Monterey Peninsula Airport. Monterey, California

Transcription

1 Proposal under the Small Community Air Service Development Program Docket #: DOT-OST Monterey Peninsula Airport Monterey, California Legal sponsor: Monterey Peninsula Airport District DUNS: Congressional District Code: CA-17 Contact: Thomas E. Greer, AAE General Manager Monterey Peninsula Airport 200 Fred Kane Dr, Suite 200 Monterey, CA (831)

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4 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Table of Contents Page Summary Information...1 Proposal Highlights...2 Underserved and Overpriced Market...2 Solid Market Analysis with Airline Support...2 Significant Community Involvement and Support...3 Demonstrated Ability to Implement Project...3 Vital Link for the Community...3 Air Service Environment...4 Heavily Populated Catchment Area...4 Low Retention of Catchment Area Passengers...4 Locally Headquartered Businesses and a Naval/Army Presence...5 Agricultural/Tourism Industries with High Air Travel Demand...6 Air Service Existing and Historical...7 Existing Air Service...7 Historical Air Service...8 Past Air Service Development Efforts...10 Air Service Needs and Deficiencies...11 Limited Local Service Options...11 Lack of Northbound Service...11 Monterey-Pacific Northwest Markets Overpriced...12 Strategic Plan Air Service...13 Project Goals...13 Proposed Air Service...13 Airline Participation...13 Detailed Market Analysis...14 Alternate Plan...16 Previous Grant Recipient - New Project and Goals...16 Strategic Plan Implementation and Funding...17 Public-Private Partnership...17 Incentive and Support Plan...18 Project Continuation and Sustainability...19 Strategic Plan Funding...20 Schedule and Monitoring...21 Milestones for Timely Completion of Project...21 Strategic Plan monitoring program...22 Appendix A. Airline and Community Support...23 Appendix B. Detailed Market Analysis...51 Table of Contents Prepared by

5 1 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Summary Information A. Applicant Information: (Check all that apply) X Not a Consortium Interstate Consortium X Intrastate Consortium Community now receives EAS subsidy Community (or Consortium member) previously received a Small Community Grant If previous recipient, expiration date of grant: September 30, 2008 B. Public/Private Partnerships: (List organization names) Public Private Monterey Peninsula Airport District Monterey County Business Council C. Project Proposal: (Check all that apply) X Marketing Regional Service Personnel Launch New Carrier Travel Bank First Service Surface Transportation X Secure Additional Carrier X Revenue Guarantee X New Route X Start Up Cost Offset Low Fare Service Study Subsidy Upgrade Aircraft Increase Frequency Service Restoration Other (specify): E. Project Cost: 1. Federal amount requested: $500, State cash financial contribution: $0 3. Local cash financial contribution 3a. Airport cash funds: $67,000 3b. Non-airport cash funds: $55,000 3c. Total local cash funds (3a.+3b.) $122, TOTAL CASH FUNDING ( c.) $622, Local funds contributed from alreadyexisting programs or projects included in line 3c. amount: $0 6. Local funds contributed from new commitments or new resources included in line 3c. amount: $122, Airport In-Kind contribution: (amount & description)* $66, Other In-Kind contribution: (amount & description)** $85, TOTAL IN-KIND CONTRIBUTION (7.+8.): $151, TOTAL PROJECT COST (4.+9.): $773,000 * Landing fee waiver, marketing ** Marketing F. Enplanements: , , , , , , , , ,561 Summary Information D. Existing Landing Aids at Local Airport: X Full ILS X Published Instrument Approach X Localizer X Outer/Middle Marker Other (specify): 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). X 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 H. Is the Applicant delinquent on any Federal debt? (if yes, provide explanation) X No Yes (explain)

6 2 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Proposal Highlights This section contains: Project goals Description of the Strategic Plan Highlights of the grant application T his Small Community Air Service Development Program grant application for the Monterey Peninsula Airport District meets the criteria of Docket DOT-OST The Monterey Peninsula Airport District, the airport sponsor, is requesting $500,000 in federal assistance to implement a $773,000 air service initiative. In 2005, the Monterey Peninsula Airport District received a Small Community Air Service Development Program grant. The proposed project s goals and objectives differ from the previous grant application and award. Proposal Highlights The project goals are three-part: Initiate nonstop service to the Pacific Northwest Provide competition in the marketplace to reduce airfares Mitigate the need to drive long distances to access adequate air service New service to the Pacific Northwest is the region s top priority. The Strategic Plan, Horizon Air/Alaska Airlines service to Seattle, will achieve the project goals. Underserved and Overpriced Market The Monterey Peninsula Airport catchment area is underserved and overpriced. The community is served by three major carriers, American Airlines, United Airlines, and US Airways and leisure operator, Allegiant Air. Service exists to Denver, Las Vegas, Los Angeles, Phoenix, San Diego, and San Francisco. Missing in this service pattern is a link to the Pacific Northwest. While Monterey Peninsula Airport only captures 36 percent of its total market at the local airport, diversion for service to the Pacific Northwest and Alaska is much lower at 29 percent or less. Airfares at Monterey Peninsula Airport average 47 percent higher than the fares at the closest alternate airport, San Jose International Airport. A service link to the Pacific Northwest would increase the use and local capture rate of the Monterey Peninsula Airport while lowering overall airfares to the Pacific Northwest. The new service link will decrease travel times and costs of driving to alternate airports and improve overall traveler productivity. Solid Market Analysis with Airline Support The community has strong ties with the Pacific Northwest, yet today, the region remains hard and expensive to reach. Given these ties this community has to the Pacific Northwest, the Monterey Peninsula Airport and its partners have completed

