# P **ROPOSAL FOR** 

# F **UNDING TO** 

# I **MPROVE** 

# D **IRECT** 

# A **IR** 

# S **ERVICES TO THE**



# M **AINLAND AT** 

# H **ENRY** 

# E. **R OHLSEN**  

# A **IRPORT** 

# , **S T**  

# . **C ROIX** 

# , **U.S. V**  **IRGIN** 

# I **SLANDS**


# U **NDER THE** 

# S **MALL** 

# C **OMMUNITY** 

# A **IR** 

# S **ERVICE** 

# D **EVELOPMENT** 

# P **ROGRAM**



# D **OCKET** 

## DOT 

# - **OST** 

# - **20 12**  **- 0**  **069**
Application on Behalf of 

## T **HE** 

## P **E OPLE OF**  

## S **T** 

## . **C ROIX**  

## , **U.S. V** **IRGIN** 

## I **SLANDS** Submitted By: 

## V**IRGIN** 

## I **SLANDS** 

## P **ORT** 

## A**UTHORITY** 

## (L **EGAL** 

## S **PONSOR**

## )

**D UNS**  

## N **UMBER** 

## : **618540900 EINS**  **N UMBER**  

## 66 **- 0384470** 

P.O. Box 301707 St. Thomas, U.S. Virgin Islands 00803 Phone: 340
- 774 - 1629 Fax: 340 - 774 - 0025 E - ma il: DcMills @viport.com

And 

## U.S. **V IRGIN**  

## I **SLANDS** 

## D **EPARTMENT OF** 

## T **OURISM** 

## S **T** 

## . **C ROIX**  

## H **OTEL AND** 

## T **OURISM** 

## A **SSOCIATION** 

## S **T** 

## . **C ROIX**  

## C **HAMBER OF** 

## C **OMMERCE** 

## V**IRGIN** 

## I **SLANDS** 

## H **OTEL** 

## & **T OURISM**  

## A **SSOCIATION** 

## T **HE** 

## G **OVERNORS** 

## T **ASK** 

## F **ORCE ON** 

## A**IR** 

## S **ERVICE**



### June 11, 2012

### Ju

ne 11. 2012 The Honorabl e Ray LaHood Secretary of Transportation United States Department of Transportation 1200 New

Jersey Avenue SE Washington, DC 20590 Dear Secretary LaHood: The Virgin Islands Port Authority (VIPA), on behalf of the people of the Virgin Islands and the Island of St. Croix, respectfully submits this application to participate in the 20 12 Small Community Air Service Development Program. This proposal meets the requirements of the p rogram as set forth by the Department of Transportation (USDOT) because St. Croix has: 1. Insufficient air service to sustain and grow both the tourism
- based economy of the Island, which accounts for 70 % of its GDP, and the sizeable resident industry on the island (Hess Oil, major rum distilleries and the University of the Virgin Islands) all of which suffer from poor access to the mainland. For 2008 only 5 6. 8 % of the island ’ s hotel capacity was utilized on an annual basis and for YTD 20 12 it has 41.6% . Hovensa (Hess Oil), the 4 th largest oil refinery in the world , lacks direct air access to key cities, e.g., Houston, New York, and Washington. 2. Higher airfares than the two U.S. possession airports in the Caribbean (St. Thomas and San Juan) and other competing airports in the region. Through helping St. Croix continue its air service initiatives, an award through this program will enable St. Croix to diversify its economy, stimulate America’s tourism industry, and assist U
. S . flag carriers in developing profitable and low
- risk opportunities in a time of retrenchment and economic distress. Co ntinuing changes in airline strategies have increased the need for better nonstop services between St. Croix and the United States mainland. They have also created new opportunities that could help St. Croix restore its declining traffic, promote the i sland to U.S. and foreign tourists and develop its unique industrial assets. In 2007, the USDOT awarded a Small Community Air Service Development Program grant to St. Croix through the VIPA. This grant was used to develop a comprehensive strategic air service marketing plan for St. Croix (STX) . In awarding the grant, the DOT recognized the unique challenges faced by a small island community in obtaining scheduled mainland airline services. By all measures, the $150,000 grant awarded to the VIPA in 2007 has bee n highly successful. Although the funds received were modest (the original request was for $660,000), the investment supported the development of a strategic marketing plan and allowed some limited carrier marketing. Im plementation of the short
- term recomme ndations of that plan has already resulted in a substantive increase in both U.S. mainland and inter
- island flights. In short, the ROI “return on investment” of the 2007 grant has been extremely positive, easily exceeding the investment of the initial grant. That being said , however, significant opportunities were identified in the marketing plan which we re unable to be acted upon due to the limited funds received in that initial grant. In moving forward, a 20 12 grant of $3 0 0,000 is requested to address those opportunities that will not only ensure continuity but cement recent service improvements and support continuing progress. The objectives of the requested funds are to: 1. Secure non - stop services to a number of ne w mainland destinations; 2. Introduce a lo w - fare airline to STX to mitigate the fare disadvantage that exists; and 3. Develop an effective risk sharing/incentive program to support and promote new air services. The rationale and plan for implementing these objectives are explained in detail in the attached application. Thank you for the opportunity to pursue a project of such importance to St. Croix and USVI. There are few airports where air service improvements will have as broad a benefit for all segments of the community and its economy. For the St . Croix Air Service Development Consortium, thank you for your consideration of this application.

Mr. Don C. Mills Interim Executive Director Virgin Islands Port Authority**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D I**  **RECT A**  **IR S**  **ERVICES TO THE M**  **AINLAND AT**  **H ENRY**  **E. R**  **OHLSEN A**  **IRPORT ,**  **S T**  **. C**  **ROIX ,**  **U.S. V**  **IRGIN I**  **SLANDS**

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ i 

### Table of Contents

I. Executive Summary 1 II. Organizations Involved in this A pplication 4 III. St. Croix and Its Need for Scheduled Air Service 4 A. Background
- St. Croix and the U.S. Virgin Islands B. St. Croix’s Need for Air Services IV. St. Croix Air Services 6 A. History of Air Services B. Current Services C. Traffic Volumes and Trends D. Fares E. Air Service Concerns V. SCASDP Selection Criteria 1 2 A. The Proposal Addresses High Air Fares B. A Proportion of the Cost is Provided by Local Non
- Airport Sources C. There is an Existing Established Public/Private Partnership D. The Grant Will Provide Material Benefits to a Broad Segment of the Traveling Public E. The Funds Will be Used in a Timely Manne r VI. Proposed Actions 1 3 A. Project Schedule and Exit Strategy B. Proposed Budget C. Relationship to 2007 SCASDP Aw ard D. Performance Measures E. Financial Controls F. Return on Investment VII. Previous Steps to Improve/Increase Air Service and Tourism to St. Croix 1 5 VIII. Other Program Details 16 Appendix A. Application for Federal Domestic Assistance (SF
- 424) Appendix B. Small Community Air Service Development Program Summary Information Appendix C. Letters of Support**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 1 

### I. **Executive Summary**  Appendix A includes a completed Form SF
- 424 “Application for Federal Domestic Assistance”. Appendix B provides the dat a required in support of all applications under the SCASDP program. **A. Organizations Involved in this A**  **pplication** There are several organizations that have joined forces to prepare and support this Small Community Air Service Development Grant application for St. Croix (STX). These parties include:  **Virgin Islands Port Authority (VIPA)** 

– This o rganization owns and operates the Henry E. Rohlsen Airport on St. Croix;  **U. S. Virgin Islands**  **Department of Tourism**

