa and Las Vegas. The upcoming fall 2011 schedule will see the elimination of one daily round-trip flight in the GFK-Minneapolis market, as indicated in the table below shaded in blue. Figure 3.1: Existing Air Service Grand Forks Total Passengers Year Ended June 2011 Allegiant 25% ugust 0 Direction Market Carrier Depart August Arrive 2011 Days Aircraft Direction Market Carrier Depart Arrive Days Aircraft From GFK MSP DL X67 E75 From GFK MSP DL Daily X67 E75 CRJ MSP DL Daily X7 CRJ MSP DL Daily X7 CRJ MSP DL Daily CRJ MSP LAS DL G Daily 4,7 M80 CRJ LAS MSP G4 DL Daily 4,7 M80 CRJ MSP DL Daily X6 CRJ MSP AZA DL G ,7 X6 M80 CRJ AZA G ,7 M80 To GFK MSP DL X67 CRJ To GFK MSP LAS DL G X67 4,7 M80 CRJ LAS MSP G4 DL Daily 4,7 M80 CRJ MSP DL Daily CRJ MSP DL Daily CRJ MSP AZA DL G Daily 4,7 M80 CRJ AZA MSP G4 DL Daily 4,7 M80 CRJ MSP DL Daily CRJ MSP DL Daily X6 CRJ E75 MSP DL X6 E75 Delta 73% Other/Chart 2% Source: OAG Schedules EXISTING CATCHMENT AREA ICF SH&E

14 Grand Forks International Airport (GFK) has a unique catchment area that services south to Hankinson, ND, east to Bagley, MN, west to Devils Lake and north Winnipeg, Manitoba, Canada (as shown in Figure 3.2). The population of the region is approximately 1 million residents within a 2:15 minute drive time of the Grand Forks International Airport. The primary population for the cities of Grand Forks and East Grand Forks is approximately 93,000 people. Grand Forks is the commerce, agricultural, industrial and educational center of the area. Included in the region are two smaller communities, Thief River Falls, MN and Devils Lake, ND that provide a considerable amount of business to our airport. Thief River Falls, has two strong businesses; DigiKey and Arctic Cat and Devils Lake has the National Guard Base and the some of the best fishing and hunting in the country. Access roads throughout the region to the airport are excellent including four lane interstate and state highways. Figure 3.2: Grand Forks International Airport Catchment Area Source: SH&E AIR SERVICE BACKGROUND Grand Forks, the third largest city in North Dakota, serves as the prominent industrial, shopping, medical, recreational, educational and agricultural center for a region that extends to include north eastern North Dakota and north western Minnesota as well as the Canadian province of Manitoba. The region served by the Grand Forks International Airport has a multifaceted economy with many businesses and institutions reliant on air service for connections to customers, suppliers and other facilities ICF SH&E

15 In order to understand the air service needs for the region served by Grand Forks International Airport, it is necessary to be familiar with the current and historic factors that have influenced air service. Items covered in the Air Service Background section include Grand Forks demographics, distance to competing airports, past air service development efforts, and both present and historical air carrier information. Table 3-1 provides a list of the major employers in the Grand Forks Region. The University of North Dakota (UND) is the second largest employer, generates thousands of trips annually for their faculty and students. UND has over 14,000 students including the world s largest flight school. The John D. Odegard School of Aerospace Sciences attracts students from all over the world including contracts from China, Saudi Arabia, Japan, Taiwan, Russia, Poland and Spain. The Odegard School has also started the first Unmanned Aircraft Systems (UAS) pilot training program in the nation. This is to support the new Unmanned Aircraft mission at the Grand Forks Air Force Base. The new mission is bringing in several companies like General Atomics, Northrup Grumman and Simlat to study the aircraft and their systems. This will continue to be a growing industry for the next several years in Grand Forks and it will revitalize our Air Force Base. In recent years, DigiKey, a components company, has grown drastically. They supply components all over the world and do over half their business in Asia. Altru Health Systems is Grand Forks largest employer and they have recently signed the first partnership with the Mayo Clinic in Rochester, Minnesota. Table 3.3: List of Top Grand Forks Area Employers Number of Rank Employer Employees 1 Altru Health Systems 3,852 2 University of North Dakota 2,887 3 DigiKey Corporation 2,400 4 Grand Forks Air Force Base 1,600 5 Grand Forks School District 1,200 6 Artic Cat City of Grand Forks Amazon.com LM Wind Power J.R. Simplot Energy & Environmental Research Center American Crystal Sugar Minnkota Power Cooperative 160 Source: Grand Forks Region Economic Development Corporation ICF SH&E

