# August 27, 2010 An Integrated Program of New Service Development via: Start-Up Cost Offsets, Advertising/ Marketing, and Revenue Guarantees In Support of New Scheduled Air Service to/from Chicago O’Hare

Sponsor: St. Cloud Regional Airport
St. Cloud Minnesota William P. Towle, Airport Director Congressional Code: MN-006
Dun & Bradstreet Number: 032664372 

# ST. CLOUD REGIONAL AIRPORT, MINNESOTA
Proposal Under the Small Community Air Service Development Program Docket: DOT-OST-2010-0124 Before the Office of the Secretary of Transportation US Department of TransportationSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 2 TABLE OF CONTENTS

Section Page

Introductory Letter 3 Summary Information 4
Introduction 7 Primary Objectives of Proposal 8 Executive Summary 9 Detailed Explanation of Proposal 14 Expected Results 17 Letters of Support 22
The Loss of Air Service 30
Air Service Deficiencies 34 Extenuating Factors Affecting Air Service 38 Availability of Alternate Airports 41
Use of Local/Federal Funds 42 Public/Private Partnerships 43 Implementation Timeline 45 Air Service Advisory Groups 46 Local Air Service Development Efforts 47 In-kind Services from the Community 48
Performance Measures 49 Legal Sponsor 50
Financial Controls 51
Return on Investment 52 DOT Exit Strategy 53
Alternate Plan 54 Airport Information 55 Community Profile 56
Conclusions 65St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 3 INTRODUCTORY LETTERSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 4 SUMMARY INFORMATION

Small Community Air Service Development Program
Docket DOT-OST-2010-0124



### A. Applicant Information

Not a Consortium Community now receives EAS subsidy
Interstate Consortium Intrastate Consortium Community previously received a Small Community Grant If previous recipient, date of Grant: ________________________________ expiration date of Grant: _______________________



### B. Public/Private Partnership

Public:

1. St. Cloud Regional Airport
2. City of St. Cloud 3. Stearns County
4. Benton County
5. Various Area Cities

Private:

1. St. Cloud Area Economic Development Partnership
2. St. Cloud Area Chamber of Commerce 3. St. Cloud Area Convention and Visitors BureauSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 5 C. Project Proposal

Marketing Upgrade Aircraft New Route
Personnel Increased Frequency Low Fare Service
Travel Bank Service Restoration Subsidy Surface Transportation Regional Service Other (Specify)
Revenue Guarantee Launch New Carrier Start Up Cost Offset First Competitive Service Study Secure Additional Carrier



### D. Existing Landing Aids at Airport

Full ILS Outer/Middle Marker Published Instrument Approach
Localizer Other: RVR Indicator Lighting System



### E. Project Cost

1. Federal amount requested: $ 500,000
2. State cash financial contribution: $ 0
3. Local cash financial contribution: $ 50,000 3a. Airport cash funds: $ 0 3b. Non-Airport cash funds: $ 50,000
3c. Total local cash funds: $ 50,000
4. TOTAL CASH FUNDING: $ 550,000
5. Local funds contributed from already existing Programs of projects included in line 3c: $ 0
6. Local funds contributed from new commitments
Or new resources included in line 3c: $ 50,000
7. Airport In-Kind contribution: $ Various Description: Fee waivers: landing and terminal fees
8. Other In-Kind contribution: $ Various Description: Advertising and marketing match money; pre-purchased tickets
9. TOTAL IN-KIND CONTRIBUTION: $ Undetermined
10. TOTAL PROJECT COST: $ 550,000St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 6 F. Enplanements at Airport

2000: 21,180
2001: 20,130
2002: 19,730
2003: 18,410
2004: 19,130
2005: 22,160
2006: 22,320
2007: 22,620
2008: 17,510
2009: 11,680



### G. Is Application Subject to Review by State Under Executive Order 12372 Process?

This application was made available to the State on ______. Program is subject to review, but has not been selected by the State. Program is not covered.



### H. Is Applicant Delinquent on any Federal Debt?

NoSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 7 INTRODUCTION

The St. Cloud Regional Airport is in a much different position in August of 2010, than it was in the last time it applied for a Small Community Air Service Development Grant – just a year ago. Shortly after the Airport submitted its Grant propos al last year, Delta Air Lines announced it would end all service at the St. Cloud Regional Airport as of December 31, 2009. The Airport quickly went to work, meeting with several airlines in ho pes of retaining an alternate service. But each airline told the Airport the same thing: to consider St. Cloud, they would have to have a revenue guarantee in place.

In this application for assistance, the St. Cl oud Regional Airport seeks $500,000 from the Department of Transportation to help it replace service and access to the national air transportation system. It is unlikely the Airport will be able to come up with all of the funding required for a revenue guarantee locally. But the Airport is working hard, as this Grant is written, to develop a local revenue guarantee for new service.
The Airport has identified United Airlines/United Express as the best possible option for service, with ideal flights routing through the Chicago O’Hare hub. United
coded service over O’Hare would connect to 131 one-stop destinations – the widest possible array of service of any airline/hub combination. The Airport has had several discussion with United’s regional airline partners, and will meet with United as soon as it has word on this Grant application.

Even the most conservative estimates of passenger “leakage” from the St. Cloud market to other airports in the region pu t the total number of passengers generated locally at more than 590,000 – of which, just 3.5% used the local airport when it offered scheduled air service. In 2009, Delta offered St. Cloud residents just 0.24 departing airline seats per capita – the lowest offering in any upper Midwest market.

The Department of Transportation has the opportunit y to partner with St. Cl oud in this proposal – to return commercial air service to the community, and re-link the community with the national air transportation system, in much the same origin al spirit and intent of the Small Community Air Service Development Program. 

## “The St. Cloud Regional Airport seeks $500,000 from the Department of Transportation to help it replace service and
access to the national air

transportation system.”St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 8 PRIMARY OBJECTIVES OF PROPOSAL

Objectives for Program:

 Return commercial air servic e to the St. Cloud market

 Recruit service to a hub that can connect to the largest centers of demand

 Use new service to decrease passenger leakage to Minneapolis/St. Paul

Means to Achieve Objectives:

 Develop community support/revenue guarantee for new service

 Develop local pre-purchased ticket program

 Find local partners willing to share in the financial burden of supporting new
service

Course of Action to Support Means:

 Pair federal Small Community Air Se rvice Development Grant with local investment to support commercial air service

 Ensure flight schedules match community demand

 Ensure service has long-term funding in place, for at least 12 monthsSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 9 EXECUTIVE SUMMARY

The St. Cloud Regional Airport is located in Stearns County which is northwest of the Minneapolis/St. Paul metro area. The nearest alternate airport with jet service is located in Minneapolis, a 11⁄2-hour drive to the southeast.

The 30 minute drive St. Cloud catchment area (seen in the dotted line) is home to 194,481 people as of the latest US Census estimates, while the one hour drive catchment area (seen inside the solid line) is home to 1.1 million people (see Figure 1). The areas shaded in red represent
areas where residents must pass the St. Cloud Regional Airport on their way to access air service at other airports in the region – namely Minneapolis/St. Paul. The population of the total area in red is 200,097, while the population of the area in dark red is 102,779, or
53% of the St. Cloud Regional Airport’s
immediate catchment area. Thus, 53% of population of the St. Cloud Regional Airport’s ca tchment area is located in such a way as to ensure service from the St. Cloud Airport, itself, would be more convenient than service from MSP. The total 60-minute population surrounding St. Cloud is 1.1 million as of the latest US Census
estimates. 

### FIGURE 1: St. Cloud Regional Airport’s immediate (30 minute) and extended (60 minute) catchment areasSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 10 The St. Cloud Regional Airport lost its only access to the national air transportation system as of December 31, 2009, when Delta Air Lines’ regional partner Mesaba Airlines ceased service to Minneapolis/St. Paul (see Figure 2). At the time, Mesaba was

operating three daily roundtrip flights with Saab SF340 turboprop aircraft, seating 34
passengers.

The St. Cloud market was a victim of the merger between Northwest and Delta, as the Delta accounting of revenue in northern tier regional markets has made many of
those markets look unprofitable. Despite strong yields, St. Cloud lost service along with other northern tier markets such as Muskegon, Eau Claire, Houghton, and Paducah. All of those markets had service in 1978, and qualifie d for Essential Air Service subsidies. All four now have regional jet service on the United code to Chicago O’Hare. St. Cloud did not have service in 1978, as its first service began in the 1980s – so it did not qualify for Essential Air Service subsidy. In 2010, St. Cloud is the largest unserved market in Minnesota, and the largest in the combined area of Minnesota, Wisconsin, and Michigan.

