# Pr oposal Under the Small Community Air Service Development P rogram: Docket DOT
- OST
- 2011
- 0119

**Bemidji Regional Airport**  **Authority Legal**  **Sponsor: DUNS: 148387249**  **Congressional District Code: 7**  **- Congressman**  **Pe terson**  **8 -**  **Congressman Cr**  **avaack** August 2011

# Ta ble of Contents Pa ges  

## Airport and Community Contact Information
 

## Executive Summary
 

## Evaluation Criteria Pr oject P roposals and Costs 
 

## Appendices

2 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119 9** 

# Contact Information

**Bemidji Regional**  **Airport Authority**  **3824 Moberg Dr**

**. NW , Suite 101**  **Bemidji, MN 56601**  **Harold M. V**

**an Leeuwen, Jr** 

**. Executive**  **Director Te**  **le: 218 -**  **444 -**  **2438**

3 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119 9** 

# Community Contact Information

 

# City of Bemidji  

# Bemidji City Hall  

# 317 4 th 

# Street NW  

# Bemidji, MN 56601
- 3116  

# (218) 759
- 3560

 

# John Chattin  

# City Manager

4 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Pr oject Sponsor

Bemidji Re gional Airport Authority Bemidji Re gional Airport 3824 Moberg Dr

. NW , Suite 101 Bemidji, MN 56601 Marshall Froyd Chairman

5 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Executive Summary

 

### Bemidji, Minnesota (BJI) is located in north central Minnesota, serving a population base of approximately 121,000 within a 60
- mile radius.
 

### BJ I air service capacity (seats) has been reduced by single carrier by 50% since 2002. BJI fluctuates between 2 and 3 daily flights to MSP d epending on the season. This is down from 5 daily flights in 2004.
 

### Meanwhile, BJI’ s average fare paid has increased almost 50% since 2002, and is currently 65% above the U.S. average. This equates to a $110 higher one
- way fare (or $220 round
- trip).
 

### As a result, approximately 56% of BJI’ s traffic base is driving nearly 4 hours to MSP to originate their air travel. Dependent upon the O&D market, BJI’ s air fares are typically 25%
- 100% higher than comparable MSP markets.
 

### Wi th funds made available through the Small Community Air Service Development Pi lot Pr ogram, BJI hopes to start a Tr avel Desk, that will assist in lowering leakage, increase traffic, and stabilize service and yield to make air service self
- sustaining.

6 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Strategic Plan Overview **Ta rget**  **Audience** Those travelers that are currently utilizing other airports or are driving to/from Bemidji (aka “leakage”) because of their lack of familiarity with service availability at BJI or because of the lower fares elsewhere. W e will be targeting passengers that drive to/from MSP and passengers that will be coming to the area for specific events at the new regional event center (opened in 2010). The other target market is the International Language Camp along with foreign/international students attending Bemidji State University full time in their immersion programs that is operated each summer for international students from around the world. **Ti metable**   

## Ramp
- up: Improve enplanements by 7% in 2012.  

## Growth: Increase BJI traffic by 15% by 2013  

## Self
- Sufficiency: Stabilize BJI service to produce a positive yield for DL by 2015 to avoid EAS subsidization.

7 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Strategic Plan Overview (continued) **Goals/Objectives.**  

### To provide a full service transportation arrangement and assistance service for residents, major local businesses, Bemidji State University , local government, and all inbound travelers  

### To lower BJI leakage and increase BJI traffic by 15% by 2013.  

### To build local traffic and eliminate need for a potential EAS subsidy .  

### To operate a financially self
- sustaining BJI T ravel Desk through a combination of the grant, local participation, and commissions.
**Pa st Gr**  **ant Description and Differences**  . This is our second proposal. The first proposal focused upon lowering airline operating costs by funding a ground handling operation. The carrier targeted was Allegiant for new LAS service. This proposal focuses on lowering leakage, increasing use of inbound air travel to the region, and achieving improved performance resulting in lower airfares, by offering a unique service that will allow the region to aggregate resources and build an effective data base for airline travel. In addition, with the recent announcement by DL stating their intent to abandon or seek additional subsidies in EAS markets such as Bemidji, this service will provide a major resource for passengers in the region.

