Redding Municipal Airport Redding, California · Proposal under the Small Community Air Service...

Proposal under the Small Community

Air Service Development Program

Legal sponsor: City of Redding, California DUNS: 14-315-1335

Contact: Rod Dinger, AAE - Airport Manager

Redding Municipal Airport • 6751 Woodrum Circle #200 • Redding, CA 96049 (530) 224-4321 • [email protected]

Docket #: DOT-OST-2008-0100

Redding Municipal Airport Redding, California

Proposal under the Small Community Air Service Development Program City of Redding/Redding Municipal Airport

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Table of Contents

Page

Summary Information............................................................. 1 Proposal Highlights ................................................................. 2

Redding is a SCASDP success story.......................................................... 2 Underserved to destinations east of Redding........................................... 2 High airfares overall and to eastern markets............................................ 3 Plan has widespread support and benefit................................................ 3 Well considered plan with airline support................................................ 3

Air Service Environment ......................................................... 4 Serving a large portion of northern California ......................................... 4 Business activity driving population growth and demand for air service... 4 Strong visitor traffic to the area............................................................... 5

Air Service – Existing and Historical....................................... 6 Existing air service ................................................................................... 6 Airfares are high ..................................................................................... 6 Historical air service................................................................................. 7 Past air service development efforts ........................................................ 8

Air Service Deficiencies and Needs ........................................ 9 Underserved market with high demand .................................................. 9 High traffic diversion to Sacramento and San Francisco........................... 9 Circuitous routings to top eastern markets............................................ 10 Unreliable service over San Francisco..................................................... 10 High airfares, overpriced market ........................................................... 10 Correcting eastbound service deficiency................................................ 11

Strategic Plan – Air Service ................................................... 12 Project goals ......................................................................................... 12 Proposed air service .............................................................................. 12 Market analysis ..................................................................................... 13 Peer market comparison ....................................................................... 14 Airline support ...................................................................................... 14 Alternate plan....................................................................................... 14 Prior grant award – compare and contrast ............................................ 15

Strategic Plan – Implementation and Funding.................... 16 Public-private partnership...................................................................... 16 Incentive and support plan.................................................................... 17 Strategic Plan funding........................................................................... 20 Project continuation and sustainability .................................................. 21

Schedule and Monitoring...................................................... 22 Schedule ............................................................................................... 22 Program monitoring.............................................................................. 22

Appendix A. Community Support ........................................ 24 Appendix B. Detailed Market Analysis ................................ 33


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Summary Information

A. Applicant Information: (Check all that apply)

X Not a Consortium

Interstate Consortium

Intrastate Consortium

Community now receives EAS subsidy Community (or Consortium member) previously received a Small Community Grant X If previous recipient, expiration date of grant: September 14, 2006

B. Public/Private Partnerships: (List organization names)

Public Private

1. City of Redding 1. Greater Redding Chamber of Commerce

2. 2. Economic Development Corporation of Shasta County

C. Project Proposal: (Check all that apply)

X Marketing Regional Service Personnel X Launch New Carrier X Travel Bank First Service

Surface Transportation X Secure Additional Carrier

X Revenue Guarantee X New Route Start Up Cost Offset Low Fare Service Study Subsidy Upgrade Aircraft Increase Frequency Service Restoration

Other (specify): __________

D. Existing Landing Aids at Local Airport:

X Full ILS X Published Instrument Approach X Localizer X Outer/Middle Marker X Other (specify): GPS

E. Project Cost:

Federal amount requested $500,000 Total local cash financial contribution $162,000 Airport funds $102,000 Non-Airport funds $60,000 State cash financial contribution $0 Existing funds $0 New funds $162,000 Airport in-kind contribution* $10,000 Other in-kind contribution** $607,500 Total cost of project $1,279,500 * Airline Travel Bank and program administration ** Airline Travel Bank commitments and administration

F. Enplanements:

2000 66,405 2004 61,113 2001 65,666 2005 62,085 2002 53,671 2006 66,390 2003 54,921 2007 64,478

G. Is this application subject to review by State

under Executive Order 12372 process?

a. This application was made available to the State

under the Executive Order 12372. Process for

review on (date) _____________.

b. Program is subject to E.O. 12372, but has not

been selected by the State for review.

c. Program is not covered by E.O. 12372.

H. Is the Applicant delinquent on any Federal

debt? (if “yes”, provide explanation)

No

Yes (explain)

X

X


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Proposal Highlights

his Small Community Air Service Development Program (SCASDP) grant

application submitted by the City of Redding meets the criteria of Docket

DOT-OST-2008-0100. The City of Redding, the Airport sponsor, is requesting

$500,000 in federal assistance to support the implementation of a $1,279,500 air

service initiative. The project goal is to secure service to a hub airport located east

of Redding that provides competitive airfares and connecting opportunities to

domestic and international destinations for Redding’s air travelers.

Redding is a SCASDP success story

Redding turned its 2004 SCASDP grant award into a small community air service

success story. From its beginning in April 2005, Horizon Air’s service between

Redding/Arcata and Los Angeles has been a great success for both communities,

Redding and Arcata. Since inception (including the ramp-up period), Redding’s load

factor through February 2008 averaged 76 percent. In 2007, 40,692 travelers used

the service and average airfares in the Redding-Los Angeles market were down 19

percent from the year prior to the start of service. The goals were met, and

Redding’s air travelers are happy with the outcome.

This 2008 application is different. Where the goal of the 2004 application was to

secure service between Redding/Arcata and Los Angeles, this application addresses

Redding’s need for service to a hub airport located east of Redding with Salt Lake

City the primary focus.

Underserved to destinations east of Redding

Travelers that are destined for cities located east of Redding make up over 35

percent of the total Redding market. Currently, all of Redding Municipal Airport’s

air service flows north to Portland or south to San Francisco and Los Angeles.

Eastbound travelers that use the local airport incur extra time and risk missing their

connections due to the infamous unreliability of San Francisco International Airport.

