### OST-2011-0119



## BEFORE THE OFFICE OF THE SECRETARY

DEPARTMENT OF TRANSPORTATION



# Proposal of The Eastern Iowa Airport

For A Grant Under the Small Community Air Service Development Program

Legal Sponsor: The Cedar Rapids Airport Commission Iowa Congressional District #2

DUNS# 144735557 July 29, 2011OST-2011-0119 2

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# Table of Contents

I. Proposal Introduction.................................................................................................................3

The Identified Defici ency...................................................................................................... ............3

The Solu tion................................................................................................................... ..................3

The Stra tegy................................................................................................................... ..................4

II. Proposal Background................................................................................................................5

III. The Eastern Iowa Airport Market .............................................................................................6 Primary Catc hment Area......................................................................................................... .........6

CID Provides Air Service Access For A Strong and Di verse Economic Base.................................7

IV. Air Service at The Eastern Iowa Airport ................................................................................10

Current Serv ice Levels......................................................................................................... ..........10

Low Load Factors Indi cate High Levels of Traffic Lea kage...........................................................11

Service Levels at CID Lag Relati ve to Neighbor ing Airports .........................................................12

Significant Pricing Disparities Exist Relative to Neighb oring Airp orts............................................14

Passenger Enplanement Trends at Eastern Iowa Airport..............................................................15

Previous Air Service Development Acti vities at Eastern Iowa Airport ...........................................16

V. SCASD Grant Proposal........................................................................................................ ..17 Summary of Grant Objectives.................................................................................................... ....17

Identified Potent ial Solutions................................................................................................. .........17

Allocation of Funds............................................................................................................ .............19

Revenue Performa nce Guar antee.................................................................................................1 9

Marketing Activities To Support New Service................................................................................20

Progress Report s to DOT........................................................................................................ .......21

Program Du ration............................................................................................................... ............21

Market Support Beyond Term of Program.....................................................................................21

ATTACHMENT: Appendix C.......................................................................................................22OST-2011-0119 3

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# I. Proposal Introduction

The Cedar Rapids Airport Commission, as the operator of The Eastern Iowa Airport, is pleased to submit this request to the US Department of Transportation for a grant under the 2011 Small Community Air Service Development Program.



### The Identified Deficiency

The market area served by The Eastern Iowa Airport suffers from a combination of disproportionately high fare and inadequate access to key population and business centers throughout the United States. This translates into a substantial amount of passenger traffic generated within The Eastern Iowa Airport primary catchment area driving to other airports. The impacts of such traffic leakage are two-fold: First, it limits the ability to retain existing and recruit new air service. Second, the lack of competitive air service has a negative impact on the regional economy, particularly when evaluated by site selectors for business expansion opportunities.



### The Solution

The SCASD grant funds requested in this proposal will make it possible to resolve this deficiency by providing much needed risk-mitigation funding to recruit nonstop service by one of the low-cost carriers (“LCC”) that operate a comprehensive route network. As the Department is aware, in the current economic environment, airlines are reticent to initiate service at smaller communities without some form of risk mitigation. The grant funds requested in this proposal will provide such mitigation and the airport believes will add to the long list of examples where the SCASD program has materially contributed to air service improvements.

Analysis indicates that a LCC operating a network route strategy will have a wide reaching impact on fares and, therefore, have the maximum impact with respect to reducing traffic leakage from The Eastern Iowa Airport. The Airport has identified the following carriers as the most logical providers of such service:

• Southwest/AirTran Airlines to Milwaukee; or

• Frontier Airlines service to Milwaukee

Note that Frontier Airlines service to Denver has not been included as a potential solution as this service would be competitive with existing service provided by United Express. 1

1 As noted in the Request for Proposals, “The Department is reluctant to subsidize one carrier but not others in a competitive market. For this reason, communities that propose to use the grant funds for service in a city-pair market that is already serv ed by a carrier must explain in detail why the exis ting service is insufficient or unsatisfact ory, or provide other compelling informat ion to support such proposals. This information is necessary for the Department to consider the competitive implications of giving fin ancial or other tangible incentives for one carrier that the other carrier is not receiving.”OST-2011-0119 4

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

### The Strategy

To accomplish this, The Cedar Rapids Airport Commission is requesting a grant of $400,000 under the Small Community Air Service Developm ent Program, to be matched with community funds anticipated to total $50,000. These funds will be applied to a carefully structured risk mitigation program supported by local marketing and public awareness program.

