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036223100Application of Pocatello Regional Airport

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THE POCATELLO CHALLE NGE

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T HE H ARBINGER I S A LREADY I N P LACE

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T HE G RANT R EQUEST

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A DMINISTRATION & M ANAGEMENT OF T HE G RANT

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A IR S ERVICE D EVELOPMENT A CTIVITIES A T PIH

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P ROJECT S PONSOR

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II. POCATELLO & THE MAR KET

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I T ’ S A M ATTER OF A IRLINE S TRATEGIES

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S CHEDULE T HEM & T HE P ASSENGERS W ILL C OME

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F ARE L EVELS

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F ARES A RE N OT A C ONSIDERATION I N T HE R ETIREMENT OF T URBOPROPS 8

THE POCATELLO GRANT PROPOSAL

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O BJECTIVE : F ACILITATE T URBOPROP R EPLACEMENT

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Cost/Revenue Benchmarks

................................ .............................. 9 Program Management

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Revenue Determination

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O BJECTIVE : N ET

- N EW S TIMULATION

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T HE A LTERNATIVE : L OSING N ETWORK A IRLINE S ERVICE C OMPLETELY

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IV. GRANT ADMINISTRA TION

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M AJORITY O F F UNDS A RE F OR R ISK

- O FFSET

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T HE P ROGRAM A DMINISTRATION

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M ARKETING & A DVERTISING S UP PORT

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P OST

- G RANT S UPPORT

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V. SUMMARY OF APPLIC ATION

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## The Pocatello Challenge

Pocatell o Regional Airport today faces major challenges to its future air connectivity to the US and to the global economy.

Historically, the market has been attached to the Delta hub at Salt Lake City. But changes in airliner economics, airline strategies, and f leet decisions within the Delta Air Lines system now have combined to

threaten Pocatello’s air service.

Current service is provided via four daily round trip flights operated by SkyWest/Delta Connection using 30

- seat Embraer 120 airliners. It is a

near

- ce rtainly that these aircraft will be retired from the SkyWest fleet sometime in the next five years

– or, more likely, sooner.

The Ha r binger Is Already In Place

In July, 2011, Delta announced it was “adjusting” service at 24 airports

across the nation. Tr anslating this, the airline is retiring all of the 34

- seat
Saab

- 340 turboprops in its regional fleet by the end of the year. In some of the 24 affected airports, Delta may seek EAS subsidies to support 50

- seat jets. In others, it simply wants to leave the market.

The current service at Pocatello is not affected by this action, but the message it sends is very clear: the “floor” for air service in the near future

will be more

- expensive 50

- seat jets.

SkyWest is a superb company which operates with the high est standards of reliability and customer service in the industry. However, it is not immune from the raw emerging economics of its fleet of Embraer 120s. This is already taking place at Pocatello, with SkyWest reducing frequencies in the fourth quarter of 2010 from four daily flights to just three. The writing is on the runway: PIH must prepare to support 50

- seat jets, or it may lose viable air service.

The Grant Request

As a result, Pocatello Regional Airport is herein requesting a grant in the

amount o f $500,000 to be matched by $ 100,000

- $80,000 in hard in local

dollars plus $20,000 in

- kind

- for the purpose of upgrading two of the

current SkyWest flights to 50

- seat jets.

It is believed that PIH can actually support three 50

- seat jets daily to the

D elta Air Lines hub at Salt Lake City. In fact, the replacement of the turboprops with regional jets will stimulate traffic and recapture portions of the passenger base that is now leaking to Idaho Falls. Delta is already

“ adjusting ” service

in small

communities served by turboprops.

This grant will assist Pocatello in moving up to jet service.Application of Pocatello Regional Airport

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The grant would be used primarily to support the in itial replacement of two of the existing turboprops with 50

- seat CRJ

- 200 airliners operated by

Delta/ SkyWest. The operator would agree not to reduce frequencies below three daily flights. (Two CRJ flights and one EMB

- 120, or three CRJs.)

Pocatello Regiona l Airport has no misconceptions about the future of regional air service. The financial requirements to support viable connectivity to the national and global air transportation systems are going up. Turboprops are being retired, and there are no replaceme nts on the horizon. If the community waits, there is a very strong potential for the region to get completely cut off from access to the air transportation
system.

Pocatello is a vibrant market that has seen enplanement s decline entirely due to changes in the levels of air service provided. Capacity has been continuously reduced over the past five years, not due to market demand, but due to fleet changes within the Delta Air Lines system.

H istoric data clearly indicate that the PIH market has the traffic to ultimately support at least three 50

- seat jet flights to the Delta hub at SLC.

The community would ask favorable consideration of this grant request. It will incubate and rebuild traffic at PIH. Without the service upgrade made possible by this grant, the ultimate retirement of turboprops from the Delta fleet could render the market completely unserved by a network carrier.

Administration & Management of The Grant

The City of Pocatello will be the sponsor of the grant application, and will be responsi ble for its direct administration and for all liaison with the Department

.

