Small Community Air Service Development Grant Program

Transcription

1 Application Under The Small Community Air Service Development Grant Program DOCKET OST DUNS # Congressional District # ME 02

2 Small Community Air Service Development Grant 2 Table of Contents EXECUTIVE SUMMARY... 3 THE AIR SERVICE DEFICIENCY... 5 A GRANT WILL ASSIST IN ADDRESSING THESE DEFICIENCIES... 6 THIS GRANT WILL RE-OPEN ACCESS FOR BANGOR... 6 THE BANGOR MARKET... 8 AREA OF AIR SERVICE INFLUENCE... 8 BANGOR AIR SERVICE... 9 MAJOR DEFICIENCIES IN CAPACITY & IN NETWORK ACCESS...11 LACK OF CAPACITY IS THE #1 DEFICIENCY...12 LACK OF CAPACITY CREATES THE #2 DEFICIENCY HIGH FARES...13 CAPACITY TRENDS FALLING CONSISTENTLY...14 PASSENGER TRENDS MIRROR THE LOST CAPACITY...15 THE ECONOMIC DAMAGE IS REAL & DEMONSTRABLE...16 GRANT OBJECTIVE: ADDITIONAL HUB ACCESS...18 UNITED AIRLINES ORD OR IAD...18 ROUTE PRO FORMA CHICAGO/O HARE...19 ROUTE PRO-FORMA WASHINGTON DULLES...20 PROPOSED GRANT STRUCTURE...21 COMPREHENSIVE MARKETING PROGRAM...22 PROGRAM ADMINISTRATION...22 PROGRESS REPORTS TO DOT...22 POST-GRANT MARKETING SUPPORT...22 PROPOSED GRANT FUND ALLOCATION...23 BANGOR PRIOR AIR SERVICE DEVELOPMENT EFFORTS...24 SUMMARY...25 APPENDIX B...26 LETTERS OF SUPPORT...30

3 Small Community Air Service Development Grant 3 Executive Summary Official Proposer City of Bangor, Maine DUNS # Contact: Ms. Rebecca Hupp Director City of Bangor 287 Godfrey Boulevard Bangor, ME is the main air gateway for central, eastern and northern Maine, and is a major waypoint for international flights between North America and Europe. Local Community Support Organization This proposal is supported by a community consortium including the City of Bangor, the State of Maine, the Bangor Region Chamber of Commerce, EMDC/Mobilize Maine, and the Bangor Regional Development Alliance. Official Sponsor The City of Bangor, is the official sponsor of this application. Synopsis of Grant Request and the community are requesting a grant in the amount of $500,000, with a 50% community match, for a total program fund of $750,000. This will be used to alleviate a major air service deficiency represented by a lack of access to gateway connecting hubs. The grant will be targeted at specific hubs that offer such connectivity and are compatible and additive to existing incumbent service. Airline Targets The Airport has identified key target carriers, and in this grant request is focused on United Airlines.

4 Small Community Air Service Development Grant 4 However, due to uncertainties in the airline industry, (for example, the outcome of the United merger with Continental) it is understood that there are a range of factors that could materially change a carrier s strategies in the months ahead. For this reason, the Airport has also identified alternative carriers that offer similar connectivity. In this regard, in the event that a satisfactory agreement cannot be attained with United, or that carrier finds itself unable to participate, the Airport would reserve the right to alternatively approach American Airlines for access to its Chicago/O Hare hub, or US Airways for access to its Charlotte hub. Proposed Application of Funds The grant and the community match will be allocated into two applications. The primary applications will be for a carefully-defined revenue guarantee that would be accessed only if pre-agreed revenue targets are not achieved. The second application will be focused on a targeted marketing and public awareness program to support the new service. Marketing & Promotional Support Airline Revenue Guarantee Total Community $83,333 $166,667 $250,000 US DOT $166,667 $333,333 $500,000 TOTAL $250,000 $500,000 $750,000

