Northwest Florida Regional Airport 

 

 

 

Grant Application Proposal Under The 

 

Small Community Air Service 

Development Grant Program 

DOCKET OST-2010-0)124 

 

 

DUNS # 613277649 

Congressional District #1 
 Northwest Florida Regional Airport 2

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Table of Contents

PROPOSAL SUMMARY ............................................................................................................................ 3

OUTLINE OF APPLICATION ...................................................................................................................... 4

THE GRANT WILL ADDRESS A MAJOR AIR SERVICE DEFICIENCY.........................................................................4

THE LOW-COST AIRLINES AVAILABLE TO SERVE VPS ARE LIMITED.....................................................................4

ADDRESSING THE DEFICIENCY: RECRUITING A LOW-FARE AIRLINE AT VPS.........................................................5

THE NORTHWEST FLORIDA REGIONAL AIRPORT MARKET ..................................................................... 7

VPS SUFFERS FROM MATERIALLY HIGHER FARES............................................................................................8

SUBSIDIZED ENTRY OF SOUTHWEST AT ECP THREATENS VPS...........................................................................9

NORTHWEST FLORIDA REGIONAL HAS A CLEAR PLAN..................................................................................... 10

MARKET OVERVIEW ............................................................................................................................. 11

TRAFFIC PROFILE ....................................................................................................................................... 11

VPS ECONOMIC BASE ................................................................................................................................ 12

EFFECTS OF GULF OIL SPILL ....................................................................................................................... 12

FRONTIER REVENUE PROJECTIONS .............................................................................................................. 14

ALTERNATIVE SOLUTIONS............................................................................................................................ 16

GRANT ADMINISTRATION .................................................................................................................... 18

GRANT AGREEMENT STRUCTURE ................................................................................................................. 19

ADMINISTRATION OF THE MARKETING PROGRAM .......................................................................................... 20

PROGRESS REPORTS TO DOT ..................................................................................................................... 20

PROGRAM DURATION ................................................................................................................................. 20

MARKET SUPPORT BEYOND TERM OF PROGRAM........................................................................................... 20

APPLICATION OF GRANT FUNDS ................................................................................................................... 21

PRIOR AIR SERVICE EFFORTS ...................................................................................................................... 21
 Northwest Florida Regional Airport 3

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Proposal Summary 

a) Proposer

Northwest Florida Regional Airport

1701 State Road 85 North

Eglin Air Force Base, Florida 32452

Telephone: (805) 651-7160

Facsimile: (805) 651-7164

DUNS# 613277649 

Contact: Mr. Greg Donovan

Director

Northwest Florida Regional Airport serves a population of over 

320,000 in the Florida Panhandle and South central Alabama, 

including strategically important Eglin Air Force Base.

b) Local Community Support Organization

This proposal is supported by Okaloosa County Tourist 

Development Council and the Economic Development Council of 

Okaloosa County

c) Official Sponsor

Okaloosa County’s Northwest Florida Regional Airport is the 

official sponsor of this proposal.

d) Brief Synopsis of Grant Request

The proposal requests $500,000 in grant funds from the Program 

to recruit low fare service to bring down ticket prices and recapture 

traffic leakage that is increasing to both Pensacola and to Panama 

City. A 20% match of $100,000 in locally generated funds will be 

included, for a total program fund of $600,000, supplemented with 

“in-kind” airport fee waivers having an approximate market value 

of $200,000.
 Northwest Florida Regional Airport 4

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Outline of Application 

The Northwest Florida Regional Airport, serving the Florida communities 

of Fort Walton Beach, Destin, Niceville, Crestview, Eglin Air Force Base 

and South Walton and Santa Rosa Counties, and its community partners 

hereby submits its request for a grant under the 2010 Small Community 

Air Service Development Program.

In this application, Northwest Florida Regional Airport is requesting a 

grant of $500,000, to be matched locally by an additional $100,000 to 

recruit a low-fare carrier to recapture excessive leakage, address 

substantially higher fares, and compete with other airports in the Florida 

Panhandle. 

The Grant Will Address A Major Air Service Deficiency

Structural changes in the airline industry have resulted in VPS 

experiencing significantly higher airfares at the same time that incumbent 

carriers are reducing capacity. This has begun a spiral that, if not 

addressed, could result in continuing loss of air service for consumers in 

the VPS region.

This situation is becoming more threatening. Pensacola to the west of 

VPS enjoys substantial low-fare service. But of concern is that to the east, 

the Panama City Airport (ECP) has successfully offered approximately 

$25 million over two years from private sources to artificially subsidize 

service from Southwest Airlines. This is entirely from a land developer 

which has extensive holdings in the immediate area. 

