### Before the Office of the Secretary of Transportation U.S. Department of Transportation 

# Modesto City

- County Airport / Modesto, California
Proposal Under the Small Community Air Service Development Program , Docket
DOT

- OST

- 2010

- 0124

An Integrated Program of New Service Development via; 

### Start

- up Cost Offsets, Advertising/Marketing and Revenue Guarantees In Support of New Service to/from Seattle and/or Portland on Horizon Air

Sponsor: Modesto City

- County Airport
Modesto , California
Jerome Thiele

– Airport Manager
Dun & Bradstreet Number : 0 60125051
, Congressional Code

– CA18



### August 2 7 , 20 10

# Table of Contents

Description Page number

Table of Contents 2 Introductory Letter of Support 3 Summary Information 5

Introduction 6 Location and Population 8

Current Air Service 10

Modesto’s 2005 SCASD Grant 1 2 Modesto Leakage Based on Population 1 3 Modesto Leakage Based On Economic Output 1 5 Availability of Alternative Airports 1 7

Modesto’s Air Service Needs and Deficiencies 1 8

Modesto’s Airfares 1 9 Modesto’s Air Service Development Efforts 2005

– 2010 2 1 Primary Object ives of Proposal 2 2 Detailed Explanation of Proposal 2 3

Route and Service Pattern 2 3

Traffic and Revenue Estimate 2 5 Modesto Community Information 2 8 A Strategic Plan for Success 3 6 Grant Implementation, Milestones & Monitoring 40 Modesto City

- County Airport Background 4 3 Comparison of Modesto to Other California Markets 4 4 Summary 4 5 Additional Support Letters 46

### August 17, 2010
Dockets Operations and Media Management M

- 30, Room PL

- 401 Department of Transportation 400 7 th 

### Street, SW Washington DC, 20590

Re: Small Community Air Service Development Program, DOT

- OST

- 2010

- 0124 City of Modesto, California
Dear Proposal Review Board, Enclosed with this letter is the Modesto City

- County Airport’s Small Community Air Service Development Program grant propo sal. The City of Modesto and Stanislaus County, owners and sponsors of Modesto City

- County Airport, the Stanislaus Economic Development and Workforce Alliance and Modesto Convention and Visitors Bureau have formed a public

- private partnership involving lo cal business and industry for the purpose of attracting new passenger air service deemed critical to the economic development of the five county market area.

Horizon Air has indicated that it can operate this service if the Modesto parties provide an ince ntive package that includes: local marketing, advertising, and public relations; reduced fees and rents; and a subsidy to off set the initial operating cost of the new air service. The Small Community Air Service Development Program will provide the fundi ng and the opportunity to develop the incentive program and get the needed air service.

If the Modesto parties are awarded the grant requested herein, then the community can move ahead to finalize the agreement with Horizon for nonstop, low fare service t o Seattle or Portland. The grant monies will be used to finalize the marketing and advertising program; purchase advertising and develop promotions and public relations; and help cover the initial start up cost of the new air service.

Primary Objectives of Proposal: Objectives for Program:

**•** Recruit Modesto’s first competitive airline service in more than a decade

**•** Reduce airfares through increased competition with a low fare regional carrier

**•** Make air travel more accessible in California’s central valley

**•** Increase enplanements in the Modesto market

**•** Decrease inefficient leakage to other airports in central California

**•** Increase awareness about local air service City of Modesto Public Works Department Airport Division

617 Airport Way Modesto CA 95354 209 577

- 5318 FAX 209 576

- 1985

### Means to Achieve Objectives:

**•** Recruit Horizon Air service to either the hub in Seattle and/ or the hub in Portland

**•** Seattle is Modesto’s 6 th 

### largest domestic market, and Portland is Modesto’s 12 th 

### largest market

**•** The Modesto parties have had extensive discussions with Horizon Air about the potential for a Modesto

- Portland/Seattle service

**•** Combine lo cal risk abatement, startup offset and marketing funds with DOT Grant funding to provide adequate incentives for the new carrier

Course of Action to Support Means:

**•** Provide startup cost offsets for the new carrier

**•** Provide revenue guarantees to ensure the s uccess of the new service

**•** Provide marketing support to increase general market awareness of new service

**•** Focused effort to draw local business travel demand to fly locally

The Modesto parties believe that the Modesto City

- County Airport proposal fits the i ntent and purpose of the Small Community Air Service Development Program perfectly. No other community the size of Modesto has such poor air service at such high fares and has an opportunity to fix this problem almost overnight with the award of this requ ested grant. We look forward to your review of our proposal and if you have any questions, please contact me at (209) 577

- 5318.

Sincerely yours,

Jerome Thiele Airport Manager Modesto City

- County AirportModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 5 

## 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: September 12, 2005 Expiration date of G rant: September 12, 2007



### B. Public/Private Partnership

Public:

1. Modesto City

- County Airport
2. City of Modesto
3. Stanislaus County

Private:

1. Stanislaus Business Alliance
2. Modesto Convention and Visitors BureauModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 6 

### 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 Laun ch 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 Ap proach
Localizer Other:



### 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: $ 25,00 0
3b. Non

- Airport cash funds: $ 25 ,000
3c. Total local cash funds: $ 50,000
4. TOTAL CASH FUNDING: $ 55 0,000
5. Local funds contributed from already existing Programs o r 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: $ 124,300 Description: (first year airport rent, landing fee & fuel flowage)
8. Other In

- Kind contribution: $ 41,000 Description: Media purchase discounts and airport equipment donations
9. TOTAL IN

- KIND CONTRIBUTION: $ 165,300
10. TOTAL PROJECT COST: $ 715,300Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 7 

### F. Enplanements at Airport

2000 : 22,600
2001 : 22,013
2002: 17,333
2003: 1 7,108
2004: 21,574
2005: 20,557
2006: 38,127
2007: 51,580
2008: 36,175
2009 : 26,783



### 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 b y the State. Program is not covered.



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

NoModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 8 

# Introduction

The Modesto City

- County Airport serves a huge surrounding population . The Modesto MSA has a population of 5 10,385

. The population within a 30 minute drive of the Airport is over 627,000.

Yet the airport only has air service from one airline with five flights total ing 150 outbound seats per day.

This means Modesto has the fewest airline seats available per capita of any city in California. Indeed, Modesto is the largest city in California with air service from just one carrier.

The Modest City

- County Airport, City of Modesto, Stanislaus County and the Stanislaus Business
Alliance (the Modesto Parties) propose to address this significant la ck of local air service by aggressively recruiting a second carrier to serve the Modesto region.

This Grant proposal outlines a plan to recruit Alaska Airlines / Horizon Air to offer Q400 service from Modesto to the northwest, specifically Portland and or Seattle. This new service would significantly increase Modesto airline capacity and bring much needed price competition and consumer air service choice to over 627,000 Californians.

Horizon Air has had significant success at secondary California airport s

, especially those near large metro areas ( f or example at Santa Rosa )

. Horizon Air north

– south service at secondary airports in California is successful because it gives travelers options that avoid the congested California freeways needed to access Sacr amento or Bay area airports, including congested
San Francisco International.

Modesto’s grant application, detailed herein, will generate nearly 60,000 annual passengers, a significant return on the Small Community Grant dollars that Modesto proposes to u se.

The Modesto parties consti tute a strong public/private partnership; they recog nize of the importance of air service to economic health and economic growth. They are committed to making new air service at Modesto successful. The modest grant funding requested in this grant, combined with the local match, will ensure a successful startup and long term operation of
Horizon Air service at Modesto.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 9 

# Location and Population

Modesto has a prime location in the great California Central Valley. The Modesto MSA has a population of 510,385. The MSA has seen population growth of 13.6% since 2000.