The Eastern Iowa Airport will provide an additional $100,000 of “in-kind” contribution of airport landing, rental fees waivers and marketing for the first year of service.

The Cedar Rapids Airport Commission believes that the grant proposal outlined is consistent with both the spirit and intent of Congress in establishing the Small Community Air Service Development program. Furthermore, the extens ive analyses accomplished by the community indicate that the service this grant will make possible will be successful and economically viable.

All correspondence regarding this proposal should be directed to:

Mr. Timothy Bradshaw, A.A.E. Airport Director The Eastern Iowa Airport 2515 Arthur Collins Parkway, SW Cedar Rapids, Iowa 52404 Telephone: (319) 362-3131 Fax: (319) 362-3131 Email: t.bradshaw@crairport.orgOST-2011-0119 5

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# II. Proposal Background

a) Proposer

The Eastern Iowa Airport 2515 Arthur Collins Parkway, SW Cedar Rapids, Iowa 52404 Tel: (319) 362-3131 Fax: (319) 362-1670 Email: t.bradshaw@crairport.org

Iowa Congressional District #2

DUNS# 144735557

Contact: Mr. Timothy Bradshaw, A.A.E. Airport Director

b) Local Community Support Organization

This proposal is supported by the C edar Rapids Chamber of Commerce.

c) Official Sponsor

The Cedar Rapids Airport Commission is the official sponsor of this proposal.

d) Summary of Grant Request

The proposal requests $400,000 in grant funds from the Small Community Air Service Development (SCASD) program to recruit servic e by a low-fare carrier that is able to offer the community access to a comprehensive route network. The SCASD grant funds will be supplemented with up to $50,000 in local matching funds. These funds will be augmented with “in-kind” airport fee waivers and marketing having a value equating to approximately $100,000.OST-2011-0119 6

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# III. The Eastern Iowa Airport Market

Primary Catchment Area

The Eastern Iowa Airport (CID) serves a population of approximately 595,000 in Eastern Iowa, with an average household income of $56,880. The airport’s catchment area includes not only the City of Cedar Rapids but also Iowa City, home to the University.



# Primary Catchment Area

The Eastern Iowa Airport – Cedar Rapids

4

CID Catchment Area

The airport is conveniently located off Interstate 380, which runs north and south, and approximately 10 miles north of Interstate 80 which runs east and west.

The proximity to Interstate 80 would be beneficial to The Eastern Iowa Airport if not for the fact that this highway functions has a conduit of traffic leakage to Des Moines International Airport to west and Quad Cities International Airport to east. The resulting catchment area overlap is shown on the map on the next page and illustrates the concern that airline planning personnel have with respect the ability of Eastern Iowa Airport to retain traffic that is generated to and from

its core market area. 2

2 The issue of service deficiencies and traffic leakage are discussed in more detail in the next section of this proposal.OST-2011-0119 7

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 4

4

4 MLI DSM CID

Des Moines International Airport 

# Overlapping Catchment Areas

Iowa Interstate 80 Corridor

The Eastern Iowa Airport
Quad Cities International Airport

Quad Cities International Airport overlap with CID Des Moines International Airport overlap with CID

While airport management believes it can develop a compelling case for traffic retention, the SCASD grant funds for risk mitigation purposes requested herein will provide inherently risk adverse airline planning personnel with a higher comfort level when evaluating the market served by The Eastern Iowa Airport.



### CID Provides Air Service Access For A Strong and Diverse Economic Base

While the economy of The Eastern Iowa Airport catchment area has historically been defined by the manufacture and processing of agricultural and food products, steel fabricating, and electronics, in recent years this has been augmented by high-technology and transportation.

The Cedar Rapids-Iowa City "Technology Corridor" is the result of cooperation between a number of public and private organizations in t he airport’s primary catchment area. This has quickly positioned the region as a leader in the defense electronics industry, the fastest-growing segment of the CID catchment area economy being telecommunications and telemarketing. The recruitment of new industry and companies is s upported by local firms that provide services such as electronic design and consultation, sy stems planning, equipment manufacturing, and telemarketing.