The Northwest Florida Regional Airport finds itself in a situation where its 

fares are substantially higher than those offered at either ECP or at PNS. 

The result is that ridership is being materially diverted. 

The Airport understands and supports free enterprise efforts to increase 

traffic. But in the current economic situation, it is almost impossible to 

recruit a low-fare carrier, or any major carrier for that matter, without 

some mechanism to reduce the initial risks of starting service at a new 

destination.

The Low-Cost Airlines Available To Serve VPS Are Limited

The community is losing significant traffic to all parts of the nation due to 

unreasonably high local fares and increasing levels of low-fare airline 

service elsewhere in the Florida Panhandle. 

As the Department knows well, there actually are few low fare airlines, 

and fewer still that are in a strategic position to establish service at VPS. 

 

Since 2008, airlines have 

reduced capacity at VPS 

by almost 14% - at the 

same time that a 

whopping 25% variance 

in fares has taken place... 

 

To the top 25 VPS O&D 

destinations, consumers 

pay an average of 31% 

more in air fares. 

 
 Northwest Florida Regional Airport 5

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Today, AirTran serves Pensacola to the west of VPS. Southwest Airlines 

is serving Panama City to the east. Understandably, both of these carriers 

have declined to consider service at VPS.

The Southwest service at Panama City (ECP) that is being materially 

propped up by subsidies provided by a large land developer, provides two 

daily low-fare flights to three of Southwest’s focus cities – Houston, 

Nashville, and Baltimore/Washington, plus Orlando. This represents 

access to virtually all major airports served by Southwest.

In addition, the AirTran service at Pensacola provides excellent low-fare 

access to points in the Middle Atlantic, the Midwest, and New England. 

As these airports have seen massive entry of low-fare service, VPS has 

seen a corresponding decline in air access, with scheduled seats 

declining 13.8% between the second half of 2008 and that of 2010.

Addressing The Deficiency: Recruiting A Low-Fare Airline At VPS

One of the challenges facing VPS is that it faces nationwide low-fare 

competition from the combination of ECP and PNS, with service from 

Southwest and AirTran. But there is no single alternative low-fare carrier 

that can address both of these challenges. 

This leaves VPS with limited choices in seeking low-cost airline service. 

Therefore, this proposal is aimed at recruiting one of the only two such 

carriers that have the potential of having a meaningful effect on lowering 

ticket prices and recapturing leakage in the region. They each access 

markets in different parts of the nation – but analyses by the airport 

ATL

BWI

HOU

BNA

MCO

PNS

VPS

ECP

VPS Is Bracketed By Low-Fare Service 

Accessing All Parts of The United 

States. This Results In Air High Fares & 

Declining Capacity

The Challenge:

 

 

 

Over the past five years, 

VPS has seen increased 

traffic leakage due to 

higher fares. 

 

This grant will incubate 

successful, long term lowfare airline service. 

 
 Northwest Florida Regional Airport 6

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

indicate either one will materially reduce leakage and have a major effect 

upon bringing fare discipline to the marketplace.

These are Frontier Airlines, with access to its vibrant operation at Denver 

International, and jetBlue, with access to one of its key destinations on 

the East Coast.

This grant is intended to provide a risk-offset to attract one of these 

carriers. The airport has been in on-going contact with both airlines. The 

option that will provide the highest access – in terms of numbers of new 

low-fare destinations opened – is Frontier. The carrier is interested in 

pursuing the concept of entering the Florida Panhandle market, and VPS 

represents the airport of least competitive resistance. Frontier serves 

every major US point west of Denver, and is a true hubbing carrier.

While Frontier has been receptive in discussions with VPS to

investigating the Panhandle market using VPS, the airline industry 

changes very rapidly. In this, the community asks the Department to allow 

it to also consider jetBlue as an alternative should negotiations with 

Frontier not prove fruitful.

This service will materially reduce inflated air fares at VPS, recapture 

leakage to ECP and PNS, and address a decline in capacity. The service 

proposed has very high probabilities of success, but without the riskreduction dollars made possible by this grant, it will be difficult to convince 

either carrier to enter the market.

 

 

 

 

 

 

 

 

 

There is a rich 

opportunity for specific 

new airlines at VPS... 

 

But they will require riskoffsets before they will 

move their limited fleet 

resources to a new 

market. 

