July 30, 2014 The Honorable Anthony Foxx Secretary

ME TR O POLIT AN K NOXV

I LL E A IRP OR T AU TH O RITY United States Department

of Transportation c/o Office of Aviation Analysis 1200 New Jersey Avenue SE 8

1 h Floor, Room W-86-300 Washington
DC 20590 RE

: DOCKET DOT-OST

- 2014-0113 Dear Secretary Foxx: I am pleased
to submit the enclosed Proposal under the 2014 Small Community
Air Service Development Program on behalf of the citizens
of Knoxville, Tennessee and the surrounding region

. Knoxville has historically suffered from high airfares resulting from
a lack of significant low-fare airline competition

at Knoxville McGhee Tyson Airport

. The Metropolitan Knoxville Airport Authority and our public/ private support organization The Competitive Airfare Partnership have crafted

a reasonable, realistic plan that will help reduce the cost of air travel to and from the East Tennessee region. Our plan will benefit not only our local residents, but also countless thousands

of business and vacation travelers who are either being forced
to pay high fares, or are electing not to travel at all due to the unreasonable cost. We hope the Department
will look favorably
on our proposal. Thank you for providing the help we need to solve our airfare problem. Sincerely, METROPOLITAN KNOXVILLE AIRPORT AUTHORITY Attachment: SCASO Grant Proposal McG

h ee Tyson Airport

• P.O. Box 15600

• Knoxvi

ll e, TN 3 79 0 1 • 865/342

- 3 000

• FAX 865/342-3050

• e m a

i l: rncg
h ee@

t ys.o

r g

## July 29, 2014 The Honorable Anthony Foxx Secretary



# " COMPETITIVE AIRFARE PARTNERSHIP 

## United States Depru1ment ofTransportation 1200 New Jersey Ave SE Washington DC 20590 RE: Docket DOT-OST-2014-0113 Dear Secretary Foxx: In an effort to support Knoxville's growth in regional economic development,
the Competitive Airfare Partnership (CAP) was launched

in 2013. CAP is a public/ private initiative with

a goal to support the actions of the Metropolitan Knoxville Airport Authority (MKAA)

to improve air service access by recruiting sustainable low fare service from Knoxville's McGhee Tyson Airp011. CAP is a program of the Knoxville Chamber's regional economic development program, Innovation Valley, and is recognized

as a 50lc(6) organization. Since its inception, CAP has been successful

in raising funds from multiple city and county goYerrunents
and the Knoxville region business community

. These monies have been dedicated to help recruit and provide incentives
for low-fare airline service from Knoxville.

A CAP Advisory Board
is established

to oversee funds allocation. The Competitive Airfare Partnership

is pleased
to partner with the Metropolitan Knoxville Airport Authority

in this application
for a Small Community Air Service Development Grant. The federal funding provided
by this program, combined with om significant local match

i ng funds, will give us the resources needed
to attract and suppm1 new low-fare airline service
in Knoxville. We look forward
to working with the Department ofTranspm1ation

and the MKAA
to implement our plan to increase airline competition and bring relief from high airline fares to the business and leisme travelling public

. With regards, Mitch Steemod, Chair CAP Advisory Board Competitive Airfare Partnership 17 Market Square, #20 1, Knoxville, TN 37902 Phone: (865) 637-4550 Fax (865)523-2071 \A/\A/\IIIIrnnV\tiiiPn:::tlcrirfnP

rnrnAPPLICATIONUNDERSMALLCOMMUNITYAIRSERVICEDEVELOPMENTPROGRAMDOCKETDOT-OST-2014-0133SUMMARYINFORMATION!AllapplicantsmustsubmitthisSummaryInformationschedule,astheapplicationcoversheet,acompletedstandardformSF424andthefullapplicationproposalonwww.grants.gov.For·yourpreparationconvenience,thisSummaryInformationscheduleislocatedathttp:/ /www.dot.gov/pol icy/aviation-poIicy/small-community-rural-ai r-service/SCAS DPA.PROVIDETHELEGALSPONSORANDITSDUNANDBRADSTREET(D&B)DATAUNIVERSALNUMBERINGSYSTEM(DUNS)NUMBER,INCLUDING+4,EMPLOYEEIDENTIFICATIONNUMBER(EIN)ORTAXID.EnterYorNLegalSponsorName:MetropolitanKnoxvilleAirportAuthorityNameofSignatoryPartyforLegalSponsor:JamesH.Evans,Jr.DUNSNumber:053072831EIN/TaxID:621035154B.LISTTHENAMEOFTHECOMMUNITYORCONSORTIUMOFCOMMUNITIESAPPLYING:1.Knoxville,TN2.___________________________________________3.___________________________________________4..____________________________________________C.PROVIDETHEFULLAIRPORTNAMEAND3-LETTERIATAAIRPORTCODEFORTHEAPPLICANT(S)AJRPORT(S)(ONLYPROVIDECODESFORTHEAIRPORT(S)THATAREACTUALLYSEEKINGSERVICE).1.McGheeTysonAirport-TYS2.3.4.INotethattheSummaryInformationdoesnotcountagainstthe20-pagelimitoftheSCASDPapplication.DOESTHEAIRPORTSEEKrNGSERVICEHOLDANAIRPORTOPERATINGCERTIFICATEISSUEDBYTHEFEDERALAVIATIONADMINISTRATIONUNDER14CFRPART139?{IF"No",PLEASEEXPLAINWHETHERTHEAIRPORTINTENDSTOAPPLYFORACERTIFICATEORWHETHERANAPPLICATIONUNDERPART139ISPENDING.)[ZJYesDNo(explain)D.LISTTHE2-DIGITCONGRESSIONALDISTRICTCODEAPPLICABLETOTHESPONSORINGORGANIZATION,ANDIFACONSORTIUM,TOEACHPARTICIPATINGCOMMUNITY.1.TN-022.3.4.E.APPLICANTINFORMATION:(CHECKALLTHATAPPLY)[Z]D0NotaConsortiumDInterstateConsortiumDIntrastateConsortiumCommunitycurrentlyreceivessubsidizedEssentialAirServiceCommunity(orConsortiummember)previouslyreceivedaSmallCommunityAilServiceDevelopmentProgramGrantIfpreviousrecipient:Provideyearofgrant(s):2003,2009·and,thetextofthegrantagr·eementsection(s)settingforththescopeofthegrantproject:2003-FromGrantAward(Page3,SectionC,Item2)-Projectgoalsandobjectives1).IncreaseuseoftheKnoxvilleairport.2).Recruita"low-fare"aircarriertoserveKnoxville.3).RevitalizeKnoxville'sdepressedlocalaviationmarket.4).Re-institutelow-fareairserviceprovidedbyAirTranAirways,throughrevenueguaranteeorwet-leaseofaircraft,$2,000,000.5).EstablishaTravelBank,$4,000,000.6).Providefortheadvertising/marketingofthenewairservice,$500,000.2009-FromGrantAward(Page3,SectionC,Item2)-Projectgoalsandobjectives1).Providerevenue'QuaranteeandstartupcostsoffsetstoalowfarecarriertoinitiateserviceatKnoxvilleMcGheeTysonF.PUBLIC/PRIVATEPARTNERSHIPS:(LIST0RGANIZATIONNAMES)PUBLICPRIVATE1.CompetitiveAirfarePartnership1.CompetitiveAirfarePartnership2.2.3.3.4.4.5.5.G. PROJECT PROPOSAL: 1. GRANT GOALS: (CHECK ALL THAT APPLY) [{] Launch New CatTier

