## OST 2011

- 0119

DUNS # # 038768131



## Wisconsin Congressional District WI

- 07

Legal Spo nsor: City of Rhinelander & County of OneidaPro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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# Proposal Summary

Statement of Air Service Deficiency

Rhinelander/Oneida County Airport has been notified by Delta Air Lines that the carrier

will end decades of service to the region on September 5, 2010. T he clear reason

provided for this decision is not traffic levels, per se, but simply that the Delta system is

restructuring and reducing its regional fleet.

Delta Air Lines is retiring all of the 34

- seat turboprops in its Connection system, as well

as do zens of 50

- seat jets. The fallout is that Rhinelander is losing the majority of its

connectivity with the national and global air transportation system.

This action leaves Rhinelander with only two 37

- seat flights to the very small Frontier

operation at M ilwaukee, where on

- line connections are minimal. This service is a tag

- on to Essential Air Service to Iron Mountain, Michigan. This leaves Rhinelander often with

as few as 15 seats or fewer. Combined with the fact that Frontier does not have wide

connectio ns to the rest of the nation at MKE, this service falls far short of filling the void

being left by Delta.

The Airport has identified a solution in recruiting service to Chicago/O’Hare. In fact, the

wider omni

- directional connectivity of either of the two hubbing carriers at ORD will

easily replace the Delta service, and allow more access than the traditional service to

Minneapolis/St. Paul.

The Airport and the Community have held meetings with United Airlines, the largest of

the two hubbing airlines at C hicago/O’Hare. The traffic void left by Delta is well

understood by the carrier, but it was made clear that in an industry environment of high

fuel costs and limited regional fleets, incentives will need to be in place to proceed with

further negotiations. It is understood that a similar situation exists at the other ORD

hubbing carrier, American. 1

Grant Request

The Airport and the County of Oneida herein submit an application for $ 100 ,000 under

the Small Community Air Service Development Grant Program. This will be matched by

community funds in the amount of $ 15, 000 . The funding will be used to assist the carrier

in establishing itself in the marketplace and at Rhinelander Regional Airpor.

1 American is in the process of re

- organizing its regional flying, including the corporate spin

- off of American Eagle.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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- 0119 Page 3 The funds would be aimed at two key components necessary for a n ew airline brand to

establish itself. The first is marketing. The second is the cost hurdle of setting up

operations at the Airport.

The program funds would include a $15,000 marketing and advertising spend In the

Rhinelander area to build brand awareness . On the Airport side, the funding would be

used to offset the normal and usual costs of establishing ticket counter, gate, and ramp

operations. This includes usual and reasonable expenses related to purchase or

transfer of computers, communications lines, ground equipment, and backwalls.

In addition, the Airport has an additional $42,000 in in

- kind support in the form of

waivers of landing fees and rentals, plus use of an airport

- owned billboard for one year.

This is not a case of attempting to build a n ew market. It is simply attracting an airline

system to take over and build on the traditional 7 0,000+ passengers that already exist at

Rhinelander.

The Airport and the citizens served by it appreciate the Department’s consideration of

this application.

Please direct any questions or correspondence to:

Mr. Joe Brauer

Airport Director

Rhinelander/Oneida County Airport

3375 Airport Rd.

Rhinelander, Wisconsin 54501Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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# Table of Contents

Proposal Summary

................................ ................................ ................................ .......... 2

Statement of Air Service Deficiency

................................ ................................ ............. 2

Grant Request

................................ ................................ ................................ ............. 2

Technical Outline

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

Community and Airport:

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

Official Project Sponsor

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

Community Partners

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

Project Description

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

Market Overview

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

Population Base

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

Historic & Current Air Service

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

Fares Are Much Higher A t RHI

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

Fares: Up Almost 30% Since 2005

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

Proposed Solution to Air Service Deficiency

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

Marketing Support

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

“In Kind” Support

................................ ................................ ................................ ........ 12

The Grant Will Generate Strong Traffic For The Region

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

Prior Air Service Development Activities

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

Program Plan

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

Post

- Program Marketing

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

Summary

................................ ................................ ................................ ................... 15Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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# Technical Outline

Community a nd Airport :

Rhinelander/Oneida County Airport

Mr. Joe Brauer

Airport Director

715

- 365

- 3416

Official Project Sponsor

Rhinelander/Oneida Count y Airport, The City of Rhinelander, County of Oneida

Community Partners

This proposal is supported by the Oneida County E conomic Development Corporation.

This organization will be responsible for the following:

 Working with the Airport in negotiating ag reements with the target air carrier

subsequent to grant award.