16 PROXIMITY TO A COMPETING AIRPORT An estimated 56 percent of the Grand Forks International Airport catchment area use Grand Forks International Airport. This retention rate is high considering the level of service available at the airport. The percentage of leaked traffic has increased from three years ago when the Airport was capturing 62% of its market area. Of the passengers not using the local airport, approximately half use the Fargo Airport located 80 miles to the south and 45 percent make a 330 mile drive to Minneapolis-St. Paul International Airport to access air service. The remaining 5 percent use other smaller airports in the region like Devils Lake and Thief River Falls. Exhibit 3.4 shows the proximity of the Fargo Airport to Grand Forks. Airport use by the local population is affected by a variety of factors including but not limited to: nonstop destinations offered, flight frequency, and lower airfares. The proposed new daily service would mitigate these factors providing additional nonstop destination, more flight frequency, give more direct options (not having to go east to go west) and have the potential to lower airfares within our market. Figure 3.4: Proximity of Grand Forks to Fargo ICF SH&E

17 FACTORS AFFECTING AIR SERVICE The dominant factor affecting Grand Forks International Airport s air service is its geographic location. Situated on the North Dakota-Minnesota border in the Red River Valley approximately 75 miles from the Canadian border, it is remote from airline hubs in the United States. The closest airline hub is Minneapolis, 284 miles away, a primary hub of Delta Air Lines. The next closest airline hubs are Milwaukee, which is relatively small, Chicago O Hare, and Denver. Distances to these hubs are 568 miles, 613 miles, and 672 miles, respectively. Due to the distances, a substantial aircraft investment would be required to serve these hubs from Grand Forks International Airport. With a modest market size and existing Delta Air Lines Minneapolis service, economically justified service to alternate hubs would of necessity be of limited scope since the distances involved mandate the use of regional jet equipment. Limited schedules normally result in higher station costs since economies of scale are unavailable. In today s airline economic environment, carriers are very risk averse and small airports like Grand Forks International Airport must take all possible steps to incentivize airlines and lower cost to maintain and improve air service. PAST AIR SERVICE DEVELOPMENT EFFORTS For the past three years management at Grand Forks International Airport has been intensely trying to improve air service at the airport. Grand Forks Regional Airport Authority has attended Jumpstart, Networks where we visited with (United, Southwest, Delta, Sun Country, American, Republic, Frontier, Gulfstream and Vision Airlines), two headquarters meetings with United Airlines (2009 and 2011), a headquarters meeting with Delta (2009), a headquarters meeting with Frontier (2008), a phone meeting with SkyWest (2011) and annual meetings with Allegiant (2008, 2009, 2010 and 2011). With the exception of Allegiant and Delta meetings, all other efforts have been unsuccessful. We conducted a leakage study in 2006 that showed our leakage to Fargo and Minneapolis. Late in 2006, we were successful in getting a SCASD grant. Although we were not able to convince a major air carrier to add daily service to a major western hub, we did add two non-stop western destinations and catapulted our enplanements to a record level. In recent years, we have worked extremely hard increasing awareness of our airport by recreating our website and increase our marketing budget from $80,000 to $120,000 annually. We have also increased our catchment area through expanded marketing efforts. As a result of our efforts, Grand Forks has grown over 20 percent in the past two years and is the fourth fastest growing non-hub airport as shown in Figure 3.5. Despite our hard work and success, Grand Forks, as the 3 rd largest city has dropped to the 4 th in air service. A recent SCASD Grant won by Minot has brought in service to Denver, filling their westbound services and moving them ahead of Grand Forks ICF SH&E