0 Secure Additional Service
D Upgrade Aircraft D First Service

0 New Route

D Set'Vice Restoration D Regional Service

D Surface Transportation

[{] Pt

· ofessional Set'Vices2 [{] Other (explain below) Reduce local airfares by increasing low fare airline competition

at Knoxville McGhee Tyson Airport. 2. FINANCIAL TOOLS TO BE USED: (CHECK ALL THAT APPLY) [{] Marketing (including Advertising): promotion
of the air service
to the public [Z] Start-up Cost Offset: offsetting expenses

to assist an air service provider

in setting up a new station and starting new service (for example, ticket counter reconfiguration) 1ZJ Revenue Guarantee:

an agreement with an air service provider sett ing forth

a minimum guaranteed profit margin

, a portion of which
is eligible for reimbur
se ment by the community [{] Recruitment

of Air· Carrier: air service development activities

to recruit new air serv ice, including expenses for airport marketer

s to meet with air service provider

s to make th e case for new air service [{] Fee Waivers: waiver of airport fees

, s uch as landing fees

, to encourage new air service; counted
as in-kind contributions only [Z] Ground Handling Fee: reimbur seme nt of expenses for passenger, cabin, and ramp (below wing) services provided
by third party

g round handlers 0 Travel Bank: travel pledge

s, or deposited monetary funds, from patticipating parti es for the purchase
of air travel on an air carrier, with defined procedure

s for the

s ub seq uent
u se of the pledges or the deposited funds; counted
as in-kind contributions only 2 "Profess ional Services

" involve

a community contracting with

a firm to produce

a produ

c t such as a marketing plan

, study, air carrier proposal

, etc.0 Other (explain below) H. EXISTING LANDING AIDS AT LOCAL AIRPORT: (Z] Fu ll ILS [{] Localizer

[Z] Outer/Middle Marker [{] Published Instrument Approach D Other (specify) I. PROJECT COST: Do NOT ENTER TEXT IN SHADED AREA

E nter Y or N LINE DESCRIPTION

Sun TOTAL TOTAL AMOUNT 1 Federal amount requested

950,000 2 State cash financial contribution

0 Local cash financial contribution 3a Airport cash funds 510,000 3b Non-airport cash funds 940,000 3 Total local cash funds (3a + 3b)
1450000 4 TOTAL CASH FUNDING (1+2+3)
2,400,000 In
- Kind conh'ibution Sa Airpmt In-Kind contribution**

0 Sb Other In-Kind contribution*

*

0 5 TOTAL IN-KIND CONTRIBUTION (Sa+ Sb)

0 6 TOTAL PROJECT COST (4+5)
2,400,000 J. IN-KIND CONTRIBUTIONS** For funds in line
s Sa (Airpmt In-Kind contribution)
and Sb (Other In-Kind contribution), please describe the source(s)
of fund( s) and the value($) of each.K. Is THIS APPLICATION SUBJECT To REVIEW BY AN AFFECTED STATE UNDER EXECUTIVE ORDER 12372 PROCESS? D

a. This application was made available

to the State under the Executive Order 12372 Process for review on (date) __ ___

_ D
b. Program

is subject
to E.O. 12372

, but has not been selected by the State for review. IZJ

c. Program

is not covered by E.O. 12372. L. Is THE LEAD APPLICANT
OR ANY CO-APPLICANTS DELli"'QUENT
ON ANY FEDERAL DEBT? (IF "YES", PROVIDE EXPLANATION) [{] No
D Yes (explain) APPLICATION CHECKLIST INCLUDED? ITEM Ent er Y or N