5 Small Community Air Service Development Grant 5 The Air Service Deficiency (BGR) has experienced significantly higher air fares and substantial traffic leakage over the past five years. The reason is that changes in the airline industry have caused capacity cuts, even in the face of strong traffic and revenues for incumbent carriers. The Airport has a clear plan to address this situation, but it requires the assistance of a grant under the Small Community Air Service Development Program. The Grant Will Address A Growing Shortfall In Seat Capacity At Bangor Bangor International Airport serves a vibrant market. But changes in the airline industry, as well as creeping fare levels have resulted in enormous leakage. Despite a strong economy, air service levels have declined at Bangor over the past five years, as have the levels of access to the national and global air transportation system. Three years ago, Bangor was served by five major airline systems, accessing five major connecting hub gateways. Today, it has access to just two major carrier systems, and two true connecting hubs. 1 Continental dropped service to its hub at Newark, despite load factors exceeding 84%. The congestion and delays attendant to the New York metro area made the service difficult for the carrier to support. Delta has deleted service to Cincinnati/Northern Kentucky International Airport, due to that carrier reducing operations at CVG. American/American Eagle retired the majority of its 37-seat ERJ- 135 fleet. This eliminated not only AA branded service to LaGuardia and Boston, but also it resulted in closure of a maintenance facility at Bangor International. Delta found it necessary to re-allocate New York capacity, moving its BGR-JFK service to LGA. This effectively cut off BGR from the international connectivity of the Delta hub at that airport, not to mention substantial domestic connections as well. None of these events are related to the economy or the traffic generation within the Bangor area of service influence. As will be noted in this document, ridership today at BGR is exceedingly strong, with load factors in excess of 81%. It is a matter of changes in the airline industry affecting Bangor, and resulting in declining flights and rising fares. 1 These were CO/ERW, DL/CVG, NW/DTW, DL/ATL and US/PHL. It was also served seasonally from NW/MSP. These were in addition to AA service to both BOS and LGA, which are not structured by that carrier as connecting hubs, per se, but where over half the traffic was flowing to and from other AA flights. Today, Bangor has only service to hubs at DL/DTW, and US/PHL. US Airways operates flights to both DCA and LGA, but these offer limited access to other on-line destinations.

6 Small Community Air Service Development Grant 6 A Grant Will Assist In Addressing These Deficiencies The Airport has an active and aggressive air service development program. It has identified key service shortfalls, which, if filled, will substantially reverse the decline in traffic that Bangor has experienced over the last several years. There are a number of air service deficiencies that Bangor is working to address. The most pressing, however, is gaining additional capacity through major airline systems connecting hubs. The current Delta service to Detroit, and the current US Airways service to Philadelphia are experiencing exceptionally high load factors. This represents an opportunity for Bangor to explore service to other carriers gateways. But in an industry that is not expanding fleets, airline planning departments will not just move airplane time to Bangor unless two criteria are met: Bottom Line Objective: Addressing An Access Deficiency The community has identified a severe and increasing deficiency in air service accessibility to Bangor. The grant request focuses on riskabatement targeting carriers that will open BGR up to additional capacity and competition. The dollars would be available as a revenue risk guarantee, not as a subsidy. However, based on the data and projections accomplished by the Airport, it is felt that the risk to the DOT s grant dollars is low. 1. There must be demonstrable net-new system revenue for the carrier; 2. There must be minimal risk i.e., the risk of moving aircraft from another market into service at BGR must be offset. Bangor has hard and accurate data to satisfy the first requirement. This grant application is crafted to meet the second criteria. This Grant Will Re-Open Access For Bangor In this application, the community is requesting a grant in the amount of $500,000, which will be matched by local funding in the amount of $250,000. Of this total of $750,000 a fund of $250,000 would be allocated to carefully-designed marketing and public awareness programs to assure success of the new service The remaining dollars will be applied as a revenue guarantee, based on clearly-defined goals, to offset the carrier s risk in the first year of service. The Airport has identified two prime airline hub targets for this grant. United/Chicago-O Hare. The Airport has had very encouraging discussions with United Airlines regarding implementation of service between Bangor and Chicago/O Hare. The airline has noted the success of the current Delta service at Bangor, which runs at an 85% load factor and provides substantial system feed to Delta. United believes it can gain similar traffic with service to its hub at O Hare. With the new additional runway at ORD, United can again contemplate adding additional capacity.

