## BEFORE THE OFFICE OF THE SECRETARY

UNITED STATES DEPARTMENT OF TRANSPORTATION

Community Proposal Montgomery, Alabama

SMALL COMMUNITY AIR SERVICE DOCKET OST

- 2010

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DEVELOPMENT PROGRAM

Official Sponsor: Montgomery Regional Airport

DUNS # 155618283 Congressional District # : 2



### Overview of the Montgomery Challenge

Montgomery Regional Airport (MGM) serves a vibrant economic base that, in contrast to much

of the nation over the past two years, has experienced strong industrial sector investments and employment growth by companies from not only the United States, but also Asia and Europe

. For example, Montgomery is one of the leading auto

- manufacturing centers in t he world. The Hyundai facility has the capability of building 300,000 vehicles annually, and employs more than
2,700 . Including indirect employment (first and second

- tier suppliers) the Hyundai investment has resulted in an estimated 25,000 jobs.

To suppo rt these jobs, adequate and affordable air access is essential. Unfortunately, airlines have cut capacity and fares have skyrocketed.

 Capacity in the market has dropped by over 15% as airlines have reduced fleets and flying since 2004.

 Airfares at MGM a re , on average, a minimum of 3 0% higher than at the two main alternative airports at Atlanta and Birmingham.

 Passenger traffic has declined by more than 30% since the beginning of the decade in spite of the strong growth in the local economy.

The airport believes that implementation of an aggressive air service development and marketing program can effectively address the challenge and reverse th e above trend s. This
will, in turn, lead to the recruitment of additional service thereby ensuring t hat the airport can continue to play a vital role in the economic development of the region. Therefore, Montgomery Regional Airport respectfully submit s this proposal for a grant under the Small Community Air Service Development (SCASD) Program to fund the air service development and marketing mechanisms necessary to implement such a program.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 2



### An Air Service Development & Marketing Plan Focused on Results

The SCASD grant funds requested in this proposal will allow Montgomery Regional Airport to accomplish the following three

- step process to revitalizing air service:

 Market Study: The airport will conduct a comprehensive market study to ascertain the specific improvements in air service needed to meet the requirements of the Montgomery area economy within the real world context of the structure of the airline industry. This study will also incorporate specific recommendations for recruiting.

 Experienced Consultant : The airport seeks to hire a n experienced consultant to

execute the recommendations o f the above study.

 Marketing Program: The efforts and activities of the Manager of Air Service Development will be supported with an aggressive marketing and promotional plan that includes specific support for new and expanded air service that may be recruited.

Montgomery is applying for a SCASD grant in the amount of $400,000 to be matched with $ 100 ,000 in airport dollars and $50,000 of “in

- kind” contributions for total project funding of $55 0,000 over two years.



### Project Sponsor

The Airport believes that this request fills both the intent and the spirit of Congress in implementing this program. The community has a pressing air service deficiency that is threatening to slow the strong economic gr owth in the Montgomery region. Moreover, the

ca reful consideration given this and all applications under the Small Community Air Service

Develo pment Program by the D epartment is greatly appreciated and Montgomery Regional Airport look s forward to a favorable decision.

Please direct any correspondence regarding this proposal to the representative of the official project sponsor:

Mr. Phil Perry

Executive Director Montgomery Airport Authority 4445 Selma Highway Montgomery, Alabama 36108 Telephone: (334) 281

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 3



# Proposal Contents

1. Montgomery Market Review

................................ ................................ ................................ 4

MGM Air Service

– Capacity Down 15% Over Past Five Years

................................ .............. 4

MGM Service Levels Are Low Compared to Neighboring Airports

................................ .......... 5

Montgomery Experiences Higher Fares

................................ ................................ .................. 6

Enplanement Trend

................................ ................................ ................................ ................ 7

Past Air Service Development Activities

................................ ................................ .................. 8

The Grant Will Help Save Jobs and Create New Ones

................................ ........................... 9

2. Proposed Air Service Development & Marketing Plan

................................ ..................... 10

Market Study

................................ ................................ ................................ ......................... 10

Staff Addition: Manager of Air Service Development

................ Error! Bookmark not defined.

