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Appendices P A R T I I I
Air service development (ASD)âa broad term that encompasses a variety of activities with the ultimate goal of retaining existing air service or improving air access and capacity in order to develop the economy of a community or region. ASD involves all activities directly related to enhancing commercial passenger service at an airport. Available seat mile (ASM)âa measure of air carrier capacity. ASMs are the mathematical prod- uct of the total number of seats available for sale on an aircraft times the number of miles flown. Backhaulâthe extra miles involved in a circuitous routing that takes passengers out of their way to reach their final destination. This sometimes includes flying in the opposite direction from the final destination. As an example, for passengers flying from Walla Walla first to Seattle and then on to Denver, the Walla Walla to Seattle portion of the journey is a backhaul, because they are initially flying westbound before connecting to their eastbound flight. Catchment areaâthe area from which an airport draws its traffic. Catchment areas vary in size and shape, depending on physical barriers (e.g., mountains, oceans), nonstop service offerings, and competing airports. Catchment areas can be overlapping, depending on the intended destination of the passenger involved, his/her preferred routing, and the presence of nonstop service from another nearby airport. Circuityâthe degree to which a routing varies from the shortest (i.e., nonstop) distance between two points. It is measured in terms of the ratio of the total number of miles flown divided by the total nonstop miles. For example, a flight that goes from New York first to Atlanta and then to Miami is more circuitous than flying from New York to Miami nonstop. Guaranteed ticket purchaseâsometimes called a Travel Bank; a community provides funds that will be used to purchase tickets on a targeted airline worth a set amount of revenue during a given period of time. Businesses or individuals deposit funds in a bank account that can be used only for purchasing tickets on the target airline. Hub-and-spokeâthe system through which legacy network carriers connect smaller cities in the United States to the national aviation system. These carriers transport passengers on nonstop flights from various âspokeâ cities into their âhubs,â and then redistribute them to connecting flights for their final destinations. Depending on the amount of passenger traffic in the market between the spoke city and the hub, legacy airlines may operate their own large jets or use regional affiliate carriers to provide service, usually with regional jet or turboprop aircraft. Incumbentâan air carrier serving an airport that has maintained service at that airport for one year or more. In-kind assistanceâproducts, goods, or services that otherwise might have to be paid for, but which can be donated by third-party providers instead. 149 A P P E N D I X A Glossary
JumpStartâan air service development conference sponsored by Airports Council Internationalâ North America (ACI-NA). The conference occurs in June each year and is held in conjunction with the ACI-NA marketing conference. Leakageâthe percentage of passenger traffic that could reasonably be considered to be within the catchment area of one airport that is lost to another airport. Legacy network carrierâthe major network carriers in the United States: American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines, and US Airways. Their airline operationsâin one corporate form or anotherâgenerally pre-date the deregulation of the airline industry in 1978. Load factorâthe percentage of seats that are filled on a plane. For example, a 100-seat plane carrying 82 passengers would have an 82 percent load factor. Low-Cost Carrier (LCC)âsometimes referred to as âlow-fare carriers,â LCCs are airlines that tend to have unit costs that are significantly lower than the legacy network carriers. These carriersâ interstate operations launched after the deregulation of the airline industry in 1978. They include Southwest Airlines, AirTran Airways, Frontier Airlines, JetBlue Airways, and Virgin America. Mainline operationsârefer to operations conducted by an airlineâs main operating unit (e.g., American Airlines) rather than a regional affiliate, code-share, or partner airline (e.g., American Eagle or American Connection). Marketâin the context of air service, usually defined in terms of service between a pair of cities (e.g., flights between Little Rock, AR, and Albuquerque, NM). In cases where a larger metropolitan area may be served by more than one airport, there may be separate markets for service to dif- ferent airports. Flights serving LaGuardia Airport (New York City) are usually considered to be in a different market from those serving John F. Kennedy International Airport (New York City) or Long Island Islip MacArthur Airport (Islip, New York), for example. Business travelers in par- ticular are willing to pay different amounts for service to one airport rather than the other. Market entryâwhen a new carrier begins to offer service at a particular airport. Entry at an airport can cause passengers to shift