### OST-2010-0124



## BEFORE THE OFFICE OF THE SECRETARY
DEPARTMENT OF TRANSPORTATION



# Proposal of The Eastern Iowa Airport
For A Grant Under the Small Community Air Service Development Program

Legal Sponsor: The Cedar Rapids Airport Commission Iowa Congressional District #2
DUNS# 144735557 August 27, 2010OST-2010-0124 2



# Table of Contents

I. Proposal Introduction....................................................................................................... .......3

The Identified Deficiency...................................................................................................... .........3
The Solution..................................................................................................................................3 The Strategy .................................................................................................................................4

II. Proposal Background.............................................................................................................5

III. The Eastern Iowa Airport Market..........................................................................................6

Primary Catchment Area......................................................................................................... ......6 CID Provides Air Service Access For A Strong and Diverse Economic Base ..............................7

IV. Air Service at The Eastern Iowa Airport ............................................................................10

Current Service Levels......................................................................................................... .......10 Low Load Factors Indicate High Levels of Traffic Leakage ........................................................11 Service Levels at CID Are Inferior Relative to Neighboring Airports...........................................12 Significant Pricing Disparities Exist Relative to Neighboring Airports .........................................14 Passenger Enplanement Trends at Eastern Iowa Airport...........................................................15 Previous Air Service Development Activities at Eastern Iowa Airport.........................................16

V. SCASD Grant Proposal ........................................................................................................ 17

Summary of Grant Objectives.................................................................................................... .17
Identified Potential Solutions................................................................................................. ......17 Revenue & Passenger Projections .............................................................................................19

VI. SCASD Grant Administration Plan ....................................................................................21

Allocation of Funds ............................................................................................................ .........21
Revenue Performance Guarantee ..............................................................................................21 Marketing Activities To Support New Service .............................................................................22 Progress Reports to DOT ........................................................................................................ ...23 Program Duration............................................................................................................... .........23 Market Support Beyond Term of Program ..................................................................................23

ATTACHMENT: Appendix B.....................................................................................................24

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development ProgramOST-2010-0124 3



# I. Proposal Introduction

The Cedar Rapids Airport Commission, as the operator of The Eastern Iowa Airport, is pleased to submit this request to the US Department of Transportation for a grant under the 2010 Small Community Air Service Development Program.



### The Identified Deficiency

The market area served by The Eastern Iowa Airport suffers from a combination of disproportionately high fare and inadequate access to key population and business centers throughout the United States. This translates into a substantial amount of passenger traffic generated within The Eastern Iowa Airport primary catchment area driving to other airports. The impacts of such traffic leakage are two-fold: First, it limits the ability to retain existing and recruit new air service. Second, the lack of competitive air service has a negative impact on the regional economy, particularly when evaluated by site selectors for business expansion opportunities.



### The Solution

The SCASD grant funds requested in this proposal will make it possible to resolve this deficiency by providing much needed risk-mitigation funding to recruit nonstop service by one of the low-cost carriers (“LCC”) that operate a comprehensive route network. As the Department is aware, in the current economic environment, airlines are reticent to initiate service at smaller communities without some form of risk mitigation. The grant funds requested in this proposal will provide such mitigation and the airport believes will add to the long list of examples where the SCASD program has materially contributed to air service improvements.

Analysis indicates that a LCC operating a network route strategy will have a wide reaching impact on fares and, therefore, have the maximum impact with respect to reducing traffic leakage from The Eastern Iowa Airport. The Airport has identified the following carriers as the most logical providers of such service:

• SkyWest Airlines (code-share service wi th AirTran Airways) to Milwaukee;

• Frontier Airlines service to Milwaukee; or

• AirTran Airways service to Atlanta.

Note that Frontier Airlines service to Denver has not been included as a potential solution as this service would be competitive with existing service provided by United Express. 1

1 As noted in the Request for Proposals, “The Department is reluctant to subsidize one carrier but not others in a competitive market. For this reason, communities that propose to use the grant funds for service in a city-pair market that is already serv ed by a carrier must explain in detail why the exis ting service is insufficient or unsatisfact ory, or provide other compelling informat ion to support such proposals. This information is necessary for the Department to consider the competitive implications of giving fin ancial or other tangible incentives for one carrier that the other carrier is not receiving.”

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### The Strategy

To accomplish this, The Cedar Rapids Airport Commission is requesting a grant of $400,000 under the Small Community Air Service Development Program, with a community match of funds anticipated to total $50,000. These funds will be applied to a carefully structured risk mitigation program supported by local marketing and public awareness program.

The Eastern Iowa Airport will provide an additional $100,000 of “in-kind” contribution of airport landing and rental fees waivers and $100,000 cash to be used for marketing.

