Northwest Arkansas Regional Airport Authority Bentonville, Arkansas

Transcription

1 Northwest Arkansas Regional Airport Authority Bentonville, Arkansas Proposal under the Small Community Air Service Development Program Docket DOT-OST Northwest Arkansas Regional Airport is the primary airport serving the communities of Fayetteville, Springdale, Rogers and Bentonville. Fayetteville is home to the University of Arkansas; Donald W. Reynolds Razorback Staium is pictured above. Dun & Bradstreet DUNS Number: Tax Identification Number: Two Digit Congressional District Code: 03 June 11, 2012

2 TABLE OF CONTENTS INTRODUCTORY LETTER... 3 EXECUTIVE SUMMARY... 4 AIR SERVICE OVERVIEW... 5 Catchment Area and Alternate Airports... 5 Existing Air Service... 6 Air Service Development Efforts... 7 AIR SERVCE DEVELOPMENT NEEDS AND DEFICIENCIES... 9 Capacity Trends... 9 Traffic Trends Leakage to Other Airports in the Region Domestic Fare Trends Domestic Fares Versus Domestic Fares at Other Airports in the Lower 48 United States Domestic Fares Versus Other Airports in the Region STRATEGIC PLAN Revenue Guarantee for Low-Cost Carrier Service Goals Grant Amendments/Alternate Strategies PROJECT IMPLEMENTATION, MONITORING AND FUNDING Public / Private Partnerships Project Funding Proposed Implementation Timeline PROJECT MONITORING AND FINANCIAL CONTROL Success Metrics Legal Sponsor Financial Controls APPENDIX A: REQUIRED SUMMARY INFORMATION

3 INTRODUCTORY LETTER 3

4 EXECUTIVE SUMMARY Northwest Arkansas Regional Airport is proposing a Small Community Air Service Development Grant in the amount of $1,000,000 to supplement a community-based cash contribution of $100,000, airport cash funding of $200,000, community in-kind contributions of $50,000 and airport in-kind incentives valued at $625,052 to provide a minimum revenue guarantee for service at Northwest Arkansas Regional Airport by a low-cost carrier. The average domestic fare at Northwest Arkansas Regional Airport was among the highest of all airports in the Lower 48 United States, but the average domestic fare is especially high among Northwest Arkansas Regional Airport's peer group airports airports generating at least 100,000 domestic origin and destination passengers in Although Allegiant Air serves Northwest Arkansas, the service is limited to less-than-daily point-to-point service to Las Vegas, Los Angeles and Orlando/Sanford. Although Allegiant's fares are lower than the fares offered by the network carriers to these destinations, Allegiant's service does not provide for connections beyond the destinations, and Allegiant's pricing in Northwest Arkansas does not have a competitve impact on the pricing strategies of American, Delta, United or US Airways at Northwest Arkansas. The communities served by Northwest Arkansas Regional Airport are relatively isolated, with the closest low-cost carrier service available in Tulsa and Little Rock (and to a lessor extent at Branson). The network carriers serving Northwest Arkansas do not price fares based on fares at either Tulsa or Little Rock, where pricing by both Southwest and Frontier is matched by the network carriers at these airports. In 2011, ex-allegiant airline capacity at Northwest Arkansas Regional Airport was down 25.6% since it peaked in 2005, and ex-allegiant traffic was down 17.9% since it peaked in Even when the impact of Allegiant is considered, capacity is down 22.8% since 2005, and domestic traffic is down 7.6% since Based on a leakage study completed in June 2011, slightly more than one-fifth of the traffic generated in the primary catchment area of Northwest Arkansas Regional Airport is lost to other airports in the region, with the airport in Tulsa capturing approximately 12% of the traffic and the airport in Little Rock capturing 6% of the traffic. Service by a low-cost carrier with a network of destinations beyond the hub or focus city the carrier would serve nonstop from Northwest Arkansas, would likely generate a competitive pricing response from the four network carriers serving Northwest Arkansas and result in lower fares in the competitive markets. 4

