Effects of Airline Industry Changes on Small- and Non-Hub Airports (2015)

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99 C H A P T E R 6 6.1 Selection Process From the list of case study airports described in Chapter 5, the research team identified five airports that had particularly noteworthy community involvement (either positive or negative) or innovative incentive programs (see Exhibit 6-1). Additionally, the research team worked to ensure geographic diversity of focus group sites. Based on the described selection process, the researchers developed the following list of focus group sites along with the dates of the visits: • Small-hub airports – Hector International Airport-Fargo (FAR) March 10th–11th, 2014 • Non-hub airports – Toledo Express Airport (TOL) February 24th, 2014 – Redding Municipal Airport (RDD) March 5th–6th, 2014 – Charles Schulz-Sonoma County Airport (STS) March 3rd–4th, 2014 – Asheville Regional Airport (AVL) March 19th–20th, 2014 6.2 Focus Group Method The research team contacted airport and economic development officials (who were suggested by the initial interviewees in each community) to participate in interviews and targeted focus groups during the team’s site visit. The research team worked with local officials to have 6 to 10 participants in each focus group, consistent with the literature on best practices for focus groups. The research team strove to assemble a comprehensive focus group composed of a wide range of participants including • Local Chambers of Commerce • City and State Economic Development Officials • City and State Transportation Officials • Regional Port Authorities (if applicable) • Local Community Development Foundations • County Economic Development Organizations • Metropolitan Planning Organizations • Grassroots Air Service Development Organizations • Individual Business Owners (identified by economic development officials) The research team attempted to keep the format as consistent as possible while allowing for variation due to site-specific factors (e.g., scheduling and focus group participants). Generally, Focus Groups

100 Effects of Airline Industry Changes on Small- and Non-Hub Airports during Day 1 of the site visit to the case study community, the BGSU team conducted informal interviews with key local economic development officials and selected business leaders to gain insights into the importance of air service to the region’s economy and how it facilitates travel and tourism, attracts new businesses, and connects the region to the rest of the country. The research team investigated the existing strategies used by the community to retain or attract new commer- cial service. During these interviews, the researchers addressed the following topics: • Recent developments such as losses and gains in air service, including carrier equipment and schedule changes at the airport • Importance of commercial air service to the local and regional economy • Strategies (current and past) to retain or expand service at the airport • Willingness/desire of community to offer more incentives to retain or attract new service • Willingness/desire to work with surrounding communities to pool resources to retain or attract service • The degree to which the community views the airport as a regional asset • Potential intermodal strategies employed by the airport and the community During Day 2 of the site visit, the research team conducted a 2-hour focus group in the morn- ing to discuss the local economy with these business leaders from the local and regional case study community. The researchers discussed the state of air service in the local community, local businesses and other organizations willing to participate in an effort to attract new service to the community, impressions of the overall economy, diversity of the economy, and future projec- tions for economic growth in the community. The research team ensured the confidentiality of participants by not attributing comments to specific individuals. The researchers believed that this allowed for a much more open and honest conversation of air service in the area. Each focus group was recorded using the Notabil- ity recording app for the iPad. The research team transcribed each of the focus group conver- sations to ensure the accuracy of statements made during the conversation. These transcripts, the initial interviews with airport and economic development officials, and secondary sources Exhibit 6-1. Focus group airports.

Focus Groups 101 (including Small Community Air Service Development (SCASD) grant applications and con- sultant reports) were used to identify themes and lessons learned that describe ASD efforts in each community. To ensure the accuracy and validity of the interviews and focus group discussion, the research team triangulated the data contained in the interviews with several other sources of data includ- ing SCASD grant applications, FAA enplanement data, news accounts of air service changes at airports from Lexis Nexus, publicly available consultant reports, and public documents that outline agreements between airports and air carriers. The triangulation of the data helped to provide a rich historical examination of ASD efforts at each airport. The researchers asked for each manager of the airport described in the case to review the write-up. The research team allowed airport managers to make factual but not editorial changes to the focus group write-ups. The demographic, economic performance, and firm data were derived using a mapping sys- tem from Research 360, Decision Data Resources. Research 360 uses several sources of fed- eral, state, and academic economic and demographic information to populate its database. The research team used a 25-mile radius around the airport to keep a consistent format as opposed to using actual documented catchment areas that would vary in size from airport to airport. The changes in flights and seats from 2001 to 2013 were derived from OAG data from October of each of the years. OAG includes scheduled flights of U.S. and foreign air carriers. The enplane- ments and air carrier departures come from BTS Air Carrier Summary Data (T3: U.S. Air Carrier Airport Activity Statistics) and includes T-100 traffic data reported by U.S. air carriers. Enplane- ments reflect revenue passengers enplaned and departures reflect revenue aircraft departures performed. Both enplanements and departures include scheduled service only. 6.3 Toledo Express Airport (TOL) Key Attributes Hub designation: Non-hub Airport Governance: Port Authority % Change in seats (2001–2013): -85% % Change in flights (2001–2013): -86% Enplanements (2013): 78,660 (17.1% from 2012) Air Carrier Departures (2013): 1,660 Competing Airports: Detroit (DTW) and Cleveland Hopkins (CLE) Allegiant Airport: Yes SCASD Grant Recipient: Yes Tourism or business destination: Business Major employers within a 25-mile radius of airport: Owens Illinois, Sauder, ProMedica Health Systems Population: 662,322 (2013 estimate) Population % change (2000–2013): -1.5% Median household income: $45,203 Incentives offered: Waived landing fees and Terminal Rents, Marketing (Airport), Revenue Guarantees (SCASD)

102 Effects of Airline Industry Changes on Small- and Non-Hub Airports 6.3.1 About TOL Toledo Express Airport (TOL), in Swanton, OH, is a non-hub commercial service airport that serves a primary catchment area (1-hour drive) of 1.1 million and a secondary catchment area (2-hour drive) of 6.8 million across the states of Ohio and Michigan including the cities of Toledo, Detroit, and Ann Arbor. The Toledo region is home to the headquarters of major compa- nies including Sauder, Owens-Corning, Owens-Illinois, and ProMedica. Additionally, the Toledo region is home to two major universities—the University of Toledo and Bowling Green State University. The airport is owned by the City of Toledo and has been operated by the Toledo-Lucas County Port Authority under a lease agreement since 1973. TOL faces substantial competition from Detroit Metropolitan Wayne County Airport (DTW), which is in Romulus, MI, and a 1-hour drive north of the airport. DTW is a major network hub for Delta Airlines and was previously a hub for Northwest Airlines. DTW has non-stop service to over 150 destinations in North America, South America, Europe, and Asia. In addition to the large presence of Delta at DTW, the airport has significant LCC service from Southwest Airlines, JetBlue, Spirit Airlines, and Frontier Airlines, which often results in lower airfares at DTW. TOL has three daily departures to Chicago O’Hare (ORD) on American Eagle and service to Orlando/ Sanford (SFB), Tampa St. Petersburg (PIE), and Fort Myers/Punta Gorda (PGD) several times a week on Allegiant. In 2013, TOL served approximately 159,000 passengers, which was an 11% increase over 2012 (Toledo-Lucas County Port Authority 2014). Although enplanements have TOL Route Map (as of July 1, 2014) Red-American Eagle, Orange-Allegiant

Focus Groups 103 increased since 2012, the airport only retains 7.6% of the passengers originating in the Toledo area. Nearly 83% of the trips originating in the Toledo region use DTW,5 as shown in Exhibit 6-2. 6.3.2 Local Economic Activity Analysis The economy of the Toledo catchment area has declined in recent years (see Exhibits 6-3 and 6-4). The area lost 161,874 jobs since 2001 bringing total employment down to 1,423,722 by 2013. Manufacturing led the decline by shedding 114,927 (-36.7%) jobs in the period. Con- struction and public administration employment were -33.4% and -12.3%, respectively. The area saw an increase in education and health service jobs in the past decade, as employment increased by 81,397. Source: TOL 2011 SCASD Grant Application with permission of Sixel Consulting and the Toledo-Lucas County Port Authority. Exhibit 6-2. TOL leakage to DTW and nearby airports. 5Toledo Express Airport True Market Study.

104 Effects of Airline Industry Changes on Small- and Non-Hub Airports The area’s heavy reliance on the automotive industry amplified the decline during the recent recession. Local supply chains were broken and the automotive industry moved some of the parts production back in-house. Although U.S. manufacturing may experience resurgence, it is very unlikely general employment gains will follow. Changes in production technology and increases in productivity make employment in manufacturing a declining opportunity. 6.3.3 History of ASD at TOL Since 2001, TOL has experienced one of the largest decreases in commercial air service in the nation, losing approximately 85% of flights and seats in the market. Exhibit 6-5 illustrates the decrease in the number of October flights at TOL from 2001 to 2013 while Exhibit 6-6 depicts the decrease in the number of October seats available at TOL over the same time Exhibit 6-3. Toledo employment composition (2013). Source: Research 360 Exhibit 6-4. Employment changes, 2001–2013. Sector Employment,2001 Employment, 2013 Employment Change Percent Growth, 2001 - 2013 Education and Health Services 310,351 391,748 81,397 26.2 Trade, Transportation, and Utilities 331,181 273,488 -57,693 -17.4 Manufacturing 313,543 198,616 -114,927 -36.7 Professional and Business Services 203,016 192,354 -10,662 -5.3 Leisure and Hospitality 154,286 151,794 -2,492 -1.6 Public Administration 65,427 54,317 -7,592 -12.3 Financial Activities 61,909 53,978 -11,449 -17.5 Other Services 51,967 44,417 -7,592 -14.5 Construction 60,806 40,516 -20,290 -33.4 Information 27,430 17,501 -9,929 -36.2 Natural Resources and Mining 5,680 4,993 -687 -12.1 1,585,596 1,423,722 -161,874 -11.4% Source: Research 360

Focus Groups 105 Exhibit 6-5. October flights at TOL (2001–2013). Source: GRA Analysis of OAG Data Exhibit 6-6. October seats at TOL (2001–2013). Source: GRA Analysis of OAG Data