18 Figure 3.5: Non-Hub Airport Passenger Growth, YE 1Q 2010 vs. YE 1Q 2011 Enplaned Passengers Airport YE 1Q '10 YE 1Q '11 % Change Minot 65, , % Gainesville 137, , % Asheville 296, , % Grand Forks 100, , % Daytona Beach 220, , % Fort Smith 78,007 87, % Bozeman 343, , % Durango 153, , % Eugene 356, , % Bakersfield 103, , % Medford 296, , % Roanoke 298, , % Fort Wayne 267, , % Mobile 282, , % Rapid City 279, , % Bismarck 185, , % Redmond 233, , % Green Bay 359, , % South Bend 308, , % Lincoln 141, , % Erie 123, , % Chattanooga 300, , % Aspen 230, , % San Angelo 60,509 56, % Above Total 5,225,023 5,617, % U.S. Industry 2.6% Source: Airport Records. Includes airports that regularly report traffic stats on their website ICF SH&E

19 4 AIR SERVICE EXISTING AND HISTORICAL HISTORICAL AIR SERVICE For the past 10 years, Delta Air Lines (previously Northwest Airlines) has been the only air service provider to Grand Forks International Airport. Between 1997 and 2008 Grand Forks International Airport had between four and eight flights a day to Minneapolis. This service has been provided with multiple types of turboprops and McDonnell Douglas DC-9 narrow body jet aircraft. Recently, Canadair Regional Jets have been put into service at the airport. In 2008, Allegiant initiated less than daily, nonstop, service to Las Vegas and then added Phoenix in Delta also increased from five to seven daily nonstop flights from Grand Forks to Minneapolis. The increased destinations and frequencies aided in setting an all-time passenger boarding record in Delta Air Lines has recently threatened and is pulling the seventh daily flight starting in November despite our load factors being greater than 70 percent and high yields. Delta Air Lines service provides critical access to the national air transportation system through an array of domestic and international connections. Figure 4.1: Grand Forks Weekly Seats, August 2000 August ,000 3,500 3,000 2,500 2,000 1,500 1, Source: OAG Schedule Tapes. AIR SERVICE BACKGROUND As a result of Grand Forks International Airport's single daily destination service, the number of seats available to this market takes on added importance. Available seats in the market shows the extent of the catchment area's lifeline to the national air transportation system. Figure 4.1 traces the number of outbound seats per week available in the market from 2000 through 2011 based on airline schedule data. From 2002 through 2004, enplanements increased at the airport to 91,746 surpassing the 2000 level. However, in 2005, enplanements declined to 88,204 which were below the level recorded in It is ICF SH&E

20 not surprising that with fewer seats in the market and deterioration in the preferred schedule, there were fewer enplanements in From 2005 to 2007, growing options at other competing airports increased and thus caused an increase in leaking from Grand Forks. The addition of Allegiant in 2008 and 2009 started a steep growth and stimulation of the Grand Forks market as shown in Figure 4.2, the O&D data CY 2000 CY Figure 4.2: Grand Forks Total Passengers 250, , , , , , , , , , , , , , ,000 50, Source: Grand Forks Regional Airport Authority / SH&E When we applied stimulation to the Grand Forks market with the addition of low cost, nonstop service to Phoenix and Las Vegas, the results were incredible. Figure 4.3 shows the change in O&D passengers when nonstop service is added. We feel we can produce the same results when it comes to a second, daily nonstop service to a major hub airport like Denver and/or Chicago ICF SH&E

21 Figure 4.3: Change in O&D Passengers, CY Prior vs. CY After Service Start $35,000 $30,000 $31,730 $30,040 $25,000 $20, % CY Prior CY Prior $15, % $10,000 $5,000 $3,590 $5,680 $0 Las Vegas Phoenix Note: Phoenix includes PHX and AZA. Source: USDOT, O&D Survey, via Database Products ICF SH&E

