Glacier Park International Airport / Kalispell, Montana

Docket: DOT-OST-2009-0149 Before the Office of the Secretary of Transportation U.S. Department of Transportation Glacier Park International Airport / Kalispell, Montana Proposal Under the Small Community Air Service Development Program An Integrated Program of New Service Development via; Start-up Cost Offsets, Advertising/Marketing, and Revenue Guarantees In Support of New Service to/from San Francisco on United Express Sponsor: Glacier Park International Airport Kalispell, Montana Cindi Martin Airport Director Congressional Code: MT-001 Dun & Bradstreet Number: 119522167 August 28, 2009

Table of Contents Description Page number Table of Contents 2 Introductory Letter 3 Summary Information 4 Introduction 7 Primary Objectives of Proposal 8 Executive Summary 9 Detailed Explanation of Proposal 16 Route Specific Data 20 Letters of Support 24 Current Air Service 26 Air Service Deficiencies 32 Extenuating Factors Affecting Air Service 39 Availability of Alternate Airports 42 Use of Local / Federal Funds 43 Public / Private Partnerships 44 Air Service Advisory Groups 45 Local Air Service Development Efforts 46 In-kind Services from the Community 46 Performance Measures 47 Financial Controls 47 Return on Investment 47 DOT Exit Strategy 48 Alternate Plan 48 Airport Information 49 Community Profile 50 Comparison to Other Communities in Region 56 Conclusions 59 Glacier Park International Airport Small Community Air Service Development Grant August 2009 2

Introductory Letter Glacier Park International Airport Small Community Air Service Development Grant August 2009 3

Summary Information Small Community Air Service Development Program Docket DOT-OST-2009-0149 A. Applicant Information Not a Consortium Community now receives EAS subsidy Interstate Consortium Intrastate Consortium Community previously received a Small Community Grant If previous recipient, expiration date of grant: August 2009 Community Name Kalispell, Montana Address 4170 Highway 2 East City, State, Zip-code Kalispell, Montana 59901 Point of Contact: Cindi Martin Phone: (406) 257-5994 Fax: (406) 257-5960 Email: cindi@glacierairport.com County: Flathead Congressional Code: MT-001 Dun & Bradstreet #: 119522167 Designated Legal Sponsor: Name Cindi Martin Title Airport Director Glacier Park International Airport Address 4170 Highway 2 East City, State, Zip-code Kalispell, Montana 59901 Phone: (406) 257-5994 Fax: (406) 257-5960 Email: cindi@glacierairport.com Glacier Park International Airport Small Community Air Service Development Grant August 2009 4

B. Public/Private Partnership Public: 1. Glacier Park International Airport 2. Montana Department of Commerce Regional Development Office Private: 1. Montana West Economic Development 2. The Flathead Port Authority 3. Whitefish Partners C. Project Proposal Marketing Upgrade Aircraft New Route Personnel Increased Frequency Low Fare Service Travel Bank Service Restoration Subsidy Surface Transportation Regional Service Other (specify) Revenue Guarantee Start Up Cost Offset Study Launch New Carrier First Competitive Service Secure Additional Carrier D. Existing Landing Aids at Airport Full ILS Outer/Middle Marker Published Instrument Approach Localizer Other Glacier Park International Airport Small Community Air Service Development Grant August 2009 5

E. Project Cost Federal amount requested: $ 500,000 Total local financial contribution: $ 50,000 Airport funds: $ 0 Non-Airport funds: $ 50,000 State financial contribution: $ 0 Existing funds: $ 0 New funds: $ 0 Airport In-kind contribution: $ Undetermined (Landing fee waiver for new carrier, terminal rent waiver, marketing support) Other In-Kind Contribution: $ 0 Total cost of project: $ 550,000 F. Enplanements at Airport 2002: 149,660 2003: 154,650 2004: 168,057 2005: 178,072 2006: 191,293 2007: 176,310 2008: 172,845 G. Is Application Subject to Review by State Under Executive Order 12372 Process? This application was made available to the State on. Program is subject to review, but has not been selected by the State. Program is not covered. H. Is Applicant Delinquent on any Federal Debt? No Glacier Park International Airport Small Community Air Service Development Grant August 2009 6

Introduction Glacier Park International Airport has worked hard over the last ten years to bring additional competitive air service to Montana s Flathead Valley. It has been a challenge in the current economic environment. But the Airport has a strong and vibrant community to sell a community that continues to fill airplanes year round. The way current service is structured, with high fares and limited service, it is cost prohibitive for Kalispell travelers to leave the area, and it is expensive for tourists to come into the market. New flights, to a currently unserved destination, would provide additional competition in many of Kalispell s largest markets. The effect of this competition would be to bring fares down and increase enplanements. Fare relief is essential in Kalispell. The market is the second most expensive in the Northwest region, with an average roundtrip fare in excess of $524 roundtrip. Kalispell s average fares are among the highest in the nation. Only additional seats in the market will bring fares closer to those found at other airports in the region. The Airport has identified United Airlines service to San Francisco as its best option for a new route. The Airport realizes United will not add the route to San Francisco at its own risk in the current economic environment. It is exceptionally important for the Airport to partner with the Airline on a risk mitigation package, to reduce the barrier to entry of launching a new non-stop destination. The Airport will need a federal partner to make this happen and the best option is a Small Community Air Service Development Grant. The Airport has had previous success in the SCASDG Program, using a previous revenue guarantee Grant to land United service to Denver. That Grant has expired, but United is still serving the route, and it continues to perform well. The Airport is asking for an additional investment from the DOT, for expanded United service, and much improved air service to this highly isolated region. Glacier Park International Airport Small Community Air Service Development Grant August 2009 7

Primary Objectives of Proposal Objectives for Program: Bring additional competitive hub service to Glacier Park International Lower average airfares through increased competition Increase enplanements Decrease inefficient leakage to Spokane Means to Achieve Objectives: Prove the market exists for additional air service Meet with targeted air carrier, offering revenue guarantee and other risk abatement initiatives Recruit additional United Express service Course of Action to Support Means: Provide startup cost offsets for the new carrier Provide revenue guarantees to ensure the success of the new service Provide marketing support to increase awareness about new flights offered in the market, decreasing leakage to Spokane Glacier Park International Airport Small Community Air Service Development Grant August 2009 8

Executive Summary Glacier Park International Airport is the gateway for the Flathead Valley, and the communities of Kalispell, Whitefish, and Columbia Falls, Montana, along with the world famous Glacier National Park. The Airport serves a large and fast growing area that includes parts of Montana, Idaho, Alberta, Canada, and British Columbia, Canada. The Airport s catchment area has been recently redefined due to an analysis of ticket purchases in the region (see Table 1). The Airport draws much more heavily from areas of northern Idaho, and Canada, than previously thought. This has elevated the Airport s importance as a regional gateway. Table 1: Glacier Park International Airport Catchment Area, August 2009 As of the latest US Census estimates, and Canadian population estimates, 185,700 people lived in the Glacier Park International Airport catchment area (see Table 1). The catchment area has Glacier Park International Airport Small Community Air Service Development Grant August 2009 9

grown by 3.5% since 2000. This growth rate outpaced much of the rest of the mountain west for the same period. The vast majority of this growth was in the immediate Kalispell Whitefish Columbia Falls area, with very little of the growth occurring on the Canadian side of the border. Glacier Park International Airport has had strong success in bringing additional airline service to the market in the last five years. In 2003, the Airport had non-stops to just Salt Lake City, Seattle, and Minneapolis/St. Paul (sometimes with a stop in Great Falls). Table 2: Current Service Provided at Glacier Park International Airport, as of August 2009 Three years ago, with the support of a Small Community Air Service Development Grant, the Airport was able to land United Express service to the Denver hub (see Table 2). This service has gone year round, and continues to operate well after the Grant closed. Then, within the last two years, the Airport was able to develop a package to bring Allegiant Air s low fare service to Las Vegas. The service operates twice per week with mainline jet aircraft. In all, the Kalispell market sees 12 daily departures during the summer, but this number drops to eight in the winter, causing a huge loss in available seats. This market seasonality is natural in a large tourist area, such as Kalispell, but it is very damaging to locally-based business travelers Glacier Park International Airport Small Community Air Service Development Grant August 2009 10

