# Proposal u nder the Small Community Air Service Development Program

Docket DOT

- OST

- 2010

- 0124

Community: Great Falls International Airport Authority Great Falls, MT

DUNS #: 15

- 6130148

Congressional

District Code: 01

### Great Falls International Airport Authority Strategic Plan Proposal Under the Small Community A ir Service Development Program Docket DOT

- OST

- 2010

- 0124 August 26 , 2010

1.0 Back ground: Great Falls is the second largest City in Montana with a pop ulation of approximately 60,000. The Great Falls International Airport (“GTF”) is a non

- hub airport with approximately 140,000 annual enplanements making it the forth largest airport in the state . A verage ticket prices at GT F have historically been signif icantly higher tha n nearby Billings . As a result of the pricing discrepancy, GTF has experienced signifi cant pas senger leakage . The market leakage is particularly strong in California and large city markets along the east coast.

2.0 Goals and Objective s : The Great Falls International Airport hopes to employ an $850,000 Small Community Air Service Grant to help recapture our market leakage. We believe that our plan is particularly

attractive because the results of the grant will not only enhance the v iability of existing service by increasing passenger activity, but we will also be employing the results in a marketing plan to achieve a long

- term sol ution to high airfares at GTF.

We plan to establish a ticket rebate program that will provide rebates t o passengers using our airport to travel to specific California and east coast cities . We believe that a relatively small rebate has the potential to retain the majority of our leakage because it will bring the GTF ticket prices in

- line with ticket pricin g in Billings

. The markets selected for this program have an average leakage rate of 35 percent and o ur stated goal is to recapture 15 percent of the existing leakage to the rebate markets . The program will run 18 months unless rebate funds are

exhausted prior to that timeframe.

We will measure the passenger response to a relatively small change in ticket prices, so we can gauge the price elasticity of our market. We believe that the elasticity and stimulation information we receive from this program wi ll be invaluable to discussions with our current carriers about their pricing in our market. In addition

, the data that we collect will be integrated into a marketing proposal for low cost carrier service to the east coast and California.

The cities th at we have chosen to provide a rebate for are not only high leakage cities, but they are also cities that can be easily reached by several low cost carriers with a one

- stop connection from their existing hubs. Since our rebate cities are the same cities t hat we will include in our proposal for service from low cost carriers, we will have fresh data about their likely impact on

our market. Currently Billings and Bozeman are the only Montana cities with daily low cost

carrier service which is provided by Fr ontier Airlines.

### 3.0 Demonstration of Need:

3.1 GTF has Demonstratively High Ticket Prices The FAA Northwest Region is home to 81 airports with passenger service, including 28 airports with over 50,000 annual enplanements. As shown in the table below, Departm ent of Transportation data collected for the March 2009 to March 2010 timeframe, shows that GTF has the eight h highest average ticket prices amongst all Northwest airports with more than 50,000 passengers. This data is presented in a tabular

format below along with a comparison of average ticket pric es for Billings

.

Enplaned Average Ticket Price

Rank Airport Passengers Ticket Price as a % of GTF

1 Helena, MT 85,130 $244.23 15.4%

2 Vail, CO 161,550 $237.34 12.2%

3 Kalispell, MT 150,720 $233.04 10.1%

4 Aspen, CO 205,230 $229.99 8.7%

5 Idaho Falls, ID 126,780 $217.56 2.8%

6 Casper, WY 68,110 $215.80 2.0%

7 Jackson, WY 261,330 $213.06 0.7%

8 Great Falls, MT 137,160 $211.58 0.0%

9 Bozeman, MT 317,090 $208.84 -1.3%

10 Montrose, CO 88,270 $207.98 -1.7%

Billings, MT 368,980 $176.34 -16.7% Northwest Region Airports Exceeding 50,000 Annual Enplanements Top Ten Airports Ranked by Highest Average Ticket Prices
Year Ended March 31, 2010 From Data Prepared by Mead & Hunt, Inc



### It seems intuitive that higher ticket prices might be a result of higher airline fees or longer stage lengths at GTF relative to peer airports. However, GTF has a low cost philosophy

and the airline cost per enplanement last year was a low $ 5.81 . As for longer stage length flights, the best way to compare airports is based on an average fare yield basis, which is simply the fare revenue divided by seat miles.