 

This grant will make such 

service – and much 

reduced fares for VPS 

consumers – possible. 

 
 Northwest Florida Regional Airport 7

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

The Northwest Florida Regional Airport Market 

Today, VPS has service from four major airline systems, American, 

Continental, Delta, and US Airways. The majority of flights are operated 

by 50-seat or smaller regional jets. This does not allow any substantial 

number of discount seats.

The current schedule pattern filed for the 2nd half of 2010, and compared 

to that of just two years ago - 2008 - clearly indicates a decline in air 

service access.

Carrier HUB 7/1/2008 - 

12/31/2008

7/1/2010 - 

12/31/2010 % Change 7/1/2008 - 12/31/2008

7/1/2010 - 

12/31/2010 % Change

Current 

Avg 

Seats

AA 1,073 1,059 -1.3% 50,764 49,812 -1.9%

DFW 1,009 1,059 5.0% 47,564 49,812 4.7% 47.0

ORD 64 -100.0% 3,200 -100.0%

CO 1,039 513 -50.6% 37,806 25,650 -32.2%

IAH 597 513 -14.1% 29,408 25,650 -12.8% 50.0

TPA 442 -100.0% 8,398 -100.0%

DL 2,146 2,408 12.2% 115,300 132,764 15.1%

ATL 1,580 1,859 17.7% 114,200 105,314 -7.8% 56.7

CVG 22 -100.0% 1,100 -100.0%

MEM 544 549 0.9% 61,545 27,450 -55.4% 50.0

US 478 721 50.8% 23,900 41,290 72.8%

CLT 478 721 50.8% 23,900 41,290 72.8% 57.3

Total 4,736 4,701 -0.7% 289,315 249,516 -13.8% 53.1

Departures Seats

 

 

 

 

 

Virtually all of VPS service 

is flown with 50-seat 

regional jets. 

 

These can offer very few 

discount seats. The 

additional air service 

made possible by this 

grant will address this 

situation and reduce the 

leakage to other airports 

in the region. 

 
 Northwest Florida Regional Airport 8

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

A 13.8% reduction in seats offered has resulted in increased leakage.

The reasons are clear: the airline industry has re-structured:

- Re-allocating its Chicago/O’Hare capacity, American deleted

access to its hub at that dominant airport;

- Delta has been pulling down service at CVG, in the process 

eliminating flights to VPS.

- Subsequent to the Delta/Northwest merger, Delta began to retire 

older DC-9-30s from the fleet. With no direct seat-capacity 

replacement, the carrier substituted 50-seat regional jets for these 

100-seat DC-9s.

- Delta has also shifted some MD-88s into 50-70 seat regional jets 

to Atlanta Jackson-Hartsfield.

VPS Suffers From Materially Higher Fares

A comparison of actual average fares paid indicates a 25% premium paid by 

VPS consumers, compared to Pensacola.

VPS Fare Diff

Rank Market Psgr AVG Fare Psgr. AVG Fare

1 DFW 56,633 $214.50 49,618 $194.93 10.0%

2 DCA 28,560 $253.76 36,247 $207.85 22.1%

3 ATL 20,906 $197.52 72,883 $129.31 52.7%

4 IAH 20,553 $207.89 28,846 $195.44 6.4%

5 LAS 19,458 $297.50 25,302 $222.90 33.5%

6 STL 18,540 $227.19 25,683 $160.46 41.6%

7 DEN 18,422 $215.57 50,390 $152.85 41.0%

8 ORD 18,420 $178.56 30,074 $201.03 -11.2%

9 BOS 16,985 $221.43 24,649 $187.56 18.1%

10 BWI 16,015 $268.38 31,801 $190.60 40.8%

11 SAT 14,795 $256.72 15,826 $234.82 9.3%

12 MSP 14,679 $211.15 25,025 $192.08 9.9%

13 LAX 14,532 $329.13 24,236 $279.25 17.9%

14 MEM 14,439 $215.29 10,015 $247.01 -12.8%

15 MCI 13,617 $190.79 17,272 $185.58 2.8%

16 PHL 13,129 $218.27 49,797 $136.60 59.8%

17 LGA 12,792 $221.83 28,370 $201.19 10.3%

18 PHX 12,407 $231.10 18,991 $217.50 6.3%

19 DAY 11,995 $249.85 9,096 $170.90 46.2%

20 IAD 11,913 $252.90 21,107 $207.77 21.7%

Top 20 368,790 $229.65 595,227 $175.96 30.5%

All Mkts 718,821 $260.34 1,353,184 $207.38 25.5%

VPS PNS
 Northwest Florida Regional Airport 9

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

This data is for the full 12-month year ending 3/13/10, and includes all 

federal fees and taxes.1

Subsidized Entry of Southwest At ECP Threatens VPS

These data, however, do not fully illuminate the emerging challenges 

faced by VPS. Southwest Airlines, artificially supported by a private sector 

subsidy of $25 million over two years, implemented service in early 2010 

at nearby Panama City. They are operating two daily flights each to MCO, 

BNA, BWI, and HOU, the last three of which are de facto connecting hubs 

for Southwest.