5 AIR SERVICE OVERVIEW Catchment Area and Alternate Airports The Fayetteville-Springdale-Rogers Metropolitan Statistical Area is considered as the primary catchment area for Northwest Arkansas Regional Airport, where most of the airport's traffic either originates or is destined, but the airport also draws some traffic from more rural areas in Arkansas, Missouri and Oklahoma. The July 1, 2011, Census Bureau population estimate of the Fayetteville-Springdale-Rogers metropolitan statistical area was 473,830 residents; the population of the metropolitan statistical area grew 35.5% since 2000 from 349,562 residents. Other airports with commercial airline service in the region are located in Tulsa, Little Rock, Fort Smith, Springfield, Joplin, and Branson. The airport in Joplin is the closest airport to Northwest Arkansas at 74 miles; the airport in Little Rock is the furthest at 218 miles. Exhibit 1: 60- and 120-Minute Drive Times from Northwest Arkansas Regional Airport and the Location of Alternate Airports in the Region Airport Location Road Miles from XNA Drive Time from XNA JLN 74 1:26 FSM 83 1:26 BKG 97 2:17 TUL 101 1:47 SGF 111 2:25 LIT 218 3:28 Based on Mapquest.com airport-to-airport calculations 5

6 Existing Air Service Northwest Arkansas is served by five airlines American, Delta, United, US Airways and Allegiant -- to 16 nonstop destinations. With the exception of Allegiant's three destinations, all of Northwest Arkansas' service is to major airline hubs or focus cities where connections can be made to other destinations in the airline networks. Also with the exception of the Allegiant service, none of the so-called low-cost carriers, including Southwest (or AirTran), JetBlue, Frontier, Spirit or Virgin America, serve Northwest Arkansas. Although Allegiant offers low fares to Las Vegas, Los Angeles and Orlando/Sanford, Allegiant's service does not provide connections to a larger network of cities as the other low-cost carriers typically offer via connections at their hubs or focus cities. Exhibit 2: Current Routes Operated by Carrier from Northwest Arkansas Regional Airport The number of departures per day, average seats per departure and seats per day by market and by carrier scheduled in August 2012 are displayed in Exhibit 3. With 42.7% of total capacity, American operates more capacity at Northwest Arkansas than any other carrier. Delta operates 26.5% of the capacity, United is the third largest carrier in terms of capacity, with 16.2%, and US Airways operates 7.9% of the capacity. Collectively, 6

7 American and Delta control more than two-thirds of the airport's total capacity, and the four network carriers operate 93.4% of the total capacity at the airport. Allegiant's less-than-daily service to Las Vegas, Los Angeles and Orlando/Sanford generates just 6.6% of the total capacity, although Allegiant's capacity can vary lower or higher depending on the time of year. Exhibit 3: Departures per Day*, Seats per Departure and Seats per Day by Market and Carrier at Northwest Arkansas August 2012 (OAG Data as of May 23, 2012) Departures per Day Seats per Departure Seats per Day % of Total Capacity American DFW % LGA 2 1/ % ORD 6 5/ % Total 16 6/7 61 1, % Delta ATL 6 4/ % CVG 6/ % DTW % MEM 1 6/ % MSP 1 6/ % Total 12 1/ % United/Continental DEN 1 2/ % EWR % IAH 2 6/ % ORD 2 5/ % Total 7 6/ % US Airways CLT 2 5/ % DCA 6/ % Total 3 5/ % Network Carrier Total 40 4/7 56 2, % Allegiant LAS 2/ % LAX 2/ % SFB 3/ % Total % Grand Total 41 4/7 58 2, % * The number of departures per day is displayed in increments of sevenths (because there are seven days in a week). "1 5/7" is read as one flight seven days a week with a second flight operated five of the seven days in a week. Air Service Development Efforts Although Northwest Arkansas Regional Airport has relatively good service operated by the four network carriers serving the market to major hubs and focus cities, there is no low-cost carrier service at the airport and virtually no pricing competition among the network carriers serving Northwest Arkansas. The first priority of the airport and the community is, therefore, to obtain service on a low-cost carrier, but the airport is taking a two-pronged 7