7 Small Community Air Service Development Grant 7 It is noted that American may also be a target for this service, as it also has a very large connecting operation at O Hare. United/Washington-Dulles United has also indicated interest in service to Bangor from its global hub at Washington Dulles International Airport. Like ORD, this satisfies the objective of the grant application by providing nationwide service connectivity. Like Chicago/ORD, IAD also offers substantial international connectivity. Bangor does not have year round service to Washington, which is a major O&D point, and this service would also address this deficiency. At this time, United is in the process of merging with Continental Airlines. This injects some uncertainty to its future hub strategies. For this reason, Bangor was encouraged to review potential for both ORD and IAD at United. Other Options The Airport and the Department are aware that conditions change rapidly in the airline industry. While initial discussions with United Airlines have been encouraging, there are many events that could take place in the coming months to alter that airline s market strategies. Therefore, as a back-up, the Airport has identified two fall-back targets for the grant, both of which would satisfy the objectives of this grant application, which are to open up additional connectivity and serve to bring additional fare discipline to the Bangor market. The first is American/O Hare which is very similar in structure to the United operation at that airport. The next alternative is US Airways hub at Charlotte. This facility offers strong connectivity to the South and West. It is expressly noted that these alternatives are identified due to the unsettled nature of the airline business and they both meet the criteria for Bangor which is to restore and rebuild hub access.

8 Small Community Air Service Development Grant 8 The Bangor Market Area of Air Service Influence Studies accomplished by the Airport indicate that BGR serves as the air transportation gateway for consumers over a very wide region of northern Maine, plus parts of New Brunswick and Quebec. Air Service Deficiencies Translate Into Severe Negative Economic Impact A population of over 413,000 depend on Bangor International as the gateway to and from the region. The population base not including the Canadian provinces represent over 413,000. County Population Avg Household Income Median Disposable Income Aroostook 73,075 $42,029 $30,446 Hancock 51,046 $56,002 $37,899 Kennebec 25,560 $56,564 $34,544 Penobscot 148,136 $54,096 $35,982 Piscataquis 17,659 $40,368 $29,846 Somerset 34,958 $44,693 $31,446 Waldo 29,356 $50,087 $34,910 Washington 33,378 $39,033 $27,433 Totals 413,168 $49,466 $33,738 The economy in this region remains strong, as demonstrated by substantial average household income and disposable dollars.

9 Small Community Air Service Development Grant 9 Bangor Air Service Today, Bangor has service from two major airline systems, plus day-ofthe-week Allegiant flights to two leisure destinations in Florida. Access To Bangor Has Been Severely Reduced From access to five major airline connecting hubs just three years ago, Bangor now only has two true connecting hubs for national and global access. LGA and DCA service is mostly O&D, as US Airways does not bank flights at those airports to facilitate connections. The above represents the service offered as of August, Below is the service offered in the same month just three years ago. Capacity is down by over 18%, representing over 108,000 fewer seats. This is a growing air service deficiency which the grant will help address. Allegiant service is outstanding, but it is focused entirely on generating net-new leisure traffic by offering high-value, low-cost vacation packages to Florida, and not filling existing air travel demand, as such. Source: The service to MSP was offered seasonally on week-ends. With the reorganization of Northwest into Delta, this has not been restored. All of these hub-feed markets were highly successful, with strong load factors.

10 Small Community Air Service Development Grant 10 As the capacity has been reduced, this has choked off not only local passenger ridership, but has had a devastating effect on the local economy, which depends heavily on in-bound tourist traffic visiting the region, including Acadia National Park, which is the nation s tenth most visited park, with 2.2 million annual visitors, the vast majority in the summer period. Flights Averaged Almost 86% Full In Summer of 2007 Using August when capacity was much higher than today - as an example, the BGR market essentially filled all flights. Today, load factors remain well over 80%, yet capacity is down 18%. Without question, the loss of this capacity has choked off demand particularly for the inbound visitors in the summer who comprise 70% of Bangor passengers. This travel demand for Maine is illuminated by the fact that in the peakperiod third quarter of the year, 70% of all air travelers at Bangor are inbound generated i.e., visitors. The reduction in air service access over the past three years has been exceptionally damaging to the region s economy by not having the capacity or acceptable fare levels to meet this demand. The loss of capacity was not due to low passenger load factors. The airport would point out that the service example shown on the map on the prior page for August 2007 was one that was highly successful for the airlines these flights were essentially full, and were meeting the strong demand in the Bangor marketplace. The load factors for August 2007 tell the story Airport Airline System Total Pax Total Seats Load Factor Total Flights ATL 7,391 8, % 122 DL 7,391 8, % 122 BOS 9,877 11, % 437 AA 6,154 7, % 187 DL 3,723 4, % 250 CVG 5,252 5, % 118 DL 5,252 5, % 118 DTW 7,084 8, % 165 NW 7,084 8, % 165 EWR 3,388 3, % 87 CO 3,388 3, % 87 LGA 4,973 5, % 137 AA 2,376 2, % 77 US 2,597 3, % 60 PHL 10,118 11, % 181 US 10,118 11, % 181 Totals 48,083 56, % 1,247 This point is made to illuminate the clear fact that the current deficiency in air service at Bangor is not due to lack of demand, but represents shifts in the airline industry that have left the market with what is now clearly insufficient capacity. 2 2 Source: Aviation DataMiner analysis of US DOT T-100 data for August, 2007.