Pictured is the MSA and reasonable catchment area of the Modesto airport, including areas outside the MSA but for which MOD is the closest airport.

The major airports of Sacramento, Oakland and San Jose may appear to be close by on the map. However the famous California freeway congestion means that is only t rue at 2 am. Also, driving to Bay Area airports means traversing the the narrow I

- 580 corridor over the high terrain that seperates the Central Valle y from the Bay area. This me ans that while Mapquest may say its under two hours drive to any of these airports no Californian allows less than 2:30 just to get to the Sacramento, Oakland or San Jose airports during the day and most particularly during rush
hours. 

### SMF

OAK

SJCModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 10 The Modesto MSA p opulation does not d o justice to the true population of the Modesto area

.

Over 627,000 Californians live within the 30 minute drive radius illustrated on the map above.



# Current Air Service

Modesto is the largest city in California with air service from just one airline. SkyWest, operating as United Express, offers Modesto five daily flights to the United Airlines hub at San Francisco with
EMB

- 120 turboprop equipment.

San Francisco is a congested and delay prone airport. In both 2008 and 2009 SFO ranked 27 th out of the 31 large airports in the country in on

- time performance, with only 69% of SFO flights on
time in 2008 and 73% in 2009. Air Traffic Control (ATC) gate holds and flow control programs are
common at SF O

. Modesto, being a short

- haul market, bears the brunt of these delays, both in
terms of diminished on

- time performance due to gate holds or ground stops and due to above 

### 30 minute drive radiusModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 11 average flight cancellations as SkyWest and United attempt to cope with delay situati ons by consolidating flights and cancelling short

- haul markets.

This mediocre flight schedule performance at an airport with only one airline further diminishes the utility of the airport for Modesto area residents. The extent of ATC delays creates uncert ainty among Modesto area travelers, especially business travelers for whom on

- time and schedule completion are essential factors when choosing among air travel options.

The chart illustrates Modesto capacity and traffic performance for the past five calendar years. Modesto capacity and traffic grew significantly in 2006 and 2007 due to SkyWest inaugurating
Modesto

– Los Angeles service to complement the existing SFO fligh ts.

The Los Angeles flights were a load factor success, running nearly 60% full with that calculation assuming a 30 seat capacity. However, the EMB

- 120 could only carry about 27 passengers per flight on the longer LAX segment; therefore the true load f actor was about 65% or 66%.

However, the sharp rise in fuel costs that plagued the airline industry in late 2007 and during 2008 forced SkyWest to end LAX service; the longer flights (90 minutes vs. 35 to 40 for SFO) simply burned too much costly fuel. Year Flights Change Onboard Change Seats Change Load Factor 2005 2,682 34,997 80,460 43.5% 2006 4,455 66.1% 69,684 99.1% 133,650 66.1% 55.4% 2007 5,923 33.0% 95,711 37.4% 177,660 32.9% 56.5% 2008 4,485 -24.3% 72,398 -24.4% 134,550 -24.3% 53.5% 2009 3,246 -27.6% 49,546 -31.6% 97,380 -27.6% 50.9%



## Modesto Airline Capacity & Traffic 2005 - 2009

Year Flights Change Onboard Change Seats Change Load Factor 2006 1,496 26,424 44,880 58.8% 2007 2,742 83.3% 48,161 82.3% 82,260 83.3% 58.6% 2008 1,321 -51.8% 21,051 -56.3% 39,630 -51.8% 53.1% 

## Modesto - LAX Capacity & Traffic 2006 - 2008Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 12 

# Modesto’s 2005 Small Community Air Service Grant

The LAX service was supported by Modesto’s 2005 Small Community Air Service Development Grant. Over 95, 636 O&D passengers used the LAX service made possible by this grant award.
While the unforeseen fuel cost spike coupled with a slowing economy caused the service to be terminated, Modesto certainly saw benefit from the LAX flights.

Thus the 2005 Grant was not a failure but merely a victim (like so many other cities and routes in 2008) of a domestic airli ne industry contraction of historic proportions, when $150/barrel fuel costs drove huge service cutbacks and the worst recession in decades followed on by cutting airline traffic and revenue by levels unseen before in the airline industry.

The LAX route’s 95,636 O&D were generated at a cost of $550,000 in DOT grant funds, or $5.75 per O&D. Furthermore; the remaining Modesto service to SFO grew during the term of the LAX flights and has held its own since their end, despite much weaker economic conditions i n 2009 than in 2005, both in Modesto and nationwide.

Note that SkyWest actually increased SFO service during the time of the LAX flights. Even after LAX service ended in early 2008 SFO service has held its own at a much higher patronage level
than bef ore LAX flights began in 2006. Despite a weaker economy in 2009 vs. 2005 the Modesto

– San Francisco route generated 14,549 more O&D (+42%) on only 21% more flights and seats.

Thus the 2005 Grant was a success in terms of economic impact and air service e nhancement. And clearly Modesto area residents do respond to added air service, with both the new route to LAX and the expanded SFO service pattern in the same time frame being clear examples

.

This new Grant application is for Alaska Air/Horizon for northbound service to Seattle/Portland while the 2005 Grant is for SkyWest for southbound service to Los Angeles. Year Flights Change Onboard Change Seats Change Load Factor 2005 2,682 34,997 80,460 43.5% 2006 2,959 10.3% 43,260 23.6% 88,770 10.3% 48.7% 2007 3,181 7.5% 47,550 9.9% 95,400 7.5% 49.8% 2008 3,164 -0.5% 51,347 8.0% 94,920 -0.5% 54.1% 2009 3,246 2.6% 49,546 -3.5% 97,380 2.6% 50.9% 

## Modesto - SFO Capacity & Traffic 2005 - 2009Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 13 

# Modesto Traffic Leakage Based on Population

Although the Modesto City

- County Airport catchment area represents a large proportion of the population of the larger region, the Airport does not retain the number of passengers equal to its share of the regional population. In other words, the Airport is leaking a large percentage of i ts passengers to other airports

– even when those airports are not particularly close.

The Modesto MSA has a population of over 510,000. The larger region comprised of the metro areas of Sacramento, Stockton, and Merced has a current population of nearly 3, 900,000

. Modesto’s share of the regional population is 13%.

In many markets, an Airport draws a number of passengers proportional to its overall population in the region. If that were the case in the Modesto market, one could reasonably expect the Airport to retain about 13% of the total passengers using all four airports in the larger region. Sacramento (SMF) 2,417,404 62.8%

Stockton (SCK) 672,388 17.5% Modesto (MOD) 510,694 13.3% Merced (MCE) 246,117 6.4% Population Share MOD SCK

SMF

MCE 

## Regional Population

Source: US Census Share of Population of Combined MOD/MCE/SCK/SMF CatchmentModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 14 However, in the case of Modesto, the Modesto City

- County Airport does not retain anywhere close to 13% of the region’s passengers.

While the Modesto metro a rea is home to 13% of the region’s total residents, its airport retains less than 1% of the region’s total origin and destination passengers. In the region, Modesto has the second lowest share of passenger retention of any airport. In 200 9 , the Modesto C ity

- County Airport saw a total of 49,546 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 region, it would have been used by another 1 .2 million p ass engers. In effect, the Modesto City

- County Airport “leaked” these passengers to other airports in the region

– a leakage rate of more than 1,600%. The bottom line is that the Modesto City

- County Airport only retains a tiny fraction of the passengers that should be expected based on its share of the regional population.



