July, 2014 Cheyenne Regional Airport Proposal Under the Small Community Air Service Development Program Docket: Sponsor: DUNS: Congressional District Code: Tax ID: Contact: DOT-OST-2014-0113 Cheyenne Regional Airport Board Cheyenne, WY 05-811-1790 WY-01 83-0253531 Jim Schell Deputy Director of Aviation 4000 Airport Parkway Cheyenne, WY 82001 (307) 634-7071
Table of Contents Summary Information 3 Proposal 7 Air Service Challenges/History 8 Plan And Overview 17 Priority Selection Criteria 20 Secondary Selection Criteria 22 Previous Project Goals 23 2
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Proposal Cheyenne s current air service is threatened. Changes in the airline environment have caused fares to increase; capacity and reliability to drop. These changes, largely out of control of Cheyenne Regional Airport, are contributing to a severe drop in passenger enplanements at the airport. Cheyenne Regional Airport has a long history of enplaning well in excess of 10,000 passengers annually without subsidy. However, for the first four months of 2014, passengers at CYS dropped nearly 50% from the same period in 2013. Cheyenne enplanements will fall under 10,000 for the first time in over 20 years in 2014, unless drastic changes to air service occur. Cheyenne Regional Airport is taking a proactive approach to preventing this from happening. Should Cheyenne lose air service for whatever reason, Cheyenne cannot apply to the Essential Air Service Program for relief, as no new cities are eligible for subsidy. Cheyenne is the most populous region and state capitol of Wyoming, and preservation of affordable air service is essential to the region s economy. Therefore, Cheyenne Regional Airport is applying for a Small Community Air Service Development Grant in the amount of $200,000, combined with state and local public and private funds to establish a minimum revenue guarantee to secure and market new airline service to a large hub or airport with substantial regional draw. Total funds available for this minimum revenue guarantee are $1 million, including in-kind contributions, fee waivers and marketing funds. Eligibility: Cheyenne Regional Airport is eligible to apply for the Small Community Air Service Development Program. Cheyenne Regional Airport is an underserved and under-utilized airport, seeking funds to increase the frequency of airline service and to reduce airfares to the largest community in the State of Wyoming. As of calendar year 1997, Cheyenne Regional Airport was not larger than a small hub airport. Cheyenne Regional Airport has unique characteristics and circumstances that demonstrate the need for grant assistance. 7
Air Service Challenges Cheyenne currently has air service to Denver on Great Lakes Airlines. Cheyenne-Denver is served twice daily on Beech 1900 aircraft configured with 9 passenger seats. Cheyenne-Denver: July 2014 Airline Origin Dest Flt # Equip Seats Depart Arrive Freq ZK CYS DEN 2981 BEH 9 717 752 1234.67 ZK CYS DEN 2955 BEH 9 1240 1315...7 ZK CYS DEN 2955 BEH 9 1300 1335 1.3456. ZK DEN CYS 2955 BEH 9 1120 1159...7 ZK DEN CYS 2955 BEH 9 1150 1229 1.3456. ZK DEN CYS 2998 BEH 9 1520 1559...6. ZK DEN CYS 2998 BEH 9 1755 1834 123.5.. ZK DEN CYS 2959 BEH 9 1947 2022...7 The current schedule represents a drastic reduction in both frequency and capacity from historic levels. Seats Per Day Each Way Departures Per Day 140 105 70 35 0 7 5.25 3.5 1.75 0 124 109 6.0 2004 2004 2005 111 5.2 5.3 2005 2006 2006 134 6.4 2007 2007 117 5.6 2008 2008 99 4.3 2009 2009 135 127 2010 2011 106 101 2012 2013 5.5 5.8 5.2 5.2 2010 2011 Flown 2012 2013 8 71 Jan 2014 65 Feb 2014 50 Mar 2014 3.7 3.4 2.6 Jan 2014 Feb 2014 Mar 2014 49 Apr 2014 3.5 Apr 2014 36 May 2014 May 2014 Seats Down: 65% from 2013 74% from Peak 17 Jun 2014 Jun 2014 20 Jul 2014 Jul 2014 24 Aug 2014 Aug 2014 25 Sep 2014 Sep 2014 25 Oct 2014 Oct 2014 24 Nov 2014 Nov 2014 25 Dec 2014 2.4 1.9 2.2 2.7 2.7 2.7 2.7 2.7 Scheduled Flights Down: 64% from 2013 70% from Peak Dec 2014