– The organization charged with increasing the numbe r of visitors or improving their experience in the U.S. Virgin Islands (USVI) by the Government of the U.S. Virgin Islands;  **The St** . **Croix Hotel and Tourism Association**
**–** A private organization dedicated to the increasing the number of visitors and bettering the quality of life on St. Croix ;  **The St** . **Croix Chamber of Commerce**

– Working in furthering development of the island ;  **The Governor’s Task Force on A ir Service** 

– E stablished by Governor de Jongh in 2007 to support im proved air services to St. Croix ; and  **The U.S. Virgin Islands**  **Hotel and Tourism Association**

– The organization representing the interests of all three of the Virgin Islands and developing the tourism base
. These organizations collectively are referred to as the “Consortium” in the remainder o f this application. **B. The A**  **pplication Calls f or the Pursuit of New R**  **outes, Low**  **- fare**  **Service and the Development of a Comprehensive Risk**  **- Sharing Program to Support New A**  **ir Services to St. Croix**  **Objectives of Application** 1) Establish non - stop s ervice to n ew m ainland c ities a) Pursue ne w non - stop services to several markets, including St. Croix’s number 1 market

– New York City, as well as Houston, Washington and others b) Potential air c arriers

– j etBlue Airways , American Airlines, Delta Air Lines , United Airlines , Spirit and US Airways 2) Introduce low
- fare s ervice to STX to mitigate f are d isparity with St. Thomas a) Potential air c arriers

– jetBlue b) Target markets

– New York (j etBlue) and Spirit (Ft. Lauderdale ) 3) Develop a long term com petitive Risk
- Sharing Program to s upport and promote new services

– amount to be determined **Justification of Grant Request** With tourism as its major industry , accounting for over 70% of the St. Croix’s GDP , and air access essential to its economy, the Consortium has been actively involved in the recruitment of air service and generously aggressive in offering marketing support to airlines. In 2003 , it funded a study whose objective wa s to increase air arrivals to the islands
. In 2007, the USVI applied for and was awarded a SCASDP grant to develop a Strategic Marketing Plan for St. Croix. The plan , com pleted in 2008 , recommended a number of initiatives which would help grow the air service market for STX. Also in 2008, a Governors’ Task Force on Air Service (a public/private partnership) was later established and is still functioning. The initial focus was on the incumbent airlines and the expansion of their then
- current services. The results of this effort have been outstanding , but they also demonstrate the need for further development o f the potential that exists in this market. The 2008 S trategic M arketing S tudy recommended three major action items: 

### 1. **Recruit New Non s**  **top Service**  **to New Destinations** Of the potential new nonstop destinations, New York is the largest market (even larger than the markets of the two currently served mainland airports )
. The U.S. Virgin Islands Bureau of Economic Research report for April 2012

– Hotel Guests by Area of Origin

– shows that the New York region contributes 45% of the total visitors to the USVI. Of the 270,202 visitors to the USVI through April,**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 2 123,029 came from the New York market. While the report does not break this down by island, the St. Croix Hotel & Tourism Association president stated that New York region (NY, NJ, PA and CT) was the largest market for members of his organization but that it has steadily declined since the loss of any direct service several years ago
. There were two potential new carriers for STX
-NYC which were identified in the study

– United (EWR) and JetBlue (JFK). Incumbe nts Delta and American are also prime candidates that currently serve STX from Atlanta and Miami respectively, but not from New York

– yet b oth serve New York from St. Thomas (STT). Requested SCASDP funds would be combined wi t

h funds from the public
-

private Consortium and used to prepare and put forward effective presentations to selected carriers designed to persuade appropriate carrier officials to inaugurate identified services in a timely manner. 

### 2. **Seek Low -**  **Fare Carrier Service to the Mainland** Two of the significant U
. S . low
- fare carriers have recently expanded into the Caribbean and Latin American region. Either of these two carriers could have a beneficial impact on STX with service via one of their major hubs, while not competing directly with any of the incumbent carriers. These would include j etBlue to JFK or Spirit to Ft. Lauderdale
. New services sho uld also help to bring STX far es in line with other Caribbean airports , stimulate more destination visitors to St. Croix and lower fares for the local market. As above, a combination of SCASDP and Consortium funds would be used to prepare and present carrier presentations designed to persuade appropriate carrier officials to inaugurate low
- fare services in a timely manner
. 

### 3. **Develop a Com prehensive Risk** **- Shar**  **ing/Incentive Program** In conducting the study of the STX market and identifying possible deficiencies that impact air service grow th in the STX market, the lack of an effective risk
- sharing/incentive program

– com petitive with other Caribbean and mainland markets was identified as a key stumbling block. Thus, d eveloping a sustainable, risk
- sharing/incentive program for STX is imperative to obtain new air service and to realize the potential that exists for the island. Here, SCASDP funds would be combined wi th Consortium funds
- but would be used only for developing the risk
-sharing/incentive program with the carriers
. The actual funds supporting the risk
-sharing/incentive program will come entirely from the public
- private Consortium
. The requested funding from the 20 12 SCASDP program will ensure the achievement of these objectives and result in significant economic benefit to the community, including local businesses, industries, and the social infrastructure of the i sland. The request of the DOT in the SCASD P grant application is for $3 0 0,000. Other sections of this proposal detail the public and private non
- airport support, which is set at a minimum level of $ 100,000 in actual cash contributions. Based on our experience with the 2007 grant, we expect to rais e a greater share of local funds than we have identified here. **Special Note** At present , only 41.68 % of the hotel capacity on St. Croix has been utilized through April of 2012 and just 56.8% for calendar year 2008 . Additional air service is essential to r ealize a greater percentage of hotel occupancy . In addition, three new resort developments of more than 400 rooms each are currently in the planning stages. These developments on St. Croix will greatly enhance the quality and quantity of the i sland’s accommodations and will undoubtedly raise the attractiveness of St. Croix as a vacation/leisure destination and will further support the added air service. **C. This A**  **pplication A ddresses A**  **ll Criteria as Established by the DOT**  St. Croix has h igh air fares in com parison with other airports in the region;  The i sland lack s sufficient air service to satisfy current demand;  A significant proportion of the proposed project ’s cost will be provided by local non
- airport sources;  St. Croix’s effort is well supported by an effective public/private partnership that h as operated for three years;  The project provides s ignificant material benefits to a broad segment of the traveling public, especially the i sland’s primary industry , tourism, as well as the St. Croix’s largest sin gle employer, the Hovensa oil refinery, 4th largest in the world;  Project funds will be used in a timely manner (a carefully defined, two - year effort); and  The project will be subject to a clear and strict exit strategy in the event that improved carrier s ervices are not inaugurated as expected within the two
- year period of the grant.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 3 **D. Th**  **is Proposal A** **ddresses Each of the**  **Key Issues Inhibiting Traffic Growth**  Declining total traffic and static mainland traffic at the Henry E. Rohlsen International Airport o n St. Croix;  Difficulties in developing St. Croix’s tourism industry. It remains underdeveloped, both in relation to that of St. Thomas/St. John and to the Caribbean in general with just under a 57% hotel occupancy rate in 2008;  The limited potential of St . Thomas and San Juan to serve as gateways to St. Croix for mainland traffic. Specific problems include the limited capacity of the nine
- seat aircraft that link St. Croix to St. Thomas ; the f

all 2008 service reductions by American Airlines at its San Juan hub ; circuitous and time
- consuming routings that often require two en
- route changes of aircraft ; the lack of carrier competition ; and the lack of service from a low
- fare carrier;  A growing pattern of low
- season (months of June