### Share of O&D Share of Population Population Traffic O&D Traffic Sacramento 2,417,404 62.9% 8,202,300 98.71%

Stockton 672,388 17.5% 55,390 0.67% Modesto 510,385 13.3% 49,546 0.60%

Merced 246,117 6.4% 2,010 0.02%

Total 3,846,294 8,309,246 MODESTO POPULATION SHARE VS. O&D PASSENGER SHAREModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 15 

# Modesto Traffic Leakage Based on Economic Output

Another way of determining passenger leakage from the Modesto market to other airports in the region is by comparing the economy of Modesto to the economies of the nearest three cities with commercially

- served airports. The easiest 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 overall gauge of economic activity in
an area in dollars earned.

The United States Council of Mayors reports that the Modesto metro area produced a GMP of $15. 1 billion in 200 9 , which represented 11.1% of the to tal gross regional product (GRP) of the area including Sacramento, Stockton, and Merced

.

Sacramento generated the largest portion of the GRP, with $96.6 billion, or 70.7%, while Stockton produced a GMP of $19.2 billion

– good for 14.1% of the GRP

. Sources: United States Council of Mayors, June 2008 Sacramento (SMF) $96.6 Billion 70.7%

Stockton (SCK) $19.2 Billion 14.1% Modesto (MOD) $15.1 Billion 11.1% Merced (MCE) $5.7 Billion 4.2% MOD SCK

SMF

MCE 

### Gross Metropolitan Product (GMP)

GMP ShareModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 16 Despite producing 1 1% of the total gross regional product (GRP), the Modesto City

- County Airport retains just 0. 6 % of the region’s total origin and destination passengers

. In the region, Modesto has the lowest share of passenger retention relative to its g ross metro product (GMP), of any airport.

In 200 9 , the Modesto City

- County Airport generated a total of 49,546 origin and destination passengers. 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 1, 00,000+ passengers. In effect, the Modesto City

- County Airport “leaked” these passengers to other airports in the region

– a leakage rate topping 1300%. The Airport only retains a small fraction of the
passengers that should be expected based on its share of the gross regional product.



### Share of O&D Share of GMP GMP Traffic O&D Traffic Sacramento $96.6 Billion 70.9% 8,202,300 98.71%

Stockton $19.2 Billion 14.0% 55,390 0.67% Modesto $15.1 Billion 11.0% 49,546 0.60% Merced $5.7 Billion 4.1% 2,010 0.02%

Total $136.6 Billion 8,309,246 GROSS METROPOLITAN PRODUCT SHARE VS. O&D PASSENGER SHAREModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 17 

# Availability of Alternate Airports

Other than Modesto, air service options are limited in the Central Valley between Fresno and
Sacramento.

Merced is less than 45 minutes drive south along Highway 99. Merced has limited B1900D Essential Air Service to Las Vegas and Ontario, which would be completely un

- impacted by the Grant supported new north bound service at Modesto.

Stockton is 30 minutes north along Highway 99. Stockton has Allegiant Air less than daily service to Las Vegas and Long Beach. As with Merced, this existing service goes in the opposite direction of the proposed Grant supported new service at Modesto and neither service would impact the other.

Nearby Airports in the Modesto Market

Most Modesto traffic leakage is to Sacramento, officially at 1:40 minute drive, or over to the Bay area airports of Oakland or San Jose. Officially Oakland is a 1:30 drive and San Jose a 1:45 drive
but Californians kn ow to allow more time due to Bay Area freeway congestion

.

SFO is over a two hour drive in uncongested times and can be much more during peak traffic
times.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 18 

# Modesto’s Air Service Needs and Deficiencies

Modesto is the largest city in California with air service from only one carrier. It is one of the most underserved markets in the nation, with just 0.19 available seats per capita, a stunning 2,800% fewer than the national average of 5.59 seats per capita

.


### Available Seats Per Capita: 2009

Modesto air service is a fraction of that at Santa Rosa and Salinas/Monterey despite Modesto having a significantly larger population. Modesto service also pales by comparison to larger Bakersfield and Fresno as well as by comparison to the group average.

Every other city in the peer group has service to multiple hubs while Modesto is not only a one carrier market but also a one hub market, and that hub is delay

- prone SFO. Modesto’s air service deficiency is a lack of a second carrier, a second hub and adequate f requency and capacity to meet the air travel needs of its significant population. 

### 1.40

1.38

0.56

0.43

0.19

0.00 0.25 0.50 0.75 1.00 1.25 1.50 

### Fresno

Monterey

Santa Rosa

Bakersfield

Modesto

MSA Nonstop 2009 Capacity Airport Population Airlines Routes Capacity Per Capita Modesto 510,385 1 1 97,380 0.19 Fresno 915,267 6 9 1,356,211 1.48 Bakersfield 807,407 2 4 314,064 0.39 Santa Rosa 472,102 1 4 266,493 0.56 Salinas/MRY 410,370 5 6 598,751 1.46 Group Average 623,106 3 5 526,580 0.85 

### MODESTO AIR SERVICE COMPARED TO PEER AIRPORTSModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 19 

# Modesto’s Air Fares

Modesto’s reported average air fares in the DOT’s quarterly 10% sample of airline traffic and
fares has been inaccurate since 2006 . As is the case in many smaller cities the 10% sample reporting relationship between market carrier SkyWest and brand carrier United is such that Modesto average fares are significantly under reported.

The chart below shows Modesto DOT reported domestic average fare on the brown line. Note the sharp drop in average fare starting in 2006. In green is the projected actual Modesto domestic average fare, based on the trend line of market average fare for nearby airports Fresno, Sacramento, Oakland and San Jose. This trend line s hows a much more logical progression of Modesto average fares. Certainly the DOT appreciates that SkyWest would not have remained in Modesto, and certainly would not have experimented with expanded service to Los Angeles and added and retained flights to S an Francisco in the 2006

– 2009 period if the average fare, before proration with United, was hovering just above $100.

Data Base Products, a well known and established firm that provides automated access to the vast DOT airline traffic databases, publis he s in its “O&D Operations Manual” for customers (page 42) a paper explaining the reconciliation of O&D Survey data in market situations where regional partners of network carriers report incomplete or “unfared” traffic data. $187

$157 $172

$108 $108 $136 $122 $189

$186 $196 $182

$0 $50 $100 $150 $200 $250

2003 2004 2005 2006 2007 2008 2009Average Fare. MOD DOT Reported Avg Fare MOD Projected on Peer Group TrendModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 20 The paper says, in part, “ In order to include the "Unduplicated Commuter" data with Survey data we needed to assign fares to the O&D's. Since fares are not included in the T100 Market data, we established a formula which assigns a fare for a given distance. The formula is a yield curv e which was calibrated from O&D Survey data for codesharing carriers operating in short

- haul
markets.”

Using the actual Modesto average fares for 2003

– 2005 and the projected fares from 2006

– 2009 the real picture of the cost of current Modesto air serv ice becomes clear.

This real picture shows Modesto domestic average fares consistently above those of Fresno, the only other nearby airport without Low Cost Carrier influence. Modesto fares are some $50 to $60 or 40% to 60% higher than at the larger airp orts in the region.

This “true” picture of Modesto average fares, coupled with a clear deficiency of air service in terms of carrier options, hub options and flight options, illustrates Modesto’s need for a Small Community Grant to assist in the critical task of bringing adequate air service and all its economic benefits to the large number of California’s who call Modesto home.

Modesto’s first grant for service to LAX was a success in drawing significant new traffic to the airport and strengthening the core SFO service. Like so many other fledgling air service efforts of
the 2007

– 2008 timeframe, it simply fell victim to high fuel prices and a weak national economy. $187

$157 $172 $189 $186 $196

$182

$102 $102 $109 $121 $117 $121 $113 $155 $157 $166 $183 $186 $196

$174

$119 $115 $122 $135 $131 $137

$124

$112 $112 $119 $130 $130 $139

$132

$90 $110 $130 $150 $170 $190 $210

2003 2004 2005 2006 2007 2008 2009Average Fare. Modesto Oakland Fresno San Jose SacramentoModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 21 

# Modesto’s Air Service Development Efforts 200 5

- 2010

The administration of the Mod esto City

- County Airport has been extremely active in working to add air service to the community. A SCASD Grant was awarded a Grant in 2005, which was
used for the Modesto

– Los Angeles service in 2006

– 2008.

