## OST

­ 2010

­ 0124



# PROPOSAL UNDER THE SMALL

COMMUNITY AIR SERVICE DEVELOPMENT

GRANT PROGRAM

Community Proposal of Yuma, Arizona

DUNS #156065500

Arizona Congressional District 07

Legal Sponsor: Yuma International AirportP roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 2 

# Proposal Summary

The Yuma International Airport (NYL), in pa rtnership with City of Yuma, Yuma County, Greater Yuma Economic Development Corporati on, Greater Yuma Port Authority, and Yuma County Chamber of Commerce herein respectfu lly submits its proposal for a grant under the 2009 Small Community Air Service Development (SCASD) Program.

Yuma International Airport is a previous reci pient of a SCASD grant, having been awarded $200,000 in 2007 to implement a marketing program intended to reduce significant levels of traffic leakage. The Airport and community part ners successfully implemented this program and the desired objective was achieved: traffic leakage was reversed and enplanements increased.

The increased traffic capture rate s and enplanements that the pr evious grant funds facilitated gained notice by Delta Air Lines which resulted in the carrier launching service between Yuma and Salt Lake City in December 2007. Unfortunatel y, the timing of this new route coincided with the run-up in oil prices and the first signs of economic weakness that led to softening demand. Compounding these challenges was that Delta did not participate in the government’s military ticketing program which prevented the service from capturing traffic generated by the U.S. Army Proving Grounds and U.S. Marine Air Corp Stati on Yuma, two of the largest generators of air

travel demand in the local market. Delta exited the Yuma market in August 2008.



### Challenge: Access to Only One True Hub-and-Spoke Operation

With the loss of Delta’s service, Yuma re turns to the service pattern that was outlin ed in the 2007 grant application: Los Ange les on United Express and US Airways Express to Phoenix.

The United service to LAX, while an importa nt and appreciated component of Yuma’s ai r service, does not provide access to a tru e connecting hub but rather a “focus city.” Via Los Angeles, United and Un ited Express provide c onnecting opportunities to only 39 destinati ons on an average of 150 daily departures. Of this service, 69 of the conn ecting flights (or 46%) at LAX are operated by United Express. 1

US Airways service provides access to a major connecting hub, but P hoenix is not growing and is unlikely to be a source of addi tional connectivity for the Yuma community in comi ng years. To illustrate this point, schedul es for the first week of August 2009 were compared with those during the first week of August 2010. During this one year pe riod, US Airways reduced the av erage number of weekly depart ures at PHX by 167 and available seats by over 14,000. This includes eliminati on of all service to five des tinations and reductions in freq uency to numerous others, including at Yuma where weekly departures declined from 41 to 34. 2

As will be outlined in this proposal, access to a single connec ting hub is insufficient for a market population and economic ba se as served by Yuma International Airport. The Airport a nd its community partners believe developi ng new connectivity with national air transp ortation is a critical component in sustaining local suppor t for the Airport that was developed with the previous SCASD grant funds and neces sary to ensure the region’s future economic vitality.

1 Schedule data for August 2010 sourced from Innovata, LLC via Airports:USA® DataMinerTM. Short-haul markets with overly circuitous routings excluded from counts.

2 Schedule data sourced from Innovata, LLC via Airports:USA® DataMinerTMP roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 3 Challenge: Current Economic Environment Makes Carriers Risk Adverse

As noted, with the assistance of SCASD grant funds Yuma Interna tional Airport was able to implem ent an effective marketing prog ram that reduced levels of traffic leakage and incr eased enplanements. This led to the additi on of new service by Delta that unfortunate ly does not continue today due to macro-leve l factors which do not reflect the success of the marketing program.

The effect of these factors, such as the overall weak economic environment a nd fuel price volatility, ha s made new route develo pment a rare
occurrence in the domestic U.S. market. In fact, it has been frequency reductions or elimination of markets altogether that has dominated the actions of airline planning departments duri ng the past year. Moreover, even if the prospect of economic recovery becomes reali ty, airlines are likely to remain risk adverse fo r some time when it comes to adding new service. This creates a real challenge for Yuma in its efforts to recruit

the additional air service that is needed by the community.



### Solution: Risk Mitigation Incentives to Incubate Access to Another Hub Site

The grant funds requested in this proposal will be used to pr ovide risk mitigation funds for the initiation of service to an ad ditional connecting hub from Yuma International Airport. The hub sites and carriers that the Yuma community intends to target are as follows:

• Delta Connection service Salt Lake City: As noted, this route was previously attempted by Delta but a combination of factors, including not participating in military ticketing programs,

led to its termination. With available risk abatement funds, the Air port and community hope

to convince Delta to reinstate th e market and would work with th e carrier to ensu re that it can access the large military market.

• United Express service Denver: This route would compliment United’s existing service, providing eastbound service to that carrier’s second largest hub at Denver International Airport.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 4 While service to either of the two hubs identifie d above is believed to o ffer the strongest profit potential, the community would like to encourag e United to open service to their new Houston hub as a result of United's merge w ith Continental. In any case, Yuma International Airport and its community partners are comm itted to prudently using grant funds to recru it and incubate access to an additional connecting h ub that can reasonably be expect ed to be self-sufficient over the long-term.