Delta left the St. Cloud market despite a recent trend of increasing passengers being produced by the Airport. Between the year ended first quarter 2006 and the year ended first quarter 2008, St. Cloud Regional Airport passengers were stea dy bewteen 67 and 70 passengers per day each way, despite increasing fares that topped $404 ro undtrip in each of those three years (see Figure 3 on next page). Non-Stop Departures Seats Departures Seats Capacity Carrier Destination Per Day Per Day Per Day Per Day Change
Delta MSP 3.7 127 0 0 -100.0% Delta Total 3.7 127 0 0 -100.0%
St. Cloud Total 3.7 127 0 0 -100.0% Jun-09 Jun-10 

### FIGURE 2: St. Cloud Regional Airport’s last air service, Cancelled as of December 31, 2009St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 11 Passengers only started to decline signficantly as average one way fares began to top $210 (see Figure 3). In the the year ended first quarter 2009, the average fare in St. Cloud increased to $476 roundtrip – an unsustainable level that caused a passenger decline from 67.6 passengers per day each way to 49.7 passengers per day each way. It should also be noted that the passenger numbers of YE1Q10 only include three quarters of service – as there was no service in St. Cloud in the first quarter of 2010.

While St. Cloud’s origin and destination passengers were increasing over the last four years, both Northwest Airlines, and Delta Air Lines after the merger, were cutting flights and seats in the St. Cloud market. By February of 2009, St. Cloud saw just 3.9 departures per day, on average, and a total of 154 available departing seats per day (see Figure 4). Through 2009, the number of departing flights and the number of available seat s continued to decline in St. Cloud, until the eventual service cancellation, which was announced in October of 2009. When Delta announced it was leaving the St. Cloud market, passengers begin to decline precipitously as departures were cut – and many found themselves forced to book their trip through Minneapolis/St. Paul. 

### FIGURE 3: O&D Passengers and Average One Way Fares at St. Cloud Regional Airport YE1Q01

– YE1Q10; Source: US DOT Table DB1A

42,560 40,830 39,590 38,720 39,920 48,160 48,470 46,900

33,920

19,300 2,610 2,030 2,060 1,640 2,290 3,000 2,580 2,440

2,330

1,070 61.9 58.7 57.1 55.3 57.8 70.1 69.9 67.6

49.7

27.9

0 10,000 20,000 30,000 40,000 50,000

YE1Q01 YE1Q02 YE1Q03 YE1Q04 YE1Q05 YE1Q06 YE1Q07 YE1Q08 YE1Q09 YE1Q10 PDEW International Domestic

$214
$203 $196 $199 $204 $202 $214 $209 $238

$205St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 12 Between February of 2009 and October of 2009, Delta cut St. Cloud’s average daily departures by 41%, or an average of 1.6 departures per day (see Figure 4). At the same time, the number of available seats per day each way (SDEW) declined from 154 to 77 – a loss of 77 available departing seats each day, or 50%.

While Delta cuts flights and seats, making the St. Cloud schedule much more difficult to purchase, and ensuring St. Cloud could not co mpete with Minneapolis/St. Paul, passengers started to change their travel habits. Betwee n February 2009 and December of 2009, average daily onboard passenger at St. Cloud declined from 57 to just 22 – or 61% (see Figure 4). This decline in passengers was due to several factors, including higher fares, fewer flights, fewer seats, and press coverage that made it appear flights were no longer available at the St. Cloud Regional Airport.

This slow decline in service quality, schedule qu ality, and sufficient available seats has made the St. Cloud market appear smaller than it actually is, and, to some airlines, it makes the St. Cloud market appear as though it is t oo weak to support commercial air service. This is not the case. 154

137 145

133 132 137

119

106

77 106

89

57 53 46 39 41 45 36 38 28 36

22

0 20 40 60 80 100 120 140 160 180 200

2009/02 2009/03 2009/04 2009/05 2009/06 2009/07 2009/08 2009/09 2009/10 2009/11 2009/12 2010/01 2010/02 2010/03 2010/04 Available SDEW Onboard PDEW Fli g hts DEW 3.9 3.7 3.9
3.5 3.8 3.8 3.5

2.9

2.3 2.9 2.6 

### FIGURE 4: Available Seats Per Day Each Way, Flights Per Day Each Way, and Onboard Passengers February 2009

– April 2010; Source: US DOT T100 ReportSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 13 The right service pattern, with service to a hub farther from St. Cloud – a hub that actually provides value to the origin and destination traveler – can be successful in the St. Cloud market. Population estimates show the St. Cloud market produced a total of 812,000 origin and destination passengers in the year ended first quarter 2010, or a little more than 1,100 passengers per day each way – most of whom traveled from the Minneapolis/St. Paul Airport.

The Airport has identified United Airlines/United Express as the best possible option for service, with ideal flights routing through the Chicago O’Hare hub. United coded service over O’Hare would connect to 131 one-stop destinations – the widest possible array of service of any airline/hub combination. The Airport has had several discussi ons with United’s regional airline partners, and
will meet with United as soon as it has word on this Grant application.

The Airport will require risk mitigation to overcome the impression that Northwest and Delta have built – of a weak and declining regional service market. The opposite is true, with strong economic growth in St. Cloud, and one of the na tion’s lowest unemployment rates. The Grant will help put the community back on the national commercial air transportation map – leading to increased economic activity. 

## “Population estimates show the St. Cloud market produced a total of 812,000... passengers in the year ended first quarter 2010, or a little more than 1,100 passengers per day each way.”St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 14 DETAILED EXPLANATION OF PROPOSAL

At this time last year, the St. Cloud market was struggling with the highest airfares of all medium and large markets in the Midwest region, a loss of available seats, and few prospects for airlines that want to enter the market at risk. Then, in the fall of 2009, Delta announced it would end all service in the market. As of January 1,
St. Cloud was left without access to the
national air transportation system.

The Airport has since heard from all major political and business leaders in its region that it must work diligently to
restore commercial air service. The major piece of this effort will be the support of a Small Community Air Service Development Grant for a revenue guarantee to be use to ensure the new carrier does not lose money in the market during the start-up phase of
service.

St. Cloud has strategically chosen United Express service to Chicago O’Hare as the best possible hub/airline combination for new air service (see Figure 5). Chicago service on the United code is best positioned to link St. Cloud to as many one-stop destination as possible, without the huge expense of a long jet flight to a faraway hub.

The route between St. Cloud and Chicago O’Hare would cover 394 miles, and could be flown by a SkyWest Canadair CRJ200 aircraft (CRJ), seating 50 passengers in an all-economy configuration, with an average flying time of 51 minutes at an average groundspeed of 400 knots (see Figure 5). The Airport proposes two daily flights in each direction between St. Cloud and O’Hare. The Airport proposes the flights be timed to meet the morning outbound bank on United Airlines at O’Hare, serving omni-directional destinations from the hub. The Airport also proposes a late evening return, connecting those sa me cities back into St. Cloud during United’s
last bank. 

### FIGURE 5: Proposed Route, St. Cloud to Chicago O’HareSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 15 The proposed schedule assumes an average ground speed of 400 knots on the route, and does not take into account winds or weather conditions. That ground speed will result in an average flight time of 51 minutes on the St. Cloud – O’Hare route (see Figure 6). An additional 15 minutes has been added on each end for taxi time, resulting in a total block time of 1:21.

SkyWest service, under the United code, from St. Cloud to Chicago O’Hare would open 131 onestop destinations (see Figure 7). Flights timed on the proposed schedule would connect to destinations worldwide, from Tokyo and Hong

Kong to London and
Frankfurt. O’Hare is the best possible hub to provide air service
access for St. Cloudtravelers, accessing onestop service to the largest possible number of markets. Moreover,
when service was provided at the St. Cloud Regional Airport, Chicago frequently
ranked as one of St. Cloud’s largest origin
and destination Origin Destination Departs Arrives Block Time Equipment

STC ORD 6:24am 7:45am 1:21 CRJ
ORD STC 12:30pm 1:51pm 1:21 CRJ
STC ORD 2:19pm 3:40pm 1:21 CRJ
ORD STC 9:30pm 10:51pm 1:21 CRJ 

### FIGURE 6: Proposed Schedule, St. Cloud to Chicago O’Hare

FIGURE 7: Connections Beyond the O’Hare Hub On United Airlines Coded Service, August 2010St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 16 passenger market, averaging as many as 3,000 a nnual passengers, or four passengers per day each way.

Under this proposal, revenues will be tracked on a mont hly basis, including all ticket sales, cargo sales, and ancillary revenue. These revenues wi ll be benchmarked against the established costs, agreed to by both the St. Cloud Regional Airport and the airline operating the service, before service begins. In any month where revenues exceed stated costs, the extra revenue will be credited to the community’s account. Should revenue not cover stated costs, a payment will be made from the Small Community Air Service Developm ent Grant account.

