November 8, 2017 Chico Municipal Airport Industry Overview and Catchment Area Discussion
Agenda Regional industry discussion Chico performance review Chico catchment area study results Summary / conclusions / next steps 2
Airline consolidation has transformed the U.S. industry The four largest U.S. airlines operate 81% of domestic seats Combined Alaska + Virgin America operate another 6% In 2000, the four largest U.S. airlines operated 51% of total domestic seats Source: Innovata schedule data via Diio online portal 3
driving healthier airline economic performance 20% 25 Year U.S. Domestic Airlines* Operating Margins 15% Post-consolidation and cheap oil 10% The industry has finally gotten to a rational model 5% Doug Parker American Airlines CEO 0% -5% Post-Gulf War Oil price shock -10% -15% Post-9/11 1992 1997 2002 2007 2012 2016 * Basket of largest carriers/predecessors and selected other previous carriers 4 Source: Bloomberg.com article from June 20, 2017; US DOT Form 41 data via Diio online portal
However, challenges remain for smaller airport communities 2017 Five Year Domestic Departure Trends by Airport Rank/Size* 4% 2% 2% Seat declines across smaller airports have not been as severe 0% -2% -4% -6% 0% Trends had begun to moderate but have recently regained momentum -8% -10% -12% -9% -11% -14% -16% -18% -16% 1-25 26-50 51-100 101-250 251-600 * Airport ranking based on domestic passenger totals for the year 2012 Source: Innovata schedule data via Diio online portal 5
driven by a range of industry factors Reduction of turbo-prop aircraft marketed by major airlines Fewer small regional jet aircraft marketed by major airlines Shortage of regional airline pilots Large carrier service consolidation around major markets Wall St. Journal, April 7, 2014 Travel Weekly, January 12, 2016 Source: Media reports as detailed 6
However, tools remain for small airport communities Small Community Air Service Development program (SCASD) Essential Air Service program (EAS) Non-traditional airlines / airline business models Revenue guarantees / community incentive programs Sample November 2017 Week: Small California Airport* Schedule Profile City Weekly trips Airline Comments Merced/MCE 31 Boutique 9 seat aircraft (EAS grant) Eureka/Arcata/ACV 28 United** 4x daily to SFO El Centro/Imperial/IPL 24 Mokulele 8 seat aircraft (EAS grant) Redding/RDD 20 United** 3x daily to SFO Santa Maria/SMX 17 Allegiant / Mokulele ULCC and regional operations Crescent City/CEC 14 Penair 30 seat aircraft (EAS grant) Stockton/SCK 14 Allegiant All ULCC leisure Inyokern/IYK 12 Boutique ENDING SOON Mammoth Lakes/MMH 7 Alaska** 1x daily to LAX * California airports with <5 schedule daily departures ** Operated by regional partner carrier Source: Innovata schedule data via Diio online portal 7
Agenda Regional industry discussion Chico performance review Chico catchment area study results Summary / conclusions / next steps 8
Scheduled service from Chico ceased in 2014 Departures 4.5 Chico/CIC historical service levels Seats 140 4.0 3.5 120 All recent service was branded as United with 30 seat EMB120 aircraft Service levels had been reduced prior to the 4Q14 cessation of service 3.0 2.5 2.0 1.5 1.0 0.5 100 80 60 40 20 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 - Daily departures Daily seats Source: Innovata schedule data via Diio online portal 9
Recent Chico service trailed typical domestic revenue performance Revenue performance trailed domestic averages through the final years of service Performance did improve slightly following the decline in capacity 100% Chico/CIC rolling 12 month load factor Chico/CIC rolling 12 month domestic fare $250 90% 80% $200 70% 60% $150 50% 40% $100 30% 20% $50 10% 0% '03 '06 '09 '12 '14 $0 2003 2006 2009 2012 2014 CIC U.S. aggregate CIC US Fare data adjusted to stage length of 1,000 miles Source: US DOT data via Diio online portal 10
Agenda Regional industry discussion Chico performance review Chico catchment area study results Summary / conclusions / next steps 11