While fare data is not yet available for this service, we can make 

projections based on the average yields of Southwest to key VPS O&D 

markets from other points on the WN system. We compared the current 

average fare (including federal fees and taxes) at VPS, with the average 

Southwest fares at three airports in the region.

Southwest Average Fares At

BHM JAN JAX

VPS

$260.42 $178.74 $170.74 $150.21

VPS Variance 45.7% 52.5% 73.4%

It is entirely reasonable to expect that the average system fares that 

Southwest is attaining at these markets will be very similar at Panama 

City/ECP.

Without service from a low-fare carrier locally, VPS will continue to see 

fares that are between 40% and 70% higher than at ECP, and at least 

25% higher than at Pensacola.

This is another reason that Northwest Florida Regional Airport would ask 

the Department for favorable consideration of this application

 

1 Source: Aviation DataMinerTM from US DOT filings.

 

 

 

 

 

With a $25 million twoyear private subsidy, 

Southwest is adding 

797,000 low fare seats 

annually at nearby 

Panama City. 

 

This grant will allow VPS 

to level the playing field 

and assure that its 

consumers do not pay 

comparatively-exorbitant 

ticket prices. 
 Northwest Florida Regional Airport 10

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Northwest Florida Regional Has a Clear Plan

Northwest Florida Regional Airport has an aggressive air service 

enhancement program. In addition to the traditional activities of meeting 

with airlines and offering in-kind incentives, the airport works extensively 

with community and business entities

This grant – which will allow VPS to recapture significant leakage and 

reduce very high fares – is fully supported by civic and public entities in 

the region. 

The plan is to combine the $500,000 grant with $100,000 in local cash 

commitment to provide a risk-reduction program for one of two low-fare 

carrier targets, Frontier and jetBlue.

The plan herein is to use $50,000 of the funds in a carefully-focused 

marketing plan to assure that both local and national travel-generators 

are aware of the new service. Working with major travel, tour, and resort 

operators will be a key part of the program, due to the fact that 62% of all 

VPS passengers are inbound-generated.

The Airport will spearhead negotiations with the target carrier, and in 

developing the performance and revenue metrics that will be required of 

the carrier. As noted, the first carrier to be contracted will be Frontier, 

which will open VPS to a strong west-focused connecting hub. 

These activities will include:

 Initiating contact with the target airline upon notification of grant 

award.

 Preparation and submission of traffic and revenue projections for 

the new service to the target carrier.

 Negotiating a mutually-acceptable risk-abatement program. This will 

include the establishment of revenue goals, including both local VPSDEN traffic as well as that connecting to points beyond Denver.

 Monitoring traffic, fare, on-time, and schedule completion 

performance of the selected carrier.

 The Airport will be the point of contact with the Department in all 

areas of the grant program.

 Development of key program metrics and providing quarterly 

reports to the Department outlining each, and keeping the 

Department apprised of the progress of the program.

 

 

 

A grant represents a 

business relationship 

between the Airport, the 

Department, and the 

airline involved. 

 

The objective is to assure 

that the grant dollars are 

applied to assure a net 

improvement in air 

service. 

 

VPS has a clear plan to 

assure this goal. 

 
 Northwest Florida Regional Airport 11

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Market Overview 

The Northwest Florida Regional Airport (VPS) serves a population of 

321,000 in the Florida Panhandle. 

The region served by VPS has experienced strong in-migration of 

population with the three primary counties in the service area – Okaloosa, 

Santa Rosa, and Walton – seeing a 48.3% net increase in residents 

between 1990 and 2009, and projected to increase an additional 27.5% 

by 2015.

The geographic location of VPS near the center of the Florida Panhandle 

and along Interstate 10 positions the airport as an important air service 

gateway for this growing and strategically important area. This convenient 

surface access will provide VPS with the ability to quickly recapture 

existing leakage with the entry of low-fare airline service.