8 approach by aggressively pursuing both service from a low-cost carrier and service from incumbent airlines to destinations not currently served by the network carriers. Airport management has met with both low-cost carriers and network carriers over the past 12 months to discuss the performance of existing service at Northwest Arkansas and potential new service from the network carriers and new service from low cost carriers. These discussions have helped shape the strategy to develop Northwest Arkansas Regional Airport's air service development objectives. The basic message communicated from the network carriers regarding their pricing strategies in the market is they charge what they believe the market will bear and they are satisfied with current levels of profitability. The low-cost carriers believe traffic could be stimulated with lower fares, but their level of confidence in the market would increase if the airport and community could provide a revenue guarantee. 8

9 Seats per Day Each Way AIR SERVCE DEVELOPMENT NEEDS AND DEFICIENCIES Capacity Trends Northwest Arkansas' total capacity (to include network carriers and Allegiant), measured in terms of seats per day each way, is down 22.8% since Also since 2005, Northwest Arkansas has lost slightly more than onefourth or 25.6% of its ex-allegiant capacity. The ex-allegiant capacity reduction is the result of discontinued service to Los Angeles, St. Louis, Miami, Raleigh/Durham and Salt Lake City, substitutions of regional jets for mainline equipment in markets such as Chicago and Memphis and combinations of fewer frequencies and/or the use of smaller regional jet aircraft in markets served from Northwest Arkansas. With the exception of Allegiant's limited less-than-daily service to Las Vegas, Los Angeles and Orlando/Sanford beginning in 2009, Northwest Arkansas has never been served by a low-cost carrier, and Allegiant provides only point-to-point service to the three destinations it serves from Northwest Arkansas. Exhibit 4: Seats per Day Each Way at Northwest Arkansas Regional Airport (Ex-Allegiant and Allegiant) Year-End Fourth Quarter (DOT T-100 data) Ex-Allegiant Seats per Day Each Way Allegiant Seats per Day Each Way 3,000 2,752 2,500 2,177 2,511 2,436 2,537 2,516 2,414 2,271 2,047 2,000 1,725 1,500 1, This Section Continued on Next Page 9

10 Seats per Day Each Way Exhibit 5 illustrates that American, Delta and United/Continental have reduced capacity at Northwest Arkansas since American's capacity is down 30.3%, Delta's capacity is down 33.3%, and the combined capacity of United and Continental is down 4.8%. The capacity of US Airways is up 7.9%. Exhibit 5: Seats per Day Each Way by Carrier at Northwest Arkansas Regional Airport Year-End Fourth Quarter (DOT T-100 data) 3,000 American Delta/Northwest United/Continental US Airways Allegiant 120 2,500 2,000 1, , ,076 1,091 1,295 1,207 1,258 1,276 1,160 1, This Section Continued on Next Page 10

11 Traffic Trends While Northwest Arkansas' capacity peaked in 2005, traffic peaked in 2006 at approximately 1,091,000 annual origin and destination (O&D) passengers. Since the peak in 2006, total traffic is down 5.4%, but the decline in total traffic is masked by Allegiant entering the market in 2009 and international traffic increasing 22.8%. Domestic ex-allegiant traffic, which generated approximately 80% the total traffic in 2011 at Northwest Arkansas, is down 17.9% since Exhibit 6: Annual Domestic and International Origin and Destination (O&D) Passengers at Northwest Arkansas Regional Airport Year-End Fourth Quarter (DB1B data) Annual Domestic O&D (Ex-Allegiant) Annual Domestic O&D (Allegiant) Annual International O&D 1,200,000 1,000, , ,320 64,330 1,082,450 1,090,880 1,083,740 75,350 81,680 84,380 1,042,330 86,480 1,046,870 1,004,670 98,120 87,130 37,690 91,460 1,032, , , , ,760 51,210 41, , , , , ,990 1,007,100 1,009, , , , , , , This Section Continued on Next Page 11