The Cedar Rapids Airport Commission believes that the grant proposal outlined is consistent with both the spirit and intent of Congress in establishing the Small Community Air Service Development program. Furthermore, the extens ive analyses accomplished by the community indicate that the service this grant will make possible will be successful and economically viable.

All correspondence regarding this proposal should be directed to:

Mr. Timothy Bradshaw, A.A.E. Airport Director The Eastern Iowa Airport 2515 Arthur Collins Parkway, SW Cedar Rapids, Iowa 52404 Telephone: (319) 362-3131 Fax: (319) 362-1670 Email: T.Bradshaw@crairport.org

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# II. Proposal Background

a) Proposer

The Eastern Iowa Airport 2515 Arthur Collins Parkway, SW Cedar Rapids, Iowa 52404 Tel: (319) 362-3131 Fax: (319) 362-1670 Email: T.Bradshaw@crairport.org

Iowa Congressional District #2
DUNS# 144735557

Contact: Mr. Timothy Bradshaw, A.A.E. Airport Director

b) Official Sponsor

The Cedar Rapids Airport Commission is the official sponsor of this proposal.

c) Community Match

The Iowa Department of Transportation Office of Aviation

c) Summary of Grant Request

The proposal requests $400,000 in grant funds from the Small Community Air Service Development (SCASD) program to recruit servic e by a low-fare carrier that is able to offer the community access to a comprehensive route network. The SCASD grant funds will be supplemented with up to $50,000 in community match, $100,00 “in-kind” airport fee waivers and $100,000 cash from the airport to be used for marketing.

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# III. The Eastern Iowa Airport Market

Primary Catchment Area

The Eastern Iowa Airport (CID) serves a population of approximately 595,000 in Eastern Iowa, with an average household income of $56,880. The airport’s catchment area includes not only the City of Cedar Rapids but also Iowa City, home to the University of Iowa.


# Primary Catchment Area

The Eastern Iowa Airport – Cedar Rapids

4

CID Catchment Area

The airport is conveniently located off Interstate 380, which runs north and south, and approximately 18 miles north of Interstate 80 which runs east and west.

The proximity to Interstate 80 would be beneficial to The Eastern Iowa Airport if not for the fact that this highway functions as a conduit of traffic leakage to Des Moines International Airport to the west and Quad Cities International Airport to the east. The resulting catchment area overlap is shown on the map on the next page and illustrates the concern that airline planning personnel

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have with respect the ability of Eastern Iowa Airport to retain traffic that is generated to and from
its core market area. 2

4

4

4 MLI DSM CID

Des Moines International Airport 

# Overlapping Catchment Areas

Iowa Interstate 80 Corridor

The Eastern Iowa Airport Quad Cities International Airport

Des Moines International Airport overlap with CID
Quad Cities International Airport overlap with CID

While airport management believes it can develop a compelling case for traffic retention, the SCASD grant funds for risk mitigation purposes requested herein will provide inherently risk adverse airline planning personnel with a higher comfort level when evaluating the market served by The Eastern Iowa Airport.



### CID Provides Air Service Access For A Strong and Diverse Economic Base

While the economy of The Eastern Iowa Airport catchment area has historically been defined by the manufacture and processing of agricultural and food products, steel fabricating, and electronics, in recent years this has been augmented by high-technology and transportation.

The Cedar Rapids-Iowa City "Technology Corridor" is the result of cooperation between a number of public and private organizations in t he airport’s primary catchment area. This has quickly positioned the region as a leader in the defense electronics industry, the fastest-growing segment of the CID catchment area economy being telecommunications and telemarketing. The recruitment of new industry and companies is s upported by local firms that provide services such as electronic design and consultation, sy stems planning, equipment manufacturing, and telemarketing.

2 The issue of service deficiencies and traffic leakage are discussed in more detail in the next section of this proposal.

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While efforts to diversify the economy with technology have been successful, it is important to underscore that the region continues its historical role in agricultural and food processing. The Eastern Iowa Airport catchment area is home to more than 275 different manufacturing plants, including Quaker Food and Beverages, Amana Refrigeration Products, General Mills, Inc., and H.J. Heinz Company.

The table below lists the largest employers (both public and private sector) within the primary catchment area of The Eastern Iowa Airport.



