1 | Page August 25 , 20 1 0

Subject: Proposal under the Small Community Air Service Development Program

Docket OST

- 20 1 0

- 01 24

Telluride Regional Airport Authority, San Miguel County, Colorado

Duns Number

– 180571739

Town of Telluride/Town of Mountain Vill age/San Miguel County

Telluride Montrose Regional Air Organization/Marketing Telluride Inc.

Dear Ms. Ley:

Accompanying this letter is the Telluride Regional Airport’s Small Community Air Service Development

Program grant application. Our application ha s a well thought

- out plan, proactive community

involvement and a realistic timetable. The plan proposes a comprehensive strategic plan to add

additional air carrier service and increase frequency of service and available seats to meet demand at

the Telluri de Regional Airport.

This proposal will address the fact that Telluride lacks consistent competitive airline service of more than

one carrier serving the Telluride Airport for most of the calendar year ; which contributes to airfares

much higher than those experienced by the majority of airports serving the national transportation

system. Additionally the Telluride flight schedule lacks a flight which will connect to eastbound air

service from a hub airport that can arrive before about 10pm on the east coas t

. This impacts

enplanements to the Telluride Airport and adds to leakage to other regional airports quite a drive away

from Telluride

Telluride Airport’s application meets the program priorities as established by the Secretary of

Transportation (Order 2 0 1 0

- 7

- 1 6 ):

A. The Plan proposed will meet the communit y goals of improving air service access and

create competition to help pressure lower fares. Additionally it will help diminish local and

destination traveler’s needs to drive to alternate airports when trying to travel to or from the

Telluride region that are a long distance away in order to find competitive airfares or

convenient flight schedules

.

B. The Telluride community will fund 3 3 % ( $ 2 0 0,000) of the total proposed air service program

in the form of cash and in

- kind services 2 5 % ($ 1 00,000) of the total plan cash requirement is

from non

- airport or grant fund sources.

C. The community will be working with an experienced public organization focused for years on

air service development (Telluride Montrose Regional Air Organization a 501c6 Non

- Profit2 | Page formed in 2004) as a part of a diverse public

- private partnership committed to completing

the proposa l submitted herein.

D. This proposal includes a thorough market analysis.

E. The proposed service would provide material benefits to a wide segment of the remote

Telluride Community including to the tourism industry, local businesses competing o n a global

basis, local resident travelers and other enterprises whose access to the national

tra nsportation system is limited by the Telluride Regional Airports present air service

condition.

We appreciate the US Departme nt of Transportation’s understanding of the importance of commercial

air service in smaller and more remote communities like Telluride and look forward to your review of

our Small Community Air Service Development Program Grant Application.

Sincerely,

Ri ch Nuttal

Airport Manager, Telluride Regional Airport3 | Page 

## Table of Contents

Proposal Highlights

Limited Service with High Fares Pg. 6

Challenged to attract Aircraft Equipment Eligible to Fly to Telluride Pg. 7

Airport improvements expa nd Aircraft Eligibility by Fall 2011 Pg. 7

Une ven Passenger Demand Pg. 7

Well Considered Plan with a realistic Timeline Pg. 8

Active Community Involvement and Financial Support Pg. 9

Material benefits to overall population Pg. 9

Air Service Environment

Telluride Airport’s Catchment Area Pg. 9

Catchment area proximity to other Airports (Leakage) Pg. 10

Home to Telluride Ski Resort/Close to National Parks Pg. 1 0

Important to Tourism Reliant Economy Pg. 1 0

Air Service Existing and Historical

Existing Air Service Pg. 1 1

Historical Air Service Pg. 1 3

Past Air Service Development Efforts Pg. 15

Air Service Deficiencies and Needs

Only One Year

- round Carrier Pg. 1 6

High Airfar es Pg. 16

C ircuitous Routings Pg. 16

U nderserved Markets Pg. 17

Strategic Plan

– Air Service

Project Goals Pg. 17

Proposed Air Service Pg. 17

Airline Participation Pg. 18

Market Analysis Pg. 19

Alternate Plan Pg. 21

Strategic Plan

– Implementation and Funding

Public/Private Partnership Pg. 21

Incentive and Support Plan Pg. 21

Strategic Plan Funding Pg. 2 4

Project continuation and sustainability Pg. 2 5

Schedule and Monitoring

Milestones Pg. 25

Monitoring Pg. 25

Appendix A. Airline and Community Support Pg. 2 74 | Page Summary Information

A. Applicant Information: (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, expiration date of grant: Received 2002/Expiration 2004

B. Public/Private Partnerships: (List organization names)

Public: Private:

1. Town of Telluride 1. Telluride Montrose Regional Air Organization

2. Town of Mountain Vi llage 2. Telluride Ski Resort

3. Telluride Regional Airport Authority 3. Telluride Alpine Lodging

- Telluride

4. M arketing Telluride Inc. 4. Franz Klammer

– Telluride

5. San Miguel County 5. Mountain Lodge

– Mountain Village

C. Project Proposal: (Check All That Apply)

X _ Marketing

_ _ Upgrade Aircraft X_ New Route

__ Personnel X_ Increase Frequency X_ Low Fare Ser vice

__ Travel Bank __ Service Restoration __ Subsidy

__ Surface Transportation X_ Regional Service

X_ Revenue Guarantee

_ _ Launch New Carrier

X_ Start

- up Cost Offset __ First Service

__ Study X_ Secure Additional Carrier

__ Other

D. Existing Landin g Aids at Local Airport:

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

X _ Localizer __ Other

E. Project Costs:

1. Federal Amount Requested: $ 4 00,000

_________________________ 2. Total Local Cash Financial Contribution: $ 1 0 0,000

_____ ____________________ 3. Local Cash Financial Contribution:

3a. Airport Cash Funds: $ 0

__________________________ 3b. Non

- Airport Cash Funds: $ 1 00,000

_________________________ 3c. Total Local Cash funds (3a. +3b.): $ 1 0 0,000

__________________ _______ 4. TOTAL CASH FUNDING (1.+2.+3c.): $ 50 0,000

_________________________ 5. Local funds contributed from already

- existing

programs or projects included in line 3c. amount: $ 1 0 0,000 *

________________________ 6. Local funds contributed from new co mmitments

or new resources i ncluded in line 3c. amount: $0 *5 | Page 7. Airport In

- Kind contribution: $ 0

______________________________ 8. Other In

- Kind Contribution: $100,000

– Local Tourism/Hotels Marketing Support

9. TOTAL IN

- KIND CONTRIBUTI ON (7. + 8.): $100,000_______________________________

10. T OTAL C OST OF PROJECT (4. + 9.) : $ 60 0,000

__________________________ _____

F. Enplanements:

2000__ 17,125

___ 2004 __19

, 736___ 2008 __13, 325

___ 2001__ 18,754

___ 2005 __19

, 596___ 2009

__ 7007_

___ +

20 02__ 18,338

___ 2006 __17,529___

2003__ 15,750

___ 2007 __17,537___

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

__ a. This application was made available to the State under Executive Order 12372 Process

for review o n (date) _________.

__ b. Program is subject to E.O. 12372 but has not been selected for State for Review.

X

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

H. IS THE APPLICANT DELINQUENT ON ANY FEDERAL DEBT? (IF “YES’, PROVIDE EXPLANATION)

X _ No __ Yes (explain ) _____________________________________________

*TMRAO Funds are derived about 65% from a 2% lodging and restaurant tax in the towns of

Mountain Village and Telluride and 35% from annual individual contributions. In essence TMRAO

has a permanent funding me chanism in place to provide the local funding support for its air service

development efforts and this grant request , although new funds come in every year via the

voluntary individual contributions

.

+Telluride was closed from April 7, 2009

– November 3, 2009 for runway construction work . It is a

one runway airport which impacted normal enplanements in the 2009 calendar year.6 | Page 

## Proposal Highlights:

Telluride Regional Airport in conjunction with the Telluride/Montrose Regional Air Organization

(TMRAO ) is applying for the Small Community Air Service Development Program grant for $ 4 00 ,000. The

community match will be $ 2 0 0 ,000 in cash and in

- kind contribution . This money will be used to increase

airline service and airline service competition to the Tell uride Regional Airport. The Project goals are to:

- 1 st Objective: Obtain a new 2 nd Summer Air Service and carrier via a different hub airport

than is presently serv ing Telluride. This service will provide feed into the nation al

t ransportation system

, on one of the limited aircraft types that qualifies to fly commercially

into the Telluride Regional Airport.

- Reduce the high airfares into the Telluride Regional Airport in summer via creating more

competition in the marketplace.

- 2 nd Objective: Improve air flight schedules to meet demand for a morning flight to a

connecting hub heading east that would allow passengers to arrive back on the east

coast at a more reasonable hour (5p

- 6p) than the present post 10pm a rrival time via

these connecti ons . This would also r educe the need for air travelers to drive long

distances to access air service at competitive airfares.

The S trategic Plan to accomplish the project goals is to do the following:

+ Objective One: Add summer service from Telluride on a 2 nd carrier via a hub airport

(USAirways is the number

- 1 priority) during the summer and expand the period Telluride has

service with two carriers to about 7 months. ( Note: Market and carrier optio ns are limited

due to the limited number of airport that can operate commercially into Telluride)

+ Objective Two: Add a Telluride to Denver flight that departs earlier in the day on a carrier

that flies to a connecting hub that can get passengers back in a more reasonable time of day

(5p

- 7p). Denver would be the first priority for hub with Great Lakes/United the first priority

carrier option, other United Codeshare/United 2 nd priority and other carrier/hub final priority

of service that can meet earlier east coast arrival goal.

Limited Air Service that has been declining... with High Airfares

Presently, Telluride is limited to 2X daily service to Denver on Great Lakes airlines year

- round and 2X

daily serv ice to Phoenix on US Airways in winter (Mid

- December to End of March)

. Additionally, flight

schedules tend to occur during the middle of the day when airlines tend to have more aircraft available,

making it difficult for local business flyers to efficient ly complete business trips

. Business and leisure

flyers heading to the East Coast often see post 10pm arrivals based on present flight schedule available

connecting times (And sometimes have to overnight for some markets)

. Due to the limits on Telluride7 | Page ai rline service due to operational conditions (90 7 0 foot plus high runway elevation/7 111 foot long

runway) and the limits on flight schedules

, approximately 60% of Telluride Catchment area travelers fly

out of other airports. This often means driving long di stances over rural mountain roads to get to

alternate airports to gain access to flight times that work and competitive fares to/from the region.

Alternate airports that draw significant travelers from Telluride include: Montrose (1 Hour/20 Minutes),

Grand Junction (2 Hours/30 Minutes) and even Denver (6 Hours/30 Minutes).

The combination of one carrier service for 75% of the year which limits competition, limited flight

schedules and circuitous routings often with multiple air carriers

, causes the high per centage of leakage

and high airfares from the Telluride Regional Airport.

Challenged to attract aircraft equipment eligible to Fly to Telluride

The Telluride Regional Airport (TEX) has unique air service needs. Telluride is the highest commercial

airport in the United States (Elevation 9.07 0 ’) that has a part 139 operating certificate. The airport

category is B

- 3 which presently limits the commercial air service to a few very specific turbo

- prop

aircraft that typically can only fly to/from a short range

. This limits the hub airports and airlines that can

be sought to provide air service to Telluride. Telluride has dropped from a high of almost 28,000

enplanements over 10 Years ago to around 13, 999 in 2008 due to the aircraft limitations which in t u rn

have limited schedules, competition and raised airfares. Presently the forecast is for Telluride to just

barely achieve 10,000 enplanements in 2010. The limitation on aircraft type s that can fly to Telluride

a lso limits commercial air service retention... particu larly as aircraft are retired and airlines are trending

to wards a reduc tion of regional oriented service due to high fuel costs that make it more difficult to

profitably operate.

Airport improvements expand access to qualified aircraft by Fall 2011

The Telluride Regional Airport is presently in the process of an airport runway improvement project.