### Grant Proposal

To recruit the needed service, Yuma International Airport and its community partners are requesting a grant in the amount of $4 00,000 to provide risk mitigation funds to support development of service to an additional airline connecting hub over a two year period. The com munity will provide local matching funds of $1 00,000, for total program cash funding of $500, 000. In addition, the Airport will provide an additional $81,806 in the form of “in-kind” support.

The Yuma community recognizes that the Depart ment has limited SCASD funds and as such th ey must be deployed in manner that can generate measurable and maximum benefit. The proposal contained herein meets these criteria and the Yuma community has a proven track re cord of effectively utilizing SCASD funds to obtain results.

The Airport and its partners request favorab le consideration of this proposal and are available to respond to any questions the Department may

have.



## Respectfully submitted,

Craig Williams Airport Director Yuma International AirportP roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 5 

# Table of Contents

Proposal Summary............................................................................................................... .. 2 Challenge: Access to Only One True Hub-and-Spoke Operation ........................................ 2 Solution: Risk Mitigation Incentives to Incubate Access to Another Hub Site.................... 3 Grant Proposal ................................................................................................................. ..... 4

1. Summary of Proposal......................................................................................................... 6

2. Overview of the Yuma Market ......................................................................................... 8 Population Base ................................................................................................................ .... 8

Economic Base.................................................................................................................. .... 9

3. NYL Air Service Profile................................................................................................... 12

Current Yuma Air Service .................................................................................................. 12 Enplanement Tre nds at Yuma............................................................................................. 13

Current & Historical Air Service ........................................................................................ 14 Yuma Can Support Additional Air Service ........................................................................ 14 Fare Levels Challenge Tra ffic Retention at Yuma ............................................................. 15 Current v. Potential Connectivity at Yuma......................................................................... 17 Prior Air Service Development Activities .......................................................................... 19

4. Proposed Solution to Air Service Deficiency ................................................................. 20

Overview....................................................................................................................... ...... 20 Targeted Solution #1: Delta Connect ion service to Salt Lake City.................................... 20 Targeted Solution #2: United E xpress service to Denver................................................... 22 The Underlying Need for Risk Mitigation Funding ........................................................... 23 Marketing Support .............................................................................................................. 23

5. Grant Administration Plan ............................................................................................. 25 Grant Request Summary & Goal ........................................................................................ 25 Risk Mitigation Terms ........................................................................................................ 25 Project Term................................................................................................................... ..... 26 Role of Local Community Partners .................................................................................... 26 Project Monitoring Plan...................................................................................................... 26P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 6 

# 1. Summary of Proposal

Community and Airport:



## Yuma, Arizona Yuma International Airport (NYL)

2191 East 32 nd 

## Street Yuma, Arizona 85365 T: (928) 726‐5882 F: (928) 344‐4677

Designated Contact:   Mr. Craig Williams

Airport Director

Official Project Sponsor

Yuma International Airport is the official sponsor in submitting this application.

Community Partners

This proposal is supported by City of Yuma, Yuma County, Greater Yuma Port Authority, Greater Yuma Economic Development Corporation, and Yuma County Chamber of Commerce. These partners will be responsible for the following:

• Provide matching community funds for SCASD grant dollars.

• Working with Yuma International Airport in negotiating agreements with the target air carrier subsequent to grant award.

• Liaison with the Department in regard to carrier performance during the grant period.

• Administration of the total program fundi ng, including contact with the Department.

• Preparation of quarterly re ports, as determined necessary by the Department.

In addition, this proposal is being supported by Northern Ariz ona University, Arizona Western College, Cocopah Indian Tribe, Quechan Indian Tribe, and Yuma Regional Medical Center.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 7 Project Description

This proposal requests $400,000 in grant funds from the Small Community Air Service Development program. Grant dollars will be matched by $100, 000 in local funds and approximately $82,000 in “in-kind ” provided by the Airport in the form of landing fee and rental waivers for new service. The total project funding level is $581,806.

Yuma International Airport cu rrently has access to a single c onnecting hub and the goal of the project is to provide risk mitigation funding for development of additional hub access. The Airport and its partners believe that the Yuma ma rket can generate suffici ent traffic and revenues to support an additional hub, however to successfully recruit new airline service in the current environment it will be necessary to provide some risk mitigatio n funds. The funds requested in this proposal meet this need.

It is important to emphasize that while such funds may be necessary to recruit new service, the Airport and community intend to only disburse them to a recr uited carrier should revenues and traffic fall short of profitable levels early in th e route development period as ridership builds. In this context, it is entirely possible that Yuma International airport may only require some, or possibly not any, of the requested monies requested in this proposal. If such occurs, the Airport is prepared to return funds/f unding award to the Department for future use in the SCASD

program.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 8 

# 2. Overview of the Yuma Market

Population Base

The Yuma International Airport provides access to the national ai r transportation system for a region that reaches from southwe st corner of Arizona, near to the border with Mexi co, into southeastern California.