For Immediat

e Action y Determine Eligibility y New Grant s.gov

u se r s mu
s t regist

e r w i th www.gra

nt s.gov

. Exist in g Grants.gov users must verify ex istin g www

. grants

. gov account has not exp ir ed and th e Authorized Organization Representative

(A OR)

i s c urr e nt . For Submission

bY. 5:00PM EDT on Jull' 31, 2014 y Communities with ac ti ve SCASDP

g rants: notify DOT /X50 of intent to terminate existing grant in order to be eligible for se lection
in FY20 14 y Complete Application
for Federal Dome

s tic Assistance (SF424) via www.grants

. gov y Summary Information

sc hedule comp

l ete and us e d a s cover

s heet (see Appendix
B) y Application

of up to 20 one-sided pages (excluding any letters from the community

or an air carrier showing support for the application),

to include: y

. A descript

i on of the community's

air se rvice need

s or deficiencies. y

• A s trate
g ic plan for meetin

g tho se ne e ds under the Small Community Program

. • A detailed
de scr iption of the funding necessary for implementation

of the y community's project. • An explanat

i on of how the propo se d project differs from any previou

s projects y

for wh

i ch the community received SCASDP funds (if applicable). y

. Designation

of a legal

s pon so r responsible
for administering

the program

. y

• A motion for confidential treatment (if applicable)

- see Appendix

D below.

# Proposal from Knoxville, Tennessee Under the Small Community Air Service Development Program Docket



## # DOT -OST -2014-0113 

# METROPOLITAN KNOXVILLE AIRPORT AUTHORITY DUNS# 05-307-2831 

## Congressional District: TN-02 July 30, 2014 This application

is submitted

in conjunction with Knoxville's Motion for Confidential Treatment under Rule 12. The location
of confidential material

is indicated
by 

### James
H. Evans, Jr. Vice-President, Marketing



### & Air Service Development Metropolitan Knoxville Airport Authority 2055 Alcoa Highway, Suite

I Alcoa, TN 37701 Phone (865) 342-3012 Email: jim

. evans@tys.orgTheKnoxvilleRegion'sProgramGoalutaexpandairserviceoptionsandtoloweraitiarestoandfromtheKnoxville&EastTennesseeRegionforbusiness,government,andleisuretravelersbyrecruiting,launching,andmarketingnew-fromKnoxvilleMcGheeTysonAirport,andbypursuingadditionalservicetounservedairportsfrombothincumbentandothernew-entrantlow-fareairlines"2

## Executive Summary Knoxville



### & the East Tennessee Region are Plagued by High Airfares; The Problem Can Be Solved With Increased Affordable-Fare Airline Competition The Metropolitan Knoxville Airport Authority (MKAA) and the Competitive Airfare Partnership (CAP) are pleased
to submit this application
for federal grant funds under the 2014 Small Community Air Service Development Program
to help remedy

a significant problem that currently

is forc

i ng East Tennessee travelers

to pay airfares that are significantly-above

the national average. McGhee Tyson Airport (TYS) serves Knoxville and all of East Tennessee. The airport has always suffered from average airfares that were significantly-above

the national average.

In fact, in recent years TYS fares have routinely been among the ten highest

in America

, and have been ranked

in the top three. Furthermore, TYS fares are higher than those from other competing airports located within 200 miles of Knoxville, which has led to a

" leakage

" problem whereby
an estimated 300

, 000 local travelers are elect

i ng to make

a three to
f o ur hour drive to the alternate airports
to find more affordable airfares

. High airfares prevent the public from accessing the air transportation system, depress the local economy, and stymie economic development efforts

. If Kno x ville fares are to become competitive

, the airport must grow the number
of affordable-fare markets and flights avai

l able to the consumer. The primary reason for this situation

is the lack of year-round susta

i ned service by a networked low-fare airline that could bring competitive pricing pressure

to the TYS market. The MKAA and CAP have historically sought
to increase quality low-fare service from TYS with limited success. In today's economic climate, airlines have been reluctant

to add new serv

i ce without

f
i nanc

i al assistance from the local community. Through

this Applicat

i on, the MKAA and CAP

, on behalf of the Knoxville Region

, seek $950,000

in federal matching funds that will be combined with at least $1.45 million

in local dollars

. The combined $2.4 Million will be used to finance marketin initiatives and erati cost offsets for new low-fare
se opportunities from other airlines may also be a possibility

. Now, more than ever, new airline service MUST be immediately successful. Airlines will not sustain losses on any route. New affordable-fare service added

in Knoxville must succeed from the onset, or else

it will be quickly discontinued. Funding assistance through the SCASD Grant Program will allow new Knoxville affordable

- fare service
to succeed, and will great

lybenefit all segments

of the traveling public.



### 3

## Table of Contents Item

Page 

## I. Knoxville/ East Tennessee Regional Overview

5 II . Knoxville's High Airfares

6 Ill. Knoxville McGhee Tyson Airport Overview

8 IV. Knoxville's Public/ Private Partnership

11 V. Knoxville

' s Eligibility for a 2014 SCASD Grant

11 VI. Knoxville's Plan to Lower Local Airfares

13 VII. Funding Request and Budget

14 VIII. Calendar

16 IX. Monitoring and Evaluation

17 X. Summary

18 4

# I. KNOXVILLE



# I EAST TENNESSEE REGIONAL OVERVIEW Knoxville's
Air Service Area Knoxville McGhee Tyson Airport conveniently serves the 850,000-person
Kno x vi ll e / Oak Ridge TN MSA. However

, the airport's true catchment area contains over

t w o million people in East Tennessee

, Southwest Virginia

, Western North Carolina

, and Eastern Kentu

c ky. 