The situation is further compounded by high load factors on the Redding-San

Francisco service restricting the availability of seats for all travelers. Redding’s lack

of eastbound service, shortage in San Francisco capacity, and the inherent risk of

missing a connection in San Francisco influence air travelers to drive 165 miles to

Sacramento to access eastbound flights.

T This section contains:

• Project goals

• Description of the

Strategic Plan

• Highlights of the grant

application


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High airfares overall and to eastern markets

Redding has the highest overall average airfare compared to its peer markets in the

region. Its average fares to key destinations located east of Redding top its peers.

Likewise, Redding’s average airfares are high compared to California, the West

region, and the nation. Indirect routing for connecting passengers and high load

factors on 30-seat aircraft are the culprits. With no direct connecting service to a

hub airport located east of Redding, eastbound travelers are especially affected.

The improved efficiency of directional routings to a hub east of Redding will reduce

airfares to eastern destinations. Moreover, the proposed service will provide

competitive pricing in markets that overlap, and, by increasing overall capacity, will

have a downward influence on overall average airfares.

Plan has widespread support and benefit

Based on an analysis of the Redding market, the proposed service has the potential

to affect almost 54,000 annual origin and destination passengers. Because it will

affect such a large share of Redding’s citizens, the popularity of the proposed

service is widespread. For example, as part of the responsibilities of the public-

private partnership, the Economic Development Corporation of Shasta County will

create an Airline Travel Bank® that includes a minimum of 100 participating

companies contributing at least $600,000 cash to support service during its first

year.

Well considered plan with airline support

Discussions between Redding’s community leaders and multiple airlines began in

2005 and have continued through the preparation of this application. During this

period, the community continued to research its market, refine its forecasts for

changing conditions in the industry, and meet periodically with airline planners. In

fact, the structure of this application is a reflection of the most recent direct airline

input.

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Air Service Environment

edding Municipal Airport has the ability to serve a large portion of northern California; however, much of the catchment area is driving to Sacramento or

San Francisco to access air service. This section includes an overview of the

catchment area and the community served by Redding Municipal Airport.

Serving a large portion of

northern California

The Redding Municipal Airport

catchment area, located in the northern tip of California’s Central

Valley, encompasses Shasta County

and portions of Siskiyou, Trinity, Tehama, and Plumas Counties. The

proposed air service at Redding

Municipal Airport would benefit a population in the airport catchment

area exceeding 250,000. The

catchment area includes Red Bluff,

Anderson, Cottonwood, Redding, and rural communities in the

mountainous areas to the north, east,

and west. It is estimated that the catchment area generates 342,000

origin and destination passengers per year.

Exhibit 3.1 shows a map of the Airport’s catchment area.

Business activity driving

population growth and demand

for air service

Fueled by business in-migration from southern

California, jobs in the region have grown 22

percent from 1997 to 2006. For the same 10-year period the population grew 15 percent

and is forecast to jump another 53 percent by

2030.

R This section contains:

• An overview of the

Redding community and

the current air service

environment

Exhibit 3.1 Airport catchment area and proximity to competing airports

Exhibit 3.2 Redding’s employment base

Manu-facturing

4%

Construction7%

Retail/ Wholesale

Trade21%

Services36%

Finance, Ins., & Real Estate

7%

Government16%

Transport, Comm., & Public Util.

5%

Other3%


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Reference the pie chart in Exhibit 3.2, previous page, Redding has a

diverse economic base. The service sector is the largest employer in

Shasta County with retail/wholesale trade and government close

behind. Manufacturing is increasing as the community continues to

recruit manufacturing companies. As more companies have located in

the region the demand for air service that provides a more direct route

to destinations east of Redding has increased.

An air service survey completed in 2006 highlighted this need and

identified the companies in Table 3.1 as having high demand for

eastbound service from Redding. One example, CH2M Hill is a large

architectural and engineering firm that

has approximately 240 employees in

their Redding office and 14,500

employees and 200 offices worldwide.

Its headquarters are in Denver, and the

Redding office has projects in

communities throughout the Southwest

and Central U.S. CH2M Hill is just one

example of the many companies in the

area that need eastbound service.

Strong visitor traffic to the

area

In addition to the diverse and growing

business community, the Redding

region is a magnet for tourists seeking

an outdoor experience. Local

attractions include: Lake Shasta, Mt.

Shasta, Lassen National Park,

Whiskeytown National Recreation Area,

and other outdoor attractions that are

nearby.

Table 3.1 Top employers with eastern travel needs

Employer

Barr Brothers Company Mercy Medical Center

Baskins Forest Products Morpheus Lights

Blue Shield of California Newport Biosystems

Butte Community Bank Premiere Brand Meats

CH2M Hill Record Searchlight

Coca Cola Bottling Co. Risse Racing Technology

Comptech Marine SECO Manufacturing Global Flex

Manufacturing Shasta College

Knauf Insulation Shasta Regional Medical

Lehigh Southwest Cement

Sierra Pacific Industries

Les Schwab Tire Recap Simpson University

Macy’s Skyway Recreation

MariTech Industries Universal Medical Design


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Air Service – Existing and Historical

his section presents information on current and historical air service for

Redding Municipal Airport. The current air service section highlights: service

frequency, direct and connecting destinations offered, available fares, and

equipment types. The historical air service section includes a description of historical

destinations, traffic levels, service providers, and any extenuating factors that might

have affected traffic in the past or that can be expected to influence service needs

in the near to intermediate term. Redding Municipal Airport’s past air service

development efforts are also covered in this section.

Existing air service

Horizon Air and United Express serve Redding

Municipal Airport (Table 4.1). Horizon

operates turboprop aircraft to Los Angeles and

Portland. Fifty percent of the Los Angeles-

bound flights are one-stop over Eureka/Arcata

Airport, and the Portland service originates in

Eureka/Arcata. United operates turboprop

service to San Francisco offering the most

connecting options. The Los Angeles service is

the most limited from a connection standpoint.