This project is essential for the region due to the fact that St. Cloud market has now lost all connectivity to the national air transportation system. United Express service to and from O’Hare remains the single most import ant objective for not only the Airport, but the community as a whole.

If, for some unforeseen reason, service is not commenced in a timely manner by a United Express carrier on the St. Cloud – Chicago O’Hare route, the Airport proposes to use federal grant money awarded under the Small Community Air Service Development Program to fund another air service development project, using the Gran t funding as a revenue guarantee. Among the alternate routes covered under this proposal woul d be American Eagle, with service to Chicago O’Hare and/or Dallas/Ft. Worth; Continental, wi th service to Cleveland and/or Houston; US Airways with service to Charlotte or Phoenix; AirTran, with service to Milwaukee; and/or Frontier, with service to Denver and/or Milwaukee. The Airport would also recruit other airlines, depending on their ability to enter the market with an appropriate service package. 

## “...Service to and from O’Hare remains the single most important objective for not only the Airport, but the community as a whole.”St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 17 EXPECTED RESULTS

Route Specific Data: St. Cloud – Chicago O’Hare

Without current air service provided in the St. Cloud market, the local airline passenger and revenue market must be estimated by assuming St . Cloud is currently generating a share of the passenger and revenue traffic at Minneapolis/St. Paul – the nearest airport with commercial air service – relative to St. Cloud’s share of the area’s population. The St. Cloud Regional Airport 30- minute catchment area represents 5.13% of the total population of the 90-minute Minneapolis/St. Paul catchment area (see Figure 8).

The immediate St. Cloud catchment area, represented in Figure 8 in red, includes 204,714 people. For the purposes of these calculations, only those living in the immediate, 30-minute St. Cloud Regional Airport catchment area were considered in the analysis, as STC would be significantly more
convenient for them than Minneapolis/St. Paul. For the purposes of these projections, it is assumed United Express service at St. Cloud would draw passengers only from its 5.13% share of the Minneapolis/St. Paul catchment

area.

Assuming these conservative population-based passenger and revenue estimates, it is estimated that the St. Cloud market currently produces 944 unstimulated origin and destination passengers per day each way to destinations that naturall y connect over the United Chicago O’Hare hub. As of the year ended first quarter 2010, it is estimated St. Cloud produced 689,425 total origin 

### FIGURE 8: St. Cloud’s Share of the Greater Minneapolis/St. Paul Catchment AreaSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 18 and destination passengers that would flow over Chicago O’Hare on United coded flights (see Figure 9).

In all, the St. Cloud – Chicago O’Hare route is estimated to have the potential to capture 83% of the current passengers flying in and out of St. Cloud, through the nearest current air service at Minneapolis/St. Paul (see Figure 9). At the same time, the O’Hare hub could capture 75% of the current estimated revenue generated in the St. Cl oud market. Currently, United markets from St. Cloud that flow over the Chicago O’Hare hub generate an estimated $115 million in annual airline revenue, or more than $158,000 in re venue per day each way (RDEW) to and from St.
Cloud.

The United hub at Chicago O’Hare has potential to capture large portions of traffic in 131 of St. Cloud’s origin and destination markets. The O’Har e hub is especially well positioned to capture traffic traveling in virtually all directions – includ ing large markets such as Chicago, itself, which is estimated to produce 80.5 passengers per day each way (PDEW) to and from St. Cloud; New York/Newark, which is estimated to produce 55.6 PDEW; the Los Angeles Basin, which is estimated to produce 45.9 PDEW; Phoenix, wh ich is estimated to produce 44.6 PDEW; and Washington-Baltimore, which is estimated to produce 43.1 PDEW (see Figure 10 on next page). O'Hare

83% Other Hubs 17%

O'Hare 75% Other Hubs 25%

Estimated St. Cloud O&D Revenue $153,804,952 100%

Revenue Flowing Over O’Hare $115,671,888 75% Estimated St. Cloud O&D Passengers 826,510 100%

Passengers Flowing Over O’Hare 689,425 83% 

### FIGURE 9: St. Cloud’s Estimated Passengers and Revenue Over O’Hare on United Source: Sixel Consulting Group Hub Builder, YE1Q10St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 19 St. Cloud’s top 15 revenue markets that would flow over Chicago O’Hare on United coded service are each estimated to produce more than $3,000 in revenue per day each way (see Figure 11 on next page). The top potential St. Cloud revenue market over United’s O’Hare hub is estimated to be New York/Newark, which is estimated to produce more than $10,300 in revenue per day each way (RDEW). Chicago O’Hare, itself , ranks as St. Cloud’s fourth-largest revenue market that United would access, generating an estimated $6,873 in revenue per day each way as of the year ended first quarter 2010. 

### FIGURE 10: St. Cloud’s Estimated Top 20 Passenger Markets Over O’Hare on United Source: Sixel Consulting Group Hub Builder, YE1Q10

58,734 40,575 33,481 32,575 31,499 31,143 26,497 26,001 22,661 20,757 19,645 18,280 17,891 15,889 14,142 13,482 13,474 11,622 11,145 10,565 80.5
55.6
45.9
44.6
43.1
42.7
36.3
35.6
31.0
28.4
26.9
25.0
24.5
21.8
19.4
18.5
18.5
15.9
15.3
14.5

0 10000 20000 30000 40000 50000 Chica g o Area - 1 New York/Newark - 2 Los Angeles Basin - 3 Phoenix/Mesa Area - 4 Washington/Baltimore - 5 Orlando/Sanford Area - 6
Las Ve g as - 7 San Francisco Bay Area - 8
Atlanta - 9 Dallas/Ft Worth Area - 10 Seattle/Tacoma - 11
Boston - 12
South Florida Area - 13 Fort Myers - 14 San Diego - 15
West Florida Area - 16 Philadelphia - 17

Milwaukee - 18

Cancun - 19

Detroit - 20 Annual Passen g ers PDEWSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 20 The United hub at Chicago O’Hare is in a unique position to generate additional traffic and revenue to any number of St. Cloud’s top origin and destination markets. United Express service from St. Cloud to O’Hare has the potential to ca pture as much as an estimated $115 million in current airline revenue, not taki ng into account any revenue stim ulation through lower fares and additional non-stop service.

Should it launch service between St. Cloud and Chicago O’Hare United Express would be competing in markets that have current fares well above the regional average. The average one way fare out of Minneapolis/St. Paul to St . Cloud markets that United would connect with one-stop service over Chicago O’Hare was $168 as of the year ended first quarter 2010 – 11.3% higher than the current regional average of $151 each way (see Figure 12 on next page). 

### FIGURE 11: St. Cloud’s Estimated Top 20 Revenue Markets Over O’Hare on United Source: Sixel Consulting Group Hub Builder, YE1Q10

$7,534,528 $5,574,906 $5,489,264 $5,017,418 $4,515,863 $4,215,088 $3,601,511 $3,504,350 $3,168,013 $3,063,350 $2,904,693 $2,859,561 $2,684,097 $2,337,258 $2,196,790 $2,189,461 $2,116,328 $2,094,268 $2,079,991 $1,799,435 $10,321 $7,637 $7,520 $6,873 $6,186 $5,774 $4,934 $4,800 $4,340 $4,196 $3,979 $3,917 $3,677 $3,202 $3,009 $2,999 $2,899 $2,869 $2,849 $2,465

$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 New York/Newark - 1
Los An g eles Basin - 2
Washin g ton/Baltimore - 3
Chica g o Area - 4 San Francisco Bay Area - 5
Phoenix/Mesa Area - 6
Las Ve g as - 7
Orlando/Sanford Area - 8
Boston - 9
Atlanta - 10
Seattle/Tacoma - 11
Dallas/Ft Worth Area - 12

South Florida Area - 13 Philadelphia - 14

Fort Myers - 15
London Heathrow - 16
Cancun - 17

Detroit - 18 San Diego - 19
Houston Area - 20 Annual Revenue
RDEWSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 21 Average fares in St. Cloud markets that would naturally flow over Chicago O’Hare on United would likely be at $168 each way (see Figure 12), if service is priced at current averages to the same markets out of Minneapolis/St. Paul.

The Airport and the community both believe the best opportunity for successful service will berouted through Chicago O’Hare. The beauty of this project is the wide ranging community buyin that has already started. Previous air se rvice development studies have shown the most successful projects are ones in which the community has a financial stake. That will certainly be the case in this project. 