– September) service cutback s on St. Croix
mainland air services;  High fares, making St. Croix less competitive as a tourist destination;  A diminished ability, as a result of service cutbacks, to promote St. Croix as a destination for European tourists; and  The need to expand air services dramatically to serve the new large resort developments currently expected to be open to travelers and tourists beginning in late 201 3 . **E. St. Croix has Successfully Demonstrated that it Can Obtain Tangible Results from the**  **SC AS**  **DP Program with Signif**  **icant ROI and R**  **elated Economic Spinoff** The return on investment from the limited funding of the 2007 Grant was extremely positive. It provided the seed money for a focused marketing effort in the short term
. However, several additional short
- and long
- t erm

opportunities identified in the marketing plan were unable to be addressed due to limited funding. Likewise, recommended building blocks for longer
- term success could not be addressed. Despite these issues, as well as the continually changing dynamic s of the airline industry and the economy in which it operates, the additional services provided at St. Croix in response to the initial carrier presentations , made possible using the results of the 2007 grant , have encouraged us to request new funding und er the SCASDP program to complete the new opportunities identified earlier. The 2007 grant resulted in the following improvements at St. Croix:  Under a “before and after” view of the SCASDP grant and the ensuing work, in 2007 St. Croix had 1,320 nonstop seats per week to the U.S. mainland. By 2012 , it had 1 ,680 seats, for a gain of 27.3%; This is impressive even before considering the steep economic decline over the 2007
- 2012 period s .  Restoration of daily frequencies on American Airlines’ St. Croix
- Miami route. In the f all of 2008, American cut back frequencies to 5 per week and daily service is now restored;  Delta Air Lines boosted nonstop services to Atlanta from 2 per week in August 2008 to 5 per week in August 2012 , with daily services scheduled to beg in in late 2012 ; and  Restoration of frequencies by American Airlines to San Juan. In September 2008, the airline reduced frequencies from eight flights per day to a three flights per day , but has now restored that number back to eight trips daily. However , all American Eagle service to St. Croix will end in 2013 under American’s closure of its San Juan Hub. These achievements demonstrate the power of the SCASDP program and the benefits of a carefully planned and executed locally based initiative. This app lication calls for an altogether new initiative to secure additional nonstop flights to the U.S. mainland. Please not e , however , that the work
- scope described in this application does not in any sense or degree detail a duplication or continuation of the work accomplished under the earlier SCASDP grant.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 4 

### II. **Organizations Involved In This A pplication**  The organizations directly involved in this application are:

**Virgin Islands Port Au**  **thority** The public - body sponsor of the project Mr. Don C. Mills Interim Executive Director P.O. Box 301707 St. Thomas , VI 00803 - 1707 Tel (340) 774 - 1629 Fax (340) 774 - 0025 **Virgin Islands Department of Tourism**  Ms. Beverly Nicholson - Doty Commissioner P.O. Box 6400 St. Thomas, VI 00804 Tel (340) 774 - 8784 **St. Croix Hotel and Tour**  **ism A**

**ssociation** M s. Julie Printy

President P.O. Box 24238 Christiansted, VI 00824 Tel ( 800 ) 524 - 2026 **St. Croix Chamber of Commerce**  Mr. Stuart Logan President and Chair 3009 Orange Grove Christiansted , VI, 00820 Tel (340) 773 - 1435 **U.S. Virgin Islands Ho**  **tel & Tourism As**  **sociation** Ms. Lisa Hamilton President 4002 Raphune Hill, Ste 304 St. Thomas, USVI 00802 Tel (340) 774 - 6835 **Governors Task Force on A** **ir Service** Ms. Beverly Nicholson - Doty Commissioner P.O. Box 6400 St. Thomas, VI 00804 Tel (340) 774 - 8784 

### III. **St. Croix a**  **nd Its Need f or Scheduled A**  **ir Service A.**  **Background –**  **St. Croix and the U.S. Virgin Islands** The U.S. Virgin Islands lie about 80 miles south
- east of Puerto Rico. Miami International, the nearest major airport on the U.S. mainland, is 1,100 miles to the northwest. They are part of the Leeward Islands chain, itself part of a series of islands stretching nearly 900 miles from Puerto Rico to South America. The U.S. Virgin Islands consists of three large islands, St. Croix, St. Thomas and St. J ohn, and several smaller islands. While St. John is two miles east of St. Thomas across a narrow strait, a 40
- mi le expanse of open water separates St. Croix from the other islands. With an area of 84 square miles, St. Croix is the largest and most populo us of the U.S. Virgin Islands. The over 50 mile coastline includes several excellent natural harbors, many outstanding beaches, and from dry, almost desert areas in the east to rain forests and mangrove swamps in the west
. Some of the best scuba diving in the world lies off the north shore. Very few parts of the United States have such geographical diversity in such a small area. Since their discovery in 1493 by Christopher Columbus, the i slands have been governed by Spain, Britain, the Knights of Malta, the Netherlands, France, and Denmark
-Norway. Th e extensive and varied history of the i slands accounts partly for the ir popularity among European vacationers. In 1917, security fears prom pted the United States to purchase the Islands from Denmark, for a pric e of $25 million. All i sland residents received U.S. citizenship in 1927. The i slands are now an organized, unincorporated territory of the United States. The island has countless well preserved remnants of sugar plantations. The boardwalk at Christianste d is a leading part of the attractions that also include a well
-preserved fort, a museum, docks for recreational craft, and a labyrinth of narrow streets, shops and restaurants. The tow n’s European history is well in evidence by its architecture. **A Unique and Important Industrial Base**  St. Croix has a large indigeno us industrial base, unlike other Caribbean and leisure destinations and some major vacation market U.S. cities such as Las Vegas and Orlando. The Hovensa oil refinery (a subsidiary of Hess Oil Co rporation) , the third largest in the United States, processes 495,000 barrels of crude oil daily. It employs about 8,000 pe ople , including contractors. Many of these contractors “shuttle” between St.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 5 Croix and the mainland during their term of work on the island. The Hovensa complex also includes a ship maintenance operation. While travel to Houston is important to Hovensa, travel to the headquarters of the Hess Oil Corporation in New York is mo re im portant. Besides the famous Cruzan Rum Distillery on St. C roix, a second large rum distillery is under construction by Diageo, a large British
- owned distillery famous for many quality brands such as Tanqueray, Johnny Walker and Capt. Morgan rum , which will be produced on St. Croix
. These growing businesses have made St. Croix a significant generator of outbound travel. Nearly 4 0% (