De spite very inexpensive weekend flights provided by Allegiant to Las Vegas and Phoenix, which are the first and second largest O&D markets for GTF, the average non

stop yield to GTF’s top

- ten markets is an excessive 19.60 ₵ per mile with one market exceeding 54 ₵ per mile. When the 28 Northwest airports with more than 50,000 annual enplanements are compared on this basis, GTF has the fifth highest yield amongst the airports, further demonstrating the fare discrepancy expe rienced by Great Falls passengers. This data is provided in tabular form below and in the simplest terms, it illustrates that GTF passengers aren’t getting as much as most passengers in the Northwest Region for their ticket buying dollar.Enplaned Fared Avg Fared Yield

Rank Airport Passengers Avg Yield as a % of GTF

1 Casper, WY 68,110 $20.12 18.6%

2 Aspen, CO 205,230 $19.73 16.3%

3 Idaho Falls, ID 126,780 $19.11 12.6%

4 Helena, MT 85,130 $18.55 9.3%

5 Great Falls, MT 137,160 $16.97 0.0%

6 Vail, CO 161,550 $16.93 -0.2%

7 Durango, CO 144,270 $16.91 -0.4%

8 Lewiston, ID 55,110 $16.43 -3.2%

9 Grand Junction, CO 205,400 $15.88 -6.4%

10 Missoula, MT 263,730 $15.85 -6.6%

Billings, MT 368,980 $14.74 -10.3% Northwest Region Airports Exceeding 50,000 Annual Enplanements Top Ten Airports Ranked by Highest Fared Average Yield
Year Ended March 31, 2010 From Data Prepared by Mead & Hunt, Inc



### 3.2 Great Falls Experiences Leakage GTF conducted a comprehensive air service study that was completed in August 2008 by The Boyd Group, Inc. The study indicated that while GTF experiences roughly 20 percent overall leakage, the majority of leakag e from GTF is high ly concentrated in a

handful of markets on the east and west coast s as well as Chicago as presented in the

table below.

Actual True Calculaed Leakage

Rank Airport Passengers O&D Leakage Percentage

1 Chicago 5,453 9,490 4,037 43%

2 Atlanta 5,027 7,504 2,477 33%

3 Consolidated New York/New Jersey 6,423 8,791 2,368 27%

4 San Francisco 3,934 6,087 2,153 35%

5 Orlando 4,790 6,457 1,667 26%

6 Santa Ana/Orange County 2,891 4,514 1,623 36%

7 Boston 3,114 4,658 1,544 33%

8 Oakland 2,111 3,418 1,307 38%

9 Minneapolois 8,065 9,242 1,177 13%

10 Philidelphia 2,673 3,779 1,106 29%

11 Detroit 2,520 3,554 1,034 29%

12 San Jose 2,410 3,394 984 29%

13 Cincinnati 1,501 2,342 841 36%

14 Sacramento 4,043 4,878 835 17%

15 Burbank 1,488 2,310 822 36% Great Falls International Airport Top 15 Markets Leakage Cities *

O&D Traffic Stastics for 2007



### As the above table illustrates, GTF has significant leakage in many of its top destinati on markets, which is a concerning tren d. Adding to this concern, GTF has convenient, one

connection service to all of the markets in the above table, so pricing is likely the sole

### factor accounting for the leakage. Many of these destinations are importan t business connections for Great Falls businesses and maintaining competitive air service to these cities is vital to the health of our community. The markets listed above are also major origin cities for tourist visiting Glacier National Park and other n earby Montana attractions. Competitive air fares are vital to realizing the economic impact of these travelers for the Great Falls community. This economic impact is essential to the Great

Falls community with an average annual wage of $30,356 , which is 17% below the average wage of Billings and 36% below the U.S. national average wage.

4.0 Proposed Use of Funds :

4.1 Market Identification To make the best of use of the proposed grant funds, GTF has identified those markets where we have the best opportunity to effect a long

- term change in the ticket rate structure. In addition, GTF also reviewed these markets to ensure i) the market has a leakage rate of at least 25 percent, i i) multiple existing carriers at G TF provide one

- stop service, ii i ) that an existing l ow cost carrier could easily provide one

- stop service from an existing hub city

, and iv ) no existing carriers provide direct service to the market because this would be too much of a direct benefit to a specific ca rrier. These criteria were developed to s upport our two

- tiered marketing plan, which is to first work with existing carriers to achieve lower rates and if this is unsuccessful we would approach low cost carriers with marketing proposals for these markets. In effect, our program will be a

combine d existing service and new service marketing effort. The markets that m e et the combined screening criteria are :

**•** Chicago

**•** Atlanta

**•** New York/New Jersey

**•** Santa Ana/Orange County

**•** San Francisco

**•** Boston

**•** Burbank

4.2 Application of Funds As described earlier in this pro posal, GTF plans to offer relatively small ticket rebates in an effort to simulate lower cost service and develop price elasticity modeling for our air service marketing initiatives. We believe that $35 per ticket rebates would provide the

nee ded stimulus to effect decision making. At times

, GTF’s fares are likely to exceed competing a irports even with the rebate in place, but this environment would simulate a limited number of low cost flights when we would still leak some passengers to competing airport s. We believe that $35 rebates on the selected markets would provide the ideal environment to stimulate retention and develop a strong argument for lower

fares in our market.