who must still fly in the winter. Moreover, the seasonality has hurt many of the new wintertime resorts that have opened in the region within the last few years. Glacier Park International is among the most seasonal of all US airports. A quick study of available seats and onboard passengers for the last five years looks more like an EKG than an airport traffic chart (see Table 3). The summertime peaks and wintertime valleys have grown even more pronounced in the last several years. Table 3: 80,000 Seasonality of the Kalispell Market January 2004 January 2008 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Available Seats Onboard Passengers 0 2004-01 2004-02 2004-03 2004-04 2004-05 2004-06 2004-07 2004-08 2004-09 2004-10 2004-11 2004-12 2005-01 2005-02 2005-03 2005-04 2005-05 2005-06 2005-07 2005-08 2005-09 2005-10 2005-11 2005-12 2006-01 2006-02 2006-03 2006-04 2006-05 2006-06 2006-07 2006-08 2006-09 2006-10 2006-11 2006-12 2007-01 2007-02 2007-03 2007-04 2007-05 2007-06 2007-07 2007-08 2007-09 2007-10 2007-11 2007-12 2008-01 2008-02 2008-03 2008-04 2008-05 2008-06 2008-07 2008-08 2008-09 2008-10 2008-11 2008-12 From the July of 2004 to January of 2005, airlines cut 26% of available seats in the market, or 293 available seats per day each way (see Table 3). This kind of market seasonality had been normal. But in recent years, those wintertime cuts have grown deeper. From July of 2007 to February of 2008, airlines cut 50% of their seats in the Kalispell market a loss of 36,778 total available seats over the summertime maximum, or 613 available seats per day each way. Despite air service gains at Glacier Park International, total wintertime seats are down significantly from where they were in 2004 (see Table 3). In January of 2004, airlines offered a Glacier Park International Airport Small Community Air Service Development Grant August 2009 11

total of 49,500 available seats in the Kalispell market, or 825 available seats per day each way. By February of 2008, that number had fallen to 34,400 available seats, or 614 available seats per day each way. Since 2004, airlines have cut wintertime seats in Kalispell by 31%, while summertime seats are up slightly, by 6%, since 2004. For several years Glacier Park International Airport has been working with the airlines to smooth out this market seasonality. Airlines have long been skeptical of demand in the Kalispell market in the winter but the wintertime cuts that are deeper than the baseline from early in the decade must be corrected through additional service in the winter. Most remarkably in the Kalispell market, total origin and destination passengers have held relatively steady over the last six years, while the fare in the market has jumped by 41% (see Table 4). Table 4: Domestic O&D Passenger and Fare Change 400,000 350,000 320,490 337,910 364,010 337,520 352,620 345,690 400.00 350.00 300,000 300.00 250,000 250.00 200,000 200.00 150,000 100,000 $188 $184 $192 $244 $258 $260 150.00 100.00 50,000 50.00 0 YE Dec 03 YE Dec 04 YE Dec 05 YE Dec 06 YE Dec 07 YE Dec 08 0.00 Glacier Park International Airport Small Community Air Service Development Grant August 2009 12

In 2003, the average fare in the Kalispell market was $188 each way which was still relatively high for that time period (see Table 4). But by 2008, the average fare in the market had jumped to $260 each way, or $520 roundtrip, which ranks Kalispell as one of the most expensive markets in the Northwest, and in the country. Remarkably, this 41% fare increase hasn t been enough to quell passenger growth. Total passengers in the market have grown by 7.9% since 2003, an addition of 34.5 passengers per day each way (see Table 4). While there likely has been some passenger suppression due to the higher than average fares in the Kalispell market, those fares haven t been high enough to cause the market to lose passengers over the longer term. The unreasonable fare environment at Glacier Park International (GPI) is best illustrated when comparing the average fares at Kalispell to other markets in the Northwest Region. Of all Northwest region airports with catchment area populations in excess of 150,000 people, as defined by the FAA, GPI has the second highest average fare (see Table 5). Table 5: Average One Way Fares at Northwest Region Airports With Catchment Areas of 150,000+ Calendar Year 2008 Anchorage, AK Kalispell, MT Bozeman, MT Great Falls, MT Idaho Falls, ID Pasco, WA Missoula, MT $268 $262 $251 $246 $230 $228 $224 Eugene, OR Billings, MT Medford, OR $200 $199 $198 Seattle/Tacoma, WA Portland, OR $176 $168 Spokane, WA Boise, ID $149 $146 Northwest Regional Average: $181 $0.00 $50.00 $100.00 $150.00 $200.00 $250.00 Glacier Park International Airport Small Community Air Service Development Grant August 2009 13

Only the fares in Anchorage are more, on average, than the fares in Kalispell (see Table 5). Moreover, the average stage length on flights to and from Anchorage is more than double the average stage length on flights to and from Kalispell. The average fare in Kalispell is $81 higher than the regional average of $181 each way, which causes Kalispell passengers to pay a 45% premium over the average Northwest region fare (see Table 5). Kalispell fares, on average, are 4% higher than the fares found in Bozeman, 7% higher than the fares found in Great Falls, 17% higher than the fares found in Missoula, 32% higher than the fares found in Billings, and most troubling for the Airport s retention of local passengers - 76% higher than the average fares found in Spokane. The high average fare environment at Glacier Park International has caused airline revenues to spike in the years since 2003 with only a slight dip in the most recent year 2008 (see Table 6). In all, airline revenues in the Kalispell market have grown by 43% since 2003, as airlines are now earning an additional $31,300 in revenue per day each way at GPI. Table 6: Domestic O&D Revenue and Yield Change 90,000 40.00 80,000 $72,880 $78,320 $75,800 35.00 70,000 $63,230 30.00 60,000 50,000 40,000 30,000 $52,940 $55,790 25.00 20.00 15.00 20,000 10,000 11.43 11.51 12.10 14.76 15.22 15.14 10.00 5.00 0 YE Dec 03 YE Dec 04 YE Dec 05 YE Dec 06 YE Dec 07 YE Dec 08 0.00 Glacier Park International Airport Small Community Air Service Development Grant August 2009 14

While airlines are making more money in the market, their yields have also increased in the last several years. In 2003, airlines serving Glacier Park International were averaging a yield of just 11.43 cents per seat mile (see Table 6). By 2008, the yield has grown by almost four cents per seat mile, to 15.14 cents an increase of 32%. This indicates that airline service in Kalispell is likely profitable. The Kalispell market is one of the stars of the Small Community Air Service Development Grant Program, winning a revenue guarantee that brought new service on the Denver route. Service has continued beyond the closure of the Grant. Glacier Park International believes a second Grant award can help to convince United to expand its service in the market, adding flights to its huge west coast hub in San Francisco. San Francisco is in an ideal location for connections to the majority of Kalispell s top 20 passenger and revenue markets. Moreover, the Kalispell market currently has little competition to the west coast with only Horizon operating service to the west of the Airport, through Seattle. United service through San Francisco would provide Kalispell with its first competing service to destinations in the west. Glacier Park International Airport Small Community Air Service Development Grant August 2009 15

Detailed Explanation of Proposal Due to Kalispell s location in the northern Rockies, it is a relatively difficult place to get into and out of. Residents are more reliant on air travel in the Flathead Valley than in many other isolated locations in the United States. Yet, airlines have continued to pull seats from the market over the last several years. The Airport proposes to offer Grant funding, in the form of start-up cost abatements, fee waivers, marketing support, and revenue guarantees to a United Express carrier for two daily flights to the San Francisco hub (see Table 7). The San Francisco hub will give Kalispell area travelers adequate access to competitive connecting service. The route will also provide the first real competition to the west coast for Horizon Air and Alaska Airlines. The Airport believes the addition of United Express service to San Francisco will result in much better connectivity, increased enplanements, lower fares, and a much more viable link to the national air transportation system. Table 7: Glacier Park International Airport Small Community Air Service Development Grant August 2009 16

The Airport proposes two daily flights in each direction between Kalispell and San Francisco, operated by Canadair Regional Jet aircraft, seating 50 passengers in an all economy layout. The Airport proposes the flights be timed to meet the morning outbound bank at San Francisco, serving omni-directional destinations from the hub. The Airport also proposes a late evening return, connecting those same cities back into Kalispell during United s last bank (see Table 8). Table 8: Proposed Schedule Kalispell San Francisco Origin Destination Departs Arrives Block Time Equipment FCA SFO 6:25am 8:30am 2:05 CRJ SFO FCA 9:30am 11:35am 2:05 CRJ FCA SFO 12:30pm 2:35pm 2:05 CRJ SFO FCA 8:15pm 10:20pm 2:05 CRJ The route would cover 844 miles, and could be flown by a CRJ200 aircraft, with an average flying time of 1:45 at an average groundspeed of 420 knots. The proposed schedule assumes an average ground speed of 420 knots on the route, and does not take into account winds or weather conditions. An additional ten minutes has been added on each end for taxi time, resulting in a total block time of 2:05. United Express service from Kalispell to San Francisco would open 50 one-stop destinations than the United Airlines hub in San Francisco (see Table 9). Connections through San Francisco would give Kalispell travelers one-stop access to a number of markets in which there is no current competition, such as the cities in southern California that current connect best over Seattle on Horizon/Alaska. Moreover, San Francisco currently ranks as Kalispell s 16 th largest origin and destination passenger market, averaging almost 7,100 annual passengers in 2008, or 9.7 passengers per day each way, despite the lack of non-stop service. It is believed this number would be stimulated significantly with the addition of non-stop service. Glacier Park International Airport Small Community Air Service Development Grant August 2009 17