Airfares are high

Table 4.2 provides a comparison of average airfares paid to/from

Redding Municipal Airport for the past five years. Redding

Municipal Airport’s average fares were greater than the state,

region, and national averages in each of the five years. The

difference between Redding and the total U.S. grew from $16 in

2003 to $40 in 2007. Redding is an overpriced market relative to

the average U.S. market based on average fare. New eastbound

service will increase capacity, add connecting destinations, and likely

lead to decreases in the average fare.

T

Table 4.1 Current air service

Destination Carrier Aircraft Weekly

departures Weekly Seats

Connecting destinations

LAX Horizon Dash 8 Q400 14* 1,064 22

SFO United EMB 120

34 1,020 67

PDX Horizon Dash 8 Q400

7 532 34

Total 55 2,616 N/A

* Seven of the weekly LAX departures one-stop over Eureka/Arcata

Table 4.2 Average airfares

Average fare paid

Market 2003 2004 2005 2006 2007

Redding $165 $166 $176 $198 $199

California $144 $138 $147 $162 $163

West region $137 $135 $144 $156 $155

Total U.S. $149 $143 $146 $159 $159

This section contains:

• Description of existing air

service

• Synopsis of historical air

service

• Description of air service

development efforts


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Historical air service

Since 2003, Redding Municipal Airport has seen some

improvement in air service. This section discusses historical

air service including destinations, traffic levels, and service

providers and extenuating factors that have affected air

service over time.

Destinations, service providers, and traffic levels

Historically, Redding Municipal Airport offered service to

Portland, San Francisco, Los Angeles, and Las Vegas. The

duration of these services can be seen in Table 4.3. The Las

Vegas twice weekly service was short lived, operating for

about five months. However, the Los Angeles service which

was supported by a 2004 SCASDP grant award has been

successful and continues.

Exhibit 4.1 shows the trend in departures and outbound

seats by year, and Exhibit 4.2 shows the trend in

enplanements and load factor over the five-year period from

2003 through 2007. Overall, departures increased from

2,930 in 2003 to 3,196 in 2007, over 35 percent.

Outbound seats increased by 37 percent for the same

period. This increase in activity has been met with positive

response by air travelers. Enplanements grew from 54,921

in 2003 to 64,478 in 2007, an increase of 17 percent. Load

factors also increased as travelers changed their habits and

used the new air service options increasing from 53 percent

to 71 percent through the period, a very high level

considering that the service offering has predominantly been

operated with turboprop aircraft.

Extenuating factors that have affected air service

Two primary factors have affected air service at Redding

Municipal Airport with the net result being that only 36

percent of catchment area passengers use the local airport.

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Sacramento International Airport is approximately a 150-mile

drive. Oakland International Airport is approximately a 235-

mile drive. Though either airport requires a reasonably large

Exhibit 4.1 Departures and seats

1,500

1,900

2,300

2,700

3,100

3,500

2003 2004 2005 2006 2007

Calendar year

Dep

artu

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66,000

88,000

110,000

132,000

154,000

176,000

Seat

s

Departures Seats

Exhibit 4.2 Enplanements and load factor

40

45

50

55

60

65

70

75

2003 2004 2005 2006 2007

Calendar year

Load

fact

or (%

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36,000

41,000

46,000

51,000

56,000

61,000

66,000

71,000

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Load factor Enplanements

Destination Airline 2003 2004 2005 2006 2007 2008

Los Angeles Horizon Apr

Las Vegas AllegiantAug-Dec

Portland Horizon

San Francisco United

Table 4.3 Historical destinations and service providers


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drive-time investment, they offer a broad selection of nonstop destinations and low-

fare carriers in many markets, especially in short-haul southern California, Arizona,

and Nevada markets where service frequency is high. This scenario and the

accompanying high diversion have made attracting new service at Redding

Municipal Airport difficult.

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190-mile San Francisco flight segment is not economically conducive to regional jet

operations. The largest turboprops in the United fleet have a 30-seat capacity. The

end result is limited capacity and relatively high per seat operating costs.

Unfavorable weather conditions and airport congestion cause dependability issues

that induce some catchment area passengers to avoid the service and exacerbates

diversion problems. Eastbound service that bypasses San Francisco connections

would significantly improve local airport catchment area retention.

Past air service development efforts

Reference Table 4.4, over the past five years the Redding community has

aggressively pursued air service improvements with any and all carriers that fit

Redding’s air service needs. In 2005, after several meetings with Horizon and with

the assistance of a SCASDP grant, Redding secured Horizon service to Los Angeles.

The service was an immediate success, and Horizon continues to enjoy high load

factors on the route.

With Los Angeles service under its belt, Redding changed its focus to air service that

could efficiently move travelers to and from destinations located east of Redding.

To this end, Airport and community leaders met with three carriers, US Airways,

United Airlines, and Delta Air Lines that had the right-sized aircraft and route system

to provide service to the east.

Between 2005 and 2008, community leaders had multiple

meetings with Delta. In early 2008, Redding was on Delta’s

short-list for service when the price of fuel skyrocketed and the

airlines shelved expansion plans. In spite of high fuel cost, Delta

has maintained an interest in the Redding market. This grant

application is a direct result of that interest.

Redding has taken a business approach to recruiting air service

by periodically researching its air travel market and preparing

detailed market analyses for all airline proposals. Also, Redding

continues to support an active air service marketing program

targeting incumbent airline service as well as new service.

Redding’s formula of persistence, analysis, and marketing is the

core of its air service development program.

Table 4.4 Past air service development efforts

Year Initiative Result

2003 Passenger Demand Analysis Completed Air Service Report - market

incentive analysis Completed

America West Airlines RDD-PHX service proposal Unproductive 2004

SCASDP application - ACV/RDD-LAX service Awarded

Horizon Air RDD-LAX service proposal

Successful 2005

Delta Air Lines' RDD-SLC service proposal

Pending

Delta Air Lines' RDD-SLC service proposal

Pending 2007

United Airlines RDD-DEN service proposal

Unproductive

2008 Delta Air Lines' RDD-SLC service proposal

Pending

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Air Service Deficiencies and Needs

n 2004 with the help of a SCASDP grant, Redding tackled what was then its

number one air service issue, the need for Los Angeles service. Now that the Los

Angeles service has been successfully absorbed by the community, Redding is

ready to take on its next air service deficiency, service to a hub airport located east

of Redding. Why Redding needs this service is the topic of this section. It is a

simple case of high demand, indirect routings, too little capacity, and high ticket

prices. The shortcomings in Redding’s eastbound service are well documented in

the periodic market studies conducted by the Redding Municipal Airport.