12 When Northwest Arkansas' annual O&D data is translated to passengers per day each way (PDEW), ex-allegiant domestic traffic is down 247 PDEW from 1,382 PDEW in 2006 to 1,135 PDEW in 2011; international traffic is up 25 PDEW from 112 PDEW in 2006 to 137 PDEW in 2011, Allegiant generated 142 PDEW in 2011 (versus none in 2006), and total traffic is down 80 PDEW from 1,494 PDEW in 2006 to 1,414 PDEW in Exhibit 7: Annual Domestic and International Passengers per Day Each Way (PDEW) at Northwest Arkansas Regional Airport Year-End Fourth Quarter (DB1B data) Domestic PDEW (Ex-Allegiant) Domestic PDEW (Allegiant) International PDEW 1,750 1,500 1,250 1,115 1, ,483 1,494 1, , ,376 1,434 1, , , ,205 1,380 1,382 1,369 1,306 1,205 1,174 1, ,

13 Leakage to Other Airports in the Region Despite having no airport within a two hour drive of Northwest Arkansas Regional Airport with low-cost carrier service, a leakage study of 2010 traffic completely in June 2011 revealed slightly more than 20% of the traffic generated within the primary catchment area of the Northwest Arkansas Regional Airport is lost to other airports in the region. The airport in Tulsa captured 12.4% of the traffic, and the airport in Little Rock captured 5.7% of the traffic generated in the catchment area of Northwest Arkansas Regional Airport (the remaining traffic was lost to the airports in Fort Smith, Springfield, Branson and Joplin). Exhibit 8: Airport Origin for Northwest Arkansas Catchment Area Traffic January 2010 December 2010 (June 2011 Leakage Study Data) 12.4% 79.1% 5.7% The high percentage of traffic leaked to the airports in Tulsa and Little Rock is not surprising given the high fares at Northwest Arkansas Regional Airport, the lack of low-cost carrier service at the airport, and the service by Southwest in Tulsa and Southwest and Frontier in Little Rock. Based on the data collected in the June 2011 leakage study, the average fare (domestic and international) paid at Northwest Arkansas was $259 each way 13

14 versus $191 at Tulsa and $202 at Little Rock. The fare paid by travelers using Northwest Arkansas was 35.6% higher versus Tulsa and 28.2% higher versus the average fare paid at Little Rock. Exhibit 9: Average Fare Paid by Northwest Arkansas Catchment Area Passengers by Originating Airport January 2010 through December 2010 (June 2011 Leakage Study Data) Northwest Arkansas $259 Tulsa $191 Little Rock $202 Other $181 $0 $50 $100 $150 $200 $250 $300 Average One-Way Fare 14

15 Seats and Passengers per Day Each Way Average One-Way Fare Domestic Fare Trends As airlines have cut capacity in Northwest Arkansas since 2005, fares have increased. Since Northwest Arkansas' capacity peaked in 2005 at 2,752 seats per day each way, the average domestic fare for all domestic traffic, including Allegiant traffic, increased $67 each way or 36.4% to $250 each way. This increase came as Northwest Arkansas' capacity fell 22.8% and traffic fell 7.5%. Exhibit 10: Passengers per Day Each Way (PDEW), Seats per Day Each Way and Average Domestic One-Way Fare at Northwest Arkansas Regional Airport Year-End Fourth Quarter (DOT T-100 and DB1B Data All Carriers) Seats per Day Each Way (All Carriers) Domestic PDEW (All Carriers) One-Way Domestic Fare (All Carriers) 3,000 2,752 $300 2,500 2,177 2,511 2,436 2,537 2,516 $236 2,443 2,340 $250 $250 2,000 1,500 1,725 $203 $198 1,380 $208 $211 $199 $225 2,124 $200 1,000 $ ,045 1,205 $183 1,382 1,369 1,306 1,257 1,300 1,277 $ $100 This Section Continued on Next Page 15

16 Average One-Way Domestic Fare While the average domestic fare for all carriers serving Northwest Arkansas increased 36.4% from $183 to $250 since 2005, the difference in the domestic fare increase is even more profound when the Allegiant fare data is segregated from ex-allegiant domestic fare data. When the Allegiant data is excluded, the average fare increased $86 or 47.2% from $183 to $269 each way, exclusive of any taxes or fees. Exhibit 11: Average One-Way Domestic Fare at Northwest Arkansas Regional Airport Year-End Fourth Quarter (DOT DB1B data) $300 Domestic Fare (All Carriers) Domestic Fare (Ex-Allegiant) Domestic Fare (Allegiant) $269 $250 $200 $194 $203 $198 $183 $208 $211 $236 $204 $199 $241 $225 $250 $150 $100 $76 $81 $95 $50 $