Table 9: Connections Available Beyond the United Airlines San Francisco Hub There is no question the Kalispell market lacks the kind of competitive air service that would result in lower fares and more competitive fares with other airports in the Northwest. Moreover, United provides service on just one route. The way current service is structured, with high fares and limited service, it is cost prohibitive for Kalispell travelers to leave the area, and it is expensive for tourists to come into the market. New flights, to a currently unserved destination, would provide additional competition in many of Kalispell s largest markets. The effect of this competition would be to bring fares down and increase enplanements. Glacier Park International Airport proposes that a relatively small portion of the cost of starting the new service be supported up-front with federal funds from the Small Community Air Service Development Program. Of the total project cost of $550,000, only $50,000 will be used for marketing and advertising projects. Due to the fact United Express already serves the market, Glacier Park International Airport Small Community Air Service Development Grant August 2009 18

and its previous start-up costs were covered by a previous Grant, it is not anticipated that United will incur any additional start-up costs for the launch of the San Francisco route. The federal share of this project will be $500,000, of which the entire amount will be available for use as a revenue guarantee. With demand for the service in the Kalispell market, the Airport projects the new flights will be profitable in their second year of operation. However, the Airport expects the new carrier to incur some losses at the launch of service, as the market becomes more accustomed to having competitive air service to a new west coast destination. The objective of the proposal is clear. Glacier Park International Airport seeks to bring a new competing route to the region on an established carrier, in order to provide additional connection opportunities, moderate airfares, stimulate demand, and quell the leakage the airport experiences today. The Airport is targeting this program to meet the goals of the Small Community Air Service Development Program through increased capacity, lowered average fares, and increased service to additional markets. If, for some unforeseen reason, service is not commenced in a timely manner by United Express on the San Francisco route, the Airport proposes to use federal grant money awarded under the Small Community Air Service Development Program to recruit service on another route, or on another carrier interested in beginning service to the community. The Airport will ensure any funding used under this Grant goes to a carrier that can provide access to a new hub that is not currently served. Alternate options for service under this Grant would include United service to the Chicago O Hare hub and/or Los Angeles, or Horizon Air/Alaska Airlines service to Portland and/or Los Angeles. Glacier Park International Airport Small Community Air Service Development Grant August 2009 19

Route Specific Data: Kalispell San Francisco The Glacier International Airport currently produces 192 unstimulated origin and destination passengers per day each way to destinations that naturally connect over the United Airlines hub at San Francisco. In calendar year 2008, Kalispell produced 140,579 total origin and destination passengers that would flow over San Francisco (see Table 10). In all, the Kalispell San Francisco route has the potential to capture 40% of the current passengers flying in and out of Kalispell, itself, without taking into account any passenger leakage, which will be demonstrated in this proposal to be above 35%. At the same time, the San Francisco hub could also capture 40% of the current revenue generated in the Glacier Park market. Table 10: Share of Kalispell O&D Passengers and Revenue Naturally Flowing Over SFO on United Calendar Year 2008 Total Kalispell O&D Passengers 350,120 100% Share of Kalispell Passengers Flowing Over SFO 140,579 40% San Francisco 40% San Francisco 40% Other Hubs 60% Other Hubs 60% Total Kalispell O&D Revenue $81,960,270 100% Share of Kalispell Revenue Flowing Over SFO $32,662,911 40% Currently, United markets from Kalispell that flow over the San Francisco hub generate more than $32.6 million in annual airline revenue, or $44,600 in revenue per day each way (RDEW) to and from the Glacier Park market (see Table 10). The United hub at San Francisco has potential to capture large portions of traffic in 51 of Kalispell s largest origin and destination markets. The San Francisco hub is especially well positioned to capture traffic traveling to southern California, the rest of the southwest, and even Glacier Park International Airport Small Community Air Service Development Grant August 2009 20

the east coast including large markets such as Phoenix, which produces 13.1 passengers per day each way (PDEW) to and from Kalispell; Dallas/Ft. Worth, which produces 12.3 PDEW; Los Angeles, which produces 11.8 PDEW; San Diego, which produces 11.5 PDEW; Orange County/Santa Ana, which produces 10.8 PDEW; and San Francisco, itself, which produces 9.7 PDEW (see Table 11). Table 11: Kalispell s Top 20 US O&D Passenger Markets Over San Francisco on United Calendar Year 2008 Phoenix - 1 9,590 13.1 Dallas/Ft Worth - 2 9,000 12.3 Los Angeles - 3 8,650 11.8 San Diego - 4 8,440 11.5 Orange County - 5 7,930 10.8 San Francisco - 6 7,060 9.6 New York EWR - 7 6,640 9.1 Las Vegas - 8 6,530 8.9 Sacramento - 9 5,650 7.7 Orlando - 10 5,320 7.3 Boston - 11 5,020 6.9 San Jose - 12 5,020 6.9 Oakland - 13 4,950 6.8 Houston Interc. - 14 4,770 6.5 Philadelphia - 15 4,240 5.8 Ontario - 16 Washington Dulles - 17 3,660 3,430 5.0 4.7 Annual Passengers PDEW Baltimore - 18 3,260 4.5 Burbank - 19 3,170 4.3 New York JFK - 20 2,490 3.4 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Kalispell s top 18 revenue markets that would flow over San Francisco on United each produce more than $1,000 in RDEW (see Table 12). The top potential Glacier Park revenue market over United s San Francisco hub is Dallas/Ft. Worth, which produces more than $3,100 in revenue per day each way (RDEW). Phoenix ranks as Kalispell s second-largest revenue market that United would access with service to its San Francisco hub, generating more than $2,800 in RDEW in 2008. The United hub at San Francisco is in a unique position to generate additional traffic and revenue to any number of Kalispell s top origin and destination markets. United Airlines service from Glacier Park International Airport to San Francisco has the potential to capture close to $33 Glacier Park International Airport Small Community Air Service Development Grant August 2009 21

million in current airline revenue, not taking into account any revenue stimulation through additional non-stop service. Table 12: Kalispell s Top 20 US O&D Revenue Markets Over San Francisco on United Calendar Year 2008 Dallas/Ft Worth - 1 $2,285,820 $3,131 Phoenix - 2 $2,052,740 $2,812 Los Angeles - 3 $1,860,875 $2,549 New York EWR - 4 $1,694,794 $2,322 San Diego - 5 $1,694,414 $2,321 Orange County - 6 $1,513,916 $2,074 San Francisco - 7 $1,296,216 $1,776 Houston Interc. - 8 $1,287,614 $1,764 Boston - 9 $1,285,773 $1,761 Las Vegas - 10 $1,240,765 $1,700 Orlando - 11 $1,220,834 $1,672 Sacramento - 12 $1,095,648 $1,501 Philadelphia - 13 $1,051,690 $1,441 San Jose - 14 $986,127 $1,351 Oakland - 15 $964,656 $1,321 Baltimore - 16 $896,239 $1,228 Washington Dulles - 17 Ontario - 18 Burbank - 19 New York JFK - 20 $863,948 $750,886 $683,167 $677,429 $1,183 $1,029 $936 $928 Annual Revenue RDEW $0 $500,000 $1,000,000 $1,500,000 $2,000,000 Should it launch service between Glacier Park International Airport and San Francisco, United would be offering additional service in markets where the average fare is well above the regional average. The average one way fare to Kalispell markets that United would connect with one-stop service over San Francisco was $232 in 2008 28% above the current regional average of $181 each way (see Table 13). United would provide much-needed competition for Glacier Park International Airport catchment area residents traveling to many of the market s top destinations, where fares top the regional average, such as Dallas/Ft. Worth, where the average roundtrip fare was $508 in 2008; New York/Newark, where the average roundtrip fare was $510 in 2008; Boston, where the average roundtrip fare was $512 in 2008; and Houston, where the average roundtrip fare was $540 in 2008. The only real chance at fare relief in markets that flow over San Francisco on United is for additional service over a west coast hub. United flights over San Francisco would go a long way towards providing sufficient competition to bring fares in-line with those found in other regional markets. Glacier Park International Airport Small Community Air Service Development Grant August 2009 22