106 Effects of Airline Industry Changes on Small- and Non-Hub Airports period. Officials at TOL note that a confluence of events have led to the drastic decrease in flights and seats at the airport including the rise in fuel costs; the de-hubbing of several regional airports including Cincinnati, Pittsburgh, and Cleveland; the emergence of nearby Detroit network hub for Delta; the decrease in average airfares at Detroit due to the increase in LCC; and the replacement of smaller turbo-prop aircraft such as the Saab 340 and the Beech 1900 with larger 50-seat regional jets that require increased demand to ensure profit- ability of routes. One of the largest decreases in air service at TOL came in 2002 when AirTran Airways announced that it would end its low-cost service to Atlanta (ATL). AirTran first entered the market in April 1996 with one daily flight from TOL to Orlando, FL (MCO). However, after AirTran merged with ValuJet, the carrier decided to end the TOL to MCO service in April 1998. In October 2000, AirTran re-entered the market with three daily round-trip flights from TOL to ATL. However, after only 10 months of operating the TOL-to-ATL service, AirTran informed the Toledo-Lucas County Port Authority that it would end the service due to a lack of profitabil- ity driven by a lack of use from business travelers. The Port Authority and the Toledo Area Chamber of Commerce attempted to raise $2 million in a travel bank campaign to persuade AirTran to keep its TOL-ATL service. The Chamber and the Port Authority talked with over 6,000 businesses and asked each to commit 5% of their travel budget to the AirTran flight. However, only 40 firms participated in the travel bank and raised only $500,000 of the $2 mil- lion goal with $25,000 coming from the Port Authority. Chamber officials specifically noted the limited contribution from a Fortune 500 company of $100,000 despite a multi-million dollar travel account (Patch 2002). The loss of AirTran service coupled with the reduction of US Airways’ hub in Pittsburgh (PIT) left TOL desperate for new service that would help to lower airfares that increased following the exit of AirTran. In 2005 (after an unsuccessful application in 2004), TOL was awarded a SCASD grant for $400,000 to support marketing and a minimum revenue guarantee for non-stop service to New York City (JFK). The application was submitted on behalf of the Northwest Ohio Air Service Coalition, which was a public-private partnership of the Port Authority, the Toledo Area Chamber of Commerce, the Regional Growth Partnership, the City of Toledo, and Lucas County. The Coalition matched the $400,000 SCASD grant with $250,000 in local cash funds for a revenue guarantee, $100,000 in cash from the Port Authority for marketing assistance, and $650,000 in in-kind marketing funds from local media outlets. Despite over $1,000,000 in cash and in-kind support for a minimum revenue guarantee and marketing assistance, TOL was unsuccessful in attracting a carrier to offer service to New York. From 2006 to 2010, TOL officials had over 25 meetings with air carriers regarding the New York service. Officials at TOL outlined several reasons why their efforts were unsuccessful. First, although officials were able to sign an agreement with a carrier (Air Azul/Jet America) to provide service to Newark Liberty International Airport (EWR) in 2009, the carrier never began operations. Second, JetBlue, one of the targeted carriers for the New York service, announced that it would scale back its fleet of 100-seat Embraer 190 (E-190) aircraft in favor of larger Airbus 320 aircraft. This fleet change was detrimental to TOL because its SCASD proposal was predicated on JetBlue’s continued expansion of E-190 aircraft. Finally, in 2008, the DOT announced capacity constraints through slot restrictions that limited the potential availability of new flights into JFK and EWR. Although the airport was unsuccessful at attracting new network carrier service to TOL, the airport was able to attract Allegiant Air to provide less-than-daily service to leisure destinations beginning in 2005 (TOL-LAS). Since 2005, Allegiant has expanded its offerings in Florida to include Orlando (SFB), Punta Gorda (PGD), and St. Petersburg (PIE).

Focus Groups 107 In 2011 (after an unsuccessful application in 2010), the DOT awarded TOL a second SCASD grant of $750,000 to support a minimum revenue guarantee and marketing assistance for new service to Denver (DEN). The SCASD grant would be matched by $250,000 in cash for a mini- mum revenue guarantee from the Lucas County Investment Corporation (LCIC), $250,000 in marketing assistance from the Port Authority, and $235,000 in in-kind marketing support from media outlets in the Toledo region (TOL 2011). Although Frontier Airlines wrote a letter of sup- port for TOL’s application, the grant was written in such a way that it could be modified to sup- port any westbound service from TOL. Additionally, TOL is offering an incentive package that waives all airport fees and rentals for the first year and provides $0 per-turn ground-handling for the first year and $500 per turn for the second year. Despite this aggressive incentive package, the airport has been unsuccessful in attracting new air service. Officials at TOL note that while the minimum revenue guarantees from the SCASD grant and the LCIC are necessary to compete in today’s demand-constrained ASD environment, they are not sufficient to support sustainable service. More so, officials at TOL noted that while the local in-kind and cash match totals for the SCASD grant were impressive, it was difficult to secure in-kind contributions from local businesses, economic development agencies, and media outlets without some kind of commitment to spend airport marketing dollars first. One airport official noted, The bottom line is you can do everything you want but it’s about community commitment and our community has zero commitment to this airport. And they’ve told us time and time again, and most of them don’t even apologize for it anymore. The largest impediment to future air service growth identified by TOL officials was the lack of support from the business community to even consider flying from TOL rather than Detroit. Officials at TOL noted that businesses in Toledo are committed to flying from Detroit on Delta due to the significant discounts provided by the carrier through contracts with Toledo-based businesses. One TOL official noted resistance from a local company when asking for their aggre- gate travel data to support the development of a proposal for service to Dallas: We had one company that said the only way that I will give this to you is if sign an agreement stating you won’t ever ask me for anything and you won’t ever ask me to support Toledo Express Airport. They said, ‘I will tell you right now, I won’t do anything to screw up my contract with Delta by giving you this information.’ Another factor in the loyalty of Toledo businesses is the frequent flyer status of Delta travelers from Detroit. While officials at TOL noted that they have worked with air carriers to match fre- quent flyer status for business travelers on a case-by-case basis, carriers have been reluctant to do across-the-board matching without a commitment of a percentage of travel from a specific company. A final difficulty in attracting new service to TOL is the price sensitivity of travelers in the region. One airport official noted that of all the markets in the Allegiant system, Toledo is the most price sensitive. Specifically, the official noted that if the price of a fare at TOL were raised by $1, the bookings on that flight would drop 25% more than any other origin airport. This price sensitivity is indicative of a community willing to shop for cheaper airfare on low-cost competitors (both at TOL and DTW) and willing to drive to Detroit for lower airfares. 6.3.4 Themes from the TOL Economic Development Focus Group • There is no sense of obligation to fly from or even check flights at TOL One of the most dramatic moments during the focus group was when the moderator asked local economic development officials to raise their hands if they had flown out of Toledo Express

108 Effects of Airline Industry Changes on Small- and Non-Hub Airports Airport during the last year. No hands were raised. The moderator then asked how many people had flown from the airport during the last 3 years. No hands were raised. Finally, the moderator asked the local economic development officials (who are responsible for marketing the Toledo region) to name the destinations served from Toledo Express. The only correct response was Chicago O’Hare. When asked if they felt a sense of obligation to fly from Toledo Express Airport given their positions in local economic development, participants responded that there was no longer a sense of obligation to fly or even check fares from TOL due to the lack of available flights at the airport. As one economic development official noted, “I mean you can feel like you should fly out of it (TOL) and feel guilty all day long, but you just take your guilty self up to Detroit if you can save yourself some money in your pocket.” One local economic development leader went as far to say, “For our region, Detroit is our airport, it just isn’t in our city.” Another participant noted, “Last time, I didn’t even look at Toledo because I had such a better experi- ence at Detroit.” Participants noted that having Detroit airport so close to Toledo was a positive attribute for the region and that driving 45 minutes to fly from DTW was comparable with many other cities. Additionally, many viewed the proximity of Detroit’s airport as a valuable asset for promoting the livability of Northwest Ohio. One participant noted, “You know, most people would rather live here and drive to the airport or have business at the airport. It’s a lifestyle, you kind of get the best of both worlds; you can live near a city without having to live in it.” Many local economic development officials noted that when promoting the Toledo region to prospective businesses and conventions, they often promote the Detroit Metropolitan Airport in their promotional materials more than TOL. • While groups pledged to support a flight after it is initiated, there was little interest in supporting a community-driven ASD effort An interesting point of discussion during the local economic development focus group in Toledo was that while many participants noted that they support the Port Authority’s efforts to attract more flights to TOL, they believed that there was not enough business travel demand to warrant additional flights. One economic development official noted, “We don’t have many business travelers—where is the demand for additional service?” During the focus group con- versation, many participants expressed a strong belief that airline industry changes including consolidation, rising fuel costs, and competition from DTW make it unlikely that TOL would ever regain the level of service it had in the past. When the moderator further explored the willingness of local economic development officials to support the Port Authority’s efforts to attract new carriers and routes to TOL, many noted that while they were willing to market and do what they could to promote the new service after it was announced, the heavy-lifting for any ASD effort would have to be done by the Port Author- ity. A representative from the local chamber of commerce commented, “We’re not going to be able to do that much. If you get a great flight we will market it.” While many were unwilling to directly support ASD efforts, participants were generally sup- portive of the job the Port Authority has done in trying to attract and retain air service at TOL. Specifically, when the moderator asked participants for their perceptions of the level of involve- ment of the Port Authority in trying to attract a new carrier to TOL, many participants indi- cated that they felt the Port Authority was very active in ASD efforts. Participants also expressed empathy for the Port Authority over the fact that many in the Toledo region blamed the organi- zation for the lack of service at TOL, which local economic development officials attributed to nationwide trends in the airline industry.

Focus Groups 109 • Need for better regional marketing of TOL and the destinations from Chicago, particularly in the areas furthest from Detroit. A final theme that emerged from the local economic development focus group was the need for better marketing of available flights on American Eagle and Allegiant from TOL and also the connectivity available from American Eagle’s hub at Chicago O’Hare. Participants noted that a marketing campaign should focus on the ease of travel through TOL including the easy security process and convenient and affordable parking as well as the number of connections available once passengers arrive at Chicago O’Hare. Additionally, participants suggested that the Port Authority focus its marketing of TOL on the southern part of the catchment area, including Findlay and Bowling Green, as these areas are further from Detroit. Finally, participants sug- gested rebranding the airport from “Toledo Express” to the Northwest Ohio Regional Airport to promote “flying local” within the State of Ohio rather than crossing the Michigan state line to fly from Detroit. 6.3.5 Themes from the Business Owners Focus Group • Participants enjoy the convenience of the travel experience at TOL, but the lack of flights and reliability lead many to drive to Detroit Participants expressed that they preferred the travel experience at TOL compared to that of Detroit. In addition to avoiding the 45-minute to 1-hour drive, one participant noted, “You can pull off the highway, park, walk right in, check right in, and go through security versus parking in a bigger, more remote parking lot, trying to find a spot, and then having to shuttle over to the airport.” Participants also offered suggestions to further enhance the traveling experience at TOL including upgrading the terminal to include free Wi-Fi, additional device charging stations, better public transportation options from the airport, and better signage within the terminal to market the region. While business travelers liked the convenience of TOL, they noted that they do not often check flights from the airport for business travel due to a lack of direct flights, reliability con- cerns such as flight cancellations and delays, and the lack of options if a flight is cancelled or delayed. One participant noted, “Once a flight gets cancelled, it makes you a little leery. When you are working on a 40 or 50 million dollar deal, you can’t be worried about your flight being cancelled.” Travelers also expressed concern about making connections during the winter travel season. Interestingly, the business travelers in the focus group noted that while they don’t check TOL for business travel, they find the Allegiant service to destinations in Florida for vacation very convenient. • There is a need to overcome the natural tendency to not check for flights at TOL Participants noted that the first step in any ASD effort at TOL needs to be helping business and leisure travelers overcome the natural habit of not checking for flights from TOL when making travel plans. There was consensus in the room that in order to make the case for expanded air service at TOL, the community needed to support the service that was already at the airport. One suggestion developed by the group was a “Check TOL first” campaign that would highlight the ease of the travel experience at TOL versus that at Detroit. As one participant opined, We need people to check Toledo first. We need our Mayor not to make announcements making all public employees use the airport; that is ridiculous and everyone knows it isn’t always cost effective to use Toledo. What we want the Mayor to say is that every city employee who travels on business will check Toledo first and we want every corporate office in Toledo to do the same. This is the only way we are going to get air service for Toledo.