Underserved market with high demand

With a true market of approximately 470 passengers per

day each way, Redding is an underserved market.

Current service which involves shared turboprop aircraft

with Eureka/Arcata to Portland and Los Angeles and

150 daily seats each way to San Francisco is inadequate

for potential market demand. Table 5.1 reflects 2006

and 2007 capacity use and load factors in Redding

markets. The bulk of the eastbound traffic travels via

San Francisco since this is the least circuitous routing,

and service to Los Angeles and Portland is limited. With

a 2007 load factor of approximately 70 percent, San

Francisco flights are near maximum achievable load

factors on 30-seat aircraft since each additional

passenger represents over three points of load factor.

Additional eastbound capacity is required to meet the

needs of the market and be spared the time consuming,

expensive drive to Sacramento.

High traffic diversion to Sacramento and

San Francisco

Although there are 342,000 origin and destination

passengers per year in the Redding Municipal Airport

catchment area, the Redding Municipal Airport only

serves 36 percent of those passengers. Catchment area

passengers generally use Sacramento International

I

Table 5.1 Redding Municipal Airport airline performance

Segment Year Trips Passengers Seats Load

Factor 2006 1,385 51,858 102,445 50.6

RDD-ACV 2007 1,400 50,908 104,045 48.9

2006 681 37,549 50,394 74.5 RDD-LAX

2007 696 40,692 57,908 78.4

2006 729 41,896 53,813 77.9 RDD-PDX

2007 721 39,543 53,695 73.6

2006 3,969 79,673 119,047 66.9 RDD-SFO

2007 3,565 74,128 106,950 69.3


• Description of Redding’s

air service needs and

deficiencies

Exhibit 5.1 Catchment area airport use

RNO8%

OAK1%

MFR4%

ACV1%

SFO12%

SMF38%

RDD36%


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Airport and San Francisco International Airport,

38 percent and 12 percent, respectively (Exhibit

5.1, previous page). From Redding, traveling to

Sacramento requires a 153-mile drive and takes

approximately two-and-a-half hours; driving to

San Francisco requires a 225-mile drive and

approximately four hours and five minutes (refer

to Exhibit 3.1, page 4). Both drive times ignore

the impact of major traffic congestion which can

increase the drive times significantly.

Circuitous routings to top eastern

markets

Over 35 percent (127 passengers per day each

way) of the catchment area’s top 50 true

markets are eastbound markets. Travelers using

the local airport and destined for eastern points

must connect via Los Angeles, Portland, or San Francisco and travel a minimum of

190 miles south to go east. The bulk of these passengers travel via San Francisco

due to the higher schedule frequency and the lesser circuity involved. However, the

circuity involved is costly in terms of time and results in higher Redding airfares to

the east. Nonstop eastbound service would alleviate this air service deficiency.

Exhibit 5.2 provides a depiction of the circuitous routings required over existing

hubs and the direct service to eastern destinations that would be available with

nonstop Salt Lake City service.

Unreliable service over San Francisco

Well known air traffic and airport congestion combined with weather conditions at

San Francisco International Airport result in above normal irregular operations and

cancellations. For Redding’s air travelers the unreliability of making connections at

San Francisco acts as a disincentive to use connecting routings via San Francisco. As

a result, more people opt to use their car and drive to Sacramento to catch flights.

It is imperative for Redding Municipal Airport to be able to offer competitive hub

service, particularly to the underserved eastbound markets.

High airfares, overpriced market

While many California communities tend to benefit from low fares, this is not the

case with Redding fares. Table 5.2 compares Redding Municipal Airport’s average

fare with those of other northern California and Oregon cities. It is apparent from

this comparison that Redding is overpriced. Further reference Table 4.2 (page 6),

Table 5.2 Average airfare comparison

Airport Average airfare

Redding $199

Eureka $193

Eugene $193

Medford $192

San Jose $139

Reno $138

Sacramento $137

Chico $130

Oakland $124

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Redding’s average airfares top the list when

compared to California, the West region, and the

total U.S.

When the focus is narrowed to 10 sample

eastbound markets and the Reno, Sacramento,

and larger San Francisco Bay Area markets are

excluded, Redding remains a high average airfare

market to top, high demand eastern destinations

as depicted in Table 5.3. Additional air service at

Redding Municipal Airport would help alleviate

the high airfares in the market by providing more

competition and more direct routings.

Correcting eastbound service deficiency

All of these air service deficiencies in the Redding market point in one direction:

Redding Municipal Airport and its catchment area are in dire need of eastbound

service to a major hub. With San Francisco load factors over 69 percent, capacity

relief for eastbound air travelers is most fuel efficiently achieved by nonstop service

to an eastbound hub such as Salt Lake City or Denver. Such service would use

larger regional jet aircraft over a longer flight segment which is more fuel efficient

than adding more turboprop service over the short San Francisco segment. It would

represent a quantum service improvement for eastbound Redding air travelers by

avoiding double connections in many instances, improve passenger retention at

Redding Municipal Airport, open up San Francisco capacity currently occupied by

eastbound travelers, and avoid the San Francisco connecting reliability problems.