Phase I of the projected was completed in 2008, Phase II was started the spring of 2009 and completed

in October 2009. This required a runway closure during th is period (Telluride is a one runway airport)

. The last phase of this project ha s recently begun and is scheduled for completion in November 2010

. This last phase will require much shorter runway closure periods

.

When this project is completed Telluride’s classification will change from a B

- 3 airport to a D

- 3 airport.

Upon a pproval of C & D approaches t his will open up Telluride to new aircraft that can operate here on a

commercial basis including the Q

- 400. Commercial airline s ervice will

, however, remain limited to mostly

regional service within a maximum 600

- 650 mile distance from Telluride at best.

Uneven passenger travel demand

Another challenge to commercial air service to Telluride is that Telluride is a heavy leisure travel

destination with an unev en passenger demand when looking at this demand throughout the year

.8 | Page Telluride sees the greatest amount of travelers during the winter and to a lesser extent the summer due

to skiing in the winter and other outdoor recreational opportunities in the summer. Spring and fall see a

drop

- off on traffic demand which adds to the challenge of getting new air service and retaining present

air service. The Telluride Montrose Regional Air Organization (TMRAO), a partner in this grant request

with the Telluride Regiona l Airport Authority, has been successful in the past years via air guarantee

programs in attracting and retaining air service. TMRAO (A multi

- community member 501c6 Non

- profit)

would provide the local air guarantee match to the federal grant to help acquir e new air service to

create more competition at the Telluride Regional Airport , improve flight times on current air service

particularly for east bound travelers or extend present service with USAirways by adding summer airline

service in addition to the w inter service presently operating successfully on a revenue guarantee

.

Well considered plan with a realistic timeline

Our strategic plan to meet our goals is designed to obtain an early morning outbound flight via a hub

airport with many connections into the national transportation system and a second carrier for summer

service to provide competition and help lower airfares. The primary targeted service

, in order to add an

early morning flight summer and winter seasons

, is with Great Lakes Aviation /United from Telluride to

Denver. Our alternate plan s would be to obtain an early morning flight with another United operated or

code

- share flight from Telluride to Denver or any eastbound carrier that could provide a connectable

flight from Telluride that could g et business and leisure travelers to major mid

- west and east coast cities

at reasonable times on the same date of departure. The primary targeted service in order to add a

second summer service carrier is with US Airways from Telluride to Phoenix. Our alte rnate plan is to

attract a 2 nd summer service on another carrier (Not Great Lakes/United) that can provide many

connections via a hub airport

. These targets take into consideration the limited aircraft type options and

thus the limited air carrier and mark et options. Key components of the strategic plan include the

following:

**•** Revenue guarantee and marketing plan to offset new service start

- up and to give time and

focus to capture present traveler leakage and mature market for visiting destination guests

.

**•** An in

- depth market analysis including historical data indicates a profitable and sustainable

effort after initial two to three year ramp

- up period

.

**•** Grant funds will be used in a timely manner

**•** The local community is committed to seeing this project succeed on service it has been

working to obtain over the past few years and is a financial stakeholder.

Active community involvement and financial stakeholder

The Telluride Montrose Regional Air Organization (TMRAO) is the main community funding partner and

focuses on stimulating the regional economy by increasing air service to meet the growing demand for

travelers to and from the region and the region’s airports in Telluride and Montrose. TMRAO has utilized

air service guarantee programs and marketing support to m eet these goals.9 | Page Contributing members of TMRAO include:

**•** All Hotels and Restaurants in the Town of Telluride (About 50)

**•** All Hotels and Restaurants in the Town of Mountain Village

(About 50)

**•** Telluride Ski Resort

**•** More than 70 additional voluntary air service program

contributing businesses

**•** City of Montrose

**•** Town of Telluride

**•** Town of Mountain Village Telluride Ski and Golf and the local

convention and visitor’s bureau

(Marketing Telluride Inc &

Montrose Visitors Bureau) are

major supporters of the air service

by their marketing of the local air

service. These agencies/businesses

are supported in marketing the

local flights by many lodging and

other businesses in the region.

Seeing that air service at the Telluride Regional Airport stimulates economic activity in the area of over

$140 Million Dollars* the local community is very much behind sustaining and growing air service to

help facilitate a healthy local economy. Adding service that can help diversify the local economy which is

predominately tourism based is another focus of the community support.

*Based on a 2008 economic impact study by the Colorado Department of Transportation

– Aeronautics

Division conducted by Wilbur Smith Associates.

Material benefits to overall population

The addition of a n early morni ng flight to a hub city will benefit the overall traveling public; including

local businesses competing in the national and global marketplace, independent entrepreneurs and

consultants and visitors who need to travel back east and get back at a reasonable time on the same day

for business and/or personal business. A second carrier service in the summer will be a benefit for

visitors and locals alike in that the increase in air service competition will help drive down excessively

high airfares at the Tellur ide Airport . Both improved access and lower airfares will benefit a diverse

remote local population of about 35 ,000 who presently often have to travel long distances over rural

mountain roads when they drive to alternate airports that can provide better ac cess and fares.

Additionally, due to the high local economic activity driven by air service, increasing air service to

Telluride and it’s usage by visitors to this tourism destination also provides a critical economic benefit.



## Air Service Environment

Tellu ride Airport Catchment area

The Telluride catchment area includes all of San Miguel County as well as West Montrose County, West

Ouray County and Dolores County. Surrounding area catchment populations include: San Miguel County

(7684), Montrose County (40 ,263), Ouray County (4510) and Dolores County (1937). An additional

45,000 travelers and other communities also benefit economically from the Telluride air service when

considering the flow of economic benefits through

- out the region

. The City of Montrose, for example

fills the role of a service center for Telluride and San Miguel, Ouray, Montrose and Dolores Counties all

provide employees who work in Telluride (About 80% of the workforce per the US Census Commuter

Shed Report)

.10 | Page Catchment area proximity to other airports

Based on a 2008 airport survey and 2009 local resident s survey, passenger leakage is estimated at 60

percent of the Telluride Catchment area. Being located in a rural mountain community does not provide

an easy drive for residents and visito rs alike and the leakage occurs due to the much higher than

average airfares and choice of airlines and schedule convenience at Telluride vs. other airports . Of the

divert ed passengers, it is estimated that 40% use the Montrose Regional Airport (1Hr 20Min away), 30%

use the Grand Junction Airport (2Hr 30Min Away) and 25% use the Denver International Airport (6Hr

30Min Away). An additional 5% use multiple other airports that are from 1Hr 30Min to over 8Hr away.