away from existing travel patterns (i.e., fly on the new airline as opposed to an incumbent carrier). Market entry can also stimulate new traffic (i.e., prompt individuals to fly who would not have otherwise flown). Minimum revenue guaranteeâsee revenue guarantee. Metropolitan statistical area (MSA)âgenerally, a geographical entity containing a large popu- lation nucleus and adjacent communities having a high degree of social and economic integration with that nucleus. Under the 1990 metropolitan area standards, qualification of an MSA required a city with a population of 50,000 or more, or an urbanized area with a population of 50,000 or more and a total area population of at least 100,000 (75,000 in New England). MSAs are composed of entire counties, except in New England where the components are cities and towns. Networkâan air service development conference sponsored by the Flight International Group. The conference targets North American airports and the airlines that serve them. The conference occurs in March each year. New entrantâan air carrier either attempting to begin service at an airport for the first time or one that has been providing service at an airport for less than one year. This can also apply to service by a carrier already operating at an airport but not in a particular city pair market. Niche carrierâairlines that cater to a particular market segment, or âniche,â that sometimes provide specialized services from small communities to major leisure destinations. 150 Passenger Air Service Development Techniques
Non-aeronautical revenueârevenue that an airport derives from activities not associated with flight operations. Examples include car rental fees, concessionary/vending fees, parking fees, and airport business park rental fees. Non-hub airportâthe FAAâs definitions of hub airports are based on statutory definitions and are not the same as the more operational definition of hubs that are applied by airlines. Federal law defines a non-hub airport as one at which less than 0.05 percent of all enplanements in the United States occur. Non-hub airports are defined in 49 USC 41731. Origin and destination (O&D)ârefers to passengers who originate from and/or are destined to a particular airport or market. Passenger demandâan economic measure of the extent to which travelers may be willing to purchase air service at a given price/fare. Demand is a theoretical construct; it is inversely related to price. More air service is demanded at lower fares. Travelers demand less air service at higher fares. Regional airlinesâprovide short- and medium-haul scheduled airline service connecting 635 U.S. communities with larger cities and hub airports operating 9- to 78-seat turboprops and 30- to 108-seat regional jets. Revenue guaranteeâagreements that establish a target amount of revenue that a carrier will receive for operating a particular service to a particular destination over a given length of time. They may be expressed as a minimum amount that will be generated from passengers (ticket sales), provided that the carrier meets certain operating requirements (e.g., completing 92 percent of their operations, with an on-time departure or arrival record of x percent). Revenue seat milesâa measure of the amount of capacity in a market that an airline is able to sell. A related measure is the revenue per available seat mile (RASM), which is calculated by divid- ing the total passenger revenue generated on a flight by the total number of available seat miles. Reverse leakageâthe number or percentage of traffic that is gained by a particular airport from another (nearby) airportâs catchment area. Small communityâgenerally, one served by an airport classified by the FAA as a small hub or a non-hub. There are 426 non-hub and small hub communities in the United States, including those in Alaska, Hawaii, and the U.S. territories. Small Community Air Service Development Program (SCASDP)âestablished by Congress under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, P.L. 106-181 (AIR-21), to help small communities enhance their air service. Administered by the U.S. Department of Transportation, the program provides grants to help small communities achieve sustainable air service. An additional goal of the program was to generate creative air service development proposals that could be implemented in other small communities. Small hub airportâthe FAAâs definitions of âhubâ airports are based on statutory definitions and are not the same as the more operational definition of hubs that is applied by airlines. The categories are based on the number of passengers boarding an aircraft (enplaning) for all oper- ations of U.S. carriers in the United States. A small hub airport enplanes from 0.05 to 0.249 percent of all enplanements. Federal law defines a small hub airport at 49 USC 41731. Stakeholderâperson or entity (e.g., a business) that has a vested interest in the level of air service provided at an airport. Key stakeholders may include resident companies, economic development agencies, tourism offices, etc., within an airportâs catchment area. Subsidyâa broad category of financial incentives that generally offset some aspect of an air- lineâs costs of operation. These can include waivers of fees or discounted landing (or other) fees during a promotional period. Cash subsidies are paid without regard to the amount of revenue Glossary 151