11 Small Community Air Service Development Grant 11 Major Deficiencies in Capacity & In Network Access Since 2007, Bangor has lost over 40% of its scheduled network airline departures, and has seen its capacity drop by almost 30%. 3 Schedule Compare: Airport Drill Down It s Not Just BGR That s Being Hurt When consumers seeking to travel to the region can t find a seat, or can only find one at high fares, they either use PWM or simply don t come to Maine at all. The Airport estimates that Bangor is losing 67,000 outbound and inbound passengers per year due to the loss of capacity. In terms of lost consumer spend, it is roughly projected that this costs the Maine economy at close to $20 million annually. Departures System Dest Change Airport: BGR % Change Seats Change % Change AA 1,392 (1,392) % 51,504-51, % BOS 1,052 (1,052) % 38,924-38, % LGA 340 (340) % 12,580-12, % CO 432 (432) % 17,557-17, % EWR 432 (432) % 17,557-17, % DL 2,581 1,619 (962) -37.3% 104,412 82,850-21, % ATL 500 (500) % 35,000-35, % BOS 1,389 (1,389) % 34,792-34, % CVG 692 (692) % 34,620-34, % DTW ,302 46,302 JFK ,450 9,450 LGA ,098 27,098 NW (749) -92.6% 40,450 3,000-37, % DTW (738) -92.5% 39,900 3,000-36, % MSP 11 (11) % % US 1,199 2, % 69, ,085 43, % DCA ,600 1,600 LGA % 6,550 43,074 36, % PHL 1,068 1, % 63,158 68,411 5, % Total 6,413 3,844 (2,569) -40.1% 283, ,935-84, % As noted, this reduction has been entirely the result of changes in the airline industry, and not any lack of demand at Bangor. Flights have maintained load factors in the 80%+ range, which means that when seats are offered, they are quickly booked. Conversely, when seats are reduced, consumers simply are cut off from flying from and most importantly, to Bangor. Note that on an annualized basis, Bangor in 2010 will have almost 85,000 fewer departing seats. Based on the simple math of the market s traditional 80% load factors, this would indicate that today, Bangor is losing approximately 67,000 enplanements or 134,000 O&D passengers per year. 3 This is in addition to Allegiant, which serves two Florida points on a 2 to 3 per week basis, and offers absolutely no connectivity whatsoever. It s model is to generate vacation traffic, not to fill existing air service demand.