# Largest Employers in CID Catchment Area

Employer/Organization Approx # of

Em p lo y ees University of Iowa 17,300 Rockwell Collins, Inc. 7,300 University of Iowa Hospitals & Clinics 6,678 AEGON USA, Inc. 3,700 Heartland Express 3,279 Hy-Vee Food Stores 3,062 St. Lukes Hospital 3,062 Cedar Rapids Community School District 2,882 Mercy Medical Center 2,734 Whirlpool Corporation 2,461 Iowa City Community School District 1,626
Veterans Affairs Medical Center 1,540 Kirkwood Community College 1,525 Mercy Iowa City 1,423

Pearson 1,400
PRC 1,261 City of Cedar Rapids 1,231 ACT, Inc. 1,160
Quaker Oats 1,100 Linn-Marr Community Schools 960

Nordstrom Direct 950
Yellowbook USA 889 Allliant Energy 840 Linn County Administration 830 Systems Unlimited 825
Riverside Casino & Golf Resort 778
General Mills 730
Gazette Communications 650 City of Iowa City 641 Toyota Financial Services 524 United Fire Corp 425

SOURCE: Priority One and Iowa City Area Development Group

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National publications are taking notice of the successful transition underway in the regional

economy: Cedar Rapids and Iowa City were recognized as “Best Places for Businesses and Careers” by Forbes magazine’s “best of” list published in April 2010. Cedar Rapids ranked number 13 out of the nation’s 200 largest metropolitan statistical areas (MSAs) and Iowa City ranks second among smaller metros (i.e., population below 245,000). Moreover, Cedar Rapids was ranked number one for projected job growth by Forbes

.

While the “Technology Corridor” program can be viewed as a success, the key to this economic transformation realizing its full potential is reso lving air service deficiencies at The Eastern Iowa Airport. The SCASD grant funds requested in this proposal are specifically intended for this purpose and will help the airport’s catchment area maximize economic growth and
diversification.

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# IV. Air Service at The Eastern Iowa Airport

Current Service Levels

The Eastern Iowa Airport is served by three airline networks – United, Delta, and American- as well as low-fare carrier Allegiant Air.



# Air Service at The Eastern Iowa Airport
September 2010

SOURCE: Innovata, LLC via Aviation DataMiner Monthly Departures Average Daily Monthly Seats Avg Daily Avg Per Departure

American 314 10.5 14,668 489 46.7

DFW ER4 142 4.7 7,100 237 50.0

ORD ERD 172 5.7 7,568 252 44.0

Delta 222 7.4 11,580 386 52.2

DTW CRJ 110 3.7 5,916 197 53.8

MSP CRJ 112 3.7 5,664 189 50.6 Allegiant 41 1.4 6,150 205 150.0

AZA M80 15 0.5 2,250 75 150.0

LAS M80 17 0.6 2,550 85 150.0

SFB M80 9 0.3 1,350 45 150.0

United 288 9.6 17,144 571 59.5

DEN CR7 28 0.9 1,848 62 66.0

CRJ 8 0.3 400 13 50.0

E70 71 2.4 4,970 166 70.0

ER4 7 0.2 350 12 50.0

ORD CR7 1 0.0 66 2 66.0

CRJ 23 0.8 1,150 38 50.0

E70 43 1.4 3,010 100 70.0

ER4 107 3.6 5,350 178 50.0

Market Total 865 28.8 49,542 1,651 57.3 Departures Seats
Carrier Dest Aircraft

The network carriers offer nonstop service to five connecting hubs on regional jet equipment. Allegiant Air offers less-than-daily service to Las Vegas, Mesa/Phoenix, Orlando Sanford, and seasonal service to Tampa/St.Pete. In total, travelers using The Eastern Iowa Airport have access to average of 28.8 daily departures and 1,861 daily departing seats.

Service levels at The Eastern Iowa Airport have been relatively stagnant since 2004, as illustrated by the year-over-year comparison of CID service levels provided on the next page.
Note that the number of airlines has declined between 2009 and 2010 due to the combination of Delta and Northwest. This has resulted in the “new” Delta reducing its overall service levels at CID, including discontinuing nonstop service to its hubs at both Atlanta and Cincinnati. This data point is hidden by the fact that Allegiant Air has added less-than-daily service to Phoenix.

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# Service Level Trends at The Eastern Iowa Airport

2004-2010

Sep 2004 Sep 2005 Sep 2006 Sep 2007 Sep 2008 Sep 2009 Sep 2010

Airlines 5555554 Nonstop Destinations 8 8 9 9 11 7 9 Avg. Daily Departures 37 39 39 39 36 33 29 Avg. Daily Departing Seats 2,139 2,145 1,990 2,117 1,940 1,826 1,651 Avg. Seats per Departure 57.8 55.0 51.0 54.3 54.1 55.7 57.3

SOURCE: Innovata, LLC via Aviation DataM iner

Note that average number of daily departing seats at CID has declined from 2,139 during September 2009 to 1,651 during September 2010, representing a decline of approximately 23 percent. This factor, along with a lack of capacity provided by low-fare network airlines relative to neighboring airports, results in significant average fare differentials for those travelers using The Eastern Iowa Airport and is a driver of traffic leakage. The SCASD grant funds requested in this proposal are intended to remedy this air service deficiency.