While efforts to diversify the economy with technology have been successful, it is important to underscore that the region continues its historical role in agricultural and food processing. The Eastern Iowa Airport catchment area is home to more than 275 different manufacturing plants,OST-2011-0119 8

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program including Quaker Food and Beverages, Amana Refrigeration Products, General Mills, Inc., and H.J. Heinz Company.

The table below lists the largest employers (both public and private sector) within the primary catchment area of The Eastern Iowa Airport.



# Largest Employers in CID Catchment Area

Employer/Organization Approx # of
Employees University of Iowa 18,486 Rockwell Collins, Inc. 9,470 University of Iowa Hospitals 7,791

A EGON USA, Inc. 3,872 St. Luke’s Hospital 3,184 Mercy Medical Center 2,312 Whirlpool Corporation 2,225 Kirkwood Community College 1,895 Iowa City Community School District 1,676

Pearson Education 1,490

Veteran's Health Administration 1,351 Mercy Hospital, Iowa Cit y 1,266

A

CT, Inc. 1,254 Hy-Vee Food Stores 1,166 City of Iowa Cit y 1,140
Quaker Food and Snacks 1,018
Yellowbook US A 933

Nordstrom Direct 912

A lliant Energ y 820 Vangent 800 International Automotive Components 774
Procter & Gamble 696
General Mills Inc. 687
AP AC C us t omer S erv i ce 630

SOURCE: Priority One and Iow a City Area Development GroupOST-2011-0119 9

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program National publications are taking notice of the successful transition underway in the regional economy: Cedar Rapids and Iowa City were recognized as “Best Places for Businesses and Careers” by Forbes magazine’s “best of” list published in June 2011. Cedar Rapids ranked number 11 out of the nation’s 200 largest metropolitan statistical areas (MSAs) and Iowa City ranked 13 among smaller metros (i.e., population below 245,000). Moreover, Cedar Rapids was ranked number one for projected job growth by Forbes , with its economy expected to grow by more than 30% over the three year span 2011-2013.

While the “Technology Corridor” program can be viewed as a success, the key to this economic transformation realizing its full potential is reso lving air service deficiencies at The Eastern Iowa Airport. The SCASD grant funds requested in this proposal are specifically intended for this purpose and will help the airport’s catchment area maximize economic growth and

diversification.OST-2011-0119 10

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# IV. Air Service at The Eastern Iowa Airport

Current Service Levels

The Eastern Iowa Airport is served by three airline networks – United/Continental, Delta, and American- as well as less than daily service on Allegiant Air.



# Air Service at The Eastern Iowa Airport

September 2011

SOURCE: I nnovata, LLC via Aviation DataMiner Monthly
Departures Average
Daily Monthly

Seats Avg Daily Avg Per
Departure

American 332 11.1 15,598 520 47.0

DFW ER4 165 5.5 8,250 275 50.0
ORD ERD 167 5.6 7,348 245 44.0

Delta 244 8.1 12,200 407 50.0
DTW CRJ 105 3.5 5,250 175 50.0
MSP CRJ 109 3.6 5,450 182 50.0

ATL CRJ 30 1.0 1,500 50 50.0

United/Continental 325 10.8 17,914 597 55.1

DEN CR7 7 0.2 462 15 66.0
CRJ 23 0.8 1,150 38 50.0

E70 20 0.7 1,400 47 70.0

ER4 57 1.9 2,850 95 50.0
ORD CR7 17 0.6 1,122 37 66.0
CRJ 35 1.2 1,750 58 50.0

E70 44 1.5 3,080 103 70.0

ER4 44 1.5 3,080 103 70.0

IAH ERJ 48 1.6 2,400 80 50.0

Market Total 901 30.0 45,712 1,524 50.7 Carrier Dest Aircraft Departures Seats

The network carriers offer nonstop service to seven connecting hubs on regional jet equipment. Allegiant Air offers less-than-daily service to Las Vegas, Mesa/Phoenix, Orlando Sanford and Tampa/St. Pete. In total, travelers using The Ea stern Iowa Airport have access to average of 30.0 daily departures and 1,524 daily departing seats.

Service levels at The Eastern Iowa Airport have been relatively stagnant since 2004, as illustrated by the year-over-year comparison of CID service levels provided on the next page.