37.7 % for four quarters ending first qtr. 2012 ) of the St. Croix’s passengers initiate their air travel from STX; nearly double the percentage of most of the islands in the region and ev en higher than some major mainland cities. Any air service deficiencies hinder existing industries and could impede the further development of local industry. Figure III - 1 compares St. Croix to the other U.S. Virgin Islands along several dimensions. **Figu re**  **III -**  **1 .**  **Comparative Statistics for the U.S. Virgin Islands St. Croix**  **St. Thomas St. John**  **St. Thomas/St. John** Area (Square Miles) 84 31 20 51 Population 2007 Est. 55,293 53,160 4,359 57,519 Population Density/sq. mi 658 1,715 218 1,128 Construction ($000) , 2008 Annual $ 89,530 $ 183,083 Unemployment Rate, Jan - Jun 2012 8. 4 % 6.1 % Hotel Rooms and Condos 1,172 3,811 Hotel Room Occupancy Rate, 2010 - 2011 45.8% - 4 5
. 1 % ( - 0.7 ) 52.9 % ( - 4.9 %) European Visitors % Total, for the year 200 7 3.0% 1.7% Cruise ship Visitors, Jan - Jul 2012 38,502 948,937 948,937 Airport Enplaned Traffic - 20 11 204,440 637,740 637,740 Initiated Air Passenger trips from base 37.7% 19.5% The statistics of Figure III - 1 show that St. Croix, despite its larger size and population, remains under
developed as a tourist destination. Unlike St. Thomas, one of the world’s premier cruise ship destinations, St. Croix captures only a miniscule share (4.06%) of the cruise market, although this has recently begun to change as three cr

uise lines are now

stopping at St. Croix. These additional visitors will help to develop the infrastructure for shopping, dining and other tourism
- related businesses. The proportionately large presence of European visitors reflects the European roots and amb ience of St. Croix. These visitors ty pically make relatively long stays and arrive during the low season for mainland tourists. They contribute both to the prosperity of St. Croix and to a healthier economy for the United States. Other measures of the e conomic health of St. Croix , such as the unemployment rate, the hotel occupancy rate , and the total amount of construction lag significantly behind those of St. Thomas/St. John. These gaps suggest important issues of personal income and disparities in wealth for the i sland’s residents, and point directly to the need for further efforts to develop St. Croix
. **B. St. Croix’s**  **Need for A ir Services**  The lower percentage of hotel occupancy, volumes of airport traffic and air visitor arrivals testify to the unreali zed potential of St. Croix
. Through an integrated program of air service development, hotel/resort expansion, ecotourism and promotion, St. Croix will build on its strengths. The incentives described in this p roposal are a critical part of an economic deve lopment program for St. Croix. The economic contraction of 2008
- 2012 and the accompanying changes in personal income and travel patterns make this project especially timely.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 6 As an island 1,100 miles f rom access to the U.S. mainland, St. Croix has a strong need for high quality air services. Unlike competing resorts on the mainland, it cannot view surface transportation as a substitute for air access. Further , the significant amount of industry on the island and the much higher than average percentage of air trips initiated from St. Croix , point toward the need for more air service. The i sland has a particularly pressing need for services to several new destinations on the U.S. mainland ; in particular, New

York. An enroute stop at San Juan or St. Thomas add s greatly to the time and effort in reaching St. Croix. In many instances, passengers must transit both a hub on the mainland and a Caribbean airport to reach St. Croix. The additional travel time, complications, and expense harms St. Croix’s ability to grow in an intensely competitive market. No other Caribbean island has a counterpart to the Hovensa petroleum refinery. Industrial activity on other islands is typically very limited and usually just meets the immediate needs of the local market. The previo usly mentioned companies and other businesses th at make St. Croix home also need air services to access suppliers and markets. In addition, the i sland’s strong educational, political, cultural and business ties to the mainland contribute to the relatively large base of outgoing traffic. These passengers have distinct needs for scheduled services, particularly for high frequency, year
- round flights. They are not necessarily served well by schedules designed for inbound tourists. 

### IV. **St. Croix A ir Services**  **A .**  **History of A ir Services**  St. Croix has a lengthy history of scheduled air services dating back to 1948. In the 1980s aircraft such as the 727, A
- 300 and DC
- 10 flew many routes between the mainland and the Caribbean. These aircraft had mo re demanding runway requirements than the higher powered aircraft of today. Lo wer fuel prices encouraged many airlines to offer triangular routings, originating in the U.S. mainland, flying to one Caribbean island, flying a short hop to the second, and returning to the mai nland. For the Virgin Islands, a typical pattern emerged of a flight operating from the mainland nonstop to St. Thomas, continuing to St. Croix, and returning to the mainland. The short runway and obstacles at St. Thomas imposed payload and range limits that could be overcome by a stop in St. Croix. This pattern gave St. Croix an abundant supply of capacity and St. Croix did not have to support every flight with its own traffic. Traffic could grow incrementally, through small increases in the number of St. Croix passengers over the very large base in capacity. In the 1990s airfield improvements at St. Thomas and high performance aircraft allowed nonstop flights from St. Thomas to the U.S. mainland. Growing fuel prices and the cost penalties of the short S t. Thomas St. Croix leg penalized the traditional services. Increasingly, airlines split their Virgin Island ’ s services. Each island received stand
- alone nonstop flights to the mainland. However, e ach island received only the capacity that its own local market could support. The smaller St. Croix market sa w a progressive loss of capacity , and re storing its traffic and tourism industry has proven difficult. Tourism is constrained by the lack of air services, while air services cannot grow unless tourism expands. Breaking this vicious circle is the goal of this initiative
. The DOT’s T
- 100 report illustrates the dramatic changes facing St. Croix. In 1990, over 3,200 nonstop flights offered 510,000 seats between St. Croix and the U.S. mainland. By 2007, fewer than 142,000 seats were available on 960 flights. Figure IV
- 1 illustrates recent capacity trends. Until 2003, two airlines, US Airways and American, offered year
- round services. US Airways then scaled down, and presently operates only a limited service during the peak winter period. Delta Air Lines initiated services in 2005. While the carrier offers extensive connections through its Atlanta hub , its capacity fluctuates throughout the year. As the largest and longest established airline at St. Croix, American Airlines is of critical importance. Until 2004, it offered year
- round daily services. After 2004, it reduced off
- season flights, and frequencies and capacities now vary through out the year.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 7 **Figure IV -**  **1. St. Croix**  **- Mainland Seats by Carrier** 

Source: United States of Transportation Report 28DS This history has led to limited services to the mainland, an increasing reliance on connections through St. Thomas and San Juan, and limited competition. St. Croix’s relatively small volumes lead to a self
perp etuating series of problems, in which the tourism industry cannot grow without bette r air services, and vice versa
. Thus the challenge is to find a way to allow one element to grow

incrementally and independently of another. This application describes the approach to accomplish that objective
. **B. Current Services**  Three airlines, American, Delta and US Airways, operate direct flights to the U.S. mainland. Only American and Delta operate year
- round flights. Cape Air flies to Puerto Rico and St. Thomas. Its co de sharing relationship with Continental allows one
- stop service to the Newark Liberty International Airport. Its nine
- seat Cessna aircraft offer limited capacity. In the summer of 2012 , Seaborne Airlines, a seaplane operator, began a land
-based shuttle be tween the Henry E. Rohlsen International Airport on St. Croix and the Cyril E. King Airport on St. Thomas. Figure IV - 2 lists St. Croix services for August 2012 **Figure IV**  **- 2**  **. Scheduled Domestic Air Services to St. Croix**  **Airline Destination**  **Aircraft Seats**  **Flights/Week Seats/Week**  American Airlines Miami 737 - 800 148 7 1,036 San Juan AT7 66 49 3,234 Delta Air Lines Atlanta M88 142 4 568 Atlanta CR9 76 1 76 Cape Air St. Thomas Cessna 402 9 97 873 San Juan Cessna 402 9 48 432 Seabourne Airlines St. Th om as deHavilland DHC - 6 17 112 1,904 US Airways Charlotte A - 319 Seasonal **Total 206**  **8,123** Sourc e: Airline schedules for August 2012 **0 5,**  **000 10,**  **000 15,**  **000 20,**  **000 25,**  **000 30,**  **000 35,**  **000**