Air Service Challenges These latest changes do not necessarily have anything to do with Cheyenne as a market, but environmental factors such as pilot shortages at Cheyenne s only airline. In fact, Cheyenne has a history of fairly stable enplanements, despite some of relatively high airfares. Only recently have enplanements started to drop. Note the inversion between fare and passengers beginning in 2012. Annual Enplaned Passengers Vs. Fare - CYS $270 24,000 Average Fare $203 $135 $68 18,000 12,000 6,000 Annual Passengers 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 Passengers Fare Cheyenne airfares spiked in 2013, at $267 one-way. That s $76 and 49% more than the average domestic airfare for the Continental United States.Cheyenne s airfares are now well above the U.S. average; a priority selection criterium. $280 $267 $210 $140 $231 $222 $222 $208 $200 $199 $190 $193 $178 $155 $154 $143 $137 $144 $144 $132 $128 $132 $175 $139 $187 $153 $194 $166 $231 $172 $176 $70 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Cheyenne Continental US Average 9
Air Service Challenges In 2013, Cheyenne became one of the most expensive airports in the Continental U.S., ranking 7th most expensive out of 426 airports. Rank Airport City 2013 Ave Fare 1 IYK Inyokern, CA $376 2 ISN Williston, ND $353 3 DIK Dickinson, ND $289 4 DHN Dothan, AL $284 5 ASE Aspen, CO, $272 6 JMS Jamestown, ND $272 7 CYS Cheyenne, WY $267 8 ACV Eureka/Arcata, CA $265 9 PLN Pellston, MI $264 10 CSG Columbus, GA $264 Average Continental US $176 Cheyenne fares have never been higher compared to Denver fares. Cheyenne fares are now nearly TWICE the level of Denver fares. Rising fares and reduced frequency and capacity are making Cheyenne Regional Airport less competitive with Denver, the nearest large hub. Only new, competitive airline service will help Cheyenne reverse this trend. Cheyenne Vs. Denver Fares $280 200% Average Fare $235 $190 $145 175% 150% 125% $100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 100% Cheyenne Denver CYS as & of DEN 10
Air Service Challenges Cheyenne s Average Fares Are Higher Than Other Regional Airports. $280 $261 $210 $140 $70 $210 $219 $189 $150 Cheyenne Riverton Sheridan Laramie Denver $0 Drive from Cheyenne: Distance Drive Time Ave. Fare N/S Cities N/S Flts. Day Denver 107 mi 1:45 $150 190 760 Cheyenne s fares 74% higher than the large hub nearby in Denver, and consistently higher than other small airports in the region. 11
Air Service Challenges Recent passenger retention analysis demonstrates that Cheyenne Regional airport retains only 7% of airline traffic from its natural catchment area. New airline service would stimulate competition, lower fares and attract traffic from the 93% of passengers who are driving to other airports for air travel. Airport Usage - YE3Q13 Cheyenne Catchment Area Cheyenne 7% Estimated Current Cheyenne Catchment Area Other 93% With a passenger retention rate of only 7%, Cheyenne s True Market size is estimated to be nearly 300,000 passengers annually. Additional airline service will help Cheyenne Regional Airport capture some portion of that lost traffic. 12
Air Service Challenges Cheyenne merely seeks to replicate what has happened a short drive away in Laramie, WY. When a new operator began service to Laramie, fares plummeted and passengers surged. In 2013, Laramie enplaned more passengers than Cheyenne, possibly for the first time ever. Historically, Cheyenne Regional Airport produced 2-3 times the annual passengers at Laramie, which has 1/3rd of Cheyenne s population. Population within 30 miles Cheyenne 99,922 Laramie 33,831 Passengers (2011 vs. 2013) Laramie Cheyenne Fare (2011 vs. 2013) Laramie Cheyenne +66% -53% -23% +38% 24,000 Cheyenne Vs. Laramie $280 Annual O&D Passengers 18,000 12,000 6,000 $210 $140 $70 0 2000 2001 2002 2003 2004 2005 2006 2007 CYS Passengers LAR Passengers CYS Fare LAR Fare 2008 2009 2010 2011 2012 2013 $0 13