12 Small Community Air Service Development Grant 12 Lack of Capacity Is The #1 Deficiency Bangor International has seen its traffic choked off simply due to declines in network airline capacity. For the full year ending 5/31/2010, the market filled just short of 80% of the network carrier seats offered. This includes both peak and off-peak periods. 4 Lack of Capacity To Airline Gateways Is Deterring BGR Traffic. Note that both PHL and DTW have very high load factors. These are the two main connecting gateways for BGR, and represent choke points for consumers to fly to or from the community. Clearly, these data show that the additional service which the grant will make possible will be successful from day one. City System Total Pax Total Seats Load Factor Total Flights BOS 24,458 29, % 583 DL 24,458 29, % 583 DCA 1,691 2, % 45 US 1,691 2, % 45 DTW 66,135 77, % 1,542 DL 66,135 77, % 1,542 EWR 11,409 13, % 237 CO 11,409 13, % 237 JFK 60,300 71, % 1,365 AA 2,307 2, % 15 DL 57,993 68, % 1,350 LGA 55,879 84, % 2,125 US 47,360 73, % 1,904 DL 8,519 11, % 221 MSP 1,216 1, % 22 DL 1,216 1, % 22 PHL 96, , % 2,227 US 95, , % 2,211 YX 920 1, % 16 Totals 317, , % 8,146 Of importance to this application are the load factors in the US Airways Philadelphia market, and in the Delta Detroit market. It is these airports that today serve as the main connecting hub gateways for Bangor. Buttressing the objectives of the requested grant are also the load factors that were experienced by Continental in the Newark market over 86%. The service was deleted due to congestion issues at Newark, not due to lack of traffic or revenue. These data underscore the community s contention that the addition of service to either the United hub at ORD or the United hub at IAD will 4 Source: Aviation DataMiner analysis of T-100 data. Note that Allegiant semi-charter service is not included. These flights run at 90% plus load factors and if included in the above data would skew the load factors for the market up over 80%.

13 Small Community Air Service Development Grant 13 alleviate a deficiency in capacity, and be profitable for the carrier. All that is needed is this grant, which will provide a risk safety net for the airline. 5 Lack of Capacity Creates The #2 Deficiency High Fares Fares at Bangor are disproportionately high, which is another result of lack of capacity. When flights are fully booked, particularly in the critical summer periods, airlines have no incentive to cut ticket prices. Bangor Consumers and Visitors Are Paying Double-Digit Fare Premiums Portland is now taking significant traffic from Bangor due to lower fares. If this is not addressed, PWM could evolve into the de facto entry point for Northern Maine, to the economic detriment of the entire region. Rank Market Psgr BGR PWM MHT Avg Fare Psgr Avg Fare Psgr. Gross Fare 1 MCO 20,640 $ ,177 $ ,612 $ JFK 14,394 $ ,124 $ PHL 14,316 $ ,216 $ ,924 $ ATL 12,779 $ ,512 $ ,030 $ TPA 10,839 $ ,740 $ ,664 $ LGA 9,458 $ ,132 $ ,996 $ DCA 8,974 $ ,648 $ ,286 $ BWI 7,483 $ ,106 $ ,923 $ DTW 7,158 $ ,534 $ ,524 $ PHX 6,899 $ ,183 $ ,234 $ IAH 6,824 $ ,703 $ ,790 $ CLT 6,637 $ ,778 $ ,153 $ RDU 6,597 $ ,175 $ ,197 $ EWR 6,453 $ ,164 $ ,802 $ FLL 5,562 $ ,780 $ ,145 $ CVG 5,449 $ ,843 $ ,212 $ ORD 5,390 $ ,827 $ ,540 $ MSP 5,338 $ ,462 $ ,648 $ LAS 5,227 $ ,171 $ ,336 $ DFW 5,091 $ ,689 $ ,623 $ RSW 5,035 $ ,710 $ ,123 $ LAX 4,831 $ ,192 $ ,574 $ SFO 4,329 $ ,481 $ ,785 $ DEN 4,263 $ ,203 $ ,192 $ ORF 3,932 $ ,296 $ ,471 $ All Markets 382,193 $ ,816,571 $ ,107,184 $ Variance From BGR -21.5% -28.0% Comparing Bangor fares to those of Portland reveals a 21.5% average fare differential, and much higher fares to all but one of the airport s top 25 destinations. Consumers at Bangor also pay an average of 28% more to fly than do consumers at Manchester, NH. 6 5 United is the prime target. However, if due to unforeseen circumstances, such as issues surrounding the Continental merger, United finds itself unable to participate, the US Airways hub at Charlotte is identified as an alternative. 6 Fares are for the full year ending 3/31/10, and are one-way, including federal fees and taxes. Source: Aviation DataMiner analyses of DB1B data, adjusted for each carrier and reconciled to airport and T-100 tables.