7 3 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District the research and analysis necessary to determine the viability of a route to Seattle. Seattle provides a connecting gateway to destinations in Alaska, Idaho, Montana, Oregon, Washington, and western Canada. An airline route analysis and forecast was done for Horizon Air/Alaska Airlines service to Seattle (refer to Appendix B). The route forecast was positive and was subsequently presented to Horizon. Currently the route is under review by the airlines and they continue to express interest. A support letter has been provided by Horizon Air. Currently the route is under review by the airlines, and they continue to express interest; however, an incentive package to mitigate the startup year s risks will be required to establish this valuable new route. Horizon has supported this application with a letter that is enclosed in Appendix A. The airport and its partners have created a Strategic Plan to address the economic risks that Horizon may incur during service startup. Significant Community Involvement and Support Monterey Peninsula Airport has partnered with the Monterey County Business Council to create this joint effort grant application. It is estimated that a $500,000 revenue guarantee will be required for a one- to two-flight service pattern to Seattle. To support this air service initiative, the Airport and community will fund 35 percent of the proposed $773,000 Strategic Plan. Non-airport revenue sources will fund nine percent ($55,000) of the $622,000 cash requirement. This is a strong commitment by the local community to establish nonstop air service to the Pacific Northwest. Proposal Highlights Demonstrated Ability to Implement Project The public-private partnership and local businesses have the ability to implement the project. This was demonstrated in 2005 by the successful effort by the community to market the local airport and maintain newly announced service while improving the community s overall capture rate and use of the local airport. The Fly Monterey promotion had strong community support that continues. Vital Link for the Community Monterey Peninsula Airport services a region with a population size of 420,000. The Pacific Northwest is an important link to the community. Agriculture, wine production, commercial fishing, and the military all have extensive ties to the Pacific Northwest. A link between Monterey and Seattle will meet the needs of these sectors as well as those of its citizens. Funding of this grant application will allow the community to move closer to establishing this new and vital link to the Monterey Peninsula.

8 4 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Air Service Environment This section contains: Description of the Monterey community in relation to air service T he Monterey community has a strong business and agricultural foundation and diverse tourism and leisure industries that are in need of substantial air service improvements. This section demonstrates the community s need for additional air service including: a catchment area with a population of over 420,000, insufficient commercial air service to hubs that do not adequately connect Monterey catchment area passengers to the service area s top markets, and a multifaceted tourism and leisure industry in need of ample air service along with a strong business and agricultural community. The initiation of service to a Pacific Northwest hub will provide improved connectivity to this region and the national transportation system. Air Service Environment EXHIBIT 3.1 AIRPORT CATCHMENT AREA Heavily Populated Catchment Area Fortuitously located on the Monterey Bay in a thriving economic region of California, Monterey Peninsula Airport is well positioned to serve an expansive and well populated area. The primary air service catchment area for Monterey is displayed in Exhibit 3.1. People living in this catchment area (shown in blue) should use the Monterey Peninsula Airport with regard to the drive time required to access air service. The area is comprised of 34 zip codes and has a population of approximately 420,000. The midpoint of Monterey County is 106 miles south of San Francisco and 241 miles north of Los Angeles; the county encompasses 3,322 square miles. The population of Monterey County grew almost 15 percent from 1990 to 2008; that equates to a compounded annual growth rate of almost one percent. Low Retention of Catchment Area Passengers Only an estimated 36 percent of catchment area passengers use Monterey Peninsula Airport; the remaining 64 percent divert to competing airports because of high fares and inadequate air service at Monterey. Diversion from Monterey is distributed as follows: 45 percent access

9 5 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Air service at Monterey is inadequate as many local passengers willingly embark on a long congested drive to San Francisco Bay Area airports to access air service. San Jose International Airport, 16 percent fly to and from San Francisco International Airport, and the remaining four percent use Oakland International Airport. Further indicating that passengers choose to divert because of inadequate service or high fares is the long drive time to the competing airports. It is an estimated drive of one and one-half hours to San Jose International Airport, an estimated drive of one hour and 50 minutes to San Francisco International Airport, and a two-hour drive to Oakland International Airport. These estimates are likely low because they do not consider the heavy drive traffic congestion that is often present in the San Francisco Bay Area which can add considerable travel time, especially during peak demand hours for commercial air service. Long drive times coupled with the high diversion rate at Monterey Peninsula Airport show that the supply of air service for catchment area passengers is inadequate for their demands as they willingly embark on a long congested drive to San Francisco Bay Area airports to access air service. It would make no economic sense to endure such drives otherwise as 80 percent of the Monterey catchment area s population lives within 20 miles of the local airport. Locally Headquartered Businesses and a Naval/Army Presence Lifted by a billion-dollar agricultural industry, significant tourism, a naval and army presence, and a burgeoning wine industry, the Monterey economy is home to large and local employers that create an average wage in occupations within the management, business, and financial sectors 13 percent higher than the national average. High wages amongst professionals bodes well for the success of necessary air service expansion in Monterey as business professionals are the backbone of the airline industry because they travel often and are willing to pay the higher fares typical at small and non-hub airports. These high wages are symptomatic of the strong presence of locally headquartered businesses in Monterey County. Local business is vital to the success of TABLE 3.1 TOP EMPLOYERS air service expansion, particularly EMPLOYER INDUSTRY EMPLOYER INDUSTRY locally headquartered businesses Azcona Harvesting - Fruits & vegetables - Mann Packing Co harvesting contract growers & shippers that deal in various capacities on Bud of Fruits & vegetables - Publishers - book McGraw-Hill the national level, as businesses California growers & shippers (mfrs) require efficient means of travel Cannery Row Natividad Medical Hospitality Hospitals Company Center for their management, technical, Community and sales teams. Table 3.1 Naval Postgraduate Hospital - Hospitals Military bases School provides a list of the area s top Monterey Con Agra Foods Dried/dehydrated Pebble Beach employers. Resorts Inc. fruits & vegetables Company D'Arrigo Fruits & vegetables - Salinas Valley Hospitals Of particular importance to the Brothers Co. growers & shippers Memorial Food products & Taylor Farms Fruits & vegetables - Monterey economy in regards to Dole Salad Plant manufacturers California Inc. growers & shippers commercial air service is the Naval Food products US Defense Federal government Fresh Express Post Graduate School and the (wholesale) Department - national security Army Defense Language Institute. Hilltown Packing Harvesting - US Defense Government offices Co contract Manpower Data Ctr - US HSBC Card Credit card & other Services Inc. credit plans Air Service Environment

