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114 Passenger Air Service Development Techniques with airlines, whether at an airline's headquarters, conferences (such as the ACINA JumpStart conference), or other meetings. Advantages of ASD Consultants 1. Compared to the staff available at many airports, ASD consultants have the advantage of working on these issues all the time. That means that they are familiar with available data and maintain regular communication with their airline contacts. They are current on industry trends and conditions, and some also have extensive contacts in Washington (e.g., at U.S.DOT, FAA, and the Department of Homeland Security; with Congress; and with various industry trade groups such as AAAE, ACI-NA, and RAA). 2. Because they tend to be more removed from your local situation, ASD consultants can be "objective brokers" capable of providing straight answers to local political leaders. Elected officials do not always like to hear opinions from airport officials, but the same message from a third-party expert carries a different weight. 3. Consulting firms bring flexibility that a full-time staff does not. They can be hired for specific tasks or retained on an "on-demand" basis--used only when their services are needed. Many airports retain ASD consultants on an on-call basis using multi-year contracts with an annual dollar maximum. Risks or Disadvantages of ASD Consultants 1. Because they may not be local to the airport, consultants may not be as familiar with local developments as airport staff. They should spend some time becoming and staying personally familiar with the community and its changing needs. 2. Hiring consultants means incurring out-of-pocket expenses rather than using internal resources. Costs associated with consulting can vary widely, depending on the scope and depth of services being purchased. In addition, consulting firms vary considerably in their size and scope of services, from larger multi-national firms to smaller, local firms. In addition, costs will vary depending on the service the airport might be purchasing--whether a leakage study, a route analysis, some basic data on service at the airport over time--and whether the consultant will be expected to accompany airport representatives to airline meetings. What are the legal issues regarding airport incentive programs? Several of the airports surveyed reported that they were concerned whether various types of incentive programs would comply with FAA guidance and requirements. Airports and the com- munities they serve need to understand the restrictions on how certain funds can be used for ASD efforts. These topics are complex and cannot be covered comprehensively in this guidebook. This guidebook can provide only general guidance. Consultation with the FAA or an aviation attorney should be sought for answers to further questions. Legislative Requirements Airport incentive programs must be consistent with various legislative and regulatory require- ments, most notably: Title 49 United States Code, section 41713, broadly prohibits any public organization from enacting laws, rules, or regulations that affect the price, route, or service of an air carrier. Title 49 United States Code, section 47107, requires that the airport be available for public use on reasonable conditions and without unjust discrimination, and air carriers making similar use of the airport be subject to substantially comparable charges. Title 49 United States Code, section 47133, prohibits the use of airport revenues generated on site from being used for anything except the capital or operating cost of the airport.

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Selecting Appropriate Techniques for Air Service Development 115 In addition, as a condition for accepting federal funds, airports must also abide by particular grant assurances. Among those is the requirement that airports must not discriminate economically among users. Airports must be made available for public use on reasonable terms and without unjust discrimination to all types, kinds, and classes of aeronautical activities. FAA Policies The FAA's policies toward using airport revenues to fund incentive programs are also articulated in two major policies. Revenue Use The "Policy and Procedures Concerning the Use of Airport Revenue" (15) makes specific ref- erence to using airport revenue as part of an incentive program. Under this policy: Expenditures for promoting an airport, promoting new air service and competition at the airport, and marketing airport services are considered legitimate costs of an airport's operation. Cooperative airportairline advertising of air service, with or without matching funds, is acceptable if there is no "unjust discrimination" regarding access to the airport. Airport revenues also can be used to pay a share of the costs for other advertising and promo- tional activities, such as regional or destination marketing, if those materials include a specific reference to the airport. Paying direct subsidies to airlines from airport funds raises questions under the revenue-use requirement. However, the FAA does not preclude other community organizations--such as chambers of commerce--from funding