**2001 2002**  **2003 2004**  **2005 2006**  **2007 2008** **S e** **a t** **s /** **Q u** **a r** **t e** **r .** 

**US A**  **ir way**  **s De**  **lt**

**a Am** 

**er ic**  **an P**  **ROPOSAL FOR F**  **UNDING TO I**  **MPROVE D**  **IRECT A**  **IR S**  **ERVICES TO THE M**  **AINLAND AT**  **H ENRY**  **E. R**  **OHLSEN A**  **IRPORT ,**  **S T**  **. C**  **ROIX ,**  **U.S. V**  **IRGIN I**  **SLANDS**

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 8 **C. Traffic Volumes and Trends**  A leading goal of this initiative is to halt the declining traffic at the St. Croix airport. Figure IV
- 3 illustrates the lengthy downward trend of enplanements. This decline parallels shrinking opportunities for the St. Croix tourism industry, declining travel options for St. Croix residents and industries , and lower levels of personal inco me and opportunity. **Figure IV -**  **3 .**  **Passenger Enplanem ents at the Henry E. Rohlsen International Airport, St. Croix** 

Source: FAA Terminal Area Forecasts, Virgin I slands Port Authority Traffic to the all
- im

portant mainland destinations has remained stagnant for one and one
- half decades. Figure IV
- 4 contrasts the mainland origin
- destination traffic for St. Croix and for St. Thomas. **Figure IV**  **- 4**  **. St. Croix/St. Thom**  **as -**  **Mainland Traffic, 1993 -**  **2007**

Source: United States Department of Transportation Database 1B, YE December 31, 2008

**0 50,**  **000 100,**  **000 150,**  **000 200,**  **000 250,**  **000 300,**  **000 350,**  **000**

**1988 1989**  **1990 1991**  **1992 1993**  **1994 1995**  **1996 1997**  **1998 1999**  **2000 2001**  **2002 2003**  **2004 2005**  **2006 2007**  **2008 E** **n p** **l a** **n e** **m e** **n t** **s .** 

0 200 400 600 800 1, 000 1, 200

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008**P a** **s s** **e n** **g e** **r s** **( 0** **0 0** **) .** 

St . T homas St . C

roix**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A**  **UTHORITY** │ 9 Figure IV - 5 highlights the impact of new Virgin Island flights on origin
- destination traffic. An analysis of airline schedules over the 1993
- 2007 period identified several cases of new nonstop services from the Virgin Islands to the U.S . mainland. The graph compares traffic in the year immediately following the introduction of new nonstop service to levels in the calendar year immediately preceding the inauguration of the new service. The frequencies, duration, and capacities of each ne w service, and its relationship to existing flights, vary widely. This causes corresponding variations in the stimulation rates. Nevertheless, the average increase of 43 percent testifies to the power of greater competition
. **Figure IV**  **- 5**  **. Stimulation Facto**  **rs for New Virgin Islands -**  **U.S. Mainland Services**

Source: United States Department of Transportation Database 1B and Official Airline Guide, 1993
- 2007 The stimulation coefficients apply only to nonstop services. In addition, stimulation of traffic in behind
gateway markets wa s undoubtedly impacted by each new service. Travel related to the Hovensa refinery combined with the travel needs of St. Croix residents results in a large outbound travel component. Approximately 37.7 percent of the origin
- destination traffic originates in St. Croix 1
. This ratio is very high by Caribbean standards. (For example the ratio for St. Thomas is just 19.5 percent .) It creates the need for flights timed around the needs of residents, such as a morning departure to the mainland , with an evening return

– flights which don’t currently exist. It also points to the need for year - round services, especially during the low
- season for tourism. **D. Fares**  Figure IV
- 6 shows average nominal fares at St. Croix, St. Thomas, San Juan and all U.S. domestic points, as reported by the United States Department of Transportation Origin and Destination Survey. The data excludes all city
-pairs of less than 100 miles, to eliminate any distortion of short, inter
- island routes such as between the Virgin Islands and Puerto Rico. Throughout the 1993
- 2008 period, average fares to and from St. Croix were higher than from St. Thomas, San Juan, or U.S. domestic routes as a whole. After 1999, the grow th of low
- fare carriers moderated any upward drift in domestic far es. Escalating fuel prices caused widespread fare increases after 2004. After 1998, the gap between fares at St. Croix and the other airports widened significantly. Over the 1993
- 2008 period, fares at St. Croix grew by 29.7 percent, compared to 24.1 percent at St. Thomas, 10.2 percent at San Juan, and 12.1 percent for domestic markets as a whole.

1 Source: United States Department of Transportation Database 1B, YE March 2008 **0% 20%**  **40% 60%**  **80% 100%**  **120% 140%**  **160%**

**St. Thom**  **as –**  **Phi la**  **del ph**  **ia .**  **St. T**  **hom as**  **– Ch**  **ar lo**  **tte .**  **St. Thomas**  **– Ch**  **ic ago**  **. St.**  **T hom**  **as-MI A/**  **FLL .** 
**St .**  **Croix – Phil**  **adel phia**  **. St.**  **Croix – At**  **lan ta**  **. St.**  **T hom**  **as –**  **Wa shi**  **ngton .**  **St .**  **Croix – Ch**  **arl ot**  **te .**  **AV**

**ER AG**  **E S** **t i** **m u** **l a** **t i** **o n** **. P**  **ROPOSAL FOR F**  **UNDING TO I**  **MPROVE D**  **IRECT A**  **IR S**  **ERVICES TO THE M**  **AINLAND AT**  **H ENRY**  **E. R**  **OHLSEN A**  **IRPORT ,**  **S T**  **. C**  **ROIX ,**  **U.S. V**  **IRGIN I**  **SLANDS**

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 10 **Figure IV -**  **6. Com parative Fare Growth 1993**  **- 2008 STX**  **vs. Other Airports** 

T ourists choose their destinations partly on the basis of air fares. While St. Croix of fers unique natural and cultural attractions , the higher fares and limited selection of carriers pose an increasing disadvantage to its hotel and resort industry. This disadvantage has increased steadily since 1993, with the severe consequences to traffic at the Rohlsen Airport as noted above. The fare disadvantage has continued to increase, and a resolution to the growing problem through the measures outlined in this proposal has become a matter of urgency. Figure IV
- 7 displays average one
- way fares betwe en the two Virgin Islands airports, St. Croix and St. Thomas, and selected U.S. mainland destinations. St. Thomas, the economic center of the Virgin Islands, is the closest peer to St. Croix. Except for Philadelphia and Hartford, fares to St. Croix are higher than to St. Thomas
- sometimes significantly so. This differential discourages travel to St. Croix. The Consortium believes that the project outlined by this application will encourage competition and help to alleviate the fare disparities. **Figure I** **V -**  **7 .**  **Average Fares, St. Croix and St. Thomas to Selected Destinations, 2008**

Source: United States Department of Transportation Database 1B, YE December 31, 2008

$0. 00 $50. 00 $100. 00 $150. 00 $200. 00 $250. 00 $300. 00 $350. 00 $400. 00 $450. 00

**Mia mi**  **Ne w York**  **(All )**  **Wa shingt**  **on (**  **All )**  **Bo ston**  **At**

**la nta**  **Or la**  **ndo Phil**  **adel phia**  **Chi**

**cago Ho** 

**us ton**  **Tampa Da**  **ll as/**  **Fort Wo**  **rth Fort**  **Lauder dal**  **e Ha**  **rtford Fort**  **Lauderdal e**  **Al**

**l F** **a r** **e**

St . T homas St . C

roi x $100.00 $150.00 $200.00 $250.00 $300.00 $350.00

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 **Ye ar** **F a** **r e**  St. Croi x
St. Tho ma s San Ju an All +29.7% +24.1%
+10.2% +12.1%