10 6 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Naval Post Graduate School Army Defense Language Institute The Naval Postgraduate School offers advanced classroom training for all military officers and houses the Fleet Numerical Meteorology and Oceanography Center which is one of the world's leading numerical weather prediction centers. The Army Defense Language Institute provides language training to military personnel and agents of the FBI, DEA, and Border Patrol. It is estimated that these institutions bring $1 billion into the Monterey economy alone, and the economic impact of the spending by itself from the students and faculty of the school is approximately $140 million. Air service is absolutely fundamental to such institutions as the military routinely cycles students and faculty through the facilities. Agricultural/Tourism Industries with High Air Travel Demand The two largest sectors of the Monterey economy are agriculture and tourism. Being that Monterey County is blessed with 100 miles of coast line (the largest amount of coast line by county in California), 43,000 acres of land planted with grape vines, more than 20 golf courses including world renowned golfing at Pebble Beach, ample historical sites (since Monterey was the capital of Spanish and Mexican California), Big Sur, Monterey Bay Aquarium, and the Mazda Raceway Laguna Seca, it is not surprising that Monterey receives more than four million visitors every year bringing in an estimated $2 billion to the local economy and providing nearly one-third of the jobs in Monterey. Air Service Environment The agricultural industry is another large piece of the Monterey economy. Monterey is one of the most efficient agricultural producing areas in the world, producing nearly $190,000 of agriculture per employee in the industry. This is over four times the average production, $45,000 per employee, in the agricultural industry in the U.S. This efficient production generates over $3 billion worth of agriculture annually. With respect to air service, agriculture is bought, sold, and shipped all over the country. Monterey s wine industry has a strong tie to wine producers and wineries in the Pacific Northwest. Undoubtedly, Monterey s agricultural industry needs efficient and ample air service to meet its business needs.

11 7 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Air Service Existing and Historical This section contains: Description of existing air service Synopsis of historical air service Description of air service development efforts T his section provides an overview of existing air service. Carriers providing service, service frequency, direct and connecting destinations offered, available airfares, and equipment types are included in the discussion. A summary of historical air service is also included with destinations, traffic levels, service providers, and an overview of extenuating factors that have affected air service. A description of air service development efforts concludes the section. Existing Air Service Monterey Peninsula Airport has nonstop service provided by four marketing carriers to six destinations: United Airlines to Denver, Los Angeles, and San Francisco; Allegiant Air to Las Vegas and San Diego; American Airlines to Los Angeles; and US Airways to Phoenix (Table 4.1). These nonstop service offerings provide one-stop connecting service ranging from 28 destinations on American up to 112 destinations on United out of Denver. Allegiant does not serve connecting destinations. Air Service Existing and Historical TABLE 4.1 EXISTING AIR SERVICE NONSTOP DESTINATION MARKETING CARRIER AIRCRAFT WEEKLY DEPARTURES WEEKLY SEATS SINGLE-CONNECT DESTINATIONS Denver, CO United CRJ-700 (jet) Las Vegas, NV Allegiant MD-80 (jet) Los Angeles, CA Phoenix, AZ American ERJ (jet) United EMB-120 (turbo) US Airways CRJ-900 (jet) 1 86 CRJ-100/200 (jet) San Diego, CA Allegiant MD-80 (jet) San Francisco, CA United EMB-120 (turbo) 48 1, Source: APGDat, August 2009 Total 122 5,108 N/A 81