Approximately 258,825 people live within a 60-mi nute drive of Yuma International Airport, a number that increases to 363,361 pe ople when the

drive radius is increased to 90-minutes. 3 In both cases, the population counts include only those persons accessible on the United States side of the border. The Airport also provides access to the northern Mexico state of Sonora, in cluding the city of San Luis Rio Colorad o which has a population of approximately 139,000 people. 

# Yuma International Airport (NYL)

60-minute & 90-minute Drive Time Radius

90

‐ minute

drive radius

60

‐ minute

drive radius

The moderate winter temperatures also attract seasonal resi dents (“snowbirds”) which effec tively doubles the region’s populatio n, and whom contribute an estimated $300 million annually to the local economy. Retirees tend to travel more, and the corollary economic ba se that develops to support this population segment also generates increased air travel demand.

3 SOURCE: Microsoft MapPoint, 2007 EstimatesP roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 9 Phoenix Sky Harbor International Airport is approximately 190 miles to the east (2 hour 45 minute drive) and San Diego Internat ional Airport is approximately 180 miles to the west (2 hour and 40 minute drive) by way of Interstate Highway 8. The greater level of air servi ce at these two airports, including the presence of low-fare carriers, has histor ically resulted in significant levels of traffic leakage.

As noted, with the assistance of SCASD grant funds awarded in 20 07, the Airport was able to impl ement an effective marketing pr ogram that communicated the safety, convenience, and air service available at NYL. This led to incr eased use of Yuma International Airport that was sufficient to gain notice by and new service from Delta Air Lines. 4 The grant funds requested in this proposal are intended to build upon the increased awareness and recruit new, nonst op service to an additional connecting hub.



### Economic Base

The Yuma region is currently host to a diverse economic base with industries such as manufacturing, maquiladoras, logistics/warehousing/transportation, call centers, defense, agricu lture, and tourism. Of these i ndustries, agriculture is the largest due to the convergence of the Colorado and Gila Rivers and favorable year-r ound growing climate. Major crops in the region include broccol i, citrus, carrots, and over 90% of the nation’s winter lettuce.

As was noted in Yuma’s 2007 SCASD application, the Federal government presence in the region accounts for over 8,000 jobs, incl uding the US Army Proving Grounds and the US Marine Corps Air Station. Togeth er, these vital defense installations generate a large percenta ge of the total

air traffic demand at Yuma International Airport and would, therefor e, benefit significantly from additional hub access that th e grant funds requested in this proposal would facilitate. To underscore the impor tance of this traffic we remind the Department that a contr ibuting factor in Delta’s withdrawal from the NYL market was that it did not pa rticipate in the military’s ticke ting program effectively shutting Delta out of capturing any of this traffic. If the Department grants this application to Yu ma, the community will require participation in t he government and military program by the selected air carrier as a pre-condition to eligibility for risk mitigation funds.

4 As noted in the Proposal Summary, Delta’s service to NYL was discontinued due macro-level factors unrelated to the success of the marketing program.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 10 The table below lists the major private sect or employers in the Yuma region. Note that it does not include retail (WalMart, Tar get, Sears, etc.) and service industry (restaurants, automotive, entertainment, etc.) employment which, while major contributors to the local economi c base, generally do not generate large amounts of business travel. That said, th ey do provide incomes for an a dditional 10,000 area residents wh ich in part is used to purchase discretionary travel.

Employer Industry # of
Employees
Yuma Regional Medical Center Health Care 2,030
Bose Corporation Manufacturing 1,300
Salyer American Fresh Agribusiness 1,000

ACT Call Center Call Center 815
Quechan Paradise Casino/The Q Gaming 800
Dole Fresh Vegetables Agribusiness 750

Glen Curtis, Inc. Real Estate 750
Arizona Western University Education 650
Shaw Industries Manufacturing 445
Pasquinelli Produce Co. Agribusiness 300
Cocopah Bingo & Casino Gaming 300
Grower's Company Agribusiness 280
Shay Oil Wholesale Distribution 270
Gowan Milling Construction 260
Carrier UTC Manufacturing 200
AEA Federal Credit Union Banking/Finance 180

Arizona Public Service Utilities 165
H&S Developers, Inc. Real Estate 150
Johnson Controls Manufacturing 150

Cemex Construction 133
Mission Citrus Agribusiness 130
Alside Manufacturing 120
Don Peterson Engineers Construction 102
Barkley Ag Enterprises Agribusiness 100
Jacobson Companies Real Estate 100
Skyview Cooling Company Agribusiness 100
International Paper Manufacturing 100

SOURCE: Great Yuma Economic Development Corporation



# Top Yuma Area Private Sector Employers - 2009P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 11 Prior to the current rece ssion, the market area served by Yuma International Airport enjoyed an extended period of positive economic growth. This was the result of businesses being attracted to the region because of an available workforce that was a result of inbound population migration, along with the subsequent multiplier effect on the retail and service sectors that these incomes generated.