17 Average One-Way Domestic Fare Domestic Fares Versus Domestic Fares at Other Airports in the Lower 48 United States The average domestic fare at the average Lower 48 airport in 2011 was $171 in The average domestic fare at Northwest Arkansas Regional Airport is significantly higher than the average domestic fare at most other Lower 48 airports in the United States. In 2011, the average domestic fare at Northwest Arkansas for all carriers was $250 and $269 when Allegiant fares are excluded. The average fare of $250 at Northwest Arkansas (to include Allegiant) was 46.4% higher, and the average fare of $269 at Northwest Arkansas (to exclude Allegiant) was 57.7% higher than the average fare at the average Lower 48 airport in Exhibit 12: Average Domestic Fare at Northwest Arkansas Versus the Average Lower 48 Airport Year-End Fourth Quarter (DB1B data) XNA Domestic Fare (All Carriers) Average Lower 48 Airport Domestic Fare (All Carriers) XNA Domestic Fare (Ex-Allegiant) $300 $269 $250 $200 $150 $194 $203 $136 $138 $198 $183 $134 $136 $208 $211 $149 $149 $236 $159 $204 $199 $143 $241 $225 $157 $250 $171 $100 $50 $ This Section Continued on Next Page 17

18 Not only did Northwest Arkansas have high fares relative to the average Lower 48 airport, the average domestic fare of $250 at Northwest Arkansas, to include Allegiant data, ranked as the 11th highest fare among all lower 48 airports with at least 100,000 origin and destination passengers in While Northwest Arkansas Regional Airport generated the 11th highest domestic fare among Lower 48 airports with at least 100,000 origin and destination passengers in 2011 when Allegiant data is included, the airport's domestic fare of $269 ranks as the 6th highest domestic fare when Allegiant data is excluded. Only Minot, Columbus (Georgia), Bismarck, Idaho Falls and LaCrosse generated a higher average domestic ex-allegiant fare than Northwest Arkansas in Exhibit 13: Origin and Destination Passengers, Passengers per Day Each Way (PDEW) and Average Domestic Fare at the 25 Highest Fare Airports with at Least 100,000 Domestic O&D Passengers in 2011 (DB1B data) Including Allegiant Traffic/Revenue Excluding Allegiant Traffic/Revenue Domestic O&D Domestic Domestic Domestic O&D Domestic Domestic Rank Market Passengers PDEW Fare Rank Market Passengers PDEW Fare 1 Columbus, GA 115, $308 1 Minot 222, $330 2 Minot 279, $288 2 Columbus, GA 115, $308 3 LaCrosse 169, $270 3 Bismarck 289, $287 4 Killeen 332, $257 4 Idaho Falls 191, $273 5 Alexandria 242, $257 5 La Crosse 169, $270 6 Lawton 112, $255 6 Northwest Arkansas 828,430 1,135 $269 7 Abilene 144, $254 7 Shreveport 416, $268 8 Yuma 134, $253 8 Grand Forks 150, $266 9 Shreveport 461, $252 9 Laredo 129, $ Bismarck 366, $ Killeen 332, $ Northwest Arkansas 931,880 1,277 $ Alexandria 242, $ Kalamazoo 209, $ Lawton 112, $ Aspen 364, $ Abilene 144, $ Lake Charles 110, $ Yuma 134, $ Fort Smith 152, $ Springfield, MO 434, $ Brownsville 140, $ Casper 120, $ Columbia, SC 844,710 1,157 $ Kalamazoo 209, $ Mobile 497, $ Great Falls 229, $ Jackson Hole 496, $ Aspen 364, $ Lafayette 376, $ Cedar Rapids 592, $ Evansville 286, $ Lake Charles 110, $ Montgomery 332, $ Rapid City 406, $ Monroe 188, $ Fargo 491, $ Helena 182, $ Fort Smith 152, $ Vail 341, $ Brownsville 140, $236 18