110 Effects of Airline Industry Changes on Small- and Non-Hub Airports When participants were informed that TOL had an ongoing “Check TOL first” campaign, many said they were unaware of the program. Participants suggested that the lack of awareness was due to a lack of a sustained marketing of the flights available at the airport. Many suggested that the focus of any marketing campaign should be the ease of the travel experience at TOL. A participant suggested, “Go around to every county in Northwest Ohio and Southeast Michigan to the Rotary Club or whatever civic organi- zation is there and talk about the positives of using Toledo Express.” Throughout the conversa- tion, participants noted that the Port Authority had sporadically engaged local businesses, but that many of these efforts were not sustained. As one business owner noted, “The Port Authority tried to engage families and business people to fly Toledo and that lasted for, it seemed, 6 months to a year and then ended. I can’t say I’m going to economic development or Chamber meetings and they are saying fly Toledo.” • There is little to no interest among businesses for a community-driven minimum revenue guarantee or travel bank program One of the most interesting portions of the Toledo business owner focus group was when the group was asked whether their businesses would pledge money for a revenue guarantee or a travel bank for ticket purchases to attract new service to TOL. Upon asking the question, there was a sustained period of silence in the room. It was clear that the business owners were not familiar with minimum revenue guarantees or travel banks. The moderator then explained the concepts to the group members to spur further conversation. One local busi- ness owner noted, “We have people in Cleveland and they fly out of Cleveland. We have a office in Columbus and they fly out of, you know, I’m not having a strong feeling that we are going to Toledo and buy all these tickets.” The participants then noted before they made any investment in a community-driven effort, they would like to see the economic impact of flying locally for the region. 6.4 Charles M. Schulz-Sonoma County Airport (STS) Key Attributes Hub designation: Non-hub Airport Governance: County Owned and Operated (Sonoma County) % Change in seats (2001–2013): 145% % Change in flights (2001–2013): -3% Enplanements (2013): 112,397 (6.4% from 2012) Air Carrier Departures (2013): 2,240 Competing Airports: San Francisco (SFO), San Jose (SJC), Oakland (OAK) Allegiant Airport: No SCASD Grant Recipient: Yes (2004, 2011) Tourism or business destination: Business/Tourism Major employers within a 25-mile radius of airport: Agilent Technologies, Kaiser Foundation Hospitals, Lucas Films Population: 503,394 (2013 Estimate) Population % change (2000–2013): +6.9% Median household income: $66,275 Incentives offered: Travel Bank, Marketing, Landing Fee Waivers

Focus Groups 111 STS Route Map (as of July 1, 2014) Green-Alaska Airlines 6.4.1 About STS Charles M. Schulz-Sonoma County Airport (STS), in Santa Rosa, California, is a non-hub commercial service airport that serves a six-county (Sonoma, Lake, Marin, Humboldt, Napa, and Mendocino) catchment area of 1.1 million residents (Exhibit 6-7). The airport is owned and oper- ated by Sonoma County. The Sonoma area is a major tourist destination for California’s famous wine regions including Napa Valley and is home to several diverse employers including Agilent Technologies, Kaiser Permanente, Lucas Films, and Beringer Blass Wine. The region has experi- enced economic growth since 2001; however, the recession in 2008 led local leaders to invest in marketing Sonoma’s wine industry to further spur the region’s tourism industry. STS faces significant competition from San Francisco International Airport (SFO), Oak- land International Airport (OAK), and Sacramento International Airport (SMF). In 2012, STS captured only 8% of total bookings in the catchment area with SFO retaining 78% and Oak- land receiving 7% (STS 2012b). While STS is only 65 to 75 miles from both San Francisco International Airport (SFO) and Oakland International Airport (OAK), drive times can range up to 3 to 5 hours on the congested Highway 101 corridor. This results in many residents from the Sonoma County area driving to SFO or OAK the evening before morning flights to avoid potential delays. STS currently is served only by Alaska Airlines with non-stop service to Portland (PDX), Seattle (SEA), Los Angeles (LAX) and San Diego (SAN). In 2013, STS enplaned

112 Effects of Airline Industry Changes on Small- and Non-Hub Airports approximately 112,000 passengers, up 6% from 2012. STS is limited in its ability to attract jet aircraft commercial service, because its primary runway is only 5,020 feet long. 6.4.2 Local Economic Activity Analysis The economy of the catchment area of Sonoma County Airport has struggled in the past decade (see Exhibits 6-8 and 6-9). The area has lost nearly 14,000 jobs since 2001. Employment in 2001 was 465,565 but in 2013 it was down to 451,622. Although much of this loss is due to the recent recession, the area is undergoing a structural shift. Manufacturing employment has declined by 14,829 (-27.7%) since 2001. Manufacturing now accounts for less than 10% of Source: STS 2012 SCASD Grant Application Exhibit 6-7. STS catchment area and nearby airports.

Focus Groups 113 the region’s employment. Financial activities and the construction industries have also suffered losses of 24.2% and 29.0%, respectively. The area is experiencing a transformation to more of a service base. Leisure and hospitality has experienced a 19.5% increase adding over 10,000 jobs. Education and healthcare have added 17,179 jobs and general service businesses have contrib- uted 5,112 jobs. The economic drivers of the region are now education/healthcare, leisure/hospitality, trade/ utilities, and professional and business services. These core industries now account for 66% of the region’s employment. The transition to a service base is often difficult for a region. The transition breaks local supply chains and causes short-term economic stress. However, once this transition has occurred, the economic fluctuations are often minimized and the region experi- ences more consistent economic growth. Sector Employment,2001 Employment, 2013 Employment Change Percent Growth, 2001 - 2013 Education and Health Services 94,091 111,270 17,179 18.3 Trade, Transportation, and Utilities 86,269 84,262 -2,007 -2.3 Leisure and Hospitality 52,342 62,547 10,205 19.5 Professional and Business Services 50,244 50,014 -230 -0.5 Manufacturing 53,459 38,630 -14,829 -27.7 Other Services 19,689 16,421 -3,268 -16.6 Public Administration 23,333 24,256 923 4.0 Financial Activities 26,225 19,870 -6,355 -24.2 Construction 30,043 21,328 -8,715 -29.0 Natural Resources and Mining 18,400 15,946 -2,454 -13.3 Information 11,470 7,078 -4,392 -38.3 465,565 451,622 -13,943 -3% Source: Research 360 Exhibit 6-9. Employment changes, 2001–2013. Source: Research 360 Exhibit 6-8. Sonoma employment composition (2013).

114 Effects of Airline Industry Changes on Small- and Non-Hub Airports 6.4.3 History of ASD at STS Recent history of air service development at STS begins in 2001 when SkyWest Airlines was directed by United Airlines to end its STS-SFO and STS-LAX routes despite strong perfor- mance. The decision by United Airlines in 2001 to abandon the successful SkyWest commuter routes was based on internal airline policy factors and was not related to the effects of the September 11th terrorist attacks. One local official noted that SkyWest’s exit from STS was a “come to Jesus moment—we didn’t even know it was there until it was gone.” From October 2001 through March 2007, STS did not have commercial service. After a year of unsuccessful efforts to lure an air carrier to provide service at STS, the County Board of Supervisors created the Sonoma County Airport Airline Attraction Committee (AAC) in October 2002. The mis- sion of the AAC is to “assist Sonoma County with the attraction of air service to the County by acting as a sounding board for business and community interest, to facilitate business and community support for advanced ticket purchases, and to assist with local marketing” (STS 2004). The AAC was composed of representatives from the County Board of Supervisors, local businesses, the Sonoma County Tourism Bureau, and the Santa Rosa Chamber of Commerce and had three subcommittees: one to secure advance ticket purchases from local businesses, one to secure in-kind advertising support from media outlets, and one providing feedback to ideas for new service. Following the creation of the AAC, the group worked to gain support from local, state, and fed- eral elected officials for ASD efforts in STS. Additionally, the AAC worked with a local consultant to conduct an air service study to determine the most successful routes and carriers to target for new service. One AAC member noted that the goal of the group and the consultant was “to find an airline whose business model met our demand for destinations.” The AAC and the consultant identified Los Angeles and Seattle as their top destinations and Alaska/Horizon Air as the pre- ferred carrier. Alaska/Horizon was chosen as the preferred carrier primarily due to the carrier’s use of the Bombardier Q-400 aircraft. The Q-400 is a high-performance turbo-prop aircraft that seats 76 passengers and can easily takeoff and land at STS’s short runway. In 2004, the AAC and the airport submitted a SCASD grant application to DOT for $635,000 in revenue guarantee and marketing funds. The AAC and STS had worked to secure $500,000 in travel bank commitments from local businesses and a letter from Horizon Airlines in sup- port of their application. The DOT awarded STS the full $635,000 requested in the application. Although the community had raised $500,000 in travel bank purchases and secured the SCASD grant, it still needed to gain a firm commitment from Alaska Airlines officials. Airport officials and the AAC flew Alaska Airlines executives into Oakland International Airport at rush hour. As the executives sat in the town car for 3 hours, airport officials made their pitch to the execu- tives that residents of the North Bay sit in this traffic when they fly from SFO and that there is demand for direct service from STS to avoid this inconvenience. When the Alaska executives departed STS, airport officials and AAC members rented a helicopter and flew the executives over the nearby Sears Point Raceway where a NASCAR race was taking place. Executives noted that they were impressed by the number of people that came to the area for the event. In 2006, Alaska Airlines announced that Horizon Air would begin service in March 2007 with two daily non-stop flights to LAX and one to SEA (STS 2012b). Following the announcement of the new service, the AAC worked on securing actual dona- tions to the travel bank that were committed for the SCASD grant application. The airport and AAC partnered with American Ag Credit in Santa Rosa to offer Alaska Airlines branded debit cards to be issued to businesses that committed funds to the travel bank. During the 3 weeks following the announcement, the AAC secured over $500,000 in funds for the travel bank. One airport official noted that Alaska Airlines was supportive of the effort rather than a revenue guar- antee because it demonstrated community commitment and investment in the sustainability

Focus Groups 115 of the service. Additionally, the AAC worked to market the new service in both the Santa Rosa and destination markets. Using a combination of SCASD and local funds, the AAC and airport worked to market the new LAX and SEA service for 9 months before the first plane landed at STS. The group worked through local civic organizations and used the in-kind commitments of local media outlets to generate awareness of the new travel options. The Sonoma County Tour- ism Bureau invested in marketing Sonoma County in the destination markets to bring more in-bound traffic to the region. To generate more excitement about the new service, airport officials announced a public open house where citizens could tour the airport, meet Horizon Air executives, and tour one of the new Horizon Q-400 aircraft that would be servicing the market. On March 15, 2007, over 3,500 residents of the Santa Rosa area came to STS to tour the airport and a Horizon Q-400 aircraft. Horizon executives were “shocked” at the turnout and noted, “We operate in 50 cities and we have never seen a reception like this” (Hart 2007). The community outreach effort paid off—the load factor for the LAX flight was 81% within the first month. The efficiency of the Q-400 aircraft results in a profitable route when the load factor is over 62%. Due to the success of the LAX and SEA routes, Horizon started non-stop service to Portland (PDX) later in 2007 and service to Las Vegas (LAS) in 2008. Due to a change in strategy, Alaska Airlines ended the LAS service in 2012 and replaced it with non-stop service to San Diego (SAN). This has resulted in overall flights at STS returning to 2001 levels (Exhibit 6-10) while the number of seats in the market has increased over 200% since 2001 (Exhibit 6-11). STS officials estimate that the flights result in a direct economic impact of over $112 million per year and contributed 414 jobs within the community (STS 2012b). Airport officials said their success in attracting and retaining commercial service is the result of several factors. First, officials praised the Sonoma County Board of Supervisors members who led the creation of the AAC and gained valuable political support for ASD efforts. One AAC member noted, “Alaska/Horizon Airlines would not be here if it was not for the airline attrac- tion committee. Since its inception, the diverse group of individuals serving on the committee Source: GRA Analysis of OAG Data Exhibit 6-10. October flights at STS (2001–2013).