Table 5.3 Market by market average airfare comparison

Market Redding Eureka/ Arcata Medford Eugene Chico

Salt Lake City $239 $219 $237 $213 $115

Denver $239 $209 $188 $176 $142

Omaha $232 $290 $200 $208 $144

Dallas (DFW) $300 $293 $259 $242 $130

Chicago (ORD) $302 $281 $238 $217 $178

Detroit $402 $265 $276 $272 $160

Orlando $237 $274 $229 $232 $187

Atlanta $337 $296 $251 $317 $215

Philadelphia $317 $317 $266 $254 $194

Boston $407 $287 $251 $237 $163 Average 10

markets $279 $261 $231 $222 $162

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Strategic Plan – Air Service

he Air Service Deficiencies and Needs section described in detail the

shortcomings in Redding’s air service. Because there is no eastbound air

service, the Redding market is underserved and overpriced to eastern

destinations. The Strategic Plan – Air Service includes the project goals and plan to

remedy its eastbound service and pricing issues. The plan is supported by solid

research and analysis. Moreover, an alternate plan is identified and a forecast

completed to determine its viability. The plan has the support of Delta Air Lines.

Project goals

The goal of this initiative is to secure service to a hub airport located east of Redding

that provides competitive airfares and connecting opportunities to domestic and

international destinations for Redding’s air travelers.

Proposed air service

There are three hub airports, Salt Lake City, Denver, and Phoenix, that have the

potential to serve Redding’s air service needs to the east. However, considering

stage length, routing, connecting opportunities, and pricing, Delta’s Salt Lake City

hub is the best option to accomplish Redding’s goals. Delta service will meet

Redding’s need for connections to the east (Exhibit 6.1) and provide competitive

pricing. Delta’s 50-seat Canadair Regional Jet 200 aircraft are the right size for the

Redding market. The proposed service plan is for Delta to operate two daily,

Canadair Regional Jet 200 roundtrips between Redding and Salt Lake City.


• Project goals

• A Strategic Plan for

meeting Redding’s air

service needs and

deficiencies

• Alternate plan to meet

the goals

• Previous grant recipient

with new project and

goals

Redding

318 daily departures104 nonstop destinations10 international destinations

Exhibit 6.1 Proposed air service


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Market analysis

A complete copy of the market analysis and associated

assumptions are included in Appendix B. Reference the forecast

summary shown in Table 6.1, Redding-Salt Lake City service is

forecast to produce a segment profit of $54,617 and a system

profit of $4,941,089 in a mature market. Without question, this is

a very favorable forecast. Importantly, because it is so strong, it

may be a market that can continue to turn a profit in spite of

future increases in fuel costs.

The forecast is for a mature market. However, in new markets it

usually takes several months for the passenger traffic to grow to

the point that the associated revenue equals or exceeds the cost of

operating the service. Table 6.2 assumes Delta will realize 40

percent of the passenger forecast for the first month of service

and that passenger traffic will ramp-up at five percent per month

reaching maturity at the end of the first year of service.

Table 6.3 provides a month by month estimate of the net surplus/loss for the first

year of service. Assuming a 12-month ramp-up, it is estimated that Delta will lose

$520,960 in the first 12 months of service. However, with an Airline Travel Bank®

and marketing campaign, the ramp-up period may be shorter which would reduce

the amount of the revenue guarantee required at the end of the contract period.

Table 6.1 Delta Air Lines' Salt Lake City market analysis

Item Statistical category Mature market 1 Seats per departure 50

2 Segments per day 4

3 Annual segments 1,460

4 Annual available seats 73,000

5 Onboard passengers 53,498

6 Load factor 73%

7 Average fares $273

8 Segment 1 revenue $6,602,980

9 Segment 1 cost $6,548,363

10 Segment 1 profit/loss $54,617

11 Segment margin 1%

12 System revenue $14,613,589

13 System cost $9,672,500

14 System profit/loss $4,941,089

15 System margin 34%

Table 6.2 Service ramp-up/start-up period

Month Seasonality Onboard

pax Ramp-

up

Ramp-up adj.

pax Load factor

May 9.5% 5,078 40.0% 2,031 32.8%

June 9.5% 5,072 45.0% 2,282 38.0%

July 9.6% 5,143 50.0% 2,571 41.5%

August 9.8% 5,222 55.0% 2,872 46.3%

September 8.6% 4,621 60.0% 2,773 46.2%

October 9.0% 4,836 65.0% 3,143 50.7%

November 8.5% 4,551 70.0% 3,186 53.1%

December 8.5% 4,561 75.0% 3,420 55.2%

January 6.3% 3,388 80.0% 2,710 43.7%

February 5.8% 3,104 85.0% 2,638 47.1%

March 7.0% 3,770 90.0% 3,393 54.7%

April 7.8% 4,154 95.0% 3,947 65.8%

Total 100.0% 53,498 N/A 34,967 47.9%

Note: Ramp-up = 40 percent first month increasing 5.0 percent per month

Table 6.3 Net surplus/shortfall

Month Revenue Cost

Net surplus/ shortfall

May $416,111 $821,500 -$405,389

June $467,606 $795,000 -$327,394

July $597,027 $821,500 -$224,473

August $784,543 $821,500 -$36,957

September $757,355 $795,000 -$37,645

October $858,639 $821,500 $37,139

November $870,210 $795,000 $75,210

December $934,314 $821,500 $112,814

January $740,310 $821,500 -$81,190

February $720,611 $742,000 -$21,389

March $926,788 $821,500 $105,288

April $1,078,028 $795,000 $283,028

Total $9,151,540 $9,672,500 -$520,960 Note: Includes introductory sale fares for the first three months of service - 75 percent of full fare first two months; 85 percent third month


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Peer market comparison

To further test the viability of Redding-Salt Lake

City service, Redding was compared to other

similar markets in the region that have Delta

Salt Lake City service. Economic and

demographic indicators and other factors

important to air service initiatives are

compared. Redmond, Medford, Yakima, and

Eugene, all successful Delta-Salt Lake City

markets, were compared with Redding (Table

6.4). Redding’s indicators compare well to

these successful Delta markets, and its average

airfares topped the other four markets. Based

on this, Redding-Salt Lake City service fits the

profile of other successful markets in the

region. This supports the favorable output of

the Redding-Salt Lake City forecast.

Airline support

This application and the proposed air service have been reviewed with Delta’s

planning staff. Delta supports this application and reserves its final service decision

pending the outcome of this application and subject to conditions in the airline

industry.