The City of Pocatello will be the community partner, and will be responsible for mobilizing businesses in the region to support the upgraded service. It will be responsible for ad ministration of the local hard

dollar match.

Air Service Development Activities At PIH

Pocatello actively monitors air service opportunities. However, it understands the nature and the context of the airline industry in the region:

 Alaska/Horizon has re tired its 37

- seat turboprops, and now only

has 70

- seat jets and 74

- seat turboprops as the smallest aircraft in their fleet. Combined with the fact that the airline’s connecting hub is at Seattle, and is relatively weak, this carrier is not in the

foreseeab le future a candidate for PIH service.Application of Pocatello Regional Airport

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 To support air service, PIH needs the traffic aggregation that a connecting hub provides. Other than the current service to Salt Lake City, there simply are no other airline connecting hubs in the region. The nearest are the United and Frontier hub operations at Denver. The challenge for this option is that the stage length

– 461 miles is long for a market of the small size of PIH.

United has opted to serve the region from Idaho Falls, and has no interest in adding P IH to its route system. Frontier’s smallest

aircraft at its Denver hub is 100 seats , far too large for the size of

the PIH market.

 There is some very limited demand for service to Boise. Alaska/Horizon once routed aircraft across Idaho, including PIH

BOI. Today, they have ceased such flying. SeaPort, an operator of

9

- seat, single engine turboprops has stated flatly they have no interest in operating at Pocatello.

The Airport will continue to review and analyze opportunities, but as a practical matter with in the structure and context of the US airline industry the future is connectivity with Delta at SLC. It is for this reason this grant is so important to the economy of the region.

Project Sponsor

The official sponsor of this project is the City of Poca tello.

The Air Service Development Committee, a coalition of local businesses and civit organizations, including the Greater Pocatello Chamber of Commerce, will be the community leaders in this project. They will be responsible for community outreach and management of the promotional activities to assure program success.

Please direct any correspondence regarding this matter to

Mr. David Allen

Director Pocatello Regional Airport 1950 Airport Way Pocatello, Idaho 83205 (208) 234

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## I I. Pocatel lo & The Market

It’s A Matter of Airline Strategies Unlike some rural

communi ties, the

passenger generation in the PIH region is not declining.

But the capacity offered is falling, forcing consumers to use other airports.Application of Pocatello Regional Airport

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Schedule Them & The Passengers Will C ome

There is sufficient traffic to support upgrade to CRJs.

In fact, if the increased capacity and higher

c onsumer acceptance can recapture traffic to 2006 levels, this program will generate 80%+ load

factors.Application of Pocatello Regional Airport

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Fare Levels

Fares Are Not A Consideration In The Retirement of Turboprops Regardless of what

PIH consumers are now paying, without a grant to incubate jet service, this is what the airport will eventually look like.Application of Pocatello Regional Airport

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## The Pocatello Grant Proposal

Objective: Facilitate Turboprop Replacement

The reduction in E

- 120 service at PIH over the past five years is the result

of fundamental fleet shifts within the Delta Air Lines system. If PIH does nothing, the reduced seats will allow the local ridership to completely atrophy.

The Airport and the community are requ esting a grant in the am ount of $500,000, matched by $ 80 ,000 hard dollars locally

, to set up a revenue offset for the phase

- in of 50

- seat jet service at PIH.

The Airport has discussed this grant with both SkyWest and Delta Air Lines, which are supportive of its goals. There are no guarantees,

however.

The program will be as follows:

Cost/Revenue Benchmarks

The Airport will negotiate with SkyWest/Delta in regard to the true, fully

allocated costs of operation of two 50

- seat CRJ airliners on the 150

- mile

SLC

- PIH segment.

 Cost : The net variance in flight sector costs between the E

- 120

and the CRJ will be the “hurdle” which the intended increased ridership must generate.

 Revenue : The increased revenue metric will be that generated by all flights in the PI H

- SLC market.

From this, revenue levels necessary to meet the carrier’s agreed

- upon costs plus a profit margin will be established.

Despite the net increase in seat capacity, t he carrier will agree to retain at least three daily flights in the SLC

- PIH ma rket. While this is relatively low, the implementation of jet service can be expected to recapture traffic now using other airports in the region.

Program Management

The Airport will monitor traffic on the new flights on a daily basis, and

liaise with th e community partners to assure that the service has wide recognition in the region. The numbers are compelling.

If the implementation of two jet flights in the market (along with one turboprop)

can restore traffic to that of five years ago, the net load

factor will be in

excess of 83%.Application of Pocatello Regional Airport

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Revenue Determination

The service upgrade will be exp ected to increase the total PIH

- SLC market. Therefore the revenue determinations will be made comparing

the total r evenues generated by PIH with those in the year

- prior period.

It can be logically expected that the new service may not be profitable from the start. The grant will be used to make up shortfalls, computed at

the end of each three

- month period.