Traffic Profile

Northwest Florida Regional Airport represents a traffic profile that is 62% 

inbound generated. This means that nearly two thirds of all passengers 

are essentially visitors to the region.

This again showcases the critical importance of both frequency and fares 

as tools to compete with other leisure destinations. As noted in this 

document, the high fares at VPS are a major threat to the local economy, 

and without question result in both direct and latent leakage – the latter 

being consumers who would fly to the region but decide not to because of 

insufficient capacity and high fares.

The grant herein requested will be a major step in assuring that VPS and 

the consumers it serves will have air fares and capacity that tend to level 

the playing field with Pensacola and – going forward – with the artificiallysupported Southwest service at Panama City/ECP.

 

VPS has a strong 

population and is a 

strong draw from the rest 

of the nation. 

 

Because 62% of 

passengers are in-bound 

generated, the disparity 

in fares with PNS and 

ECP represents a very 

real economic threat. 

 

VPS can support low fare 

service – this grant will 

facilitate the entry of 

such a carrier. 

 
 Northwest Florida Regional Airport 12

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

VPS Economic Base

Northwest Florida Regional Airport serves a diverse economic base that 

has its roots in two key industries: defense and tourism.

Military Activity

The VPS service area is home to three major military installations – Eglin 

Air Force Base, Hurlburt Field and Duke Field. These bases include a 

diverse range of national defense activities including Air Force Material 

Command, the Air Armament Center, Air Force Special Operations 

Command, and 919th Special Operations Wing.

In 2011 The 7th Special Forces Group will relocate to the area from Fort 

Bragg, NC and Eglin Air Force Base will be the worldwide training center 

for the F-35 Joint Strike Fighter aircraft.

Private Sector Activity

While military and government activities are major contributors to the VPS

service area, the region also plays host to a vibrant and diverse private 

sector economy.

Tourism plays a leading role as a result of a warm climate and miles of 

beach front access. Activities include bathing, boating, fishing, 

snorkeling/scuba diving, and golf. Major festivals and attractions in the 

region include the World Cobia Fishing Tournament, Air Force Armament 

Museum, Blue Angels Classic, Milton Opera House, Sandestin Resort, 

Sandestin Wine Festival, and Chautauqua Assembly and Festival. 

Other major private sector industries include medical care, real estate 

development, retail, manufacturing, and aircraft support services. 

Technical and aerospace companies are increasingly locating in the 

region as a result the established knowledge base created by military 

installations. Included in this group of companies are Boeing, Raytheon, 

and Lockheed-Martin.

The VPS service area is also home to a number of colleges and 

universities including University of West Florida, University of Florida, 

Troy University, and Northwest Florida State College, and Embry-Riddle 

Aeronautical University.

Effects of Gulf Oil Spill

As may be expected the media coverage of the effects of the April 2010 

BP oil spill in the Gulf of Mexico has had severe effects on the tourist 

industry all along the Panhandle.

 

 

 

 

The much-publicized Gulf 

oil spill has made 

consumers reticent to 

visit the Florida 

Panhandle. 

 

The fare disparities at 

VPS put the community 

at even more of a 

disadvantage. 

 
 Northwest Florida Regional Airport 13

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

It is not the purview of this document to project the long-term effects of 

this event. However, it has affected the ability of the region to compete for 

tourist dollars with other leisure destinations elsewhere.

This makes the imperative of VPS having competitive air fares even more 

important. With average ticket prices being 25% higher than alternative 

access points to the Panhandle, VPS is at a severe disadvantage.

The implementation of low fare access to VPS will be a major step in 

assuring that the effects of the BP spill are mitigated and do not translate 

into a long-term shift of traffic to other airports in the region.
 Northwest Florida Regional Airport 14

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Frontier Revenue Projections

Given the competitive situation in the Florida Panhandle, the entry of a 

low-fare carrier at VPS would enhance the region’s access as well as 

relieve the burden of disproportionately higher fares at VPS.

The Airport reviewed the current capacity, routing options, and fare levels 

between western O&D destinations on the Frontier Airlines system. From 

this, an estimated traffic increase in each market was generated, based 

on expected fare reductions as a result of the new service that would both 

stimulate new traffic and recapture leakage. This was related to the 

estimated traffic capture that Frontier could expect with two daily roundtrip flights using 70 seat E-170 aircraft.2

The result was a projection of just under 70,000 annual passengers for 

Frontier in the VPS market. 