Note that the number of airlines has declined between 2009 and 2010 due to the combination of Delta and Northwest. This has resulted in the “new” Delta reducing its overall service levels at CID, including discontinuing nonstop service to its hub in Cincinnati.OST-2011-0119 11

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# Service Level Trends at The Eastern Iowa Airport

2005-2011

Sep 2005 Sep 2006 Sep 2007 Sep 2008 Sep 2009 Sep 2010 Sep 2011

Airlines 4 4 4 4 3 3 3 Nonstop Destinations 7 7 8 9 5 6 7 Avg. Daily Departures 39 38 38 35 32 27 30 Avg. Daily Departing Seats 2,055 1,860 2,032 1,815 1,691 1,446 1,524 Avg. Seats per Departure 53.0 48.9 53.2 51.8 53.1 52.7 50.7

SOURCE: Innovata, LLC via Aviation DataM iner

Note that average number of daily departing seats at CID has declined from 2,055 during September 2005 to 1,524 during September 2011, representing a decline of approximately 26 percent. This factor, along with a lack of capacity provided by low-fare network airlines relative to neighboring airports, results in significant average fare differentials for those travelers using The Eastern Iowa Airport and is a driver of traffic leakage. The SCASD grant funds requested in this proposal are intended to remedy this air service deficiency.



### Low Load Factors Indicate High Levels of Traffic Leakage

Despite the reduction in available seats, load factors on the service which remains at The Eastern Iowa Airport tend to be lower than industry averages. The graph below illustrates this point by providing load factors on regularly sch eduled service at CID for the year ending March
31, 2011.

77.5% 77.1% 77.8%

73.2%

68.7% 73.9%

60.0% 65.0% 70.0% 75.0% 80.0% 85.0% 90.0%

SOURCE: T- 100 f ilings via Aviation DataMiner 

# Load Factors at Eastern Iowa Airport

Regularly Scheduled Service: 12-Months Ending Mar 31, 2011OST-2011-0119 12

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program This data indicates that consumers in The Eastern Iowa Airport catchment area are responsive to low fares and will use their local airport when provided an affordable option. Otherwise, they seek out lower fares at neighboring Des Moines International Airport and Quad Cities International Airport, where a greater choice of airlines offers more nonstop destinations which, in turn, drives a more competitive market dynamic that results in lower fares. Both of these points are discussed in greater detail below.

The recruitment of additional service (and specifically low-fare service) facilitated by the SCASD grant funds requested in this proposal will provide consumers with additional capacity, frequency, access to the lower fares, and a greater choice of carrier brands. Furthermore, the addition of a low-fare network carrier at CID will drive a competitive response by incumbent

carriers so that more seats are made available at lower published price points. Ideally, this will result in higher load factors for all carriers serving The Eastern Iowa Airport.



### Service Levels at CID Lag Rela tive to Neighboring Airports

As indicated above, the stagnant service levels at The Eastern Iowa Airport and greater choice of carriers at Des Moines International Airport and Quad Cities International Airport are illustrated by two points. First, the neighboring airports offer more nonstop destinations and, second, both airports offer a higher number of average daily departing seats, of which a greater percentage of the total is provided by low-cost carriers.

These points are illustrated on the graphic on the next page.OST-2011-0119 13

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# Airport Service Levels

CID v Neighboring Airports: September 2011

The Eastern Iowa Airport

Des Moines International Airport

Quad Cities International Airport Number of Airlines: 3 Nonstop Destinations: 7 Average Daily Departing Seats: 1,524 % LCC Capacity: 0.0% Average Daily LCC Seats: 0

Number of Airlines: 6 Nonstop Destinations:12 Average Daily Departing Seats: 3,186 % LCC Capacity: 15.6% Average Daily LCC Seats: 498

Number of Airlines: 4 Nonstop Destinations: 8 Average Daily Departing Seats: 1,357 % LCC Capacity: 4.9% Average Daily LCC Seats: 66OST-2011-0119 14

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

### Significant Pricing Disparities Exis t Relative to Neighboring Airports

The lower levels of capacity, lower percentage of LLC seats, and smaller number of nonstop flights all contribute to higher average fares. This, in turn, contributes to higher levels of traffic leakage which in itself is an impediment to the recruitment of additional air service.