that a carrier may generate during the agreed-upon period. Subsidies are generally a fixed amount, often with no connection to the eventual profitability of the route. T-100âoperational statistical data provided by the U.S. Department of Transportation. Information is tabulated for both domestic and international operations on a monthly basis and is required to be filed by all airlines (both scheduled and non-scheduled). Travel bankâsee guaranteed ticket purchase. Very Light Jets (VLJs)âgenerally, jet aircraft with a maximum take-off weight of 10,000 pounds, certified for single-pilot operations, equipped with advanced avionic systems, and priced below other business jets. Two types of these modelsâthe Cessna Citation Mustang and Eclipse 500â have received FAA type and production certification and begun delivering aircraft. 152 Passenger Air Service Development Techniques
What do you mean by âair service developmentâ? Air service development (ASD) generally refers to a variety of activities with the ultimate goal of retaining existing air service or improving air access and capacity in order to develop the econ- omy of a community or region. It encompasses attracting, initiating, expanding, retaining, or improving any aspect of air service to a particular airport. ASD includes understanding the local community and what drives its economy, and recruit- ing community and business leaders to participate in efforts to âsellâ the airport to the airlines and to the local population. It includes understanding the air service and fares that airlines offer, and how the service, fares, and facility compare to those of nearby airports. ASD also involves understanding the cost and revenue issues that influence carriersâ decisions on which markets to serve. It requires understanding the flexibility an airport has in extending financial and non- financial incentives to carriers. ASD encompasses understanding what carriers value most and what they want to know about your community. It includes knowing how to make and present a sound business case to airlines. Donât airlines just decide by themselves where to fly? What can a local community do to influence those decisions? Airports and communities can help carriers decide whether to serve a market or not by pro- viding them with information that they might not otherwise have had. Airlines have limited numbers of route planners, and they tend to focus more on larger markets. Airline staff may be relatively unfamiliar with changes in a local areaâs economy or existing air service. New or expanded businesses in an area can generate the amount and types of employment that can make air service viable. If a community does not make the effort to bring that sort of news to an air- lineâs attention, the carrier may never learn of the opportunity or the communityâs unmet air service needs. How important are incentives to airlines in deciding where to fly? Airlines vary in the importance that they attach to financial incentives. Airlines know that financial support programs such as grants or incentives eventually end. If the market cannot sustain the service without assistance, it may not be worth the investment in time, effort, and personnel. Airlines also know that a decision to leave a market creates negative publicity and ill feelings that can be difficult or impossible to overcome, so they resist investing in margin- ally profitable routes. At the same time, however, many carriers look forâand now expectâ a community to offer some form of financial risk-sharing in association with new service. 153 A P P E N D I X B Frequently Asked Questions
The price of oil skyrocketed and then dropped by one-third. Will moderating prices of jet fuel help airlines maintain service to small communities? Fuel is now the largest single component of large air carrier costs. It is difficult to say how airlines will respond to fluctuations in fuel prices. Generally, carriers plan their capacity well in advance. Part of the reason that oil prices have fallen is due to expectations of declining demand for gasoline, brought on by fears of a major economic downturn in the United States and the rest of the world. If that turns out to be true, demand for air travel will also drop. Conversely, if fuel prices stay down and demand rebuilds, carriers also can act relatively quickly to restore capacity to those markets where it makes the most sense (i.e., where they can generate the greatest returns on investment). Why is it so difficult for airlines to serve small communities? Small communities face a number of key challenges that make it very difficult for airlines to provide service there profitably. The major challenges relate most often to the communitiesâ proximity to other larger locations that have superior air serviceâsuperior in terms of price and quality (i.e., frequency and connectivity). As a result, many passengers who might otherwise use the local small community airport divert to the larger airport. Where there are no nearby com- petitors, small communities are hampered by the underlying economics of