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CHAPTER 6 Identifying Available Resources to Enhance Air Service Before establishing goals and selecting techniques, ASD teams must have a clear understand- ing of the resources available--both human and financial--for advancing an ASD program. This chapter discusses the range of resources that may be available and the merits and potential draw- backs of each. For a community to undertake a proper ASD program and for that program to have a reason- able chance of success, it must be appropriately supported. Successful ASD needs both financial and human resources. Two general areas of financing are available to meet an airport's ASD funding needs: revenues generated by the airport itself and revenues derived from other sources, such as private corpo- rations, tourism organizations, and government at various levels. The overall commitment of the (non-airport) local community to air service needs is reflected in the resources that it is will- ing to dedicate to ASD. The other critical resource that airports must have for an effective ASD effort is people with the expertise and commitment to help. Most small community airports have capable staff already working at the airport who can fill important needs. But to be successful, ASD efforts usually must rely on a task force or team approach that includes other local professionals and outside consul- tants. The skills and expertise that consultants can bring to ASD issues can be complemented by local professionals who bring the background and insight into the community's strengths. What sources of airport revenues may be available to fund ASD? The vast majority The vast majority--more than 75 percent--of the airports surveyed did not have a separate budget for ASD activities. Most reported that their ASD efforts were part of the airports' mar- of airports surveyed keting budget. Generally, marketing budgets are a subitem of an airports' operations budget. did not have a Airports have a number of different sources of potential revenue that could be used, at least separate budget in part, to improve their air service offerings. These sources include funds that would come from for ASD activities. in-terminal revenue sources--such as passengers; airlines; concessionaires; advertisers; and air- line, airport, concessionaire, and government workers--as well as non-terminal sources--such as air freight companies, maintenance organizations, fixed-base operators, aircraft manufactur- ers, and land rentals. Airport Budgetary Sources Airports that accept any federal monies are restricted by law, regulation, and various agree- ments on how they can use revenues generated by airport operations. The Airport and Airway 72

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Identifying Available Resources to Enhance Air Service 73 Improvement Act of 1982, as amended [Title 49 USC Section 47101(b)], requires all airport owners and operators receiving federal assistance to use revenues generated by the airport for the capital or operating costs of the airport, the local airport system, or other facilities owned or operated by the airport sponsor that directly relate to the air transportation of passengers or property. Any other use of airport revenue is considered a revenue diversion. The law also requires airport operators to charge fees for use of the airport "that will make the airport as self-sustaining as possible under the circumstances existing at the airport. . . ." The FAA has generally interpreted this provision of the law to require airport sponsors to charge fair market value rents for non-aeronautical uses of property. For aeronautical uses, the FAA requires airport operators to recover the airport's cost of providing aeronautical services and facilities to users. Aeronautical use includes any activity that involves, makes possible, is required for the safety of, or is otherwise directly related to the operation of aircraft. The FAA is responsible for monitoring airport sponsors' compliance with airport revenue use requirements. The FAA's "Policy and Procedures Concerning the Use of Airport Revenue" describes the prohibited and permitted uses of airport revenue and outlines FAA's enforcement policies and procedures. Table 6.1 highlights some potential sources of revenue to support an ASD program. Passenger Facility Charges In place at nearly all domestic airports receiving airline service, PFCs have become one of the most significant sources of airport revenues, especially at many large- and medium-hub airports. At a maximum rate of $4.50 per enplaned passenger, even at smaller airports the total can grow very quickly. This funding source is most often used for so-called "big ticket" capital expenses, such as terminal or runway expansion projects. Other Financial Resources Other sources of revenue that are not derived directly from an airport's operations may be available to support an ASD program. These include governments at various levels as well as local stakeholders, such as local resorts, economic development agencies or councils, and tourism organizations. Perhaps the most important sources of outside (non-airport) funding are private corporations and related associations. The Private Sector The most important contributions for ASD efforts--whether financial or nonfinancial-- come from local businesses. The greater the involvement of private corporations, the greater is the likelihood of success in retaining