# ~ Kentucky Tenn es see

North C a r olina 

# The region

is extremely diverse

, in that
it is home to major corporations, signifi

c ant high-tech research and development facilities, numerous colleges including

a major university, and one of the most popular vacation destinations

i n America. The Knoxville Region has been recognized

as one of the top-ten places

in America

to do business

. The area
is home to the headquarters

of the Tennes

s ee Valley Authority,

a federa

l corporation and the nation's largest power provider. The 950-locat

i on Rub y Tuesday Re s taurant Corporation

is also headquartered

in the region, as are the Pilot

I Fly

i ng 

# J Corporation and Clayton Homes

. Kno x ville is home for Scripps Networks and their array of television networks including HGTV and The Travel Channel Over 12,000 government workers and federal contractors support both the United States Department

of Energy and Department

of Defense

at Oak Ridge National Laboratory (ORNL

) and the Y-12 National Defense Facility

in nearby Oak Ridge, TN. The Oak Ridge fac

i lit

i es comprise the largest single user of air service from Knoxville McGhee Tyson Airport. Knoxville

is home to the flagship campus
of The University
of Tennessee
wit h nearly 50

, 000 students and faculty members. Fall means

" Football Time

i n Tennessee

" when over 103,000 fans from all over the country pack Neyland Stadium for every home game

. Tourism

is a major industry

in East Tennessee. The Great Smok
y Mountain

s National Park
is America

' s most-visited park with nearly 10 million annual guests

. The Smoky Mountains have led to the development

of a significant inbound vacation indus

t ry in communities
like nearby Gatlinburg and Pigeon Forge that attracts an additional

5 million annual visitors
to the area. It is estimated that less than
2 % of current Smoky Mountain vis

i tors ut

i lize the air transportation system
to reach this popular destination. With affordable airfares, this number could grow exponentially.

In real numbers

, this means that just a 1 % i nc
r ease

i n air travelers equates
to 150

, 000 potential new airline passengers. These

v

i sitors would be removed from the highway system

.



# 5Unlike many other vacation destinations

, people come to East Tenn

e ssee and our mountains year-round

. The Smoky Mountains have proven
to be a very po p ular home for seasonal residents who spend their winters

in Florida

, and their summers

in East Tenness

e e . 

### Multiple Airports Serve the Region TYS acti v ely competes with several air carrier airports

i n the regio n. Of greatest

s ig n

i fi c an c e is medium-hub Nashville (BNA) located 180 miles west, and lar g e-hu
b Atlanta

( ATL)

l ocated 182 miles south

.. . both of wh

i ch offer significant low-fare air

l ine optio

n s from Southwest Airlines and others. Additional area airports include Chattanooga (CHA) 75 miles south, Tri

- Cities TN (TRI) 110 miles north

, Asheville (AVL) 100 miles ea s t , and Green

v ille / Spartanburg
SC (GSP) 183 m

i les east. Passenger leakage from TYS to other airports

is a problem. Nea

rl y 2 0% of po
t en
t ial TYS passengers
are choosing

to take advantage

of significantly-

l ower fa r es offered from alternate airports. 

### II. KNOXVILLE'S HIGH AIRFARES Knoxville's Fares Are Well-Above the National Average Airfares

in Knoxville have historically been among the highest

i n the United States. According to the latest BTS report for 102014, Knoxville fares are ranked as the 11t h highest

in the nation. Th

i s situation has hurt the lo c al econom

y , and has been an o bstacle
to economi

c development initiat

i ves that could bring more jobs to our area

. While

a c on c entrated eff o rt to i ncrease competition

in recent years has resulted

in some fare impro

v ement

( due in larg e part to seasonal Frontier Airlines service
to Denver and the West that began

i n 2 01 1 )

, Knoxville average fares were 13% higher than the national average

in 2013

, and in the 1 02014 are 17% above the national average. The following chart

i llust

r ates Kno x ville fares versus those from nearby Nashville, and the national average through 102014: BOO 700 600 1 00

- U .S

. Av e rag
e ( C u rrent S) - U.S. Av e rag
e ( I nflati

o n - AdJu

s t ed S ) - Na s f w• ll e . TN

( C urr e n t S) N A s h vi ll e. T N
( I nflatio

n - Ad jus

t e d S ) - Kno)(vill

e. TN

( C u rrent :S) K n oxville, TN (I n fl a t io n - Adj u sted S) **~**
**~**
m
m
**~**
m
m
m
m
**~**
**~**
m
**~**
**~**
m
m
m
m
m
m I S9l **I~H .,~7** 

I H.

I Hll' **lCC~** 2001 lQOl 2001 100>4 2(05 ZQIQ4

l OOJ' ZOOt lOO' 2010 2DII **~012** lOIJ 2014 N O TE. **rnn a~A4usted** 

air far es a r e cala.l lated

u s"'' <k>flafS. Jor lhe year of
t he most

r ecent

r a re
r ele a se

. SOUR

C E
: Bur ea u of Tr a nsportation

st atf st k:5

6Knoxville

is served by Allegiant Air

, with limited less-than-daily low-fare service
to just four Florida airports

. While Allegiant's service does provide

a great value

t o leisure travelers who might not otherwise fly, their ultra-low fares and limited destinations tend to distort the true average airfare figure for Knoxville. 

### When Allegiant's data is excluded from the calculation, Knoxville's adjusted average fare is 27% above the national average! Knoxville Fares vs. Fares from Comparable-Size Airports Using information derived from the Department

of Transportation data for calendar yea

r 2013*, Knoxville's average fares were compared

to those of 20 similar-sized airports based on passenger volume (excluding those
in Hawaii and Alaska

), along with nearby airports Atlanta and Nashville. Knoxville ranked as the 95rd largest

a ir port in America

, so the 20 selected comparison airports include ten that were ranked immed

i ately higher than Knoxville in passenger traffic and ten that ranked immediately lower