their area. Smaller population bases do not typically generate significant passenger demand for air travel. Airlines have determined that the revenue from that passenger demand is often insufficient to allow them to operate profitably. Why have regional jets become unpopular with airlines? Changing regulatory safety requirements increased the costs of operating smaller aircraft. Evolving aircraft technology and provisions in airlineâlabor agreements led to a proliferation of regional jets in the late 1990s, which passengers tended to prefer over turboprops with visible propellers. However, the cost of operating all these aircraft has soared in recent years because of the price of fuel. Coupled with the effect that energy costs have had on the economy as a whole, most major airlines have announced significant cuts in service beginning in late 2008. Who are the key stakeholders to involve in an ASD team/task force? In any community large enough to support commercial air service, there will be a relatively short list of stakeholders with whom the airport should partner: ⢠Major employers (the principal driver of air service demand in the area) ⢠The chamber of commerce/tourism office (The chamber represents all businesses in the area and thus can help obtain information on travel demand and marshal resources to support ASD. The tourism office may be more concerned about inbound traffic.) ⢠Local hotel associations and resorts ⢠The local economic development agency and/or other parts of the local municipal government. What are the major causes of passenger leakage? Passenger leakage is attributable to a number of factors, but the most important ones concern differences in airfares, convenience (e.g., nonstop flights), and ease of access (e.g., the ability of travelers to get to the other airport easily and relatively quickly, usually by interstate highway). Leisure passengers are especially price sensitive. Business passengers are less sensitive to airfares, but also take travel times (e.g., flight frequencies and nonstop versus connecting flights) into account. Does the FAA have to approve all incentive programs? Yes and no. The FAA does not approve programs before an airport implements them, although officials in the compliance division are available to offer suggestions or guidance to 154 Passenger Air Service Development Techniques
communities considering incentive programs. If a program runs counter to federal policy, requirements, or guidance, the FAA will act to force the airport to correct those deficiencies. What are the most common types of ASD goals? Airports that were surveyed identified several general categories of ASD goals: ⢠Retaining existing service ⢠Adding service to a new destination ⢠Adding frequencies to current services ⢠Lowering fares/introducing new competitive service ⢠Improving service reliability ⢠Upgrading aircraft ⢠Increasing access to global networks Retaining existing service by incumbent carriers was the top goal identified by the airports surveyed. Are any particular ASD techniques more effective than others? Whether a particular ASD technique is âeffectiveâ or not depends largely on the airportâs unique competitive situation and the carrier it is targeting. There are numerous factors that communities should weigh in making this decision. As this guidebook illustrates, some techniques worked well for certain communities with certain goals. Different airports can draw on those experiences, to the extent that they confront similar circumstances and pursue similar goals. One approach that is valuable in all situations is to ensure that the major local employers and stakeholders are involved. However, changing economic circumstances, both locally and throughout the national economy, can fundamentally alter the equations. How much should a community plan to spend on ASD? The amount that small community airports and their surrounding communities devote to ASD varies considerably, reflecting differences in air service activity, ASD goals, strategies, and the ability of stakeholders in the surrounding area to contribute. Small hub airports were generally able to provide more airport-originating funds than non-hub airports for ASD efforts. Contributions from the private sector and the federal government tended to be greater for non-hub airports. Small airports may devote over $100,000 to ASD, but that figure varies widely. What information does my airport need to present to an airline? Virtually all U.S. airlines have operations and enplanement data that are at least as detailed and timely as anything that an airport can provide to them. The airlines want to see information that they do not usually collect or to which they do not have easy access. This information could include items such as local economic and demographic data, details about local businesses and their travel habits, information about local civilian and military government facilities, and information about local tourist attractions that drive inbound leisure traffic. Airlines the study team spoke with said that they were most interested in economic and demographic information, as well as data on potential passenger demand. Does an airport really need to hire a consultant? Not necessarily, but most small airports may benefit from the expertise that consultants provide. Because ASD consultants generally have worked for at least one (and often several) airlines or airports, they have first-hand, inside knowledge about how the industry looks at air service opportunities. Consultants also can help assemble, analyze, and package information about the local marketâdata that the airlines generally do not gather themselves. If an airport does not have ready access to key sources of information and does not have in-house staff Frequently Asked Questions 155