Table 13: Average One Way Fares at Kalispell s Top 20 US O&D Passenger Markets Over SFO on United Calendar Year 2008 Phoenix - 1 Dallas/Ft Worth - 2 Los Angeles - 3 San Diego - 4 Orange County - 5 San Francisco - 6 New York EWR - 7 Las Vegas - 8 Sacramento - 9 Orlando - 10 Boston - 11 San Jose - 12 Oakland - 13 Houston Interc. - 14 Philadelphia - 15 Ontario - 16 Washington Dulles - 17 Baltimore - 18 Burbank - 19 New York JFK - 20 $214 $254 $215 $201 $191 $184 $255 $190 $194 $229 $256 $196 $195 $270 $248 $205 $252 $275 $216 $272 Average Over SFO: $232 $0 $50 $100 $150 $200 $250 The Airport believes there is sufficient passenger traffic and revenue that would flow over United s San Francisco hub to make the service profitable. United would not be forced to offer rock-bottom fares in the Glacier Park market in order to be competitive even fares slightly higher than those found in other western markets would be considered low for local Kalispell travelers. The Glacier Park International Airport believes in the Kalispell San Francisco market, and must develop a risk mitigation package to ensure United can enter the market without major risk. Glacier Park International Airport Small Community Air Service Development Grant August 2009 23

Letters of Support Glacier Park International Airport Small Community Air Service Development Grant August 2009 24

Glacier Park International Airport Small Community Air Service Development Grant August 2009 25

Current Air Service at Glacier Park International Airport The Glacier Park market is a very stable and solid performer for its incumbent airlines. The Airport s total passengers have hovered between 320,000 a year and 365,000 a year for the last six years, with only modest fluctuation. Passengers have held steady despite average fares that have risen 41% since 2003. The market is not being stimulated, but it s not experiencing high fare suppression like so many others. At the same time, as previously noted in this application, the market s real story is its seasonality. While the market sees as many as 70,000 total passengers per month in the summer months, it has seen as few as 35,000 per month in the winter. The Airport believes the reason for this passenger drop in the winter is not entirely explained by lagging demand. Instead, the Airport believes airlines cutting available seats have a large impact on the availability of flights making it much more difficult to find adequate options in the winter. The Airport believes the lack of sufficient available seats in the winter is leading local travelers to defer trips to other times of the year, or to cancel trips entirely. At the same time, it is likely that inbound tourists are finding connectivity to Kalispell, and its ski resorts, difficult, forcing them to take winter vacations in better connected resort cities. Current Passenger Traffic at Glacier Park International Airport The Glacier Park market has the potential to produce very large passenger numbers for a market of its size with less than 200,000 local catchment area residents. However, it appears passengers are being suppressed by the low number of available seats in the winter months. It has already been established that Glacier Park International (GPI) loses up to 50% if its available seats in the wintertime. While that hasn t hurt overall passenger numbers in the last several years, it makes it difficult to see the market in any light but seasonal. GPI had its best month in the last several years in July of 2007, when it saw a total of 58,078 onboard passengers (see Table 14). By November, just four months later, the total number of onboard passengers at the Airport dropped by 152%, to just under 23,000. Passengers remained below 30,000 through the next summer, when in July a total of 55,000 onboard passengers used the Airport a jump of 139% over the winter lows. Glacier Park International Airport Small Community Air Service Development Grant August 2009 26

Table 14: 65,000 Domestic US Origin & Destination Passengers and Available Seats January 2007 December 2008 71,184 69,244 65,958 65,468 59,334 55,000 45,000 39,492 36,238 46,250 43,88443,562 50,648 46,640 39,704 36,028 37,656 38,178 38,646 37,066 35,060 34,406 40,262 38,498 37,290 34,932 35,000 58,078 54,519 55,091 53,291 25,000 15,000 24,45323,892 27,764 23,629 25,879 40,907 35,640 26,884 26,441 22,970 24,015 25,513 27,946 24,931 19,963 38,238 31,543 24,457 26,013 20,326 Much of the passenger volatility from summer to winter came as a result not of natural market demand, but of the manipulation of that demand by the airlines serving GPI. As airlines pull seats out of the market in the fall and into the winter, the total number of available seats at GPI is lower than the number of onboard passengers using the airport in the summer. This is a phenomenon not seem in many airports. For example, in February of 2008, airlines serving GPI offered just 34,400 seats in the market (see Table 14). That number of seats was 60% less than the total number of passengers using the airport just five months later, when the Airport reported 55,000 onboard passengers in July of 2008. As a highly seasonal market, airlines have grown accustomed to moving aircraft out of the Kalispell market in the winter. But the market s seasonality is decreasing, as additional winter resorts come on-line, and as business in the community grows. It is up to the Airport to make this point to prospective airlines. On an annualized basis, the Kalispell market generates at least 10 passengers per way each day in 15 different markets, of which nine are on or near the west coast (see Table 15). The Glacier Park International Airport (GPI) has non-stop service, for at least part of the year, to five of its top Glacier Park International Airport Small Community Air Service Development Grant August 2009 27

seven markets, including Seattle/Tacoma (Horizon Air), Denver (United Express), Minneapolis/St. Paul (Northwest/Delta), Las Vegas (Allegiant Air), and Salt Lake City (Delta Connection). Kalispell has seen periodic seasonal service to both Chicago O Hare (United) and Atlanta (Delta). Table 15: Kalispell s Top 20 US O&D Passenger Markets Calendar Year 2008 Seattle/Tacoma, WA 28,980 39.7 Denver, CO 15,070 20.6 New York/Newark, NY 12,510 17.1 Minneapolis, MN 12,100 16.6 Las Vegas, NV 11,340 15.5 Chicago, IL 10,930 15.0 Salt Lake City, UT 10,520 14.4 Phoenix/Mesa, AZ 9,590 13.1 Atlanta, GA 9,270 12.7 Dallas/Ft Worth, TX 9,000 12.3 Los Angeles, CA 8,650 11.8 San Diego, CA 8,440 11.6 Orange County, CA 7,950 10.9 Washington, DC 7,710 10.6 Portland, OR 7,390 10.1 San Francisco, CA Sacramento, CA 7,060 5,650 7.7 9.7 Annual Passengers PDEW Orlando/Sanford, FL 5,320 7.3 Boston, MA 5,020 6.9 San Jose, CA 5,020 6.9 0 5,000 10,000 15,000 20,000 25,000 30,000 Routes that have non-stop service from Kalispell tend to draw significantly more origin and destination passengers. Currently, San Francisco ranks as the market s 16 th largest origin and destination passenger market, producing 9.7 passengers per day each way (see Table 15). It is believed non-stop service on the route would cause significant stimulation especially in visitors coming to Glacier Park from the Bay Area similar to the growth seen in other markets. By the same token, non-stop markets tend to be Glacier Park s top revenue generators. In 2008, four of the market s top ten origin and destination revenue destinations had non-stop service. Those markets included Seattle/Tacoma, which generated almost $5,000 in revenue per day each way; Denver, which generated $4,400 in revenue per day each way; Minneapolis/St. Paul, which generated $3,400 in revenue per day each way; and Salt Lake City, which generated $2,600 in revenue per day each way (see Table 16). Glacier Park International Airport Small Community Air Service Development Grant August 2009 28

Table 16: Top 20 US Origin & Destination Revenue Markets Calendar Year 2008 ORD $660,540 $905 LAX $657,230 $900 IAD $563,600 $772 SAN $328,990 $451 DEN $315,260 $432 PHX $311,810 $427 MCO $280,990 $385 LAS $277,720 $380 SEA $270,930 $371 DFW $260,440 $357 SLC $221,530 $303 BOS SNA JFK $202,400 $196,410 $178,200 $277 $269 $244 Annual Revenue RDEW BWI $175,280 $240 PDX $172,240 $236 PHL $169,800 $233 BOI $147,740 $202 ONT $135,740 $186 CLT $123,220 $169 0 100,000 200,000 300,000 400,000 500,000 600,000 San Francisco ranked as the market s 15 th largest revenue destination, with almost $1,800 in revenue per day each way in 2008 (see Table 16). It is likely San Francisco s ranking would move up considerably with non-stop service, due to the fact tourist passengers inbound to Kalispell often will only consider traveling to non-stop destination from their home airport. The Glacier Park market is currently competing with markets all across the west for tourist dollars. Each nonstop flight to a new city opens up tens of thousands of new passengers who would otherwise have traveled to resorts on other non-stop flights. The lure of a non-stop cannot be underestimated in drawing people to a place like Kalispell and the Flathead Valley. The United hub at San Francisco has tremendous potential to connect the airline with much of available Glacier Park revenue. The San Francisco hub could access 16 of Kalispell s top 20 2008 passengers markets and 17 of Kalispell s top 20 revenue markets. Moreover, the Airport believes non-stop service will dramatically increase non-stop passengers and revenue. Glacier Park International Airport Small Community Air Service Development Grant August 2009 29