The table below illustrates the average one-way gross fare paid in the top 25 O&D markets for the 12-months ending December 31, 2010. 3 In 13 of the top 25 O&D markets, travelers at The Eastern Iowa Airport paid the highest average one-way gross fare. 

# Average OW Gross Fare – Top 25 O&D Markets CID v Neighboring Airports: YE December 31, 2010

Rank Market Psgr Gross Fare Psgr Gross Fare Variance

w/CID Psgr. Gross Fare Variance

w/CID

1 LAS 76,008 $146.92 99,650 $152.69 3.9% 25,149 $185.26

$272.90

$250.45

$250.67

$256.05

$273.61

$260.23

$269.62

$239.47

$291.45

$256.50

$255.45

$226.20

$305.89

$253.88

$271.77

$332.09

$353.91

$285.12

$225.03

$249.44

$261.19

$284.66

$213.51 26.1%

2 DFW 39,154 $245.48 47,053 11.2% 25,249 $217.27 -11.5%

3 DEN 29,478 $243.86 57,193 $215.33 -11.7% 21,770 2.7%

4 DCA 29,094 $202.68 44,772 23.7% 22,241 $166.46 -17.9%

5 PHX 20,126 $243.41 90,595 5.2% 20,618 $221.52 -9.0%

6 LAX 18,944 71,451 $170.06 -37.8% 16,228 $242.67 -11.3%

7 ORD 17,256 68,674 $251.28 -3.4% 4,488 $224.40 -13.8%

8 SEA 16,270 38,076 $197.96 -26.6% 16,814 $234.69 -13.0%

9 BOS 16,246 30,384 $225.09 -6.0% 17,134 $175.22 -26.8%

10 SFO 16,015 40,068 $219.13 -24.8% 10,866 $247.10 -15.2%

11 LGA 14,994 $246.00 43,330 4.3% 27,290 $152.71 -37.9%

12 PHL 13,924 $238.56 24,182 7.1% 12,016 $198.05 -17.0%

13 BWI 13,007 $208.17 19,497 8.7% 14,963 $162.29 -22.0%

15 SAN 12,469 28,771 $214.54 -29.9% 13,190 $250.82 -18.0%

17 EWR 12,403 26,921 $214.42 -15.5% 13,909 $192.54 -24.2%

18 MCO 12,078 96,341 $126.70 -53.4% 74,893 $137.65 -49.3%

19 DTW 11,102 15,355 $331.17 -0.3% 19,050 $225.48 -32.1%

20 IAH 10,738 $246.41 20,337 43.6% 12,801 $190.67 -22.6%

21 ATL 10,280 45,261 $216.61 -24.0% 74,160 $138.23 -51.5%

22 RDU 8,814 $200.98 16,798 12.0% 16,241 $169.17 -15.8%

23 TPA 7,382 17,512 $202.84 -18.7% 21,806 $157.58 -36.8%

24 FLL 4,235 21,567 $184.62 -29.3% 17,613 $167.33 -35.9%

25 RSW 3,754 13,124 $239.70 -15.8% 28,333 $152.33 -46.5%

413,772 976,911 $202.94 -5.0% 526,823 $171.69 -19.6% 

## MLI DSM

Total 

## CID

SOURCE: Aviation DataMiner

In those cases where DSM had the highest fare, such as LGA and DCA, this airport had the only nonstop service and airlines were able to extract a modest premium for the convenience of such flights. Overall, however, consumers us ing The Eastern Iowa Airport paid a premium of

3 Markets served with less-than-daily service by Allegiant Air (i.e., Orlando/Sanford, Mesa /Phoenix, St. Petersburg) have been

excluded.OST-2011-0119 15

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 5.0% over those flying from Des Moines International Airport and 19.6% over those flying from Quad Cities International Airport.

As the fare data illustrates, consumers in the Cedar Rapids area are being economically penalized when utilizing their hometown airport, effectively encouraging them drive to other nearby airports. This is resulting in a downward spiral of passenger enplanements that threatens future air service retention and recruitment efforts at Eastern Iowa Airport. The SCASD grant funds requested in this proposal are intended to meet this challenge by providing an adequate risk mitigation mechanism with which a low-cost network carrier can be recruited thereby encouraging a more competitive environment at Eastern Iowa Airport.