Advertising & Promotional Activities

................................ ................................ ....................... 11

Project Timeline

................................ ................................ ................................ ..................... 13

Project Budget

................................ ................................ ................................ ....................... 14

3. Grant Administration Plan

................................ ................................ ................................ .. 15

Grant Summary & Allocation of Funds

................................ ................................ ................... 15

Term of Project

................................ ................................ ................................ ...................... 15

Community Partner Participation

................................ ................................ ........................... 15

Plan to Measure and Report Project Effectiveness

................................ ................................ 15

Prior Grant Award

................................ ................................ ................................ .................. 16US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 4



# 1 . Montgomery Market Review

The air service market area of Montgomery Regional Airport comprises all or parts of 13 counties, with a population base of approximately 574,145 people. This population base has an average household income of approximately $ 49,438 and average per capita income of approximately $20,130.

Montgomery’s position as a commercial and industrial center is strengthened by its location at the junction of two major Interstate highway arteries : I

- 65 and I

- 85. From a n air service perspective, however, these highways facilitate traffic leakage to Birmingham and Atlanta,

whe re lower fares , more flights, and a greater choice of carriers and nonstop destinations are offered . Th e grant requested in this proposal is intended to address this challenge and substantially reduce th e resultant leakage.



### MGM Air Service

– Capacity Down 15% Over Past Five Years

Montgomery Regional Airport is currently accessed from the rest of the air transportation system

via three airline systems providing service to four connecting hubs ; Delta to Memphis and

Atlanta , American to Dallas/Ft. Worth, and US Airways to Charlotte.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 5

Since 2005, Montgomery has experienced the loss of 9.7% of average monthly departures and 14.9% of its capacity. During this period the airport was able to recruit service on American Eagle to Dallas/Ft. Worth

, but these gains were more than offset by the loss of Continental

service to Houston and Delta service to Cincinnati.



### MGM Service Levels Are Low Compared to Neighboring Airports

Current service levels at Montgomery Regional Airport pale in comparison to those available at both ATL and BHM. This is illustrated on the table on the next page and is primary driver of significant levels of traffic leakage.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 6



# Service Level Comparison

MGM v Neighboring Airports

As it relates specifically to ATL, the higher levels of service are only one problem contributing to traffic leakage. The other factor is congestion issues at Atlanta, which result in high numbers of flight delays, cancellations, and misconnections. Given the uncertainty surrounding connecti ons

, many travelers to and from Montgomery now elect to begin or end their trip at ATL, driving the relatively short 2 hours and 30 minutes rather than take a connecting flight.



### Montgomery Experiences Higher Fares

This loss of service over the past five years has compounded an already significant disparity of fares compared to other airports in the region. MGM suffers strong leakage to both Birmingham and Atlanta due to high fares , primarily the result of low

- fare carriers at the latter two airports providing needed pricing discipline.

As the table on the next page illustrates, for the year ending March 31, 2010, consumers at Montgom ery Regional Airport paid on average 36% more (+ $97.37) than travelers at ATL and 30% more (+ $80.38) than travelers at BHM. In effect, Montgomery area consumers are paying the price for less competition.

Through the implementation of a comprehensive air service development and marketing program, the airport believes the current variance in fares with ATL and BHM can be reduced. It

is important to note, however, that the airport harbors no misconceptions that it will be able to attain full fare parity wit h these airports. This is a simple fact of market size and specific airline strategies. Nonetheless, with the assistance of the SCASD funds requested in this proposal

, the airport can communicate the importance of supporting air service at Montgomery Regio nal Airport , work with airlin es to reduce fare differentials, establish a focused program to recruit additional service, and implement an aggressive advertising and promotional plan.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 7



# Comparison of Average OW Gross Fare

MGM v Neighboring Airports: YE March 31, 2010

SOURCE:



### Enplanement Trend

In contrast to the positive trends in the regional economy serve d by Montgomery Regional Airport

, enplanement trends have not kept pace with the economic growth in the region . During calendar year 2000, the airport enplaned nearly 23 9 ,000 passengers. By 2009, that number had

declined by 32.5% to less than 162,000. This equates to approximately 78,000 fewer passengers using Montgomery Regional Airport today than at the beginning of the decade.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 8

The drivers behind the decline in enplanements are clear: reduced airline capacity and high

fares.



### Past Air Service Development Activities

The Department should know that the airport and the community have worked very hard to retain existing service and recruit new carriers to Montgomery Regional Airport . In the very tough environment of the past five years, however, this has been an extreme challenge and one that unfortunately with the limited resources available has yield ed little results. The SCASD grant funds are intended to rectify this situation.