The top three reasons for local residents usi ng

other airports include:

1) Airfare (59%),

2) Airline Schedule (20%) and

3) Direct Flight Availability (11%) When local flyers were asked to use the Telluride

Airport more often, (92%) said they would if prices

were lower, (26%) said they would if Fli ght times

were more convenient. When the question was

a sked what desired changes the local residents

would like to see at the Telluride Airport (80%) answered lower airfares, (58%) answered more non

- stop

destinations and (38%) answered better flight sch edules and more choice of airlines.

In the winter, (93%) of the users of the Telluride Airport are visitors or part

- time second homeowners. In

Summer (91%) of the users of the Telluride Airport are visitors or part

- time second homeowners. (59%)

of these travelers in the winter cited convenience as the main reason for selecting Telluride when flying

to the region in the winter and this goes up to 74% in the summer. Price/Value is the least cited reason

followed closely by availability/selection of flights.

The results of the various surveys of local flyers and guest flyers clearly indicates that lower airfares and

more choice in convenient flight schedules and air carriers would lead to increased usage of the

Telluride Regional Airport.

Home to Telluride Ski Resort and Many National Parks and Wild Life Areas

Telluride is home to the world class Telluride Ski Area and a short driving distance from many national

parks and wildlife areas including: Mesa Verde National Park and Black Canyon of the Gunnison Nat ional

Park. Telluride itself is located in a beautiful box canyon and attracts many visitors year

- round with its

outdoor treasures including hiking and mountain biking trails and gold metal waters for fisherman.

Air Service

– Important to Tourism Reliant Economy

Tourism plays a key role in the economy of the Telluride Region. It is estimated that 65% of the

employment in Telluride is driven by Tourism. Additionally, many full

- time and part

- time local residents

work for national companies or have self

- empl oyed businesses that require travel to their client base

great distances away from Telluride. For these established business sectors improved air service that is

more accessible and convenient and offers more options for more periods of the year is critica l. It is also

felt that improving air service access from this remote rural mountain region is critical to diversifying the11 | Page local economy. Without major highway access, Telluride, due to its geographic isolation is very

dependent on the local airport for b oth visitor and local resident transportation needs. Many assume

Denver (6 Hr 30Min from Telluride) is the closest major Metropolitan area to Telluride when in fact

Albuquerque (6 Hr from Telluride) is. When Tourism makes up 65% of your economy and the dri ves are

long and on non

- super highway roads, air service remains critically important.



## Air Service

– Existing and Historical

Existing Air Service

Non

- Stop Marketing Weekly Weekly Connecting

Season Destination Carrier Aircraft Departures Seats Desti nations

Spring/Fall Denver Great Lakes B1900 14 266 140

Summer Denver Great Lakes B1900 14 266 140

Winter Denver Great Lakes B1900 14 266 140

Winter Phoenix US Airways Dash 8 14 518 72

As you can see, airline service is completely offered by small tu rboprop aircraft at this time. This is due

to limitations on aircraft that can qualify to fly into the Telluride Regional Airport. With the completion

of the Telluride Regional Airport Runway project (Pr o jected in the late f all of 201 0 ) the classification of

the airport is expe cted to change to a D

- 3 status. This will open up the aircraft type s we can pursue air

service to Telluride to include the Q

- 400 Turboprop aircraft which has a seating capacity of (74 )

. Additionally, other aircraft types may become m ore economically viable as the changes will improve

operating characteristics that will reduce limits (Mainly Weight Restrictions) on the present aircraft

operating thus making this service a little easier to gain and/or sustain.

Air Service Development

– Presently Restricted

Due to the limits of commercial aircraft qualified to fly to Telluride; and because these aircraft have a

small flight distance range, Telluride is very limited as to the operators , markets and aircraft it can try to

attain to improv e its air access into the national transportation system. Due to these limitations, airline

revenue guarantees are critical to the efforts to acquire the new airline service and to place Telluride in

a more competitive position for air service with the ope rating carriers. Essentially, Telluride is limited to

at most about a 600

- 650 mile range and 3

- 4 aircraft types that can operate commercially into Telluride

from this range. Only 3 connecting hub airports meet this set of criteria (Denver/Phoenix and Salt Lake

City) and only 2 of these (Denver/Phoenix) have a hubbing carrier with the aircraft type that can fly into

Telluride in the summer. Presently, only one market and carrier (Denver/Great Lakes

- United) has service

in the summer.

Lack of Diversity of Air Service and High Fares

At one time, the Telluride Regional Airport had operations with three different air carriers and was

producing nearly 28,000 yearly enplanements (1994) . While these flights were full and profitable

, changes by airlines in their rout e networks and the retirement of aircraft like the Dash 7 have12 | Page contributed to the decline in qualifi ed aircraft that can operate to Telluride. With this reduction in air

service and thus competition between multiple carriers

, this has contributed to Tellur ide’s much higher

than average airfares and enplanements dropping to about 1 3 ,000 yearly about two years ago and

perilously close to being under 10,000 enplanements the last year or two

.

Fared Avg Fared Avg Fared Avg Fared Avg

Airport Fare 2009 Fare 2008 Yield 2009 Yield 2008

Telluride $282.06 $285.80 27.02 Cents 27.15 Cents

Total NW Region Airports $167.98 $169.07 13.72 Cents 13.81 Cents

Telluride vs. NW Region + 67.91% + 69.04% + 96.94% + 96.60%

The table above shows a Mead/Hunt study of the Northwest Region that Telluride is a part of. Telluride

has airfares that are more than 67% higher than the average airfares in the region and yields that are

more than 96% higher...almost double those of other regional airports. Even when compared against

those airports of a similar enplanement size Telluride airfares are high (See Chart Below) :

**Year Ended

- March 31 Pax Pax Fared

Avg Fared

Avg

2009 2008 Fare 2009 Fare 2008

Riverton WY 15840 16030 $221.92 $221.24

Friday Harbout WA 12820 5560 $45.54 $39.38

Cheyanne WY 12810 16520 $214.55 $191.62

Port Angeles WA 11370 4930 $46.50 $46.50

Telluride CO 11280 13480 $282.06 $285.50

Seattle Lake Union WA 11180 2940 $52.74 $52.46

Salem OR 10930 16590 $181.84 $204.18 It should be noted that

of the 74 Markets with

commercial air service

in the Northwest

Region only Butte,

Montana had higher

average airfares than

did Telluride in 2009 in

the Northwest Region.