19 Average Domestic One-Way Fare Domestic Fares Versus Other Airports in the Region As illustrated in Exhibits 12 and 13, Northwest Arkansas' domestic fares are high relative to the average Lower 48 airport, but the fares are also high relative to the other airports in the region both when the impact of Allegiant is included in fare calculations and when Allegiant's impact is not included. The average domestic fare in 2011 for all carriers for Northwest Arkansas, Fort Smith, Springfield, Joplin, Tulsa, Little Rock and Branson was $198 compared to the average fare of $250 in Northwest Arkansas. While $198 was the average domestic fare for all airports and carriers in the region, the average domestic fares at Tulsa and Little Rock were even lower, with Tulsa at $188 and Little Rock at $186. The new airport in Branson has also begun to emerge as a viable option for low-cost service for travelers in Northwest Arkansas. Although it is located 97 miles from Northwest Arkansas Regional Airport, and the drive time is over two hours, affordable fares are available on low-cost carriers at Branson. Both AirTran and Frontier are low-cost carriers serving Branson. The average domestic fare at Branson in 2011 was just $130. Exhibit 14: Average Domestic Fare at Northwest Arkansas Regional Airport Versus Other Airports in the Region Year-End Fourth Quarter (DB1B data) $300 Average Domestic Fare (All Carriers) Average Domestic Fare (Ex-Allegiant) $269 $250 $250 $238 $252 $200 $206 $203 $198 $197 $188 $186 $150 $130 $100 $50 $0 XNA FSM SGF Average JLN TUL LIT BKG 19

20 STRATEGIC PLAN Revenue Guarantee for Low-Cost Carrier Service Northwest Arkansas Regional Airport believes the most effective and efficient way to reduce fares, increase traffic and reduce the number of passengers leaking to other airports is to recruit a low-cost carrier to the community. While Northwest Arkansas has service to multiple network carrier hubs and focus cities, the network carriers are not competing on price, and the network carriers have not demonstrated a willingness to stimulate traffic at Northwest Arkansas Regional Airport with lower fare structures. Service by a low-cost carrier in Northwest Arkansas would effectively force the network carriers to match the fare structure of the low-cost carrier resulting in more traffic and a reversal in fare trends. In today's environment, low-cost carriers generally require a community to share the risk of new service by providing incentives such as low long-term airport operating costs, waived fees for a minimum of two years, and revenue guarantees of varying amounts. Air service development is becoming increasingly competitive among airports as fewer airlines and relatively flat airline industry capacity growth has caused most airports in the United States to understand the need for low operating costs and implement incentive programs offering waived fees as incentives for new and/or expanded airline capacity. The playing field for waived fees is now essentially level, and all airports serious about developing and enhancing their air service offer waived fee incentives satisfactory to most airlines. The ability for airports and communities to offer funds to support a minimum revenue guarantee is not as widespread simply because raising the amount of funding required to meet an airline's minimum revenue guarantee threshold can be daunting. Airports and communities that have both incentives of waived fees and minimum revenue guarantee funding have a tremendous advantage over airports and communities without minimum revenue guarantee funding. Goals Northwest Arkansas Regional Airport has three goals for the proposed project to recruit a low-cost carrier to the community. Lower fares to both the nonstop market and the connecting markets served by the low-cost carrier. Reverse the decline in Northwest Arkansas' origin and destination traffic. Recapture catchment area traffic leaked to other airports. 20