As the table below demonstrates, approximately 43,000 passengers would be eligi ble for a rebate under our proposed structure and assuming that all of these passengers apply for the rebate, the cost would be approximately $1.5 million. GTF plans to offer rebates until $1 million is dispersed. We are requested a grant of $850,000 wit h the remainder of the

### funds committed from the Airport and its local partners. Of the matching funds, $100,000 is already committed.

Leakage Actual True Calculaed Leakage

Rank Airport Passengers O&D Leakage Percentage

1 Chicago 5,453 9,490 4,037 43%

2 Atlanta 5,027 7,504 2,477 33%

3 Consolidated New York/New Jersey 6,423 8,791 2,368 27%

4 San Francisco 3,934 6,087 2,153 35%

6 Santa Ana/Orange County 2,891 4,514 1,623 36%

7 Boston 3,114 4,658 1,544 33%

15 Burbank 1,488 2,310 822 36%

Total 43,354 15,024 35%

Market Stimulation Goal: 6,503 15%

Rebate: 35.00 $

Annual Cost 1,517,390 $

Proposed Grant Funding: 850,000 $

Local Match 150,000 $

Total Program Funding 1,000,000 $ Great Falls International Airport Estimated Cost of Stimulus Program



### 4.3 Data Mining Once the program is established, the Airport can begin collecting valuable data

. Using regression analysis, w e will compare growth rates in our stimulus markets against growth rates to all other airport to markets determine how the lower cost ticket s would stimulate

traffic. We can also compare growth in rebate markets to nearby ma rkets like Boston to Philadelphia and Washington D.C. for further edification.

With an average leakage rate to the selected markets of 35 percent, the program is unlikely to recapture all O &D passengers flying from competing markets. Many passengers wi ll not recall that there is a rebate when booking their flight. However, the Airport anticipates that the rebate will also stimulate some passengers that may not have otherwise taken a trip. In t otal, we hope the program can stimulate the chosen markets by 15 percent or approximately 6,500 passengers per year.

The destination ticket data that the airport will use to determine the effectiveness of the rebate program is commercially available with a two to three month delay; however, once

O&D data is ava ilable for time period of the rebate program, the Ai rport plans to also acquire O&D data and check the overall market leakage rate during the rebate program. We will also evaluate monthly and seasonal changes to provide insight into the program’s

effectiv eness among leisure travelers versus business travelers.

Since the rebate funds will require passengers to submit a ticket stub and contract inf o, we will have a means of cont acting these passengers to determine how important pricing

was in their decision to use GTF and ascertain their travel demographics so we can further understand how the pricing is impacting different market segments (i.e., family or

### groups traveling together versus individuals, etc) . This will provide a qualitative cross

check of the stimulation data that is collected. Our goal for this portion of the program would be to interview 100 passengers from divergent market segments during the 18

- month program.

Using the data collected during the rebate program, the Airport will attempt to quantify the price elasticity of these key markets. We will construct revenue models for each existing carrier that demonstrates the change in gross revenue based on price reductions on existing flights. We will attempt to identify the price reductions that optimize gross

revenue. The elasticity information will be combined in a n air service presentation for our existing carriers with the goal of showing that lower fares enhance the performance

of the Great Falls market

. This same data would also be va luable to determine the stimulation effect that low cost service would have in proposals to low cost carriers. Accordingly, the marketing data collected will support both an existing service and a new service marketing effort, increasing our chances of ac hieving successful outcomes.

4.4 Investing in our Future Currently, GTF’s annual load factors on the major carriers fall slightly below the national

a verage demonstrating a need to generate more passengers to support current flights . Our

fleet mix is domina ted by fifty

- seat equipment flying to the large hub cities. Most U.S. carriers have announced plans to reduce and even eliminate aircraft smaller than 70 seats

from the ir fleet due to the efficiencies of the larger airframes. Orders for 50

- seat jets are nearly unheard of and the ERJ

- 145 is the o nly commercial jet with less than 70 seats that remains in production. All of these factors point toward a tenuous future for airports like

GTF.

Countless airports have lost service in the past ten years as the D ash

- 8, Beech

- 19 and other smaller equipment has timed

- out or been oth erwise divested of. Currently, no equipment is being manufactured or purcha sed to replace service from these smaller

airframes . As commercial airlines divest of the ir 50

- seat equipment, it appears likely that many more airports will loose service. Although the 6,500 new enplanements that we hope to generate with our program seems like an insignificant number, it is almost exactly the number of additional daily passengers that would supp ort the transition from a

50

- seat jet currently serving GTF to a 70

- seat jet. If we can demonstrate that a relatively

minor decrease in tic ket prices will stimulate demand and support additional seats , we stand a much better chance of preserving GTF’s air service over the next decade of

transition.