. Key po ints of

t h is a n a ly s

i s are

: • Knoxville average fares were higher than 17 of the 20 peer airp o rts surveyed • Knoxville fares were 13 % higher than those from nearby At

l anta

, and 14 % higher than from nearby Nashville Knoxville Average OW Fares vs

. Those From Comparable-Sized Airports on CY2013 Passengers

I Source **8~** Datamine W'lll *•••I•l 85

Des Moine

s
DSM $203.69

7% 86 Syracuse

SYR $213.13

3% 87 Greeneville/ Sf)arta.1burg

GSP

$ 1 95.60

11 % 88

P o rtland
M E PWM $203.57

8% 89

Ca nton

/ Ak

r on
CAK $167.70

24% 90 Myrtle

B eac h

M YR $119.86

4 6% 91 Sanford

SFB $68.34

69% 92 Madison

MSN $231.55

-5 % 93 Greensboro

GSOI $212.61

3% 94
Sava nnah

SAV $235.18

- 7% 95 KNOXVILLE

TYS
$220

. 17

0% 96 White Plaine

s
HPN

_$ 202.42

8% 97 Palm Springs

PSP

$ 209.68

5% 98 Pensacola

PN S $216.73

2 % 99
Mesa

AZA $80.46

63% 100

I s lip

I S P

$ 15 5.5 1

29% 101 Wichita

ICT
$107 .89

51% 102

Co lorado

S prin gs


### cos
$211 .4 2

4 % 103 Harrisbur

g MDT
$222

. 50

-1% 104 Burlington

BTV $211.37

4% 105 Fresno

FAT $212.00

4% 6

A tlanta

A TL $191.09

13 % 36
Nash

v ille

BNA $190.32

1 4% 7

### Knoxville Fares Are Higher Than Those from Other Regional Airports Knoxville McGhee Tyson Airport

is less than 200 miles from airports

in Atlanta and Nashville, both of which offer significantlowfare service from Southwest Airlines and others. As a result, thousands

of potential TYS passengers
are now choosing

to make the three to four hour drive to these airports
to save on their airfares

, or else they are not flying at all. 

### 20 #of Markets w/ 

### 1 0 Lowest Avg Fare



### 0 

### BNA •source

: Boyd Jnt'l Dataminer
TYS

2013 Avg RT Fares $400 Knoxville Natl Avg Atlan

t a Nashv

i lle Average fares
in Knoxville's top-20 competitive origin 

### & destination markets were compared

to average fares
in those same markets from nearby Nashville (BNA) for 2013. Nashville fares were lower than those from Knoxville

in 16 of the 20 markets surveyed. 

### Ill. KNOXVILLE MCGHEE TYSON AIRPORT (TYS) OVERVIEW .,..

.,,. .._



### .. 

## - 

# ...

. 

### . ' '- .......

.,.. **(~':,....**

-

-

-

-



### - '

--

I

I

' 

## "''"'•

' ... ... **~·**



# ... ·--·



# . **~-~- ~** 

-

j-

-

j

•

•

I

• TYS is served by six air carriers and/ or their regional affiliates providing
65 daily departures. Service

is offered
to 18 nonstop destinations

as shown below: Allegiant Air* Sanford, St. Petersburg

, Ft. Lauderdale, Punta Gorda American Eagle Chicago (ORO), Dallas/ Ft. Worth

, New York (LGA) Delta
& Delta Connection Atlanta, Detroit, Minneapolis

, New York (LGA) Frontier** Denver, Chicago (MOW) United Express Chicago (ORO), Denver, Houston, Newark, Washington (lAD) US Airways Express Charlotte, Philadelphia, Washington (DCA) *less -than- daily service **Frontier provides seasona

l le ss
- than -dai ly service

. MOW service ends 09 / 14 8

# Knoxville's Top Markets



# & Fares A summary

of Knoxville's 2013 top-25 O&D markets and average one-way airfares

is shown below: Airport
Code Annual Passengers

Avg RT Fare Yield Orlando Sanford
SFB 84,200

$102
10.0 O'Hare
ORO 65,890

$400
38.4 Dallas/Ft. Worth DFW 55,320

$426
25.9 Fort Lauderdale

FLL 54,870

$229
15.8 St. Petersburg

PIE 50,580

$109

9.9 La Guardia
LGA 50,550

$377
26.7 Denver

DEN 47,650

$365
14.2 Philadelphia

PHL 40,530

$363
27.9 Las Veqas
LAS 37,480

$411
10.4 Los Anqeles

LAX 37,290

$455

10 .5 San Francisco
SFO 36,870

$454

9.5 Ronald Reaqan National DCA 35,820

$523
54.7 Punta Gorda PGD 32,780

$115

9.2 Boston
BOS 31,560

$403
20.9 Orlando Inti MCO 29,050

$406
32.9 Phoenix

PHX 27,410

$385
10.5 Newark
EWR 24,870

$414
29.5 George Bush Inti
IAH

24 ,830
$553
31.0 Seattle
SEA 24,470

$462

9.8 Minneapolis

MSP 24,140

$397
21.0 Detroit
DTW 22,900

$573
55.0 San Diego
SAN 20,620

$434
10.0 Dulles

lAD 15,890
$498
54.6 San Antonio
SAT 14,800
$442
20.9 Salt Lake City SLC 14,630
$500

14.1 Source: Database Products 

# TYS Annual Enplanements 2013

858

, 991 2012 876,483 2011 888,155 2010

845

, 055 9

# Knoxville's Low-Fare Airline History While Knoxville benefits from
a significant amount
of nonstop service, the region suffers from excessively-high airfares. Knoxville and the East Tennessee Region have been trying to address the uncompetitive airfare problem for many years, with limited success. The AirTran Airways Lesson 

# In the mid 1990's, the original AirTran Airways entered the TYS market with service
to Orlando. Following

a merger, AirTran's service grew to include flights to both Atlanta and New York

. Unfortunately, AirTran's inconsistent operational performance

, combined with
a significant competitive response from incumbent TYS airlines led AirTran
to withdraw from TYS in 2000. The AirTran experience taught the community that low-fare service was
a 