21 Grant Amendments/Alternate Strategies Northwest Arkansas Regional Airport's primary air service development goal is to attract a low-cost carrier to serve the Northwest Arkansas market. If the Department awards Northwest Arkansas Regional Airport a grant for the proposed low-cost carrier service, but the community is not successful in recruiting a low-cost carrier to operate at Northwest Arkansas Regional Airport, the airport and the community may request the Department consider redirecting award funding to assist in recruiting other service. In addition to a lack of low-cost carrier service, the airport and the community have also identified hubs and focus cities without service from Northwest Arkansas that have been targeted for network carrier service by the carriers currently serving Northwest Arkansas. The combinations of destinations and carriers include Los Angeles on American, United or Delta; San Francisco on United; Salt Lake City on Delta; Phoenix on US Airways; Miami on American; Washington Dulles on United; Philadelphia on US Airways and New York JFK on Delta. PROJECT IMPLEMENTATION, MONITORING AND FUNDING Public / Private Partnerships The airport, local governments and business organizations in the region understand the importance of affordable air fares, and the relationship between air fare affordability and economic growth. Based on this recognition and awareness, the three groups meet on a regular basis to discuss potential solutions to the unreasonably high fares charged by the carriers currently providing service in Northwest Arkansas. Including the Airport Authority, there are ten agencies and organizations partnering to improve air service in Northwest Arkansas. Northwest Arkansas Regional Airport Authority Arkansas Economic Development Commission Bentonville-Bella Vista Chamber of Commerce Fayetteville Chamber of Commerce Rogers-Lowell Area Chamber of Commerce Siloam Springs Chamber of Commerce Springdale Chamber of Commerce Regional Chamber of Commerce Eureka Springs Chamber of Commerce Northwest Arkansas Council 21

22 Project Funding In addition to the Small Community Air Service Development Grant of $1,000,000 requested from the Department, organizations in the community are willing to provide cash of $100,000 and in-kind funding valued at $50,000 for local media company advertising placement. The airport will provide cash of $200,000 for marketing and estimates the value of its in-kind contributions from waived fees at $625,052 over the two-year life of the project. The total value of cash and in-kind contributions from the community and the airport is valued at $975,052 or 49.4% of the total project cost of $1,975,052. Exhibit 15: Summary of Sources and Types of Project Funding Funding Source Grant Cash In-Kind Total Department of Transportation $1,000,000 $1,000,000 Community $100,000 $50,000 $150,000 Airport $200,000 $625,052 $825,052 Total $1,000,000 $300,000 $675,052 $1,975,052 22

23 Proposed Implementation Timeline The proposed implementation timeline for the project assumes the Department will award Small Community Grant Funding sometime in July or August Once the award is announced, Northwest Arkansas Regional Airport will advise airlines of the grant award. Based on airline planning lead times and the need for advance bookings, we assume no airline would begin service until sometime in 2013, and we have conservatively assumed the service could not begin until September The first two milestones on the Airport's timeline are to execute the grant agreement with the Department and to negotiate the minimum revenue guarantee agreement with the airline. Once service is announced and schedules are published, the airline, the Airport and the community would begin marketing the new route and working with the airline to monitor advance bookings. The Airport will continue its marketing program and continue to work with the airline to monitor the route once service begins. The Airport will submit grant status reports on a quarterly basis to the Department throughout the proposed two-year term of the minimum revenue guarantee. Exhibit 16: Proposed Project Timeline Activity/Project Milestone Estimated Dates SCASD Grant Award Announcement August 2012 Execute Grant Agreement with DOT September/October 2012 Airline Meetings November March 2013 Announce Service April 2013 Publish Schedule April 2013 Market Route (Pre-Launch) April-August 2013 Monitor Advance Bookings April-August 2013 Adjust Marketing Plan Based on Advance Bookings April-August 2012 Begin Service September 2013 Market Route (Post-Launch) September 2013 and Beyond Operate Service with MRG September August 2015 Monitor Route Performance Sepetmber August 2015 and Beyond Submit Grant Status Reports to DOT Quarterly 3Q Q

24 PROJECT MONITORING AND FINANCIAL CONTROL Success Metrics The ultimate success of the program will be based on the community's ability to attract a low-cost airline to serve the community, a subsequent decline in fares in the markets served by the airline, an increase in traffic at the airport and a reduction in the amount of total traffic generated in the primary catchment area leaking to other airports in the region. The Airport will continuously monitor the performance of the new service. Even before service begins, we will communicate with the airline on a weekly basis to monitor advance bookings and weekover-week advance bookings. Marketing and promotional activities can be adjusted if advance bookings are weak or are not booking at a rate satisfactory to the airline. Exhibit 17: Project Goals and Success Metrics Project Goals Lower fares to both the nonstop market and the connecting markets served by the lowcost carrier. Reverse the decline in Northwest Arkansas' origin and destination traffic. Recapture catchment area traffic leaked to other airports. Success Metric Quarterly year-over-year declines in fares for the markets served by the carrier. Increased quarterly year-over-year origin and destination traffic. Less leakage to Tulsa and Little Rock. Once service begins, the Airport will rely on traffic and revenue data provided directly by the airline and the amount of reimbursements requested by the airline as indications of project success. T-100 data and DB1B data will also be analyzed to compare year-over-year market size growth on a quarterly basis. In addition, the airport will analyze leakage once the service has operated for a full year to determine the trend in leakage to other airports. The Airport will report its success metrics in the quarterly grant reports to the Department. Legal Sponsor The Northwest Arkansas Regional Airport Authority is the legal sponsor responsible for administering the program, and the Northwest Arkansas Regional Airport Authority is a government entity. Northwest Arkansas Regional Airport Authority Kelly L. Johnson Airport Director Northwest Arkansas Regional Airport Alice L. Walton Terminal Building One Airport Blvd. Suite 100 Bentonville, AR