Alternate plan

In the event that the proposed service is not realized, the alternate plan is to solicit

service from a carrier that has a hub at either Denver or Phoenix. The next-best

option for successfully accomplishing the goals of this grant application is to secure

United Airlines’ service to Denver. On the up-side, Denver has more connecting

opportunities than Salt Lake City, but its longer stage-length adds to the segment

operating cost. To evaluate the viability of using Denver as an alternate, Redding

completed the following preliminary forecast:

The alternate service plan includes:

Service provider: United Airlines

Route: Redding-Denver

Frequency: Two daily roundtrips

Aircraft: Canadair Regional Jet 200 (50 seats)

Table 6.4 Delta Air Lines' market comparisons

Factor RDD RDM MFR YKM EUG

Employment 100,219 93,488 121,427 128,635 201,068 Population (MSA/DMA) 191,908 153,961 210,054 239,892 347,308

Mean income $78,291 $80,257 $78,608 $83,368 $74,624

Income per capita $24,594 $25,317 $25,032 $22,192 $24,547

Distance to SLC

543 526 574 586 618

Alternate airport

SMF PDX PDX SEA PDX

Mileage to alternate airport

147 142 282 152 127

Average fare (YE1Q04)

$170 $165 $171 $156 $169

Average fare (CY07)

$199 $177 $192 $188 $193

Note: Economic/demographic information estimated 2008

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Reference the United-Denver forecast shown in Table 6.5, Redding-

Denver service is projected to produce a system profit of $3,559,640

in a mature market. This forecast indicates that Denver service is a

viable alternative to Salt Lake City. In the event that Redding has to

fall back on their alternate plan, the forecast will be updated and

further analysis completed to evaluate the ramp-up and related

support plan.

Prior grant award – compare and contrast

In 2004, the City of Redding was awarded a SCASDP grant. The

2004 application and grant award had two goals:

• Improve air service to a broad section of air travelers at both

the Redding and Arcata/Eureka airports by adding nonstop

service to a new destination, Los Angeles International

Airport

• Provide better access to the national transportation system

To achieve the 2004 goals, the grant award included a marketing

program and an airline revenue guarantee. Although the methods

used to achieve the goals in the current Strategic Plan are similar to

the 2004 project, the goals are clearly different. First, the goals of

this application directly benefit Redding Municipal Airport versus the

prior combined approach which benefited both Arcata/Eureka and

Redding in the 2004 grant. Second and most important, the 2004

grant targeted air service to Los Angeles. The focus of this

application is service to the east with Salt Lake City as the primary

objective.

Table 6.5 United Airlines' Denver market analysis

Item Statistical category Full year 1 Seats per departure 50

2 Segments per day 4

3 Annual segments 1,460

4 Annual available seats 73,000

5 Onboard passengers 56,968

6 Load factor 78%

7 UA diverted passengers 2,259

8 Incremental passengers 54,709

9 Average fare $241

10 Segment 1 revenue $7,932,183

11 Segment 1 cost $7,892,176

12 Segment 1 profit/loss $40,007

13 Segment margin 1%

14 System incremental revenue

$13,702,072

15 System cost $10,142,433

16 System profit/loss $3,559,640

17 System margin 26%


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Strategic Plan – Implementation and Funding

he purpose of this section is to describe Redding’s plan for organizing,

executing, funding, and monitoring its plan for supporting the proposed air

service. As a previous SCASDP grant recipient, Redding’s plan is based on the

shared understanding of the members of the public-private partnership that

commercial air service is vitally important to the community, inherently risky, and

dependent on hands-on community involvement for continued viability. Redding’s

Strategic Plan - Implementation and Funding is aggressive, strategic, and focused on

the long-term success of the proposed Salt Lake City service.

Public-private partnership

The City of Redding, CA is the sponsor of the Redding Municipal Airport and this

grant application. In support of the proposed service and this application, the City

of Redding has formed a public-private partnership with the

organizations shown in Table 7.1. Each of the partners is

committed to and has an active role in the public-private

partnership.

SSttrraatteeggiicc PPllaann: The City of Redding/Redding Municipal

Airport will execute, manage, and administer grants

associated with this application.

AAiirrlliinnee TTrraavveell BBaannkk®® ((AATTBB)): The Economic Development

Corporation of Shasta County will organize and manage an

ATB that includes 100 participating businesses that

contribute a minimum of $600,000 in cash to support the

proposed service. It will handle all aspects of the ATB

including execution of ATB contracts, banking, and the

issuance of atbCARDS.

MMaarrkkeettiinngg pprrooggrraamm: The Greater Redding Chamber of

Commerce with the assistance of the Economic

Development Corporation of Shasta County will plan,

manage, and execute the marketing program contemplated

for the proposed air service.

T

Table 7.1 Roles of public-private partners

Public-private partner Role

Public:

City of Redding Grant administration;

Strategic Plan monitoring and performance tracking

Private:

Economic Development Corporation of Shasta County

Airline Travel Bank: Lead fund drive, manage program,

execute contracts, coordinate deposits and issuance of

atbCARDS

City of Andersen City of Shasta Shasta County

EDC members; Assist in the execution of marketing plan

Greater Redding Chamber of Commerce

Manage and execute the marketing plan


• Description of the

public-private

partnership

• Designation of a legal

sponsor

• Funding necessary for

implementation of the

Strategic Plan

• Sustainability of the

project


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Incentive and support plan

The forecast and analysis presented in the Strategic Plan – Air Service section makes

the case that the proposed service has a high probability of success. However, air

service initiatives in small markets are never a “sure thing”, and the proposed

Redding-Salt Lake City service is no different. The intent of this Incentive and

Support Plan is to first identify the liabilities associated with the proposed service

and, second, craft a plan to offset that risk. In this regard, the success of the

Redding-Salt Lake City service depends

on effectively addressing four risk

factors:

1. PPaasssseennggeerr rraammpp--uupp: Reference

Table 6.3, page 13, during the

12-month passenger ramp-up

period, the airline shortfall in

ticket revenue is estimated to

produce a loss of $520,960.