**Small Community Air**  **Service Development Program OST**  **- DOT**  **- 2011**  **- 0119**  8

# Situation Re view & Concept

 

### BJI currently suffers significant “leakage” resulting in marginal load factors  

### This is particularly true of outbound passengers who do not travel frequently and inbound passengers who, in most cases, have minimal knowledge of Northern Minnesota and the service available  

### The International Language Camp has many unaccompanied students driving from MSP with complex travel coordination  

### BJI is an EAS city and DL has indicated that they intend to seek an EAS subsidy to continue service  

### BJI airport regularly fields numerous phone calls daily from people inquiring about how to get to Bemidji  

### Bemidji lacks a single full service Bemidji
- based travel agent. The program would coordinate with the local niche agency to support and expand their business  

### Concept: Using a combination of existing and additional airport staff, start up a 1 person travel desk, with the objective of booking inbound and outbound travel, coordinating travel arrangement with the event center to bring additional enplanements to BJI, working with Bemidji State University for all related travel, and providing services for existing BJI travelers and improve their ease of travel

**Small Community Air**  **Service Development Program OST**  **- DOT**  **- 2011**  **- 0119**  9

# Air Service Initiatives

 

## BJI has regularly met with officials from Delta Airlines (previously Northwest) attempting to address reductions in air service as it relates to frequency

, gauge, seats, tag flights, and fares . Some gauge improvements have been experienced and tag flights have been eliminated. Fares and seat capacity remain as major challenges.

 

## In the past, BJI has met with Allegiant Air to measure interest by them and to garner nonstop Las V egas or P hoenix
- Mesa service and recently have met with Sun Country to advocate flights to various locations by them.

 

## BJI is a designated Essential Air Service (EAS) city and has been identified by DL as a target city for new subsidization

 

## Attempts to solicit service from other airlines such as Midwest and United have not met any interest because of the stage length to their hubs and the near geographic monopoly of the area by Delta

10 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# BJI is located in North Central Minnesota, caters to a population base of 121,000 (within 60 miles)

11 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# BJI Air Service To day

Note: Schedule is for 2012 going forward. LF is for YE 6/11 **Daily Dest**  **Carrier Fleet**  **Flights Seats**  **LF** MSP CH BEC 0.7 8
- MSP DL CRJ 2.0 100 59%

12 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# BJI seat capacity is down about 50% since 2002

4.0 5.0 6.0 7.0 8.0 9.0

200 220 240 260 280 300 **D a**  **i l**  **y**
**D e**  **p D**  **a i**  **l y** 
**S e** 

0.0 1.0 2.0 3.0 4.0

100 120 140 160 1804Q022Q034Q032Q044Q042Q054Q052Q064Q062Q074Q072Q084Q082Q094Q092Q104Q102Q114Q11 **p a**  **r t**  **u r**  **e s**  **e a**  **t s** 

Dep ar ts Se at s

Source: Innovata Schedule Data

13 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# In addition, the Bemidji MSA has service levels well below that of comparably sized markets

**Peer Markets**  **CSA Population**  **Median Household**  **Income Annual** 

**Enplanements** Elmira, NY 88,641 $39,102 208,986 Great Falls, MT 79,385 $37,895 355,966 Key West, FL 74,737 $66,537 433,055 Helena, MT 70,558 $43,098 209,091 Durango, CO 49,555 $49,397 276,383 

### Bemidji, **MN** 

### 43,169 **$36,933 49,192**  Pullman, WA 39,838 $41,988 124,356 Butte, MT 32,801 $35,377 63,039

Source: U.S. Census Bureau; D.O.T. Report T
- 100 YE1Q09

14 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# BJI P assenger volume is down 50% in ten years

80 ,000 10 0,00 0 12 0,00 0

15 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119** 

### 0 20 ,000 40 ,000 60 ,0004Q982Q994Q992Q004Q002Q014Q012Q024Q022Q034Q032Q044Q042Q054Q052Q064Q062Q074Q072Q084Q082Q094Q092Q104Q102Q11

Source::D.O.T. Report T
- 100

# Ti ed in part to capacity , BJI’ s air fares are 65% above the U.S. average

$1 80 $2 00 $2 20 $2 40 $2 60 $2 80

**$110 one**  **- way**  **higher or 65%**  **more than**  **U.S.**



### $1 00 $1 20 $1 40 $1 60 $1 804Q952Q964Q962Q974Q972Q984Q982Q994Q992Q004Q002Q014Q012Q024Q022Q034Q032Q044Q042Q054Q052Q064Q062Q074Q072Q084Q082Q094Q092Q104Q10


### BJI F ar e US F are Source: D.O.T. Report 10% Coupon Sample

16 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Lack of air service + high fares = 56% “Leakage”

Source: ADI/adjusted Sabre MIDT YEMAR09

17 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# “Leakage” is particularly relevant in top markets