Objectiv e: Net

- New Stimulation

T he objective is to restructure service to stimulate more ridership at PIH. For example, the simple replacement of one E

- 120 with 50

- seat RJ will

result in a 44 % increase in seats. For the program to be deem ed a

success , the net ne w ridership in the market must be in excess of this figure.

The program offers opportunity for the Delta Air Lines system. The jet service will potentially recapture traffic now driving to Idaho Falls, Delta has less than 50% market share at IDA, and the refore the leakage from PIH to IDA does not all board Delta flights. But every single passenger re

captured at PIH will be a Delta passenger.

The raw numbers are compelling. The replacement of two of the 30

- seat turboprop flights with 50

- seat jets will ge nerate a total of approximately 81,000 annual seats in the PIH

- SLC market. If this can restore the traffic levels of 2006 (66,099 passengers) the net load factor will be in excess of

80%.

The additional seats and the attractiveness of jet service can reca pture much of the passenger base now using Idaho Falls.

The Alternative: Losing Network Airline Service Completely

As was demonstrated with the Delta Air Lines announcement about “adjusting” service at 24 rural airports, there are very few alternatives t o a local airport when the incumbent decides to pull out.

In the case of PIH, this grant will allow the Airport to recapture sufficient passenger traffic to support addition al jet lift and capacity that will deliver sufficient system revenue to Delta to a void the Airport suffering “adjustments.”

The situation is just that serious . This grant will re

- establish ridership that will make Pocatello a strong point on the Delta system and will keep the region connected to the national and global air transportati on systems. This is not a drill.

Fleet changes are

threa tening service

at PIH.

This grant will proactively re

- build

traffic levels to

assure that Pocatello

does not lose

network carrier

access.Application of Pocatello Regional Airport

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## IV. Grant Administration

Majority Of Funds Are For Risk

- Offset

The higher sector costs of operating a 50

- seat jet between SLC and PIH also bring additional seats and a more attractive consumer choice to the

market.

These dollars ar e joined by $20,000 in

- kind support, making the package to the carrier $600,000.

The Program Administration

Pocatello Regional Airport will be directly responsible for all liaison with the Department of Transportation in regard to the program. The

commu nity partners will be responsible for directing all regional promotions and marketing efforts to support the new capacity.

 PIH will monitor passenger traffic and keep records to track increases in ridership.

 The carrier will provide passenger revenue dat a for local PIH

- SLC traffic as well as system feed traffic. This will determine the change in revenue contribution the new service is generating.

 At the end of each three

- month period, any shortfall between the agreed

- upon revenue levels and the costs of operation will be

settled. In addition to hard dollars, the community and the Airport offer a range

of non

- cash

incentives to attract

airl ines.Application of Pocatello Regional Airport

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Marketing & Advertising Support

Pocatello is not an expensive media market. Therefore, the dollars allocated to the support of the program will go far to assure that all sectors of the regional economy are aware of the new service.

Basically, the community partners will approach the marketing of the program based on the following:

 Print media

– weekly advertisements starting 60 days from start of service upgrade, focusing on the fact that jet service is coming to

PIH.

 Di rect contact

– key employers in the region such as Union Pacific will be contacted on a routine basis to assure that a larger share of their travel dollars are spent using PIH.

 Civic meetings

– the Airport and the community will present the

benefits of ne w upgraded service at civic meetings.

Post

- Grant Support

At the end of the grant period of one year from the implementation of both jet flights, the service will continue to be promoted by both the Airport and

the Chamber of Commerce.

It is noted that the re

- capture of traffic at PIH will be the main driver of new passengers at PIH. Therefore, during and subsequent to the grant period, the focus of marketing efforts will be on the following:

 The comparative cost

- efficiency of using Pocatello Regional

A irport.

 Key connectivity destinations and fares offered.

 Routine civic meetings and events promoting the global connectivity offered by Delta via its SLC hub and the rest of its
route system.Application of Pocatello Regional Airport

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## V. Summary of Application

The Pocatello Regional Airport and its community partners would summarize this proposal, and its importan ce as follows:

 Delta Air Lines and Its SkyWest partner will retire EMB

- 120 turboprops in the future. There are no replacements, and when

this occurs there is a possibility that ser vice to PIH will be ended.

 This proposal will implement jet service ahead of the turboprop retirement

. The jet service can be supported with the traffic generated at PIH.

 The proposed upgrade will recapture leakage to other airports. As the traffic his tory clearly proves, cuts in capacity have caused much of the traffic base at Pocatello to use other airports.

 It represents an opportunity for the Delta Air Lines system

. All of the traffic this program will re

- capture will be to the Delta system. Much of the current leakage to Idaho Falls uses other carriers. Therefore, this program represents net

- new system
revenue for Delta

 The program is viable and meets the context of the future airline industry

. This program postures Pocatello for the future.

Bein g pro

- active, it addresses a near

- term challenge in the future, and does so with results that are entirely consistent with the intent of Congress in establishing the Small Community Air Service Development Grant Program.

Pocatello Regional Airport appreci ates the Department’s time in considering this application

. This grant will

assure that PIH air service grows and prospers in the

future.