### Passenger Enplanement Trends at Eastern Iowa Airport

The final data point illustrating the challenges facing The Eastern Iowa Airport and supporting the need for the SCSAD funds requested in this proposal is the negative trend in passenger enplanements during recent years.

‐ 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

2008 2009 2010 YTD 2011 20,000 25,000 30,000 35,000 40,000 45,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2008 2009 2010 2011 

# The Eastern Iowa Airport Enplanement Trend

CY 2008- YTD 2011

Monthly Enplanements Annual Enplanements

As illustrated on the bar chart to the right, between 2008 and 2010 enplanements at The Eastern Iowa Airport have declined by 14 percent. More ominous, 2011 enplanements are below 2010 for every single month year to dat e. The SCASD grant funds requested in this proposal are intended to reverse this slide.OST-2011-0119 16

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

### Previous Air Service Development Ac tivities at Eastern Iowa Airport

The effort to recruit access to a low-cost carrier network with SCASD funds requested in this proposal is not the first or only efforts by The Eastern Iowa Airport to address the air service deficiencies or halt the slide in enplanements outlined herein.

The airport has a full-time marketing and communica tions staff member who continually pursues new air service, as well as communicates with potential customers via advertising, public relations, and social media. This includes specific activities aimed at making the airport more convenient than alternatives, including compliment ary Wi-Fi, valet parking, cell phone waiting lot, and Corridor Concierge/Information desk that provides information about Eastern Iowa. The airport also maintains on-going communication with incumbent and potential new carriers, attends multiple industry conferences and meetings, and engages in joint advertising efforts.OST-2011-0119 17

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# V. SCASD Grant Proposal

Summary of Grant Objectives

In this proposal, The Eastern Iowa Airport has clearly identified a quantifiable air service deficiency of the type that the Small Community Air Service Development Grant Program was intended to specifically to address.

Analyses conducted by The Eastern Iowa Airport indicate that the key to reversing the negative trends resulting from these deficiencies is to cr eate a more competitive dynamic by recruiting a low-cost carrier. Specifically, the airport seeks to recruit an LCC that can provide access to a comprehensive network, thereby spreading the impact of low fares across as many markets as possible. Within the present realities of the airline industry, however, airlines are reticent to initiate service to new markets without reasonable risk mitigation mechanisms, including fee waivers and funds to offset initial losses. Therefore, the SCASD funds requested in this proposal are essential to the airport reversing the negative trends of recent years.

The proposed mechanics of the application of the SCASD grant funds are outlined in the next section. Simply stated, the airport proposes to use the funds primarily as a back-stop to assure that the new service is successful, in the form of risk mitigation funds (i.e., a guarantee of minimum revenue levels). It should be noted that this will be based on a negotiated set of revenue and expense benchmarks, and is not a permanent subsidy, “travel bank,” or fare-offset.The region served by The Eastern Iowa Airport has a high potential to profitably support a lowcost carrier and risk mitigation funds will only be used if revenues fail to reach determined

levels.

It is noted that this approach has worked well in other grant awards, and it is possible that some or all of the SCASD funds requested herein may not be spent due to the market maturing quickly. In such an event, The Eastern Iowa Airport is committed to return such funds to the Department so that they can be used to assist other airports with similar challenges.



### Identified Potential Solutions

The Airport has identified the following carriers as t he most logical providers of such service:

• Southwest/AirTran Airlines to Milwaukee; or

• Frontier Airlines service to Milwaukee

The improved connectivity that these services woul d offer travelers in The Eastern Iowa Airport catchment area is illustrated on the maps on the next page.OST-2011-0119 18

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# Improved Connectivity via

Potential Network LCC Carriers

The Eastern Iowa Airport

SOURCE: Innovata, LLC via Aviation DataMiner 

## Milwaukee Hub

Milwaukee HubOST-2011-0119 19

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

# VI. SCASD Grant Administration Plan

The Eastern Iowa Airport is keenly aware that the Department has limited funds available under the Small Community Air Service Development program and, as such, it must award grant dollars where the ability to resolve a major air service deficiency on a sustainable level can be demonstrated. The airport believes that it has made such a case in this proposal.