# "use it or lose if' proposition

. Knoxville was ready for another chance
at low-fare service. Independence
Air: A True Success Story 

# That chance came
in 2004 with the launch of Independence

Air

. l-Air initially entered the Knoxville market with nonstop service
to Washington,
the airport's number one market. Independence quickly added nonstop service
to Orlando and Tampa. Despite another aggressive response from incumbent carriers

, the Knoxville community rallied behind Independence
Air. TYS quickly became one of the carrier's top-performing stations. Unfortunately,

a poor business plan led to the failure of Independence

Air in early 2006

. Nevertheless

, Knoxville had proven that the community would now support

anewentrant low-fare carrier. Knoxville Embraces Allegiant Air 

# In late 2006, Allegiant Air began less-than-daily service linking Knoxville with St. Petersburg, FL. The new route was immediately very popular among leisure travelers, and led Allegiant

to add additional flights to Orlando-Sanford,

Las Vegas, Fort Lauderdale, and Punta Gorda. While the LAS service has been suspended due to high fuel prices, the remaining four leisure markets continue

to flourish. Knoxville

is now one of Allegiant's most-successful airports

. The success
of Allegiant Air proved that the Knoxville market

is eager to support low

- fare service. AirTran Airways Returns

to Knoxville 

# In June 2009, AirTran Airways returned

to Knoxville with less-than-daily service
to Orlando. The flights performed well, however after acquiring AirTran

in 2011, Southwest Airlines elected
to terminate the limited Orlando service. Frontier Airlines Lands
in Knoxville

in 2011 

# After many years of discussions, Frontier Airlines arrived

in Knoxville

in 2011 with seasonal, less-than-daily service
to their hub in Denver. The service remains today from April through December. Connections
are available via Denver
to dozens
of Western airports. Frontier's service has been popular for leisure travelers; however their lack of flight frequency has 10

# prevented business travelers from using them

. Nevertheless, Frontier's presence

in the market has had a dramatic impact on average airfares
to the West, and on the overall average airfare from TYS

. In June 2014 Frontier launched summer less-than-daily service
to Chicago-Midway

f rom TYS. The route performed extremely well, but is scheduled

to end in September. Frontier

' s success

in Knoxville has again shown that our community will support new-entrant low-fare service, however Frontier's philosophy

of operating seasonal, less

- than-daily service does not provide

a true permanent solution
to East Tennessee's high fare problem. 

# IV. KNOXVILLE'S PUBLIC/ PRIVATE AIR SERVICE PARTNERSHIP A public-private airport support organization has operated

in the Knoxville Region

f or over 12 years. The first support organization East Tennesseans

for Airfare Competition (ETAC) was created

in May 2002 by Knoxville regional business leaders.

In 2013, ETAC's mission was assumed
by the regional Competitive Airfare Partnership (CAP)

, which

is affiliated with the Knoxville Chamber 

# C ft P COMPETITIVE AIRFARE PARTNERSH

I P 

# Partnership and the Innovation Valley Inc. economic development organization. CAP has been very active
in the local community, and has successfully raised

a significant amount
of cash from local governments
and the private sector that will compose

a

l arge portion of the local matching funds for Knoxville

' s 2014 SCASD application

. CAP's role in this project will be to provide

a portion of matching funds for the SCASD grant, and to help promote the targeted low-fa re airline service

in the East Tennessee region. 

# V. KNOXVILLE'S ELIGIBILITY FOR A 2014 SCASD GRANT Knoxville Meets Both Major Requirements The criteria for 2014 SCASD applicants contain two requirements

for applicant communities: 

# Be served by an airport that was not larger than



# a Small Hub in 1997, and have insufficient service or unreasonably high fares: In 1997, TYS was classified
as a Small Hub with 727,836 enplanements. Local airfares have consistently been above the national average, and have frequently been among thetenhighest

in the nation. 

# The community should demonstrate



# a need for grant assistance: Airlines are looking
to local communities

to provide greater levels of marketing support than ever before. Advertising

in both local communities

as well as in destination cities has increasingly become the responsibility

of the primary airport. The cost of marketing and 11advertising new low-fare airline service

in major markets such as

far exceeds the resources available

to a small community such as Knoxv

i lle. Consequently, additional funds available through

a SCASD grant are critical to helping the Knoxville Region successfully launch and support the low-fare airline service needed

to reduce the cost of air travel. Knoxville Meets the Criteria for Priority Consideration Knoxville meets all five requirements
set forth on Page 13 of the Order Soliciting Community Proposals, and therefore should receive Priority Consideration

for approval. Specifically: Knoxville airfares are significantly-higher
than the national average; The Knoxville regional community will provide



### a portion of the cost of the air service activity from local sources other than airport revenues; A public-partnership exists
in Knoxville that will facilitate air carrier service
to the public

; The assistance will provide benefit
to 

### a broad segment
of the Knoxville community, including the East Tennessee regional business community,
the large collection
of educational institutions

in the area

, tourism groups, government installations

, and other enterprises whose affordable access
to the national air transportation system

is currently limited due to high airfares; If awarded

a grant, the Knoxville community will move forward with its air service program

in a timely manner. Knoxville's 2014 Application

is Different From Previous Proposals Knoxville has been awarded two SCASD grants

in past years. Projects were not completed due to unforeseen circumstances.