 Assuring community marketing and outreach to support the new access via

Chicago/O’Hare

 Liaison with the Department in regard to carrier performance during the grant

period.

 Administration o f the total program funding, including contact with the

Department.

 Preparation of quarterly reports, as determined necessary by the Department.

Project Description

The request is for a grant of $ 100,000, to be matc hed by $15,000 in local funding, p lus

$42,000 in in

- kind support. The program is to offset the costs of a new carrier in

establishing successful operations at Rhinelander, with service to Chicago/O’Hare.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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# Market Overview

Population Base

Rhinelander/Oneida County Airport serves a population base of approximately 110,000

over a wide area of Northern Wisconsin.

US highway 8, and US highway 51 are the main conduits that feed passengers to and

from rural areas of the region. This population base has been, and with the service

made possible under this grant will continue to be, the core traffic base of

Rhinelander/Oneida County Airport.

Historic & Current Air Service

Rhinelander has traditionally been a spoke on the Northwest/Delta MSP hub system. It

also had 19

- seat service via Midwest Ex press to Milwaukee. The latter routing was an

intermediate stop to support EAS service at Ironwood, Michigan.

Historically, much of the Northwest/Delta service to MSP was operated with 34

- seat

turboprops via an intermediate stop at Eau Claire. In 2002, th e Department awarded RhinelanderPro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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- 0119 Page 7 Rhinelander a Small Community Air Service Grant to underwrite the upgrade of this

service to include nonstop jet service to MSP. This proved wildly successful, as

demonstrated by enplanements at RHI:

Note that the 2002 SCASD grant supported new capacity in the market, which spiked

passenger traffic 55% by 2005. Subsequent to that, however, changes at Midwest

Airlines resulted in their exit from the RHI market, and fleet changes at Delta sh ifted

capacity elsewhere. With replacement service to ORD, and the enormous connectivity

at that hub, the 2005 figures can be quickly reestablished and expanded.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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- 0119 Page 8 The decline in passengers was entirely the result of airline strategy changes, not

weakness in the RHI marketplace. A comparison of 2005 v 2010 is instructive:

Between the peak in 2005 and today, seat capacity has been slashed by more than one

third, resulting in much

- increased leakage to CWA. The Airport believes that t his current

grant will be as successful as the 2002 award in accomplishing exactly the goals

congress had in mind when the program was established. 2

The offset of the expense of opening a new station, which this grant will provide, will be

an strong incentive for either of the hubbing carriers at ORD to take advant age of the

void left by Delta.

The Delta Service Was The Only Real Connectivity

Midwest was merged with Frontier in 2009, and today, that carrier operates two 37

- seat

flights daily on a MKE

- RHI

- IWD routing, again to support the IWD EAS market. This

mark et combination does not provide sufficient seats nor sufficient frequency to meet

the needs of the post

- Delta Rhinelander market.

I n addition, the Frontier hub at MKE is very sparse, with only 166 daily departures

(including commuter flights) and essenti ally no international connectivity whatsoever, At

ORD, American has over 450 departures, and United over 600. Either carrier will not

only address the loss of Delta, but will also provide enhanced access to the national and

global air transportation networ ks.

2 Schedule data from Innovata, LLC and analyzed by Aviation DataMiner.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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A review of average fares for RHI’s top ten O&D markets as well as total average fares

paid for the full year ending 1Q 201, indicate that RHI has much higher fares than other

airports in the region.

The 22% variance in average fare between RHI and CWA is a major cause of reduced

ridership, in conjunction with reduced capacity.

In the following page is a graph outlining how fares have increased over the past five

years at RHI

.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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Fares in the RHI market have risen almost 30%. A snapshot of the 4Q for each year,

and the current (1Q 2010) fares shows that the RHI market has been pummeled by

fares that are much higher than at other regional airports. (Note that these data are for

ai rline fares, net of federal taxes and fees.)

The service to Chicago/ORD that this grant will make more attractive is not expected to

be “low fare.” But the wider access to more markets at either of the hubbing carriers

there will without question in in crease ridership at RHI to 2005 levels and beyond.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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# Proposed Solution to Air Service Deficiency

The Airport and the community have a very straight forward plan to address what will

otherwise be an economically

- devastating loss of air service.

The airpor t is proposing a grant in the amount of $100,000, matched with local funds of

$15,000 to offset the costs of entry for one of the two hubbing carrier systems at

Chicago/O’Hare. As noted, positive and encouraging discussions were held with United

Airlines i n July of 2011, and the Airport will undertake similar meetings with the

American Airlines system. 3

The funding will be used primarily for offsetting the initial station costs for the target

airline. In addition, there will be a strong marketing effort in the region to introduce the

new airline brand.