12 8 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Over the last five years, Monterey Peninsula TABLE 4.2 AVERAGE ONE-WAY FARE PAID AVERAGE FARE Airport s average fares have far exceeded the state, region, and national average. Referencing Table 4.2, Monterey California West Region U.S $187 $138 $135 $ $197 $147 $144 $ $222 $162 $156 $ $222 $163 $155 $ $216 $171 $167 $160 the fare differential Source: Data Base Products, Inc. between Monterey and the state of California has ranged from $44 higher (2008) in Monterey to $60 higher (2006) one-way. Monterey also has significantly exceeded the average fare paid by travelers in the West Region; Monterey passengers paid between $48 and $66 more than the overall passengers in the West Region. Nationally, Monterey has paid as much as $73 more for a one-way ticket on average. Today, Monterey s fares are on average 47 percent higher than the fares at San Jose. This supports the fact that Monterey is an overpriced market. Historical Air Service Air Service Existing and Historical Although Monterey Peninsula Airport experienced air service growth through 2007, since then air service has been declining despite the economic and population growth in the area. This subsection summarizes Monterey Peninsula Airport s air service history including: destinations, traffic levels, and service providers. Extenuating factors that have affected air service over time is also reviewed. Destinations, Service EXHIBIT 4.1 HISTORICAL DEPARTURES/ENPLANEMENTS 9,000 8,800 8,600 8,400 Departures 8,200 8,000 7,800 7,600 7,400 7,200 7, Calendar year Departures Enplanements Source: APGDat; Airport records 225, , , , , , , , , , ,000 Enplanements Providers, and Traffic Levels Exhibit 4.1 provides a summary of annual departures and enplanements over the last five years, 2004 through From 2004 through 2007 departures increased significantly, from 7,844 to 8,734, an increase of 11 percent. In 2008, however, departures decreased to 7,543, representing a one-year decrease of 14 percent. Enplanements followed the same trend as departures, increasing from 2004 through 2007 by 19 percent, falling by four percent from 2007 to 2008.

13 9 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Table 4.3 provides average weekly departures and seats by destination and airline over the last five years and also shows departures and seats scheduled for In 2005, United began nonstop service to Denver. That same year, US Airways began Las Vegas service, and Delta Air Lines initiated Salt Lake City service. In 2007, ExpressJet began service to Long Beach, Ontario, and San Diego. The trend of increasing air service ended in Delta cancelled the Salt Lake City service, US Airways ceased service to Las Vegas, and ExpressJet stopped serving Long Beach, Ontario, and San Diego. These service cancellations were only partially offset by Allegiant s new Las Vegas service. Overall, departures decreased from the high in 2007 of 171 per week to a low over the last five years of 122 per week in 2009, a 28 percent loss. TABLE 4.3 HISTORICAL DESTINATIONS AND SERVICE PROVIDERS CALENDAR YEAR DESTINATION AIRLINE ITEM Dept Denver, CO Las Vegas, NV Long Beach, CA Los Angeles, CA Ontario, CA Phoenix, AZ Salt Lake City, UT San Diego, CA San Francisco, CA United Allegiant US Airways ExpressJet American Allegiant United ExpressJet US Airways Delta Allegiant ExpressJet Seats Dept 2 3 Seats Dept Seats Dept 9 12 Seats Dept Seats ,027 Dept 2 Seats 250 Dept Seats 1,594 1,455 1,285 1, Dept 11 6 Seats Dept Seats Dept Seats Dept 2 Seats 283 Dept Seats Dept United Seats 1,971 1,782 1,450 1,438 1,483 1,363 Average weekly departures Average weekly seats 5,423 5,822 5,809 6,543 6,070 5,198 Source: APGDat Air Service Existing and Historical Extenuating Factors that have Affected Air Service The overwhelming dominant factor affecting air service at Monterey Peninsula Airport is one of geographic location. The airport and its surrounding catchment

14 10 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Over the past five years, the Monterey Peninsula Airport and the business community have successfully worked together on air service development efforts. area are situated in the shadow of three major San Francisco Bay Area airports. San Francisco International Airport and Oakland International Airport are lesser factors, but the presence of San Jose International Airport, a scant one and a half hour drive away, has been a serious impediment to the 420,000 people living in the Monterey catchment area for securing the air service that it might otherwise attract. The extensive low-fare carrier service at San Jose is an added handicap to the market economics of serving Monterey. Though a lesser factor, the catchment area population is a mixture of an affluent oceanside population and inland blue-collar agricultural workforce. Likewise, the air travel market is split between a leisure travel component comprised of golfers, other vacationers and second home owners, and a business travel component related to food production and processing, agriculture, wine, hospitality, and the military. Past Air Service Development Efforts Monterey Peninsula Airport plays a critical role in the community s economic health and quality of life. Over the past five years, the Monterey Peninsula Airport and the business community have worked together on air service development efforts. These efforts have included several market studies to determine retention of local passengers, pro forma analyses for many major hubs, and presentations to airlines. Table 4.4 provides an overview of the air service development efforts since The community has had a lot of success stories such as obtaining jet service to Phoenix and Los Angeles and getting a new route from United to Denver. The airport and community continue to be dedicated to local air service development. Air Service Existing and Historical TABLE 4.4 PAST AIR SERVICE DEVELOPMENT EFFORTS YEAR INITIATIVE RESULT Delta Air Lines proposal in Atlanta Successful 2004 Passenger Demand Analysis (retention/market demand) Completed American Airlines meeting in Dallas Completed 2005 America West meeting in Monterey (LAS service) Successful United Airlines proposal in Chicago (DEN service) Successful SCASDP grant application (marketing) Successful 2006 Horizon Air proposal in Seattle Unsuccessful 2007 ExpressJet meeting in Monterey (ONT service) Successful Jumpstart meeting (met with UA, DL, AS) Completed Allegiant Meeting (LAS) Successful Passenger Demand Analysis (retention/market demand) Horizon Air Seattle pro forma analysis (positive) Horizon Air San Diego pro forma analysis (positive) Air Service Risk Assessment (market analysis) Community meeting - air service education Horizon Air proposal in Seattle Completed Completed Completed Completed Completed Pending