22 5 AIR SERVICE NEEDS AND DEFICIECIES AIR SERVICE ISSUES The Air Service Issues section provides an in-depth description of the community s air service needs and deficiencies. The Air Service Issues section compares air service at Grand Forks International Airport with peer communities and identifies trends, including high airfares, which have stunted the growth of commercial air service. Grand Forks International Airport has a multiplicity of issues that are intertwined. First, it has a primary catchment area population of approximately 105,741 whose only daily service is Delta Air Lines to Minneapolis. The net result of having only one daily commercial air service provider is high airfares, no alternative service options for air travelers, and the need for westbound air travelers to endure a circuitous routing to reach their destinations. Equally important is the ability to retain and improve existing air service while fending off the risk of service reductions or, in extreme cases, the loss of service all together. Delta Air Lines, the sole daily scheduled air service provider at Grand Forks International Airport, due to their cost sensitivity is desperately seeking ways of lowering their costs. In addition, the current flight schedule offered by Delta Air Lines at Grand Forks International Airport is not meeting the needs of local air travelers. Delta Air Lines daily service, with connections in Minneapolis only, is not serving our westbound passengers. Future changes in the international service, by Delta, through MSP will begin to impact our international travelers requiring them to make two stops before catching their international flight from other Delta international gateways, such as; Atlanta, Detroit, and New York Kennedy. This decrease in international service in Minneapolis will drastically impact our international traffic. The additional hub of Denver and/or Chicago will help us mitigate our upcoming international traffic issue. UNDERSERVED MARKET While appreciative of Delta Air Lines service, Grand Forks International Airport s catchment area is an underserved market. This was recently proven by Minot s underserved market and recent growth. Though it has a modest population base compared to points in the eastern half of the country, its location, relative isolation, and the need and propensity to travel by air render it appropriate to compare its service to comparably sized markets in the less populous western areas of the country. The following table compares Grand Forks air service with similarly sized and situated markets. Table 5.1 clearly demonstrates that Grand Forks International Airport is underserved compared with peer cities and supports the need for aggressive and innovative measures to rectify the situation. Even with the current air service provided by Delta Air Lines and Allegiant, Grand Forks is underserved. If Delta Air ICF SH&E

23 Lines service to this remote community continues to deteriorate, as with recent announcements of cutting service in Devils Lake and Thief River Falls, the problem will be exacerbated. Table 5.1: Comparison of Grand Forks and other markets Seat Markets Weekly Weekly Rank Airport Code Population Served Depts Seats 1 Bozeman, MT BZN 90, ,701 2 Missoula, MT MSO 108, ,340 3 Kalispell, MT FCA 89, ,056 4 Bismarck, ND BIS 106, ,732 5 Elmira, NY ELM 88, ,353 6 Grand Forks, ND GFK 97, ,356 7 Dubuque, IA DBQ 93, ,172 8 Twin Falls, ID TWF 96, ,140 9 Cheyenne, WY CYS 88, , Brainerd, MN BRD 91, Pocatello, ID PIH 90, Source: OAG Schedule Tapes, August In 2010, the Grand Forks International Airport was served with an average of 435 seats per day. A competing, smaller community, directly west of Grand Forks was served by 535 seats per day, an increase of 100 seats per day and one additional destination and one additional carrier. The competing airport to the south has service to six additional destinations, two additional carriers and approximately three times as many daily seats. This puts Grand Forks International Airport at a large competitive disadvantage in that we are drastically underserved within our market. HIGH AIRFARES With only a single daily local air travel option, the Grand Forks catchment area suffers under the high airfares like many markets where no competition exists. Overpriced markets are synonymous with underserved markets. The need to carry passengers 330 miles in the wrong direction, as in the case of the Grand Forks passengers traveling to the west and southwest, can almost guarantee overpricing. It is no surprise that Grand Forks air service is overpriced. It is a single daily carrier monopoly market and over 25 percent of its reported origin and destination traffic must be backhauled 330 miles to Minneapolis before heading to their western destinations. The cost of this backhaul mileage must be built into the fares passengers pay. Figure 5.2 depicts the overall average fares in the top 15 central region markets and validates Grand Forks position as a high fare market ICF SH&E