existing or attracting new service. The greater the Corporations may be able to assist with funding ASD efforts. If the business travel needs of their employees are not being met, it can be in the best interest of local businesses to support involvement of improved air service. Corporations also can assist local ASD efforts by participating in task forces private corpora- or providing information on the travel demands of their employees. Corporations often have the tions, the greater best knowledge regarding inbound and outbound business traffic in terms of numbers, destina- tions, average fares, seasonality of travel, and travel budgets. This information can be extremely is the likelihood of valuable in helping an airline to understand a market's characteristics. The information can come success in retaining from corporate travel departments, trade associations, and chambers of commerce. existing or attract- In particular, local businesses that are largely dependent on travel and tourism can be instru- ing new service. mental in financially supporting ASD efforts. This can include resorts, hotels, convention/ visitors bureaus, and area attractions. They understand as well as anyone that improving air

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74 Passenger Air Service Development Techniques Table 6.1. Potential sources of revenue. Category/Item Comment Airside fees One of the principal sources of revenue Landing fees for an airport. Terminal rentals These are airline expense items that, (a) Ticket counters together or individually, can easily be (b) Gate holdrooms quantified and subsequently waived for a (c) Jet bridges period of time as an incentive for an (d) Baggage claim areas airline to begin new or additional services (e) Offices at an airport. (f) Crew rooms Terminal concessions Many airports have upgraded their (a) Restaurants: Whether fast food/take-out, table service, or sports offerings to make the time that bar, restaurants can generate a substantial amount of revenue passengers spend in an airport more for an airport. pleasant. Stores, restaurants, and (b) Specialized services: These facilities cater to a relatively narrow services that passengers are acquainted group of travelers with specific business or personal needs. with in convenient locations throughout They include airline clubs, business centers, cell phone/Wi-Fi the terminal can stimulate greater providers, post offices, medical services, and auto services. passenger use and increased airport (c) Advertising: Various organizations see great value in advertising revenues. Terminal concessions can also to a captive audience of airport passengers that generally have be a competitive advantage in areas highly sought-after demographic characteristics. Advertising where passengers have choices among includes signs and video displays throughout the terminal. different airports and a strong selling point (d) Rental car fees: Revenues from this source can be significant when discussing possible new service because rental facilities tend to be land intensive. with the airlines. Non-terminal concessions A wide array of other uses of airport (a) Passenger parking: An airport's parking facilities can generate a property that are related to airline great amount of revenue if passengers perceive them to be easy passenger travel can contribute to use, convenient and efficient. meaningful amounts to airport revenues, (b) Taxi, limousine, and hotel shuttle bus: The revenue derived especially the more land intensive among from these sources may depend on the level of economic activity them. in the area immediately surrounding the airport. Fees include pick-up fees and waiting area rents. Other non-terminal concessions (a) Air freight facilities, usually including substantial ramp and loading dock space, for both passenger and all-cargo airlines (b) Maintenance facilities, including substantial ramp space, for both flight and ground equipment (c) Fuel depots that are most often overseen by either airlines (individually or in a group) or oil companies (d) Aircraft-manufacturing facilities require extensive hangar and ramp space as well as the use of the airport's runways (e) Fixed-base operators with hangars and ramp space to cater to the needs of itinerant business or private aircraft (f) General aviation facilities for local private pilots (g) Hangars to store and maintain aircraft (h) Flight training facilities such as classrooms and simulators (i) Land uses that are not aviation related but are compatible with airport operations and can generate significant revenues for the airport. These may include industrial facilities that can benefit from access to the airport; farming that uses land set aside for noise and safety buffers but that would be incompatible with other uses in proximity to the aviation facilities, especially runways; and natural resources that can be extracted from airport land with little or no surface footprint. service can be in an entire community's best interests, and are thus often willing to underwrite ASD programs. In examining changes in air service with the contributions made by the private sector in sup- port of ASD efforts, the study team found a statistically significant relationship between the amount of resources contributed by the private sector to ASD efforts and changes in departures and passenger enplanements. In other words, as participation from the private sector increased, so did a community's air service.