15 11 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Air Service Needs and Deficiencies This chapter contains: Description of Monterey s air service needs and deficiencies TABLE 5.1 MONTEREY'S TOP 10 CATCHMENT AREA TRUE MARKETS TRUE MARKET RANK MARKET SIZE 1 Los Angeles 66,185 2 San Diego 49,887 3 Phoenix 39,210 4 Seattle 32,026 5 Chicago (ORD) 30,583 6 Ontario 29,095 7 Las Vegas 25,778 8 Dallas (DFW) 25,059 9 New York (JFK) 24, Washington DC (IAD) 24,695 T he Air Service Needs and Deficiencies section identifies the issues at Monterey Peninsula Airport which have stunted the growth of commercial air service to the community. This section provides a detailed analysis to demonstrate that Monterey is underserved and the average airfares in this community are higher than other comparable communities. Limited Local Service Options In spite of the diversionary affect of the proximity of San Jose International Airport, Monterey Peninsula Airport and its catchment area have supported and sustained service in the major West Coast markets of Los Angeles, Phoenix, and San Francisco. San Diego service, which was initiated by ExpressJet and proven successful, has been replaced by Allegiant Air s less than daily service after ExpressJet discontinued its branded flying operation. Allegiant also provides less than daily service in the Las Vegas market. Conspicuous by its absence is any northbound service to the Pacific Northwest other than connecting service via San Francisco. Seattle is the Monterey catchment area s fourth largest true market behind Los Angeles, San Diego, and Phoenix. Seattle is the largest Monterey true market without nonstop service, as shown in Table 5.1. Air Service Needs and Deficiencies Lack of Northbound Service In addition to Seattle with a true market estimate of 45 passengers daily each way, Portland and Anchorage are top 25 Monterey catchment area markets with an estimated true market size of approximately 42 passengers daily each way and would connect ideally over Seattle. Market potential for Pacific Northwest service is further enhanced by smaller Alaska, Washington, Oregon, Montana, Idaho, and western Canada markets. Currently the only air service options to reach Monterey from these areas are via San Francisco whose service to this region is very limited or non-existent as in the case of Alaska and Montana. Many markets require inconvenient and circuitous double connections which tend to depress traffic volumes and force local air travelers to use alternate airports. The inadequacy of Monterey s existing service to the Pacific Northwest is demonstrated by the fact that only 29 percent of the Seattle and Portland true market and only five percent of the Anchorage true market is being retained at Monterey Peninsula Airport. This contrasts with the 47 percent retention rate in Monterey s total domestic markets.

16 12 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Monterey-Pacific Northwest Markets Overpriced The limited existing Monterey service to the Pacific Northwest has contributed to the markets being overpriced compared to other airports in the area. Table 5.2 demonstrates that the Monterey average fares are higher than nearby airports in six sample Pacific Northwest markets. Improved service between Monterey and the Pacific Northwest will result in heightened competition and more competitive fares in the marketplace. TABLE 5.2 AIRFARE COMPARISON DESTINATION MRY SJC SFO OAK Seattle, WA $161 $109 $102 $96 Portland, OR $158 $111 $123 $107 Boise, ID $170 $124 $166 $121 Missoula, MT $329 $201 $196 $198 Redmond, OR $162 $141 $111 $147 Spokane, WA $186 $119 $136 $109 Source: Data Base Products, Inc.; year ended March 31, 2009 Air Service Needs and Deficiencies

17 13 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Strategic Plan Air Service This chapter contains: A Strategic Plan for meeting Monterey s air service needs and deficiencies Alternate plan to meet the goals Previous grant recipient with new project and goals T he Strategic Plan proposed by the Monterey Peninsula Airport will achieve the community s goals and help to alleviate the air service needs and deficiencies of this community. This Strategic Plan section provides a detailed description of the goals of the project and a primary and alternate plan for attaining those goals. As a previous grant recipient, this application is a new project with different goals than the previous project. Project Goals The following project goals will be met by the proposed Strategic Plan: Initiate new nonstop service to the Pacific Northwest Provide competition in the marketplace to reduce airfares Mitigate the need to drive long distances to access adequate air service Strategic Plan Air Service Proposed Air Service Monterey has existing service to Denver, Las Vegas, Los Angeles, Phoenix, San Diego, and San Francisco. Monterey s large gap in service is to the Pacific Northwest. This is Monterey s highest service need for the community. Higher than average fares and high diversion of catchment area travelers support the need for this air service initiative. Horizon Air/Alaska Airlines service to Seattle would provide Monterey with optimal air service access to the Pacific Northwest. This plan will achieve the project goals by: Providing airline risk mitigation to initiate new nonstop service to the Pacific Northwest Reducing the need for air travelers to drive to San Jose or San Francisco for affordable and competitive airfares Adding competition in the marketplace to lower fares to the Pacific Northwest, Alaska, and western Canada Airline Participation Over the past five years, members of the public-private partnership have met with Horizon/Alaska regarding nonstop Seattle service. Recent discussions with Horizon have been positive. In particular, Horizon expressed interest in the Monterey Peninsula Airport filing this grant application and provided a support letter included