Like the rest of the nation, however, recent mont hs have seen high levels of unemployment and negative economic indicators in the Yuma area. The Greater Yuma Economic Development Corporation has identified a number of targeted industries to help the region grow its way out of the recession, including food technology, aerosp ace/defense testing, industrial manufacturing, and renewable energies. In each of these examples , it is unlikely that Yuma would be home to corporate headquarters but rather the location for a satellite facility or factory. For the recruitment of these industries to succeed, travelers (and in particularly site selectors) must be able to easily get to and from the Yuma area. Th e risk mitigation funds requested in this proposal will help ensure that the region is competitive in its recruitment of these industries by providing sufficient connectivity with the rest of the national air transportation.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 12 

# 3. NYL Air Service Profile

Current Yuma Air Service

Yuma International Airport has access to two ai rline systems – US Airways Express and United Express – providing nonstop serv ice to Phoenix and Los Angeles, respectively. These services provide the Yuma market with a tota l of 2,264 seats on 62 weekly departures. 5

The current capacity at Yuma reflects a declining number of seats and depa rtures year-over-year, including the loss of the prev ious service to SLC provided by Delta Connection. This is illustrated on the graph on the next page, which s hows that the loss of Delta service (as well as minor scheduled adjustments by the remaining car riers) has resulted in an 11.4% decline in weekly departures and 13.1% declin e in weekly seats year-over-year.

5 Scheduled data from Innovata, LLC from Airports:USA® DataMinerTM for week ending August 29, 2009.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 13 

### Enplanement Trends at Yuma

After years of relatively moderate traffic growth 2008 was a year of exceptional growth at Yuma International Airport. This was the result of enhanced connectivity offered by access to Delta’s hub at Salt Lake City and the use of SCASD funds to implement an aggressive marketing program that led to increased le vels of local traffic capture.

As expected, the loss of Delta service resulted in a corresponding decline in traffic at Yuma and enplanements through May measurably below 2008 levels. 6 Data on the chart below shows that enplanements through May 2009 are at or near th e second strongest level in recent years (2006) and above 2007 levels. This indicates that, nation al economic issues notwithstanding, the core air service market of Yuma remains relatively strong and that the previous use of SCASD marketing funds to reduce levels of traffic leakage ach ieved the desired result. Through the effective application of SCASD funds for risk mitigation a ssociated with developm ent of service to an additional connecting hub as outlined in this proposal , the Yuma community’s goal is to increase enplanement levels above those experienced during 2008.


# Yuma Enplanement Trend

CY2005 – May 2009

3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

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

2005 2006 2007 2008 2009

SOURCE: T-100 data from Airports:USA® DataMinerTMMonthly Enplanements

6 While much of the traffic decline is attributable to th e loss Delta service, macro-level economic weakness is also recognized as a contributing factor.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 14 

### Current & Historical Air Service

With the exception of Delta’s short lived servi ce to Salt Lake City during 2008, air service at Yuma International Airport has remained essentially stagnant over the past years, as illustrated

on the table below.

2005 2006 2007 2008 2009

Airline Brands 2 2 2 3 2
Nonstop Destinations 2 2 3 3 2
Avg. Weekly Departures 56 63 60 77 61
Avg. Weekly Seats 2,130 2,202 2,038 2,858 2,240
Avg. Seats per Departure 38.0 35.0 34.0 37.1 36.7 

# NYL Five Year Service Pattern Trend

August 2005 - August 2009

SOURCE: Schedule data from Innovata, LLC via Airports:USA®DataMinerTM

The lack of new service at Yuma reflects the genera l aversion of most netw ork airlines to adding

new domestic service in smaller communities dur ing the period, a reality that has become an even greater challenge during the recent econo mic downturn. In many cases, those small and

mid-size communities were able to offer airlines meaningful funding to mitigate a substantial percentage of the financial risk associated wi th new route development, including in many cases funds provided by the Small Community Air Serv ice Development grants, as well as other incentives such as marketing support, airport f ee waivers, etc. This underscores the need for SCASD funds by Yuma Internationa l Airport as it recruits service to an additional airline hub.



### Yuma Can Support Additional Air Service

An analysis of service levels across the Unite d States serving populations similar to Yuma International Airport clearly indi cates that the market is unders erved and can support service to

an additional airline hub site. 7 This is illustrated on the table on the next page.

7 For purposes of comparison in this proposal, population base served was defined as that within a 60-minute drive time of the airport and calculated using Microsoft MapPoint . It is acknowledged that no two airport markets are exactly same, with demographic factors such as age grou p breakdowns, income levels, proximity to alternative airports, airline service and pr icing strategies and local economic base impacting the drivers of air service demand. That said, it is believed that the airport markets illustrated on the table on the next page provide a reasonably fair comparison.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 15 Market Airport

Code 60-Minute

Drive Population Number of

Airline Systems Number of
Nonstop

Destinations Avg.

Number of

Weekly
Departures Avg.