116 Effects of Airline Industry Changes on Small- and Non-Hub Airports has generated a large amount of support.” Second, the STS airport manager noted that the lack of turnover of Alaska Airlines executives over the years has led to the building of stable and productive personal relationships that have resulted in brand loyalty within the community. As an example of this loyalty, STS officials refused to offer Delta Airlines incentives when they pro- posed adding service from STS to LAX to compete with Alaska. Finally, officials noted that the most important ingredient to their success was that they identified an air carrier whose business model fit the demand for service from their airport. Currently, officials at STS have focused their ASD efforts on attracting a carrier to provide eastbound service to Denver, Salt Lake City, or another network hub airport. In 2012, the DOT awarded STS a second SCASD grant for $650,000 for a revenue guarantee and marketing sup- port for eastbound service. STS was able to secure a letter of support from Frontier Airlines, which committed to provide service to Denver on an Embraer E-190 aircraft. However, as STS was awarded the grant, Frontier decided to pull back its E-190 operations which left the air car- rier without an appropriate aircraft to fly into STS’s 5,020-ft runway. Although the airport has not attracted an air carrier to date, the community is once again engaged in the effort through the AAC and has already secured commitments for ticket purchases from local businesses. Air- port officials are optimistic that their runway expansion project (to 6,000 feet) slated to begin in October will allow them to talk to a wider range of carriers with different equipment types to begin new eastbound service at STS. 6.4.4 Themes from the STS Focus Group • The community enjoys the traveling experience at STS One of the dominant themes of the focus group was that while participants do occasionally fly from SFO, they prefer the travel experience at STS. One participant commented, “I like the sky lounge—it’s a great place to hang out before a flight. I think that the security experience is fabu- lous. I’m willing to fly from STS and connect to LAX instead of using a different airline because Exhibit 6-11. October seats at STS (2001–2013). Source: GRA Analysis of OAG Data

Focus Groups 117 of the experience.” Another participant noted, “You walk out onto the tarmac—it’s like you are an actor or something. It is practically glamorous. It is a wonderful place.” Participants also noted that they preferred flying from STS rather than flying from SFO because of the unpredictability of traffic on Highway 101. Additionally, local business owners noted that although fares are often higher at STS compared to SFO or OAK, the total cost of travel is lower. One business owner said, “It is not just the cost of the ticket, but, I think our company spends 50 cents a mile, so it is basically $160-$170 of mileage for me to go to San Francisco.” Another business owner elaborated, “It isn’t just money but also time. If you fly from Minneapolis to SFO, you are looking at 90 minutes to 2 hours by the time you collect your baggage until you arrive at your hotel. From this airport (STS) it is a matter of 5 to 10 minutes.” • Local business community is very engaged in and knowledgeable about ASD efforts During the focus group conversation, it was clear that the local business owners in the room were very knowledgeable about ASD efforts at STS. Participants came into the focus group with a strong desire to express their demand for an eastbound route to Denver. One participant noted that there is an “untapped market” at STS. He described how his company will often have company functions in Sacramento rather than Santa Rosa or Sonoma because most of the com- pany’s executives come from the East Coast. The Chamber of Commerce representative noted that the level of engagement and knowledge about the airport is high in the community due to the involvement of the AAC and the airport manager. Specifically, the AAC and the airport manager host 20 educational events per year in both Sonoma and Napa. Additionally, the airport manager gives updates on air service to the Chamber and local advocacy councils and appears on local television programs. Finally, participants expressed pride in the turnout for the tour of the Horizon Q-400 aircraft in 2007 and the load factors of all Alaska flights at STS. One participant commented, “There is such large community support for the airport. So if any airline comes in and is hearing that on the table, there’s great support now, but the east bound airline, whoever it is, is going to get huge support from this community.” • Marketing of the region is critical to future air service development A theme that emerged from the focus group discussion was the importance of local marketing efforts for future ASD efforts at STS. Officials at STS are focused on using increased marketing from the Sonoma County Tourism Bureau to help quantify the demand for in-bound service at STS. As a major tourism destination, STS has roughly a 50/50 split of local originating traf- fic and people coming from outside the area. The tourism bureau has focused on marketing Sonoma wine country in international destinations. Additionally, the tourism bureau budget has grown from $2 million to $5 million to help promote Sonoma wine country and the town of Healdsburg, a top tourist destination on the website Trip Advisor. Not only has the Sonoma County Tourism Bureau promoted tourism internationally, but it has focused on promoting Sonoma County in cities with headquarters of air carriers that would be candidates to provide eastbound service from STS. One participant noted, “Sonoma County Tourism Bureau has a wonderful partnership with the vineyards called the trio and they collaborate and do this thing called Sonoma in the city where they will go to Chicago, Charlotte, or Denver and pour the wines and talk about Sonoma County destinations.” Another participant elaborated, “On one hand it is growing that awareness among people who may or may not use the airport because of the limited access. But it is going to open the floodgates when we get eastbound service.” • While local businesses are willing to donate funds to a travel bank, there is little appetite to participate in a community-generated revenue guarantee program When participants were asked what types of incentive programs they would participate in to attract eastbound service, many were supportive of another travel bank program. One participant

118 Effects of Airline Industry Changes on Small- and Non-Hub Airports noted, “I think we should replicate the model that we used with Horizon. We had committees. Some worked for the ticket bank, some for the publicity group, and then there was a marketing group . . . It was very well coordinated and successful.” The moderator than asked if the commu- nity would pool their resources for a minimum revenue guarantee if a carrier were to ask for it. Participants outlined some of the reasons why the travel bank commitments were more effective in their view than revenue guarantees: I remember when we were talking to Horizon initially; they certainly wanted a ticket bank, which we were able to achieve. It was their view that if it was a subsidy they wanted to evaluate the sustainability, profitability of the hub on a long-term basis. Why would they gear up, invest a lot into the commu- nity and get the subsidy, if they didn’t believe in the market and the subsidy expired and they weren’t making money they would have to pull out anyway? So, it was their view, they wanted to evaluate the market to begin with. Another participant expressed concern that minimum revenue guarantees can distort the actual market for service, Even though there is money to be made in the short term, the reputational damage to the carrier from leaving the market is not worth it. The airline has to look at it and say, that’s a market that we can make money in; forget subsidies, that’s a market we can make money in. We want to operate out of there. That’s what makes me nervous about the subsidies. It creates this interdependency that’s not healthy. Participants outlined the investments already made by the community in attracting new air service and also noted that the carrier would be getting a minimum revenue guarantee through the SCASD grant. We’re not at a zero starting point here. There has already been a lot of effort put in . . . the runway extension, without that it is a nonstarter. So the community has rallied aggressively to support the airport manager and the supervisors. We also rallied aggressively to get a grant (SCASD) and a subsidy for $650,000 already. The discussion then focused on whether the price the community would have to pay to get eastbound service was worth the investment. Participants noted that they felt that air service development has become a layering or stacking process where carriers ask for more and more community resources to be brought to the table. Specifically, local business owners noted that they are more than willing to promote and advertise the new service through the marketing appa- ratus of the community and to commit to ticket purchases. However, the notion of a minimum revenue guarantee from the community on top of those investments led one participant to ask, “So it starts to feel like how much direct cost, how much indirect cost, and then it does become how much do we need this, what is the pain point of this?” Another participant more forcefully claimed, “I don’t want to come across as belly aching too much but, I mean, it (eastbound service) would be beneficial but I’m not willing to sell my soul for it . . . I mean if you just want cash in your pocket, forget it.” • Intermodal access is critical to future ASD efforts at STS A final theme that emerged from the discussion of air service at STS was the importance of inter- modal access to current and future ASD efforts at STS. When the research team arrived at STS, they observed an Airport Express bus outside the terminal. During the focus group conversation, the team asked participants about the service, which runs from SFO to STS. Participants noted that they liked the service because of the available Wi-Fi service that allowed them to work on their way to the airport. Additionally, participants noted that the $34 one-way fare often saved money on parking at SFO. Participants noted that the Airport Express bus provides valuable backup in case of irregular operations. Specifically, if an Alaska Airline flight into STS has to divert to San Francisco or Oakland, the bus provides a way for those passengers to get back to STS without renting a car or having someone make the drive to SFO. Finally, the group mentioned a new light rail project that will be completed in 2016. The Sonoma-Marin Area Rail Transit (SMART) will run from the Larkspur Ferry in Marin County to Cloverdale in Sonoma County. SMART will have a stop very close to STS, which will allow for easier access for those in both Marin and Sonoma Counties.

Focus Groups 119 6.5 Redding Municipal Airport (RDD) Key Attributes Hub designation: Non-hub Airport Governance: City Owned and Operated (City of Redding) % Change in seats (2001–2013): -74% % Change in flights (2001–2013): -72% Enplanements (2013): 23,683 (-16.1% from 2012) Air Carrier Departures (2013): 1,669 Competing Airports: Sacramento (SMF) and San Francisco (SFO) Allegiant Airport: No SCASD Grant Recipient: Yes (2004, 2008) Tourism or business destination: Business/Tourism Major employers within a 25-mile radius of airport: Sierra Pacific Industries, Bethel Church, Shasta Regional Medical Center Population: 255,724 (2013 Estimate) Population % change (2001–2013): +9.2% Median household income: $41,353 Incentives offered: Travel bank, Marketing, Waived Landing Fees, Revenue Guarantee (Community and SCASD) RDD Route Map (as of July 1, 2014) Red-United Express (SkyWest)

120 Effects of Airline Industry Changes on Small- and Non-Hub Airports 6.5.1 About RDD Redding Municipal Airport (RDD), in Redding, California, is a non-hub commercial ser- vice airport that serves a five-county (Shasta, Siskiyou, Trinity, Tehama, and Plumas) primary catchment area of over 280,000 people. The airport is owned and operated by the City of Red- ding, Airports Division. The Redding area is home to several diverse employers including Bethel Church, The Coca Cola Bottling Company, Sierra Pacific Industries, Bethel Ministries, and 3M. The region is also home to various outdoor recreation tourist destinations including Lake Shasta, Mt. Shasta, Lassen National Park, and the Whiskeytown National Recreation Area. RDD is served by United Express (SkyWest) operating small propeller aircraft with service to San Francisco International Airport (SFO). In 2013, RDD captured only 13% of the market within its catchment area (see Exhibit 6-12), with 67% of passengers driving 153 miles to Sacra- mento International Airport (SMF) and 11% driving 228 miles to SFO. In 2013, RDD had 23,683 enplanements, down 16% from 2012. In 2013, RDD had average airfares of $513, well above the national average of $381 (BTS 2013). 6.5.2 Local Economic Activity Analysis The economy of the Redding catchment area is relatively small, with a heavy emphasis on education and health services as well as trade, transportation, and utilities (see Exhibit 6-13). Total employment of the region in 2013 was 74,534. It has experienced a moderate decline in employment since 2001, as shown in Exhibit 6-14. The area lost 6,938 jobs or roughly 8.5% of the employment base. Most of this decline was due to reductions in manufacturing (-35.9%) and construction (-37.6%). The small decline in leisure and hospitality services was something of a surprise given the proximity to Mt. Shasta and its related vacation destinations. 6.5.3 History of ASD at RDD The recent history of air service development at RDD begins after the terrorist attacks of September 11th, 2001, when, like many small- and non-hub airports, Redding lost significant commercial service. In 2003, RDD had service to Portland (PDX) on Horizon and SFO on United. Exhibits 6-15 and 6-16 illustrate the decrease in both October flights and seats from 2001 Source: 2014 RDD SCASD Application with permission from Mead & Hunt Exhibit 6-12. RDD catchment area.