18 14 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District in Appendix A. Feedback from Horizon is that the community support package proposed in the Strategic Plan is critical in their decision whether or not to serve the Monterey market. Detailed Market Analysis The Strategic Plan is critical in Horizon Air s decision whether or not to serve the Monterey market. A financial analysis and pro forma route forecast have been developed for Horizon/Alaska service to Seattle/Tacoma International Airport. Results of the Horizon analysis, the primary target for establishment of Pacific Northwest service, are summarized below. The detailed analysis for Seattle is included as Appendix B, Detailed Market Analysis. Forecast Assumptions Pro forma route forecast projections were completed for a one roundtrip schedule on a 76-Seat Bombardier Dash-8-Q400 (Q400). The analysis includes the operating and marketing assumptions listed below: Strategic Plan Air Service Existing fared passengers will be divided between American Airlines, United Airlines, and Horizon/Alaska based on the number of reasonable connections available in the market. The Seattle local market will be stimulated 350 percent (similar to ExpressJet s experience in Monterey-San Diego), state of Alaska markets by 100 percent, and all other connecting markets 20 percent. Horizon will capture a share of the passengers that are driving to competing airports (i.e. San Jose or San Francisco) to travel to and beyond Seattle. The average one-way fare in the Monterey-Seattle local market will equal current Monterey fares. Mature Market Results TABLE 6.1 SUMMARY OF SEATTLE/TACOMA MARKET ANALYSIS ITEM STATISTICAL CATEGORY MATURE MARKET 1 Available seats per departure 76 2 Segments per day 2 3 Onboard Passengers 42,048 4 Load Factor 76% 5 Average Fare (all markets) $ System profit $1,641,430 Table 6.1 provides a summary of the Horizon/Alaska Seattle market analysis for one roundtrip per day on the 76-seat Bombardier Q400. 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 one roundtrip per day will generate almost $8.6 million in annual revenue for Horizon/Alaska. Projected system earnings surpass $1.6 million. Monterey Peninsula Airport has shared this market analysis with Horizon and has been encouraged to pursue this market opportunity.

19 15 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Airline Risk During Ramp-Up It is estimated that Horizon/Alaska will earn over $1.6 million in profit after the market matures. Although this market is projected to be self-sustaining in the longrun, Horizon will not generate this amount of revenue or margin at start-up. Airlines typically incur losses in new markets during the first year of the ramp-up period. Adding to Horizon s initial economic risk in the market will be the challenge of changing existing travel habits and airline allegiance which will take time. This could cause a longer than normal ramp-up period and lead to significant losses in the short-term. Table 6.2 provides an adjustment to passenger projections to account for ramp-up to a fully mature market and breaks down the passenger projections for the first 12 months. At service initiation, it is conservatively estimated that Horizon will realize 80 percent of the potential revenue in a mature market. The market will grow to 85, 90, and 95 percent of the mature market during the first year. The ramp-up period is highly dependent on service awareness and the community s support of the new service. Strategic Plan Air Service TABLE 6.2 SERVICE RAMP-UP MONTH SEASON- ALITY ONBOARD PAX MATURE MARKET REVENUE RAMP- UP ADJ. RAMP-UP REVENUE ESTIMATED PROFIT/ LOSS May 8.2% 3,447 $517,029 80% $413,623 ($103,333) June 8.0% 3,363 $504,419 80% $403,535 ($96,745) July 8.4% 3,532 $529,640 85% $450,194 ($66,762) August 8.7% 3,658 $548,556 85% $468,466 ($48,490) September 9.5% 3,994 $598,997 85% $511,544 $11,264 October 10.1% 4,246 $636,829 90% $573,146 $56,190 November 8.5% 3,574 $535,945 90% $482,351 ($17,929) December 8.3% 3,489 $523,335 90% $471,001 ($45,955) January 7.2% 3,027 $453,977 95% $431,278 ($85,678) February 6.8% 2,859 $428,756 95% $407,318 ($59,610) March 8.1% 3,405 $510,724 95% $485,188 ($31,768) April 8.2% 3,447 $517,029 95% $491,178 ($9,102) Total 100.0% 42,042 $6,305,236 89% $5,588,822 ($497,918) Note: Profit/Loss is estimated from revenue minus cost (which is not shown) Table 6.2 also provides the net surplus/shortfall by month and in total for the first 12 months of service. Total revenues adjusted for the ramp-up period for the first year of service total $5.59 million. Revenue is also adjusted for introductory airfares. It is assumed that Horizon will offer introductory fares for the first three to six months of service. In addition, the ramp-up is estimated to be slower than normal due to changing travel habits of the existing travelers. The total profit shortfall is expected to be $497,918 for the first year of service.