USAirways Great Lakes USAirways Great Lakes Total Increase Summer

Carriers Mkt Share Mkt Share Avg. Fare Avg. Fare Avg. Fare 08 vs. 04 vs. Winter

Summer 2008 Great Lakes 0% 100% n/a $416.58 $416.48 19.34% 30.83%

Summer 2004 Great Lakes/USAir 24.43% 75.57% $236.08 $398.00 $348.99 13.42%

Winter 2008/2009 Great Lakes/USAir 50. 37% 49.63% $276.93 $357.57 $318.33 3.46%

Winter 2004/2005 Great Lakes/USAir 39.87% 60.13% $261.81 $341.95 $307.69

The above table tracks the 2008 and 2004 summer and winter season’s market share and average fare.

In the winter in both 2004 and 2008 there were (2) different airlines serving (2) different no n

- stop hub

markets that connected with many cities in the national transportation network. Despite cost and other

increases that drove up average airfares there was only a $10.64 (3.46% In crease) in the average airfare

during the winter season when there was some competition. In the summer, however, when there was13 | Page a shift from (2) different air carriers in 2004 to one in 2008 the average fare in 2008 saw an increase of

$67.49 (19.34% Increa se).

**Year Ended

- March 31 Pax Pax Fared Avg Fared Avg

Neighboring Airports 200 8 200 7 Fare 200 8 Fare 200 7

Grand Junction 201500 157040 $202.11 $230.83

Montrose 82010 87350 $223.16 $230.25

Telluride 11280 13480 $282.06 $285.50

Durango 129680 1 03400 $212.07 $249.71

Cortez 7160 10260 $188.24 $180.92 The chart to the left

shows how Telluride

compares in average

fare to neighboring

airports. Telluride is

as much as 50%

higher in airfare

(Cortez).

With the above noted airports in the chart being within 1hr 30min to 2hr 30min drive...these airports

become very viable alternatives to Telluride (Particularly Spring through Fall when the weather doesn’t

impede driving on the rural roads as much ) because of their lower airfares . It should be noted that the

two regional airports that saw increases in the number of airlines operating and available seats from

2007 to 2008 ( Grand Junction /Durango), also saw average airfares decrease the most and passenger

enplanements increase the most.

Historical Air Service

Air service over the past fifteen years has declined to an enplanement level of less than half of what it

was in 1994. This trend has continued over the last five years with acceleration over the last t hree years

with Great Lakes Aviations reductio ns to their peak winter/summer schedule of flights from Denver

(They have reduced service to Telluride

– A Non

- EAS City in order to take on additional EAS Routes &

Subsidies)

.

Year Enplanements %

Change

2000 17125

2001 18754 9.51%

2002 18338

- 2.22%

2003 15750

- 14.11%

2004 19736 25.31%

2005 19596

- 0.71%

2006 17529

- 10.55%

2007 17357

- 0.98%

2008 13999

- 19.35%

2009 7007

- 49.95%14 | Page Note: I n the winter of 2004 Telluride a dded service with USAirways (2X Daily

– Via a revenue guarantee

program and an SCASD award)that helped with the uptick of enplanements between 2003 and 2004.

Unfo rtunately, after the summer of 2005 USAirways pulled non

- guaranteed non

- winter summer service

out which in conjunction with Great Lakes Aviation reduction in peak season service from 5

- 6 flights to 2

flights daily has accelerated the downward enplanment pe rformance of the last couple of years.

Extenuating Factors that have affected air service

There are three primary factors that have impacted air service levels at the Telluride Regional Airport :

1) Retirement of the Dash 7 aircraft and other limitiatio ns on the availability of aircraft that are

qualified to fly to the Telluride Regional Airport has reduced available seats into Telluride and

thus reduced yearly enplanements.

2) Reduction in the number of airlines flying to T elluride has reduced competition to Telluride

and thus airfares have risen to a level that is well above the nations average airfare and is the

second highest in the Northwest Region of the country further depressing demand

.

3) The last, and recently most significant reason is the acquisition of additional B1900 aircraft

and EAS Subsidy contracts by Great Lakes Aviation. Due to an aggressiveness on acquiring

these contracts that exceeds the number of aircraft their fleet can serve , Great Lakes has

downsized the service to Telluride (What has been non

- subsidized airline service) in order to

gain aircraft they can use to meet their EAS subsidy contractual agreements. (Great Lakes

does not presently and has never receive d a subsidy or guarantee from the Telluride

Community for air service

– They have very recently indicated that an airline guarantee would

increase Telluride’s chances of regaining some of the lost service to Telluride but only whe n

their aircraft is better matching their service market needs ).

Telluride has an air service development organization (Telluride Montrose Regional Air Organization)

that has been actively pursuing additional air service to Telluride . This effort h as been handicapped by

the factors above in acquiring new air service and in retaining air service at the Telluride airport

. What

accounts for the qualified aircraft challeng e for the most part is the fact that at 907 0 Elevation and just a

7111 foot runway Telluride is the highest commercially served airport in the country ...limiting aircraft

qualified to operate to Telluride. Market changes by Great Lakes Aviation does provide hope for better

access to equipment that can operate into the Telluride airport.

It should be noted that there have been some recent changes in some primary Telluride airlines

situations: (Great Lakes/USAirways) . They have commercial aircraft that can get into Telluride (And in

a market that is within range of Telluride and is a Hub Ma rket that can feed into the national

transportation system) . Aircraft availability may improve in the future based on present conditions at

these airlines thus the focus of the strategy of this proposal. Additionally, possibly by Summer/ Fall

2011 other air service possibilities may open up with the expansion of aircraft types that can serve15 | Page Telluride increasing to include the Q

- 400 Aircraft . This is due to the present Telluride Airport Runway

Improvement project and the subsequent look at TEX C & D approach es.