Focus Groups 121 to 2013. To reverse the trend of declining air service at RDD, airport officials applied for and received a $500,000 SCASD grant from the U.S. DOT for a minimum revenue guarantee to sup- port a new Horizon Air route to Los Angeles (LAX). The City of Redding, the Redding Chamber of Commerce, and the Economic Development Corporation of Shasta County agreed to provide $60,000 in marketing support for the new route. In April of 2005, Horizon Air began service from RDD to Los Angeles using a Bombardier Q-400. The airport used the marketing money to buy billboard space on Interstate 5 to inform residents driving to Sacramento International Airport of the new LAX service at RDD. The RDD-LAX service was successful, averaging a load factor of 76% (RDD 2008). Spurred by the new Horizon Air service, both seats and flights increased drastically from 2005 to 2007. During that time, airport officials worked with their consultant to identify the top des- tinations for the Redding market and found that eastbound hubs such as Denver, Phoenix, and Salt Lake City would be most supported by the local market. Airport managers and community leaders met with Delta several times from 2006 to 2008 to discuss eastbound service to Salt Lake City on SkyWest Airlines. In 2008, the airport applied for and received a second SCASD grant for Sector Employment,2001 Employment, 2013 Employment Change Percent Growth, 2001 - 2013 Education and Health Services 20,713 20,553 -160 -0.8 Trade, Transportation, and Utilities 18,291 16,784 -1,507 -8.2 Leisure and Hospitality 8,231 8,046 -185 -2.2 Professional and Business Services 6,648 6,001 -647 -9.7 Public Administration 5,309 5,737 428 8.1 Other Services 3,880 4,348 468 12.1 Manufacturing 6,134 3,933 -2,201 -35.9 Financial Activities 3,436 2,819 -617 -18.0 Construction 4,480 2,797 -1,683 -37.6 Natural Resources and Mining 3,196 2,791 -405 -12.7 Information 1,154 725 -429 -37.2 81,472 74,534 -6,938 -8.51% Source: Research 360 Exhibit 6-14. Redding employment changes, 2001–2013. Source: Research 360 Exhibit 6-13. Redding employment composition (2013).

122 Effects of Airline Industry Changes on Small- and Non-Hub Airports Source: GRA Analysis of OAG Data Exhibit 6-15. October flights at RDD (2001–2013). Source: GRA Analysis of OAG Data Exhibit 6-16. October seats at RDD (2001–2013).

Focus Groups 123 $500,000 to support a minimum revenue guarantee to reduce the risk to Delta for starting SLC service. Additionally, the SCASD grant included a $600,000 travel bank to support the proposal. However, during contract negotiations with Delta for the SLC route, the price of oil spiked to over $100 per barrel, making the route unprofitable. Delta walked away from negotiations and RDD did not receive eastbound service. RDD subsequently asked for and received an extension of the SCASD grant. In 2009 and 2010, Horizon Airlines started to reduce the frequency of flights from RDD to both Portland and Los Angeles. In 2009, Horizon Air replaced the Portland service with service to Seattle. However, the RDD-SEA route was discontinued in 2010. During the same time, air- port officials were able to secure funding for a $9 million terminal expansion and renovation project at the airport. In 2011, airport officials noticed during their meetings with executives from Horizon Air that many route-planning decisions were now being made by parent company Alaska Airlines. On March 10, 2011, Alaska Airlines officials notified Redding officials that they would cease all operations at the airport. Airport officials expressed surprise at the announce- ment noting “We had just been meeting with them on this terminal building expansion, so we continued dialog on different things” (TRS 2011). Following the departure of Horizon from RDD, the community was only left with five (and (eventually three) daily flights to San Francisco on United Express. In 2011 and 2012, the airport manager worked with the airport’s ASD consultant to identify a strategy to make RDD com- petitive during discussions with airline route planners. Additionally, the airport manager and consultant attended the JumpStart Air Service Development program to meet with carriers to discuss new service at RDD. The airport manager also attended several headquarter meetings with carriers to discuss new service. However, the airport manager noted, “Because there are different people at every airline route-planning meeting, it makes it tough to develop relation- ships.” During those meetings, many carriers made it clear that the community would have to significantly reduce the risk to the carrier of starting new service at Redding. The airport manager began to work closely with the economic development corporation (EDC) of Shasta County to develop a plan to engage the business community in ASD efforts. The Presi- dent of the EDC, who had recently started in the position, was a long-time businessman in Shasta County and had a great reputation among the local business community. The airport manager noted, “He was able to bring credibility and private-sector experience to our air service develop- ment efforts.” In April of 2013, the airport manager, under the signature of the city manager, invited the top 50 business leaders in the community to a meeting at the City Council Chamber to discuss the future of commercial air service at Redding. The session began with an educational presentation from the airport’s consultant who described the state of air service development and nationwide trends in air service. Following the presentation, the 30 participants noted that they no longer used or even checked flights from Redding because of the lack of flight options and the lack of reliability of the United Express service due to frequent cancellations caused by low ceilings at SFO. The airport manager noted, “And you know, that hurts a little bit but its reality . . . they’re running a business and if you get a bad meal at a restaurant, how many times are you gonna’ give your money there?” The airport manager then asked the business owners if they wanted to give up on attracting commercial air service to Redding. The business owners noted that while they would not support additional service to SFO, they would be willing to financially support new air service to Los Angeles or an eastbound hub. However, this would be difficult, because the community could not apply for a SCASD grant for Los Angeles service because they had previously received a grant in 2004 for Los Angeles service. Using the feedback from the meeting and analysis from the airport’s market studies, the airport manager, EDC President, and airport consultant decided to focus the community’s ASD efforts on service to Los Angeles. Additionally, during a second community meeting on May 16, 2013,

124 Effects of Airline Industry Changes on Small- and Non-Hub Airports the EDC President, airport manager, and consultant decided to develop an innovative travel bank/ revenue guarantee program funded entirely by contributions from local businesses and residents. The air service support program would require a minimum pledge of $2,000 that would be split (either 90/10 or 80/20) between a travel bank for tickets and a minimum revenue guarantee for the carrier. The President of the EDC framed the minimum revenue guarantee as a “fare premium to get service for the first year.” Once a business or individual made a pledge, they were required to provide 50% of the pledged amount by July 31, 2013, to the EDC of Shasta County, who would manage the accounts and place the funds in the Member First Credit Union. The remaining 50% balance was due upon the successful signing of a contract with a carrier to provide service at Red- ding. However, if the group could not attract a carrier by June 2014, the initial pledge would be returned to investors. Following the meeting establishing the travel bank, the number of business leaders involved decreased from 30 to 15. The airport manager noted, It wouldn’t have been successful if we wouldn’t have those 15 original core businesses that became true champions of the program because when they spoke, their counterparts, the other businesses, it gave it tons more credibility and validity, more so than me asking for them to participate, even though I am well known in the community. The group then began the quiet phase of the travel bank campaign by securing pledges from the core group of businesses in the community. By July 31, 2013, the pledge drive resulted in $837,000 in pledges from local businesses to kick start the public phase of the campaign. While the airport manager and EDC President knew that many individuals and smaller organiza- tions would not be able to contribute a significant amount to the travel bank, they wanted to engage the larger community in the effort. They began visiting local Rotary Clubs and service organizations to educate the community on the program and the importance of the airport to the region. As of March 2014, the travel bank had 41 investors and had raised a total of $1,031,000 for ticket purchases and a minimum revenue guarantee for a carrier to provide new service at Red- ding. While air carriers have been impressed with the amount that the community has been able to raise for the travel bank, many have asked for larger minimum revenue guarantees. However, the airport manager reminds carriers, “It is money in the bank, it’s not a DOT grant, it’s easy to come up with a half million grant from the federal government, it’s different when it’s some- body’s money.” Despite this strong show of community support, Redding has not been able to attract new air service to the community. 6.5.4 Themes from the RDD Focus Group • While customer perception of the airport is good, the unreliability of service to SFO is a major problem A major theme that emerged from the conversation was that while participants were excited about the new terminal construction and enjoyed the expedited security experience at Redding, they said they are unlikely to fly out of the airport due to concerns about the reliability of SkyWest flights into San Francisco. One participant noted, “When I fly out of Redding, going to San Francisco, the perception is you don’t know if you are going to make your connection or not. It has nothing to do with Redding, just San Francisco.” Another participant, who was an investor in the travel bank, noted, “Tomorrow morning I will leave my house at 3 in the morning to drive to Sacramento, get on a flight and be in a meeting in Denver by 1 pm and do the same thing to come home because I can’t get there from here reliably.” The conversa- tion turned to the effect of the lack of reliability of the service and the lack of available fight options on the local economy. One participant mentioned, “From a business perspective, we are handcuffed wanting to get people on the ground and seeing the business community—we have to get them here first and it is not that easy to do without flights.”

Focus Groups 125 • Despite the success of their travel bank program, participants noted that they would be willing to use that money as a revenue guarantee to attract new service Another major theme that emerged from the conversation was that while the investors in the Redding travel bank were proud of raising over $1 million in ticket pledges, they realized that the air carriers were much more interested in minimum revenue guarantees. One investor noted, “I think the travel bank is a good thing, and I’m surprised we got to the level that we did. I wish we would have invested more on the other side (revenue guarantee) because I think that’s what the airlines were looking for.” During the conversation, several investors noted that if an agreement with a carrier were on the table, they would convert their ticket pledges into a minimum revenue guarantee. One participant said, “I think if in fact that revenue guar- antee isn’t attractive enough to the airline, there are people in the business community that would change that number, I know that I am one of them, I’ll give you all the money I put in.” Other participants expressed a desire for a longer term contract with a carrier if they were to change their pledges to a minimum revenue guarantee, “They want us to front the money. I mean, that’s fine, but . . . you better guarantee a longer service contract.” • Participants expressed frustration over the lack of community control of air service Investors in the Redding travel bank also expressed frustration over larger airline industry changes such as the price of oil, air carrier policies, and fleet realignments that take much of the control for air service out of the hands of the local community. One participant noted, “It just seems that so much of this, we are 2% of the argument, but 98% is up to the airline, you know flights and planes and pilots we don’t control any of that.” Elaborating on that comment, another investor noted, The market is changing all the time now with the merging of US Air and American, making them the largest airline in the world, it throws another one. We only represent, smaller airports, non-hubs and small hubs only represent 2–5%, it’s a small number of the entire passengers that go through their system so they don’t want to make a large investment in small communities. Participants also expressed frustration that ensuring that a route was profitable was no longer sufficient to ensure sustainable air service in a community. One investor said, “We were profitable, there were just more routes that were more profitable.” Finally, participants expressed frustration with a policy by United Airlines that says the carrier will not provide direct service from one community to another if it flies over a hub. Therefore, United would be unwilling to provide service from RDD-LAX without first stopping in SFO. 6.6 Hector International Airport (FAR) Key Attributes Hub designation: Small hub Airport Governance: Airport Authority % Change in seats (2001–2013): 25% % Change in flights (2001–2013): 50% Enplanements (2013): 398,101 (9.3% from 2012) Air Carrier Departures (2013): 7,390 Competing Airports: Minneapolis-St. Paul (MSP) and Bismarck (BIS) Allegiant Airport: Yes SCASD Grant Recipient: Yes (2005, 2011) Tourism or business destination: Business