experienced with analyzing and presenting information, they likely could benefit from a con- sultantâs services. How long should ASD efforts reasonably take before producing results? Communities should understand that ASD efforts can require well over a year and should adjust their expectations accordingly. Securing air service may require a prolonged effortâa number of industry conferences and headquarters meetings may be required. Depending on the service that a community seeks, it may need to begin by establishing a rapport with the targeted airline. The initial meeting is the first step in a process that may take a number of months or years. Do the ASD efforts really need to be evaluated? Evaluating results are an essential element of an ASD program, as it allows ASD teams to re-examine how well their efforts worked and decide what changes, if any, should be incorporated. There are several different measures of an effortâs outcome to consider. These include both the immediate measures (e.g., Did service start? Did the carrier use a larger aircraft?), and also other measures of passenger acceptance and airport revenues generated (e.g., incremental parking fees). It is important to assess the effects of changes on the incumbent carriers. 156 Passenger Air Service Development Techniques
Air Transport Association, âCommercial Aviation: The Brakes Are On,â November 3, 2008. Provides a significant amount of data on changes in fuel prices over time and the effect those prices have on airline operating costs. Airports Council International, Airport Benchmarking to Maximize Efficiency, July 2006. Provides an overview of benchmarking generally, including reasons for undertaking bench- marking exercises. Indicates areas that airports can benchmark themselves against. Also includes a summary of key ACI benchmarking initiatives and information concerning ongoing benchmarking studies. American Association of Airport Executives, Promoting Air Service Development through Innovative Financial & Marketing Partnerships, September 2003. Gives advice on targeting airlines and incentives to add to travel bank programs for small and medium airports seeking to increase their flight offering. Provides five airport exam- ples of travel banks and three unsuccessful travel banks. Cautions against financing services with incentives that cannot become self-supporting after the incentive period. Randy Bennett, Patrick Murphy, and Jack Schmidt, A Competitive Analysis of an Industry in Transition: The U.S. Scheduled Passenger Airline Industry, Gerchick-Murphy Associates, Washington, D.C., July 2007. Former senior U.S.DOT officialsâ study of the competitiveness of the U.S. domestic airline industry. They report that the industry is more competitive than at any time since 1995. The key to this increased competition is the emergence and evolution since airline deregulation 30 years ago of two distinct business modelsânetwork carriers and low-cost carriers. The report reviews the key changes in competitiveness that date to 2000 and the emergence of the resilient LCC sector. The study documents the fundamental cost differences between the two categories of carriers and the growing market penetration of the LCCs. Dave Conklin, Susan Kittle, Danni Varlan, âAirline Incentives for Dummies,â ACI Marketing & Communications Conference, Tucson, Arizona, June 16, 2007. Explains the purpose of airline incentives, lists five different types of incentive programs, and provides advice on what information to present to target airlines when making an air service pitch. Also provides common cautions for incentive programs, such as incumbent airline reactions and appropriateness of incentives. 157 A P P E N D I X C Annotated Bibliography
Robert A. Hazel, Eclat Consulting, âSmall Airports & Air Service Development,â ACI-NA Marketing & Communications Conference, June 2005. Observed that the smallest airports experienced the largest traffic declines between 1994 and 2003, and did not see the same growth in 2004 as did larger airports. Presents basic ASD tools and the ASD downgrade/upgrade cycles. David Jarach, âAviation Related Airport Marketing in an Overlapping Metropolitan Catchment Area,â Journal of Air Transport, Vol. 10, No. 2, 2005, Milan, Italy. This report looked at the Milan airport system and the problems of competition between airports (rather than between airlines at one airport). Gives examples of airport positioning types and attributes of successful airports. The author suggests that by differentiating the product at each of Milanâs three airports (via regulation at Linate, the downtown airport) all three could operate without cannibalizing each