### FIGURE 12: MSP’s Average Fares to Top 20 Revenue Markets Over O’Hare on United Source: Sixel Consulting Group Hub Builder, YE1Q10

$85 $186 $167 $129 $174 $113 $136 $174 $135 $138 $148 $173 $150 $138

$147 $128 $173 $77 $190 $198

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Chicago Area - 1
New York/Newark - 2 Los Angeles Basin - 3 Phoenix/Mesa Area - 4
Washin g ton/Baltimore - 5
Orlando/Sanford Area - 6 Las Vegas - 7 San Francisco Bay Area - 8
Atlanta - 9 Dallas/Ft Worth Area - 10
Seattle/Tacoma - 11
Boston - 12
South Florida Area - 13 Fort Myers - 14
San Die g o - 15
West Florida Area - 16 Philadelphia - 17

Milwaukee - 18

Cancun - 19

Detroit - 20 Average Over ORD: $168St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 22 LETTERS OF SUPPORTSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 23St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 24St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 25St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 26St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 27St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 28St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 29St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 30 THE LOSS OF AIR SERVICE IN ST. CLOUD

The St. Cloud Regional Airport lost its commercial air service on December 31, 2009 when Delta Air Lines’ regional partner Mesaba pulled its last flights. At the end of the service, Mesaba operated just three frequencies per day in each direction between St. Cloud and Minneapolis/St. Paul – down from six frequencies per day just a few years before. In fact, service was continually trimmed in St. Cloud after the Delta – Northwest merger, as Delta tried to match capacity to the profitability of the route in its accounting system.

While Northwest profitably served a number of upper Midwest markets for several decades following deregulation – going as far as to add an d grow service to markets such as St. Cloud – it was clear soon after the Delta merger that there was a different strategy in regards to serving smaller, upper Midwest markets. While Northwest accounting placed a premium on system revenue from small markets – revenue that came into the larger Northwest system through connections – it appears Delta accounting places a larger premium on the local revenue a flight generates – the revenue credited to the specific local segment of the flight, and not the
connection.

In the case of St. Cloud, the approximate ac counting in the Northwest methodology showed the route as slightly profitable as recently as the second quarter of 2009 (see Figure 13). While the Northwest accounting method ology showed a local segment loss (or segment margin) of 35.3%, it showed an overall margin of 0.4% - se rvice was accounted as very slightly profitable.

ORG DEST Deps Seats Pax Seats/ Dep LF % Local Dist Cost Sys Pax Revenue Segment Revenue Segment Profit Segment Margin Overall Margin SLA CASM SLA Sys Yield SLA Seg Yield SLA Loc Yield SLA Beyond Yield MSP STC 664 22,576 6,623 34.0 29.3% 1.0% 61 572,469 1,495,618 423,244 (149,225)

‐ 35.3% 0.4% 0.08952 0.29238 0.22560 0.11386 0.21726 Northwest Service Operated by Mesaba - Saab 340 Equipment Second Quarter 2009 SLA adjustm ents are to the average of 431.8 m iles // Proration based on Northwest Airlines Methodolgy 

### FIGURE 13: Approximation of Northwest Accounting of STC

‐ MSP Route Source: Sixel Consulting Group, Second Quarter 2009St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 31 However, under the accounting in the Delta methodology, the St. Cloud route did not look nearly as profitable – in fact, it showed an even larger segment loss (see Figure 14). With so few passengers traveling between St. Cloud and Minneapolis/St. Paul, itself, there is no way the route would likely ever be profitable under the Delta accounting methodology, which places a premium on local passengers. There is little to no local demand between STC and MSP – and it’s unlikely there ever would be, as the drive – even in traffic – would take less time than going through security in time to make the flight. Thus, under the Delta accounting system, the segment margin was -63.6% - a loss of $222,524 in second quarter 2009, according to an approximation prepared by Sixel Consulting Group.

After the Delta – Northwest merger, many upper Midwest markets were hurt by this same accounting change. Markets that Northwest served profitably for many years, including Muskegon, Eau Claire, Paducah, and Houghton, were cut by Delta and Mesaba, only to find their way into the United Express network. The St . Cloud Regional Airport believes a similar course
of action would be in the best interest of United, the St. Cloud region, and many of the
Midwest’s travelers.

Over the last three years, the St. Cloud Regional Airport saw a steady and slow decline in the number of flights being offered by Northwest, and then Delta after the merger, along with a slow and steady decline in the number of available seats being offered in the market. In the summer of 2007, Northwest was offering close to five dail y departures from the St. Cloud Regional Airport (see Figure 15 on next page). By the summer of 2008, the number of daily departures at St. Cloud had dropped to 3.8 – a loss of a daily flight. During the same time period, Northwest cut daily average available seats departing St. Cloud from 171 to 139 – a loss of 32 daily seats, or 19% of departing seats. ORG DEST Deps Seats Pax Seats/ Dep LF % Local Dist Cost Sys Pax Revenue Segment Revenue Segment Profit Segment Margin SLA CASM SLA Sys Yield SLA Seg Yield SLA Loc Yield SLA Beyond Yield MSP STC 664 22,576 6,623 34.0 29.3% 1.0% 61 572,469 1,495,618 349,945 (222,524)

‐ 63.6% 0.08952 0.29238 0.18653 0.11386 0.23211 Delta Service Operated by Mesaba - Saab 340 Equipment Second Quarter 2009 SLA adjustm ents are to the average of 431.8 miles // Proration based on Delta Air Lines Methodolgy 

### FIGURE 14: Approximation of Delta Accounting of STC

‐ MSP Route Source: Sixel Consulting Group, Second Quarter 2009St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 32 Between the summer of 2008 and the summer of 2009, the average daily number of departures at St. Cloud stayed relatively stable, but the number of seats being offered in the market declined. In May of 2008, airlines offered 150 average daily departing seats in St. Cloud (see Figure 15). By May of 2009 the average number of daily departing seats dropped to 133, mainly due to flight cuts on the weekends.

The St. Cloud Regional Airport saw its biggest se at cuts once Delta announced it would leave the market. Between July of 2009 and December of 2009, Deltas cut an average of 1.2 daily departures, or 48 daily average departing seats from St. Cloud (see Figure 15). Altogether, from the beginning of 2007 to the end of 2009, St. Cloud saw Northwest and Delta cut an average of 2.1 daily departures, or 45% of flights, and an av erage of 82 daily departing seats, or 48% of all
available seats.

These cuts made the service more inconvenient for local travelers. The result: many started to drive to Minneapolis/St. Paul to access more frequent flights and passenger retention at St. Cloud decline. Overall, from January of 2007 to December of 2009 the St. Cloud Regional 171

150 171 171
159 168

152 143 154 150 147

126 150 146 150

130 150 139 132 139 135 150 149

128 142 154

137 145
133 132 137

119
106

77 106

89 78 73 81 77 71 79
67 61 64 64 62 54 67 70 68

54 64 59 52 52 45 55 51 45 46 57 53 46 39 41 45 36 38 28 36

22

0 20 40 60 80 100 120 140 160 180 2002007/012007/022007/032007/042007/052007/062007/072007/082007/092007/102007/112007/122008/012008/022008/032008/042008/052008/062008/072008/082008/092008/102008/112008/122009/012009/022009/032009/042009/052009/062009/072009/082009/092009/102009/112009/122010/01 Available SDEW Onboard PDEW Flights DEW 4.7 4.4 4.6 4.8 4.7 4.7 4.5 4.2 4.3 4.2 4.1 3.7 4.0 3.7 3.9 3.7 3.9 3.8 3.8 3.9 3.8 3.9 3.9 3.5 3.8 3.9 3.7 3.9 3.5 3.8 3.8 3.5

2.9

2.3 2.9 2.6 

### FIGURE 15: Available Seats Per Day Each Way, Flights Per Day Each Way, and Onboard Passengers January 2007

– April 2010; Source: US DOT T100 ReportSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 33 Airport saw it average daily onboard departing pa ssengers decline from 78 per day to 22 per day – a loss of 72% of all passenger traffic (see Figure 15 on previous page).

It should be noted the passenger decline in St. Cloud is partially attributed to the loss of flights
and seats. Part of the decline can also be attr ibuted to increasing fares – up almost 10% on average in the last three years of service at the St. Cloud Regional Airport. Still, the data is not pretty, and it emphasizes the fact that the Airport will require risk mitigation to overcome the impression that Northwest and Delt a have built of a weak and declin ing regional service market.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 34 AIR SERVICE DEFICIENCIES IN ST. CLOUD

Although the St. Cloud Regional Airport catchmen t area represents a large proportion of the population of the larger region, even when local service was available, the Airport did not retain the number of passengers equal to its share of the regional population. In other words, the Airport was still “leaking” a large percentage of it s passengers to other airports – although none of the other airports in the region are particularly close.
The St. Cloud metropolitan statistical area (MSA) ha d a population of 186,954 as of the latest US Census estimates (see Figure 16). The larger region comprised of the metro areas of Minneapolis/St. Paul, Duluth, and Eau Claire, has a current population of 3,850,145. St. Cloud’s share of the regional population is 4.9%.