126 Effects of Airline Industry Changes on Small- and Non-Hub Airports 6.6.1 About FAR Hector International Airport (FAR) in Fargo, North Dakota, is a commercial service small- hub airport that serves a primary catchment area of southeastern North Dakota, northeastern South Dakota, and western Minnesota. The airport’s secondary catchment area extends even further into the three states and has a population of over two million (Exhibit 6-17). The air- port is owned and operated by the Municipal Airport Authority. The Fargo region has one of the fastest growing economies in the United States and has the second lowest unemployment rate in the United States (BLS 2014). The region is home to several large manufacturing facili- ties for Bobcat Corporation, John Deere, Caterpillar, Case New Holland, and the Microsoft Corporation. FAR faces limited competition from nearby airports (Exhibit 6-18). FAR retains 75.5% of pas- sengers in its primary catchment area with 14.3% of residents driving to Minneapolis-St. Paul International Airport (MSP) and 5.3% driving to Bismarck Municipal Airport (BIS). FAR has non- stop service to 11 destinations on five carriers including Allegiant (Las Vegas, Orlando Sanford, Phoenix-Mesa, Los Angeles, and Tampa St. Petersburg), American Airlines (Chicago and Dallas), Delta Air Lines (Minneapolis, Salt Lake City, and Atlanta,), Frontier Airlines (Denver), and United (Chicago and Denver). Currently, Delta has the largest market share at FAR (41 percent) followed by United (24 percent), and Allegiant (17 percent). In 2013, FAR set a record for enplanements with 398,101, a 9.3% increase over 2012. Major employers within a 25-mile radius of airport: Microsoft Corporation, Bobcat Company, and Case New Holland Population: 118,642 (2013 Estimate) Population % change (2001–2013): +17.7% Median household income: $49,745 Incentives offered: Marketing, Waived Landing Fees, and Revenue Guarantee FAR Route Map (as of July 1, 2014) Red-American Eagle, Orange-Allegiant, Blue-Delta, Navy-United, Green-Frontier

Focus Groups 127 6.6.2 Local Economic Activity Analysis The economy of the Fargo catchment area has seen significant gains in employment (see Exhibits 6-19 and 6-20). Since 2001, the area has added 28,005 jobs creating a growth rate of 23.6%. This is significantly more than the other focus group economies. The Fargo economy is still relatively small with a total employment base in 2013 of 146,568. Nearly all sectors of the economy experienced employment growth since 2001. Education and health services added 7,853 jobs; manufacturing 2,200; construction 2,207; and professional and business services 4,872. Information was the only sector that lost jobs but the number was insignificant. 6.6.3 History of ASD at FAR The recent history of air service development at Hector International Airport (FAR) began in 1998 when pilots for Northwest Airlines went on strike. Northwest had 92% of the market share at FAR and the strike left the airport with service on three 30-passenger weight-restricted flights on United Express to Chicago. The FAR airport manager said, “That was the moment Exhibit 6-17. FAR catchment area. Source: 2011 FAR SCASD Grant with permission from Sixel Consulting

128 Effects of Airline Industry Changes on Small- and Non-Hub Airports when our community woke up.” Following the disruption of air service, the mayors of Fargo and Moorhead established an air service task force to help recruit new air service and support incumbent airlines. The task force consists of the Greater Fargo-Moorhead Economic Develop- ment Corporation, the Chamber of Commerce of Fargo-Moorhead and West Fargo, and the Fargo-Moorhead Convention and Visitors Bureau. Beginning in late 1998, airport officials and the Fargo Air Service Task Force began to actively recruit new air service to the airport. In 2005, the airport retained services from an ASD con- sultant to recruit additional service, including the region’s first low-fare airline. From January to April of 2005, members of the Fargo Air Service Advisory Group accompanied airport executives to airline headquarters meetings in Phoenix, Atlanta, Minneapolis, and Chicago to speak with executives to attract new service to the airport. In the fall of 2005, Allegiant Air announced twice weekly flights to Las Vegas to provide service to additional leisure markets Source: 2011 FAR SCASD Grant with permission from Sixel Consulting Exhibit 6-18. FAR leakage to surrounding airports.

Focus Groups 129 from FAR. Also in 2005, the airport applied for and received a SCASD grant for $675,000 from the DOT to provide marketing, start-up cost offsets, and a revenue guarantee for non- stop service to Phoenix (PHX) on America West Airlines. The SCASD grant was matched with $50,000 in cash from FAR and $50,000 in cash from the Fargo-Moorhead EDC and the Fargo-Moorhead Convention and Visitors Bureau. Additionally, local businesses provided in-kind contributions of $106,000 composed of crew hotel nights, fuel rebates, and landing fee waivers. As airport officials and America West were discussing the service, the air carrier merged with US Airways to form the current US Airways. The new carrier informed officials that they had no interest in starting service from Fargo to Phoenix. The airport was able to gain approval from the DOT to reprogram the grant to try to attract Delta to provide service to its hub in Salt Lake City. In June 2006, Delta began service from Fargo to Salt Lake City on a 50-seat regional jet. Source: Research 360 Exhibit 6-19. Fargo employment composition (2013). Sector Employment,2001 Employment, 2013 Employment Change Percent Growth, 2001 - 2013 Trade, Transportation, and Utilities 30,007 34,249 4,496 15.1 Education and Health Services 24,948 32,474 7,853 31.9 Professional and Business Services 11,484 16,356 4,872 42.4 Leisure and Hospitality 12,519 14,886 2,460 19.8 Manufacturing 11,769 13,746 2,200 19.1 Financial Activities 7,748 10,212 2,521 32.8 Construction 6,796 8,958 2,207 32.7 Public Administration 5,031 5,473 538 10.9 Other Services 4,326 4,808 538 12.6 Information 3,782 3,592 -190 -5.0 Natural Resources and Mining 1,382 1,814 510 39.1 119,792 146,568 28,005 23.6% Source: Research 360 Exhibit 6-20. Employment changes, 2001–2013.

130 Effects of Airline Industry Changes on Small- and Non-Hub Airports Following the announcement of the new Delta service to Salt Lake City which was a result of the SCASD grant, officials at FAR continued their efforts to expand both low-cost and network carrier air service. From 2006 to 2011, FAR experienced a series of air service gains and losses that resulted in a small increase in flights but no net growth in seats (Exhibits 6-21 and 6-22). In the fall of 2005, Allegiant began service from FAR to Las Vegas (LAS) and expanded its presence with additional service to Phoenix/Mesa (AZA) in 2007 and Orlando Sanford (SFB) in 2008. Source: GRA Analysis of OAG Data Exhibit 6-21. October flights at FAR (2001–2013). Source: GRA Analysis of OAG Data Exhibit 6-22. October seats at FAR (2001–2013).

Focus Groups 131 In early 2008, Delta announced that it was ending the Salt Lake City (SLC) service due to high fuel costs. Undeterred by this loss of service, airport officials were able to attract new service on Frontier, which began non-stop service to Denver on a 74-seat Bombardier Q-400 aircraft in May 2008. Specifically, the Greater Fargo-Moorhead Economic Development Corporation provided Frontier with a $125,000 reimbursement to offset start-up fees and expenses to start service at FAR (Knutson 2010). Between 2009 and 2010, Fargo saw an increase in the number of flights at the airport. On June 4th, 2009, Delta announced that it would restart the Fargo to Salt Lake City route that it had aban- doned a year earlier due to a drastic increase in fuel prices. Additionally, Allegiant began service from Fargo to Los Angeles (LAX) in May 2009. Officials from Allegiant noted that while their business model centers on leisure travelers, the flight to LAX would be a convenient choice for business travelers from Fargo looking for non-stop access to Los Angeles (Schuster 2009). In April 2010, American returned to Fargo with three daily non-stop flights to Chicago O-Hare Airport (ORD). The Greater Fargo-Moorhead Economic Development Corporation offered American a $134,000 reimbursement to offset costs associated with start-up fees and expenses at FAR (USA Today 2009). In April 2010, Frontier announced that it was ending Fargo’s service to Denver. Following the successful start of American service to Chicago, airport and local economic development officials identified a need in the business community for better connectivity to loca- tions in Texas and in Latin America. Therefore, in 2011, airport officials applied for and received a $750,000 SCASD grant to attract American service to its hub in Dallas/Fort Worth (DFW). In addition to the $750,000 revenue guarantee provided by the SCASD grant, the community pledged an additional $275,000 of revenue guarantees ($125,000 from the airport, $100,000 from the EDC, and $50,000 from the CVB), $30,000 from the airport in waived landing fees, $25,000 from the airport in marketing for the first year of the flight, and $25,000 in marketing from the CVB for the second year of the flight. On October 24, 2012, American announced that it would begin a daily non-stop flight from DFW to Fargo in February 2013. In addition to securing the American service to DFW, airport officials worked closely with Frontier to bring its low-cost service back to Fargo. In November 2012, Frontier began three daily flights from Fargo to Denver. The most recent addition to air service at Fargo came in December 2013 when Delta began Saturday-only non-stop service to its hub in Atlanta (ATL). At this time, FAR has not provided incentives to either Frontier or Delta for these new routes. Fargo’s ASD strategy has focused on collaboration and coordination, among the airport, the EDC, CVB, and the Chamber. The EDC, CVB, Chamber, and airport share board members, which helps to foster effective communication regarding ASD efforts. Specific roles are as follows: • The Fargo-Moorhead EDC’s main role is to generate funds to support incentive packages, particularly in the area of revenue guarantees. The EDC is in constant contact with the air- port manager regarding potential new routes and incentive packages. Additionally, the EDC is represented at airport board meetings, promotes the airport through its website and email blasts, and often sends representatives to airline meetings. • The Fargo-Moorhead CVB has provided marketing support, both in terms of cash and in-kind contributions, to generate awareness of new service in the local market as well as in destination cities. • The Chamber of Commerce of Fargo-Moorhead provides access to political decisionmakers and garners their support for ASD efforts at FAR. The airport manager at FAR is a former Chamber president who noted that in order to keep the business community engaged, it is vital to have constant and sustained outreach through demand surveys and educational sessions regarding changes in airline industry trends. The air- port manager and the airports’ consultant routinely travel to local Chamber and service organi- zation meetings to educate and update the community on air service. Additionally, the airport