24 Figure 5.2: Central Region Average Fare Comparison Fare O&D Average Rank Airport Code Psgrs Revenue Fare 1 Bismarck BIS 360,510 $78,009,592 $216 2 Lincoln LNK 233,780 $46,422,309 $199 3 Sioux Falls FSD 636,120 $124,371,005 $196 4 Grand Forks GFK 216,020 $42,043,238 $195 5 Duluth DLH 275,080 $52,720,340 $192 6 Des Moines DSM 1,547,010 $287,922,325 $186 7 Cedar Rapids CID 784,700 $145,684,176 $186 8 Rapid City RAP 524,000 $96,275,217 $184 9 Fargo FAR 660,780 $120,861,304 $ Springfield SGF 672,820 $122,379,478 $ Minneapolis MSP 14,344,390 $2,492,701,864 $ Wichita ICT 1,317,960 $217,282,833 $ Omaha OMA 3,769,160 $585,032,234 $ St. Louis STL 9,428,780 $1,393,041,950 $ Kansas City MCI 8,427,010 $1,211,798,763 $144 Total/Average 43,198,120 $7,016,546,628 $162 Source: USDOT O&D Survey, CY 2010 As depicted in Figure 5.3, of the top 20 Grand Forks O&D markets, 16 can be conveniently served through Denver and 3 of the remaining 4 can be conveniently served through Chicago. The price difference between Grand Forks and Fargo on the top 20 markets is also provided, 16 of 20 are higher from Grand Forks ICF SH&E

25 Figure 5.3: Top 20 Grand Forks O&D Markets O&D O&D Percent Average UA Via Rank City Psgrs of Total Fare Denver 1 Las Vegas 35, % $122 2 Phoenix 33, % $99 3 Minneapolis 9, % $198 4 Seattle/Tacoma 6, % $215 5 Washington 6, % $250 6 New York 6, % $210 7 Orlando 5, % $205 8 Dallas/Fort Worth 4, % $185 9 Atlanta 4, % $ Denver 3, % $ Los Angeles 3, % $ Chicago 3, % $ San Francisco 3, % $ Houston 3, % $ Detroit 2, % $ St. Louis 2, % $ San Diego 2, % $ Portland 2, % $ Philadelphia 2, % $ San Antonio 2, % $287 Subtotal Top , % $167 Total 216, % $195 Source: USDOT O&D Survey, CY ICF SH&E

26 6 STRATEGIC PLAN AIR SERVICE ACTION PLAN The Action Plan provides a road map of how the community plans to complete the steps necessary to achieve the project goals. The Action Plan includes the individual roles of the public-private partnership, the financial contributions of all parties involved in the project, a description of airline support for the plan along with a clearly defined air service plan. The Action Plan also identifies how the project will be sustainable and provides a description of how the community plans to continue with the project if it is not self-sustaining after the grant award expires. PUBLIC-PRIVATE PARTNERSHIP The Grand Forks Regional Airport Authority is the owner-sponsor of the Grand Forks International Airport. For the purpose of this application, the Grand Forks Regional Airport Authority, Grand Forks Region Economic Development Corporation, the City of Grand Forks, the Greater Grand Forks Convention and Visitors Bureau (CVB), and the Grand Forks/East Grand Forks Chamber of Commerce have formed a public-private partnership (refer to community support letters in Appendix A). Collectively, the partnership is committed to completing the Action Plan outlined herein. The primary partners involved in the execution of the public-private partnership will be the Grand Forks Regional Airport Authority, City of Grand Forks and the Grand Forks Region Economic Development Corporation (EDC). The other partners are secondary partners and have provided nominal or in-kind donations to the project. The Grand Forks Regional Airport Authority will execute all federal grant offers, process all associated reimbursement requests, and oversee grant administration. The Grand Forks Region Economic Development Corporation will provide leads and contact information for promoting air service enhancements, collect and administer private funds and conduct negotiations with airlines. The City of Grand Forks will provide funds from the growth fund and assist with the negotiation of the airline deal. The CVB will assist the airport with the marketing plan and provide marketing materials for the partnership. The Chamber will provide marketing and in-kind donations to the partnership. Together these partners form a team committed to maintaining scheduled air service at Grand Forks International Airport and promoting growth ICF SH&E