The Airport is in constant contact with its incumbent airline and, w hen appropriate
, Modesto
officials’ journey to the headquarters of prospective new entrant airlines to discuss the Modesto
market. The Airport has successfully recruited public charter gambling junket flights to the airport.
The Ai rport also has a wide

- ranging current marketing and advertising campaign that is funded annually, in an attempt to curb the leakage the Airport experiences. The marketing campaign
will be geared up significantly if this 2010 Grant application is successfu l.

2005 April: Business Travel Survey April: SCASD Application June: Completed passenger Demand Analysis and Meeing with Horizon in Seattle August: SCASD Grant award and meeting with Delta Air Lines in Atlanta December: SkyWest Officials visit Modesto Airport Marketing Budget $165,816 2006 February: Meeting with SkyWest in St. George May: SkyWest starts Los Angeles Service with Modesto marketing & advertising support Airport Marketing and Air Service Development spending for the year: $63,770 2007 March: Airport Outreach breakfast for business & industry at Airport Industrial Park October: Meeting with US Airways in Phoenix December: Meeting with SkyWest in St. George, open dialogue with United Sales Rep Airport Marketing and Air Service Development spending for the year: $54,667 2008 Through out the year: Travel Agency outreach visits Ongoing efforts to recruit public charter flights to Laughlin and Wendover, Nevada May: Meetings with LAX Officials about MOD - LAX service, save LAX service effort begins June: SkyWest ends LAX service July: Contacted Great Lakes Airlines about possible MOD service July: Retained Air Service Consultant, two year contract at risk agreement August: SCASD application Airport Marketing and Air Service Development spending for the year: $44,341 2009 March: Airport sponsored Chamber of Commerce and Travel Agency breakfasts Ongoing efforts to recruit public charter flights to Laughlin, Nevada SCASD Grant application Airport Marketing and Air Service Development spending for the year: $22,715 2010 Successful recruitment of public charter flights to Laughlin and Wendover, Nevada February: Attended Allegiant Air Conference June: Attended Jumpstart Conference, presented to six airlines July: Two meetings with United marketing representatives SCASD Grant application Airport Marketing and Air Service Development spending for the year: $68,163 MODESTO AIRPORT AIR SERVICE DEVELOPMENT EFFORTS 2005 -2010Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 22 

# Primary Objectives of Proposal

Objectives for Program:

**•** R ecruit Modesto’s first competitive airline service in more than a decade

**•** Reduce airfares through increased competition with a low fare regional carrier

**•** M ake air travel more accessible in California’s central valley

**•** Increase enplanements in the Modesto market

**•** Decrease inefficient leakage to other airports in central California

**•** Increase awareness about local air service

Means to Achieve Objectives:

**•** Recruit Horizon Air service to the hub in Seattle and/or the hub in Portland

**•** Seattle is Modesto’s 6 th largest domestic market and Portland is Modesto’s 12 th largest market

**•** The Modesto parties have had extensive discussions with Horizon Air about the potential for a Modesto

– Portland/Seattle service

**•** Combine local risk abatement, startup offset and marketing funds with DOT Grant funding to provide adequate incentives for the new carrier

Course of Action to Support Means:

**•** Provide startup cost offsets for the new carrier

**•** Provide revenue guarante es to ensure the success of the new service

**•** Provide marketing support to increase general market awareness of new service

**•** Focused effort to draw local business travel demand to fly locallyModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 23 

# Detailed Explanation of Proposal

Modesto officials have met with Alaska/Horizon Airlines on multiple occasions to discuss the Modesto market. A trip to Alaska/Horizon headquarters In Seattle occurred in November of 2009 and conversations with the carrier took place again at the Jumpstart conference in June of
2010.

Alaska/Horizon has been successful developing secondary airports and linking major population centers up and down the west coast for man y years. Examples of west coast secondary markets linked to major west coast cities by Hori zon are ; Santa Barbara

– Sacramento, Redding, Medford
and Redmond

– Los Angeles, and Santa Rosa

– Los Angeles, Seattle, Portland & Las Vegas.



# Route and Service Pattern

Horizon service at Modesto would consist of two round trips per day Q400 turboprop serv ice to
Portland or Seattle or a combination of both. Seattle service would also offer many online
connections to other domestic and Canadian cities

.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 24 Portland service would offer fewer connections than via Seattle.

Since Alaska/Horizon offers hourly and sometimes half hourly shuttles between Portland and Seattle a flight to one of the two cities is a one stop or one stop connection to the other city. Current Horizon service at Fresno, for example, consists of two daily nonstops to Seattle and one
dai ly nonstop to Portland.

As an example, a one daily trip to Seattle and one daily trip to Portland service pattern would

mean 1,400 annual flights requiring 2,660 block hours and generating 105,000 annual seats. 

### Annual Block Annual Segment Distance Flights Time Blk Hrs Seats ASM MOD - PDX 556 700 1.65 1,155.0 52,500 29,190,000 MOD - SEA 681 700 2.15 1,505.0 52,500 35,752,500 Total 1,400 1.9 2,660 105,000 64,942,500 

### MODESTO - SEATTLE/PORTLAND OPERATIONAL STATISTICS Horizon Air Q400: Two round trips dailyModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 25 

# Traffic and Revenue Estimate

Local Traffic

Nearly 2.7 million O&D passenger trips occur annually between the Modesto region (Modesto, Fresno, San Jose, Oakland & Sacramento) and Portland or Seattle.

While the bulk of this travel is between the major airports of both regions Horizon Air has demonstrated at cities like Santa Rosa that Q400 nonstop service at reasonable fares can siphon off measureable traffic from major central California cities and improve travel options for
California residents and visitors.

The population of the combi ned Fresno, Merced, Modesto, Sacramento, Oakland & San Jose MSAs plus surrounding areas but excluding the San Francisco MSA is approximately 9, 3 00,000,

The Modesto MSA alone has 510,385 residents, or about 5. 5 % of the above group total. 

### City 2009 O&D Avg Fare Revenue Portland 1,460 $133 $194,180 Seattle 2,090 $126 $263,340

Total 3,550 $129 $457,520 Portland 31,720 $145 $4,599,400 Seattle 61,300 $136 $8,336,800

Total 93,020 $139 $12,936,200 Portland 377,420 $109 $41,138,780 Seattle 396,270 $100 $39,627,000

Total 773,690 $104 $80,765,780 Portland 385,390 $108 $41,622,120 Seattle 647,980 $82 $53,134,360

Total 1,033,370 $92 $94,756,480 Portland 313,200 $115 $36,018,000 Seattle 436,500 $99 $43,213,500

Total 749,700 $106 $79,231,500 Portland 1,109,190 $111 $123,572,480 Seattle 1,544,140 $94 $144,575,000

Total 2,653,330 $101 $268,147,480 

### CENTRAL CALIFORNIA AIR TRAVEL METRICS FOR SEA/PDX

Modesto

Fresno

Sacramento

Oakland

San Jose

GroupModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 26 The Modesto parties believe that Alaska/Horizon service between Modesto and Portland/Seattle would capture 2% of the region’s annual total Seattle/Portland O&D traffic, or approximately 53,067 annual local O&D (72.7 PDEW) . Average net fare for this traffic is estimated to be $124, which is $20 above the average fare of Sacramento and $15 below the average fare of Fresno
for the same destinations.