Air Service Challenges Reliability of air service is crucial to Cheyenne Regional Airport s ability to retain passengers. Cheyenne s proximity to Denver means that delays or cancellations disproportionately cause passengers to drive. And both delays and cancellations by Cheyenne s current air carrier are far above U.S. averages. Delays into Cheyenne have run above averages for the past two years. However, reliability of scheduled air service into Cheyenne, the likelihood of flights being cancelled, is exceptionally poor, especially in 2014. Nearly HALF of all Cheyenne s scheduled passenger airline operations in 2014 were cancelled. This is far beyond the U.S. averages of the past few years of approximately 2%. Cheyenne Regional airport passengers now have only a 50-50 chance their flight will actually depart. There can be no doubt that reliability at Cheyenne Regional Airport is negatively impacting passenger traffic. Improved reliability is another reason Cheyenne seeks additional air service. Improved reliability is essential to growing enplanements at Cheyenne Regional Airport. % Flights Delayed % Flights Cancelled 29% 22% 28.1% 21.8% 23.4% 21.7% 50% 38% 47.0% 15% 7% 0% 2013 2014 (YTD) 25% 13% 0% 11.6% 3.3% 1.5% 2013 2014 (YTD) Cheyenne U.S. Cheyenne U.S. 14
Annual O&D Passengers Air Service Development Efforts Cheyenne has undertaken air service development efforts on its own. In 2010, Cheyenne attracted American Eagle nonstop service to Dallas/Ft. Worth. The service was funded by a combination of public and private funds, with the State of Wyoming contributing over $2 million to the effort. Cheyenne s traffic doubled when competitive air service was present at the airport. While service was discontinued due to a number of factors, including American s Chapter 11 bankruptcy and a 50% increase in fuel costs, clearly the increase in passengers demonstrates the demand for additional air service, currently unmet, from Cheyenne Regional Airport. 30,000 22,525 15,050 7,575 Impact of New Airline Service in Cheyenne CYS O&D Passengers Doubled from 2009-2011 13,147 26,363 100 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 American Others Cheyenne seeks to SCASD funding to subsidize new service that will again grow traffic to the airport s demonstrated potential. 15
Growth Potential Cheyenne s proximity to the large hub at Denver does NOT limit its growth potential. A look at nearby Ft. Collins, which is 40 miles south of Cheyenne and only 70 miles from Denver International, shows that growth is possible in the shadow of a hub. Service grew from 0 passengers to an average annual 32,000 passengers. Ft. Collins sole air carrier ran load factors near 90% during the time it serviced the airport. Average Annual Enplanements 2004-2012: 32,203 50,000 Regional Growth Is Possible - Example FNL 91% 88% 91% 93% 90% 75% 79% 78% 82% 100% Annual T100 Passengers 37,500 25,000 12,500 64% 75% 50% 25% Load Factor 0% 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0% Passengers/Yr (OW) Load Factor Distance to Denver Int l Airport Cheyenne 107 miles Ft. Collins 70 miles 16
Plan and Overview Cheyenne Regional Airport plans to use state, local and SCASD funds to solicit a second airline to serve the airport, with service to a major hub or O&D destination. The $200,000 SCASD grant will be part of a $1 million revenue guarantee and cost reduction package designed to attract a new airline. Specific program goals include: Increasing local utilization of Cheyenne Regional Airport. As noted, only 7% of catchment area passengers use the airport. Cheyenne seeks to improve this percentage radically with new air service. Reducing local airfares. New airline service should cause fares to be more competitive with other regional airports, as in the past. Better access to the U.S. Air Transportation Network. Cheyenne s capacity has decreased significantly. Cheyenne s average fares have increased significantly. A second airline serving the market will provide much needed capacity, frequency and pressure fares downward. Increasing reliability of airline service. Nearly 50% of Cheyenne Regional Airport s scheduled passenger flights were cancelled in 2014. Cheyenne Regional Airport needs airline service that provides service that is comparable to U.S. averages for on-time performance and reliability. 17