Current Air Carrier Market Share at Glacier Park International Airport United continues to be a small player in the Glacier Park market, capturing just 11% of the Airport s total passengers in the fourth quarter of 2008 (see Table 17). Additional service would, not only, help them grow market share, but also help United become a better competitor to the new dominant carrier in Kalispell the combined Delta/Northwest. Table 17: Total Domestic O&D Passengers by Airline 30,000 25,000 24,200 20,000 15,000 15,430 14,080 10,000 5,000 0 7,150 4,810 250 160 Delta Alaska Northwest United Allegiant American US Airways Total Domestic O&D Passengers Airline Shares 21.2% 10.8% 7.3% 0.4% 0.2% 0.3% 23.3% 36.5% In the fourth quarter of 2008, Delta captured 24,200 total passengers, or passengers per day each way, which was good for 36.5% of the market and the number one position (see Table 17). At the same time, Northwest ranked as the market s third largest carrier, capturing 14,080 passengers, or passengers per day each way - % of the Kalispell market. Alone, Northwest double the number of passengers using United in the fourth quarter of 2008. Glacier Park International Airport Small Community Air Service Development Grant August 2009 30

Together, Delta and Northwest captured 58.8% of the Kalispell market in the fourth quarter of 2008 (see Table 17). This trend is expected to increase as both carriers add much more summertime capacity than any of the other Kalispell incumbents. With such a large market share, Delta will have significantly more pricing control in Kalispell than it ever has before. The result of this pricing control will likely be fares that rise above the current $260 one way average to levels where passenger suppression in pursuit of higher unit revenues is almost guaranteed. The only way the Airport can effectively prevent Delta from gaining market share, and more pricing power, is through the encouragement of additional flying by other incumbents or new airlines. The Airport has been successful in its last two new service initiatives landing United service to Denver and Allegiant service to Las Vegas. But in order for United to effectively compete to a wider array of destinations, it will have to add seats to a new hub. The San Francisco hub makes the most sense. The Airport realizes United will not add seats at its own risk in the current economic environment. It is exceptionally important for the Airport to partner with the Airline on a risk mitigation package, to reduce the barrier to entry of launching a new non-stop destination. The Airport will need a federal partner to make this happen and the best option is a Small Community Air Service Development Grant. Glacier Park International Airport Small Community Air Service Development Grant August 2009 31

Air Service Deficiencies at Glacier Park International Airport While a major air service deficiency at Glacier Park International Airport is the seasonality of available airline seats in the market, there are other deficiencies that new United service to San Francisco would help to remedy not the least of which is passenger leakage to other airports in the region. Although the Glacier Park International Airport catchment area represents a large proportion of the population of the larger region, the Airport does not retain the number of passengers equal to its share of the regional population. In other words, the Airport is leaking a large percentage of its passengers to other airports even when those airports are not particularly close. The Kalispell-Whitefish-Columbia Falls metropolitan statistical area had a population of 88,473 as of the latest US Census estimates (see Table 18). Table 18: Regional Population FCA GEG GTF MSO Population Share Spokane (GEG) 462,677 62.5% Missoula (MSO) 107,320 14.5% Kalispell (FCA) 88,473 11.9% Great Falls (GTF) 82,026 11.1% Source: US Census Share of Population of Combined FCA/GEG/MSO/GTF Catchment Glacier Park International Airport Small Community Air Service Development Grant August 2009 32

The larger region comprised of the metro areas of Missoula, Great Falls, and Spokane has a current population of 740,496 (see Table 18). Kalispell s share of the regional population is 11.9%, while Spokane has the largest share of the regional population, with 62.5%. In many markets, an Airport draws a number of passengers proportional to its overall population in the region. If that were to be the case in the Kalispell market, one could reasonably expect the Airport to retain about 12% of the total passengers using all four airports in the larger region. However, in the case of Kalispell, Glacier Park International Airport does not retain anywhere close to 12% of the region s passengers. While the Kalispell metro area is home to 11.9% of the region s total residents, its airport retains less than 8% of the region s total origin and destination passengers (see Table 19). In the region, Kalispell has the lowest share of passenger retention of any airport. In 2008, Glacier Park International Airport saw a total of 340,880 origin and destination passengers. If the Airport had been able to retain the number of regional passengers proportional to its share of population in the region, it would have been used by another 171,111 passengers. In effect, Glacier Park International Airport leaked these passengers to other airports in the region a leakage rate of more than 33.4%. The bottom line is that Glacier Park International Airport only retains about 70% the passengers that should be expected to use the Airport based on its share of the regional population. Table 19: Population Share US Census Estimates 2008 O&D Passenger Share Calendar Year 2008 Kalispell 11.9% Great Falls 11.1% Kalispell 8.0% Great Falls 6.3% Missoula 12.4% Spokane 62.5% Missoula 14.5% Spokane 73.4% Source: US Census Share of Population of Combined FCA/GEG/MSO/GTFCatchment Glacier Park International Airport Small Community Air Service Development Grant August 2009 33

The largest beneficiary of Kalispell s passenger leakage is Spokane which is four and a half hours away by car in good weather. Spokane had reverse leakage in 2008, when it drew 14.8% more passengers than its proportion of the regional population. While Spokane makes-up 62.5% of the region s population, it boards more than 73.3% of the region s total origin and destination passengers (see Table 19). If Spokane retained a number of origin and destination passengers proportional to its regional population share, it would be expected to generate 2,677,499 passengers annually. In 2008, Spokane saw a total of 3.14 million O&D passengers again, 33% above its regional share. Some of those passengers likely came at the expense of Glacier Park International Airport. Another way of determining passenger leakage from the Kalispell market to other airports in the region is by comparing the economy of Kalispell to the economies of the nearest three cities with commercially-served airports. The easiest way to gauge each catchment area s contribution to the economy of the region is to compare the gross metropolitan products (GMP) of each. A GMP is much like a gross national product an overall gauge of economic activity in an area in dollars earned. Table 20: Gross Metropolitan Product (GMP) FCA GEG GTF MSO GMP Share Spokane (GEG) $16.8 Billion 61.5% Missoula (MSO) $4.4 Billion 16.3% Kalispell (FCA) $3.4 Billion 12.5% Great Falls (GTF) $2.7 Billion 9.7% Sources: United States Council of Mayors, June 2008 Glacier Park International Airport Small Community Air Service Development Grant August 2009 34

The United States Council of Mayors reports the Kalispell-Whitefish-Columbia Falls metro area produced a GMP of $3.4 billion in 2008, which represented 12.5% of the total gross regional product (GRP) of the area including Spokane, Missoula, and Great Falls (see Table 20). Spokane generated the largest portion of the GRP, with $16.8 billion, or 61.5%, while Missoula produced a GMP of $4.4 billion good for 16.3% of the GRP. Despite producing more than 12% of the total gross regional product (GRP), Glacier Park International Airport retains just 7.9% of the region s total origin and destination passengers (see Table 21). In the region, Kalispell has the lowest share of passenger retention relative to its gross metro product (GMP), of any airport. In 2008, Glacier Park International Airport generated a total of 340,880 origin and destination passengers. If the Airport had been able to retain the number of regional passengers proportional to its share of the GRP, it would have been used by another 193,007 passengers. In effect, Glacier Park International Airport leaked these passengers to other airports in the region a leakage rate topping 36.1%. The Airport only retains about 63% of the passengers that should be expected based on its share of the gross regional product. Table 21: Gross Metropolitan Product Share US Council of Mayors 2008 O&D Passenger Share Calendar Year 2008 Kalispell 12.5% Great Falls 9.7% Kalispell 8.0% Great Falls 6.3% Missoula 12.4% Spokane 61.5% Missoula 16.3% Spokane 73.4% Source: United States Council of Mayors The major beneficiary of Kalispell s passenger leakage is, again, Spokane. Spokane experienced reverse leakage in 2008, when it drew 16% more passengers than its proportion of the gross regional product (GRP). While Spokane generates 61.5% of the GRP, it boards more than 73.4% of the region s total origin and destination passengers (see Table 21). If Spokane Glacier Park International Airport Small Community Air Service Development Grant August 2009 35