Market Current 

VPS

Projected 

Stimulation 

Factor

Net Market F9 Capture Net F9 

Traffic

LAS 19,458 54.0% 29,965 30.0% 8,989

DEN 18,422 72.0% 31,686 90.0% 28,517

LAX 14,532 22.5% 17,801 30.0% 5,340

PHX 12,407 7.2% 13,300 20.0% 2,660

SEA 10,770 21.5% 13,086 25.0% 3,272

SFO 8,861 17.5% 10,412 20.0% 2,082

SLC 7,890 22.5% 9,665 20.0% 1,933

SAN 7,765 7.5% 8,347 20.0% 1,669

TUS 7,646 5.5% 8,066 15.0% 1,210

OKC 7,358 5.5% 7,763 15.0% 1,164

ABQ 6,518 4.5% 6,811 15.0% 1,022

SNA 5,103 15.0% 5,868 20.0% 1,174

COS 4,689 17.5% 5,510 90.0% 4,959

ELP 4,502 5.5% 4,750 7.5% 356

PDX 3,376 26.8% 4,279 35.0% 1,498

ANC 2,629 7.6% 2,829 40.0% 1,132

ICT 2,539 5.5% 2,678 40.0% 1,071

BOI 1,305 25.4% 1,636 25.0% 409

GEG 1,277 25.4% 1,601 25.0% 400

Totals 147,045 26.5% 186,053 68,858

Based on a two round-trip pattern, with a reduced week-end frequency, 

this would indicate approximately an 79% load factor for the airline.

 

2

They could also use 100-seat E-190 jets. The difference in the sector costs of these two variants is 

not substantial.
 Northwest Florida Regional Airport 15

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Based on forecast data, Frontier will find VPS a strong contributor to its 

bottom line, with strong net-new system traffic:

Market Distance 1197

Aircraft E-170

Service Pattern 2 Roundtrips

Annual Seats 87429

Annual Flights 1,249

Completion Factor 98.0%

Block Time 2.5

Annual Block Hours 3,122

Annual Seats 87,429

Cost Per Hour $3,687

CASM $0.1100

Annual Segment Operating Cost $11,511,724

Local Traffic 28,517

Online Domestic Connections 40,341

International Passengers 0

Local Traffic

DEN Local O&D Traffic 28,517

DEN Local PDEW 39.1

Average DEN Fare $158.03

Local Revenue $4,506,551

Local Yield $0.1320

Connecting Traffic

Connecting Traffic 40,341

Connecting PDEW 55.3

Connecting Fare Pro-Rate $221.24

Connecting Revenue $8,924,933

Totals

Onboard Passengers 68,858

Total PDEW 94.3

Pro-Rated Revenue $13,431,484

Less Displacement (7.5%) $1,343,148

Net System Revenue $12,088,336

Net Average Revenue per Passenger $195.06

Average Market Yield $0.1467

Market RASM $0.1155

Annual ASMs 104,652,034

Annual RPMs 82,423,142

Segment Load Factor 78.8%

Projected Segment Operating Profit $576,612

Operating Margin 5.0%

VPS-DEN: Projected Operating Metrics

Operating Stats & Expenses

Revenue & Traffic Projections

Load Factor Projections
 Northwest Florida Regional Airport 16

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Alternative Solutions

As noted above, Frontier is the first LCC target for VPS. But airline 

strategies can change rapidly. For that reason, the community wishes to 

reserve the right to apply the grant to attracting jetBlue service to the East 

Coast.

Preliminary forecasts of a jetBlue entry at VPS are very encouraging. 

Using the same methodology as in the Frontier analysis, it is indicated 

that two daily flights to the jetBlue operation at JFK would yield 

approximately 101,000 passengers in the VPS market.

Market Psgr Stim B6 Capture Net B6

BOS 16,985 45.5% 65.0% 16,063

BTV 1,232 55.5% 20.0% 383

BUF 4,890 45.5% 20.0% 1,423

PIT 10,111 35.6% 20.0% 2,742

NYC 26,559 300.0% 75.0% 79,678

Totals 59,778 100,290

In this analysis, the traffic to the three metro NYC airports was combined. The 

low fares offered by jetBlue draw a wider catchment area in the Tri-State 

area. Furthermore, only specific connecting points at JFK were considered.3

As indicated on the following page, with a pattern of 2 daily 100-seat E-190 

jets, the data indicate a very strong opportunity for jetBlue.

While the East Coast traffic is important to VPS, the Frontier option opens 

more communities to VPS. Nevertheless, the jetBlue option is one that the 

Airport wishes to pursue should discussions with Frontier not prove fruitful.