### Low Load Factors Indicate High Levels of Traffic Leakage

Despite the reduction in available seats, load factors on the service which remains at The Eastern Iowa Airport tend to be lower than industry averages. The graph below illustrates this point by providing load factors on regularly scheduled service at CID for the year ending May 31, 2010. 

# Load Factors at Eastern Iowa Airport
Regularly Scheduled Service: 12-Months Ending May 31, 2010

SOURCE: T-100 filings via Aviation DataMiner 78.3%

66.5% 73.0% 92.7%

60.0%
57.1% 66.9% 88.4%

40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

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Note that the highest load factors in the market are reported by Allegiant Air, which provides low-fare service to Orlando/Sanford and Las Vegas. This data indicates that consumers in The Eastern Iowa Airport catchment area are responsive to low fares and will use their local airport when provided an affordable option. Otherwise, they seek out lower fares at neighboring Des Moines International Airport and Quad Cities International Airport, where a greater choice of airlines offers more nonstop destinations which, in turn, drives a more competitive market dynamic that results in lower fares. Both of these points are discussed in greater detail below.

The recruitment of additional service (and specifically low-fare service) facilitated by the SCASD grant funds requested in this proposal will provide consumers with additional capacity, frequency, access to the lower fares, and a greater choice of carrier brands. Furthermore, the addition of a low-fare network carrier at CID will drive a competitive response by incumbent
carriers so that more seats are made available at lower published price points. Ideally, this will result in higher load factors for all carriers serving The Eastern Iowa Airport.



### Service Levels at CID Are Inferior Relative to Neighboring Airports

As indicated above, the stagnant service levels at The Eastern Iowa Airport and greater choice of carriers at Des Moines International Airport and Quad Cities International Airport are illustrated by two points. First, the neighboring airports offer more nonstop destinations and, second, both airports offer a higher number of average daily departing seats, of which a greater percentage of the total is provided by low-cost carriers.

These points are illustrated on the graphic on the next page.

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# Airport Service Levels

CID v Neighboring Airports: September 2010

The Eastern Iowa Airport

Des Moines International Airport

Quad Cities International Airport Number of Airlines: 4 Nonstop Destinations: 8 Average Daily Departing Seats: 1,651 % LCC Capacity: 12.4% Average Daily LCC Seats: 205

Number of Airlines: 9 Nonstop Destinations:16 Average Daily Departing Seats: 3,044 % LCC Capacity: 11.3% Average Daily LCC Seats: 344

Number of Airlines: 4 Nonstop Destinations: 8 Average Daily Departing Seats: 1,837 % LCC Capacity: 17.6% Average Daily LCC Seats: 324OST-2010-0124 14



### Significant Pricing Disparities Exis t Relative to Neighboring Airports

The lower levels of capacity, lower percentage of LLC seats, and smaller number of nonstop flights all contribute to higher average fares. This, in turn, contributes to higher levels of traffic leakage which in itself is an impediment to the recruitment of additional air service.

The table below illustrates the average one-way gross fare paid in the top 25 O&D markets for the 12-months ending March 31, 2010. 3 In 14 of the top 25 O&D markets, travelers at The Eastern Iowa Airport paid the highest average OW gross fare representing 56% of the markets
illustrated. 

# Average OW Gross Fare Paid
CID v Neighboring Airports: YE March 31, 2010

Rank Market Psgr Gross Fare Psgr Gross Fare Variance w/ CID Psgr. Gross Fare Variance w/CID