27 PROJECT GOALS The project goals are to improve air service to a broad section of the Grand Forks region, reduce the need for travelers to drive long distances to access air transportation and provide more competitive ticket prices. The Action Plan will support the university, local businesses and government employees. Improved access to the other hub airports will drastically increase the ability of local business and government to access other locations and will allow businesses from outside of Grand Forks to more competitively and conveniently access the Grand Forks regional area. PROPOSED AIR SERVICE STRATEGY To meet the project goals and accomplish the goals of this Small Community Air Service Development Program grant application, Grand Forks Regional Airport Authority will recruit a new air carrier to the Grand Forks market and improve the existing Delta Air Lines flight schedule. A new air carrier would provide more options to local air travelers, more direct routing, competition in the market and potentially lower airfares. The air service will provide daily nonstop service to a major hub like Denver International and/or Chicago O Hare Airport. The Grand Forks International Airport is almost equidistant to both hub airports. United, Frontier, Southwest and American Airlines all have the ability to provide nonstop service to these destinations. A support program is required to interest an air carrier in providing nonstop air service at the Grand Forks International Airport. Since there is limited daily air service currently in the market, this creates a barrierto-entry. With the assistance of the Small Community Air Service Development Program, the Grand Forks community proposes to mitigate some of the barriers-to-entry and share the risk with the air carrier ICF SH&E

28 Nonstop daily service to a new hub airport will have a significant positive impact on the Grand Forks economy. Improved air service to a major hub will allow Grand Forks to better compete for new businesses and allow existing businesses, university and government employees to significantly lower the amount of travel time required to perform their work. This plan will achieve the project goals by: 1. Adding service to Denver and/or Chicago 2. Providing more direct routing to lower airfares 3. Reducing the barriers-to-entry for a new air carrier including ANAYLSIS AND FORECASTS Although the new hub service provider(s) are yet to be determined, a financial analysis and forecast has been developed for Denver service to provide justification for the new hub service. Two roundtrips were analyzed, with a CRJ 200, to Denver. For the purposes of this grant application, the pro forma analysis for two roundtrips with a CRJ 200 has been summarized below. The analysis includes the operating and marketing assumptions listed below: Existing fared passengers in the GFK-Denver market will be stimulated 400% by introduction of nonstop service and potentially lower fares. Beyond Denver markets will be stimulated by a total average of 14%. Existing fared passengers plus the fare-stimulated passengers will be divided between the new service provider and Delta Air Lines based on the number of reasonable connections available in the market. Denver service will capture a share of the passengers that are driving to a competing airport (e.g. Fargo, Minot, Minneapolis) to travel to Denver and beyond destinations. New airlines fully allocated operating cost for two roundtrips for a CRJ 200 is estimated to be $9.8 Million annually between Grand Forks and Denver. Yields and loads would be similar to those competing surrounding airports. Figure 6.1 is a summary of the new airlines Denver pro forma analysis for two roundtrips per day on the CRJ 200. Passenger projections were based on a mature market (i.e., passenger projections would be at 100 percent on the first day of service). It is estimated that two roundtrips per day will generate over $11.2 million in revenue for a new air carrier. Projected earnings surpass $1.4 million. However, the new airline will not generate this amount of revenue or margin at start-up. Airlines typically incur losses in the new markets during the start-up period. However, other communities in North Dakota have proven to be successful from the first day of service. Grand Forks expects to have the same success but would like protection against a loss ICF SH&E

29 Figure 6.1: Grand Forks Denver Operating Forecast Summary Statistic Value GFK-DEN Forecast Daily Roundtrips 2 Annual Departures (@98.5% Completion) 1,438 Available Seats With 50 Seat CRJ's 71,905 Forecast Segment Passengers 51,811 Load Factor 72% Operating Revenue $11,274,003 Operating Expenses $9,866,701 Profit (Loss) $1,407,302 Operating Margin 12.5% AIR SERVICE SUPPORT PLAN The new proposed service will require the airline to take a larger risk to start up service in Grand Forks and the community wants to help to mitigate these hardships. We have struggled to get the airlines to come to Grand Forks as a result of these risks. Grand Forks has come up with a plan that will help to mitigate these startup issues by providing the airlines with a Bring us your steel options. They will be able to allow us to do the rest of the work to minimize their initial costs. Several targeted elements are proposed to offset the risk: a revenue guarantee, local ground handling by the existing FBO, airport provided ground handling equipment, an aggressive marketing campaign, and fee waivers ICF SH&E