Number of

Weekly

Seats

Missoula, MT MSO 108,726 4 8 136 9,393
Fargo/Moorhead, ND FAR 214,997 4 8 129 9,256

Medford, OR MFR 247,711 4 9 152 8,948

Yuma, AZ NYL 258,825 2 2 61 2,240

Lubbock, TX LBB 365,239 4 7 181 16,067
Cedar Rapids, IA CID 458,309 4 12 254 13,932

SOURCE: Schedule data from Innovata, LLC via Airports:USA® DataM inerTM; Population data from M icrosoft M apPoint 

# Air Service Comparison - August 2009

Yuma International Air p ort Relative to Peer Markets

The deficient level of air service at Yuma Inte rnational Airport not only impacts the Airport’s ability to retain traffic generate d in the market area, it also th reatens the economic future of the region given the importance of air service connec tivity in globalization. The SCASD grant funds requested in this proposal will significantly enhan ce the ability of Yuma International Airport to increase airline service, improve connectivity, and enhance the competi tiveness of Southwest Arizona on the global stage.



### Fare Levels Challenge Traffic Retention at Yuma

As noted in Yuma’s 2007 SCASD gr ant proposal, there is a sign ificant disparity between the average fare paid at NYL compared to those paid at PHX and SAN, two markets where lower fares are generally available due to extensive service from low-fare carriers, such as Southwest, Frontier, jetBlue, and AirTran. Between 2007 and 2009 very little has changed related to the pricing disparity between Yuma Intern ational Airport and its neighbors.

The graph on the next page compares average fare s paid from Yuma to those paid by consumers using SAN and PHX in major markets. In each of the illustrated markets, passengers utilizing the Yuma International Airport paid higher fares and in the case of those markets served from PHX and SAN by low-fare carriers, the differential is significant.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 16 

# Comparison of Average Fare Paid

Yuma International Airport v SAN & PHX: YE 1Q2009

SOURCE: Airports:USA® DataMinerTM for 12-months of ending March 31, 2009. NOTE: Fares are gross paid by consumer including taxes, PFCs and security $- $50 $100 $150 $200 $250 $300 $350

SEA DEN SLC ORD MCO

Yuma Average Fare San Diego Average Fare Phoenix Average Fare

It should be noted that SCASD funds for mark eting provided to Yuma during 2007 were not intended to specifically resolve the obvious pricing disparities that exist, but rather to communicate the “hidden” expenses associated w ith SAN and PHX airports, including increased travel time, higher parking fees, increased hassle factor, etc. In essence, the marketing program

was to raise local awareness of the convenience of utilizing Yuma Inte rnational Airport. As reflected in the aforementioned enplanement trend data, year-to-date boardi ngs are higher than at other time during the past five years with the ex ception of 2008 when Delta briefly served Yuma. By this measure, the marketing program can be judged a success and the Yuma International Airport and its community partners g ood stewards of limited SCASD dollars.

The community does believe, however, the risk mitigation funds requested in this current proposal can impact the price differential betw een Yuma International Airport and larger neighboring airports. The addition of nonstop servi ce to an additional hub airport would impact the competitive dynamic at Yuma in at least one, and possibly two, manners:

• First, the additional seats offered on flights to an additional hub site will mean a greater overall inventory of seats in the market th ereby increasing consumer access to lower price buckets in airline revenue management programs.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 17 • Second, should risk mitigation funds be successful in recruiting a return of Delta service this

would translate into a third air line brand in the market and ac cess to a second global alliance, including the addition of a third revenue manage ment function playing a role in setting fare levels and allocating seat inventories at variou s fare levels. This would bring an end to the duopoly of United and US Airways at Yuma 8

The alternative use of risk m itigation funds requested in this grant proposal, United Express service to Denver, would have a less meani ngful impact on pricing at Yuma as would

introduction of an additional ai rline brand, but the community ne vertheless expects that the net

increase in available seats would translate ove r time into a net decrease in average fares.



### Current v. Potential Connectivity at Yuma

The Yuma market has access to th e national air transportation sy stem: Phoenix and Los Angeles. As noted in the Proposal Summary, Los Angele s is a “focus city” fo r United Airlines and provides limited online connectivity. As a result, th e Yuma market really only has access to one

true airline hub site via Phoenix. In the case of Phoenix, this hub offers limited connectivity east of the Mississippi River includ ing the industrial Mi dwest and the populous Eastern Seaboard.

In comparison, access to the additional hub altern atives of Salt Lake City and Denver would enhance connectivity ava ilable at Yuma by providing a more substantial reach in the industrial Midwest and Pacific Northwest, as well as im proved access to major cities along the Eastern Seaboard. This is best illustrated on the maps on the next page.

8 United and US Airway have reciprocal frequent flyer program benefits, code-share across their respective route networks, and are both members of the Star Alliance.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 18 To Asia

& Hawaii Seasonal ANC

SOURCE: Schedule data for week of August 23-29, 2009 from Innovata, LLC via Airports:USA® DataMinerTM 

# Current Connectivity At NYL

PHX (US Airways) & LAX (United) Nonstop Markets

Seasonal ANC

SOURCE: Schedule data for week of August 23-29, 2009 from Innovata, LLC via Airports:USA® DataMinerTM 

# Potential Enhanced Connectivity At NYL

DEN (United) & SLC (D elta) Nonstop Markets

To Asia

& HawaiiP roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 19 

### Prior Air Service Deve lopment Activities

Historically, Yuma Internationa l Airport had a very limited track record of air service development and marketing activities. Fo llowing award of the SCASD grant funds 2007, however, that changed. In partne rship with public and private en tities throughout the region, the Airport developed and executed a comprehensive ai r service marketing plan that reduced traffic leakage and played a role in attracting Delta Connection service to market. To this day the success of that marketing plan and use of SCAS D and matching community funds is reflected in enplanement figures for Yuma International Airpor t that, as noted above, are at their highest levels in five years with the exception of the period when Delta Connecti on provided service to Salt Lake City. 9

The Airport and community continue to engage in market activities intended to maintain community support and awareness of local air service, as well as communicat e the importa nt role that Yuma International Airport plays in the economic vitality of the region.