other. Sypher Mueller, Air Service Development and Airport Management: A Strategy of Eau Claire, May 1990. Sypher Mueller reviewed air services at Chippewa Valley Regional Airport in Eau Claire, Wisconsin, and recommended that it attempt to purchase slots at Chicago OâHare for a proposed Eau ClaireâChicago service. The firm also recommended that Eau Claire seek state or federal support in order to do so, then offer the slots to a regional airline having the correct, smaller-sized aircraft for the Eau ClaireâChicago market. The firm also advised the airport to make changes to its management structure and organization, and reviewed the airportâs facilities. Owen R. Phillips, Larry R. Weatherford, Charles F. Mason, Mitch Kunce, âPassenger Leaks and the Fate of Small Community Air Service,â Economic Enquiry, Vol. 43, No. 4, October 2005. Reviewed the GAO 2002 report and observed distinct characteristics of airports with 10 or fewer, or 10 or more daily flights; Eastern U.S. versus Western U.S. airports; and Wyoming airport leakage. Special Report 263: Future Flight: A Review of the Small Aircraft Transportation System Concept, Transportation Research Board, National Research Council, Washington, DC, 2002. Within the National Aeronautics and Space Administration (NASA), the Small Aircraft Transportation System (SATS) program has been examining the potential use of small aircraft being flown between small airports in currently lightly used airspace to provide an increasingly larger share of the nationâs intercity personal and business travel. This report reflects the collective views of a committee assembled by the Transportation Research Board to examine the concept. Wilbur Smith Associates, Montana Air Service: Opportunities & Challenges, FHWA/MT-06-013/ 8185, February 2007. Discusses small community air service economic realities and the impact of federal initiatives and factors affecting passenger leakage at 10 Montana airports. Includes socioeconomics, historic enplanements, travel patterns, current service, and historic air service trends at these airports. U.S. Department of Transportation, Office of the Inspector General, The Small Community Air Service Development Program, Report CR-2008-051, May 13, 2008. The Inspector Generalâs report on the Small Community Air Service Development Program and the ability of communities to sustain improved air service. The report offers good evi- 158 Passenger Air Service Development Techniques
dence of the effectiveness of different ASD efforts, particularly in sustaining air service improvements over time. U.S. Government Accountability Office, Commercial Aviation: Air Service Trends at Small Communities since October 2000, GAO-02-432, March 29, 2002. Observations of factors contributing to air service decline in small communities since October 2000. The report documented the change in air service in small communities that began with the âdot.comâ collapse in 2000 and accelerated after the events of September 11, 2001. The report also highlighted the significant differences in air service between non-hub and small hub airports, the variation in airport managementâs views of the sizes of their catchment areas, and the proximity of many small airports to larger airports served by low-cost carriers. U.S. Government Accountability Office, Commercial Aviation: Factors Affecting Efforts to Improve Air Service at Small Communities, GAO-03-330, January 17, 2003. The report provides an overview of the economics of air service in small communities and explains the principles of how various incentives can contribute to affecting that service. GAO provides case studies of some communitiesâ ASD efforts as the industry struggled to recover from the downturn following September 11, 2001. U.S. Government Accountability Office, Commercial Aviation: Initial Small Community Air Service Development Projects Have Produced Mixed Results, GAO-06-21, November 30, 2005. Focused on the outcome achieved at communities where the SCASDP awards had been completed. Because most SCASDP grants were ongoing, GAOâs conclusions were tentative. Marketing strategies were common, but GAO noted that projects that provide direct benefits to an airline, such as revenue guarantees and financial subsidies, have the greatest chance of success. Only about half of the airports contacted reported that their air service improvements were self-sustaining after the grant was complete. United States Senate, Subcommittee on Aviation Operations, Safety & Security; Committee on Commerce, Science and Transportation; Improving Air Service to Small & Rural Communities, July 17, 2007. Written record of the Senate Aviation Subcommitteeâs hearing on air service at smaller communities. Witnesses discussed the challenges faced by small airports in a post-9/11 environment, including larger neighboring airports receiving LCC service, airlines becom- ing more selective on routes they add to their networks due to the rising cost of fuel, and the shrinking national turboprop fleet. Recognized some fundamental problems with the Essential Air Service (EAS) program, and whether that program helps communities attract self-sustaining air services. Suggested changes to the EAS program. Annotated Bibliography 159