 Northwest Airlines service to Detroit

– which in 2004/2005 accessed a strong auto

- related industry

– was very close to being recruited, thanks to the grant that the Department awarded the community. However, the difficulties that carrier encountered leading up to and after its Chapter 11 filing in 2005 shortstopped the Airport’s recruitment efforts.

 In 2009, the a irport was successful i n recruiting American Eagle ser vice to Dallas/Ft. Worth. This helped fill the void left by the departure of Continental Express in 2007.

 The airport maintains an ongoing dialogue with both incumbent and potential new entrant carriers through regular meetings and participation in indust ry conferences.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 9

The airport and community are continually reviewing the needs and opportunities represented by the growth in the auto industry. This proposal to conduct a comprehensive market analysis, initiate a highly focused air service development eff ort, and an aggressive marketing program is just but one outcome of that cooperation

.



### The Grant Will Help Save Jobs and Create New Ones

Montgomery has seen enplanements fall during a period of unprecedented local economic growth. The reasons are clear:

 Service Reductions : Capacity has been cut by 15% in the last five years, in spite of the local economy growing strongly. Montgomery is an underserved market

.

 Fare levels : C ompared to Birmingham and Atlanta (the two major sources of leakage from MGM), consumers in Montgomery paid an average 30% premium for the convenience of using their local airport.

These market conditions threaten the e conomic prosperity that the Montgomery region has enjoyed in recent years. To illustrate this point, Hyundai Motors

– a major employer in the region

- has advised repeatedly that these issues are becoming problematic in regard to that company’s future expa nsion plans in Alabama. Any limits on expansion by Hyundai will have a rolling negative impact throughout the regional economy, particularly among suppliers that have established operations in support of Hyundai.

Clearly, any improvements in air s ervice that can be achieved will help preserve and increase employment in Montg omery, Alabama

, the Southeast and arguably throughout the US industrial

sector. The Montgomery Airport Authority would respectfully submit that the Small Community Air Service Development Grant Program was desi gned to address this type of situation. It is further noted that the grant will result in minimal risk to the scarce funds allocated by Congress to this program and favorable consideration of this proposal is appreciated.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 10



# 2

. Proposed Air Service Develo pment & Marketing Plan

As outlined in the introduction to this grant proposal, Montgomery Regional Airport is requesting $400,000 in SCASD grant funds , to be matched with $ 2 00,000 in local and airport funds, to accomplish the a three

- step plan aimed at air service:

 A Market Study to ascertain the specific improvements in air service needed to meet the requirements of the area economy

 H ire a n A ir Service Consultant to assis t the Manager of Air Service Development in

execut ing the recommendations of the above study.

 A n a ggressive marketing and promotional plan that includes specific support for new and expanded service that is recruited.

Each of these components is outlined below.



### Market Study

The Montgomery Regional Airport is proposing to engage the services of a professional air service consulting firm to assist in development a comprehensive market study that defines the specific service needs of the airport’s market area and identifies likely alternatives and outcomes that can be pursued to address identified deficiencies. This study will, at a minimum,

i nclude:

 Future Air Service Needs. The industrial growth in the Montgomery Regional Airport

market area will have specific service needs in the future, including international access. The study will analyze these on a 20

- year horizon, and matrix the needs by type, timeframe, and reasonableness of being met.

 Airline Industry Shifts. The analysis will review the effects of potential strategy changes among airlines operating in the southeast region, including the potential for additional consolidation beyond that completed by Delta and Northwest, and announced by Continental and United. The analysis will also incorporate potential shifts in the business models of LCCs, including the likelihood of serving smaller markets now that most large airports have low

- fa res.

 Fleet Shifts. The retirement of turboprops and the increasingly challenged economics of

50

- seat regional jets are of significant concern to Montgomery Regional Airport, with the latter comprising virtually of the airport ’ s current capacity. With no “ next generation” 50

- seater on the horizon, the airport needs to have a clear understanding of the economics of future capacity if it is to be able to effectively compete for limited airline resources

.

 Alternative Service Options. The community cannot over look the potential of second

tier air taxi operations, or hybrid taxi/scheduled service , operators to supplement

scheduled airlines . W hile the very light jet (VLJ) revolution appears to have been a non

-US DOT Docket OST 2010

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Grant Application

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event

, entrepreneurs are developing unique business mo dels which could play a role in meeting the future air service air service needs at MGM

.