With SCASD grant funds for risk mitigation as re quested in this application, the airport and its partners intend to build on this success by recruitin g additional air service that increases in the breadth of air service options and creates a mo re competitive dynamic at Yuma International Airport.

9 Detail on the specific marketing activities undertaken and asso ciated used of funds was provided to the Department in quarterly reports in accordance with the 2007 SCASD grant agreement.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 20 

# 4. Proposed Solution to Air Service Deficiency

Overview

To address the deficient level of servi ce at Yuma International Airport, and specifically to improve connectivity with the national air transportation system via an additional airline hub, the Airport and its community partners are seeking a Small Community Air Service Development grant in the amount of $400,000 to provide risk mitigation funding in support of nonstop service to a new airline hub. Grant funds will be ma tched with local funds of $100,000, equating to total project fund of $500,000 toward achieving the stated goal. These dollars will be supported with $81,806 of “in-kind support” from airport representing landing fees and rental waivers.

The Yuma community has identified Delta Connection servi ce to Salt Lake City or United Express service to Denver as those carriers and hubs which can best provide the needed service improvements.

Provided below are market proforma projections that the Airport had prepared for both the SLC and DEN routings. Both routes are forecast to be profitabl e but given economic challenges in the air line industry it is a virtual necessity for small and mid-size communities such as Yuma to offer risk mitigation mechanisms to airlines. The SCASD grant funds requested in this proposal along with ma tching community funds will provide such a mechanism.



### Targeted Solution #1: Delta Connect ion service to Salt Lake City

Restoration of nonstop service to Delta’s hub at Salt Lake City is the preferred alternative for the Yuma community as this would reinstate a third airline brand in the market, as well as provide access to the SkyTeam global alliance.

On a steady-state basis, two daily roundtrips to Salt Lake City with a 50-seat regional jet are forecast to be profitable for Delta Connection. 10

• Total onboard passengers are projected to be 29,029, of which 5,657 are projected to be local passengers with the balance being connecting markets.

• Load factor based on a projected 14 weekly roundtrips and 99% completion factor is projected to be 80.6%, consistent with Delta’s early market performance when it previously

served the market.

10 Assumption for purposes of this application is operatio ns conducted by SkyWest Airlines utilizing Canadair RJ200 equipment. Fuel prices for both SLC and DEN forecast ar e assumed at an average of $2.25 per gallon, including into plane fees and taxes.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 21 • Annualized sector operating costs are projec ted to total $3.182 million based on a cost per ASM of 15.2 cents and assuming fuel at an average price of $2.25 per gallon, in cluding into plane fees and taxes.

• Total sector revenues are projected to be $3.489 million, including estimated calculation of segment proration in connecting markets

• Annualized projected operat ing profit is $266,092, producing an operating margin of 7.7

percent.

The projected performance of Delta Connection service at Yuma is summarized on the table

below.

Key Operating Metrics
Sector Mileage (sm) 581
Equipment CRJ-200

Seats 50
Service Pattern (weekly roundtrips) 14
Annual Operations @ 99% Completion Factor 721

Annual Seats 36,036

Block Time 1.50
Calculated Cost per ASM (CASM) $0.152

Sector Cost $4,416
Traffic & Revenue Summary

O&D Traffic Net Revenue Avg NYL Per

Pass. Rev Prorated NYL

Revenue Share
Local O&D Traffic 5,657 $885,177 $156.49 $885,177 Connecting Traffic Flows 23,372 $6,092,379 $260.67 $2,563,326 Total System Traffic & Revenues 29,029 $6,977,556 $240.36 $3,448,503
Economic Performance Projection
Annual Sector Operating Cost $3,182,411 Annual Sector Operating Revenues $3,448,503
Operating Profit/(Loss) $266,092
Operating Margin 7.7%

Calculated Load Factor 80.6% 

## Summar y of Pro j ected O p eratin g Statistics 

# Delta Connection: NYL-SLC

It is important to note the traffic and revenue projections assume that Delta Air Lines participates in the military ticketing program upon reentry into NYL, something it did not do when it served Yuma previously and which prevented the carrier from carrying traffic generated by the large military presence in the region. The Airport and its community partners are prepared to assist the carrier in any possible way related to this matter.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 22 

### Targeted Solution #2: United Express service to Denver

If efforts to recruit Delta Connection servi ce to SLC are unsuccessful , the Airport and its community partners have identif ied United Express to DEN as a viable alternative that can provide enhanced connectiv ity at an additional hub.