### FIGURE 16: Regional Population Distribution Source: US Census Estimates

STC DLH

EAU 

## Regional Population

MSP

Minneapolis/St. Paul (MSP) 3,229,878 83.9% Duluth (DLH) 274,571 7.1% St. Cloud (STC) 186,954 4.9% Eau Claire (EAU) 158,742 4.1% Population Share

Source: US Census Share of Population of Combined DLH/MSP/STC/EAU CatchmentSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 35 In many markets, an Airport draws a number of pa ssengers proportional to its overall population in the region. If that were to be the case in the St. Cloud market, one could reasonably expect the Airport to retain about 5% of the total passengers using all four airports in the larger re gion. However, in the case of St. Cloud, the St. Cloud Regional Airport did not retain close to that percentage of the region’s passengers.
While the St. Cloud metro area (MSA) is home to almost 5% of the region’s total residents (see Figure 17), its airport retained just 0.12% of the region’s total origin and destination passengers when it had scheduled air service (see Figure 18). In the region, St. Cloud had the lowest percentage of passenger retention of any airport as of the year ended first quarter 2010. In the year ended first quarter 2010, the St. Cloud Regional Airport saw a total of 20,370 origin and destination passengers. If the Airport had been able to retain the number of regional passengers proportional to its share of population in the regi on, it would have been used by another 785,894 passengers. In effect, the St. Cloud Regional Airport “leaked” thes e passengers to other airports in the region – a leakage rate of 97.5%. The bottom line is that the St. Cloud Regional Airport only retained about 2.5% of the passengers that should be expected based on its share of the regional population, when it had commercial
air service.

The largest beneficiary of St. Cl oud’s passenger leakage appears to be Minneapolis/St. Paul – which is more than one and a half hours away by car. Minneapolis/St. Paul International Airport had “reverse leakage” as of the year ended first quarter 2010, when it drew 17% more passengers than its proportion of the regional population. While Minneapolis/St. Paul makes-up 83.9% of the region’s population, it boards 98.2% of the region’s total origin and destination passengers (see Figure 17 and Figure 18). If Minneapolis/St. Paul retained a number of origin and destination passengers proportional to its region al population share, it would be expected to generate 13.8 million passengers annually. In the year ended first quarter 2010, Minneapolis/St. Paul saw a total of 16.2 million O&D passengers – more than 17% above its regional share. Some of those passengers came at the expense of St. Cloud. Minneapolis 83.90% St. Cloud

4.90% Duluth 7.10% Eau Claire 4.10% 

### FIGURE 17: Regional Population Share Source: US Census Estimates

FIGURE 18: Regional O&D Passenger Share Source: US DOT Table DB1A

Minneapolis

98.20% St. Cloud

0.12% Duluth 1.54% Eau Claire 0.14%St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 36 Another way of determining passen ger leakage from the St. Cloud ma rket to other airports in the region is by comparing the economy of St. Cloud to the economies of the nearest three cities with commercially-served airports. The ea siest way to gauge each catchment area’s contribution to the economy of the region is to compare the gross metropolitan products (GMP)
of each. A GMP is much like a gross national product – an overal l gauge of economic activity in
an area in dollars earned.

The United States Council of Mayors reports the St. Cloud metro area (MSA) produced a GMP of $7.7 billion in 2008, which represented 3.6% of th e total gross regional product (GRP) of the area including Minneapolis/St. Paul, Duluth, and Eau Cl aire (see Figure 19). Minneapolis/St. Paul generated the largest portion of the GRP, with $188 billion, or 89.1%, while Duluth produced a GMP of $9.5 billion – good for 4.5% of the GRP. Source: United States Council of Mayors, June 2008 Minneapolis/St. Paul (MSP) $188.0 Billion 89.1% Duluth (DLH) $9.5 Billion 4.5% St. Cloud (STC) $7.7 Billion 3.6% Eau Claire (EAU) $5.9 Billion 2.8% GMP Share 

## Gross Metropolitan Product (GMP)

STC DLH

EAU

MSP 

### FIGURE 19: Regional Gross Metropolitan Product (GMP) Distribution Source: US Council of MayorsSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 37 Despite producing 3.6% of the total gross region al product (GRP), when the St. Cloud Regional Airport had commercial air servic e, it retained just 0.12% of the region’s total origin and destination passengers (see Figure 20). In the region, St. Cloud has the lowest percentage of passenger retention relative to its gross metro product (GMP), of any airport.

As of the year ended first quarter 2010, the St. Cloud Regional Airport generated a total of 20,370 origin and destination passengers when it had scheduled air service – through the first three quarters of that period. If the Airport had been able to retain the number of regional passengers proportional to its share of the GRP, it would have been used by another 571,987 passengers. In effect, the St. Cloud Regional Airport “leaked” thes e passengers to other airports in the region – a leakage rate of 96.6%. With local,
scheduled air service the Airport only retained about 3.5% of the passengers that should be expected based on its share of the gross regional product.

The main beneficiary of St. Cloud’s passenger leakage is Minneapolis/St. Paul. Minneapolis/St. Paul experienced “reverse leakage” as of the year ended first quarter 2010, when it drew 10.2% more passen gers than its proportion of the gross regional product (GRP). While Minneapolis/St. Paul generates 89.1% of the GRP, it boards 98.2% of the region’s total origin and destination passen gers (see Figure 21). If Minneapolis/St. Paul retained a number of origin and destination passen gers proportional to its GRP share, it would be expected to generate 14.7 million passengers annually. As of the year ended first quarter 2010, Minneapolis/St. Paul saw a total of 16.2 million O&D passengers – more than 10% above its projected GRP share.

Even with new service at St. Cloud, it is likely most of the region’s passengers will still use Minneapolis/St. Paul. But, for new St. Cloud service to Chicago O’Hare to be successful, it needs to draw just 60,000 annual passengers, or 10% of its GMP estimated current passengers flying from Minneapolis/St. Paul. 

### FIGURE 20: Regional GMP Share Source: US Council of Mayors

FIGURE 21: Regional O&D Passenger Share Source: US DOT Table DB1A

Minneapolis

98.20% St. Cloud

0.12% Duluth 1.54% Eau Claire 0.14% Minneapolis

89.10% St. Cloud

3.60% Duluth 3.60% Eau Claire 2.80%St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 38 EXTENUATING FACTORS AFFECTING AIR SERVICE

It has been established that, even when local air service was provided, the St. Cloud Regional Airport was losing a significant number passengers from its catchment area. Attention then turns to the reasons why travelers were driving to othe r airports. As is the case with many other airports experiencing leakage, it all comes down to the availability of flights on the right airlines at the right times, and, perhaps even more importantly, airfares.

When Delta offered service into the St. Cloud Region al Airport, in calendar year 2009, it offered
far fewer seats available for sale in St. Cloud than there are available at any of the other airports in the immediate region. Delta offered just over 44,700 outbound available seats in St. Cloud in 2009 (see Figure 22). In 2009, airlines offered 425 times more available seats in Minneapolis/St. Paul than they offered in St. Cloud.

The lack of sufficient available seats for
sale in the St. Cloud market when service was offered forced many travelers to drive to Minneapolis/St. Paul to access the national air transportation system. The
small number of available seats at the St. Cloud Regional Airport in 2009 is partially responsible for the Airport’s inability to retain a number of origin and destination passengers proportional to its population and gross metropolitan product.

The other major factor driving passengers to other ai rports in the region was the average fare in the St. Cloud
market relative to the fares found at adjacent airports. In 2009, before service was pulled, the St. Cloud Regional Airport has some of the highest average fares in the Midwest region – with average fares 36% higher than the regional average. 

### FIGURE 22: Total Departing Seats, CY2009 Source: US DOT T100 Data

19,038,357

193,574

57,268

44,706

0 5,000,000 10,000,000 15,000,000 

### Minneapolis/St. Paul

Duluth

Eau Claire

St. Cloud

$205

$187

$186

$183

$150 $160 $170 $180 $190 $200 

### St. Cloud

Eau Claire

Minneapolis/St. Paul

Duluth 

### FIGURE 23: Average One Way Fares, CY2009 Source: US DOT Table DB1ASt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 39 St. Cloud also had the unfortunate honor of ha ving the highest average fares among adjacent airports – the airports it most frequently “leaks” passengers to – before se rvice was pulled through calendar year 2009. The average fare at St. Cl oud in 2009 was $205 each way (see Figure 23). The average fare at the St. Cloud Regional Airport before service was pulled was 9.6% higher than the $187 average at Eau Claire and 10% higher than the $186 one way average at Minneapolis/St. Paul (see Figure 23). With fewer available seats and higher average fares, there
wasn’t much incentive for St. Cloud travelers to fly from their hometown airport, other than its convenience. In many cases, as flight frequencies were pulled throughout 2009, the convenience did not outweigh the greater flight offerings and lower fares at Minneapolis/St. Paul.