 Alternative Connecting Hubs

. As outlined in the previous section, MGM currently has nonstop to four connecting hubs which function as the portals to the rest of the world for the community

. With respect to hubs there are two questions: First, what is the future of each hub Montgomery Regional Airport is dependent on, within contexts of both the current and potential future airline industry that includes consolidation and fleet shifts? Second, what is the possibility of developing alternative gateways , such as DEN or

ORD?

This study is expected to take approximately 180 days to complete, and will incorporate extensive input from civic and business organizations , as wel l as specific users of Montgomery Regional Airport. The findings and recommendations in the study will be the basis for air service development activities that assure the Montgomery area continues to have adequate global connectivity.

Based on preliminary discussions with consultants, t his component of the project h as an estimated cost of approximately $ 5 0 ,000

.



### T raining and Consultant to assist the Manager of Air Service Development

The Montgomery Regional Airport is proposing to hire a n Air Service Consultant to help assist the present Air Service Development staff in implement ing the recommendations related to air

s ervice recruitment from the abo ve study.

This component of the project h as an estimated cost of $ 1 00,000 based on the assumption of a $75,000 over two years. Benefits a nd payroll taxes will be contributed by the airport from its existing budgets.



### Advertising & Promotional Activities

The final component of Montgomery Regional Airport’s plan incorporates aggressive advertising and promotional strategies. This program will have two primary audiences: the general public

and local businesses , as outlined below:

 General Public: Advertising campaign developed around the theme of the convenient travel experience at Montgomery Regional Airport. This will include short drive time to the airport, lower parking rates than ATL or BHM, short check

- in and security lines, uncongested terminal with complete amenities, and global connectivity

.

 Business & Industry: Supplementing the message targeting the general public will be data

an d statistics on the important contribution that air service at Montgomery Regional Airport makes to the economic vitality of the region and the necessity to support local air service so

as to ensure current service levels are maintained and new service is recruited.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 12

While specific advertising components and tag lines will be developed with the assistance of an advertising agency, and subject to approval of the Department, airport staff have prepared the following preliminary campaign components for each target group.

General Public Campaign

To reach the general public, the following media outlets are planned:

 Billboards along Interstate s 65 and 8 5 , the primarily route for traffic leakage to Atlanta and Birmingham ;

 Print advertisements in local newspaper s ;

 Radio advertisements, with particular emphasis on stations and programs that attract listeners with demographics indicating a propensity for air travel ; 1

 The use of television advertising is planned to visually illustrate the ease of travel to/from Montgomery Regional Airport. Media buys will likely be focused on local news casts, allowing

reach to a wide audience wi th a propensity for air travel; and

 Implementation of a social media marketing program, including Facebook and Twitter.

To extend the reach of market ing dollars, airport staff intend to work with incumbent airlines to

for “in

- kind” donation of t ickets for use in radio and/or television promotions.

Business Community Outreach Program

The following outlines the elements of the communication plan intended for local business and industry:

 Printed promotional pieces on the value of air service at Montgomery Regional Airport, including the value of time savings related to flying from MGM relative to ATL or BHM ;

 Regular comm unications on the air service development efforts of the airport; and

 Presentations to civic group and local media (i.e., editorial boards, public affairs programs, etc.)

A total of $ 4 00 ,000 has been earmarked for the advertising and promotional activities component of this project over a two

- year period , including professional fees associated with advertising campaign development, media buys, and production costs.

Of this total amount, $ 100 ,000 will be set aside for the specific purpose of advertising new service that may be recruited. The airport will utilize this as an air service development incentive, providing a two

- for

- one match to the airline. Depending on commitment from the
airline, this can result in up to $150,000 being available to promote new service from Montgomery Regional Airport.

1 Actual media buys will be determined after consultation with the selected advertising agency and review of Arbitron rating da ta.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 13



### Project Timeline

The project contemplated in this proposal is intended, subject to a pproval of the Department, to

be two

- year s in duration . Based on this, and assuming that the Department issuing SCASD grant awards near the end of the fourth quarter of 2010, Montgomery Regional Airport proposes

the timeline as outlined below

.