1 LAS 82,402 $140.16 101,507 $137.45 -1.9% 23,778 $188.36

$223.04

$237.06

$270.35

$247.94

$269.87

$232.81

$255.74

$250.55

$240.91

$271.88

$212.34

$301.32

$217.65

$261.63

$295.99

$213.02

$237.78

$291.09

$260.20

$266.20

$338.63

$216.90

$225.21

$234.29

$237.81 34.4%

2 PHX 18,944 96,884 $169.47 -24.0% 23,558 $204.59 -8.3%

3 MCO 12,913 38,868 $185.52 -21.7% 78,686 $126.35 -46.7%

4 ATL 10,617 36,238 $256.35 -5.2% 78,122 $127.67 -52.8%

5 DFW 37,752 $242.37 45,199 2.3% 22,037 $219.73 -9.3%

6 LAX 19,033 65,863 $156.60 -42.0% 18,827 $221.87 -17.8%

7 DCA 25,602 $200.97 51,662 15.8% 21,207 $166.54 -17.1%

8 LGA 17,320 $206.90 44,395 23.6% 29,884 $124.41 -39.9%

9 DEN 29,817 $245.31 40,047 2.1% 18,103 $260.44 6.2%

10 ORD 18,205 $210.99 64,353 14.2% 4,014 $210.00 -0.5%

11 SEA 13,839 41,254 $180.56 -33.6% 17,140 $211.37 -22.3%

12 BOS 16,799 31,557 $199.48 -6.1% 15,281 $160.42 -24.5%

13 SFO 13,350 40,318 $197.75 -34.4% 8,729 $246.13 -18.3%

14 PHL 12,728 27,998 $206.87 -5.0% 14,112 $171.01 -21.4%

15 TPA 6,327 22,449 $185.75 -29.0% 22,937 $145.43 -44.4%

16 SAN 12,940 23,864 $223.70 -24.4% 13,936 $222.15 -24.9%

17 EWR 13,177 25,774 $209.95 -1.4% 11,702 $180.16 -15.4%

18 BWI 15,740 $177.94 16,162 33.6% 17,968 $138.68 -22.1%

19 DTW 11,354 $290.25 16,682 0.3% 19,097 $199.00 -31.4%

20 FLL 4,708 24,078 $167.41 -35.7% 17,889 $164.34 -36.8%

21 RSW 4,307 12,063 $248.16 -6.8% 27,712 $146.42 -45.0%

22 PDX 7,082 29,845 $181.81 -46.3% 5,605 $292.51 -13.6%

23 IAH 10,431 $215.36 21,554 0.7% 9,905 $186.14 -13.6%

24 RDU 9,931 $176.48 16,224 27.6% 15,523 $152.70 -13.5%

25 CLT 9,039 $198.49 19,351 18.0% 12,404 $165.30 -16.7%

720,481 1,510,340 $220.40 -7.3% 885,798 $186.02 -21.8% Total CID DSM MLI

SOURCE: Aviation DataMiner

In those cases where DSM had the highest fare, such as LGA and DCA, this airport had the only nonstop service and airlines were able to extract a modest premium for the convenience of such flights. Overall, however, consumers us ing The Eastern Iowa Airport paid a premium of 7.3% over those flying from Des Moines International Airport and 21.8% over those flying from Quad Cities International Airport.

3 Markets served with less-than-daily service by Allegiant Ai r (i.e., Orland/Sanford, Mesa/Phoenix, St. Petersburg and Las Vegas )
have been excluded.

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As the fare data illustrates, consumers in the Cedar Rapids area are being economically penalized when utilizing their hometown airport effectively encouraging them to utilize air service at other nearby airports. This is resulting in a downward spiral of passenger enplanements that threatens future air service retention and recruitment efforts at The Eastern Iowa Airport. The SCASD grant funds requested in this proposal are intended to meet this challenge by providing an adequate risk mitigation mechanism with which a low-cost network carrier can be recruited thereby encouraging a more competitive environment at Eastern Iowa Airport.



### Passenger Enplanement Trends at Eastern Iowa Airport

The final data point illustrating the challenges facing The Eastern Iowa Airport and supporting the need for the SCSAD funds requested in this proposal is the negative trend in passenger enplanements during recent years.



# The Eastern Iowa Airport Enplanement Trend

CY 2007- YTD 2010

30,000 35,000 40,000 45,000 50,000 55,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2007 2008 2009 2010 

### Monthly Enplanements Annual Enplanements

531,256

499,269

474,155

271,188

200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000

2007 2008 2009 YTD 2010

As illustrated on the bar chart to the right, between 2007 and 2009 enplanements at The Eastern Iowa Airport have declined by 10.7 percent. More ominous, 2010 enplanements are below 2009 for every single month year to dat e. The SCASD grant funds requested in this proposal are intended to reverse this slide.

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### Previous Air Service Development Ac tivities at Eastern Iowa Airport

The effort to recruit access to a low-cost carrier network with SCASD funds requested in this proposal is not the first or only efforts by The Eastern Iowa Airport to address the air service deficiencies or halt the slide in enplanements outlined herein.

The airport has a full-time marketing and communica tions staff member who continually pursues new air service, as well as communicates with potential customers via advertising, public relations, and social media. This includes specific activities aimed at making the airport more convenient than alternatives, including complimentary WiFi, valet parking, cell phone waiting lot, and Corridor Concierge/Information desk that provides information about Eastern Iowa. The airport also maintains on-going communication with incumbent and potential new carriers, attends multiple industry conferences and meetings, and engages in joint advertising efforts.