Plan and Overview Allocation of funds: Revenue Guarantee: The revenue guarantee will be used to incentives new airline service at Cheyenne Regional Airport. The funds will be used to offset the new airline s losses for up to three years after commencing service. Exact terms will be negotiated once grant money is awarded. Total cash available for the revenue guarantee will be $900,000. Federal funds will account for 22% of the revenue guarantee. State and local funds will account for the remaining 78% SCASD Grant: $200,000 State Cash: $600,000 Local Cash: $100,000 Non-Airport Funds Marketing: $25,000 Cheyenne Visitor s Bureau - Cash $40,000 Cheyenne Regional Airport Funds - Cash Airport Marketing could exceed this amount, if necessary. Facilities Use Abatements/Startup Costs offsets: Cheyenne Regional Airport will contribute the following to cost reductions $21,000 Waive Terminal Usage Fees $19,000 Waive Landing Fees $10,000 Install Security Upgrades. Other Costs: $10,000 Fuel Flowage Fee cost reduction. $900,000 - Revenue Guarantee. $100,000 - Marketing and Other Funds. Total: $1,000,000 The airport will not use SCASD funds for administration, or monitoring and reporting of results under the grant. Additional expenses incurred will be paid out of the airport s general operating funds. 18
Plan and Overview Oversight: The governing body of Cheyenne Regional Airport, the Cheyenne Regional Airport Board, will be responsible for all fiscal issues and D.O.T. reporting requirements. As a government entity, D.O.T. should be assured that proper financial oversight for implementation rests in the hands of the Commissioners. The Board of Commissioners understands that it is responsible for program expenditures and will submit invoices to D.O.T. for reimbursement based on the grant request. Timeline: Assuming the Department of Transportation awards Small Community Air Service Development grants in late 2014, Cheyenne Regional Airport will move as aggressively as possible to implement air service under the terms of the grant. Cheyenne Regional Airport is already in talks with various airlines for additional service to the airport. Should Cheyenne Regional Airport receive SCASD funds, it will solidify negotiations with those airlines and develop timelines and dates to begin new service. Legal Sponsor: Legal Sponsor for this project is the Cheyenne Regional Airport Board. 19
Priority Selection Criteria Air fares are higher than the national average for all communities. Cheyenne s air fares are higher than average. In 2013, Cheyenne s air fares were : 48% higher than the U.S. average. 78% higher than the nearest hub airport in Denver. Higher than nearby cities: 42% higher than Laramie, WY. 25% higher than Casper, WY. 46% higher than Scottsbluff, NE. 32% higher than Billings, MT. 19% higher than Rapid City, SD. The community or consortium will provide a portion of the cost of the activity from local sources other than airport revenues. Cheyenne plans to fund this revenue guarantee package as follows: $200,000 Small Community Air Service Development Grant $200,000 Local matching funds 50% from the Laramie County Economic Development Joint Powers Board 30% from in-kind fee waivers 20% from other sources $600,000 State of Wyoming - Air Service Enhancement Program. $1,000,000 Total Federal Funding: State/Local Funding: 20% of revenue guarantee. 80% of revenue guarantee. 20
Priority Selection Criteria The community will establish a public-private partnership Cheyenne Regional Airport is continues to work towards air service initiatives with groups that previously comprised the Fly Cheyenne organization. Those organizations include: The Cheyenne Convention and Visitor s Bureau, Cheyenne Leads, and The Greater Cheyenne Chamber of Commerce. The assistance will provide material benefits to a broad segment of the traveling public, including businesses, educational institutions and other enterprises, whose access to the national air transportation system is limited. As only 7% of Cheyenne Regional Airport s catchment area airline traffic chooses to fly locally, additional service that attracts a larger percentage of traffic will naturally benefit a broad segment of the traveling public. As the Cheyenne catchment area is the largest populated area within the State of Wyoming, it is expected that a substantial number of state business and public will benefit from the service. Since Cheyenne is the capitol of the state of Wyoming, Cheyenne Regional Airport expects the new service to also benefit state government as well. 21