Delta Air Lines’ expectation is that

Redding will cover the majority of

this potential shortfall.

2. RReeddddiinngg’’ss ““ddrriivvee ttoo ffllyy”” hhaabbiitt: At present, 40 percent of Redding’s air

travelers drive 165 miles to Sacramento to take advantage of its many service

options and cheaper airfares. Because of Southwest Airlines’ presence at

Sacramento, Redding Municipal Airport will always lose a share of its leisure

market to this larger airport. However, the success of Redding-Salt Lake City

service depends on use by its business flyers.

3. IInnccuummbbeenntt aaiirrlliinnee’’ss ffrreeqquueenntt ffllyyeerr pprrooggrraammss: The majority of the business

flyers in the Redding market are members of United Airlines’ mileage award

program. Frequent flyer programs have been called “the most powerful loyalty

tool ever created”. The success of the Redding-Salt Lake City service depends

on getting long-time United frequent flyers to use the Delta service.

4. PPuubblliicc aawwaarreenneessss ooff sseerrvviiccee: Getting the word out! In markets like Redding,

airlines spend little time and often no money on the promotion of new service.

By default, the responsibility for marketing new service falls on the shoulders of

the community. Without a community driven marketing program, Redding-

Salt Lake City service will be short lived.

Each of the four Risk Factors is addressed with the Support Plan elements shown in

Exhibit 7.1.

Airline Financial Exposure

Business Community Support

Public Awareness

Existing Travel Habits

Revenue guarantee

Airline Travel Bank®

Marketing program

Redding Risk Factors: Support Plan Elements:

Exhibit 7.1 Support plan elements


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Revenue guarantee (DOT funded)

Redding will target the airline’s financial liability associated with the 12-month

ramp-up period, Exhibit 7.1, previous page, by providing a 12-month, $500,000

revenue guarantee. Each month the Redding-Salt Lake City ticket revenue will be

compared with operating costs and the resulting shortfall/surplus calculated. If at

the end of the 12-month revenue guarantee period there is a net shortfall, Delta

will be reimbursed. Airline reimbursement will be capped at $500,000.

Airline Travel Bank® (business community funded)

Success of the Redding-Salt Lake City service depends, in large part, on the support

of the local business community. The challenge is two-fold. First, business flyers

that now use Sacramento International Airport for flights to destinations located

east of Redding must be influenced to use the new local Salt Lake City service.

Second, business travelers that are United frequent flyer members need to change

their habits and purchase tickets on Delta.

Reference Exhibit 7.2, to lock in the commitment and ensure the support of

business flyers, the Economic Development Corporation of Shasta County will

create an ATB that will include a minimum of 100 participating companies/ATB

Partners that contribute/deposit no less than $600,000 in total cash. ATB Partners

will be issued atbCards/VISA that can only be used to purchase tickets on Delta. It is

a “use it or lose it” program, and ATB participants will have 12 months to use their

ATB dollars to purchase airline tickets or the funds transfer to Delta.

The “use it or lose it” feature of the program guarantees the commitment

of the ATB Partners. Because the ATB Partners have “skin in the game”,

they will limit their use of Sacramento International Airport and instead

use Redding Municipal Airport to support the Redding-Salt Lake City

service. Likewise, the ATB Partners will make ticket purchase decisions in

favor of Delta’s new service in spite of their frequent flyer membership.

Marketing campaign (community and airport funded

Promotion of the proposed service will begin 60 days prior to the service

start date and continue for an additional 12 months. The budget is

$120,000. Since Redding has managed two previous marketing

campaigns, Horizon Air to Los Angeles in 2005 and Allegiant Air to Las

Vegas in 2004, the Economic Development Corporation of Shasta County

and the Greater Redding Chamber of Commerce are experienced at

planning and executing successful promotion programs for new air

service. Redding will partner with the air carrier to create the necessary

artwork for distribution in the media outlets.

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iinncclluuddee aa mmiinniimmuumm ooff 110000

ppaarrttiicciippaattiinngg ccoommppaanniieess//

ppaarrttnneerrss wwiitthh ccoonnttrriibbuuttiioonnss// ddeeppoossiittss nnoo lleessss tthhaann $$660000,,000000..

Airline Travel Bank®EDC of Shasta CountyAirline Travel Bank®EDC of Shasta County

100 companies $600,000

100 companies $600,000

BankBank

Exhibit 7.2 Airline Travel Bank® process

$$$$

$$$$

$$$$


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TARGET AUDIENCE

The cost of operating regional jets is higher than that of larger commercial aircraft.

Accordingly, the airfares associated with the proposed service will be competitive

but not cheap. The success of the proposed service hinges on the support of the air

traveler that is flying for a business/job related purpose. These are the air travelers

that are not as price sensitive and more inclined to pay a small fare premium for the

convenience of flying locally. Cost conscious leisure flyers tend to drive to distant

airports to take advantage of low-fare carrier service especially if there are multiple

people traveling together.

The primary target audience is the outbound Redding business flyer that is headed

for a destination located east of Redding. Also, companies in the Redding area that

have regular inbound visitors (e.g. branch offices, vendors) from communities

located east of Redding are considered part of the primary target audience. The

secondary target audience is the convenience oriented, time sensitive, leisure

traveler. High income travelers, some retirees, and people traveling on short notice

fall into this category.

MARKETING MESSAGE

The following are the key messages for marketing of eastbound service:

1. Destinations offered

2. Convenience of new service

3. Name-brand airline with jet service

4. Competitive airfares

MEDIA MIX/BUDGET

The media mix and budget is provided in Exhibit 7.3

and detailed below:

PPrriinntteedd AAddvveerrttiissiinngg – Once the new routes are

loaded into the airline’s computer system (which is

typically 90 days in advance of the start date), new

service marketing will begin by purchasing ad space

in the following newspapers:

• Redding Record Searchlight

• Red Bluff Daily News

• Chico Enterprise Record

• Chico News and Review

• Siskiyou Daily News

Estimated cost: $30,000

Exhibit 7.3 Media mix/budget

Printed advertising,

$30,000

Billboards, $40,000

Radio, $20,000

Television, $30,000

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BBiillllbbooaarrddss – Redding will contract with regional/national billboard firms for prime

billboard locations throughout the catchment area. The billboards will go up in

advance of the start date of the new service and would remain for one year.