14 Small Community Air Service Development Grant 14 The constriction of capacity at BGR is one major culprit for this situation. However, both PWM and MHT also benefit from the presence of low-fare carriers. Bangor International has no illusions that the capacity which the grant will make possible will serve to completely resolve this situation. But the entry of an additional 200+ seats per day in the BGR market to a major connecting hub gateway will bring some fare discipline into play. Capacity Trends Falling Consistently Add The Capacity, And The Passengers Will Follow Since 2002, capacity has been cut by over 35%. Enplanements have declined by just 10.7% - resulting in a situation today where flights are effectively operating at capacity and BGR demand is spilling to Portland. While passenger enplanements are down 10.7% (2009 compared to 2002), airline capacity has been slashed by 35.4%. 380, , , , , , , , , Bangor Annual Capacity Seats Scheduled This again indicates that the additional capacity and air access this grant will provide will be profitable very soon after service initiation. This would mean that risk to the Department will be minimized as well.

15 Small Community Air Service Development Grant 15 Passenger Trends Mirror The Lost Capacity Reviewing the traffic trends at BGR is very instructive and of great concern in regard to the gravity of the air service deficiencies of high fares and declining capacity. 250,000 Bangor Historical Enplanements 240, , , , , , , , , , Enplanements 209, , , , , , , ,884 The enplanement trend has been consistently down since Note on the chart below that the summer peak travel has declined each year as well. This is due to the decline in capacity offered by airlines, and not any weakness in the BGR and Northern Maine marketplace. 35,000 30,000 25,000 20,000 15,000 10,000 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Enplanements Linear (Enplanements)

16 Small Community Air Service Development Grant 16 The data are disturbing because lack of capacity clearly is causing visitor travel to decline. The summer peaks typically represent passenger traffic that is 70% to 75% inbound visitors. Gaining additional capacity will help to greatly alleviate this deficiency in seats. The Economic Damage Is Real & Demonstrable Because in-bound visitors represent 52% of Bangor s year-round traffic, and 70%+ in summer months, the reduction in airline capacity represents significant loss of economic impact for the region. Lack of Capacity and High Fares Inflict Long-Term Damage To The Region s Economy The dollar losses are in the tens of millions simply because consumers cannot get to Bangor from the rest of the nation. Most of these lost passengers are likely using PWM, which has much lower fares and more service due to its access to much larger population centers. But a portion of this lost traffic really is lost to the Maine economy when some consumers can t book a seat, or can only do so at very high fares they simply don t come to Maine at all. The most recent example of the damage this lack of air service capacity has had on the Bangor economy is the major pull-down in summer cruises operated by American Cruise lines. Because of high airfares, American Cruise Lines Is Moving Most of Its Summer Departures To Portland. The cruise line found it necessary to cut departures at Bangor from 21 to just six. The reason for the loss of this business is singular: air service. There are insufficient seats, and the fares have resulted in the cruise line finding it difficult to fly customers into Bangor.

17 Small Community Air Service Development Grant 17 The Vice President of Marketing of the American Cruise Lines made it quite clear: We love Bangor. The city has been good to us. It was a tough decision It all came down to a lack of flight options and the cost of flying into Bangor. The Airport and the Community would point out that the service outlined in this application could be critical in getting the cruise line to return at all in This is just the tip of the financial iceberg threatening the Bangor economy. Simple back-of-the-envelope math can give an idea of the situation. Based on traditional load factors, we have estimated a loss of 67,000 annual visitors arriving at Bangor, due to the reduction in airline capacity. It we assume that 70% of these visitors use Portland or other alternative entry points, but the remainder decline to travel to Maine at all because of lack of BGR capacity, the dollars lost to the economy are staggering. The State of Maine reports that each visitor spends an average of $962 while in the state and over $1,050 during summer months. If we just take the lower figure, and apply it to an estimated loss of 30% of the inbound visitors Bangor has experienced due to reductions in air service, it represents an economic hit of $19.4 million annually.

18 Small Community Air Service Development Grant 18 Grant Objective: Additional Hub Access While there are a number of options for attaining additional connectivity to the US air transportation system, the Airport has analyzed those that will provide the strongest return for the Department s grant dollars. The following are the primary targets. United Airlines ORD or IAD The Airport has identified two options that will address the need for additional hub gateway access at BGR. These are the United Airlines operations at Washington/IAD and at Chicago/ORD. While the Chicago option offers more connections, Washington represents less flying and strong connectivity to Europe as well as the US and Latin America. Because United is in the merger process with Continental, the carrier has not determined as yet the strategic roles these hubs will play at the combined airline. As a result, traffic and revenue analyses were accomplished for both. Route metrics and traffic forecasts follow. In both cases, it is felt that the projections are conservative and represent scenarios where traffic and revenue will build very quickly, minimizing the exposure of the grant fund to revenue guarantees.