Project Component Approximate Timing

Air Service Market Study Issuance of RFP

– January 2011

Review of Proposals & Award of Contract

– February 2011

Completion of Study

– February 2011 to June 2011

Presentation of Study Findings & Recommendation to Community

– July 2011

Hire A ir Service C onsultant I ssuance of RFP

- May 2011

Review of Proposals and Award Contract

– J une 2011

Provide recommendation to Airport Authority and hire for

c onsultan t

– J uly 2011

Advertising & Promotional Campaign Develop campaign theme in conjunction with advertising agency and produce materials

– March 2011 to May 2011

General media public campaign

– M ay 2011 to December

2012

Business community outreach program

– J une 2011 to

December 2012

A detailed project timeline will be prepared upon notice of the SCASD grant award and shall be submitted to the Department for approval.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 14



### Project Budget

The Airport has prepared a preliminary breakdown of the intended use of funds to execute the proposed project over a two year period. A detaile allocation between SCASD and community funds is provided in the next section under “Grant Administration.”



# Proposed Project Budget

Montgomery Regional Airport Air Service Development Plan

Project Component Approximate Timing

Air Service Market Study
($50,000) Professional Fees: $45,000

Expenses: $5,000 (travel, printing, etc.)

Manager of Air Service Development
($ 50,000) Salary: $ 50 ,000 annually ($ 10 0 ,000 total)

Advertising & Promotional Campaign
($ 4 00,000) Advertising agency professional fees & production: $30,000

Outdoor (billboards): $ 50 ,000

Print advertising: $100 ,000

Radio: $ 5 0 ,000

Television: $70 ,000

SET ASIDE FOR NEW SERVICE: $1 00 ,000US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 15



# 3 . Grant Administration Plan

Grant Summary & Allocation of Funds

The Montgomery Regional Airport and its community partners are requesting a grant in the amount of $ 400, 000 to implement a comprehensive air service development proposal . This will be matched with $ 100 ,000 of airports funds p lus $100,000 in community matching funds for a total project budget of $ 6 00 ,000. The proposed allocation of grant and matching funds is as

follows:



### Term of Project

The project outlined in this proposal has a planned term of two years from execution of grant agreement with the Department. The Airport agrees that any funds not spent or allocated within the term of the grant agreement will be returned to the Department.



### Community Partner Participation

This applicati on is submitted jointly by the Montgomery Regional Airport and the Montgomery Chamber of Commerce. The Chamber will be the community organization responsible for the coordinating with the airport that grant funds are effectively deployed and results are mo nitored

. The community support for this application is broad and encompasses the ent ire business base of the region and are contributing a total of $100,000 in matching funds to supplement the airport’s contribution of $100,000



### Plan to Measure and Report Project Effectiveness

As outlined, the overall objectives of this project are to reverse current levels of traffic leakage

and increase use of available air service at Montgomery Regional Airport. The resultant increase in passenger activity will be used to recruit additional service from incumbent carriers,

as well as new

- entrants to the MGM market

To ensure that grant dollars and community matching funds are used in a manner that achieves the stated objectives, the Airport will submit a quarterly progr ess report to the Department. 2 In addition to providing a narrative explanation of the activities, the report will measure the effectiveness of the marketing and communications by, at a minimum, the following metrics:

2 In addition, the airpo rt will provide the Department with samples of all advertisements and copies of the market study

.US DOT Docket OST 2010

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Grant Application

– Montgomery Regional Airport Small Community Air Service Development Program 16

 Increase in p assenger enplanements at MGM , on a year

- over

- year over basis for each period as well as identification of enplanement level trends;

 Changes to load factors on scheduled air service;

 Impact of enplanement activity on concession revenues, including parking , rental cars, and
other terminal services; and

 Changes to average fare levels in key markets on a year

- over

- year basis, as well as changes in fare levels from ATL and BHM during the same period.

In addition, as traffic capture rates and enplanement leve ls increase, the Airport will initiate communications with incumbent carriers and potential new

- entrants with respect to market trends. These activities will be summarized in each report and successes in attracting additional capacity or new carriers will be highlighted.



### Prior Grant Award

Montgomery was honored to have been awarded a Small Community Air Service Grant in 2005. The objective of that grant was to support implementation of nonstop service to the Northwest Airlines hub at Detroit to better sup port the Alabama auto industry. At the time, the auto industry was still healthy, and the commonalities of business interests between MGM with its Hyundai auto plant, and the first and second tier suppliers located in Michigan, Wisconsin, Ohio, Indiana

and Ontario, represented a vital air travel need.

Unfortunately, a set of events precluded the effective use of the 2005 grant. At the bottom line, ultimately Northwest Airlines found itself in Chapter 11 bankruptcy and therefore in a contraction

mode. Furt hermore, the near

- collapse of the US auto industry and its supplier base has much reduced the deficiency that the 2005 grant was intended to address.