 

3

jetBlue is increasingly using JFK as a connect point. Approximately 31% of its passengers at that 

airport are through or connecting as of the 1Q 2010. Source: Aviation DataMiner analysis of JFK and 

jetBlue data.
 Northwest Florida Regional Airport 17

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Based on forecast data, jetBlue will also find VPS a strong contributor to its 

bottom line, with strong net-new traffic to JFK, plus some feed traffic:

Market Distance 1016

Aircraft E-190

Service Pattern 2 Roundtrips

Annual Seats 87429

Annual Flights 1,249

Completion Factor 98.0%

Block Time 2.1

Annual Block Hours 2,623

Annual Seats 124,898

Cost Per Hour $4,209

CASM $0.0870

Annual Segment Operating Cost $11,039,984

Local Traffic 79,014

Online Domestic Connections 18,140

International Passengers 0

Local Traffic

JFK Local O&D Traffic 79,014

JFK Local PDEW 108.2

Average JFK Fare $129.34

Local Revenue $10,219,478

Local Yield $0.1273

Connecting Traffic

Connecting Traffic 18,140

Connecting PDEW 24.8

Connecting Fare Pro-Rate $142.27

Connecting Revenue $2,580,851

Totals

Onboard Passengers 97,155

Total PDEW 133.1

Pro-Rated Revenue $12,800,329

Less Displacement (7.5%) $1,280,033

Net System Revenue $11,520,296

Net Average Revenue per Passenger $131.75

Average Market Yield $0.1167

Market RASM $0.0908

Annual ASMs 126,896,368

Annual RPMs 98,709,393

Segment Load Factor 77.8%

Projected Segment Operating Profit $480,312

Operating Margin 4.4%

VPS-JFK: Projected Operating Metrics

Operating Stats & Expenses

Revenue & Traffic Projections

Load Factor Projections
 Northwest Florida Regional Airport 18

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Grant Administration 

The Northwest Florida Regional Airport and the community have clearly 

identified a specific, demonstrable, and quantifiable air service deficiency 

of the type that is intended to be addressed by the Small Community Air 

Service Development Grant Program.

Risk-Abatement Only If Needed. The proposed mechanics of the 

application of the grant and local match are outlined below. 

It is clear that both the VPS-DEN and the VPS-JFK markets can be 

strong contributors to the airlines involved. Therefore, the purpose of the 

grant – aside from some initial marketing programs – will be to provide a 

safety net for the airline. The community and the airline will negotiate and 

develop specific revenue targets, based on the airline’s costs and the 

revenues that VPS contributes to the carrier’s system. Any shortfall 

between the costs and the revenues will be the purpose of the grant and 

community funds.

It is specifically noted that this will be based on a pre-negotiated, and predetermined set of cost and revenue projections, and is not in any way a 

subsidy, “travel bank” or fare-offset. The market is felt to have a high 

potential to be self-sustaining, and the revenue guarantee will be applied 

only if revenues fail to reach pre-determined levels. 

It is noted that this approach has worked well in other grant awards, and it 

is possible that the full funding may not be eventually spent due to the 

market maturing quickly.

The forecast indicates that, on a steady-state basis, the service to either 

point can achieve profitability during the first year of service. 

A Note Regarding Frontier: The data are based on a full two-flight per 

day schedule. It is specifically noted that Frontier’s current strategy is to 

develop markets on a “day of the week” model. This is based on a 

schedule pattern that begins on a 3-4-day per week basis and expands 

from that point. The Airport is completely comfortable with this approach. 

First, it better protects the Department’s risk: should the service clearly 

indicate that it will not meet projections, it can be dropped quickly. 

Second, it allows the carrier to build the market with less risk to its own 

bottom line.
 Northwest Florida Regional Airport 19

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Grant Agreement Structure

 Revenue and operating expense expectations for the new service will 

be based on the level of service provided (frequencies, equipment, 

schedule, etc.);

 Reasonable fares will be offered that approximate those in similar 

markets, including availability of lower fare buckets;

 Schedules will be timed for maximum connectivity;

 On-time performance and completion rates will determined. 

Specifically, a 98% ex-weather completion rate will be a standard, and 

90% on-time arrivals (using the Department’s 15-minute standard) will 

be required;

 All local VPS revenues to the carrier’s hub airport will be attributed to 

the route, and applied to the revenue requirement;

 An acceptable percentage of revenues for connecting passengers 

beyond the carrier’s hub will be determined. In general, this would be 

computed by the total VPS revenues generated to/from points beyond 

the hub, less an agreed-upon “spill” figure.4

 The carrier will serve the route for the duration of this program, 

allowing sufficient time to achieve profitability;

 The program will be for one year from start of service. Preferably, the 

determination of whether revenue-guarantees are due will be 

accomplished at the end of two six-month periods. Total costs v total 

revenue allocation for each period will determine if, and what amount 

would be due. 