30 7 MARKETING PLAN Over a 24-month period, a variety of marketing avenues will be used to achieve the goals of the applications. Americans will spend 1,555 hours watching television, 974 hours listening to radio, 195 hours using the Internet, 175 hours reading the newspaper, and 175 hours listening to recorded music. Based on this, it was determined that 50 percent of the media marketing budget will be spent on television advertising, 30 percent on radio advertising, seven percent on Internet advertising, five percent on newspaper advertising, and the remaining budget on handouts, flyers, and media development assistance. As part of the marketing plan, the following areas were deemed important: Expansion of customer base Top-of-the-mind awareness for when customers are ready to purchase Constant updates to new customers, reminders to past customers and re-sales to current customers Help new customers who have never purchased before Development of an image and increase credibility Create, change or reinforce a positive image in the community Be recognized as a premier choice of travel for the region Create awareness of the Grand Forks International Airport In order to ensure needed exposure, frequency and longevity are the two key points to an effective marketing plan. It is anticipated that the existing television station, WDAZ would be used to design the spots in accordance to the goals, objectives, and target market. Radio spots will be developed by Clear Channel / MidContinent since they are our current marketing management company. Whenever possible, the same media will be used to ensure that a consistent message reaches the target market. Paper media will be for specific advertising like ticket prices, flight times, and other information. Print media will go out in the local community, small outstate communities like Thief River Falls and Devils Lake along with newspapers in the Winnipeg area. The Grand Forks Regional Airport Authority staff, when possible, will accompany the Grand Forks Convention & Visitors Bureau and EDC to promotional conventions to promote the Airport. TARGET MARKET The target market includes a radius of almost 200 miles and 2:15 of drive time. The target market includes air travelers in the following categories: College students (ages years) Military travelers (ages years) ICF SH&E

31 Business travelers (ages years) Leisure travelers (ages years) Retired travelers (ages 65 and above) Television and computer based media will cover all age groups. Newspaper typically covers business and older travelers. The diversity of radio stations in Grand Forks allows specific targeting of age groups. MARKETING BUDGET The Grand Forks Regional Airport Authority along with the CVB and Chamber are proving the marketing support for the project. The agencies will provide the following Marketing support: Figure 7.1: Agency Cash Marketing Support In-Kind Marketing Support Grand Forks Regional Airport $50,000 /Annually (2 Authority Years) Chamber of Commerce $5,000 Advertising Convention & Visitors Bureau $15,500 Advertising Total $100,000 $20,500 TIMELINE To measure the marketing efforts, passenger enplanements will be reviewed monthly. Since the goal is to increase enplanements, enplanements will be used as an indicator of success. Marketing efforts will begin at least one month prior to the start of the new service. At the end of each month, enplanements will be reviewed with the Grand Forks Convention & Visitors Bureau, Chamber, Clear Channel / MidContinent and any other media agency used by the Airport to determine the success of the efforts. LANDING FEE WAIVER Two years of landing fees costs directly calculated by aircraft weight are estimated at an approximate value of $49,000 per year for the first two years for two roundtrips per day with a CRJ-200 aircraft. This is a total fee waiver of $98,000. Charges for landing fees are waived for the initial 24-month period of new air service. This fee waiver will change depending on the type of aircraft used and the number of roundtrips operated. PROJECT CONTINUATION/SUSTAINABILITY It is expected that after the first 24 months of service, nonstop service to a major hub will be selfsustaining and profitable. If at the end of the second 12 month period (months 13-24), the service does not ICF SH&E

32 attain a minimum of a 50 percent average load factor, Grand Forks Regional Airport Authority will seek private community support to create an additional six months of marketing support. ALTERNATE PLAN If the Grand Forks Regional Airport Authority fails to obtain Denver or O Hare service, other carriers will be approached for service to a major hub. Consistent with the intent of the air service initiatives proposed, obtaining nonstop service to a hub airport with good connections to major destinations and competitive airfares is the best option for Grand Forks International Airport catchment area passengers ICF SH&E