• Viacom

• Others


RRaaddiioo – Redding will buy airtime on popular radio stations that broadcast within

the catchment area.

• Redding

• Red Bluff

• Chico

• Siskiyou County


TTeelleevviissiioonn – Redding will buy commercial slots on local programming as well as

local access channels.

• Redding

• Chico


PPuubblliicc OOuuttrreeaacchh – The Economic Development Corporation of Shasta County and

the Greater Redding Chamber of Commerce will use their internal communication

vehicles and events to inform and solicit the support of the business community

• Airport, Economic Development Corporation, and Chamber speaking

engagements and local service organizations (e.g. Rotary Club)

• Website additions

• Community activities (e.g. Air Show, Energy Fair)

• Interviews on TV, in local newspapers, and local radio stations

Estimated cost: $10,000 (in-kind)

Strategic Plan funding

The City of Redding is seeking $500,000 in U.S. Department of Transportation

funding to be used as part of a comprehensive support program to offset a portion

of airline risk associated with starting nonstop service to Salt Lake City. SCASDP

grant funds will be used for a revenue guarantee, and the Economic Development

Corporation of Shasta County will fund one-half of the $120,000 marketing

program, provide in-kind services associated with marketing, the Airline Travel

Bank®, and grant administration. The Airport will fund a portion of the marketing

program ($60,000), consulting fees ($32,000) associated with organization of the

Airline Travel Bank®, and airline negotiations ($10,000). Table 7.2, next page,

provides the Strategic Plan budget broken down by element and sources of

funding.

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Table 7.2 Strategic Plan budget Funding source

U.S. DOT Airport Non-airport Description Cash Cash In-Kind Cash In-Kind

Total

Airline support program: Revenue guarantee $500,000 $500,000 Marketing campaign $60,000 $60,000 $120,000 Airline Travel Bank® $32,000 $5,000 $607,500 $644,500 Plan staffing/monitoring: Airline meetings/negotiations $10,000 $10,000 Program administration $5,000 $5,000 Total $500,000 $102,000 $10,000 $60,000 $607,500 $1,279,500 Percent of total project 39% 8% 1% 5% 47% 100% Percent of cash contribution 76% 15% N/A 9% N/A N/A

The community will fund 61 percent of the total program. Non-airport funding

sources, the Economic Development Corporation of Shasta County, will provide

nine percent ($60,000) of the cash requirement and 52 percent ($667,500) of the

funding for the total program including in-kind services.

Project continuation and sustainability

Prior to the end of the first year of service, members of Redding’s public-private

partnership will evaluate the status of the program and determine if and what

needs to be done to continue to support air service. The evaluation will include

load factors, ticket price, passenger ramp-up, service issues, airline input, and other

factors that may be relevant to the continuation of service. The specifics of

extending support for an additional term cannot be determined without knowing

more about the issues; however, at a minimum the public-private partnership is

committed to the program referenced in Table 7.3.

Table 7.3 Project continuation budget

Source Period Rev.

Guarantee Marketing

Fee waivers

Redding Municipal Airport

6 months $0 $60,000 $0

Total $0 $60,000 $0


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Schedule and Monitoring

his section lays out the project schedule, milestones, and monitoring program

for the air service plan. Along the way, some of the dates will change.

However, each of the milestones will most likely maintain its relative

position/date in the overall schedule. The Redding Municipal Airport has

responsibility for monitoring all elements of the program.

Schedule

The schedule shown in Table 8.1 identifies key dates for implementation of the

contemplated air service and associated support plan. Understand that the service

start date is the date that sets the overall schedule, and, if that date changes, other

dates will adjust accordingly.

Table 8.1 Strategic Plan schedule and milestones

Milestone O-08

N-08

D-08

J-09

F-09

M-09

A-09

M-09

J-09

J-09

A-09

S-09

O-09

N-09

D-09

J-10

F-10

M-10

Airline contract, final X ATB fund drive X X X

ATB deposits in bank X atbCARDS issued X

Marketing X X X X X X X X X X X X X X

Service start-up X Marketing survey X Passenger survey X

Rev. guarantee end X

ATB program end X

Eval. further support X

Program monitoring

During the first year of service there are several areas of the program that need

tracking and tending: airline performance, ATB, revenue guarantee, market

performance, airfares, and marketing.

Monthly:

• Airline performance – load factors by flight, enplanements, flight

cancellations

• Revenue guarantee indicators – ticket revenue, cost, drawdown


• Schedule and

milestones for timely

completion of the

project

• How the community

will monitor the

progress of the project


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• Market performance – passenger ramp-up

• Airfares –track walk-up, business, and leisure published fares for top 25

markets to ensure that fares to destinations in the east are competitive

with Sacramento and San Francisco. Fare issues will be communicated to

Delta Air Lines.

• ATB - track fund use and compare with monthly load factors to evaluate

the use of ATB funds relative to passenger loads

• Marketing – monitor schedule and budget

6-months:

• Complete an in-terminal survey to collect customer opinion information

and evaluate the marketing program

9-months:

• Complete an overall assessment of the program to determine if

community support is needed beyond the first year of service

12-months:

• Complete a 12-month passenger retention study to evaluate the use of

Redding Municipal Airport by local travelers compared to their use of

competing airports

• Analyze output and communicate with airlines regarding market issues

““WWhhaatt ggeettss mmeeaassuurreedd ggeettss

mmaannaaggeedd..””


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24

Appendix A. Community Support

ppendix A includes letters of support for City of Redding’s application to

the U.S. Department of Transportation for eastbound air service.

Support letters were submitted by participants in the public-private

partnership and members of the Redding community. The letters of support are

included on the following pages of this Appendix A.

A


App

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33

Appendix B. Detailed Market Analysis

Confidential submission of the City of Redding, California.

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