Connect Traffic

Horizon service to Portland and Seattle will generate online connections to more than a dozen markets in Washington, Oregon, Idaho and Montana plus Anchorage
, Fairbanks and Alaska Air’s smaller city network in Alaska. Trans

- border International connections would also be made to
four Canadian cities.

The Horizon Modesto

– Seattle/Portland servic e pattern is forecast to capture 6,152 annual connect passengers (8.43 PDEW) at an average Itinerary fare of $229 and an average segment fare after proration of $121. Connect Estimated MOD Horizon Horizon Horizon Itinerary Segment Segment Market Traffic With AS 2011 Share Traffic Avg Fare Revenue Revenue Fare Spokane 3,195 40% 1,278 $162 $207,036 $138,714 $109 Anchorage 2,085 90% 1,877 $245 $459,743 $183,897 $98 Pasco 565 40% 226 $192 $43,392 $29,073 $129 Bellingham 515 90% 464 $186 $86,211 $57,761 $125 Wenatchee 510 90% 459 $188 $86,292 $57,816 $126

Yakima 440 40% 176 $196 $34,496 $23,112 $131 Fairbanks 360 90% 324 $273 $88,452 $35,381 $109 Redmond 320 90% 288 $177 $50,976 $34,154 $119

Eugene 275 40% 110 $191 $21,010 $14,077 $128 Kalispell 195 90% 176 $200 $35,100 $23,517 $134 Helena 45 90% 41 $250 $10,125 $6,784 $168 Billings 40 90% 36 $266 $9,576 $6,416 $178 Bozeman 40 90% 36 $278 $10,008 $6,705 $186 Great Falls 20 90% 18 $257 $4,626 $3,099 $172 Alaska Other 450 90% 405 $496 $200,880 $80,352 $198 Canada 600 40% 240 $263 $63,120 $42,290 $176

Total 9,655 64% 6,152 $229 $1,411,043 $743,148 $121 

### MODESTO - SEATTLE/PORTLAND ESTIMATED CONNECT TRAFFICModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 27 Total Traffic and Revenue Summary

A Horizon Air two round trip Q400 service from Modesto to Portland & Seattle is estimated to generate over 59,000 O&D passengers the first year.

Estimated total revenue would be $8,913,703 and segment revenue, after proration of connect revenue, would be $8,218,668. This would equate to $3,090 in segment revenue per block hour. Depending on fuel costs this would imply a modest first year loss for Horizon Air in the Modesto
market.

A baseline projection of year two results, accounting for the market maturation process, suggests load factor growth t o near 60% and revenue growth in the 5% range, not considering inflation. This should bring the route to breakeven operational performance in year two, barring an unforeseen fuel cost spike that cannot be covered by average fare increases. 

### Service Annual Block Annual Segment Distance Flights Time Blk Hrs Seats ASM MOD - PDX 556 700 1.65 1,155.0 52,500 29,190,000 MOD - SEA 681 700 2.15 1,505.0 52,500 35,752,500 Total 1,400 1.9 2,660 105,000 64,942,500 2011 Traffic Itinerary Segment Traffic W/ AS Service Avg Fare Revenue Revenue Local O&D 53,067 $125 $6,633,375 $6,633,375 Ancillary $15 $796,005 $796,005

Online Connect 6,152 $229 $1,411,043 $743,148 Ancillary $15 $92,280 $46,140

Total 59,219 $8,932,703 $8,218,668

Onboard O&D 59,219 RPM 36,597,342 ASM 64,942,500 Load Factor 56.4% Total Revenue $8,932,703 Segment Revenue $8,218,668 Revenue/Blk Hour $3,090 $3,244.21 38,427,240 64,942,500 59.2% $9,379,338 $8,629,601 

### MODESTO - SEATTLE/PORTLAND TRAFFIC & OPERATIONAL STATISTICS Horizon Air Q400: Two round trips daily



### Operational Summary Projected Year Two Results 62,180Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 28 

# Modesto Communit y Information

Modesto is one of the largest cities in the State of California, with a population of 251,000 within the city limits. The Modesto MSA is home to more than 515,000 people, making it the fifth largest
metro area in the State.

Modesto is the gateway to one of the world’s most visited national parks

– Yosemite, which lies just 106 miles from the Modesto City

- County Airport. The region has long been a tourist magnet, due to its temperate and sunny year ‘round climate and its close proximity to destinations in the
Sierra

- Nevada Mountains.

The City of Modesto was originally founded as a stop on the rail line connecting Sacramento and Los Angeles, in 1870. Today, Modesto is a holdover from its “wild west” days, and in many ways, still carries th e spirit of a frontier town. Still, the City has not been without major economic and cultural developments over the last couple of decades, squarely placing it among
California’s more robust business climates.

The economy of the Modesto region is anchor ed by recession proof food processing and agriculture, as the City carries the role of breadbasket of the west. Large food processors in the region produce everything from wine to tomatoes, and from chips to chicken. The five largest private employers in the region are all major food processing companies.

Modesto sits just a short drive to the mountains, the Pacific Ocean, renowned national and state parks, and major cities such as San Francisco and Sacramento. The City is truly at the heart of
Californ ia, and its location has long been its greatest asset.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 29 What’s New in Modesto

The Modesto region shows numerous signs of new economic development taking hold. Some of the region’s major employers are embarking on major growth plans, adding jobs and boosting
local revenues.

**•** The Modesto area’s largest private employer, E&J Gallo Winery, continues the expansion of its headquarters and winemaking facilities. With annual sales of $3.5 billion

– about 70
million cases of wine

– Gallo is the nation’s larg est winemaker. It will continue to add jobs as needed, as it looks to expand production to add new markets, primarily in China.

**•** Kaiser Permanente, with its corporate headquarters nearby in Oakland, CA, continues its strong growth in Modesto, and opened a new hospital on the City’s north side in October of 2008. Kaiser added 500 new employees at the hospital, including many high paying jobs for doctors, nurses, and administrative professionals. The hospital was built in response to the need for better he alth care facilities to the north of Modesto.

**•** To combat the nationwide declining economy, the resourceful residents and workers of Stanislaus County have successfully ventured into several new or expanded industries. These include boutique hard liquor pr oduction, an emerging specialty cheese market, and export of California’s award

- winning wine to an emerging Asian market.

**•** On March 25, 2010, University of California Board of Regents accepted UC

- Merced's 10

- year, $1.13 billion capi tal improvement plan. This undoubtedly signals an enormous expansion of not only the school, but the local economy as well. The school, which currently enrolls 3,400 students, plans to see that number jump to 11,000 by 2020 and to 25,000 by 2040. Improv ement plans include new research and instruction buildings, infrastructure and new student housing.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 30 Modesto Economic Overview

Modesto’s most important asset is location. The City, located in Stanislaus County, is in the heart
of central Californ ia, along the I

- 5 freeway. It has an approximate drive time of 90

- minutes from Sacramento and 1 hour 53 minutes from San Francisco, but both can be quite a bit longer during congested drive times. The region’s business base was initially built on trade, which is still an important facet of the economy today.

Easy access from major markets has led a number of large agricultural firms to develop their largest operations in and around Modesto. These firms employ more than 10,000 people in the region, and p rovide food, wine, and other agricultural products to people in all 50 states and more than 90 foreign countries. Modesto’s connections with all parts of the world

– including companies on six continents

– have never been stronger.

Many say they choose Modesto for the mild climate, the plentiful sunshine, the low cost of living compared to other parts of the State, and the quality of life. Local economic development agencies have recently recognized the value of small businesses to the economic health of the region. Today those agencies offer a number of incentives to lure small businesses to Modesto, including free consulting, location scouting, business plan development, and market research.