If the Department acts favorably upon this proposal, The Eastern Iowa Airport is prepared to implement a detailed program ready to assure successful use of SCASD grant funds.



### Allocation of Funds

The funding required to implement the program her ein totals $550,000. The airport is requesting $400,000 from the Small Community Air Service Development Program, to be supplemented by up to $50,000 in matching community funds and $100,000 from the Eastern Iowa Airport in the form of in kind fee waivers and marketing supp ort. Specifically, the proposed distribution and

use of funds is as follows:

Project Component Funding Level Source of Funds % of Total

Risk Abatement $400,000 SCASD 73% Marketing Support $50,000 Community Funds 9%

Fee Waivers $100,000 Airport - In Kind 18%

TOTAL $550,000 100%



### Revenue Performance Guarantee

The majority of SCASD funds requested in this proposal – $400,000 – will be made available as a risk-mitigation mechanism to incubate new service. Upon grant approval, The Eastern Iowa Airport will immediately initiate discussions with the targeted carriers identified in this proposal

The purpose of these negotiations will be to stipulate the performance guarantees of the carrier in exchange for eligibility for performance guarantee funds. At a minimum, these discussions will include the following:

• Revenue and operating expense expectations for t he new service will be based on the level of service provided (frequencies, equipment, schedule, etc.);

• Fares to be offered that approximate those available at the neighboring markets of Des Moines and/or Quad Cities, including availability of fares in lower priced “buckets”;

• Schedules timed for maximum connectivity t hereby maximizing the number of markets impacted by low-fares;

• On-time performance and completion rates will be consistent with the carrier’s system wide

averages;OST-2011-0119 20

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program • Credit of all local revenues to the CID market;

• An acceptable percentage of revenues for connecting passengers beyond the connecting hub credit to CID according to a methodology agreed upon between the airport and airline, but most likely following an industry standard square root of mileage based formula; and

• The carrier will serve the route for the duration of the term that SCASD funds are available, allowing sufficient time for the route to achieve profitability.

Based on these criteria, operating expenses, revenue, and performance will be monitored and reported on a monthly basis, to provide input regarding remedial local marketing activity or feedback to the carrier to address service shortfalls, if any. Preferably, the determination of whether risk mitigation payments are necessary will be accomplished at the end of each
quarter.

Prior to executing any agreement The Eastern Iowa Airport will provide the revenue guarantee documents to Department staff for review and approval.



### Marketing Activities To Support New Service

While The Eastern Iowa Airport believes that new service from a low-cost carrier will be well received and supported by the community, it is clearly understood that public awareness and advertising activities will be a critical element in ensuring the new flights become self-sustaining over the long-term.

Of the cash funds in this proposal, $50,000 has been budgeted for this purpose, including the following elements:

• A marketing campaign in the Cedar Rapids and Iowa City region promoting the new service to include radio, print, and outdoor media;

• Effective use of the airport’s existing social media channels, including Twitter; and Facebook

• Public relations and communications activities that utilize the local media as an additional outlet for increased public awareness.

The Eastern Iowa Airport will complete and submit to the Department a detailed budget for these activities, based on a planned 12-month program, a fter consultation with the carrier that is recruited using SCASD funds. The airport feels t hat such as step is necessary to develop a strong partnership with the carrier and minimize duplication of efforts. Airport management will then monitor all expenditures and provide the Department with a quarterly accounting, along with the Department’s prorated share of the expenses.OST-2011-0119 21

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 

### Progress Reports to DOT

The Eastern Iowa Airport will provide the Department with progress reports on the marketing expenditures, and airline operational performance on a quarterly basis, unless the Department requires a different schedule.



### Program Duration

The grant under this proposal requested for a period of one year from the date service commences. The Eastern Iowa Airport agrees that any unused funds not applied toward marketing or revenue guarantee during this period will be relinquished to the Department.



### Market Support Beyond Term of Program

The Eastern Iowa Airport believes that the recruitm ent of low-cost carrier service facilitated by the grant funds in this proposal will be supported by the community and achieve self-sufficiency during the term of this program.