retained a number of origin and destination passengers proportional to its GRP share, it would be expected to generate 2.64 million passengers annually. In 2008, Spokane saw a total of 3.14 million O&D passengers more than 16% above its projected GRP share. It has been established that Glacier Park International Airport is losing a significant number passengers from its catchment area. Attention then turns to the reasons why travelers are driving to other airports airports that aren t close. As is the case with many other airports experiencing leakage, it all comes down to the availability of flights on the right airlines at the right times, and, perhaps even more importantly, airfares. Airlines offer far fewer seats available for sale in Kalispell than do other airlines at other adjacent airports in the region, with the exception of Great Falls, which is a slightly smaller market than Kalispell both in terms of population (7.9% smaller) and in terms of gross metropolitan product (27.8% smaller). Airlines offered just over 259,849 total outbound available seats in Kalispell in 2008 (see Table 22). Table 22: Available Outbound Seats Calendar Year 2008 Spokane 2,289,997 Missoula 376,901 Kalispell 259,849 Great Falls 257,899 0.00 500,000.00 1,000,000.00 1,500,000.00 2,000,000.00 In 2008, airlines offered almost eight times the available seats in Spokane that they offered in Kalispell and 45% more seats in Missoula (see Table 22). Additionally, airlines offered less than one percent fewer seats in Great Falls than they did in Kalispell, despite the fact that Kalispell is Glacier Park International Airport Small Community Air Service Development Grant August 2009 36

8% bigger, in terms of population and has an economy that s 28% bigger than that of Great Falls. The lack of sufficient available seats for sale in the Kalispell market forces many travelers to drive to other airports to access the national air transportation system. The small number of available seats at Glacier Park International Airport in 2008 is partially responsible for the Airport s inability to retain a number of origin and destination passengers proportional to its population and gross metropolitan product. The other major factor is the average fare in the Kalispell market relative to the fares found at adjacent airports. As has been established, Glacier Park International Airport has some of the highest average fares in region with fared average fares 45% higher than the regional average (see Table 23). Kalispell also has the dubious honor of having the highest average fares among adjacent airports. The average fare at Glacier Park International in 2008 was $262 each way (see Table 23). The average fare at Glacier Park International Airport was 7% higher than the $246 average at Great Falls, 17% higher than the $224 average fare at Missoula, and 76% higher than the $149 one way average at Spokane. Table 23: Regional Average One-Way Airfares Calendar Year 2008 Kalispell, MT $262 Great Falls, MT $246 Missoula, MT $224 Spokane, WA $149 FCA Area Average: $220 $100 $120 $140 $160 $180 $200 $220 $240 $260 Glacier Park International Airport Small Community Air Service Development Grant August 2009 37

With fewer available seats and higher average fares, there isn t much incentive for Glacier Park International travelers to fly from their hometown airport, other than its convenience. In many cases, the convenience does not outweigh the greater flight offerings and lower fares at other airports in the region even though the airport with the best available fares and flight options is a four and a half hour drive away. The only proven way to bring down fares, and add seats to the Kalispell market, is to recruit additional flights to additional hubs. The proven way to recruit flights is to offer some kind of incentive package, to reduce a carrier s barrier to entry into a new market. Glacier Park International Airport has designed this Grant-supported project to do just that. The project eliminates the airline s barrier to entry by providing a revenue guarantee to cover losses in the start-up phase of the service. The Airport s project also eliminates the carrier s burden to pay landing fees, terminal rent, and parking fees for the first year of service. Additionally, with the Airport providing start-up cost offsets, that airline will not have to supply equipment that can be provided by the Airport. The Airport must develop aggressive incentive programs to recruit additional air service, and to reduce leakage to other airports. Leakage costs a community significant money in time, wasted fuel, and wear and tear on personal and company vehicles. The Airport aims to eliminate these inefficiencies by adding additional airline service. Glacier Park International Airport Small Community Air Service Development Grant August 2009 38

Extenuating Factors Affecting Air Service The airfare disparity between Glacier Park International Airport and other airports in the region is well documented. So is the fact that the Glacier Park market has fewer available seats than most other airports in the region. But there is another illustration of just how few seats are available in Kalispell, especially when considering the size of the market: the number of seats available per capita in 2008 compared to adjacent airports. Of the four adjacent markets, Glacier Park International Airport has the fewest available airline seats per capita even less than Great Falls, which is a smaller community. In 2008, airlines serving the Airport offered just 2.94 seats per resident of the Glacier Park International catchment area (see Table 24). Kalispell had 7% fewer seats per resident than Great Falls, 19% fewer seats per capita than Missoula, and 68% fewer seats per capita than Spokane. Table 24: Available Outbound Seats Per Capita Calendar Year 2008 Spokane 4.95 Missoula 3.51 Great Falls 3.14 Kalispell 2.94 2.00 2.50 3.00 3.50 4.00 4.50 5.00 The number of seats per capita is an excellent data point for understanding how underserved non-hub and small-hub markets are. The data in this case illustrates how airlines have somewhat neglected the Kalispell market, and forced residents of Glacier Park International Airport s catchment area to seek out air service at other airports in the region some of which are at least a four and a half hour drive away. Glacier Park International Airport Small Community Air Service Development Grant August 2009 39

With so few available seats in the Glacier Park market, it is no surprise that the Airport s enplanements are under the national average for origin and destination passengers per capita. In 2008, Glacier Park International Airport generated just 1.64 passengers per resident of its catchment area 28% fewer than the national average of 2.1 passengers per capita (see Table 25). Table 25: Onboard Outbound Passengers Per Capita Calendar Year 2008 Spokane 3.40 Missoula 2.48 Kalispell 1.93 Great Falls 1.64 National Average: 2.10 1.00 1.50 2.00 2.50 3.00 3.50 Glacier Park International Airport generated the fewest passengers per capita of all adjacent airports in 2008, producing 18% fewer origin and destination passengers per capita than Great Falls, 51% fewer O&D passengers per catchment area resident than Missoula, and 107% fewer O&D passengers per capita than Spokane (see Table 25). Although it may appear that the Kalispell market doesn t produce as many O&D passengers as other markets, that is not necessarily the case. The likely reality is that there aren t enough seats to accommodate the demand for travel in the Kalispell market, so many of those who live in the Glacier Park International Airport catchment area are forced to drive to other airports, such as Spokane, to access the national air transportation system. Airlines serving Kalispell simply don t offer enough seats to satisfy local demand. And because, for so long, the Glacier Park market has been underserved, Kalispell residents are conditioned to expect to have to drive to other airports in the region to catch flights. Moreover, there is little Glacier Park International Airport Small Community Air Service Development Grant August 2009 40

incentive for Kalispell s incumbent airlines to offer additional flights, as they can fill the planes they fly into and out of the market, while earning a fare and yield premium for their scarce product. Without any increase in flying in the market there will be little pressure to bring fares inline with those found at other airports in the region. Glacier Park International Airport Small Community Air Service Development Grant August 2009 41

Availability of Alternate Airports The Glacier Park International Airport catchment area is surrounded by alternate airports, however, the closest of these airports offer less service than does Kalispell, itself, making Kalispell the main air hub for the Flathead Valley. The closest alternate airports to Kalispell include Missoula, which lies 116 miles away a drive of two hours and 20 minutes and Great Falls, which lies 242 miles away a drive of four hours and 20 minutes (see Table 26). Both of these alternate airports offer service that only mirrors what s available at Glacier Park International Airport. Table 26: Alternate Airports FCA GEG GTF MSO Alternate Airports Near Glacier Park International It appears that most Kalispell passengers who choose to fly from other airports in the region fly from Spokane, due to the large presence of low cost carriers that serve that airport. Spokane lies 237 miles from Kalispell a drive of four and a half hours through the Rocky Mountains (see Table 26). This drive is difficult, not only due to topography, but also due to frequent bad weather and heavy snows. Glacier Park International Airport Small Community Air Service Development Grant August 2009 42