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# V. SCASD Grant Proposal

Summary of Grant Objectives

In this proposal, The Eastern Iowa Airport has clearly identified a quantifiable air service deficiency of the type that the Small Community Air Service Development Grant Program was intended to specifically to address.

Analyses conducted by The Eastern Iowa Airport indicate that the key to reversing the negative trends resulting from these deficiencies is to cr eate a more competitive dynamic by recruiting a low-cost carrier. Specifically, the airport seeks to recruit an LCC that can provide access to a comprehensive network, thereby spreading the impact of low fares across as many markets as possible. Within the present realities of the airline industry, however, airlines are reticent to initiate service to new markets without reasonable risk mitigation mechanisms, including fee waivers and funds to offset initial losses. Therefore, the SCASD funds requested in this proposal are essential to the airport reversing the negative trends of recent years.

The proposed mechanics of the application of the SCASD grant funds are outlined in the next section. Simply stated, the airport proposes to use the funds primarily as a back-stop to assure that the new service is successful, in the form of risk mitigation funds (i.e., a guarantee of minimum revenue levels). It should be noted that this will be based on a negotiated set of revenue and expense benchmarks, and is not a permanent subsidy, “travel bank,” or fare-offset.The region served by The Eastern Iowa Airport has a high potential to profitably support a lowcost carrier and risk mitigation funds will only be used if revenues fail to reach determined
levels.

It is noted that this approach has worked well in other grant awards, and it is possible that some or all of the SCASD funds requested herein may not be spent due to the market maturing quickly. In such an event, The Eastern Iowa Airport is committed to return such funds to the Department so that they can be used to assist other airports with similar challenges.



### Identified Potential Solutions

The Airport has identified the following carriers as t he most logical providers of such service:

• SkyWest Airlines (code-share service wi th AirTran Airways) to Milwaukee;

• Frontier Airlines service to Milwaukee; or

• AirTran Airways service to Atlanta.

The improved connectivity that these services woul d offer travelers in The Eastern Iowa Airport catchment area is illustrated on the maps on the next page.

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# Improved Connectivity via
Potential Network LCC Carriers

The Eastern Iowa Airport

SOURCE: Innovata, LLC via Aviation DataMiner 

## Milwaukee Hub

Milwaukee Hub

Atlanta Hub

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### Revenue & Passenger Projections

The Eastern Iowa Airport understands that a primary objective of the Small Community Air Service Development program is to produce long-t erm improvements in air service. Given this, there must be a reasonable potential for profitable levels of traffic and revenue generation by the carriers targeted for the use of risk mitigation funds.

With the assistance of a nationally-recognized ai r service development consultant, preliminary traffic and revenue forecasts have been prepared for the three LCC network options illustrated on the prior page. The forecast data indicates that, on a steady-state basis, the service can achieve profitability during the first year of service assuming reasonable levels of traffic recapture and stimulation of net-new traffic by the introduction of low fares. A summary of these traffic and revenue forecast details, along with operating metrics for each potential route, are provided below.



## Projected LCC Market Performance at The Eastern Iowa Airport

Carrier Frontier Skywest (AirTran) AirTran

Route CID-MKE CID-MKE CID-ATL

Key Operating Metrics

Sector Length (sm) 208 208 693 Aircraft Type ERJ-145 CRJ-200 B-717 Seats per Departure 50 50 117 Weekly Segments 21 14 14 Completion Factor 99.0% 99.0% 98.5%

Estimated Block Time 0.83 0.83 1.40

Operating Revenues

Local Passengers 3,931 2,703 20,066 Average Fare $134.12 $124.54 $151.75

Local Revenues $527,281 $336,612 $3,045,025

Connecting Passengers 37,364 26,507 41,089 Average Revenue Allocation $54.46 $53.70 $51.21 Prorated Connecting Revenues $2,034,831 $1,423,352 $2,104,246

Ancillary Revenues $307,454 $211,196 $617,912

Annual Sector Revenues $2,869,566 $1,971,160 $5,767,183

Operating Expenses

Estimated CASM $0.231 $0.219 $0.093

Sector Cost $2,402.40 $2,277.60 $7,540.53 Cost per Block Hour $2,894.46 $2,744.10 $5,386.10

Annual Sector Operating Costs $2,597,187 $1,641,512 $5,407,165

Projected Operating Profit/(Loss) $272,379 $329,649 $360,017

Operating Margin 10.5% 20.1% 6.7%

Load Factor 76.4% 81.1% 72.9%

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As the table illustrates, on a preliminary basis each of the potential LCC routes is projected to be profitable on a steady-state basis producing operating margins between 6.7% and 20.1%. Nonetheless, given uncertainties in the overal l economic environment, the risk of systemic shock (i.e., fuel prices, etc.), and the capital intensive nature of the airline industry in general; it is questionable whether any of the identified airl ines can be recruited lacking a meaningful risk mitigation mechanism.