25 Financial Controls As the sponsor, Northwest Arkansas Regional Airport Authority and its governing body, Northwest Arkansas Regional Airport Authority Board, will be the responsible parties for all fiscal matters and the Department's reporting requirements. The Airport Authority Board is established as a public governing body. As a public entity, the Department can be assured that proper financial controls are in place to guarantee that the Department s Grant will be used in accordance with any subsequent agreement. The Northwest Arkansas Regional Airport Authority Board understands that the Grant is a reimbursable grant, meaning the Airport is responsible for program expenditures and will submit invoices to the Department for reimbursement, based on a percentage of the total grant request. 25

26 APPENDIX A: REQUIRED SUMMARY INFORMATION A. Applicant Information Not a Consortium Interstate Consortium Intrastate Consortium Community now receives EAS subsidy Community (or Consortium member) previously received a Small Community Grant If previous recipient: Date of Grant: Expiration Date of Grant: B. Public/Private Partnerships Public 1. Northwest Arkansas Regional Airport Authority 2. Arkansas Economic Development Commission 3. Bentonville-Bella Vista Chamber of Commerce 4. Fayetteville Chamber of Commerce 5. Rogers-Lowell Area Chamber of Commerce 6. Siloam Springs Chamber of Commerce 7. Springdale Chamber of Commerce 8. Regional Chamber of Commerce 9. Eureka Springs Chamber of Commerce 10. Northwest Arkansas Council 26

27 C. Project Proposal Marketing Upgrade Aircraft New Route Travel Bank Service Restoration Subsidy Surface Transportation Regional Service Revenue Guarantee Launch New Carrier Start-up Cost Offset First Service Study Secure Additional Service Other (explain below) D. Existing Landing Aids at Local Airport Full ILS Outer/Middle Marker Published Instrument Approach Localizer Other (specify) E. Project Cost Line Description Sub Total Total Amount 1 Federal amount requested $1,000,000 2 State cash financial contribution Local cash financial contribution 3a Airport cash funds $200,000 3b Non-airport cash funds $100,000 3 Total local cash funds (3a + 3b): $300,000 4 TOTAL CASH FUNDING ( ): $1,300,000 In-Kind contribution 5a Airport in-kind contribution** $625,052 5b Other in-kind contribution** $50,000 5 TOTAL IN-KIND CONTRIBUTION (5a + 5b): $675,052 6 TOTAL PROJECT COST (4 + 5): $1,975,052 27

28 F. In-Kind Contributions** For funds in lines 5a (Airport In-Kind contribution) and 5b (Other In-Kind contribution), please describe the source(s) of fund(s) for each. (5a) Northwest Arkansas Regional Airport will waive landing fees and terminal rent for the first two years of service by a low-cost carrier. The value of landing fees assumes two daily flights operated with a or similar size aircraft and is based on the signatory landing fee of $1.89 per 1,000 pounds. (5b) Communitybased in-kind contribution, valued at $50,000 over the two-year life of the project, is for placement of marketing and advertising. G. Is this application subject to review by state under Executive Order Process? a. This application was made available to the State under the Executive Order Process for review on (date): b. Program is subject to E.O , but has not been selected by the State for review. c. Program is not covered by E.O H. Is this applicant delinquent on any federal debt? No Yes (explain) 28