33 8 STRATEGIC PLAN IMPLEMENTATION AND FUNDING FUNDING PLAN The Action Plan displayed in Figure 8.1 is proof of the public private partnership. We are proposing a plan we feel cannot be beat. We are requesting $300,000 in US Department of Transportation to be used for an air service improvement program to help mitigate a portion of the airline s risk associated with startup of a new non-stop service. The City of Grand Forks intends to participate in the funding of the program by also provide funds to help mitigate startup costs. The City will contribute $200,000 nonairport cash. The Airport Authority will contribute $100,000 in airport cash for marketing funds along with $10,000 for airline meetings and negotiations. The Airport Authority will also waive an additional $98,000 in fees for in-kind donation and provide program administration in the amount of $5,000. Other community organizations (EDC, CVB and Chamber) will contribute $20,500 in in-kind marketing/advertising and $7,500 in in-kind program administration. Figure 8.1: Action Plan Budget AIRPORT NON-AIRPORT Agency US DOT CASH CASH IN- KIND CASH IN- KIND TOTAL Airline incentive program: Revenue Guarantee $300,000 $200,000 $500,000 Marketing Campaign $100,000 $20,500 $120,500 Landing Fee Waiver (2 Years) $98,000 $98,000 Action Plan Staffing/Monitoring Airline Meeting/Negotiation $10,000 $10,000 Program Administration $5,000 $7,500 $12,500 Total $300,000 $110,000 $103,000 $200,000 $28,000 $741,000 Percent of Total Project 40% 15% 14% 27% 4% 100% Percent of Cash Contribution 49% 18% N/A 33% N/A 100% SCHEDULE AND MONITORING Our proposed implementation timeline for the project assumes the Department of Transportation will award the Small Community Air Service Development Grant Funding by December The Airport Authority has been in lengthy conversations with multiple air carriers including a recent meeting with a specific airline. Upon announcement of funding, we will immediately contact the airline and notify them ICF SH&E

34 of the receipt of the grant. We hope to execute a grant agreement that spells out how funds will be distributed by late December to early January for a spring service start date. We will utilize our consultant to develop the agreement. As soon as the airline is comfortable with announcing the serve and publishing the schedule, we will initiate the marketing plan. Since the Airport Authority is consistently marketing and have a marketing team, this will only take us a few weeks to initiate. Once the service begins, the Airport Authority will submit quarterly reports showing the airport enplanements and give status reports on the new service. ALTERNATE PLANNING If the Airport Authority has not initiated the grant by December 31, 2012, we will provide a written report to the Department of Transportation explaining our air service efforts and describe in detail our plan for the next 12 months. We already have a plan to attend Networks and JumpStart in 2012 much like we did in 2011 so the airlines are aware of Grand Forks and what we have to offer. START-UP PERIOD AND SUSTAINABILITY OF THE MARKET The Airport will aggressively market the new service to businesses and leisure travelers in the catchment area. The Chamber of Commerce has already offered to introduce a new airline to their members and will host a business meeting specifically for them to present at. They will also send notices to all their over 2,000 members. We plan to provide at least three to four months of dedicated marketing to the new service prior to the start date. We will monitor advance bookings with the help of the new air carrier. Based on the success of other airports in the region, we feel initiation of service to a major hub like Denver or O Hare will be self-sustaining within a few months. The Grand Forks region tends to react much like the Minot region when the market is stimulated. We expect our new service to be as successful, if not more successful, than Minot s new service. DEFINING SUCCESS The success of the program will be based on achieving the objective of the program. The Airport will continuously monitor the performance of the route. Prior to beginning the service, we will communicate with the airline on a bi-weekly basis to monitor advanced bookings and week-over-week advanced bookings. In the event the advanced bookings appear to be weak, we will work with the television station to increase the marketing spots. We will measure success by an overall increase in boarding for the Authority. We have two import considerations for success when it comes to boardings: first, we want the new service to be successful and grow the enplanements at the airport; second, we want our incumbent to continue to be successful. Success of the project is measured by success of the existing airline and new airline service. We are confident that we can grow our market from 118,000 passengers to 150,000 passengers with the added service. Our leakage to Fargo and increased catchment area is untapped for these services. During our ICF SH&E