Telluride air service development efforts

The Telluride Montrose Regional Air Organization has attempted to increase service to the Telluride

Regional Airport since 2004 with mixed results.

Year Initiative Guarantee Offered Result

2004 Add USA irways Winter Service Yes Service Obtained/Still Operating

(SCASD Grant Assisted Service Start

- up

– Low to no guarantees have been pd most yrs.)

2006 Add USAirways Summer Service Yes Cost Prohibitive/Lack of Planes

2 007 Add USAirways Summer Service Yes No Aircraft Available

2007 Add Delta Summer Salt Lake City Yes No Aircraft Available

2007 Add AM Great Lakes Denver No No Aircraft Available

2008 Add USAirways Summer Service Yes No Aircraft Available

2 008 Add AM Great Lakes Denver in Winter Yes No Aircraft Available

2008 Add Delta Summer Salt Lake City Yes No Aircraft Available

2009 No Effort for Summer/Airport Shutdown n/a n/a

2009 Add AM Great Lakes Denver in Winter Yes Under consideration but

ultimately no aircraft available

2010 Add AM Great Lakes Denver in Summer Yes D idn’t get aircraft back in time

from EAS Market Pull

- Down

2010 Add USAirways Summer Service Yes No Aircraft Available

2010 Add AM Great Lakes Denver in Winter Yes In Process/Pending

(Would make 3 rd Flight Daily)

2011 Add USAirways 2 nd Su mmer Carrier Yes In Process/Pending

Since 2004 in al most al l instances where air service efforts were not successful

, the cause was that there

were no aircraft available. In one instance where we were not successful the cost for the service was

made exhorbitant by the airline for the revenue guarantee causing a decline by TMRAO of the service.

(It was felt the carrier didn’t really want to serve based on costs that were 60% higher then what would

be considered fair at that ti me for the market service).

The key thing to note with past air service efforts is that 1) On the successful service which is still

operating, (Winter USAirways Phoenix Telluride) an SCASD grant was instrumental in helping with the

start up costs and pr iming the pump of the market and this service still operates today , 5 years later . 2)

The other item of note is that if a) aircraft is available, b) a strong guarantee is offered, c) the airline

extends a fair guarantee cost and d) there is a public/privat e partnership, then Telluride has not only

been successful in obtaining the service but in sustaining and continuiing the service for years

afterwards. Today in 20 1 0, Telluride is finding that potential airlines for service appear to have more16 | Page aircraft ava ilable (Or Anticipate having more available) which makes this a good year to attempt to

expand air service.



## WHY This Proposal is different then the Telluride SCASD Grant Award in 200 2

The 200 2 grant award had Three Goals:

1) Expanding service with Existi ng Carriers to increase enplanements

2) New airline service to/from Albuquerque that would connect with Southwest Airlines

3) Fly Telluride Marketing Program to generate more local and destination awareness of present

service and any new service TEX could obtain ....focused on comprehensive Telluride air

service.

It should be noted that the 2002 grant request was very generally worded so in our opinion actual

execution should be considered when looking at the differences.

The 2002 grant ha d the below results:

1) Telluride was able to obtain a 2 nd winter service 2X Daily with America West/Now USAirways

and existing carrier by the start of winter 2004. This service is still operating to this day and

has for most of the last few years operated at little to no guarantee. Restaurant and lodging

tax collections which are driven by these visiting guests go to TMRAO for funding its air

service development program. NOTE: While this expansion of existing service occur red in

2006 Telluride saw the loss of Spring/Summer /

Fall non

- guaranteed USAirways service and

despite efforts since has been unable to regain service during any of these seasons to date.

Also...Great Lakes (A non

- guaranteed service) has dropped from 5 Daily flights to 2 Daily over

this period.

2) Unable to obtain new Albuquerque service as the cost was too high via a guarantee

arrangement and with new security requirements requiring passengers to go back through

security to check their bags on the connecting carrier in ABQ (WN has no interline

agreements) and then go through security a second time on their trip this experience was

prohibitive to having this service be successful

3) Fly Tellurid e Marketing Program was a success as based on equipment load factors and flight

revenues were good in subsequent high

- seasons . The general awareness of overall Telluride

air service goal saw good results.

This 2010 Grant Request Goals: (Go als more focused)

1) Reduce airfares via increased airline competition (Winter only season with 2 Carriers serving

Telluride) via adding a 2 nd summer carrier.

2) Add additional seats and provide more customer convenience via a 3 rd Great Lakes/ United

Flight (or via another carrier/aircraft type if Great Lakes continues to not have the

equipment) with an early morning Telluride to Denver departure.

3) Support above specific efforts with marketing support to insure sustainability of these service

additions/enhancements17 | Page This 2010 request is different in that:

1) The 1 st goal specifically is to add a new 2 nd summer carrier (2002 had a general goal to

increase existing se rvice and in its actual RE SULT was an increa se in WINTER service add ing a

2 nd carrier

- America West/USAirways )

2) The 2 nd goal specifically is to add a 3 rd flight with an early morning Telluride departure on

Great Lakes or to add a new carrier with an early morning Telluride Depar ture to

increase seat capacity access and with a flight schedule that meets demand (2002 2 nd goal

was to add Albuquerque service to connect with Southwest in Albuquerque

- a more direct

route from Texas

– additionally this goal is customer request driven )

3) The Marketing component is to specifically support the incremental service obtained in goals

one and two above vs. all the Telluride Airports service as a whole (2002)

.