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Identifying Available Resources to Enhance Air Service 75 CASE STUDY Colorado Springs The Colorado Springs Airport (COS) serves a catch- A number of aerospace, military, and related businesses ment area of approximately 610,000 people and lies have located at the business park. In November 2007, less than 100 miles south of Denver International Frontier Airlines announced that it would create a Airport, a hub for United. The airport is served by new maintenance base at the airport, with a 100,000- eight airlines and handled over two million arriving square-foot facility designed to handle maintenance of and departing passengers in 2007. the mainline Airbus fleet. The $25 million project will take 12 to 18 months to complete and will serve as a Colorado Springs Airport has made a concerted base for 225 airline professionals. The City of Colorado effort to attract additional business and economic Springs assisted in attracting Frontier to the airport growth. Chief among these efforts is the Colorado with a tax-exempt special facility bond. Linked with the Springs Airport Business Park, which encompasses new maintenance facility, Frontier announced that it nearly 1,000 acres on the airport property. The park would commence nonstop service between Colorado opened in 2005 and has attracted a number of Springs Airport and its hub at Denver International aviation-related businesses. The business park is Airport, providing convenient, low-cost connections to located 25 minutes from downtown Colorado Springs cities across the country, as well as Mexico and Canada. and 5 minutes from the airport terminal. The park is Thus, Colorado Springs Airport was able to accomplish managed by a public-private partnership and offers two goals: (1) generate additional business revenue at businesses incentives such as a foreign-trade zone, the airport and (2) increase airline service to the airport enterprise zone, personal property tax credit, and to achieve its ASD objectives. Frontier launched its sales tax exemption. Colorado Springs Airport service in April 2008. Airports can also partner with private organizations that are sources of information that will Airports can part- be valuable in attracting or recruiting air service by helping an airline to understand a market's characteristics. For example: ner with private organizations that Chambers of commerce can provide detailed information about a community's business environment, tax structure, and attractiveness to new businesses. are sources of Tourism organizations often have some of the best knowledge regarding inbound leisure traf- information that fic, including numbers of travelers, seasonality of travel, and the amount of money spent by will be valuable such travelers. Convention & Visitors Bureaus (CVBs) may also be able to provide informa- tion on total visitor nights spent, rooms filled, trips made, and spending patterns. CVBs can in attracting or be local or regional in nature. Local tourist attractions--whether historical, entertainment, recruiting air natural, or otherwise--can be great sources of information. Travel agents can provide aggregate information about local travel patterns. service by helping an airline under- Federal Government stand a market's The federal government is likely to be the largest single provider of outside funding received by an airport. One can argue that much of what U.S.DOT and the FAA do supports air service characteristics. development at small communities (e.g., providing air traffic control, making grants to airports for infrastructure improvement, or providing subsidies to carriers to operate the Essential Air Service program). However, the program that most directly supports ASD efforts at small and non-hub airport communities is SCASDP. SCASDP provides grants to help small communities achieve sustainable air service. Through fis- cal year 2007, U.S.DOT issued more than 200 SCASDP grants totalling approximately $100 million

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76 Passenger Air Service Development Techniques to small and non-hub airport communities. SCASDP grants Steamboat, Colorado have ranged from $20,000 to $1.6 million and have funded a wide range of air service initiatives. Congress has recently been In Hayden, Colorado, the Yampa Valley Regional providing $10 million per year for SCASDP. In September Airport serves a catchment area of approximately 2008, U.S.DOT announced that it would award another 40,000 people. The largest city in the area is the $6.8 million in grants to 16 communities. resort community of Steamboat Springs. Yampa Valley Regional Airport lies 141 flying miles or 205 Most of the grants provided have been used to fund var- driving miles west of Denver International Airport. ious marketing or revenue guarantee projects, according to Traffic at the airport is highly seasonal; peak a recently released report from the U.S.DOT's Office of the inbound demand and service occurs during the Inspector General (11). mid-December to early-April ski season. State Government The Steamboat Ski & Resort Corporation has worked While state governments usually do not offer the same closely with other local businesses and the Yampa types or amounts of funding as the federal government, they Valley Regional Airport for more than 20 years to can still play a vital role in assisting a community to attract increase airlift into the relatively remote resort new air service. Several states support their airports in vari- area of northwest Colorado. The ski