Use of Local / Federal Funds Marketing and Advertising Glacier Park International Airport proposes to spend $50,000 in funds on marketing and advertising promotions in support of new service. The goal is to increase enplanements and usage through targeted regional campaigns. Startup Cost Offsets The Airport will likely not have to expense any funds in support of start-up expenses, due to the fact that the target airline already serves Glacier Park International Airport. Should United decide not to add service to a new hub from Kalispell, the Airport might have to expense a small amount of funding in support of start-up cost offsets. This funding would come from the revenue guarantee portion of the Grant. Revenue Guarantee The Airport proposes to make available at least $500,000 in funds for a revenue guarantee to the new carrier, to cover start-up losses that may occur during the first twelve months of service. Subject to negotiation, payments will be made to the new carrier quarterly, when income derived from passengers and cargo is less than agreed expenses on the route. Revenue generated that exceeds expenses will be carried forward and tapped before any grant funds are used. Additional Costs As part of this program, the Airport understands that additional expenses will be incurred, such as monitoring the results of the program and reporting those results back to the US DOT. In addition, Glacier Park International Airport expects to incur some expenses in the recruitment of a new airline. These additional costs will come from the revenue guarantee portion of the funding. Glacier Park International Airport Small Community Air Service Development Grant August 2009 43

Public / Private Partnerships A number of local partners will be working with Glacier Park International Airport to promote and market the new service. Contacts will be made to all regional members of chambers of commerce and similar organizations, and those with an interest in growing the economic base of the community through local business growth, attraction of new businesses and the promotion of tourism and visitor traffic via the airport. Montana West Economic Development and the Flathead Port Authority Montana West Economic Development and the Flathead Economic Development Port Authority s objective is to grow job opportunities in Northwest Montana. These organizations work hand in hand to help local businesses expand and to attract appropriate new businesses to the valley. They work to build the reputation of the area as a desirable place to do business through strategic marketing and communications. All services are provided at no cost and include information on demographics, workforce and labor trends, sites and facilities, financing options, logistics and local service providers. In addition they support a local Technology Roundtable and various special events aimed at promoting positive economic development activities. Kalispell Area Chamber of Commerce The Kalispell Area Chamber of Commerce is a business and professional association consisting of 700 members. These members employ over half of the private workforce in Flathead County. Founded in 1905, the mission of the Kalispell Area Chamber of Commerce is to enhance the community and business environment of the Flathead Valley. The Chamber provides numerous services to help meet those goals including: business start up and expansion assistance, public policy development and advocacy, business promotion and public relations, community leadership development, business networking and marketing, workforce training and development, and the creation and dissemination of business and economic data and research. Glacier Park International Airport Small Community Air Service Development Grant August 2009 44

Montana Department of Commerce Regional Development Office The RDO's are a resource to businesses, local development corporations, and communities in the area. The program serves as an access point to relevant Commerce Department resources, and all other relevant business and community development resources. The mission of the Regional Development Officer is to insure that all areas of Montana have reasonably equal access to funding and resources; develop close and effective working relationships with businesses, city and county governments, and local economic development agencies (EDCs); work closely with the Governor s Office of Economic Opportunity with its economic development activities; assist the Commerce programs with efforts to maximize leverage of other funds; help businesses create higher paying and sustainable jobs; and provide access to information and programs about other state and federal programs. The RDO is the key conduit between expanding Montana businesses seeking financing through business loan programs such as Community Development. Block Grant (CDBG), Montana Board of Investments (MTBOI) and others. Air Service Advisory Groups Glacier Park International Airport has established an Air Service Advisory Group to help recruit new service and support incumbent airlines. The Group consists of the Glacier Park International Airport, Montana West Economic Development and the Flathead Port Authority, the Kalispell Area Chamber of Commerce, Whitefish Partners, and the Montana Department of Commerce. Glacier Park International Airport Small Community Air Service Development Grant August 2009 45

Local Air Service Development Efforts Since at least 1998 Glacier Park International Airport has been involved in aggressive air service development efforts. During that year Glacier Park International Airport retained the services of Sixel Consulting Group to help recruit Northwest Airlines to serve the Flathead Valley year round (at that time they provided only seasonal service). In 2001, Glacier Park International Airport first approached United Airlines regarding service to Denver. 9/11 and United s subsequent bankruptcy led to putting that partnership on hold. In early 2003 Glacier Park International Airport visited America West Airlines in Phoenix to propose service to Phoenix. The Airport proposed seasonal Airbus service to America West. Beginning in June 2003 America West began year round regional jet service to the Flathead Valley with one flight per day. Following the summer of 2004 America West discontinued service. They returned in the summer of 2005 but left the market after the merger with US Airways. In 2006, Glacier Park International Airport was able to convince United Airlines to commence service on the Kalispell Denver route, under the United Express brand, using regional jets. This route was made possible by a federal Small Community Air Service Development Grant. The route is still being flown today, after the Grant was closed out. In 2008, the Airport recruited Allegiant Air to begin twice-weekly service to Las Vegas. That service has performed well in its first year of service. In-kind Services from the Community Whitefish Partners, The Kalispell Chamber of Commerce, Flathead Convention and Visitors Bureau, Flathead County Economic Development Authority and Montana West Economic Authority all have agreed to feature the new United Express service to/from San Francisco in all of their promotional material, newsletters, contacts with members and at trade shows, conventions, etc. The value of this in-kind service is undeterminable. Glacier Park International Airport Small Community Air Service Development Grant August 2009 46

Performance Measures The success of the program will be based on three variables. The first measure of success will be the recruitment and retention of an airline to provide service to a new hub. When new service is initiated, the first measure of success will be met. The Airport will judge the second measure of success by the increased number of enplanements. Finally, the third measure of success will be based on how much average airfares in the community have gone down. The measurement of enplanements will include a monthly comparison, once the program begins, to past enplanements numbers. The measurement of airfares will be derived from US DOT OD1A reports. Financial Controls As the sponsor, Glacier Park International Airport will be the responsible party for all fiscal matters and DOT reporting requirements. The group is established as an Airport Authority, which is a public governing body. As a public entity the DOT can be assured that proper financial controls are in place to guarantee that the DOT s grant will be used in accordance with any subsequent agreement. The Airport understands that the grant is a reimbursable grant, meaning the Airport is responsible for program expenditures and will submit invoices to the DOT for reimbursement, based on a percentage of the total grant request. Return on Investment The Airport has developed a cost effective and achievable strategy to add new service, increase enplanements, and lower airfares at the airport. The proposal uses proven methods of achieving air service improvements, allowing the DOT to be comfortable with choosing this proposal. The increased competition, and access to lower airfares with increased competition, by adding service on a new route, is in line with the major goals of the Small Community Air Service Development Program. Approximately $50,000 of the $550,000 in cash is committed to being spent. The remaining $500,000 in cash available for the revenue guarantee portion of the grant may never be expensed. Glacier Park International Airport Small Community Air Service Development Grant August 2009 47

DOT Exit Strategy Glacier Park International Airport has developed this proposal as a one-time grant. The advertising and marketing program will commence a few months before service starts and last for at least twelve months. The revenue guarantee program will also be in place for twelve months, with two additional twelve-month periods available for negotiation. It is projected that the service will be financially self-sustaining within the second twelve months of service. Alternate Plan If, for some unforeseen reason, service is not commenced in a timely manner by United Express on the San Francisco route, the Airport proposes to use federal grant money awarded under the Small Community Air Service Development Program to recruit service on another route, or on another carrier interested in beginning service to the community. The Airport will ensure any funding used under this Grant goes to a carrier that can provide access to a new hub that is not currently served. Alternate options for service under this Grant would include United service to the Chicago O Hare hub and/or Los Angeles, or Horizon Air/Alaska Airlines service to Portland and/or Los Angeles. Glacier Park International Airport Small Community Air Service Development Grant August 2009 48

Glacier Park International Airport Background Glacier Park International Airport is a public airport serving Flathead County, Montana. It located six miles) northeast of the central business district of Kalispell and also serves the towns of Evergreen, Columbia Falls, and Whitefish as well as Glacier National Park. The airport was originally built in 1942 under the name Flathead County Airport. For many years, passenger traffic remained low. In 1970, the airport was designated for international traffic and changed to the current name. Throughout the 1970s and 1980s, traffic picked up substantially, as Hughes Airwest, Western Airlines and Horizon Air offered flights. The terminal was upgraded in 1981, and further major upgrades to the terminal, runways and other facilities occurred throughout the 1990s. Glacier Park International Airport now covers an area of 1,505 acres which contains two asphalt paved runways: 2/20 measuring 9,006 x 150 ft and 12/30 measuring 3,504 x 75 ft. Glacier Park International Airport Aerial Photo Glacier Park International Airport Small Community Air Service Development Grant August 2009 49