The projected service pattern for United Expres s on the NYL-DEN segment would be a singledaily rotation operated with 50-seat regional eq uipment, and complementing the existing service to Los Angeles. The lower frequency level for United results in a corresponding lower projection

of traffic and revenue share a nd additionally factors in the pot ential dilution of traffic and revenues from existing NYL-LAX service. As su ch, the projected revenues include only those that are “net-new” to the United Airlines system , however the sector is still projected to be profitable on a steady-state basis.

• Total onboard passengers are projected to be 14,806, of which 2,752 are pr ojected to be local passengers with the balance being connecting markets.

• Load factor based on a projected seven week ly roundtrips and 99% completion factor is projected to be 82.2 percent.

• Annualized sector operating costs are projec ted to total $2.037 million based on a cost per ASM of 15.2 cents and assuming fuel at an average price of $2.25 per gallon, in cluding into plane fees and taxes.

• Total sector revenues are projected to be $2.164 million, including estimated calculation of segment proration in connecting markets

• Annualized projected operat ing profit is $126,092, producing an operating margin of 5.8

percent.

The projected performance of United Express be tween Denver and Yuma is summarized on the table on the next page.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 23 Key Operating Metrics
Sector Mileage (sm) 744
Equipment CRJ-200

Seats 50
Service Pattern (weekly roundtrips) 7
Annual Operations @ 99% Completion Factor 360

Annual Seats 18,018

Block Time 2.25
Calculated Cost per ASM (CASM) $0.152

Sector Cost $5,654
Traffic & Revenue Summary

O&D Traffic Net Revenue Avg NYL Per

Pass. Rev Prorated NYL

Revenue Share
Local O&D Traffic 2,752 $442,751 $160.91 $442,751 Connecting Traffic Flows 12,055 $3,046,596 $252.73 $1,720,960 Total System Traffic & Revenues 14,806 $3,489,348 $235.67 $2,163,711
Economic Performance Projection
Annual Sector Operating Cost $2,037,620 Annual Sector Operating Revenues $2,163,711
Operating Profit/(Loss) $126,092
Operating Margin 5.8%

Calculated Load Factor 82.2% 

# United Express: NYL-DEN

Summar y of Pro j ected O p eratin g Statistics

The Underlying Need for Risk Mitigation Funding

The Denver and Salt Lake City sectors are both projected to be prof itable on a steady-basis however, as has been noted earlier in this proposal, airlines are particularly risk adverse relative to adding new routes in the current economic environment. Compounding the risks is the vulnerability of producing air transportation to sudden spikes in oil pric es or declining demand

due to economic woes.

Moreover, the projected profitabilit y of the routes is provided on a steady-state basis. It is possible that revenues early in the route development process c ould generate negative operating margins. The purpose of SCASD funds requested in this proposal is to, as much as practical, mitigate the economic risk to airlines associated with new service at Yuma while at the same time rectify identified air service deficiencies.



### Marketing Support

As noted, Yuma International Airport was previously awar ded a SCASD grant in 2007 to implement a comprehensive marketing and comm unication program. While the specific projectP roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 24 supported by those grant funds in completed, the Airport continue s to engage in marketing and

communication activities in the course of its normal business activities.

The project outlined in this proposal will be su pported through the Airport’s current marketing activities and, as noted in the next section, the Airport will require a minimum marketing expenditure by the air carrier as part of any agreement for risk mitigation funding.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 25 

# 5. Grant Administration Plan

Grant Request Summary & Goal

Yuma International Airport and its community partners are requesting a Small Community Air Service Development grant in the amount of $400,000 to provide risk mitigation funding in support of access to an additional airline hub as ou tlined in this proposal. This will be matched with $100,000 of community funds and $81,806 of “i n-kind” support is be ing offered by Yuma International Airport in the form of waived landing fees a nd rentals. Total project funding is approximately $581,806.

The goal of the project is to increase connec tivity offered at Yuma International Airport by recruiting service to additional airline hub.



### Risk Mitigation Terms

Yuma International Airport, subject to Depart ment approval, proposes to implement a risk abatement program with the following terms and conditions:

• Funding would be available to an ai rline providing nonstop servi ce to an additional airline

hub with code-share service.

• Upon award of grant funds, the Airport and its community partners will negotiate with the identified prospective airlines. The best se rvice proposal will be identified and a risk mitigation agreement between Yuma Interna tional Airport and the carrier (subject to Department approval) would be negotiated. Under all circumstances, the maximum amount of risk mitigation funds availa ble to a carrier will be $500,000.

• Risk mitigation funding would suppor t the initial phase of new ai r service. The Airport will negotiate a detailed service agreement that is consistent with DOT guidelines for grant fund

use with the candi date carrier.

• The candidate carrier will be required to comm it a specified amount of marketing funds to promote the new service and the Airport will include promotion of the route in its own marketing activities.

• The costs of operating the new service will be defined in discussions with the carrier and outlined in a contractual manner. Industry cost data for appropriate aircraft and stage length will guide the airport in these discussions.P roposal under the Small Community Air Service Development Program Yuma International Airport

DOCKET# OST-2010-0124 Page 26 • A target for overall revenue associated with the new service and the component of that revenue that will be directly cr edited to the new route will be agreed upon. From this, a target revenue figure per flight will be established.