**Rank Market**  **PDEW Fa**  **re RevDEW**  **% Retention Booked**  **PDEW** 1 MSP 3.2 $ 179 $ 573 100% 3.2 2 PHX 2.2 $ 239 $ 525 83% 2.6 3 ORD 2.0 $ 255 $ 510 Unavailable Unavailable 4 DCA 1.7 $ 299 $ 509 42% 4.0 5 LAX 1.9 $ 259 $ 492 17% 11.4 6 DTW 1.5 $ 314 $ 472 Unavailable Unavailable Unavailable Unavailable 7 ANC 1.3 $ 351 $ 456 100% 1.3 8 AT L 1.6 $ 238 $ 381 11% 14.0 9 LAS 1.4 $ 251 $ 351 100% 1.4 10 SEA 1.6 $ 216 $ 346 33% 4.8

Source: ADI/adjusted Sabre MIDT YEMAR09

18 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Re cap/Comments

 

## BJI meets the selection criteria for the SCASDP grant:  

### The average BJI air fare has increased almost 50% since 2002. Currently , the average BJI fare paid is 65% higher than the U.S. average, which equates to $220 round
- trip MORE than the U.S. average.  

### Re venues to support the costs associated with the travel desk will be generated from booking commissions received from car rental agencies, hotels, travel packages, restaurants, and ticketing local events.  

### The travel desk will partner with the local niche travel service providers to expand exposure.  

### BJI’ s departing seat volume has declined 50% since 2002. Currently , with only 2 flights per day

, BJI’ s air service is well below that of comparably
- sized markets across the U.S.  

### The program would be developed and implemented in 2012 for immediate results.  

### The result of the combination of extremely high air fares and the lack of air service, is that 57% the Bemidji
- area booked traffic makes a nearly 4 hour drive to MSP for their air travel.

19 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# BJI will use funds to start up & develop an airport
- based Tr avel Desk

 

## Wo uld fill a gap: No full service local agencies based in Bemidji currently
 

## To reduce “leakage” of inbound and outbound passengers
 

## Subsequently

, would increase traffic volumes

 

## At minimal incremental operating cost
 

## Wo uld provide optimal customer service for all local traveler segment

20 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Benefits of a BJI Tr avel Desk

 

## As mentioned earlier , will draw passengers to BJI, reducing “leakage”  

### Re duces the likelihood of requiring an EAS subsidy  

### Pr ovides comprehensive travel arrangement services for International Language Camp  

### Improves negotiating leverage for maintaining existing or replacement service
 

## Ability to control Customer Service component of operation  

### Staff will have intimate understanding of the needs & resources of the area  

### Pr ovides a single source of contact for travelers to make all arrangements
 

## From generated booking data, a database will be built for each customer that will enhance BJI’ s future air service development efforts  

### Wo uld include primary destinations, hotel needs, local transportation needs, approximate value of travel annually , special needs, etc.  

### Wo uld allow for better decision
- making, scheduling, etc.  

### Wo uld work hand
- in
- hand with both Chamber & Convention/V isitor Bureau

21 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# Ke y services offered

 Commercial airline reservations to/from BJI

 Pr ovide alternative arrangements for disruptions from cancelled flights

 Coordination and purchase of ad
- hoc charter flights to resort destinations

 Cruise packages

 Booking of hotels both locally & at destination points

 Car R entals or charter bus arrangements

 Booking dinner reservations

 Coordinate with local conventions & provide support when visitors arrive

 Coordinate with large university and government events & provide support to visitors

**Small Community Air**  **Service Development Program OST**  **- DOT**  **- 2011**  **- 0119**  22

# Additional Services offered

 

## Pa ssports & visas application assistance

 

## Service disruption assistance  

### Ke y for low
- frequency markets like BJI  

### International based youth travelers for locally
- based schools & camps

 

## Pr ovide travel assistance for Bemidji
- area language camp

 

## Coordination with niche cruise agency

 

## Assistance in making multi
- modal travel arrangements when air travel is only a component

**Small Community Air**  **Service Development Program OST**  **- DOT**  **- 2011**  **- 0119**  23

# Grant R

equest: $141,000 A portion of year one startup/operating costs

 

### BJI would partner with a National multi location travel agency  Agency has similar arrangement currently with 20 airports across U.S.
 