NOTE: Without the addition of ser vice on America West in the Winter to Phoenix (Via the 2002

SCASD Grant) the reduction of TEX enplanements since 2002 would have been more severe

and to the level where Telluride would have been consistently hovering at or below the

10 ,000 enplanement level since 2007 when Great Lakes starting taking aircraft from Telluride

to operate new EAS markets it had gotten committed to. In 2002 neither the Spring

- Fall

USAirways service nor the year

- long Great Lakes service was on a revenue guarantee into

Telluride. In winter 2004 we added guaranteed USAirways service via the 2002 grant that is

very solid and sustainable via local funding mechanisms . USAirways Spring

– Fall service

wasn’t guaranteed and was dropp ed in 2006 due to a reduction of Dash 8 Aircraft in

USAirways fleet. (No other aircraft USAirways has can presently operate into TEX). Great Lakes

(Not Guaranteed) has dropped to 2 Daily flights from 5 Daily flights due to new EAS

commitments flights it has acquired the last couple of years. By 2010 the Telluride situation

has changed in regards to what is an “E xisting service ” . USAirways summer service in 2011, if

obtained would be basically a NEW service offeri ng a 2 nd summer carrier since it hasn’t

operated since 2006 and because it would require a revenue guarantee to obtain this service

. An early morning departure, since one hasn’t operated since 2005 (Regardless of whether it

operated on Great Lakes or another Carrier) would also be a new service as it regards meeting

passenger demand requests and adding additional seats. If it works out to be Great

Lakes/United, which is the primary target for the service, it will require a revenue guarantee

to offset EAS subsidies Great Lakes receives from other markets to gain this service based on

Great Lakes present fleet and EAS community commitments. The net result of both air service

additions would be an increase in seats, competition and a lowering of airfares to travelers to

Telluride which should get the T elluride airport to an enplanement level that is consistently

above 13,000 yearly...well above the 10,000 enplanement goal of the airport.

NOT E2: Based on an estimated 4676 additional enplanements, 90% visitors/2 nd homeowner use and

an average trip spend of $2500 the flight goals would drive just shy of $10 Million Dollars

additional direct economic activity for the region yearly!

Note3: Limitations on aircraft and markets that can operate to Telluride also limit approaches to

improving enplanements and the high airfares into the Telluride airport. We feel that within18 | Page this limited scope of solutions to these prob lems our proposed strategy is different than in

2002 and can be effective in improving Telluride air service.



## Air Service Deficiencies and Needs

Only One Year

- Round Carrier

Telluride is served by only one year

- round carrier (Great Lakes Aviation) and has only one season where

it has two carriers (Winter). This creates a situation with lack of schedule and airline choices and high

airfares. Airfares are lower in the winter when there are two carriers serving the Telluride Airport.

High Airfares

Tell uride Airfares are over 67% higher than the average for all of the Northwest Regional Airports. This is

caused by small aircraft serving the market and only one air carrier serving the market for most of the

year which allows a monopoly on service in many markets and drives up the airfares

.

Average Airfares to Select Markets 2008

Destination Telluride Montrose Grand Junction Durango

New York $537.40 $341.67 $297.89 $337.38

Boston $638.61 $312.63 $326.22 $335.11

Tampa $354.52 $249.22 $259.20 $286.73

Chicago $456.30 $293.26 $250.16 $274.11

Dallas $338.33 $247.47 $239.49 $258.12

Houston $351.37 $218.04 $309.53 $306.39

Los Angeles $386.58 $285.50 $231.81 $267.71

San Francisco $415.06 $295.64 $234.13 $236.50

Circuitous routings

For local travelers and visitors needing to travel back east, often the earliest departure is around 1pm

and due to the time change the passenger doesn’t arrive until 10pm or later. If you are heading to a

major east coast city, with only one air lines route system to work with (Great Lakes/United), to many

markets you are looking at multiple connecting and changes of planes on multiple airlines to get to your

final destination. If you are an international traveler you are almost assured of an over night stay which

adds to your overall trip cost. Being able to conduct business on the same day and then fly back is

basically impossible even for regional business trips to Denver based on the limited number of flights

and narrow mid

- day scheduling of pre sent service.

Underserved Markets

For most of the year travelers are limited to a maximum of 140 different markets they can access with

one change of planes air service via the Great Lakes/United service. An additional 30 markets open up in

winter with t he US Airways winter service addition and the number of markets with more than one19 | Page airline serving from Telluride goes from 0 in Spring

- Fall to 70 in the winter and is one of the reasons

airfares are the least expensive in the winter versus other times of the year.



## Strategic Plan

– Air Service

Project Goals

The Strategic Plan proposed by the Telluride Airport and the Telluride Montrose Regional Air

Organization will achieve the community’s air service improvement goals and help to alleviate the lack

of a morning flight tailored to eastbound business and leisure travelers as well as help lower airfares

from the Telluride Airport.

The Strategic Plan will meet the goals of the community and the Telluride Regional Airport:

**•** Second air carrier in summer that pr ovides connections through a hub airport

**•** Air service that provides better scheduling more direct routings and more connecting

opportunities

**•** Reducing average airfares for more of the calendar year (Summer as well as winter)

**•** Reduce the need for travelers to drive long distances to access air service and competitive fares

**•** Provide a morning flight and increase available seats to better accommodate demand at the

Telluride airport and passenger desire for flights that can provide more convenient connections

to De nver, the mid

- west and the east coast

.

Proposed Air Service

US Airways from Phoenix

– Second Summer Air Carrier Service

To improve air service at the Telluride Regional Airport and accomplish the goals of this SCASD grant

application, a second airline serv ice in summer that connects to a hub airport in the national

transportation system is needed to better meet traveler needs. US Airways service via Phoenix presently

operates successfully in winter and has aircraft that has operational abilities to operate into the

Telluride Regional Airport. Adding US Airways service in the summer where we can build upon a market

of customers that are already familiar with the winter air service on US Airways from Phoenix can help

alleviate the deficiency of only one air ca rrier and one non

- stop market in summer and thus help bring

more competition and lower airfares.

US Airways Phoenix service will help alleviate address the following air service goals:

1) US Airways Phoenix service adds a 2nd summer flight with national hub market

connections increasing overall markets that are connected to by 2 carriers.

2) Adds more competition in summer to help reduce airfares

3) Helps reduce the need for air travelers to drive long distances to access air servi ce and

competitive airfares20 | Page 4) Will provide additional markets served and more direct routings and more convenient

connections that will also positively help to reduce average airfares.