• Yuma International Airport will monitor carrie r provided traffic and revenue reports for the

new service.

• Any revenue shortfall would be made up by ri sk mitigation funds, upon detailed invoice from

the carrier to Yuma In ternational Airport which, in turn, would invoice the Department for its share of funding in the manner prescribed in an agreement between Yuma International Airport and the Department.

• The Airport will seek a one-year risk mitigation agreement with the airline for new service, meaning that in exchange for the lower risk ex posure the Airport expects that new routes be given adequate time to achieve revenue maturity.



### Project Term

Given the state of the airline i ndustry, including reductions in fleet sizes, the Airport respectfully requests that it be given up to two years from the date of grant award to enter into an agreement with an airline to provide service. Any risk m itigation agreement with an air carrier will have a

one-year term.



### Role of Local Community Partners

The City of Yuma, Yuma C ounty, Greater Yuma Port Aut hority, Greater Yuma Economic Development Corporation, and Yuma County Cham ber of Commerce are partnering with Yuma International Airport to ensure success of the program in this proposal. The primary role of the partners will be to provide matching funds for the SCASD grant, however they will as needed support the Airport with respect to air carrier negotiations and communica ting the new service to their various memberships and cons tituencies, as well as continue existing communications with

incumbent airlines.



### Project Monitoring Plan

As outlined, the overall objective of this project is to increase the level of connectivity offered at Yuma International Airport by supporting the introduc tion of service to a new airline hub.

To ensure that grant dollars an d community matching funds are used in a manner that achieves the stated objectives, the Airport will submit a quarterly progress report to the Department on route performance, including load factor, average airfares, traffic origin and destination, and total segment revenue compared to targeted revenue.APPENDIX B Page 1

Order: 2010-7-16

Docket DOT-OST-2010-0124

SMALL COMMUNITY AIR SERVI CE DEVELOPMENT PROGRAM

DOCKET OST-2010-0124

SUMMARY INFORMATION

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

http:// www.grants.gov.

A. APPLICANT INFORMATION: (CHECK ALL THAT APPLY)

 Not a Consortium ⁭ Interstate Consortium ⁭ Intrastate Consortium

 Community now receives EAS subsidy

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

If previous recipient: Date of grant: Jan 1, 2007

Expiration date of grant: Dec 31, 2009

B. P UBLIC /P RIVATE P ARTNERSHIPS : (L IST ORGANIZATION NAMES )

Public Private 1. City of Yuma 1. Northern Arizona University 2. Yuma County 2. Arizona Western College 3. Greater Yuma Economic Development Corporation 3. Cocopah Indian Tribe 4. Greater Yuma Port Authority 4. Quechan Indian Tribe 5. Yuma County Chamber of Commer ce 5. Yuma Regional Medical Center

C. P ROJECT P ROPOSAL : (CHECK ALL THAT APPLY)

⁭ Marketing ⁭ Upgrade Aircraft  New Route

⁭ Personnel  Increase Frequency ⁭ Low Fare Service

⁭ Travel Bank  Service Restoration ⁭ SubsidyAPPENDIX B Page 2

⁭ Surface Transportation  Regional Service ⁭ Other (specify)  Revenue Guarantee ⁭ Launch New Carrier

⁭ Start Up Cost Offset ⁭ First Service

⁭ Study  Secure Additional Carrier

D. E XISTING L ANDING A IDS AT L OCAL A IRPORT:

 Full ILS  Outer/Middle Marker  Published Instrument Approach  Localizer  Other - RNAV  Other – VOR/DME  Other - TACAN

E. PROJECT COSTS:

1. Federal Amount Requested: $ 400,000

2. State cash financial contribution: $ -

3. Local cash financial contribution... $ 100,000 3a. Airport cash funds: $ - 3b. Non-Airport cash funds: $ 100,000 3c. Total local cash funds (3a. + 3b.): $ 100,000 4. TOTAL CASH FUNDING (1. +2.+3.) $ 500,000 5. Local funds contributed from already-existing programs or projects included in line3c. amount: $ -

6. Local funds contributed from new commitments or

new resources included in line 3c. amount: $ 100,000

7. Airport In-Kind contribution: (amount & description) one year wa ive rent & landing fees $ 81,806

8. Other In-Kind contribution: (amount & description) 9. TOTAL IN-KIND CONTRIBUTION (7.+8.): $ 81,806 10. TOTAL PROJECT COST (4.+9.) $ 581,806APPENDIX B Page 3

F. ENPLANEMENTS:

2000 59,451 2004 59,825 2008 87,975 2001 50,337 2005 61,160 2009 73,329 2002 52,680 2006 64,574
2003 54,872 2007 73,487

G. IS THIS APPLICATION SUBJECT TO REVIEW BY STATE UNDER EXECUTIVE ORDER 12372

PROCESS?

⁭ a. This application was made available to the State under the Executive Order 12372 Process for review on

(date)___________________.

⁭ b. Program is subject to E.O. 12372, but has not been selected by the State for review.

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

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

 No ⁭ Yes (explain) _______________________________________________________________