Source: United States Department of Transportatio n Database 1B Average Domestic Fares for Trips Over 100 Miles for 1993
- 2008**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 11 The Orbitz website affords further insights into fare differentials, and supports a compari son involving foreign destinations in the Caribbean. A search of the website gave a snapshot of fares to the Virgin Islands and competing destinations 2 . All fare queries were entered on August 6, for a hypothetical vacation lasting from Saturday, January 9 , 2010, to Sunday, January 24. In every instance, the lowest fare, inclusive of taxes, was noted. Figure IV - 8 displays fares (including taxes) between selected U.S cities and the Caribbean. It includes Orlando and Las Vegas for purposes of comparison. **Fig ure IV**  **- 8**  **. Return Fares to the Caribbean and Other Leisure Destinations from Selected Cities** 

**New York**  **Boston Washington**  **Philadelphia Chicago**  **Houston** St. Thomas $351 $341 $345 $391 $301 $572 **St. Croix $461**  **$486 $470**  **$499 $516**  **$552** San Juan $256 $278 $27 0 $276 $286 $356 Antigua $446 $608 $590 $568 $624 $673 St. Maarten $413 $423 $404 $574 $346 $688 Cancun $300 $310 $286 $467 $267 $292 Montego Bay $356 $361 $359 $372 $418 $489 Aruba $429 $419 $410 $499 $420 $566 Barbados $400 $404 $413 $569 $318 $553 Puerto Plata $391 $449 $445 $538 $445 $669 Las Vegas $268 $315 $238 $260 $372 $278 Orlando $239 $199 $139 $189 $213 $307 Source: Orbitz , August 6, 201 0 **E. Ai**  **r Service Concerns** The air service market issues described above create significant problem s for residents, businesses and visitors of St. Croix. They also complicate the management of the Henry E. Rohlsen International Airport. The strategies summarized in this application will address the major air service deficiencies at St. Croix:  Limited se rvices to the U.S. mainland
. American Airlines operates a daily nonstop service to Miami. Delta Air Lines flies nonstop to Atlanta. US Airways has seasonal weekly nonstop flights to Charlotte. Apart from these limited offerings, passengers must rely on routings via Puerto Rico or St. Thomas.  Seasonal fluctuations in frequencies
. The airlines reduce their services during the summer and fall mo nths, with the result that St. Croix lacks consistent, daily, year
- round nonstop services to any mainland destination s. Despite these seasonal changes, the second and the third quarters represent 26 and 22 percent of annual traffic, respectively.  Lack of nonstop services to the important New York destination
. The Kennedy, La Guardia and Newark Liberty airports collective ly constitute 12.3 percent of St. Croix’s origin
- destination traffic, its largest single
- city destination 3
. New York is also the critical source of tourists, and as headquarters of the Hess Corporation, it is an important destination for staff of the Hoven sa Oil Refinery.  Reduced ability to compete
. New York City , f

or example , has nonstop services to literally dozens of destinations throughout the Caribbean, Mexico and Central America. St. Croix is conspicuously absent. This is especially ironic, since St. Croix is part of the United States and has an airport superbly equipped to handle long distance overwater flights.  Limited nonstop services to the U.S. mainland force a reliance on indirect routings via St. Thomas or San Juan . This situation reduces the c om petitiveness of St. Croix as a destination. In the fall of 2008, American Airlines significantly reduced the size of its San Juan hub, from 93 down to 51 departures daily. Connections via St. Thomas rely mostly on nine
- seat piston
- engine aircraft and 17 seat turbo
prop aircraft and a change of airline.  Poor timings for European visitors
. Current flight offerings force most European visitors to stay overnight at an intermediate connecting point. In contrast, other Caribbean destinations such as Barbados, Antigua and St. Maarten have direct transatlantic services;

2 Direct fare comparisons on Orbitz can be difficult. Fare quotes vary by company, routing, day of travel, and seat availability. This “apples and oranges” problem complic ates direct comparisons. Broad conclusions are still possible if a formal sampling procedure is followed closely. 3 The Miami International Airport is the largest origin - destination airport for St. Croix.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 12  Limited competition
. In many instances, particularly during off
-peak periods, St. Croix
- mainland passengers have few airline c hoices
. While American and Delta offer nonstop services to the mainland throughout the year, and US Airways offers peak season - only weekend flights, passengers have a much more limited selection of carriers than those at most U.S. airports. On many days, only one carrier may operate a flight.  A limited choice of departure ti me s . The available flights arrive from the mainland in the early afternoon and leave in the mid to late afternoon. No nonstop flights are available with a late evening arrival in St. Croix and an early morning departure. Such flights would be particularly valuable for European visitors.  Limited connections between St. Thomas and St. Croix
. Connecting passengers must ride on nine
- seat Cessna aircraft flown by Cape Air or 17 - seat deHavilland aircraft flown by Seabourne Airlines
. The se aircraft not only have a small number of seats , but limited space for luggage.  No services by low
- fare carriers
. While St. Croix is following a conservative strategy that stresses reinforcing the incumbent carriers , a low
- fare carrier remains a goal for the longer term. This Ap plication summarizes the Consortium approach for resolving these concerns. 

### V. **SCA SDP Selection Criteria**  This Application satisfies all criteria established by the DOT. **A. The Proposal A** **ddresses High A ir Fares**  An award for this Project will help the Consortium and the community of St. Croix addresses a significant disparity in air fares. All passengers and the entire economy of St. Croix will benefit from increased competition, greater choice, and more responsive fares. Preceding sections have addressed the fares issue in greater depth. **B. A**  **Proportion of the Cost is Provided by Local Non -** **Ai rport Sources**  The following organizations have pledged $100,000 to provide the local share of this Project:
• U.S. Virgin Islands Department of Tourism • St. Croix Hotel & Tourism Association
• Virgin Islands Hotel & Tourism Association • St. Croix Chamber of Commerce All of the pledged funds are from public and private sources and no airport funds are involved. In addition, funding for the Proposed Risk
- Sharing Program (amount to be determined) will be pledged by the Consortium
. This portion of the project ’ s cost will not rely on either SCASDP funds or airport revenues. **C. The**  **re is an Existing Established Public/Private Partnership**  T his p roject will be funded by the private and public sectors of St. Croix. The Partnership was established in 2006, is active, effective, and continues to grow. The Authority’s primary role will be to provide the leadership for the P artnership, as well as the routine administrative support and guidance that it might require. **D. The Grant Will Provide Material Benefits to a Broad Segment of the Traveling Public**  This award will directly benefit:  St. Croix residents traveling to the U.S. mainland for business, education, medical issues , vacations, visiting friends and relatives, and for other purposes;  Residents of the U.S. mainland, traveling to St. Croix for business, education, vacations, visiting friends and relatives, and for other purpose;  Residents of the U.S. mainland and St. Croix, who now travel between the two areas only rarely or never. The added convenience, better services, and lower fares will allow them to travel as well as to travel more frequently.  Foreign visitors to the United States, who will now have better connecting options fo r visiting St. Croix. Other beneficiaries, both direct and indirect include:  Commercial airlines. Through stimulating long term traffic grow th between St. Croix and the U.S. mainland, this p roposal will benefit all airlines serving St. Croix, whether or not they participate in this incentives program. The added volumes will also create a wider base o ver which the VPIA can spread its costs. This will promote lower airport fees and charges