Another important metric that helps explain St. Cloud’s passenger leakage,
even when it still had scheduled air service, is the number of available airline seats per resident of a community’s metro area. This gives an indication of the number of trips that the average person in the metro area could take from their local airport. The national average of available seats per capita in
2009 was close to five – five airline seats departing a ma rket per person.

In St. Cloud’s case, Delta offered just 0.24 availa ble departing seats per resident of the St. Cloud metro area – not the catchment area – just the immediate metro (see Figure 24). This was the lowest number of seats per capi ta of any airport in St. Cloud’ s region. The number indicates there were only enough seats offered in the market so that one quarter of the population could take a local airline trip – one of the lowest such numbers in the country. For comparison, airlines offered 0.36 seats per capita in Eau Claire, 0.71 seats per capita in Duluth, and 5.89 seats per capita in Minneapolis/St. Paul. It is clear that airlines in these smaller communities count on leakage to MSP to fill seats there. 

### FIGURE 24: Departing Seats Per Capita, CY2009 Source: US DOT T100 Data and US Census Estimates

5.89

0.71

0.36

0.24

0123456 

### Minneapolis/St. Paul

Duluth

Eau Claire

St. CloudSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 40 The only proven way to bring down fares, and a dd seats to the St. Cloud market, is to recruit a new airline with a new commitment to serving the market. The proven way to recruit flights from a new airline is to offer some kind of incentive pa ckage, to reduce a carrier’s barrier to entry into a new market. Leakage costs a community significant money – in time, wasted fuel, and wear and tear on personal and company vehicles. Th e Airport aims to eliminate these inefficiencies by adding new airline service.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 41 AVAILABILITY OF ALTERNATE AIRPORTS

The St. Cloud catchment area is currently served by the Minneapolis/St. Paul International Airport. There is no current local air service in St. Cloud. The region is not well-served by alternate airports. In fact, the only other true al ternate is Brainerd, Minnesota, which is 62 miles to the north of St. Cloud on two-lane roads (see Figure 25). Brainerd has little commercial air service, with three current daily flights on Northwest to Minneapolis/St. Paul.

St. Cloud’s commercial service airport, right now, is Minneapolis/St. Paul International.
MSP lies 82.6 miles to the
southeast of St. Cloud’s
downtown business district. The trip is all freeway, but it is difficult
due to the fact that the MSP Airport lies on the southern edges of the metro area. Moreover, traffic is a major problem on weekdays, making the 1:30 trip run well over 2 hours in many cases. Minneapolis /St. Paul is not an ideal alternate, and not an adequate location for St. Cloud’s access to the national air transportation system. 

### FIGURE 25: Alternate Airports Near St. Cloud, MinnesotaSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 42 USE OF LOCAL/FEDERAL FUNDS

Marketing and Advertising

The St. Cloud Regional Airport proposes to spend at least $50,000 in funds on marketing and advertising promotions in support of new service introductions.



### Revenue Guarantee

The St. Cloud Regional Airport proposes to make available at least $500,000 in funds for a revenue guarantee, to cover start-up losses that may occur during the first twelve months of service. Subject to negotiation, payments will be made to the airline quarterly when income derived from passengers and cargo is less than agreed expenses. Revenue generated that exceeds expenses will be carried forward and tapped before any grant funds are used.



### Startup Cost Offsets

The St. Cloud Regional Airport proposes to spend only existing airport funds and matching funds to pay for start-up costs in support of new service introductions. The Airport, and its partners, will provide essential terminal space and equipment to handle the new service.



### Additional Costs

As part of this program, the St. Cloud Regional Airport understands that additional expenses will be incurred, such as monitoring the results of the program and reporting those results back to the US DOT. In addition, the St. Cloud Regional Airport expects to incur some expenses in airline recruitment. The Airport may choose to use DOT funding in these efforts.



### Pre-Purchased Ticket Program

Outside this Grant proposal, the community is currently building pled ges for a pre-purchased ticket program. This will be paired with the Grant and other local funding to round-out the package of incentives for the new carrier.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 43 PUBLIC/PRIVATE PARTNERSHIPS

A number of other local partners will be working with the St. Cloud Regional Airport to promote and market the new service. Contacts will be made to all St. Cloud members of partner organizations and those with an interest in growing the econ omic base of the community through local business growth, attraction of new businesses and the promotion of tourism and visitor traffic via the airport.

The St. Cloud Area Economic Development Partnership

The St. Cloud Area Economic Development Partnership plays the leading role in projects in St. Cloud related to business, housing and economic development. The Partnership’s mission is to promote the economic vitality and industrial development of our community. The areas of
concentration are:

- Citywide business development and retentio n emphasizing the creation of jobs which increases the tax base of the community.

- Continual enhancement of the public & priv ate investment in the business/commercial districts of the City.

- Development of the entire waterfront of the Ci ty to capitalize on this significant asset and enhance its value to the community.

- Encourage the provision of a targeted broad range of housing as needed in the community to support the growth of the City and preserve and enhance older neighborhoods.

- Advocate progressive public policy for development issues.

St. Cloud Area Chamber of Commerce

St. Cloud Area Chamber of Commerce members repres ent all sizes and kinds of businesses in the St. Cloud area. The Chamber is dedicated to promoting the economic, civic, commercial cultural, industrial, and educational interests of the St. Cloud area.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 44 The Chamber provides members opportunities such as new business contacts, business referrals, and up-to-date information on the business commun ity and relevant policy issues. Members rely on the Chamber for information regarding busi ness expansion, professional development opportunities, and political advocacy.

St. Cloud Area Convention and Visitors Bureau

The St. Cloud Area Convention and Visitors Bureau is responsible for marketing the St. Cloud region for its 450 participating members (hotels, re staurants, attractions, businesses, etc.). The Bureau is responsible for visitor growth and awaren ess, and will support the growth of service at the Airport.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 45 IMPLEMENTATION TIMELINE

The proposed implementation timeline for the project assumes the Department of Transportation will award Small Community Grant Funding in De cember 2010. Once the award is announced, the St. Cloud Regional Airport will conduct additional airline meetings to secure a new service that is mutually beneficial. Based on airlin e planning lead times and the need for advance bookings, we assume the new carrier would not be able to begin service until at least March of
2012.

The first three milestones on the Airport's timeline are to execute the grant agreement with the Department of Transportation, meet with prospect ive airlines to negotiate for service, and sign the minimum revenue guarantee agreement with the appropriate airline partner. Once service is announced and schedules are published, th e Airport would begin marketing the new route and working with the new carrier to monitor adva nce bookings. The Airport will continue its marketing program and continue to work with th e new carrier to monitor the route once service begins. The Airport would submit grant status reports on a quarterly basis to the Department throughout the proposed two year term of the minimum revenue guarantee.

While the estimated dates are targets, it is possible service could be secured and launched on a more aggressive timeline once Grant funding is aw arded. It is also possible that new service could slip to 2013 should an airline require addition al risk mitigation, beyond that included in this proposal, from the community.



### Activity/Project Milestone Estimated Date

SCASD Grant Award Announcement December 2010 Executive Grant Agreement with DOT January 2011 Meet With Prospective Airlines February - June 2011 Negotiate Minimum Revenue Guarantee (MRG) With Airline July/August 2011 Announce Service December 2011 Publish Schedule December 2011 Begin Marketing of New Route January 2012 Monitor Advance Bookings January - March 2012 Service Launch March 2012 MRG Available for Service March 2012 - March 2014 Monitor Route Performance March 2012 - March 2014 Submit Grant Status Reports to DOT Quarterly Q1 2011 - Q1 2014 Close Grant April 2014St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 46 AIR SERVICE ADVISORY GROUPS

The St. Cloud Regional Airport ha s a long-established Air Service Advisory Board, whose primary function is to seek out new opportunities and help recruit and support new service. The
Committee consists of members from various community organiza tions, along with the Airport Director and the City of St. Cl oud’s Public Services Director.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 47 LOCAL AIR SERVICE DEVELOPMENT EFFORTS

Despite airline recruitment efforts over the last several years, the Airport has been unable to recruit additional service, outside Sun Country’s charter flying in the market – even after Delta left the market in January of 2010. The Airport real izes how essential it will be to future air service development to find a partner in the Departme nt of Transportation’s Small Community Air Service Development Program.

In the past several years, Airport leaders, and the Airport’s consulting firm, have met with various airlines to work on initiatives to bring new service to the region. In all cases, those airlines have indicated that St. Cloud’s incentive offerings are not enough to overcome the risk in the market, due to the fact that historical data doesn’t support additional flying. However, the market did grow by almost 13% in the last decade, in dicating it can support airline service.