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# VI. SCASD Grant Administration Plan

The Eastern Iowa Airport is keenly aware that the Department has limited funds available under the Small Community Air Service Development program and, as such, it must award grant dollars where the ability to resolve a major air service deficiency on a sustainable level can be demonstrated. The airport believes that it has made such a case in this proposal.

If the Department acts favorably upon this proposal, The Eastern Iowa Airport is prepared to implement a detailed program ready to assure successful use of SCASD grant funds.



### Allocation of Funds

The funding required to implement the program her ein totals $650,000. The airport is requesting $400,000 from the Small Community Air Service Development Program, to be supplemented by up to $50,000 in community match and $200,000 from the Eastern Iowa Airport in the form of inkind fee waivers and marketing support. Specifically, the proposed distribution and use of funds
is as follows:

Project Component Funding Level Source of Funds % of Total

Risk Abatement $400,000 SCASD 62%

Risk Abatement $50,000 Community
Funds 8% Marketing Support $100,000 Airport Funds 15%

Fee Waivers $100,000 Airport - In Kind 15%

TOTAL $650,000 100%



### Revenue Performance Guarantee

The majority of SCASD funds requested in this proposal – $400,000 – will be made available as a risk-mitigation mechanism to incubate new service. Upon grant approval, The Eastern Iowa Airport will immediately initiate discussions with the targeted carriers identified in this proposal

The purpose of these negotiations will be to stipulate the performance guarantees of the carrier in exchange for eligibility for performance guarantee funds. At a minimum, these discussions will include the following:

• Revenue and operating expense expectations for t he new service will be based on the level of service provided (frequencies, equipment, schedule, etc.);

• Fares to be offered that approximate those available at the neighboring markets of Des Moines and/or Quad Cities, including availability of fares in lower priced “buckets”;

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development ProgramOST-2010-0124 22

• Schedules timed for maximum connectivity t hereby maximizing the number of markets impacted by low-fares;

• On-time performance and completion rates will be consistent with the carrier’s systemwide

averages;

• Credit of all local revenues to the CID market;

• An acceptable percentage of revenues for connecting passengers beyond the connecting hub credit to CID according to a methodology agreed upon between the airport and airline, but most likely following an industry standard square root of mileage based formula; and

• The carrier will serve the route for the duration of the term that SCASD funds are available, allowing sufficient time for the route to achieve profitability.

Based on these criteria, operating expenses, revenue, and performance will be monitored and reported on a monthly basis, to provide input regarding remedial local marketing activity or feedback to the carrier to address service shortfalls, if any. Preferably, the determination of whether risk mitigation payments are necessary will be accomplished at the end of each quarter.

Prior to executing any agreement The Eastern Iowa Airport will provide the revenue guarantee documents to Department staff for review and approval.



### Marketing Activities To Support New Service

While The Eastern Iowa Airport believes that new service from a low-cost carrier will be well received and supported by the community, it is clearly understood that public awareness and advertising activities will be a critical element in ensuring the new flights become self-sustaining over the long-term.

Of the cash funds in this proposal, $100,000 has been budgeted for this purpose, including the following elements:

• A marketing campaign in the Cedar Rapids and Iowa City region promoting the new service to include radio, print, and outdoor media;

• Effective use of the airport’s existing social media channels, including Twitter; and Facebook

• Public relations and communications activities that utilize the local media as an additional outlet for increased public awareness.

The Eastern Iowa Airport will complete and submit to the Department a detailed budget for these activities, based on a planned 12-month program, a fter consultation with the carrier that is recruited using SCASD funds. The airport feels t hat such as step is necessary to develop a strong partnership with the carrier and minimize duplication of efforts. Airport management will then monitor all expenditures and provide the Department with a quarterly accounting, along with the Department’s prorated share of the expenses.

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development ProgramOST-2010-0124 23



### Progress Reports to DOT

The Eastern Iowa Airport will provide the Department with progress reports on the marketing expenditures, and airline operational performance on a quarterly basis, unless the Department requires a different schedule.



### Program Duration

The grant under this proposal requested for a period of one year from the date service commences. The Eastern Iowa Airport agrees that any unused funds not applied toward marketing or revenue guarantee during this period will be relinquished to the Department.