The program will be structured as follows

1. The Airport will make available to the target airline $100,000 in funding to offset

usual and reasonable expenses to start a new station.

2. Eligible applications are only those that purchase or transfer equipment that is

specific and necessary for the carrier’s operations. These would include ground

support equipment, communications equipment, ticket counter and ramp

identification, etc.

3. The maximum offset will be $1 00,000 for such expenses.

4. A fund of $15,000 will be dedicated to marketing and advertising in local media to

build public awareness for the new airline brand.

5. The cost

- offset program is envisioned to begin 45 days from service initiation and

conclude 30 days after the first flight.

6. The carrier must agree to serve the market for at least 18 months.

Marketing Support

A marketing and brand

- awareness program will be implemented starting 30 days from

date of planned service start.

3 At this time, AMR is looking to spin

- off Amer ican Eagle. As a result, the exact entities that will be operating regional

flights for American are not fully clear.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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- 0119 Page 12 This will be a program establish ed and directed by the community partner, the Oneida

County Economic Development Corporation. It will include:

1. Focused efforts to shift consumer loyalty from Delta to the new carrier. Most

frequent flyers in the region will be members of the Delta SkyMile s program. To

limit the leakage to Delta flights at CWA, strong efforts will be made to build

membership in the United MileagePlus program or the American AAdvantage

program, as appropriate.

2. Targeted contact with key travel generators in the region, using direct mail,

electronic contact, and social media.

3. Civic presentations to the community to build recognition of the target carrier, its

system, its schedule, and the scope of the new access for RHI.

4. Follow

- up promotional activities as necessary to assur e that traffic on the new

service builds rapidly.

“In Kind” Support

The Airport will offer the carrier its standard program for new entrants. This will be 90

days of rent and landing fee waivers, which is approximately $30,000.

In addition to the Marke ting funds, the airport will provide airline use of a highway

billboard that it owns for one year. This is valued at $12,000 based on current rates for

the billboard.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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The Grant Will Generate Strong Traffic For The Region

The Airport feels that either of the target carrier systems, American or United, would

immediately “inherit” the traffic abandoned by Delta, plus recapture some of the traffic

now leaking to CWA. Therefore, the challenge is not a need to build traffic for the

replacement carrier, but t o facilitate its entry into the RHI market.

The proposed service, which this grant will facilitate, opens RHI to more destinations

and more access to and from the rest of the globe. When Delta was serving RHI, the

traffic base was not large enough to attract service from either AA or UA. Today, with

Delta’s cessation of service at RHI, the O’Hare opportunity represents a vast

improvement in air service for Northern Wisconsin consumers.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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Prior Air Service Development Activities

The A irport and commun ity have worked very hard to assure that RHI attracts and

retains the maximum air service possible. The airport successfully recruited additional

capacity for MSP service in 2002

- 2005. Efforts were successful in supporting Midwest

Express flights to that c arrier’s MKE hub.

In 2008, with the assistance of a SCASD grant, the airport accomplished a complete

regional market potential analysis that clearly identified the opportunities and the risks

that the RHI market faces. Despite these efforts, changes in th e structure of the airline

industry have reduced service at RHI.

This grant will be instrumental in successfully reversing the effects of these airline

industry shifts.

Program Plan

The funding is envisioned for the program as structured below:



## SCASD Grant Financial Plan

Station Cost

Offset Marketing

Program In Kind Total



## Community $15,000 $42,000 $57,000



## US DOT $100,000 $100,000

TOTAL $100,000 $15,000 $42,000 $157,000

Post

- Pro gram Marketing

The Airport has an active air service development program that with the assistance of

this grant will successfully replace the Delta service. At the end of the 90

- day period, the

Airport and the Oneida County Economic Development Corporatio n have the resources

to continually provide marketing and local support for the service.Pro posal under the Small Community Air Service Development Program

Rhinelander, Wisconsin

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It is again noted that this program is intended to shift existing, known passenger

demand from the soon

- to

- end Delta service to another carrier. Therefore, the efforts to

retain passengers at RHI will not be as difficult as in cases where traffic patterns need

to be entirely shifted o r built from scratch.

The Airport would point out the serious need for this grant. With Delta leaving the

market, there are no other network

- carrier options open to RHI, other than th e two

outlined in this application. The Frontier service is beneficial, but it cannot replace the

lost access through MSP.

Therefore, the Airport and Community would urge favorable consideration of this

application.