20 16 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Alternate Plan This application qualifies as a new project and meets the requirements of the Small Community Air Service Development Program. If Monterey Peninsula Airport fails to obtain Horizon service to Seattle, alternate carriers will be approached with the intent of obtaining nonstop service to an airport in the Pacific Northwest including Portland or Seattle. Alternate carrier service would fulfill the goals of this grant application. Previous Grant Recipient - New Project and Goals In 2005, the U.S. Department of Transportation awarded Monterey Peninsula Airport a Small Community Air Service Development Program grant. The 2005 grant included the following project goals: Successfully launch and expand new service Increase retention of the Monterey catchment area above the (then) current level of 27 percent Build Monterey Peninsula Airport s enplanements back to its pre September 11, 2001, levels Strategic Plan Air Service The U.S. Department of Transportation s portion of the project budget was awarded at $500,000 and included funding of a marketing program. The original request of the grant was $1,000,000 from the U.S. Department of Transportation. Where the previous application s goals were general in nature, e.g. marketing new and existing service at Monterey Peninsula Airport, this application s goals are specific: Establish new service to the Pacific Northwest Provide competitive pricing Reduce the need to drive to San Jose or San Francisco to access adequate air service As demonstrated, this application qualifies as a new project and meets the requirements of the Small Community Air Service Development Program.

21 17 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Strategic Plan Implementation and Funding This section contains: Description of the public-private partnership Designation of a legal sponsor Funding necessary for implementation of the Strategic Plan Sustainability of the project T his section, Strategic Plan - Implementation and Funding, provides the detailed incentive and support plan required to implement the Strategic Plan. A legal sponsor responsible for administering the program has been designated, and a public-private partnership has been formed to actively participate in implementing the proposed project. In addition, this section identifies selfsufficiency of the service as an integral part of the community s goals and provides a description of the community s plan to continue with the project if it is not selfsustaining after the grant award expires. A detailed description of the funding necessary for implementation of the Strategic Plan, including federal and nonfederal contributions, is included. Public-Private Partnership The Monterey Peninsula Airport District, the owner/sponsor of Monterey Peninsula Airport, has been designated as the sponsor of this grant application. For the purpose of this application, the Monterey Peninsula Airport District and the Monterey County Business Council have formed a public-private partnership (refer to community support letters in Appendix A). Collectively, the partnership is committed to completing the Strategic Plan outlined herein. Strategic Plan Implementation and Funding All partners in the public-private partnership will be fully involved in the execution of the Strategic Plan (Table 7.1). The Monterey Peninsula Airport District will execute all federal grant offers, process all associated reimbursement requests, and oversee grant administration. The Monterey Peninsula Airport District will also administer the revenue guarantee. The Monterey County Business Council will be responsible for administering the marketing campaign in conjunction with the Monterey Peninsula Airport and the airline. Together these partners form a team committed to improving air service at Monterey Peninsula Airport. TABLE 7.1 PUBLIC-PRIVATE PARTNER ROLES PUBLIC-PRIVATE PARTNER ROLE Monterey Peninsula Airport District Monterey County Business Council Grant and revenue guarantee administration and assist with the local marketing efforts Assist with local marketing efforts, coordination of the marketing program

22 18 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Incentive and Support Plan The current airline financial landscape with airlines is rough and the future is very uncertain. Accordingly, airlines are highly risk adverse requiring communities to partner with them to reduce risk. In this environment, community support packages have become increasingly important and virtually required for most new service to start today. To be effective, support packages must be structured to address the issues of new airline entry in the community and ensure that the market responds quickly. The public-private partnership proposes a community support package that has been tested and proven to be successful. To reduce Horizon/Alaska s breakeven period and offset the risk during start-up, the public-private partnership proposes the following incentives: Marketing campaign: create name and service awareness for Horizon/Alaska Revenue guarantee: reduce airline risk Landing fee waiver: reduce airline start-up costs EXHIBIT 7.1 INCENTIVE PLAN Strategic Plan Implementation and Funding > Revenue $ Funding U.S. DOT Airport Community > Fee waivers guarantee Airline Risk Mitigation Service initiation > Marketing Marketing Campaign Any marketing campaign must be targeted toward aggressive promotion of the service to make the new service successful and sustainable. The public-private partnership understands and agrees with the U.S. Department of Transportation that a thorough understanding of the target market is essential for the success of new air service. The partnership has created a targeted advertising and marketing campaign to support the launch and development of this new service. Elements included in this marketing campaign include:

23 19 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District TABLE 7.2 MARKETING BUDGET PUBLIC-PRIVATE PARTNER ROLE Radio $65,000 Print Advertising $59,000 Brochures & Distribution $6,650 Inaugural Event $1,500 Weekly Newsletter $10,400 Community Partners Advertising $54,250 Program administration $18,200 Total $215,000 It is anticipated that Horizon Air would require a $500,000 revenue guarantee to initiate service to Seattle. Radio advertising Print advertising (newspapers, magazines, etc) Color brochures and distribution Inaugural celebration and launch campaign Weekly E-newsletter by Airport Weekly E-newsletter by Monterey County Business Council Community partners advertising on their websites, , brochures and ads The target audience is business travelers and mid-to-upper income households and leisure travelers coming to the Monterey Peninsula area. Table 7.2 provides the marketing budget. The Airport has established an extensive partnership agreement with all media outlets. This $215,000 marketing campaign will be funded by non-airport sources ($55,000 cash and $85,000 in-kind) and Airport sources ($45,000 cash). The Monterey County Business Council will be responsible for oversight of the marketing campaign in conjunction with the Monterey Peninsula Airport and the airline. Revenue Guarantee To reduce airline risk and provide incentive to Horizon/Alaska to provide nonstop service to Seattle, this Strategic Plan includes a revenue guarantee as part of the community support package. Although pro forma projections for Seattle service is positive (Appendix B), service ramp-up and breakeven can take up to 12 months, particularly in a market with significant barriers-to-entry. It is anticipated that Horizon would require a $500,000 revenue guarantee to initiate service to Seattle. Exact terms of the revenue guarantee agreement are subject to further discussions and negotiation. Strategic Plan Implementation and Funding Landing Fee Waiver The air service support program includes a landing fee waiver. As part of the Airport s standard rates and charges, signatory airlines are charged a landing fee assessed at $1.60 per 1,000 pounds of gross landed weight. The Airport will waive landing fees for the first 12 months of new service to a westbound hub. Landing fees for the first 12 months are estimated at $36,100 assuming the use of the Bombardier Q400 with one roundtrip daily. The landing fee waiver may vary depending on aircraft type used and the number of roundtrips offered. Project Continuation and Sustainability Based on the positive pro forma projections for Horizon service to Seattle, it is anticipated that service to the Pacific Northwest will be self-sustaining after the