Based on these criteria, operating expenses, revenue, and performance 

will be monitored and reported on a monthly basis, to provide input 

regarding remedial local marketing activity or feedback to the carrier to 

address service shortfalls, if any.

Prior to executing any agreement, the airport will provide the revenue 

guarantee documents to Department staff for review and approval.

Comprehensive Marketing Program

Because forecast data indicates that profitable demand levels exist for 

VPS service, the Airport has developed a focused marketing and 

promotional program to increase public awareness of the new service. Of 

 

4 New service into a connecting hub tends to result in some displacement of existing passengers –

this is particularly true when system load factors are over 80%.
 Northwest Florida Regional Airport 20

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

the cash funds in this proposal, $50,000 will be budgeted for this purpose, 

including the following elements:

 A marketing campaign in the Fort Walton Beach/Eglin Air Force Base 

service area promoting the new service that includes radio, print, and 

outdoor media;

 Targeted communication with companies in the service area that have 

a known communities of interest in the hub cities of the carrier, plus 

specific points on the carrier’s system.

 Public relations and communications activities that utilize the local 

media as an additional outlet for increased public awareness.

Administration of The Marketing Program

The Airport will complete and submit to the Department a projected 

budget for these activities, based on a planned 12-month program. The 

Airport will monitor all expenditures and provide the Department with a 

quarterly accounting, along with the Department’s prorated share of the 

expenses. 

Progress Reports to DOT

The Airport will provide the Department with progress reports on the 

marketing expenditures, and airline operational performance on a 

quarterly basis, unless the Department requires a different schedule.

Program Duration

The grant under this proposal requested for a period of one year from the 

date service commences. The Airport agrees that any unused funds not 

applied toward marketing or revenue guarantee during this period will be 

relinquished to the Department.

Market Support Beyond Term of Program

The Airports System believes that nonstop service facilitated by this grant 

will be well received by the community and achieve self-sufficiency during 

the term of this program. Nevertheless, it is also possible that factors 

outside the direct control of either the Airports System or the carrier could 

impact route performance, and prevent the market from achieving 

forecasted performance. Should this occur, Airports System staff are 

prepared to assist the carrier with marketing support and other 

assistance, to be developed in consultation with the carrier, to ensure 

service continues beyond the term of this program.
 Northwest Florida Regional Airport 21

 

Application: Small Community Air Service Development Program 

OST-2010-0124 

Application of Grant Funds

Community % of

Grant & Airport Total Total

Component Funds Funds Funds Funds

Marketing Support $25,000 $25,000 $50,000 8%

Risk Abatement Funds $475,000 $75,000 $550,000 92%

TOTAL $500,000 $100,000 $600,000 100%

% of Total 83% 17% 100%

Proposed Use of Funds

Northwest Florida Regional Airport

In addition, the airport is offering the new carrier up to $200,000 in in-kind 

support in the form of fee and rental waivers for two years,

Prior Air Service Efforts

The Northwest Florida Regional Airport maintains an aggressive air service 

enhancement program.

This program goes beyond typical air service recruitment efforts. In a volatile 

airline environment, it is critical that a community proactively work to forecast 

events that will affect the access VPS has to and from the rest of the globe.

 As one example, VPS carefully monitored the unfolding relationship 

between Southwest Airlines and the St. Joe Company, the developer 

of land around the new Panama City/ECP airport. When it became 

apparent that the tens of millions offered by St. Joe to Southwest 

could not be reasonably countered by VPS, the Airport proceeded to 

develop a detailed action plan to reduce and prevent to the extent 

possible any leakage to the new airport.

 The Airport routinely works directly with planners at Delta, American, 

Continental and US Airways to identify new service options.

 Key airline trends are watched constantly. For example, the Airport is 

targeting additional capacity upgrades as US Airways builds service at 

CLT. This is important in light of the reduction in Delta service to CVG.

 The Airport proactively provided incumbents with projections of the 

effects of the artificially-subsidized Southwest service at Panama 

City/ECP. These resulted in substantive shifts in incumbent 

scheduling and capacity.

 The Airport is working with a number of second-tier leisure carriers to 

implement service to VPS as a focus city.