As a result minimal grant funds were expended. In 2003, Knoxville received

a $500,000 grant that was intended

to support low-fare service by AirTran Airways through their regional jet affiliate Air Wisconsin

. Grant funds were intended

to pay costs for an AirTran RJ for Knoxville- Atlanta service, plus use additional grant proceeds to fund
a "travel bank" that would give AirTran guaranteed

t
i cket sales for the new service. Shortly after the Knoxville community received the grant award, AirTran discontinued

all Regional Jet service, and then re-evaluated Knoxville
as a candidate for service using their larger 717 aircraft. Ultimately, AirTran informed Knoxville that they were not able to add TYS service as originally planned. As a result, the grant funds were never used. In 2009, Knoxville was awarded

a $500,000 SCASD grant. The primary goal was to expand AirTran's limited Knoxville-Orlando service
to the airline's BWI hub

, with
a secondary goal of recruiting and launching other airline low-fare service
to additional unserved airports. Shortly after the grant was awarded, AirTran was acquired
by Southwest Airlines

. This unanticipated airline merger was
a huge disruption

to Knoxville's plan for use of the SCASD funds. Southwest elected
to eliminate AirTran's limited-frequency flights from numerous small airports

, including Knoxville. Southwest officials told the Knoxville community that they were not able to consider their own TYS-BWI service due to the complexities

of merging AirTran 

### 12A portion of the 2009 SCASD grant funds were also used
in 2014 to help market new low-fare service
to Chicago

- Midway from incumbent carrier Frontier Airlines

. The combined total of requested reimbursements under the 2009 grant will be well-be

l o w the amount awarded

. Knoxville will terminate the 2009 grant if selected as a 2014 grant re c ipient. Note that Kno x ville is now in a position
to provide significantly more local matching cash for a 2014 SCASD grant as the result of the fundraising success
of our public

/ private partner Competitive Airfare Partnership

. Over 60% of the cost of o u r a

i r serv

i ce

i mpro
v ement plan will be borne by the local community. While airline industry consolidation
and contraction have reduced
the number
of p oten

t ial new-entrant carriers, Knoxville continues

to recruit additiona

l new serv

i ce from other incumbent and new-entrant airlines

. SCASD funds may be used for recruiting

, marketing, advert

i sing

, and risk mitigation programs. 

### VI. THE KNOXVILLE REGION'S PLAN TO LOWER LOCAL AIRFARES The Metropolitan Knoxville Airport Authority, the Competitive Airfare Partnership

, and numerous other Knoxville

- area civic and government agencies are relentlessly pursuing competitive airfares from Knox vi lle McGhee Tyson Airport that wi ll lower the cost of local
a

i r travel. As part of this ongoing effort, representatives

of the Kno xville re g ion have met with incumbent and potential new-entrant carriers seeking the lower

a irfares

t h at the reg

i on desperately needs

. The realities
of today's airline operating environment mean that many airlines have curtailed growth plans for the immediate future

. The Kno x ville Region recogn

i zes that attracting new low-fare service
to TYS will be challenging, and will not happen overnig ht. Bringing
ad di t i o n a
l competitive fares to the Kno x ville Region

is a marathon

. . . no
t a sp ri nt. The Kno x ville Region also recognizes that
any new air service must be self-sustain

i ng. New low-fare service must be able to succeed without long-term financ

i al assistance.
For this reason, the Knoxville region has taken care to pursue only those opportunities that make the most sense, and have the greatest chance
to succeed

. It is the goal of the Kno x ville Region
to not only attract new compet

i ti v e-fare air

l ine se rv ice in McGhee Tyson Airport

' s most-traveled markets, but also to s

i gn

i ficantly promote the new service
to insure its success. The Knoxville Region will assist airl

i nes bringing

e x pandedlow

### 13fareservicetokeyTYSmarketswithavarietyofmarketingandadvertisinginitiatives,plustheRegionwillworktohelploweroroffsetinitialairlinestationcosts.TheKnoxvilleRegionisveryawarethatbringingnewaffordable-fareservicetoMcGheeTysonAirportwillrequiresignificantmarketingassistancetoinsurethenewserviceissuccessfulfrom"dayone".ItisforthisreasonthatanawardofaSmallCommunityAirServiceDevelopmenttoKnoxvilleissocritical.Knoxville'splantoreduceairfaresfocusesontwospecificgoals:2.LaunchNewServicefromIncumbentandOtherNew-EntrantAirlines:Knoxvillerecognizesotheropportunitiesmayarisefrombothincumbentandothernewentrantairlinestoaddlow-fareservicetounservedairportsfromTYS.TheRegionwillsupportanynewlow-fareservicethatcouldbenefitourcommunity'sairtravelers.VII.KNOXVILLE'SFUNDINGREQUEST&BUDGETAsagovernmentagencyandlegalsponsorofthisApplication,theMetropolitanKnoxvilleAirportAuthority(MKAA)seeks$950,000infederalgrantfunds.Thesefundswillbecombinedwithlocally-providedcashgeneratedbyourpublic-privatesupportgroupCompetitiveAirfarePartnership(CAP),aswellasairport-fundedcashincentivesastoyield$2.4Millioninmarketingincentivesthatwillbeusedtoattractincreasedlow-fareairlineservicetotheKnoxvillecommunity.Airportfundswillcomefromnon-airfieldrevenuessuchasconcessions,parking,etc.Knoxville'sairservicedevelopmentfundingplanisasfollows:SourceCash%ofTotalCommentsSCASDGrant$950,00039.6%SCASDGrantFundsLocalFunds$1,450,00060.4%MKAA/CAPCashIn-KindServicesnoneTOTAL$2,400,000100%14BoththeMetropolitanKnoxvilleAirportAuthorityandCompetitiveAirfarePartnershipacknowledgethatifawardedagrant,andifthetargetedairservicelaunched,thenallfinancialcommitmentscontainedinthisApplicationwillbefulfilled.Furthermore,itisacknowledgedthatanyfailuretoproducethelocalcontributionscouldleadtheDepartmentofTransportationtoterminateanygrantaward.KnoxvilleAirServiceDevelopmentProgramBudgetTheKnoxvilleRegionwillusetherequested$950,000inSmallCommunityAirServiceDevelopmentGrantfunds,combinedwith$1.45Millioninlocally-generatedmonies,toproduceasizeablefundof$2.4Millionthatwillbeusedtomarketandadvertisetargetednewairlineservice,andtohelpoffsetairportstartupcosts.95%ofthetotalfundswillbeusedfordirectsupportofthenewairlineflights.Knoxville'sproposedprogrambudget*isasfollows:Marketing&PromotionExpenses(65%oftotal)Thenewlow-fareairservicewillbeadvertised&promotedusingmediasuchasprint,radio,TV,billboard,digital,andsocialmedia.Costsincludeadagencyfeesandcreativeexpenses.Programswillbegin3-4monthspriortoservicelaunch,andwillcontinueasneeded.AirportOperatingCosts&FeeWaivers(30%ofTotal)FundswillbeusedtooffsetcostsassociatedwithopeningandoperatingtheTYSairportstation,andwillincludeoffsettingairportlandingfees,groundhandlingcharges,etc.Costoffsetswillbevalidforanintroductoryperiodnottoexceedoneyear.RecruitingCosts,MarketingPlans,Administration,&Fees(5%ofTotal)Fundswillbeusedfordevelopingmarketingplansforthenewaffordable-fareservice,conductingresearch,airserviceconsultantfees,traveltomeetwithairlines,productionofmarketingmaterialsforthesemeetings,airlinesitevisits,&offsettingofanyotheradministrativeexpenses.$1,560,000$720,000$120,000T0TAL..........................................................................................................$2,400,000*Fundingplansanddollaramountsaresubjecttochangebasedonthespecificneedsofthelow-farecarrierbringingcompetitivefarestoKnoxville.15VIII.CALENDARTheKnoxvilleRegionrecognizestheneedtoimplementairserviceprogramsusinggrantfundsinatimelymanner.TheMetropolitanKnoxvilleAirportAuthorityispreparedtoquicklymoveforwardwithimplementingairservicedevelopmentstrategiesdetailedinthisProposal.Therealitiesoftoday'sairlineoperatingenvironmentdictatethatKnoxville'seffortsmlikelihooduirethatthisairservicelanextendovermultKnoxville'scalendarforimplementingourinitiativesisshownbelow,butissubjecttochangebasedonthestateoftheairlineindustry.DialogueWithTargetedAirlinesResponsetoAirlineFeedback/NegotiatStatusReportingServiceBeginsMonthsBefore/lMonthsAfterServiceLaunchStatusReporting16