132 Effects of Airline Industry Changes on Small- and Non-Hub Airports manager noted that while the organizations involved in air service development in Fargo work well together, it is important to remember that each organization has a distinct role that it must play. In discussing the distinct role between the Chamber and the EDC, the airport manager noted, “As a past Chamber board chair and past board member for over 10 years, I know that economic development is not the Chamber’s responsibility, never has been never will be, they are a supporter of it, they can assemble people or provide job training, but they are not the lead.” The benefit of the airport, EDC, Chamber, and CVB working together closely is that busi- nesses in the community know their concerns and requests will be handled by a cohesive and responsible group of organizations in constant communication with one another. The airport’s strong relationship with local economic development groups is an important asset when com- municating the community’s demand for new air service to carriers. 6.6.4 Themes from the FAR Focus Group • Participants were generally pleased with and proud of the travel experience at Hector International Airport A theme that emerged from the conversation regarding air service at Fargo was that partici- pants were generally pleased with and proud of their airport. Throughout the conversation, local business owners noted that the airport provided a great first impression to business travelers who might not be familiar with the city or the region. As one participant noted, “When people come into town, the only thing they know about Fargo was from the movie. It’s not a good example, but any press is good press. But, they come into this facility and we pick them up and they rent a car and they are very impressed.” Other participants noted, “The ease of getting in and out of the airport is one of the things that most businessmen comment on the first time we bring them in here.” Participants noted that while they had occasional issues with waiting for their baggage or getting through security, the airport experience was very convenient. The sense of pride in the airport was further illustrated by the large displays of farm equip- ment manufactured or assembled in the Fargo region. When the moderator asked the business representatives in attendance why they placed equipment in the airport, one respondent noted, “There’s not a lot of sales but you want to support the community and the airport is part of the community and we want to let them know, when people come in and we have a lot of people coming in and we want them to see our products.” Another participant noted that one local business has had the same spot in the baggage claim area since 1986 and will not give up the spot. Finally, one participant noted, “I don’t know if we’ve sold many skid loaders off the airport floor but people are amazed, oh this is where they come from.” • Business leaders in Fargo are satisfied with the level of air service in their community and have an understanding of larger airline industry trends A dominant theme that emerged from the conversation with local business owners was that they were pleased with the overall level of air service at FAR. It was clear from the conversation that the airport’s outreach to the community had resulted in a clear understanding of larger industry changes that affect ASD efforts in Fargo. Specifically, one participant noted, “I think with what’s available out there, we are doing a great job. The problem is that there isn’t many carriers available that we don’t already have an affiliation with, so I don’t know where else you go at this point.” This quote illustrates that local business leaders are familiar with recent mergers in the airline industry. Another participant assessed Fargo’s air service with that in other cities, noting, “Overall, the air service we have out of Fargo, North Dakota . . . we consider that to be fantastic compared to what we see in other cities.” Similarly, one participant noted, “I’ve been very impressed with the offerings we have for the size of our community.”

Focus Groups 133 Participants noted that although they were satisfied with the flight options from Fargo, they felt that there was not enough available capacity to satisfy the demand in the market. One par- ticipant noted, “Flights have been filling up. As a frequent traveler, you could always get on a flight to Fargo—that doesn’t happen anymore.” Another participant noted, “I agree with the fact that it seems you aren’t able to get on flights out of here like we used to. Part of it seems to be the flights are full and I think mergers have played a large part in this. I know they parked a lot of planes which should be brought back into service.” Participants noted that the growth in the North Dakota economy, both from oil and natural gas in the western half of the state and technology-related business in the Fargo region, had outpaced air service in the state. • Participants felt that retaining current air service was more important than attracting new service that might disrupt existing flights Another theme that emerged from the focus group was that although local business owners were willing to participate in efforts to attract new air service through the Greater Fargo-Moorhead Economic Development Corporation, they are more concerned with retaining the service already at FAR. When the moderator asked the group about new routes that they would like to see the airport pursue, one participant noted, “We got our wish, Atlanta. I’m just hoping it will expand a little, but our wishes were covered.” Another participant noted, “We should be in a retention mode now, trying to keep what we have.” The moderator asked the group if they would be willing to support new attraction efforts. Participants noted that because their busi- nesses are so dependent on air service, they would be willing (as they had in the past) with the EDC to support new service at FAR financially. • Participants felt the leadership of the airport manager and the EDC was instrumental in expanding, retaining, and marketing air service at FAR A final theme that emerged from the conversation with local business owners in Fargo was that they felt that the leadership of the airport manager and the EDC has been instrumental in increas- ing air service at FAR. One participant noted, “It’s changed a lot in the last 30 years because of people like [the airport manager] and the rest of the EDC. In the past, they didn’t have the initiative to go after and keep airlines.” Additionally, participants had favorable views about the airport’s marketing campaign in the region. One participant noted, “I see the ads all the time. They are a good reminder. They are good. They are fun. They are, they speak to all ages, and I like what they have been doing.” Finally, during the conversation, several participants noted that they appreciated that they were able to easily communicate with the airport manager and the president of the EDC regarding a range of issues from airport parking to potential new destinations. 6.7 Asheville Regional Airport (AVL) Key Attributes Hub designation: Non-hub Airport Governance: Airport Authority % Change in seats (2001–2013): -17% % Change in flights (2001–2013): -16% Enplanements (2013): 340,880 (7.4% from 2012) Air Carrier Departures (2013): 7,504 Competing Airports: Charlotte (CLT), Atlanta (ATL), and Greenville- Spartanburg (GSP)

134 Effects of Airline Industry Changes on Small- and Non-Hub Airports 6.7.1 About AVL Asheville Regional Airport (AVL) in Asheville, North Carolina, is a commercial service non-hub airport that serves an 11-county catchment and has a population of approximately 500,000 residents. The Greater Asheville Regional Airport Authority operates the airport. In 2012, the North Carolina legislature changed the structure of the board to a state-sanctioned independent airport authority with more regional representation and governance.6 The Allegiant Airport: Yes SCASD Grant Recipient: Yes (2002, 2012) Tourism or business destination: Tourism/Business Major employers within a 25-mile radius of airport: Mission Health System, Blue Ridge Paper Products, GE Aviation Population: 498,596 (2013 Estimate) Population % change (2001–2013): +15.7% Median household income: $44,082 Incentives offered: Waived Landing Fees, Marketing, Revenue Guarantees (SCASD and Community) AVL Route Map (as of July 1, 2014) Red-US Airways, Orange-Allegiant, Blue-Delta, Navy-United 6AVL website.

Focus Groups 135 Asheville region has experienced significant population growth since 2001 and has become home to burgeoning art, beer, and culinary industries that have led to increased tourism in the area. The region is home to several tourist attractions including the Biltmore Estate, the Smokey and Blue Ridge Mountains, Chimney Rock State Park, and live music venues. Finally, the Asheville area is home to several small businesses including a cluster of micro- breweries that has led to Asheville’s designation as Beer City USA. This designation has led larger breweries such as Sierra Nevada and New Belgium Brewing to announce plans to build East Coast facilities in Asheville.7 AVL faces significant competition from nearby airports including Greenville-Spartanburg International Airport (GSP-60 miles/1-hour drive), Charlotte Douglas International Airport (CLT-105 miles/1¾-hour drive), and Hartsfield-Jackson Atlanta International Airport (ATL- 200 miles/3-hour drive). In 2012, a leakage study commissioned by the airport found that within its natural catchment area (70 miles/1-hour drive), AVL retains only 54% of its passengers. Exhibit 6-23 shows that the airport experiences leakage to Charlotte (28%), Greenville- Spartanburg (10%), and Atlanta (7%). Most of the leakage to Charlotte (53%) is to flights on US Airways while most leakage to Atlanta is for flights on Delta (46%) (AVL 2011). AVL has non-stop service to 11 destinations on four carriers: Allegiant (Orlando Sanford, Palm Beach, Ft. Lauderdale, Ft. Myers/Punta Gorda, and Tampa St. Petersburg), Delta Airlines (New York LaGuardia, Detroit, and Atlanta,), United (Chicago O’Hare and Newark), and US Airways/ American (Charlotte). In 2013, Delta had the largest market share at AVL (42%) followed by US Airways/American (32%), Allegiant (13%), and United (13%). In 2013, AVL had 340,880 enplanements, an increase of 7% from 2012. 6.7.2 Local Economic Activity Analysis The economy of the Asheville catchment area is unique in that there is no dominant industry or firm. The area has experienced a significant change since 2001 (see Exhibits 6-24 and 6-25). Manufacturing lost 20,276 jobs accounting for a -41.6% change. Also hard hit was the local con- struction industry, shedding 5,937 jobs (-39.4%). These losses were offset by employment gains in education and health services and a significant increase in leisure/hospitality. These industries Source: Asheville Regional Airport Exhibit 6-23. Leakage rates at Asheville Regional Airport (2012). 7Asheville Convention and Visitors Bureau Website. www.exploreasheville.com

136 Effects of Airline Industry Changes on Small- and Non-Hub Airports grew by 22.7% and 27.0%, respectively. Total employment since 2001 has dropped only 0.13% going from 231,618 to 231,325 in 2013. This is better than many of the focus group regions. The diversity of the economy has a stabilizing effect on the region. 6.7.3 History of ASD at AVL The recent history of air service development at AVL begins in 2001 when the local community formed an air service task force to attract service to New York City that would supplement the air- port’s existing service on Delta (Atlanta and Cincinnati) and US Airways (Charlotte and Raleigh- Durham). The coalition, composed of the Asheville Regional Airport, the Asheville Area Chamber of Commerce, the Grove Park Inn, the Biltmore Estate, and AdvantageWest (a regional economic development organization), started the “Land the Big Apple” campaign to raise $500,000 in travel pledges and cooperative advertising for service to New York. Continental made the decision in July 2001 to begin twice-daily non-stop service to its Newark, New Jersey (EWR) hub. However, only Source: Research 360 Exhibit 6-24. Asheville employment composition (2013). Sector Employment,2001 Employment, 2013 Employment Change Percent Growth, 2001 - 2013 Education and Health Services 50,911 62,473 11,562 22.7 Trade, Transportation, and Utilities 45,690 45,197 -493 -1.1 Leisure and Hospitality 26,017 33,033 7,016 27.0 Manufacturing 48,779 28,503 -20,276 -41.6 Professional and Business Services 16,578 22,408 5,830 35.2 Public Administration 10,397 11,773 1,376 13.2 Construction 15,051 9,114 -5,937 -39.4 Financial Activities 6,610 7,215 605 9.2 Other Services 5,747 6,439 692 12.0 Information 3,208 3,053 -155 -4.8 Natural Resources and Mining 2,630 2,117 -513 -19.5 231,618 231,325 -293 -0.13% Source: Research 360 Exhibit 6-25. Asheville employment changes, 2001–2013.