a program to support new air service. Rates and Charges The "Policy Regarding Airport Rates and Charges" (16) lays out the major principles that guide airport operators, including the following: Rates, fees, rentals, landing fees, and other "aeronautical fees" must be fair and reasonable. Aeronautical fees may not unjustly discriminate against aeronautical users or user groups. Airport proprietors must maintain a fee and rental structure that in the circumstances of the airport makes the airport as financially self-sustaining as possible. Evaluation Factors for Incentive Programs In general, there are several key factors that the FAA may examine when reviewing an incen- tive program against the statutes. Common Source or Management of Funds The FAA's ability to exercise its statutory authority depends on whether the incentive program originates with the airport authority or an entirely separate legal authority and whether the funds used to support the incentive program are derived from airport revenues. If an airport is a municipal entity, any incentives offered by both the airport itself and the municipality may be considered to emanate from the same fundamental source. In this situation, the funds may be perceived to be fungible among municipal accounts, and generally under the control of a common entity. For example, if a municipal airport and the municipality's economic development agency cooperate to jointly fund and manage an incentive program, the FAA's authority reaches to that program. If incentive programs originate with the airport/municipality and a separate legal authority (e.g., the state, a local business group, or the chamber of commerce), then the FAA's authority does not reach to the latter source. Those incentive programs would be beyond the FAA's reach.

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116 Passenger Air Service Development Techniques However, the FAA believes that there needs to be clear separation of the management of such incentive programs. Where airport employees actively manage or oversee the incentive program on behalf of the local business group, the FAA may find that the independence of the airport/ municipality from the business group is blurred. Timeframes The maximum length of an incentive program is ambiguous, perhaps intentionally so. One year is clearly acceptable. In some cases, 18- and 24-month programs might also be acceptable. Incentives funded at least in part by SCASDP may last for up to three years. Incentive programs should have defined "start" and "end" times. Dollar Limits Incentives can be limited by total dollar amounts, where the funds are available until exhausted. Likewise, a program can be structured so that the incentives are available on a first-come, first- served basis (open to all or to a limited number), where the program ends when the funds run out. New Entrant versus Incumbent Carriers Subsidies for new entrants are acceptable for one year to mitigate the risk of entering a new market. After that first year, the carrier is no longer considered a "new entrant" per se, but an incumbent. All incumbents are to be treated the same (under the "without unjust discrimination" clause noted above). Low-Cost Carriers versus Legacy Network Carriers Incentive programs cannot be specifically directed to LCCs, nor can they specify that only legacy network carriers are eligible. Programs have to be offered on a non-discriminatory basis. Similarly, programs may not specify limits to airfares that would be offered by qualifying carriers. Capacity, Frequency, and Aircraft Types Incentive packages may require recipients to provide an increase in capacity in particular markets but cannot specify the equipment type (e.g., B-737, CRJ 700). Similarly, programs can require increases in capacity, but should not be written in such a way that only one carrier using one type of aircraft would qualify. Incentives can vary based on incremental increases in capacity. Incentives can be differentiated based on broad "bands" of aircraft capacity. For example, an air- port could provide a certain amount of money ($n) for a doubling of capacity in a given market or half that amount ($n * 0.5) for an increase of 50 percent in capacity in the same given market. The FAA does not favor incentives that would support an increase in aircraft size if the car- rier's total capacity in a given market would decrease. For example, an incentive should not be used to support two daily operations with a 70-seat RJ (totaling 140 seats) replacing three daily 50-seat RJs (totaling 150 seats). Likewise, incentives should not support operations by larger aircraft (e.g., one 128-seat B-737- 700) replacing two smaller aircraft (e.g., 50-seat CRJs). Total capacity in the market may have increased, but it did so at the cost of frequency. Markets Markets are defined by airport pairs, not city pairs. Incentive programs can specify needs to serve high-priority markets, and incentives can be provided to carriers willing to serve those mar- kets, even if another carrier is already serving that market on a nonstop basis. This is consistent with FAA's policy to support competition. Incentives also can be used for both domestic and inter- national service.