Priority Selection Criteria The assistance will be used in a timely manner With Cheyenne s annual enplanements headed to 15-year lows, the community has already begun negotiating with airlines for new service. Cheyenne proposes a revenue guarantee for the first three years of service for the new carrier. Cheyenne Regional Airport has already begun negotiating with potential air service providers in attempts to secure air service contingent on receipt of a Small Community Air Service Development Grant. Secondary Selection Criteria Innovation Wyoming s Air Service Enhancement Program (ASEP) is unlike any air service development program in the United States. The State of Wyoming combines state funds with local funds to attract and retain air service within the state of Wyoming. The program was originally funded at $6M per biennium. The primary goals of ASEP are to: Work with existing airlines to improve operational reliability Work to make airfares affordable. Increase passenger retention of Wyoming airports. Ensure airlines are financially stable to operate in Wyoming. Achieve financial stability in existing Essential Air Service markets. The program funds a number of routes within the state. Cheyenne seeks to combine Federal funds with those from this unique program to augment Cheyenne Regional Airport s air service. 22
Secondary Selection Criteria Participation Efforts to attract new airline service to Cheyenne have always enjoyed broad community support. The State of Wyoming s and Cheyenne area s willingness to fund 80% of the proposed minimum revenue guarantee demonstrates that commitment. Location Cheyenne s geography is unique. Wyoming is the least populated state in the United States. Cheyenne s ability to secure new airline service has been somewhat hindered by its proximity to Denver, a two-hour drive from Cheyenne. However, Cheyenne has supported new airline service in the past, as demonstrated by a doubling of enplanements at the airport when new service commenced. Cheyenne is the most populated region within Wyoming, and home to state government and many local businesses. Cheyenne Regional Airport is not proximate to an existing or prior grant recipient, and, therefore, award of a SCASD grant would have no negative impact on Cheyenne s proposal or another active SCASD recipient. Other Factors The proposal directly addresses Cheyenne s stated problems: New competitive airline service will: Reduce fares. Increase enplanements. Positively benefit the Cheyenne and Wyoming economies. Increase reliability, which is substantially below U.S. averages. Cheyenne s air service is decreasing, and the airport seeks to reverse this trend. Cheyenne has access to Wyoming s Air Service Enhancement Program to continue financial support for this project (if necessary)after SCASD funds have expired. The proposed Federal funding is only 20% of the total revenue guarantee. 23
Previous Project Goals Cheyenne Regional Airport s 2014 Small Community Air Service Development Grant application differs substantially from the 2005 SCASD grant awarded to the state of Wyoming. The 2005 Wyoming grant was used to correct misperceptions about Wyoming s air service through an advertising/marketing campaign. The 2005 grant was also used to increase passenger retention across all Wyoming airports. Although that grant was successful for the state, the 2014 grant application is geared mainly to attracting and funding new airline service at a specific airport with specific air service issues, rather than marketing existing air service. Since 2005, the air service environment in Cheyenne has become much more dire. Passenger retention has fallen, capacity has fallen and airfares have increased. Cheyenne Regional Airport stands to enplane fewer than 10,000 annual passengers for the first time in recent history. The 2014 application will be used to immediately gain new airline service and reduce troubling current trends. 24