19 Small Community Air Service Development Grant 19 Route Pro Forma Chicago/O Hare Market Distance 975 Aircraft CRJ-700 Service Pattern 2 Roundtrips Annual Seats 82,431 Annual Flights 1,249 Completion Factor 96.0% Block Time 2.3 Annual Block Hours 2,873 Annual Seats 82,431 Cost Per Hour $3,945 CASM $ Annual Segment Operating Cost $11,332,251 Revenue & Traffic Projections Local Traffic ORD Local O&D 8,490 ORD Local PDEW 11.6 Average Fare $0.00 Local Revenue $2,400,578 Local Yield $ Connecting Traffic Connecting Traffic 61,466 Connecting PDEW 84.2 Connecting Revenue $10,837,992 Totals Projected Operating Metrics - BGR - ORD Onboard Passengers 69,955 Total PDEW 95.8 Pro-Rated Revenue $13,238,570 Less Displacement (10%) $1,323,857 Net System Revenue $11,914,713 Net Average Revenue per Passenger $ Average Market Yield $ Market RASM $ Load Factor Projections Annual ASMs 80,370,576 Annual RPMs 68,206,389 Segment Load Factor 84.9% Projected Segment Operating Profit $582,462 Operating Margin 5.1%

20 Small Community Air Service Development Grant 20 Route Pro-Forma Washington Dulles Market Distance 600 Aircraft CRJ-700 Service Pattern 2 Roundtrips Annual Seats 82,431 Annual Flights 1,249 Completion Factor 96.0% Block Time 1.8 Annual Block Hours 2,248 Annual Seats 82,431 Cost Per Hour $4,290 CASM $ Annual Segment Operating Cost $9,644,469 Revenue & Traffic Projections Local Traffic IAD Local O&D 6,282 IAD Local PDEW 8.6 Average Fare $ Local Revenue $1,342,619 Connecting Traffic Connecting Traffic 48,746 Connecting PDEW 66.8 Connecting Revenue $9,940,399 Totals Projected Operating Metrics - BGR - IAD Onboard Passengers 55,028 Total PDEW 75.4 Pro-Rated Revenue $11,283,018 Less Displacement (10%) $1,128,302 Net System Revenue $10,154,716 Net Average Revenue per Passenger $ Average Market Yield $ Market RASM $ Load Factor Projections Annual ASMs 49,458,816 Annual RPMs 33,016,777 Segment Load Factor 66.8% Projected Segment Operating Profit $510,247 Operating Margin 5.3%

21 Small Community Air Service Development Grant 21 Proposed Grant Structure and the community fully believe that the market will support either of the hub access scenarios outlined in this document. The intended structure of the grant, combined with the local 50% match will be as follows: This is not a subsidy program. It is merely a financial safety net to reduce the risk for the carrier. If the revenue goals are met and there is every indication that the Bangor market can do so the revenue guarantee portion of the grant will not be expended. BGR and the airline will negotiate to provide two daily (week-day with reduced week-end flying) round trips in the market. The agreement will provide agreed-upon per-flight costs, including a reasonable profit hurdle. Revenues generated across the United system by the Bangor service will be reviewed at the end of the first 6-month period. Any shortfall will be addressed by the revenue-guarantee portion of the grant funding. This will again be done at the end of the subsequent six months. Monthly short-stop" triggers will be built into the monitoring program. This will allow the Airport and the carrier to quickly determine if the traffic is materially below forecasts in each of the first six months. If so, the Airport and the airline can decide to take remedial actions, up to and including early termination of the program. The carrier will agree to key performance standards. These include a 96% schedule completion, net of weather cancellations. On-time arrival performance, using the DOT standard of 15- minutes of the carrier s published schedule, will be required. 7 The carrier will make all reasonable efforts to schedule the BGR flights to connect inbound and outbound at the hub airport. The carrier will agree to fare levels in the market commensurate with those at comparable peer cities on their route system. The program will be for one year from start of service. Prior to executing any agreement, the airport will provide the revenue guarantee documents to Department staff for review and approval. 7 Typically a 98% completion would be used. However the reality is that both of the scenarios in this document involve both congested airports and congested air space.