The Airport must develop a more attractive incent ive package, going as far as to enter into a capacity purchase agreement, in order to secu re service and a new link to the national air transportation system.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 48 IN-KIND SERVICES FROM COMMUNITY

The following organizations will help promote the St. Cloud Regional Airport’s air service development goals through their various membership groups. There is no estimated value to
these services.

 St. Cloud Area Economic Development Partnership

 St. Cloud Area Chamber of Commerce

 St. Cloud Area Convention and Visitors Bureau

 City of St. Cloud

 Stearns County

 Sherburne County

 Benton County

 Area CitiesSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 49 PERFORMANCE MEASURES

The success of the program will be based on three variables. The first measure of success will be
the recruitment and retention of a new airline to the St. Cloud market. When new service is initiated, the first measure of success will be met. The Airport will judge the second measure of success by the increased number of enplanements. Finally, the third measure of success will be based on how much average airfares charge d in the community have gone down. The measurement of enplanements will include a monthly comparison, once the program begins, to past enplanements numbers. The measurement of airfares will be derived from US DOT OD1A reports.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 50 LEGAL SPONSOR

The St. Cloud Regional Airport is the legal sponso r responsible for administering the program. The St. Cloud Regional Airport is a government entity.

St. Cloud Regional Airport 1550 45 th Avenue Southeast St. Cloud, Minnesota 56304 William Towle, Airport Director 320.255.7292 wtowle@ci.stcloud.mn.usSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 51 FINANCIAL CONTROLS

As the sponsor, the St. Cloud Regi onal Airport and its governing body , the City of St. Cloud will be the responsible parties for all fiscal matters and DOT reporting requirements. The City Council is established as a public governing body. As a public entity the DOT can be assured that proper financial controls are in place to guarantee that the DOT’s Gran t will be used in accordance with any subsequent agreement. The St. Cloud Regional Airport understands that the Grant is a reimbursable grant, meaning the Airport is responsible for program expenditures and will submit invoices to the DOT for reimbursement, based on a percentage of the total grant request.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 52 RETURN ON INVESTMENT

The Airport has developed a cost effective and achi evable strategy to add airline service. The proposal uses proven methods of achieving air service improvements, allowing the DOT to be comfortable with choosing this proposal. The re newed access to the national air transportation system is in line with the major goals of the Sm all Community Air Service Development Program.

Approximately $50,000 of the $550,000 in cash is committed to being spent. The remaining $500,000 in cash available for the revenue guarantee portion of the grant may never be expensed.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 53 DOT EXIT STRATEGY

The St. Cloud Regional Airport has developed this pr oposal as a one-time grant. While the initial startup costs will be paid for ou t of other airport funds, the ad vertising and marketing program
will commence a few months before service starts and last for at least twelve months. Therevenue guarantee program will also be in place for twelve months, with two additional twelvemonth periods available for negotiation. It is projected that the service will be financially selfsustaining within the second tw elve months of service.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 54 ALTERNATE PLAN

If, for some unforeseen reason, service is not commenced in a timely manner by a United Express carrier on the St. Cloud – Chicago O’Hare route, the Airport proposes to use federal grant money awarded under the Small Community Air Service Development Program to fund another air service development project, using the Gran t funding as a revenue guarantee. Among the alternate routes covered under this proposal woul d be American Eagle, with service to Chicago O’Hare and/or Dallas/Ft. Worth; Continental, wi th service to Cleveland and/or Houston; US Airways with service to Charlotte or Phoenix; AirTran, with service to Milwaukee; and/or Frontier, with service to Denver and/or Milwaukee. The Airport would also recruit other airlines, depending on their ability to provide adequate access to the national air transportation system.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 55 AIRPORT INFORMATION

The St. Cloud Regional Airport is well position ed for airline growth. The Airport has current terminal room, including ticket counter, back offi ce, and gate space, for carriers to begin flights immediately.

The Airport features a pair of crossing runways. The main runway is 7,000 feet in length, with dual ILS (instrument landing system) approaches, with the ability to handle virtually any jet aircraft in any weather conditions. St. Cloud’s crosswind runway is 3,000 feet in length – perfect to separate frequent general aviation traffic from
commercial traffic.

Another attractive feature of the St. Cloud Regional Airport is that parking is alwa ys free. This is a distinct advantage over other airports in the region, such as Minneapolis/St. Paul International, where parking can run $16 a day or more.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 56 COMMUNITY PROFILE

St. Cloud sits along the Mississippi River, and incl udes more than 30 islands, called the “Beaver Islands,” just downstream from Downtown. Incorporated in 1856, the St. Cloud region is now home to more than three-quarters of a million peop le (those living within 60 miles of the St. Cloud Regional Airport).

St. Cloud has a long history as an industrial cent er, beginning in the mid-1800s when the railroad first came through town, and the first timber mill opened. Today, St. Cloud is one of the largest manufacturing centers in the upper Midwest, with major companies building a number of goods, including trucks, boats, tools, freezers, lumber, paper, optical lenses, furniture, and sporting goods.

St. Cloud is home to three major universities, which enroll more than 22,000 full-time students from all 50
states and around the world. Minnesota’s second largest public university, St. Cloud State University brings tens of thousands of people to the region for studies, athletic events, and cultural activities each year. It is joined in the City by the joint campus of the College of St. Benedict and St. John’s University, along with Rasmussen College and St. Cloud Technical College.

In addition to being a gateway to the lakes of central Minnesota, St. Cloud has a number of
attractions that draw tens of thousands of visitors each year. Quarry Park, which is a collection of 20 dormant granite quarries, is now a hiki ng, mountain biking, and cross-country skiing
destination. St. Cloud’s Central Business District is one of the few that is listed, as a whole, on the National Register of Historic Places, and designated a “Preserve America” community. The Clemens and Munsinger Gardens attract visitors fr om around the country. These gardens are set along the Mississippi River. The region also offe rs museums, performance halls, and convention centers that hold their own against the larger , better-known sites in Minneapolis/St. Paul.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 57 St. Cloud Economic Overview

The City of St. Cloud first grew into an econom ic base for the upper Midwest in the late 1800s and early 1900s, as the terminus of navigation on the Mississippi River, and as the southern end of the Great Northern Railroad. At the time, the City’s main industries were timber and paper milling, along with wholesale trade.

Today, St. Cloud is still a center for timber and paper milling, with large companies doing both. As of 2010, St. Cloud's population is 66,333 and has had a population growth of 12.24 percent sinc e 2000. Residents of St. Cloud spend an average of $6,779 per year on travel.

The Mississippi is a lifeline to communities throug hout the Midwest and the South. The railroad still carries goods made in St. Cloud throughout the Great Plains and the Rocky Mountain states. Still, St. Cloud’s economy has diversified since thos e days, with the mainstay industries providing an economic backdrop of more cutting-edge tec hnologies. St. Cloud is now a center for health care, food processing, heavy and light manufact uring, administrative services, and Minnesota
State Government.

Private industries, or small firms, employ the vast majority of St. Cloud area residents – growing by 5% over a five-year period. These smaller companies help to diversify the economic base of the region, making it more resistant to
economic downturns. The curre nt unemployment rate in St. Cloud is 6.2%, well below the national average of 9.5% (May 2010). Other large industries include manufacturing of both durable and non-durable goods, retail trade, government, and health care and education. Future job growth over the next ten years is predicted to be 24.82%.

A number of nationally and internationally reco gnized companies have operations in the St. Cloud metro area. Among the more well known are Electrolux, CompuCredit, Fingerhut, Woodcraft, and New Flyer USA. These companies have offices throughout the US, and all over the world, and require frequent travel. Their employees are often forced to fly from Minneapolis/St. Paul due to the lack of reliable and competitive service at the St. Cloud Regional Airport.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 58 Firm # of Employees St. Cloud Hospital 6,232
State of Minnesota 2,055
Electrolux Home Products 1,850
St. Cloud Area School District 1,800 St. Cloud State University 1,400
Veterans Affairs Medical Center 1,101 Gold'n Plump Poultry Processing 867 Cold Spring Granite Company 850 St. John's University 750 City of St. Cloud Associations 735
Wolters Kluwer Financial Services 650 Nahan Printing 600 New Flyer 550 Knife River Corporation 530 Woodcraft Industries, Inc. 527 The Antioch Company 500 Verso Paper Manufacturers 500 College of Saint Benedict 491
Quebecor World 488 

### Figure 26: Major Employers in the St. Cloud Area Source: St. Cloud EDC, 2009St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 59 Fortune 500 Companies in the St. Cloud Area

Seventeen Fortune 500 companies have their head quarters within 75 miles of the St. Cloud Regional Airport – most in the Minneapolis/St. Paul metro area. Many of these companies’ employees live within the St. Cloud Airport catchment area, and would likely use the St. Cloud Regional Airport should the proper service be offered. The following large, multinational companies drive the Minnesota economy.