24 20 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District start-up period which can take up to 12 months or more. As service failure is often due to the lack of awareness in the community, the public-private partnership will fund an additional $105,000 marketing campaign ($45,000 cash, $60,000 in-kind contributions) if a minimum load factor of 60 percent is not achieved on average after the first 12 months of service (this includes the ramp-up period). The Monterey business community and the public-private partnership understand the economic importance of this project to the region and the challenges associated with profitably operating air service to the Monterey market and will work to ensure its long-term success. Strategic Plan Funding The public-private partnership is requesting U.S. Department of Transportation assistance in funding 65 percent, or $500,000, of the Strategic Plan. Specifically, U.S. Department of Transportation funding will be used to fund the revenue guarantee. All other elements including the marketing campaign and fee waivers will be funded by the community. Table 7.3 provides the Strategic Plan budget by element and sources of funding. The Airport and community will fund 35 percent of the total proposed air service program. Non-airport funding sources will provide nine percent of the cash requirement and 18 percent of the funding for the total program including in-kind services. Strategic Plan Implementation and Funding TABLE 7.3 STRATEGIC PLAN BUDGET FUNDING SOURCE US DOT AIRPORT NON-AIRPORT IN- IN- DESCRIPTION CASH CASH KIND CASH KIND TOTAL Airline incentive program: Marketing campaign $45,000 $30,000 $55,000 $85,000 $215,000 Revenue guarantee $500,000 $500,000 Fee waivers $36,000 $36,000 Monitoring program $22,000 $22,000 Total $500,000 $67,000 $66,000 $55,000 $85,000 $773,000 Percent of total project 65% 9% 8% 7% 11% 100% Percent of cash contribution 80% 11% N/A 9% N/A 100%

25 21 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Schedule and Monitoring This section contains: How the community will monitor the progress of the project The plan/schedule for timely completion of the project T he public-private partnership has developed a realistic timetable to achieve the goals of this proposal. This section provides critical milestones to be achieved by the public-private partnership to timely execute this air service initiative. A monitoring program is also provided to track the progress of the project. Milestones for Timely Completion of Project Schedule and Monitoring The following target dates are proposed to track the progress of this air service initiative: TABLE 8.1 STRATEGIC PLAN SCHEDULE DATE ACTION ITEM DESCRIPTION February 1, 2010 Marketing campaign development Development of the marketing campaign will be completed in February 2010 in order to begin the marketing campaign 60 days prior to new service initiation. March 1, 2010 Marketing initiation It is anticipated that the marketing campaign will begin by March 2010 and continue throughout the first year of new service. The service start date is the critical date for the rest of the Strategic Plan. It is anticipated that Horizon will initiate May 1, nonstop Seattle service in May Air Service initiation 2010 service initiation is dependent on airline route planning, economics and availability of right-sized aircraft for the Monterey market. If Horizon has not implemented nonstop Seattle service by December 31, 2010, December 31, Monterey Peninsula Airport will contact Alternate plan 2010 other airlines for service to the Pacific Northwest, which would meet the goals of this grant application. At the end of the first year of service, the revenue guarantee will be calculated. If April 30, Revenue guarantee the service start date changes, the revenue 2011 contract completion guarantee contract term will change accordingly.

26 22 Proposal under the Small Community Air Service Development Program Monterey Peninsula Airport District Strategic Plan Monitoring Program The monitoring program includes service performance tracking, assessing the effectiveness of the marketing campaign, impact on airfares, and determining the influence of Pacific Northwest service on retention at the Airport. Table 8.2 provides the action items and frequency to monitor the Strategic Plan. TABLE 8.2 STRATEGIC PLAN MONITORING FREQUENCY ACTION ITEM DESCRIPTION Airfares Track published airfares via one of the Global Distribution/Computer Reservations Systems (GDS/CRS) or airline websites. Monthly Load factors, enplanements, Airline performance departures Market performance Passenger ramp-up Revenue guarantee indicators Ticket revenue, cost, drawdown Quarterly Airfares Compare U.S. Department of Transportation airline reported average airfares on a quarterly basis, when available, to prior quarters. 9 Months Program assessment Complete an overall assessment of the program to determine if additional community support is needed beyond one year. Conduct a follow-up true market estimate to determine changes in passenger diversion after the first 12 months of service. By 12 Months comparing to the true market Passenger Demand estimate conducted prior to service Analysis initiation, the true market estimate will determine the impact of the air service improvements on retention/diversion at Monterey Peninsula Airport. Schedule and Monitoring