22 Small Community Air Service Development Grant 22 Comprehensive Marketing Program Bangor International already has an aggressive marketing program. This will be applied to the proposed service. A point-by-point marketing plan for the new flights will be prepared and submitted to the Department for review. As envisioned, this will include: Weekly banner ads in the Bangor Daily News to showcase the new flights as part of the overall air service access at Bangor International Airport. The Airport will work with the carrier to use its marketing programs to promote Bangor on its global website. The Airport will work with key local industries to determine customers, suppliers, and clients in other parts of the nation. These will then be targeted to assure awareness of the new convenience in accessing Bangor. Targeted mailings will be accomplished, both locally and to key business targets across the airline s route system The Airport proposes focus substantial funding to make this new service a success. Program Administration The will be the official point of contact for grant administration, and for liaison with the community, the airline and other stakeholders Progress Reports to DOT It will be the responsibility of the Airport to provide the required quarterly reports to the Department. However, the Airport has every intention of being pro-actively in contact to keep the Department updated on the progress of the program. Post-Grant Marketing Support The and the community have an on-going air service enhancement program that includes routine advertising, community meetings, and contact with travel generators and regional businesses. Subsequent to the end of the revenue-guarantee period, these activities will continue. The Airport monitors carrier load factors and traffic performance on an on-going basis, and takes appropriate action when

23 Small Community Air Service Development Grant 23 weaknesses in traffic or revenue are foreseen. The United service outlined in this document will be a part of that program. Proposed Grant Fund Allocation Marketing & Promotional Support Airline Revenue Guarantee Total Community $83,333 $166,667 $250,000 US DOT $166,667 $333,333 $500,000 TOTAL $250,000 $500,000 $750,000 In addition, the Airport has a professional in-house ground handling operation, and this will be offered to reduce the capital costs of ground equipment and staffing should the carrier request such services.

24 Small Community Air Service Development Grant 24 Bangor Prior Air Service Development Efforts Bangor has an active air service development and enhancement program directed by a full-time staff member. The Airport is in constant contact with current and potential airlines to assure that no air service opportunities are missed. Thanks to a 2004 Small Community Air Service Development Grant, Bangor was able to offer sufficient marketing and promotional support to attract the entry of Allegiant. This company provides high-value, low-cost vacation packages to Florida, and has been very successful in the Bangor market. The Airport continues to work with incumbents Delta and US Airways in regard to fare and capacity issues. As the nation s premier international gateway for charter and business aviation flights from Europe, the Airport is extensively engaged in pursuing expanded international second-tier and scheduled service options. The Airport is working with carriers such as Continental and American, exploring options to get these carrier systems back into the BGR market.

25 Small Community Air Service Development Grant 25 Summary The and the Bangor community appreciate the opportunity to file this application. We believe that the situation at BGR is such as to fit the letter and the spirit of Congress in implementing this program. We ask favorable consideration for the following reasons: The market has experienced significant reductions in air service over the last five years. All of the reductions are due to changes in the structure of the airline industry the Bangor economy is strong and vibrant. Air fares are high over 21% higher than at Portland. This, combined with lack of seat capacity, is literally driving consumers to use that airport instead of Bangor International. The local economy is being harmed by this situation the reduction in the cruise industry at Bangor, and its potential move in its entirety to Portland is just the latest example. The service that this grant will facilitate will open Bangor to access from additional points, add significant new capacity, and bring new fare discipline to the market. If there is further data or information needed, we stand ready to assist the Department.

26 Small Community Air Service Development Grant 26 APPENDIX B

27 Small Community Air Service Development Grant 27

28 Small Community Air Service Development Grant 28

29 Small Community Air Service Development Grant 29

30 Small Community Air Service Development Grant 30 Letters of Support

31 Small Community Air Service Development Grant 31

32 Small Community Air Service Development Grant 32

33 Small Community Air Service Development Grant 33

34 Small Community Air Service Development Grant 34

35 Small Community Air Service Development Grant 35

36 Small Community Air Service Development Grant 36

37 Small Community Air Service Development Grant 37