The Stanislaus River Valley Economic D evelopment Alliance is also working to expand the number of bioscience operations in the region. The Modesto
area is home to approximately 130 bio

- tech related
businesses
, several of which develop new agricultural products in support of the large food pro cessing companies in the Valley. The Alliance realizes the value of bioscience firms to the health of the agricultural industry, so it’s developed a wide

ranging recruitment plan that includes outreach, relocation support, grant funding, and other
monetar y incentives to bring biotech jobs to the region.

The Modesto region is home to the operations of no fewer than six Fortune 1000 companies. Companies such as Del Monte and Silgan have major operations in the area, while companies
such as AT & T and Weyerhaeuser have operations that are vital to their company’s performance in California.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 31 Top Employers in Modesto, 2009
Firm Employees Stanislaus County 4,764 E&J Gallo Winery 3,311 Memorial Medical Center 2.682 Modesto Junior College 2,435 Seneca Juices 2, 2 00 Del Monte Foods 2,000 Doctor’s Medical Center 2,000 Foster Farms Processing 1,813 Stanislaus Food Products 1,651 Kaiser Perman ente 1,478 City of Modesto 1,400 Wal

- Mart 1,244 AT&T/SBC Communications 1,175 Sutter Gould Medical Fnd. 1,005 Save Mart 955 Frito Lay 700 Racor 700 Silgan Containers 440 Foster Farms

– Dairy 435 Pacific Southwest Containers 409 Valley Fresh Foods 400 Sysco Foods 400 Hunt

- Wesson, Inc. 300 Weyerhaeuser 240 Source: City of Modesto, 2009

Fortune 1,000 Companies with Facilities in Modesto
Firm Rank Revenue Headquarters
Wal

- Mart 2 $405.6 Billion Bentonville, AR
AT&T 8 $124 Billion Dallas, TX Sysco 62 $37.5 Billion Houston, TX Weyerhaeuser 236 $11.4 Billion Federal Way, WA
Del Monte Foods 582 $3.74 Billion San Francisco, CA Silgan Holdings 671 $3.12 Billion Stamford, CT Source: Fortune Magazine, 2009Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 32 Select Company Profiles E&J Gallo Winery Based in Modesto, the Ernest and Julio Gallo Winery is the largest exporter
of California wines, and the largest US exporter of wines. While most of its grapes are grown in Sonoma County

– to the north of San Francisco and the west of Napa

– its wines are all created at the winery facility in Modesto. The Gallo Winery is the largest private employer in the region, with almost 3,400 current employees. Many of those who work in the Modesto headquarters are sales representatives and administrative officers. Gallo produces 70 million cases of wine each year, with revenues topping $3.5 billion, and markets in 90 countries.

Del Monte One of the most well known names in food products, Del Monte is a Fortune 1000 company with more than $3.3 billion in annual revenues. Del Monte operates a massive packaging plant and distribution center in Modesto , with 2,000 local employees. Del Monte owns a number of well known brands, including Star Kist, Milk Bone, Meow Mix, and Nature’s Recipe. The company is headquartered in San Francisco.

Frito Lay
Frito

- Lay, a wholly owned subsidiary of Pepsi

- Co, is bes t known for its snack foods and had a 2006 sales of $33 billion. The Modesto facility is r esponsible for overseas shipping to military bases and Hawaii operations, as well as manufacturing SunChips products for the West Coast. Headquartered in Plano, TX, the compa ny employs more than 157,000 people nationally, including more than 700 in Modesto. They have nearly 30 other manufacturing plants throughout the US and Canada as well as two in Indonesia. Being a subsidiary of Pepsi

- Co widens their geographic s cope even more and
increases the need for convenient travel services.

Silgan Containers Silgan Containers is a division of Silgan holdings, a multinational company ranked 671 on the Fortune 1000 list. Silgan’s Modesto operation is the world’s largest pr ovider of metal foods packaging materials, which is used to can the fruits grown in the Modesto region. Silgan is based in Woodland Hills, California, outside of Los Angeles. The company has sales offices in Modesto, Portland (Oregon), Kansas City,
Chica go, St. Paul, and New York City so enhanced local air service would no doubt benefit their
business.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 33 Modesto Area Tourism

Tourism to the Modesto area of central California is a year ‘round industry. The region’s climate makes it possible to enjoy outdoor activities 12 months out of every year. Moreover, Modesto’s central location puts it within a quick drive of the Sierra

- Nevada Mountains, the Pacific Ocean, and major cit ies such San Francisco and Sacramento.

California’s central valley has a number of lakes and reservoirs that make it the perfect location for boating, kayaking, fishing, and hiking. The region’s beautiful scenery draws hundreds of thousands for camping and hunting trips. Modesto is also the closest major city to Yosemite National Park

– one of the most visited national parks in the country.

Modesto is also a cultural center for the central valley. As the birthplace of film director George Lucas, the City draws tens of thousands a visitors a year for a huge “Graffiti Month” festival in June, which includes parades, concerts, and multiple showings of Lucas’ classic, “American Graffiti.” Lucas is also well known for his Star War series, and the Indiana Jones series.

The Modesto area is also part of the region’s thriving wine tourism industry. Home not only to Gallo Wineries, the nation’s largest winery , this area can also boast Bronco Wine (3 rd largest) and Delicato/DFV Wine (5 th largest). W ine touris m provides a financial boost to the whole community by increasing revenues for stores, restaurants, hotels and all of the employees who work in those
establ ishments. A recent study commissioned by the Wine Institute shows that the California wine industry has a $51.8 billion economic impact on the state.

As the heart of the agricultural economy of the western US, Modesto is famed for its farmers markets and farm tours. Many come to the valley during each season for various harvests, to buy fresh fruit an d veggies, and, of course, to taste the region’s world famous wines.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 34 Yosemite National Park Located just 110 miles from the Modesto City

- County Airport,
Yosemite National Park draws more than 3.5 million visitors each year, making it one of the most visited national parks in the US, and one of the most visited attractions in California. Yosemite is best known for its mountain vistas, including famed “half dome,” which sits squarely within the Sierra

- Nevada Range. Modesto is the closest major city to the Park, and the Airport is the closest gateway for
Park visitors.

Modesto Reservoir A 30 minute drive to the east of the City of Modesto, Modesto Reservoir is a huge lake created by a dam. The lake provides much of the valley’s water used for agricul tural purposes. The reservoir
boasts 31 miles of shoreline , has a number of lakes and a surface area of 2,800 acres. It is a major destination for boaters, fishermen, water skiers, and campers.

George Lucas Plaza
Located at an area of Modesto called “Five Points,” where five major streets all come together, George Lucas Plaza was named in honor of the famed film director who created the “Star Wars” saga. Lucas is from the area, and comes back each July for a festival in his name. The Plaza i s an attraction that draws tens of thousands of “Star Wars” fans each year. It features a sculpture from a famous scene in Lucas’ “American Graffiti.”

Gallo Center for the Arts A showplace for downtown Modesto, the Gallo Center for the Arts opened, after years of planning, in the fall of 2007. One of the most important downtown projects in decades, the Gallo Center fills the community’s need for a performing arts center and a premier civic center complex. The Center features a pair of theatres, one seating more than 1,200 people for music and theatrical arts performances. The Gallo Center also generates hundreds of airline trips per year by inbound performers from around the world.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 35 Higher Education in Modesto

The Modesto area is home to almost 20,000 full

- time college and university students enrolled at a pair of regional institutions. California State University has a campus in nearby Turlock, enrolling more than 6,000 full

- time undergraduates. Modesto Junior College has a campus within the city, which is one of the largest two

- year institutions in the State of California, enrolling almost 13,000
full

- time students.

