# Presentation: 355313

## Aviation Service Update

- Warren Ferrell
- FAA, Financial Programs Manager

## Aviation Characteristics 

- Not a utility
- Driven by business case need
- Service oriented
- Capital intensive
- Mostly labor intensive

**FAA**

**Airlines**

**Airports**

**DHS**

## Service Factors

- Market Considerations
- Financial Factors
- Airports Factors

## Market Considerations

- Competition
- Between airlines (limited impact)
- Between communities – best deal
- Distance to other markets
- Short haul vulnerability (other options)
- Stretching airline resources
- Economy
- Cost to traveler versus other modes
- Includes trip, security, dwell, flight times, etc..

## Financial Factors

- Margin
- Smaller communities cost more to serve
- Make money on load or frequency – not characteristics of small community service
- Fleet
- Impact of regional jets
- Lower loads & higher operational costs
- Phase out of smaller turboprops as leases expire

**Notes:**
Unit basis for cost.

Not peak demand time, and less frequency. If replacing narrow-body probably same service.  Depending on community could more service at off times.
Can’t spread cost over more seats (in terms of seat miles)

Why are airlines going to all jet fleet.

## Financial Factors continued...

- Airline financial health
- May be in a contraction mode
- Loss of independent regional carriers
- Where the activity is (CY 2002 data is typical)...
- Top 31 airports (all LH) = 69.5%
- Top 100 airports (1/2 thru SH) = 94.3%
- Remaining 449 small airports = 36,675,507
- ATL enplanements 37.7M

**Notes:**
ACAIS is source of data.

## Airport Factors

- Cost
- Non-operations projects
- Terminals
- Oversized for activity level – if you build it they will come mentality
- Reflect community – or what you want it to be
- Small, less than 5% of overall airline cost
- Every little bit helps, and it’s easier to cut than other costs
- Smaller airlines are more sensitive to this.  However, not many small ones left (especially independents)

**Notes:**
One factor not mentioned, but should be included is community support.

The 5% is average, with some up to 8%.

At Int’l airports costs are higher.  Standard use of CPE to tie all rates.  So what if terminal is $0.10 sf, if landing rates are $100.

Use of PFC to offset operational costs (e.g. BOI for terminal) and minimize rates and charges.  Try to include loading bridges as eligible.

## What it means to you...

- To get service, you have to do one of the following:
- negotiate with large airlines, recognizing you are a very small part of their system
- find a small carrier and provide financial incentives for them, but being careful not to divert revenue

## What it means to you cont...

- To keep service, you need to remain competitive with your cost structure
- Minimize costs during start up which is a critical time for carrier service

## What can you do?

- You’ve taken the first step by having a public discussion, but the dialogue needs to continue.
- Understand and quantify your market.
- Be aware of the type of projects you select relative to the type of service you seek, especially during service start up.
- Develop new or modified strategies for service at smaller airports.

**Notes:**
Market research, at least annually.  If you are losing traffic, identify why.

Educate their community.  Airports can’t fix it by themselves.

Regular meetings with targeted airlines.  Long process, taking minimum of 18 months to get them into the market.

Carrier concerns about losses in start up.  Concerns about performance.  FNL example.  Allegient Air markets well.

## Small Community Program

- The program was established to help small communities improve their air service and to address issues related to their air fares
- Program goal: to identify key indicators for obtaining and keeping service at small communities

**Notes:**
The small community program was established to help small communities improve their air service and to address issues related to their air fares.

## Small Community Program

- DOT findings:
- In many cases, there is no direct connection between infrastructure and service
- Carriers want revenue guarantees, subsidies, rental offset, etc.. More than infrastructure development

**Notes:**
When they do want infrastructure development, it is a mix of eligible and ineligible work such as tugs (airport owned) and loading bridges, and backroom facilities and kiosks.

With regard to revenues, airports need to be aware of the potential for revenue diversion and contact the compliance person in each ADO.

DOT has found that marketing of the community has been beneficial.

## Small Community Program

- DOT findings:
- Marketing works
- Not AIP eligible
- Beware of illegal revenue diversion
- Must have community participation to be successful
- The airport can not go alone

**Notes:**
When they do want infrastructure development, it is a mix of eligible and ineligible work such as tugs (airport owned) and loading bridges, and backroom facilities and kiosks.

With regard to revenues, airports need to be aware of the potential for revenue diversion and contact the compliance person in each ADO.

DOT has found that marketing of the community has been beneficial.

## Small Community continued...

- No longer a pilot
- Extended to 2008
- One time funding for same proposal
- Must use money in timely fashion
- Applications due May 14, 2004
- Docket OST-2004-17343
- RFP published in Federal Register 3/19/2004
- Contact Ms. Terri Bingham at (202) 366-1032