– currently among the highest in the Caribbean.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 13  The St. Croix tourism industry. The industry will be more competitive, and will enjoy a larger number of visitors, higher occupancy rates, increased revenues, greater employment and increased profits. Large increases in scheduled capacity will be necessary to support up to thr ee new hotel complexes.  St. Croix businesses. They will obtain better access to the U.S. mainland. Even if the owners and em ployees of the businesses do not travel, they will benefit from the lower costs and greater ease of access for suppliers and other visitors.  Shippers and consignees. The increased St. Croix
- U.S. mainland cargo space will assist all entities shipping between the two areas.  The people of the United States. This p roposal would result in larger personal and corporate tax revenues. The economic development resulting from the proposed incentives would contribute to the recovery of the United States in the current difficult economic conditions. **E. The Funds Will be Used in a Timely Manner**  The schedule calls for rapid imp lementation of this p ro ject. The Consortium will create the conceptual and administrative groundwork for the risk
- sharing project in 201 2 . The negotiations with target carriers will occur in 2013. The risk
- sharing mechanisms will be in place in the third and fourth quarters of 201 3 . That portion of the p roject for which this SCASDP grant is sought will end by December 31, 201 3 . After 201 3 , the Risk
- Sharing Program will continue indefinitely, and independently of any SCASDP monies. The SCASDP grant and accompanying matching fund s will provide the Consortium with the seed money to start the p rogram. The Consortium will use the resource s developed in this application and the experience obtained, to enable the Risk
- Sharing Program to continue as a productive, creative and continuall y evolving entity long after the DOT’s involvement through SCASDP has ended
. 

### VI. **Proposed A ctions**  **A .**  **Project Schedule and Exit Strategy** The project covered in this ap p lication calls for establishing the framework for a Risk
- Sharing Program
. The Consortium recognizes that any such program must be well funded and enthusiastically supported. The funds needed for an effective program would exceed any SCASDP grant. Furthermore, the Consortium and the community may require considerable latitude in the selection of carrier(s) and route(s) to be supported, and this may not necessarily be accommodated in a SCASDP grant. The Consortium will work quickly to hire a professional air service consulting firm immediately after the grant is awarded. The team will hold exp loratory talks with incumbent and prospective carriers to consider new services and routes, and estimate what level of assistance, if any, is needed. **Months 0**  **1 2**  **3 4**  **5 6**  **7 8**  **9 10**  **11 12**  **& Bey ond**  Award of Grant Hire Professionals Meet with Prospective Carriers Prepare Risk Sharing Framework Identify Funding Partners Obtain Pledges Negotiate Carrier Agreements End of SCSDP Grant Services Start & Risk - Sharing Program Begins  The consultants will develop a risk
- sharing framework that considers the revenues and costs of selected im provements, and their economic benefits to St. Croix. The framework will help the Consortium in its nego tiations with the carriers, as well as to conclude carrier service agreement s that are fair, mutually beneficial, and fulfil l the goals of the SCASDP program.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 14 The SCASDP grant will give the Consortium the resources to develop a Risk
- Sharing Program
. The S CASDP component of this program will end once the carrier agreements are in place and services are ready to begin
. The program itself and the funds used to provide incentives, risk sharing monies or partner with an airline will be raised entirely by the c ommunity. There will be no SCASDP funds used in the actual incentive/Risk
- Sharing Program
. Rather, this grant will pay the costs of establishing an ongoing program for use in the future. Through this mechanism, the Consortium will prepare and manage an air service development incentive and risk
- sharing program that will remain an active and going concern long after the expiration of the St. Croix SCASDP program. We also believe that the mechanisms developed under this grant could be used for similar program s at other airports
. With an award in the f

all of 2012 , this schedule anticipates new services, backed by a comprehensive Risk
Sharing Program , in the late summer or fall of 201 3 . This schedule corresponds to the beginning of the peak wi nter travel pe rio d , the best time to begin a new service at St. Croix. This timing would also call for new flights to begin while the construction of new hotels is well underway. These hotels will need better air services than are presently available, and will increase the island’s capacity for visitors sufficiently to ensure success of the new flights. The financial problems of 2008
- 2012 have made airlines and hotel operators very risk averse. By 201 3 , the Consortium expects that a stronger economy will encourage new air s ervices. **B .**  **Proposed Budget** The table below

provides an estimate of the likely division between local cash share and the SCASDP gr ant by Phase. Based upon Phases I, II, and III the local cash share comprises 25% and the grant 7 5% of the $400,000 total. **Ph ase**  **Description Local Cash Share**  **SCASDP Grant Total Cash Cost**  I Recruit New Mainland Services $25,000 $85,000 $110,000 II Recruit Low- Fare Service $25,000 $65,000 $90,000 III Develop Risk - Sharing Program $50,000 $150,000 $200,000 IV Institute Risk - Sha ring Program To be determined - 0 - To be determined **Total $10**  **0,000 $300,000**  **$400,000 Percentage of Total Project Cost**  **(I -**  **III only )**  **25 %**  **75 %**  **C .**  **Relationship to 2007 SCASDP A ward**  St. Croix received a $150,000 SCASDP award in 2007. This award financed the development of a strategic marketing study, which mapped out short and long term strategies for St. Croix. The short term strategies reflect St. Croix’s current availability of visitor accommodations, with new capacity tied to room availability and occu

pancy rates. The short term strategies called for an increase in frequencies on existing routes and better flight timings The long
- term strategies call for a larger increase in capacity, with ne w carriers and new nonstop services. The se strategies also lo ok to the introduction of low
- fare service. It will ensure the construction of a number of ne w hotels and resorts, now in the planning stage, help provide the capacity they will need to operate profitably and boost St. Croix’s tourism
-based economy. The first SCASDP grant included meetings with the three incumbent carriers (Delta, American, and US Airways). The airlines reacted enthusiastically to the proposals. The meetings prompted a reassessment of their St. Croix services. Both Delta Air Lines and Ame rican increased frequencies and capacity as a direct result of those discussions. The 2007 grant provided an essential framework for the work to be accomplished under this p roject. It helped, and will continue helping, the Consortium to determine the best routes and airlines for further development, while protecting the operations of incumbents. However, the airlines uniformly indicated that a larger and more aggressive financial support program would be necessary to attain ambitious air service goals. The 2007 grant covered only a study which contained the analysis market strategy and limited meetings with carriers. It did not include development of a risk
- sharing/incentive program .**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 15 The p roject envisaged by this application is a logical progression to the accom plishments made under the 2007 SCASDP award. St. Croix will continue to benefit greatly from the work accomplished under the previous award. However, this p roject is an entirely separate and independent project. It consists of entirely new elements i n St. Croix’s continuing pursuit of better air services. **D .**  **Performance Measures** The success of this program will be measured by:  Traffic growth at the Henry E. Rohlsen International Airport on St. Croix;  An overall reduction in the average fares between S t. Croix and the U.S. mainland; and  Capacity grow

th, launching of new services, and recruitment of new carriers to St. Croix. These metrics will be calculated from the Official Airline Guide and the DOT’s domestic origin
- destination survey (Database 1B). **E .**  **Financial Controls** As the sponsor, the Virgin Islands Port Authority will assume responsibility for all fiscal matters and DOT reporting requirements. As a public entity, the Authority assures the DOT that the DOT’s grant will be used in accordance with the terms of any subsequent grant agreement. The Authority understands that the proposed SCASDP grant is a reimbursable grant. The Authority is responsible for program expenditures, and will submit invoices to the DOT for reimbursement, based on a percent age of the total request. **F .**  **Return on Investment** Through the success of the 2007 grant, the Consortium demonstrated its ability to generate tangible benefits through the SCASDP program. Increased frequencies by Delta Air Lines to Atlanta and by American Airlines to San Juan and Miami are tangible evidence that St. Croix can use the DOT’s scarce funds effectively. 