### Market Support Beyond Term of Program

The Eastern Iowa Airport believes that the recruitm ent of low-cost carrier service facilitated by the grant funds in this proposal will be supported by the community and achieve self-sufficiency during the term of this program.

Nonetheless, it is possible that factors outside the direct control of either the airport or the carrier could impact route performance, and prevent service at CID from achieving forecasted performance. Examples of such events are economic recession, volatility in oil prices, airline bankruptcies, labor actions, and terrorist attack (or threat thereof). 4 Should this occur, the management team at The Eastern Iowa Airport is prepared to assist the carrier with marketing support and other assistance, to be developed in cons ultation with the carrier, to ensure service continues beyond the term of this program.

4 It is noted that risk of such occurrences, regardless of how slight, are the driver behind air lines increasingly requiring ris k mitigation and/or fee waivers to initiate new service, particularly in sma ller markets such as that served by The Eastern Iowa Airport.

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development ProgramOST-2010-0124 24



# ATTACHMENT: Appendix B

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program

### APPENDIX B Page 1 of 3

SMALL COMMUNITY AIR SERVI CE DEVELOPMENT PROGRAM

DOCKET OST-2010-0124

SUMMARY INFORMATION

All applicants mus t submit this information with their prop osal, along with a completed form SF424 on

http:// www.grants.gov.

A. APPLICANT INFORMATION: (CHECK ALL THAT APPLY)



### X Not a Consortium ⁭ Interstate Consortium ⁭ Intrastate Consortium

⁭ Community now receives EAS subsidy

X Community (or Consortium member) prev iously received a Small Community Grant

If previous recipient, expiration date of grant: ____ August 28, 2008

________________

B. P UBLIC 

### /P RIVATE 

### P ARTNERSHIPS 

### : (L IST ORGANIZATION NAMES 

### )

Public Private

1. _ Cedar Rapids Airport Commission_ ______ 1.______________________________________ 2.__ State of Iowa, Office of Aviation ________ 2.______________________________________ 3.____________________________________ 3.______________________________________ 4.____________________________________ 4.______________________________________ 5.____________________________________ 5.______________________________________

C. P ROJECT 

### P ROPOSAL 

### : (CHECK ALL THAT APPLY)



### X Marketing ⁭ Upgrade Aircraft X New Route

⁭ Personnel ⁭ Increase Frequency X Low Fare Service

⁭ Travel Bank ⁭ Service Restoration ⁭ Subsidy

### APPENDIX B Page 2 of 3

⁭ Surface Transportation ⁭ Regional Service ⁭ Other (specify)

_________________ X Revenue Guarantee X Launch New Carrier _________________

_________________ ⁭ Start Up Cost Offset ⁭ First Service _________________

_________________ ⁭ Study X Secure Additional Carrier



### D. E XISTING 

### L ANDING 

### A IDS AT 

### L OCAL 

### A IRPORT:



### X Full ILS X Outer/Middle Marker X Pub lished Instrument Approach

X Localizer X Other (specify ) (PAPIS, MALSR)

E. PROJECT COSTS:

1. Federal Amount Requested: __ $400,000

__________________
2. State cash financial contribution: __ $50,000

___________________
3. Local cash financial contribution...

3a. Airport cash funds: __ $100,000

___________________ 3b. Non-Airport cash funds: __ N/A______

_________________ 3c. Total local cash funds (3a. + 3b.): __ $100,000

___________________ 4. TOTAL CASH FUNDING (1. +2.+3.) __ $550,000

___________________
5. Local funds contributed from already-existing

programs or projects included in line3c. amount: __ $100,000

___________________
6. Local funds contributed from new commitments

or new resources included in line 3c. amount: ___ N/A

______________________ 7. Airport In-Kind contribution: __ $100,000; Landing fees and____

(amount & description) ___ rentals reduction____________

8. Other In-Kind contribution: ___ N/A

______________________ (amount & description)

9. TOTAL IN-KIND CONTRIBUTION (7.+8.): ___ $100,000

__________________ 10. TOTAL PROJECT COST (4.+9.) ___ $650,000

__________________

### APPENDIX B Page 3 of 3

F. ENPLANEMENTS:

2000__ 503,664 _________ 2004____ 471,377 __________ 2008___ 499,600

___________

2001__ 443,344 _________ 2005____ 501,351 __________ 2009 474,508

2002__ 441,087 _________ 2006____ 516,095

__________

2003__ 461,827 _________ 2007____ 530,417

__________

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.

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



### H. IS THE APPLICANT DELINQUENT ON ANY FEDE RAL DEBT? (IF “YES”, PROVIDE EXPLANATION)

X No ⁭ Yes (explain) _______________________________________________________________