Firm 2010 Fortune Rank Revenue (in billion $) United Health Group 21 $87.1 Target 30 $65.4 Best Buy 45 $45.0 Supervalu 47 $44.6
3M 106 $23.1 US Bancorp 121 $19.5
General Mills 155 $14.7
Medtronic 160 $14.6 Xcel Energy 244 $ 9.6 Ameriprise Financial 288 $ 7.9
C.H. Robinson Worldwide 301 $ 7.6
Thrivent Financial 342 $ 6.5
Ecolab 365 $ 5.9
Nash Finch 400 $ 5.2
St. Jude Medical 445 $ 4.7 Alliant Techsystems 454 $ 4.6 PepsiAmericas 464 $ 4.4 

### Figure 27: Fortune 1000 Companies in the St. Cloud Area Source: Fortune Magazine, 2010St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 60 Select Company Profiles

Gold’n Plump

Gold’n Plump is the top chicken processor in the upper Midwest, with more than 1,500 contract farmers and other employees in Minnesota and Wisconsin. The company’s headquarters are located in St . Cloud. Gold’n Plump works with a collection of “farm families,” unlike most major producers than have in-house farms. Gold’n Plump distributes its chicken products throughout the Midwest and upper Great Plains.

Electrolux

Based in Stockholm, Sweden, Electrolux is one of the largestappliance manufacturers in the world, with plants and offices in twodozens countries. Electrolux freezers are manufactured in St. Cloud. The company has a 23%
market share on freezer sales in the US – all buil t in St. Cloud. Worldwide, Electrolux employs almost 57,000 people – with nearly 1,300 employees in St. Cloud.

New Flyer USA

New Flyer is the country’s leading builder and supplier of transit buses for transit agencies in major cities all over the country. The company’s US operations are based in St. Cloud, and much of its administration and sales staff travels from the St. Cloud region to clients ar ound the US and Canada. The company’s world headquarters are located in Winnipeg, Manitoba.

Woodcraft Industries

A leading builder of wood products for use in furniture and cabinets, Woodcraft Industries has its corpor ate headquarters in St. Cloud. The company sells its products to manufacturers around the country,
with administration and sales staff based in St. Cloud.

Fingerhut

Fingerhut is a nationwide retailer, specializing in shop-at-homeSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 61 product merchandizing on its website. Fingerhut is different from other retail websites, in that it allows customers to pay monthly for items purchased, without using a credit card. Fingerhut has a major facility in St. Cloud.

Minnesota Tourism

The St. Cloud region is a well-known destination for hikers, bicyclists, and cross-country skiers, featuring the beauty of the Mississippi River, and the striking landscape of the upper Midwest hardwood forest. The River, itself,
draws thousands of visitors to the area each year for boating, water skiing, and kayaking trips – not to mention fishermen. The hiking trails lining either bank also draw serious outdoor enthusiasts.

St. Cloud is also a destination for winter sports, wi th cross-country skiing taking center stage. The region receives, on average, 48.4 inches of snow each year, which is more than enough for not only skiing, but also ice fishing, ice skating, and other wintertime activities.

St. Cloud has one of the Midwest’s largest collections of preserved turn-of-the-century architecture, with some of the finest examples of Romanesque Italianate church es, and federalist red-brick homes and businesses. The City’s downtown core is one of the few in the country to be named a Preserve America Community – the whole of downtown is listed on the National Register for
Historic Places.

St. Cloud has all the attractions one would expect in a regional center for culture and history, as the City serves as a hub for a large portion of the upper Midwest.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 62 Quarry Park

A large draw to St. Cloud, Quarry Park and Nature Preserve brings in 60,000 visitors each year. They come here to see the 20 abandoned granite quarries that line the outskirts of St. Cloud. The Park features hiking and biking trails, quarry swimming, skiing and snowshoeing on lighted trails, ice fishing, and one of the best displays of fall colors – that rivals New England.

Munsinger Clemens Botanical Society

Dating from the early 1930s, St. Cloud’s Munsinger Clemens Botanical Society features 14 acres of flower-lined trails under towering pines. The WPA project is now one of the premier botanical gardens in the Midwest, drawing thousands from around the country each year.

Paramount Theatre and Visual Arts Center

The Paramount is a landmark in downtown St. Cloud. It opened on Christmas Eve of 1921, as St. Cloud’ s “largest and finest playhouse.” By the 1960s, the Paramount had fallen into disrepair. It was not until the 1990s that the City got serious about renovating the Theatre. Today, the Paramount is the home to St. Cloud’s Symphony Orchestra, three theatre groups, a chamber music group, a ballet troupe, and an art museum. The Paramount hosts more than 60,000 visitors each year.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 63 Cathedral of St. Mary

The largest church and oldest parish in the communi ty, St. Cloud’s Cathedral of St. Mary is one of the finest surviving examples of Italian Romanesque architecture in the US. The Cathedral’s style seems almost out of place in the upper Midwest, but the key ingredient that draws millions of visitors . The Cathedral is also home to the “KC Marrin Pipe Organ,” which is considered one of the most important musical instruments in the country.

St. Cloud Higher Education

St. Cloud is home to three universities, enrolling more than 22,000 full-time students. In fact, St. Cloud’s higher education enrollment is higher than any other metro area in the State of Minnesota, with the exception of Minneapolis/St. Paul. St. Cloud’s universities offer everything from the large, state school experience, to the smaller, liberal arts college experience, drawing students from all 50 states, and more than 40 foreign countries.

College Enrollment St. Cloud State University 17,000 St. Cloud Technical College 5,200 College of St. Benedict/St. John’s University 4,000 Rasmussen College 1,000 Total Higher Education Enrollment 27,200

St. Cloud State University

The second largest public university in the State of Minnesota, St. Cloud State University enrolls 17,000 full-time students in more than 60 degree programs (as of the fall semester, 2007). The University employs more than 700 highly qualified faculty members. The University is, perhaps, best known for its NCAA Division I ice hockey team – the Huskies.St. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 64 College of St. Benedict/St. John’s University

Offering a smaller, liberal arts campus in St. Cloud, the joint campus of the College of St. Benedict and St. John’s University currently enrolls 4,000 full-time students. The institutions offer the most demanding study abroad program in the State of Minnesota, with 62% of all undergrads choosing to stud y overseas. Sister campuses are located in Australia, Austria, Chile, China, England, France, Greece, Irelan d, Italy, Japan, Spain, and South Africa.

Rasmussen College

Rasmussen College is well known throughout the upper Midwest, with a total of 12 campuses in a dozen different communities. The St. Cloud campus enrolls 500 students in
several dozen bachelor ’s degree programs.



## COMPARISON TO OTHER COMMUNITIES IN REGIONSt. Cloud Regional Airport – Small Community Air Service Development Grant – August 2010 

## 65 CONCLUSIONS

The Department of Transportation has the opportunit y to partner with St. Cl oud in this proposal – to return commercial air service to the community, and re-link the community with the national air transportation system, in much the same origin al spirit and intent of the Small Community Air Service Development Program.

St. Cloud is one of the communities hardest hit by the merger between Delta Air Lines and Northwest Airlines. After almost 30 years of successful Northwest service in the St. Cloud market,
Delta Air Lines announced it would end all serv ice at the St. Cloud Regional Airport as of December 31, 2009. The Airport quickly went to work, meeting with several airlines in hopes of retaining an alternate service. But each airline told the Airport the same thing: to consider St. Cloud, they would have to have a revenue guarantee in place.
The Airport has identified United Airlines/United Express as the best possible option for service, with ideal flights routing through the Chicago O’Hare hub. United
coded service over O’Hare would connect to 131 onestop destinations – the widest possible array of service of any airline/hub combination. The Airport has had several discussions with United’s regional airline partners , and will meet with United as soon as it has word on this Grant application.

Even as St. Cloud lost flights and available seats, the number of passengers using the St. Cloud Regional Airport continued to grow. Northwest and Delta cut St. Cloud’s available seats by 50% between 2007 and the end of 2009. At the same time, St. Cloud saw an increase in origin and destination passengers even as fares went up. Th ere is demand for local air service in St. Cloud.

The Airport will require risk mitigation to overcome the impression that Northwest and delta have built – of a weak and declining regional service market. The opposite is true, with strong economic growth in St. Cloud, and one of the na tion’s lowest unemployment rates. The Grant will help put the community back on the national commercial air transportation map – leading to increased economic activity. 

## “After almost 30 years of
successful Northwest service...

Delta Air Lines announced it
would end all service at the St.

Cloud Regional Airport as of December 31, 2009.”