Nonetheless, it is possible that factors outside the direct control of either the airport or the carrier could impact route performance, and prevent service at CID from achieving forecasted performance. Examples of such events are economic recession, volatility in oil prices, airline bankruptcies, labor actions, and terrorist attack (or threat thereof). 4 Should this occur, the management team at The Eastern Iowa Airport is prepared to assist the carrier with marketing support and other assistance, to be developed in cons ultation with the carrier, to ensure service continues beyond the term of this program.

4 It is noted that risk of such occurrences, regardless of how slight, are the driver behind air lines increasingly requiring ris k mitigation and/or fee waivers to initiate new service, particularly in sma ller markets such as that served by The Eastern Iowa Airport.OST-2011-0119

Proposal of The Eastern Iowa Airport for a Grant Under the Small Community Air Service Development Program 22



# ATTACHMENT: Appendix CAPPENDIX C Page 1



### SMALL COMMUNITY AIR SERVICE DEVELOPMENT PROGRAM

DOCKET OST

- 2011

- 0119

SUMMARY INFORMATION

All applicants mus t submit this information with their proposal , along with a completed form SF424 on http://

www.grants.gov.



### A. APPLICANT INF ORMATION: (CHECK ALL THAT APPLY)

X Not a Consortium ⁭ Interstate Consortium ⁭ Intrastate Consortium

⁭ Community now receives EAS subsidy

X Community (or Consortium member) previously received a Small Community Grant

If previous recipient : Date of Grant: August 29, 2006 E xpiration d ate of grant: August 29, 2009



### B. P UBLIC /P RIVATE P ARTNERSHIPS : (L IST ORGANIZATION NAMES )

Public Private

1. Cedar Rapids Airport Commission 1.______________________________________

2. State of Iowa, Office of Aviation 2._______________________

_______________ 3.___________________________________ 3.______________________________________
4.___________________________________ 4.______________________________________
5.___________________________________ 5._______________

_______________________



### C. P ROJECT P ROPOSAL : (CHECK ALL THAT APPLY)

X Marketing ⁭ Upgrade Aircraft X New Route

⁭ Travel Bank ⁭ Service Restoration X Subsidy

⁭ Surface Transportation ⁭ Regional Service X Revenue Guarantee

X Launch New Carrier ⁭ Start Up Cost Offset ⁭ First Service

⁭ Study X Secure Additional Carrier ⁭ Other (explain below)

_________________________________________________________________________________________________

______________________________________________________ ___________________________ ________________APPENDIX C Page 2

⁭



### D. E XISTING L ANDING A IDS AT L OCAL A IRPORT:

X Full ILS X Outer/Middle Marker X Published Instrument Approach

X Localiz er X Other (specify ) (PAPIS, MALSR)



### E. PROJECT COSTS: DO NOT ENTER TEXT IN SHADED AREA

LINE DESCRIPTION SUB TOTAL TOTAL AMOUNT

1 Federal amount requested $400,000

2 State cash financial contribution $ 50,000

Local cash financial contribution

3 a Airport cash funds N/A

3b Non

- airport cash funds N/A

3 Total local cash funds ( 3a +3b ) N/A

4 TOTAL CASH FUNDING ( 1+2+3 ) $450,000

In

- Kind contribution

5a Airport In

- Kind contribution** $100,000

5b Other In

- Kind contribution** N/A

5 TOTAL IN

- KIND CONTRIBUTION ( 5a + 5b ) $100,000

6 TOTAL PROJECT COST (4+8) $550,000



### F. IN

- KIND CONTRIBUTIONS**

For funds in lines 5a (Airport In

- Kind contribution) and 7b (Other In

- Kind contribution), please describe the source(s) of fund(s) for each.

La nding fees waivers

, terminal building rental reductions , and marketing supportAPPENDIX C Page 3



### G. IS THIS APPLICATION SUBJECT TO REVIEW BY STATE UNDER EXECUTIVE ORDER 12372 PROCESS?

⁭ a

. This application was made a vailable to the State under the Executive Order 12372 Process for review on

(date)

___________________.

⁭ b. Program is subject to E.O. 12372, but has not been selected by the State for review.

X c. Program is not covered by E.O. 12372.



### H. IS THE APPLI CANT DELINQUENT ON ANY FEDERAL DEBT? (IF “YES”, PROVIDE EXPLANATION)

X No ⁭ Yes (explain)

________________________________________________________________________________________________________________

___________________________ ______________________ _________________________________________