resorts them- ous manners. Members of the National Association of State selves contribute another $1 million annually in Aviation Officials (NASAO) organize, promote, and fund a support of the same effort. The Steamboat Springs wide variety of aviation programs across the nation. Many Chamber Resort Association is another active pro- of those programs are more directed at planning, opera- ponent of ASD initiatives. tions, infrastructure development, maintenance, safety, and The Steamboat Ski & Resort Corporation budgets navigational aids, but some also support ASD efforts, espe- $2.5 to $3.0 million in annual funds to support cially at smaller airports that receive commercial service. airline revenue guarantees and marketing. The States also may be able to assist more indirectly through Steamboat Ski & Resort Corporation has an employee various tax abatement programs, economic development who is dedicated to promoting the ASD needs of grants, and job training programs. ASD teams should be the community. This partnership has enabled the aware that pursuing any of these programs to help with air airport to strengthen its ties with the airlines service development will require long-term sustained effort serving the airport. and an ability to deal with administrative complexity in return for a very uncertain payback. Local Government Major initiatives Most small airports tend to be operated by local governments, though some are entities of undertaken with regional authorities. Airports tend to be self-sustaining enterprises to the greatest extent possible, state assistance-- so local government contributions to the airport may be relatively limited (e.g., to some employee salaries). However, local economic development authorities may contribute to ASD efforts. such as tax abatement or Military While not usually a source of funding, local military officials can be helpful in providing guid- job training ance regarding the travel needs of their personnel located near an airport. For example, bases programs--will that have significant training facilities and that may have benefited from the Base Realignment require long-term process may generate significant travel demand. This information may be somewhat general because of security reasons but is still of value. sustained effort. In-kind Contributions In-kind contributions do not require a cash outlay by the community but can nonetheless pro- vide an important benefit to the airport. The key is to identify the companies or organizations that are willing to make such contributions as part of a community's effort to attract new air ser- vice for the general benefit of the community.

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Identifying Available Resources to Enhance Air Service 77 CASE STUDY Fly Wyoming Add new carriers and/or new hubs with Minimum Revenue Guarantees or risk sharing based on load factors, Assist airports in upgrading from a CAT IV to a CAT III classification, and Produce marketing and promotional endeavours for airlines providing new service to a Wyoming community. Another initiative made possible through the U.S.DOT's SCASDP was the state-wide "Fly Wyoming" marketing campaign that highlights the convenience of local airline service to increase passenger awareness and use of Wyoming's commercial airports. The state believed that efforts to enhance airline service were incomplete without a state-wide marketing component. Research revealed that air service in Wyoming was improving as a result of community initiatives and partnerships developed through the state's Air Service Enhancement The State of Wyoming strongly supports and recog- Program. However, public awareness of the improve- nizes the importance of air service to its economy ments was low, and the "Fly Wyoming" marketing and its growth potential. It legislatively created an campaign was developed to promote the positive Air Service Enhancement Program in 2004 to support aspects of flying into and out of Wyoming. The cam- air service at the state's 10 commercial airports. The paign is targeted at both in-state and out-of-state state appropriates $3 million annually for its WY business and tourism travelers. Aeronautics Commission. Because the program has seen such positive results of enhanced air service in The ultimate goal of the campaign is to facilitate the state and much of the granted money has been increased airline service and ridership and to eliminate reallocated back into the Air Service account, the the perception that "you can't get there from here," program now receives $1.5 million annually. The for both in-state and out-of-state travelers. commercial airports can apply for funds to enhance The $1 million campaign was funded 80 percent the level of air service but are required to match through the grant from SCASDP. The remaining funds. Examples of how local airports have used the 20 percent was funded through a combination of state's funding include: the Wyoming Aeronautics Commission, air service Upgrade equipment or increase frequency with partner contributions, and a combined $100,000 in existing carriers, commitments made by 10 airports. A number of firms could provide financial support: Airport van companies, which could offer a certain number of free trips between the airport and area hotels for crews that overnight in the community Information technology companies, which might be able to provide free or reduced-rate ser- vices (for instance, installing computers at ticket counters and gates and in offices) to airlines starting service to a new community