### IX. MONITORING

& EVALUATION The Program Will Be Managed and Results Measured Monitoring the success
of new air service implemented

as a result of this program will be critical. The Knoxville Region recognizes the importance

of detecting any potential prob

l ems as quickly as possible so that they may be analyzed and corrected

. The MKAA will closely-monitor

all aspects
of the air service program, and will provide regular reports
to the DOT. MKAA will maintain
an open dialogue with low-fare carriers
to ascertain potential issues, and to work to resolve those issues before they threaten the success
of new service

. Reports will be provided detailing the status of both the implementation

of our plan

, as well as the success
of the new air service. indicators will inc

l ude • Passenger bookings (both advance and actual) • Airline load factors (all carriers) • Carrier market share



### I seat share (all carriers) • Change

in TYS average fares • Air carrier revenue performance



### & profitability

(if available) • TYS fares vs

. fares from competing airports • TYS fares vs. fares from peer airports • Change

in passenger leakage If Things Don't Work Out.. .... While the Knoxville Region has every intent of producing

a successful program that will benefit the citizens
of our region through lower airfares, the rea

l ities of today's airline environment dictate the possibility the air service initiatives contained herein may not succeed

in a timely manner. Should this occur, then the Metropolitan Knoxville Airport Authority and its partners understand that grants funds may not be fully utilized

. 

### 17X.SUMMARY•TheKnoxville,Tennesseeregionsuffersfromhighairfaresresultingfromalackofsignificantlow-fareairlinecompetition.•Theexcessively-highfaresareforcingthousandsofKnoxville-areatravelersontothehighwayforalongdrivetootherregionalairportswithcheaperfares.Countlessthousandsofotherpotentiallocalairlinetravelersareelectingtoavoidtheairtransportationsystemaltogether.•Whengiventheopportunitytousealow-fareairlineflyingfromKnoxville,localresidentshavedemonstratedthattheywillsupportthelow-fareprovider.•Low-fareairlineshavestatedthatfinancialincentivesplayacriticalroleintheirselectionofnewmarkets.•TheKnoxvilleRegionhassetforthasolidactionplanthatcansignificantlyimprovethehigh-fareproblembyhelpingbringadditionalcompetitivepricingtoKnoxvilleMcGheeTysonAirport.TheplanissponsoredbytheMetropolitanKnoxvilleAirportAuthority(agovernmentagency),andtheCompetitiveAirfarePartnership(apublic/privatepartnershipsupportgroup).•TheKnoxvilleRegionwillalsopursueotheropportunitiesforlow-fareservicetounservedairportsfromincumbentairlines,aswellasfromotherpotentialnewentrantcarriers.Itisacertaintythatanyexpandedlow-fareservicewillrequireincentivestooffsetfinancialrisk.•Thecostoffundingmarketingandadvertisingprogramsforanewlow-fareairlineissnificaarticulwhenprogramsareruninmajorairlinefocuscitiessuchThesecostsarewellbeyondthefinancialmeansoftheKnoxvilleRegionpartners.•TheDepartmentofTransportationwillplayakeyroleinthesuccessofKnoxville'sairserviceplanandthereductionofEastTennesseeairfaresbyawardingKnoxvillewithaSmallCommunityAirServiceDevelopmentGrantthatwillhelpfundmarketingprogramsandcostoffsetsforexpandedlow-fareairlineserviceatMcGheeTysonAirport.# # # #18