Higher Education Enrollment in Modesto
Institution Enrollment
California State University, Stanislaus 8 ,374 Kaplan College 305 Modesto Junior College 13,467 San Joaquin Valley College 380

Total Enrollme nt, Fall 2009: 22
, 526

California State University, Stanislaus
Ranked by US News and World Report as one of the top ten public universities
in the west that offer s master’s degree level instruction ; C alifornia State University, Stanislaus is the largest major university in the Modesto area. The school has also been ranked as a “best buy” by the same p ublication for seven years running. The University offers undergraduate programs in 34 majors, and master’s degree programs in 18 more fields of study. The University’s athletic teams compete in the NCAA’s Division II.

Modesto Junior College
The oldest community college in the State of California, Modesto Junior College has long been a pioneer in transitional education, boasting the nation’s top
transfer rate to four

- year colleges and universities. The college offers dozens of programs of study for alm ost 13,000 current full

- time students and thousands more part

- time students. Among the college’s notable alumni is George Lucas, the film director and creator of the Star Wars saga.

Additionally, the surrounding areas are home to many other institutions of higher learning, including University of the Pacific, CSU

- Stanislaus, Humphreys College and San Joaquin College in Stockton; Columbia Community College in Sonora and UC

- Merced in Merced

.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 36 

# A Strategic Plan for Success

The new service to Los Angeles in 2006

– 2008 drew very significant passenger traffic and even strengthened the incumbent San Francisco service. By any measure this Grant supported service was a success but then became a victim of the unprecedented airline industry turmoil of 2008,
where f uel prices soared to historic levels and then nationwide traffic and revenue declined by historic amounts, all in the same year.

The Modesto parties are determined to gain the same huge growth in market traffic with the proposed Seattle/Portland service a s was accomplished with the Los Angeles service. The Modesto parties are also determined to work with Horizon Air to ensure that the new service is structured and supported in such a way to be able to survive all but the most extreme economic
shocks that m ay occur in the next few years.

Funding Breakdown

The Grant request is for $500,000 in funding, matched by $25,000 in local, non

- airport cash and $25,000 in Airport marketing and promotional funding. In addition the Airport will offer the new airline $12 4,300 in airport related first year fee and rental waivers and local businesses will contribute $41,000 of in

- kind support. This makes for a total Grant funding of $550,000 in cash
, $124,300 of airport in

- kind and $41,000 in community in

- kind for a total o f $ 715 ,300 in total new
service incentives. Funding expenditures of cash funding would then occur in a ratio of 90% DOT and 10% Modesto, if a full Grant award is made by the Department.

Target Market for New Service & Marketing and Promotional Plan Outline

The Modesto parties recognizes the importance of well funded marketing and promotion for the new service, especially since a key to success will be diversion of existing area travel demand from driving to other airports to use of the local airport and the new air service. 

### Allocation Percent Service Risk Abatement $450,000 82% Marketing & Promotion $75,000 14% Start-up Offset $25,000 4% Total $550,000 

## GRANT FUNDING BREAKDOWNModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 37 Fortunately overall media costs are modest in the Modesto area and the airport , in close coordination with the new carrier, anticipates being able to run an aggressive and sustained marketing effort using the $75,000 marketing and promotional Grant allocation,

As the Modesto C ommunity Information section has illustrated, Modesto and the surrounding region has a large population, a growing agricultural business sector, a booming wine industry and significant economic activity in t he health care and education sectors.

This diverse economy already generates significant business related travel and DOT data clearly shows that airports around Modesto generate nearly 2.7 million O&D trips to and from Portland and Seattle. Furthermore, t he large population of the Modesto area also generates significant leisure travel to and from the Seattle and Portland region.

The aggressive and multi

- media marketing and promotional plan for supporting new Modesto air service will focus on four key trav el sectors; local corporate travel, local leisure travel, inbound
business travel and inbound leisure travel.

The Alaska/Horizon brand brings significant marketplace brand power to the efforts to promote new Modesto air service. Alaska/Horizon has frequent flyer partnerships with both Delta andLocal RadioLocal newspaperLocal BillboardsAirport Email BlastsLocal Corporate Travel DepartmentsLocal Travel AgenciesAlaska/Horizon Corporate SalesAlaska/Horizon Vacations



### Local Business X X X X X X X Local Leisure X X X X X Inbound Business X X Inbound Leisure X Travel Sector Media Venue



## Modesto Marketing Plan OverviewModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 38 American Airlines, meaning that Modesto area residents can earn freque nt flyer miles for either airline on a Horizon flight to Seattle or Portland.

The Alaska Airlines brand is the preferred airline brand in the northwest and this provides automatic market identity for Modesto with Washington and Oregon residents considerin g travel to the California central valley.

Startup Cost Offsets

The Airport proposes to use an estimated $25,000 of the Grant funding provided under this proposal to pay for start

- up costs in support of new service introductions. Money will be reimbursed to the new carrier as invoices are submitted detailing the work performed to offset the acquisition of necessary equipment to begin service (items include carts, tugs, power units, computer equipment, cabling, software, etc.).

Revenue Guarantee

The Airport proposes to make available at least $450,000 in funds for a revenue guarantee to the new carrier, to cover start

- up losses that may occur during the first twelve months of service. Subject to negotiation, payments will be made to the new car rier quarterly, when income derived from passengers and cargo is less than agreed expenses on the route. Revenue generated that exceeds expenses will be carried forward and tapped before any grant funds
are used.

Additional Costs

As part of this program , the 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, Modesto City

- County Airport expects to incur some expenses in the recruitment o f a new airline. These additional costs will come from the revenue guarantee portion of the funding.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 39 Public/Private Partnership

The Modesto parties consist of Modesto City

- County Airport, the Airport Advisory Committee, the
Modesto Air Service Task Force, the City of Modesto, Stanislaus County and the Stanislaus
Business Alliance.

The Stanislaus Business Alliance consists of 54 members and represents all sectors of the Modesto
area economy. The Alliance provides a number of in

- kind services. Allian ce funding will commit to a program of viral marketing through e

- mail blasts to all members and word

- of

- mouth advertising. The Alliance also contributes mailers to area businesses explaining the benefits of
new and additional air service.

All Partnership members recognize the importance of improved Modesto air service to local economic health and growth.

In

- kind Service from the Community

The following organizations will help promote the new service by donation of in

- kind assistance through their various membership groups. The se donations, although valuable, do not have an assigned dollar value.

**•** Stanislaus Business Alliance

**•** Modesto Chamber of Commerce

**•** City of Modesto

**•** Modesto Airport Advisory Committee

**•** Stanislaus County Economic Development Corpor ationModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 40 

# Grant Implementation Milestones, Timeline & Monitoring

Grant Milestones and Timeline

Modesto successfully implemented and monitored its 2005 Grant. That experience ensures that the Airport and the local Public/Private Partnership are well aware of the responsibilities related to a successful Grant implementation and monitoring process.

The above timeline for Grant implementation represents a best case scenario. However the timeline sequence is accurate and can be transferred to a later date range should there be a delay in Grant award or in gaining a new service agreement with Horizon Airlines.

Success in Grant implementation is most clearly defined by the traffic and revenue results of new service and the resulting need for risk abatem ent funding to cover any startup phase economic shortfall. A sub set of the success of meeting the traffic and revenue goals outlined in this Grant application or as modified in the agreement with the carrier is the success of the marketing and promotional efforts. Note that the timeline calls for constant and ongoing evaluation of the marketing effort, based on actual traffic data, onboard traffic profile and advance bookings data, all of which will be contractually provided by the carrier to the Modesto p arties. 