What is a catchment area analysis? For airports with existing service Process begins with DOT-reported data measuring airport-specific traffic Data is then sourced sampling airline ticket data from local region Adjustments are made to account for data irregularities / sync with airport data Leakage and true demand are then calculated across multiple levels For airports without existing service (Chico) No actual airport performance data exists Analytical benchmarking exercise projects macro-level traffic data Passenger ticket data is sourced to identify specific airport and airline usage Primary objective is to quantify market-specific traffic potential and airport usage 12
Why commission a catchment area analysis? Airport marketing and strategic efforts Understanding of true market demand for facilities and planning purposes Understanding of airport usage patterns provides competitive/marketing intelligence Full portfolio of data can guide airline / air service development efforts Airline business cases Provides airline planning groups with more accurate market profile than available through traditional data sources Allows airports to more interactively participate in airline planning process Allows airlines to proactively manage conversations and analysis regarding their future service patterns 13
The Chico/CIC catchment area ACV RDD CIC Blue = Chico metropolitan statistical area Green = expanded catchment area region Note that the entire shaded region is considered the CIC catchment area for the purpose of our analysis RNO STS SMF InterVISTAS developed a zip code level drive time analysis as the foundation for this catchment area definition SFO OAK SJC Source: Internal InterVISTAS analysis 14
Summary of results We project a total of 682 passengers per day each way (PDEW) on an annual basis Note this does not represent our projection of CIC traffic this is the projection of total traffic from the catchment area Of these passengers, we project airport usage as follows: Airport Domestic International Total Sacramento/SMF 80% 38% 75% San Francisco/SFO 13% 58% 19% Reno/RNO 2% n/a 2% Oakland/OAK 1% 2% 1% San Jose/SJC 1% 1% 1% Other 3% 1% 2% Source: Internal InterVISTAS analysis 15
Summary of results Top Chico markets by PDEW and airport usage are projected as follows: 50 Top 10 markets (PDEW): Chico area passengers Airport Share SMF 76% SFO 16% RNO 3% OAK 1% SJC 1% Other 3% 45 40 35 30 25 20 15 10 5 0 LAX SAN SEA NYC LAS SNA BUR PDX ONT PHX DEN CHI DFW WAS BOS Source: Internal InterVISTAS analysis 16
Agenda Regional industry discussion Chico performance review Chico catchment area study results Summary / conclusions / next steps 17
What does this mean for Chico? What are implications of 682 PDEW? How does this figure translate into a viable Chico airline business plan? 400 CIC PDEW at various traffic capture rates 350 341 An 20% capture rate could support a twice daily 70- seat service pattern* This assumes fares consistent with current regional airport levels 300 250 200 150 100 68 102 136 170 204 239 273 307 50 0 10% 15% 20% 25% 30% 35% 40% 45% 50% * Assumes 100% airline share capture Source: Internal InterVISTAS analysis 18
What does this mean for Chico? What are the logical service options? Los Angeles / LAX San Francisco/SFO 176 daily departures to 66 non-stop destinations 10 destinations in CA/WA/OR 19 peak-day departures with regional equipment 270 daily departures to 88 non-stop destinations 15 destinations in California; 8 more in OR/WA 53 peak-day departures with regional equipment 126 daily departures to 50 non-stop destinations 8 destinations in California 30 peak-day departures with regional equipment Flight Global. October 4, 2017 Source: Innovata schedule data via Diio online portal for November 2017 19
What does this mean for Chico? Strengths Newly quantified market size Distance from alternate airports Coordinated community effort Growth/competitive environment at LAX Weaknesses Substandard prior commercial performance Lack of recent service Opportunities Revenue guarantee framework SCASD opportunity Alternative regional business models Threats General regional industry trends Reduction of major carrier turbo-prop service Regional pilot shortage High hurdle rate for new service 20