Kalispell Community Information Flathead County is Montana s third largest in terms of population, behind Yellowstone (Billings) and Missoula counties. The estimated 2006 population of 85,000 does not count an additional 16,000 or so summer residents. In terms of past, present and future growth, the vast majority of that growth is happening in the western part of the state. Led by Gallatin County s 34.4% population growth rate from 1990 to 2000, Flathead County ranks second, with a population growth rate of 25.8%. This is followed by the 21.8% growth rate experienced in Missoula County. Glacier Park International Airport serves the 132,030 residents located in four Montana counties; Flathead, Lincoln, Glacier and Lake (50%). In addition, Glacier Park International Airport is the primary air transportation node for the estimated 2 million annual visitors to Glacier National Park and Waterton Lakes National Park (Alberta). Flathead County is not only among one of the fastest growing counties in Montana, but in the nation as well. What s New in Kalispell Kalispell is in the heart of the magnificent Rocky Mountains, poised in the northwest corner of Montana and about an hour south of the Canadian border. As Montana's seventh largest city and the seat of Flathead County, it is a progressive, thriving community; the very essence of Big Sky Country with the best backyard in the country. o Bizjournals compared 140 micropolitan areas in 20 statistical categories, using data from the U.S. Census Bureau. A micro consists of a central community with 10,000 to 50,000 residents, along with the surrounding countryside. It is, in effect, a small-scale version of a metropolitan area. Kalispell the gateway to Glacier National Park may be isolated, but it's also one of the most scenic places in America. Entrepreneurial spirit runs high in Kalispell, which ranks sixth among all micros in percentage of self-employed workers. And local population is growing briskly. Quick stats: Area population: 85,314, Population growth since 2000: 14.6%, Average commuting time: 18.9 minutes, Median household income: $45,920, Homeownership rate: 76.1%, Median house value: $204,300, Adults with bachelor's degrees: 25.3% Glacier Park International Airport Small Community Air Service Development Grant August 2009 50

o U.S. News & World Report named Kalispell one of its 10 Best Outdoorsy Places to Retire if you like hiking, biking, or walking. Kalispell enjoys a four-season climate, with January being the coldest month. Kalispell lies among northwestern Montana's towering mountains, lush valleys, and pristine lakes. Glacier National Park is just north of Kalispell. Kalispell is the regional trade center for northwest Montana, serving over 150,000. Mountain Sports and Living magazine once named Kalispell the "best mountain town in America." o Glacier Gears Up For 100 Anniversary: In 2010, Glacier National Park will be marking its 100 year as a national park. Centennial events and celebrations will be occurring throughout the year. Visitors worldwide will celebrate with the park and explore the possibilities it has to offer, with millions of acres of wild country to explore, the most intact ecosystem in the lower 48 states and the spectacular Going-to-the-Sun Road. Glacier Park International Airport Small Community Air Service Development Grant August 2009 51

Kalispell Economic Overview Kalispell is the trade center of Northwest Montana, a dynamic, prosperous economy, where people travel to shop, receive medical care and conduct business. It is a market of 150,000 people. Education, government, health services, forest products, manufacturing, engineering, tourism and retail thrive and balance the local economy. Flathead County is Montana's third most populous and second-fastest growing with an estimated population in 2008 of over 87,000. From 1990 to 2000 the county's population surged by 26 percent. Growth estimates project that by 2015 the county's population will reach 100,000 (NPA Data Services Inc.) The county is a montage of three distinctive incorporated cities, Kalispell, Whitefish and Columbia Falls, as well as several small towns. Kalispell, the county seat, is the state's seventh largest city with a population of 22,000 and a growth rate of 22 percent since the U.S. 2000 census - its population is estimated to hit 25,000 by 2015. Greater Kalispell is home to over 34,000. Commercial development has reached epic proportions in the past few years. On Kalispell's north side three-quarter million square feet of major retailers and restaurants have been built to keep pace with the area's booming real estate growth. In 2008 the city issued 7 permits for $4.26 million in commercial construction. An additional 32 permits were issued for another $37.5 million in 2007. Glacier Park International Airport Small Community Air Service Development Grant August 2009 52

The Flathead Valley s Largest Employers, 2009 Kalispell Regional Medical Center 1,700 Plum Creek Timber Company 1,140 Semitool 700 Flathead Community College 689 TeleTech 500 Flathead County 456 Winter Sports, Inc. (Big Mountain Resort) 450 Workplace, Inc. 440 Glacier National Park 400 Columbia Falls School District 352 Wal-Mart 350 Burlington Northern 300 LC Staffing 300 Immanuel Lutheran Home 270 North Valley Hospital 235 Flathead National Forest 207 Whitefish School District 200 Glacier Bancorp 185 National Flood Service 175 CenturyTel 160 Target 150 Grouse Mountain Lodge 145 Brendan House 140 Columbia Falls Aluminum 140 Flathead Valley Co-Op 140 Rocky Mountain Contractors 140 Source: Kalispell Chamber of Commerce, January 2009 Kalispell Tourism Kalispell and the Flathead Valley are a visitor and recreational paradise. The area plays host to eight golf courses within a 45 minute drive, two ski resorts, Glacier National Park, and Flathead Lake. The Flathead boasts over 2000 artists and craftsman in residence, and among the highest concentration of bronze casting foundries in the nation. Outstanding arts and culture opportunities abound. This year the renowned Glacier Symphony and Chorale celebrates its 25th anniversary. Kalispell has been recognized as the "Best Mountain Town in America" by Mountain Sports and Living magazine. And, Glacier National Park has been rated the "Best Backcountry Park in America" by Backpacker magazine. Glacier Park International Airport Small Community Air Service Development Grant August 2009 53

Glacier National Park From downtown Kalispell, you can see the majestic, snowcapped peaks of magnificent Glacier National Park, with its diverse wildlife, awe-inspiring glaciers, expansive valleys, cascading waterfalls and a million acres of pristine wilderness, studded with 762 lakes, 563 streams or rivers and 175 named mountains - six of which rise to over 10,000 feet. Glacier National Park is known as the Crown of the Continent with some of North America s most stunning mountain vistas. The most-visited attraction in Glacier Park is the Going to the Sun Road, which traverses the mountain peaks above timberline, offering sweeping vistas of the northern Rockies. Glacier Park offers more than 700-miles of trails, which link roughly 700-mountain lakes, 37 glaciers, and access to more than 1,000-species of plants. The Park is home to full-time residents such as black bears, grizzly bears, mountain goats, bighorn sheep, moose, and deer. In 1995, Glacier Park was named a World Heritage Site, joining such landmarks as the Taj Majal, the Galapagos Islands, and the Serengeti Plains. Flathead National Forest The more than 2.3 million acres of the Flathead National Forest that dominate the Kalispell region make Northwest Montana a sportsman's paradise. The forest and adjacent undeveloped lands, including Glacier and Waterton National Parks, create a recreational Shangri-La of nearly 10,000 square miles and provide habitat for 250 species of wildlife including elk, moose, bighorn sheep, mountain goats, mountain lions, wolves and grizzly bears. More than 200 species of birds have been recorded in the Flathead. The lakes, rivers and wetlands provide refuge to waterfowl. Lacing the valley floor are miles of streams, creeks and sloughs - perfect for slipping in your canoe or kayak. The Flathead River offers miles of great fishing for whitefish, cutthroat and rainbow trout. Recreationists enjoy rafting and boating on 219 miles of the Wild and Scenic portions of its North, Middle and South forks. Glacier Park International Airport Small Community Air Service Development Grant August 2009 54

Whitefish Whitefish is often referred to as Montana s recreation and vacation capital with year round options for just about every sports enthusiast. In the winter Whitefish Mountain Resort provides plenty of excitement and challenge for skiers and boarders alike. Whitefish is also the center of fun in the warm seasons including water sports aplenty on 7-mile long Whitefish Lake, mountain and road biking, hiking, river rafting, kayaking, amazing photo safari destinations, wildlife viewing and world class golf on two of the Valley s 9 championship courses.. Whitefish is famous for its great shopping and world class dining as well as comfortable and Montana Friendly lodging. Whitefish is one of the Rockies most-visited tourist destinations. Each year, more than 2 million visit this corner of the Flathead Valley. Whitefish s biggest draw is the worldfamous Big Mountain Resort, which boasts being the closest mountain ski resort to a commercial airport (just 11 miles from GPI). Glacier Park International Airport Small Community Air Service Development Grant August 2009 55