Focus Groups 137 a few months into the service, the September 11th, 2001, terrorist attacks led to a drastic reduction in service across the airline industry, including in Asheville. Continental decided to reduce the frequency of the Newark to one daily flight following the attacks. To curb this downward trend, officials at AVL applied for and received a $500,000 SCASD grant in 2002 for marketing to attract additional service to New York and to attract new service to another hub. In the proposal, the community pledged $250,000 in ticket purchases for the New York flight and over $250,000 in cash and in-kind marketing support for the flight. In February 2002, Continental announced that it would reinstate the second Newark flight from Asheville. The SCASD grant and the subsequent community outreach allowed the airport to offer marketing packages that were much larger than those offered by other airports. Specifi- cally, the community and airport began offering marketing packages that started at $150,000 for a new flight. The AVL airport manager noted, “We had a prior incentive program in place, which would provide up to $150,000 dollars in marketing money. This was nothing uncommon from what other airports have done, but the fact that we were doing this 5 years ago, 6 years ago put us a little ahead of the curve.” With this new incentive package, the airport and community were able to attract new daily non-stop service to Houston (IAH) on Continental in 2003, two daily seasonal flights to Detroit (DTW) on Northwest in June 2004, one daily non-stop flight to Minneapolis/St. Paul (MSP) in December 2004, and daily non-stop service to Orlando, FL (MCO) in June 2005. The airport also attracted US Airways service to New York LaGuardia (LGA) in February 2004, but the carrier ended the service after 9 months due to cost-cutting measures associated with the carrier’s bankruptcy (Barrett 2009). From 2005 to 2008, AVL expe- rienced slight decreases in the number of flights at the airport including the cancelling of the Delta service to Orlando in 2008. The turning point in the history of air service development at AVL came in 2009 when the air- port attracted LCC service to Orlando (MCO) on AirTran. The airport was able to bring AirTran to AVL using an incentive package of over $586,000 that was composed of fee waivers, marketing and advertising, and equipment purchases including new counter space and shared information technology for ticketing systems. In addition to AirTran, the airport was able to attract new ser- vice to LGA on Delta and service to Chicago O’Hare (ORD) on United. Despite these victories, the airport lost significant service during 2009 including the Northwest service to Minneapolis, a reduction of Northwest service to Detroit, and the loss of Delta service to Cincinnati as a result of that carrier’s merger and bankruptcy. In 2010, airport officials announced that US Airways would begin non-stop service to LGA. Additionally, AirTran announced that it would expand its service at AVL by offering seasonal service to Tampa (TPA). In 2010, AVL reached its 10-year high for the number of average monthly flights (Exhibit 6-26) and was close to its 10-year high in the number of available seats (Exhibit 6-27). Airport officials noted that they were in discussions with AirTran executives about year-round daily service to Fort Lauderdale when it was announced that Southwest would acquire AirTran in September 2010. In August 2011, Southwest announced that Asheville was one of four cities that were served by AirTran that the new carrier would not serve, effective January 2012. On the same day, US Airways announced that it would no longer serve LaGuardia from AVL. Officials expressed disappointment with the AirTran announcement given the profit- ability of the Orlando and Tampa routes. Another reason for the departure of AirTran was that Greenville-Spartanburg International Airport (GSP), only 60 miles away, had Southwest service. Following the announcement that AirTran would leave AVL, Allegiant announced that it would begin service to Orlando Sanford Airport (SFB) in November 2011. To incentivize Allegiant and their unique business model, airport officials developed a package that provided $150,000 in marketing money, waived fees and rents, and subsidized half of the carrier’s per-turn ground- handling fees ($26,000 per year). Since commencing its Orlando service, Allegiant has added service to four additional destinations in Florida: Ft. Lauderdale (2012), Tampa/St. Petersburg

138 Effects of Airline Industry Changes on Small- and Non-Hub Airports Source: GRA Analysis of OAG Data Exhibit 6-26. October flights at AVL (2001–2013). Source: GRA Analysis of OAG Data Exhibit 6-27. October seats at AVL (2001–2013).

Focus Groups 139 (2013), Punta Gorda (2013), and Palm Beach (2014). Officials at AVL have noted that the Alle- giant service has been very successful and that executives from Allegiant have been pleased with the flexible incentive packages offered by the airport. In addition to leisure destinations on Allegiant, airport officials have been working to replace service to network carrier hub destinations. In 2012, United announced that it was ending Asheville’s successful service to Houston (IAH) due to a dispute over Southwest’s plan to fly to international destinations from nearby Houston Hobby Airport (HOU). Also, American ended its seasonal service to Dallas (DFW) in 2011 due to bankruptcy. To backfill this service, air- port and community officials applied for and received a $300,000 SCASD grant to help attract new westbound service to Denver on either Frontier or United. The grant was supported by $250,000 in in-kind and cash contributions for marketing and a revenue guarantee of $150,000 by the Buncombe County Economic Development Coalition. Additionally, the application was supported by two larger brewing companies (New Belgium-Colorado and Sierra Nevada- California) who are looking to build East Coast brewing facilities in the Asheville region and need westbound service to their company headquarters. To date, the SCASD grant and the com- munity incentive package have not attracted a carrier to provide service to Denver. The airport’s recent ASD efforts have focused on trying to engage the community in a more meaningful way. Despite the success of their SCASD grant efforts, airport officials described their community-centered ASD efforts as “in their infancy stage.” This is primarily due to the fact that many of the key players in the local development organizations, including the airport director, have been in their current positions for less than 5 years. Officials noted that they are working to better integrate ASD efforts into the larger economic development goals of the region. In late 2011, the airport established a Corporate Travel Advisory Group of several businesses and travel organizations in the Asheville region. The purpose of the group was to gain insight into the air service needs of the business and tourism travelers in the region while providing a forum to educate the community on ASD techniques. Several members of the group wrote letters of support for AVL’s 2012 SCASD grant and encouraged other businesses not on the group to do so as well. Although the group met quarterly for a year, they were unable to come to a consensus on what new air service the community should target. Airport officials noted that the lack of consensus resulted from differing perspectives on air service needs. Participants decided not to continue meeting regularly but agreed to support ASD efforts on an ad hoc basis. Although airport officials admit the Corporate Travel Advisory Group did not have the desired results, they note that it has laid the groundwork for future community engagement. Officials noted improvement in the amount of engagement from the community over air service development, citing feedback from the business community over the loss of seasonal service on American to Dallas. They noted that this was an improvement over previous community responses to loss in air service, noting, “When the airport lost AirTran (typically leisure travelers), the community was very quiet.” Airport officials also noted that they consis- tently perform and develop outreach and marketing of the airport to the community through events such as the airport’s annual Runway 5K event. This type of event, which is actually held over the length of the airport’s runway, obviously may not be relevant or possible at some airports, but could be adapted to an off-site location. 6.7.4 Themes from the AVL Focus Group • Although participants enjoyed the uniqueness and experience of Asheville Regional Airport, they had concerns about the reliability of service Participants noted that they enjoyed the travel experience at AVL rather than driving to fly from nearby airports. One participant noted, “In terms of the airport itself, if everything is equal

140 Effects of Airline Industry Changes on Small- and Non-Hub Airports and everything went well, we love flying out here—the flights, more pleasant, you know, even the security lines.” Other participants noted that they enjoyed the unique, small feel of the airport’s ter- minal. Despite the general agreement on the positive experience of flying from AVL, participants noted that flight reliability concerns (delays and cancellations) related to traffic and weather at con- necting airports was the main reason that they chose to drive to nearby airports. One participant said, “If you fly from here to connect with Charlotte, the reliability is getting out of here on time and making our connections is not high enough. It forces a lot of frequent business travelers to just drive to Charlotte to avoid getting cancelled.” Another participant summed up the dichotomy between airport experience and reliability, “No matter how nice your airport is, if you can’t get where you need to go, when you need to be there, then the airlines are killing your airport.” • Although business leaders were satisfied with existing flight options, those in the tourism industry felt more service was needed to attract conventions to the region There appeared to be a disconnect between the EDC/Chamber and the CVB over the need for additional air service at Asheville. While business leaders noted that air service was a relatively minor consideration for companies looking to relocate to the region, tourism officials noted that the lack of seats into the market has made attracting large conventions and meetings to the Asheville area very difficult. One business owner noted, It’s very hard to make an ED case that says we are losing companies because our air service is not suf- ficient. What we have found is that Charlotte is a close enough airport for most manufacturers to decide that they could do something in Asheville. We can’t say with a straight face that we’ve lost companies because of the air service. Another business leader suggested, “We would rather have a guarantee of getting to another hub than giving us more flights. . . . The guarantee to have a bus on standby if that flight is delayed that is going to get me to that connection.” However, when asked about their perception of the quality of air service at AVL, officials in the tourism industry noted that the lack of flights from key convention feeder locations such as Washington DC have limited the ability of the region to compete for large conventions. One par- ticipant said, “I think we do a very good job on trying to target some of these cities and get these nonstops, but I think we could look at these focus cities that could actually increase our tourism, such as DC and try to get those nonstops.” Another participant from the tourism industry noted, “I think that we need more flights and we should entertain and look into getting more direct flights. I think the amount of convention business we are missing, the amount of meetings . . . we need to do a study of the loss of business and demand from not getting conventions.” Tourism officials also noted that the consolidation of the industry more generally and the move to smaller aircraft has led to higher airfares at AVL, which make it uncompetitive for large conferences and meetings. The $6.5 million marketing budgeting for the CVB makes it an important participant in air service development in the region. Officials noted that the CVB, funded by an occupancy tax through the Buncombe County Tourism Development Authority, has supported ASD efforts through marketing in destinations, but is unable to contribute to travel bank or revenue guarantee efforts due to the enabling legislation of the organization. Tourism officials summed up their frustration, “We are really feeling the pain a little bit because we don’t have the reach that we once did as a community. We are trying to figure out ways to work with the airport to see what the potential opportunities are and how to regain some of service we have lost.” • Participants were uncertain that their community could develop a travel bank or revenue guarantee program for ASD efforts Regarding community-driven ASD efforts at AVL, participants were skeptical about the com- munity’s willingness and ability to put together a travel bank or community-funded revenue guarantee incentive program. Participants were aware that the incentives that the airport and

Focus Groups 141 community had offered previously might not be effective in today’s demand-constrained ASD environment. As one participant noted, “Dollars have been put on the table by both the tourism committee as well as the business community when we have tried to lure flights in the past, with help with the gate and marketing efforts that were attractive at that point to the industry, but as we understand it, those things may not be so influential now.” During the conversation, many participants noted that the recent revitalization of the Asheville region has resulted in sufficient demand for additional air service. One participant noted the stark change in the region, I’ve lived in this town 30 years and when I moved to this town all you saw were senior citizens, now you see people of every age, a lot of youngsters, young couples have started moving here because of the internet. They don’t want to go to the office every day. Businesses are coming to this area, anywhere from 50 to 100 employees. There is enough business to keep the airlines happy. Participants noted that one potential reason they do not have the level of air service that matches the economic growth of the region is that they have not done a good job convincing the airlines of the demand in the market. One participant noted, There is enough business in this community, the business travelers, the leisure travelers, meeting busi- ness, there is enough here that all of the planes that I flew on from Asheville to wherever have always been full. I think that the key is to convince the airline, hey if you operate properly, there is enough business for you to make money. Another participant challenged the notion that “making money” was a sufficient condition for retaining air service, “The airlines are looking for most profit, and if they are making money in one community but if they move it to another and make double the money, they will do that. Even though that flight is making money in that community, they will pull it now and they will move it.” When the moderator asked the participants if they would be willing to support a community- driven travel bank or revenue guarantee, participants expressed skepticism. One participant questioned, “How and why would you do that? You got a very diverse and scattered business travel base. We don’t have three large corporations who could step in and say, we will guarantee revenue.” A local business leader said, “I’m not sure that any of these companies want to be in any of this volatile business. They might guarantee 100 passengers per month and 2 months from now it may not happen, so I don’t know any company who would guarantee that.” As the conversation shifted toward the logistics of providing a revenue guarantee for new service, a participant said, “Before and if you get community support for something like this (revenue guarantee), you have to explain mechanically how it works. It has to be fair and rational.” Participants also noted that any revenue guarantee would need to be thoroughly analyzed and discussed within the community before moving forward. One participant noted, The challenge in this community is the concern that subsidies pay their way. Like, in the EDC when we incentivize a company to come in here, we have to do the math very carefully and there has to be accountability measures in place for how many jobs will be created, how much the jobs pay, how much they are paid, to make sure that the incentive is paid back through taxes and things like that. Because people don’t like to use community money to subsidize specific businesses so it’s, I think the commu- nity support would depend very much on having an accountable deal with the airlines that creates wide community benefit rather than community wide cross subsidization.