### Appendix A: Existing Air Service Great Falls International Airport

Airline Flight # Equipment Departing To Days per Week

Delta 5743 ERJ-145 Minneapolis 7

Delta 4554 CRJ-200 Salt Lake City 7

United 6600 CRJ-200 Denver 7

Horizon 2321 Q-400 Seattle 7

Delta 5824 ERJ-145 Minneapolis 7

Delta 4675 CRJ-200 Salt Lake City 7 Alegiant 649 MD-80 Phoenix 2

United 6615 CRJ-200 Denver 7

Horizon 2322 Q-400 Helena/Seattle 7

United 6870 CRJ-200 Denver 7

Delta 4592 CRJ-200 Salt Lake City 6 Alegiant 591 MD-80 Las Vegas 2

Horizon 2324 Q-400 Helena 7

Total Flights per Week 80 

### Weekly Flight Schedule August 2010

### Appendix B : Historical Air Service /Enplanements Great Falls International Airport

Fiscal

Year Allegiant Big S ky Delta Horizon NWA SkyWest United Total per

Year

2002 0 4750 61463 23570 35837 660 0 126,280

200 3 0 4307 51742 22515 38483 10467 0 127,514

200 4 0 4615 23737 21039 41762 31701 0 122,854

2005 0 4870 0 25674 42134 69215 4002 145,895

200 6 0 2996 0 23967 37659 61330 27175 153,127

200 7 4447 208 0 22644 37877 49682 31102 145,960

200 8 14518 0 42791 26690 36107 0 31110 151,216

200 9 27481 0 36644 22690 30123 0 27706 144,644

20 10 38030 0 35504 21986 26913 0 31439 153,872

Total per

Airline 84,476 21,746 251,881 210,775 326,895 223,055 152,534 1,271,362

### Appendix C : Prior Air Service Development Efforts Great Falls International Airport

Past air service development efforts have been a combination of print ads conce ntrated in various local

and national publications and efforts undertaken in a previously received Small Community Air Service

Grant in 2005.

The previous Great Falls Airport (GTF) marketing plan consist ed of three segments. The first segment

was direc ted at outbound travelers. The marketing plan promote d existing vacation packages to the regional market for each of the airlines servicing GTF. The media of choice for this marketing segment

was the Great Falls Tribune as it is widely distributed throug hout the region including all of the cities utilizing the Great Falls Airport.

The second segment was designed to entice inbound travelers. The target markets w ere our top 20 origin and destination cities and demographics meeting our tourist visitor pr ofile. This segment of the marketing plan utilize d electronic media. Electronic media allow ed us to track effectiveness in order to modify the message or target audience accordingly. It also allow ed us to target a demographic audience

that other media v ehicles d id not. The media message guide d the user to our website where various packaged travel was accommodated.

The third segment target ed local partnerships with other marketing efforts to leverage our marketing dollars. It includes marketing piece s with Russell Country cooperative buys, a local annual outlook publication that is distributed heavily all year long by our hotel operators and other local advertising opportunities as they ar o se.

Lastly, we have paired with existing airlines and offer ed advertising dollars to any airline that wishes to

advertise new service or low fares.

### Appendix D : Program Timeline Great Falls International Airport

Month 1: Because we have already completed the analysis necessary to identify our target rebate

mark ets, our rebate program begins immediately upon receiving grant proceeds. Passengers submit a ticket receipt along with contact information at the ticket counters and we process their rebate within 30 days. We will also commence Fly Local messaging,

arti culating the importance of using the local Airport and notifying customers of the new

rebates.

Month 3: Initiate interviews with rebate recipients to begin building qualitative impressions about ticket pricing and use of the airport. This effort will inc lude categorizing users by type (i.e., leisure traveling alone, business traveling as group) and asking that they provide a one to five rating on importance various subjects including ticket pricing etc.

Month 7 : Airport commences quantitative analysis of year over year passenger traffic versus results in specific mark ets that have received rebates. The timeline corresponds to the availability of Department of Transportation data. We w ill track these trends monthly as data becomes available. The Airp ort believes that approximately seven months into the program, the stimulation effect of the program will reach full maturity.

Month 18: We anticipate that all available rebates wil l be dispersed by Month 18 providing us with enough information to develop price elasticity modeling and evaluate the impact of lower fares on all of our markets. Using this data, we will begin building a revenue models for

each carrier.

Month 24: All market data should now be available and this data will be combined along wit h the airline revenue models into air service presentations for each of our existing carriers. We will meet with the carriers along with key members of our community partnerships to request reductions in ticket prices on existing routes. S eparate air ser vice presentation s will

be co nstructed using the elasticity data generated from the program for low cost carriers to estimate their stimulation impact on our market and demonstrate the financial performance of service connecting through their nearest hub city.