### Agency would provide BJI with no up front costs  Software: No cost **Cash Outla**

**y: Y**  **ear One** Furniture/Equipment $2,000 Labor & Benefits $40,000 Signage $5,000 Computer System/Peripherals $10,000  Software: No cost  Tr aining: No cost (except for travel)
 

### Ongoing BJI costs are almost completely variable  Agency deal: They get $10 per booked ticket  For first year

, airport would subsidize to grow the business
 

### BJI only needs financial assistance through 2012 in order to grow the self sustaining revenue base

**Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119** 24 Computer System/Peripherals $10,000 Tr ave l $10,000 Adver tising $20,000 Star tup Management Costs $15,000 Management & Consulting $36,000 Tr ansaction Costs to Agency $23,000 Less Commissions $ 161,000 $20,000 Net grant request $141,000

# After startup, expect to breakeven

**Cash Flow :**  **Ye ar**  **2** Commissions and fees $85,000 Expenses: Labor $40,000  

### In year 2, BJI would start generating revenues  BJI would charge $10/ticket  Additionally

, would charge fees for cruises, packages, etc.  More like “typical agency” Tr avel $3,000 Advertising $2,000 Management & Consulting $ 18,000 Tr ansaction Costs to Agency $23,000 To tal expenses $80,000 Revenues in excess of expenses $5,000  

### Wo uld also staff agency with airport staff
 

### Also, startup costs are all gone
 

### Wo uld start to utilize T ravel Desk to generate fees for air service  Ta king advantage of database

**Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119** 25

# Pr oposed Consulting Services

 

## Management of startup phase  

### Pr incipals have experience at running a travel agency  

### Negotiate contracts with local hotels, restaurants, etc. including commission structure  

### Develop data base collection structure
 

## Assistance with building travel database, generated from booking data  

### Wo uld be used for future air service development efforts
 

## Ongoing air service development consulting  

### Developing presentations  

### Wo rking with airlines

**Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119** 26 

## Bemidji Airport Authority

– Wi ll be the lead organization on developing and implementing the program.
 

## The Bemidji Chamber of Commerce
- Wi ll assist the Authority in the promotion of the region and soliciting business support to fly local Convention and To urism Bureau
- Wi ll serve as coordinating point with 

# Bemidji’ s Pr oject Pr oposal is bolstered by the support of a public
- private partnership

 

## Convention and To urism Bureau
- Wi ll serve as coordinating point with event center
 

## State of Minnesota Department of Tr ansportation
- Support marketing efforts

27 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119** 

## Develop a program which will improve the marketability of the airport and the greater Bemidji region

 

## Re duce “leakage” and subsequently increases traffic by at least 15% by 2013 

# Air Service Development Goals tied to P rogram

 

## Improve current Delta service enough, so as to eliminate the needs for a EAS subsidy

28 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119** 

## The Bemidji Airport proposes its Small Community Air Service Development P rogram be evaluated based on the following milestones:
 

### Re duced “leakage”  

### 15% increase in passenger enplanements by 2013  

### Elimination of EAS subsidy by 2015  

### Expanded travel service for all segments of the population 

# The effectiveness of BJI’ s program will be gauged by improvements in passenger volume & service levels

 

## The Authority will receive monthly updates to report milestones and convey the community’ s progress toward meeting the project’ s stated objectives (or as dictated by the Department of Tr ansportation).
 

## In the event that dynamics of the aviation industry and/or current negotiations impact the feasibility of the carriers targeted in our proposal, the Authority will work with the Department to amend its application, keeping within the confines of stated air service development objectives.

29 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**

# How will the community ensure that funds are spent as stated?

 

## BJI will supply D.O.T . with invoices of all dollar spent

 

## Wi th an itemized accounting of all spending done

 

## This will be done on a monthly basis

 

## BJI will also complete annual audits and report any discrepancies to D.O.T .

**Small Community Air**  **Service Development Program OST**  **- DOT**  **- 2011**  **- 0119**  30

# What if program is not self
- sustaining?

 

## First, this program has little in the way of ongoing, incremental operating costs, hence the risk of this is relatively low

 

## But, should this occur , the following would occur: Re duced travel, advertising & consulting: $23,000 in savings   This would leave variable costs to travel agency as only operating costs  Hence, if airport charges back customers, there is little chance of not breaking even

**Small Community Air**  **Service Development Program OST**  **- DOT**  **- 2011**  **- 0119**  31

# Conclusions
 

## As noted earlier

, BJI meets all the selection criteria for the SCASD grant:  **Air F ares**  . The average BJI fare paid has increased almost 50% since 2002. Currently , the average BJI fare paid is 65% higher than the U.S. average, which equates to $220 round
- trip MORE than the U.S. average.  **Air Serv ice**  . BJI’ s departing seat volume has declined 50% since 2002. Currently , with only 2
- 3 flights per day

, BJI’ s air service is well below that of comparably
- sized markets across the U.S.
 

## Wi th funds made available through the Small Community Air Service Development P ilot P rogram, BJI hopes to increase enplanements in order to reduce carriers’ costs, lowering the barriers to entry and/or expansion by sharing in the financial risk of entering a new market. W e will also use some of the funds to more aggressively market BJI and hopefully reduce current “leakage” rate.

32 **Small Community Air**  **Service Development Program**  **OST -**  **DOT -**  **2011 -**  **0119**