### VII. **Previous Steps to Improve/Increase A ir Service and Tourism at St. Croix**  The Virgin Islands has pursued continuing initiatives to resolve air service problems for both St. Thomas and St. Croix. These efforts have involved many government and private bodies. Countless individuals have donated their time and effort to a matter of broad concern in the community. This Application calls for continued reliance on voluntary efforts and the principle of self
- help. Recent efforts have included:  In 2003, the University of the Virgin Islands, acting on behalf of the Government, oversa w the development of a strategy to increase air arrivals to St. Thomas and St. Croix. The cost exceeded $100,000 and all funds were raised locally. This project included extensive analysis of aviation databases, and meetings with community leaders of both St. Thomas and St. Croix. The research concluded with recommendations for both St. Croix and St. Thomas. It urged the community to pursue a route to Atlanta by Delta Air Lines (service began in 2005) and to apply for a grant under the Small Community Air Service Development Program;  Also in 2003, the Authority met with Conti nental Airlines to consider new services to both islands.  The Port Authority formally evaluates traffic at both St. Thomas and St. Croix twice every year. Senior staff and the Board review the findings;  The Port Authority undertakes evaluations as needed o n improvements in the airports. These assessments draw on an analysis of current traffic and include future prospects;  The U.S. Virgin Islands Department of Tourism monitors cruise ship and air visitor origins, volumes, lengths of stay, accommodations, exp enditures, and satisfaction levels. It meets periodically with hotel owners and operators and entities involved in tourism to identify trends, evaluate the business environment, and develop strategies. Air s ervices are usually an important part of these di scussions. Private sector bodies such as the St. Croix Hotel and Tourism Association and the St. Croix Chamber of Commerce participate in these discussions, and pursue projects of their own;  In 2007, the Virgin Islands Port Authority assembled a public
-private consortium to bid for funds under the Small Community Air Service Development Program. The bid was successful;  Also in 2007, the Authority assessed the potential for developing St. Croix as an air freight hub for the eastern Caribbean. This could bene fit passenger services directly, if the cargo strategy were to rely on belly capacity of passenger flights. Passenger traffic would benefit indirectly, since air cargo could utilize the airport, and the fixed costs of operating the airport could be spread over a larger base of operations. User**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 16 charges could then be lowered. The ground equipment and staff serving air cargo might be cross
- utilized for passenger flights;  In 2008, the Consortium engaged a consultant to develop air service strategies for St. Cro ix as stipulated under the SCASDP application and award. The consultant presented the market analysis and strategies to the VIPA Board in November, 2008;  In February 2008, the Authority announced an incentive program that will waive all landing fees betwee n June 1, 2008 and December 31, 2010, for airlines that introduce or increase service at St. Croix ;  In March 2008, Virgin Islands Governor John P. deJongh established a St. Croix Blue Ribbon Airline Committee. The goal of the Committee is to increase traff ic to St. Croix and to attract new services. The Governor stated that such objectives can be best achieved through a partnership of public and private members. This Committee is very active , meeting regularly to review and resolve airline s ervice issues and opportunities;  In 2008, the Department of Tourism hired professional assistance to evaluate alternate air service strategies and provide it with the airline data, cost factors, and traffic statistics to serve as an analytical basis for negotiating air se rvice incentive programs;  In 2008, the Department of Tourism met with airline officials in the United Kingdom and Scandinavia to develop better air schedules and to attract increased numbers of European visitors to the Virgin Islands ;  In 2008, the Consortium paid substantial funds to Delta, American and US Airways to support promotional efforts. The Department of Tourism continued its aggressive promotion of the St. Croix tourism product;  In January 2012 , specialists hired by the Consortium met with American Airlines, Delta Air Lines and US Airways. Airline reaction was uniformly positive. However, the weak economy and several years of poor earnings have placed the industry under stress. In spite of the economic situation, some new flights have been added as a result of this work. However, all three airlines clearly indicated that some form of revenue guarantee or risk sharing would be necessary before any additional ne w or im proved services would be provided. The Authority and other me mbers of the Virgin Is lands have made significant investments in the St. Croix air market. Several projects testify to the community’s commitment to the Rohlsen Airport and its air services:  Facility improvements completed in 2003, including reconstruction and enlargement of the terminal building from 76,000 square feet to 181,000 square feet, as well as improvements in ground ac cess at a cost over $45 million;  Also in 2003, the Authority and other parties submitted an application under the Small Community Air Service Developme nt Program to support an incentive program for nonstop services between St. Croix and the U.S. mainland. T his initial SCAS DP application was not approved;  In 2004, the Authority completed the extension of the main runway, from 7,600 feet to 10,000 feet ; Th e $12 million cost of this project included land purchases and the relocation of 20 homes;  In 2005, a $6 million air traffic control tower opened
- financed entirely with local funds;  In 2005 and 2006, the Government of the U.S. Virgin Islands paid $1 mil lion for an experimental service between St. Thomas and St. Croix by American Eagle;  In 2007 , the Port Authority, supported by The Virgin Islands Department of Tourism and the St. Croix Hotel & Tourism Association applied for and received a $150,000 SCASDP grant to conduct a th o rough strategic analysis of the St. Croix air service market and to develop short
- and long
- term goals out of that study. By all measures, this Phase I study has proved extremely successful as short
- term goals have already been reali zed and three clearly defined long
- term goals emerged; and  In continuing efforts to improve St. Croix’s air services, the Port Authority and the Department of Tourism recently met with American, American Eagle, Cape Air, Continental, Delta (and pre merger , with Northwest), US Airways, and Spirit regarding better services to the Virgin Islands. 

### VIII. **Other Program Details** Under this Application, the Virgin Islands Port Authority and the Department of Tourism of the Virgin Islands, in conjunction with private entities, would pursue improved commercial air services between St. Croix and the U.S. mainland. The improvements would be based on the market research already completed under an earlier SCASDP grant, and a well structured and narrowly focused program o f incentives and risk sharing. This Application also provides the Authority and the Department with a portion of the funds to pursue the air service objectives through direct meetings with targeted carriers. The Governor of the U.S. Virgin Islands, Mr. John deJongh, has expressed a personal interest in this Project and will monitor all efforts.**P ROPOSAL FOR**  **F UNDING TO**  **I MPROVE**  **D IRECT**  **A IR**  **S ERVICES TO THE**  **M AINLAND**  **AT H**  **ENRY E.**  **R OHLSEN**  **A IRPORT**  **, S**  **T .**  **C ROIX**  **, U.S.**  **V IRGIN**  **I SLANDS** 

**V IRGIN**  **I SLA**  **NDS P**  **ORT A** **UTHORITY** │ 17 The Port Authority must by law maintain separate accounts for aviation and other functions. It follows a strict policy of cost recovery, and accordingly will commit no cash from airport s ources in support of this effort. However, with the $ 100,000 in cash committed by the public
-private partnership and the requested $3 0 0,000 in the form of a SCASDP grant, the Port Authority will have $ 400,000 at is disposal to develo p the risk
sharing/incentive program and pursue the two other objectives of 1) additional service to new markets to correct the deficiency in capacity and 2) new low
- fare service to address the high fares and resulting disadvantage experienced by St. Croi x,