## MODESTO GRANT TIMELINE WITH MILESTONES
Date Event Status Aug, 2010 Grant Application Done Sept, 2010 Letters of support

Q4 2010 Receive Grant Award Jan, 2011 Meet with Horizon Air Q1 2011 Air service agreement with Horizon Q1 2011 Announce service Q1 2011 Begin quarterly DOT Grant status reports Q2 2011 Begin advertising 60 days out Q2 2011 New service kickoff Q2 2011 Evaluate first 30 days & booking curve Q3 2011 Refine marketing program based on route performance Q4 2011 Renew marketing program, targeting winter bookings Q1 2012 Evaluate first six months of service Q1 2012 Adjust marketing and service as needed

Indicates MilestoneModesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 41 Financial Controls and Ensuring the Proper Use of DOT and Local Funds

As the sponsor, the Modesto City

- County Airport will be the responsible party for all fiscal matters and DOT reporting requirements. The Airport is established as a division o f the City of Modesto’s Department of Public Works , which is 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 grant and matching local funds will be used in accordan ce with any Grant award agreement. The 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.

Return on Investment

Modesto used its first Grant in a very cost effective manner, generating high volumes of new passengers to Los Angeles. Furthermore while the Los Angeles service was in effect and even after it ended SkyWest added and retain ed flights to San Francisco and SFO traffic today is higher than it was prior to the Los Angeles service sequence, despite a much weaker economy
and demand for air travel.

The Airport has developed a cost effective and achievable strategy to add new servi ce, increase enplanements, and lower airfares at the airport. The proposal uses proven methods of achieving air service improvements, allowing the DOT to be comfortable with choosing this proposal. The increased competition, and access to lower airfares with increased competition, by adding service on a new airline , is in line with the major goals of the Small Community Air Service Development Program.

Achieving Self Sustaining Operations

The new service is forecast to achieve breakeven during the second year of operation and profitable status thru natural market growth and maturity during the third year of operation. Having seen the Los Angeles service succeed so well in terms of traffic and revenue generation but then be lost to an unprecedented s pike in fuel prices and unprecedented drop in traffic demand during 2008, the Modesto parties are well aware that additional resources may be needed during the startup and maturation period of the new service.Modesto City

- County Airport

– Small Community Air Service Development Grant

– August 2010 42 The Modesto parties believe that the positive economic impact from this new service will be large, with a doubling of Modesto traffic expected from the forecast.

This means that if necessary, the City and County and key private concerns in Modesto will step forward with additional incentives and risk abatement funding if the second year service requires it. This will only be done after a careful examination of key route performance metrics to determine exactly why any shortfall of traffic and revenue is occurring in the second year and what precise steps are needed to correct for the shortfall while additional incentives or funding is provided.

Alternative Plan

In the unforeseen circumstance that the Airport is unsuccessful in recruiting service on Horizon Air
before the end of during 2011 or early 2012 , the Airport will seek another airline , which currently
does not serve the Modesto market that can offer service to a competitive hub.

Other carrier options include but are not limited to; USAirways regional jet service to Phoenix, Delta Air Lines regional jet service to Salt Lake City or Frontier Airlines service to Denver.

The Modesto Airport has had meetings w ith and provided market briefing materials to all three of these airlines. While the Horizon Air service option is clearly the best for Modesto at this time the domestic airline industry is subject to constant change; mergers, fleet realignments, and
strat egy changes. Thus other options are always being evaluated and will be considered if Horizon Air is unable to start Modesto service in a timely fashion over the 2011

– 2012 timeframe.

Legal Sponsor

The designated legal sponsor for this Grant application and eventual Grant award is;

Mr. Jerome Thiele Airport Manager, Modesto City

- County Airport 617 Airport Way Modesto, California 95345
Ph. 209 577 5319 Email jthiele@modestogov.comModesto City

- County Airport

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– August 2010 43 

# Modesto City

- County Airport Background

The Modesto City

- County Airport has long been a gateway to the central valley of California. It began serving the region in 1929, as an outpost on the transcontinental route between San Francisco and the east coast. The Airport has be en a terminus for United Airlines service, in one form or another, for more than 60 years. United launched operations in Modesto in 1946 and its
brand

– through United Express

– has never left the market.

The Modesto City

- County Airport terminal went th rough major upgrades in 1991, when it was enlarged by almost 9,000 square feet to accommodate additional airline service. Still, the fastest growing air service at the Airport since then 1990s has been corporate aviation, as Modesto is now the home base f or a fleet of private jet aircraft valued at $115 million.

The Airport has two parallel runways. The longer runway

– used for commercial operations and jets

– is 5,900 feet in length, offering an ILS (instrument landing system) approach for operations in bad weather. Modesto’s secondary parallel runway is 3,400 feet long, and used primarily for general aviation and private aircraft, so as to keep the streams of aircraft separate due to their much different approach speeds

. The Airport has facilities
avai lable immediately for additional air carrier operations, including ticket counter, gate, and office space.

Aerial Photo, Modesto City

- County AirportModesto City

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– August 2010 44 

# Comparison of Modesto to Other California Markets

Modesto ranks as the 20 th largest air carrier airport in California as measured by domestic O&D
traffic for the 12 months ended 3/31/2010.



### Domestic Airport O&D Flights Seats

LAX 29,368,940 450,505 56,736,840 SFO 21,473,470 324,338 39,802,115 SAN 14,972,320 179,250 23,124,873 OAK 8,465,420 109,050 14,852,351 SNA 8,407,980 98,909 12,764,845 SMF 8,162,940 104,576 12,989,503 SJC 7,530,600 104,965 12,605,531 ONT 4,597,880 61,750 7,344,475 BUR 4,507,510 60,956 7,433,255 FAT 972,240 29,378 1,619,484 SBA 663,370 27,227 1,186,626 MRY 346,040 13,330 598,987 SBP 217,130 9,091 369,082 ACV 185,830 9,076 385,118 BFL 185,380 7,435 342,272 STS 175,410 3,773 286,538 RDD 93,990 6,082 320,538 SMX 84,060 3,298 140,210 SCK 56,440 414 62,800 MOD 50,340 3,477 104,310 CEC 21,800 2,142 64,260 IYK 21,220 2,072 62,160 MCE 

### 2,408 1,482 28,158 12 months end 3/31/10 

### Airline



# California Airport SummaryModesto City

- County Airport

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– August 2010 45 

# Summary

Modesto is precisely what the Small Community Air Service Grant program was designed for.

Modesto is the largest population center in California with only one airline

.

Modesto’s air travel demand leakage rates are off the charts, with only a fraction of local air travel demand using the local airport.

Modesto has proven its ability to support new service, with hig h volumes of traffic using the Los Angeles service.

SkyWest’s decision to pull its Modesto

– Los Angeles service does not reflect the reality of the
route: it drew a record number of passengers and generate d record airline revenues. The
decision to pull the route, instead, reflect ed the harsh economic realities of 2008 in the airline industry. Modesto was, by any measure
, successful in supporting its Los Angeles service but lost it to unprecedented economic events.

Alaska/Horizon Airlines has a very successful strategy of serving secondary west coast airports near large populations on north

– south routings involving Seattle and Portland, cities where the carrier has significant brand and market strength.

This document outlines a well thought ou t new service concept and a carefully designed strategic plan to successfully implement new Grant supported air service at Modesto.

The new service will add capacity and competition at the largest population center in California with only one airline. It will help address clear pricing disparity that Modesto has with nearby airports. It will reduce wasteful leakage of traffic on congested freeways to other airports.

The Modesto City

- County Airport me ets the requirements of the US DOT under the Small
Comm unity Air Service Development Program . T he Airport and the Modesto Public/Private Partnership that assisted with the preparation of this document wish to thank the Department for its time in considering th is Grant application.Modesto City

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