Great Lakes /United Early Morning Flight

– More Co nven ient East Bound connections/Increase

available seats from Telluride

Great Lakes Aviation service via a flight schedule with a departure from Telluride before 9am will meet

the following goals:

1) Helps reduce the need for air travelers to drive long distances to access air service and

competitive fares.

2) Will provide service with more direct routings and more convenient connections

3) Will provide air service that allows travelers more convenient flight connect ions heading

eastbound

4) Will provide air service that a llows business travelers to fly to Denver conduct business and

return in the same day.

5) Will help raise available seats from Telluride towards a more historic level and thus help

increase overall enplanements from the Telluride Airport.

Note: Airlines cons ider a ircraft arriving in the evening returning early the following morning

a premium service due to many communities desiring this flight schedule . This creates more

opportunity costs with an airline to attain this service. Additionally there are more cre w and

other costs with an overnight scenario as well. To get the early morning outbound flight that

Telluride desires a revenue guarantee is likely to be required.

Airline Participation

The Telluride Montrose Regional Air Organization (TMRAO) has been in discussions with US Airways

about summer Phoenix service since 2006. Aircraft availability has been a m ajor impediment until

recently. While the aircraft situation and airline direction at US Airways is fluid they are presently giving

more consideration to our service request based on strategic changes at the airline

, potential aircraft

availability and our proposed revenue guarantee program

.

TMRAO has also been discussing with Great Lakes Aviation for the addition of a morning flight (Before

9a

- 10a d epar ture t ime) since 2007. Recently in 2008 TMRAO has offered a revenue guarantee

arrangement in order to obtain this service but Great Lakes Aviation still had aircraft availability issues.

Great Lakes aircraft availability is anticipated to improve within th e next year as they reduce some of

their EAS market flying. They now have more consideration to a RON operation or of a morning flight to

Telluride.

On

- going discussions with US Airways and Great Lakes indicate that the marketing commitment and21 | Page guarantee program proposed herein is required to support the services outlined above. There is still

somewhat limited aircraft availability and other significant barriers to entry exist. Through the SCASD

Grant and TMRAO’s community program to support air service d evelopment many of the barriers can be

mitigated and Telluride can share the risk with the air carrier via revenue guarantees

.

Market Analysis

– US Airways Summer Phoenix Service

A financial analysis and pro forma route forecast have been developed for U S Airways Phoenix summer

service to provide justification for the east/west connecting service. A one roundtrip summer schedule is

analyzed using a Dash 8 aircraft. The pro forma analysis for the service is summarized below. The

analysis included the follo wing operating and marketing assumptions:

**•** US Airways operating cost for one roundtrip daily for the Dash 8 aircraft is $3 8 00 per one

- way

flight for the 388 mile stage

- length between Telluride and Phoenix.

**•** US Airways will capture a share of the passengers that are presently driving to a competing

airport (e.g. Montrose/Grand Junction/Durango) to travel to Phoenix and beyond destinations

**•** US Airways winter service in 20092010 averaged over 68% load factor making a first year 55%

load factor a conservative est imate.

**•** Gross OW Fare averaged $256.50 1 st Quarter of 2009...a period when airfares were depressed

making the $1 60 Average OW Yield a conservative forecasted amount.

Year 1 Year 2

US Airways Phoenix Market Analysis US Airways Phoenix Market Analysis

S tatistical Category Mature

Market Statistical Category Mature

Market

Operational Days 90 Operational Days 90

Operations 180 Operations 180

Cost Per Operation $3,800 Cost Per Operation $3,850

Available Seats Per Departure 37 Available Seats Per D eparture 37

Segments per day 2 Segments per day 2

Onboard Passengers 3663 Onboard Passengers 3996

Load Factor 55% Load Factor 60%

Average Yield $160 Average Yield $160

US Airways Segment Cost $684,000 US Airways Segment Cost $693,000

US Airw ays System Revenue $586,080 US Airways System Revenue $639,360

Revenue Guarantee Owed $97,920 Revenue Guarantee Owed $53,640

As the market service matures in year 2 the cost of the guarantee goes down as marketing increases the

awareness of the service and load factors rise. It is estimated that development of the market brings the

service to a breakeven or better by year four or five. Additionally, TMRAO receives funds for air service22 | Page development via a 2% tax in Telluride and Mountain Villag e on Lodging and Restaurants. By year 3 or 4 it

is estimated that the increase in passengers will generate about $ 52 ,000 additional in taxes per year

, going to the air service development program due to the US Airways Summer service which should more

than offset ongoing payouts to US Airways after year two. (See Chart Below)

USAirways Year 1 Year 2 Year 3 Year 4 Year 5

Projected Shortfall $ 97

, 920 $ 53 ,6 4 0 $ 32 ,3 28 $ 9

, 360 ( $1 1

, 95 2 )

Additional Passengers 3663 3996 4129 4196 4262

Tax Impact $43,956 $49,0 18 $51,750 $53,709 $55,690

Detailed Market Analysis

– Great Lakes Year

- round Denver Morning Service

A financial analysis and pro forma route forecast have been developed for Great Lakes Denver service to

provide justification for the AM flight. A one rou ndtrip schedule is analyzed using a Beechcraft 1900

aircraft. The pro forma analysis for the service is summarized below

. The analysis included the following

operating and marketing assumptions:

**•** Great Lakes operating cost for one roundtrip daily for the B1 900 aircraft is $ 1 4 00 per one

- way

flight for the 218 mile stage

- length between Telluride and Denver

.

**•** Great Lakes will capture a share of the passengers that are driving to a competing airport (e.g.

Montrose/Grand Junction/Durango) to travel to Denver and beyond destinations

**•** Great Lakes averaged over 54% load factor in 2008 when they operated 2.7 flights a day and

53.1% in 2007 when they averaged 3.15 flights per day

. A 4 1 % load factor is a very cons ervative

estimate for year one based on these statistics.

**•** Connecting markets with a significant improvement in connecting opportunities based on a RON

and/or pre 9am flight departure were stimulated 1 20 percent on a per flight basis

.

Year 1 Year 2

Great Lakes Denver Market Analysis Great Lakes Denver Market Analysis

Statistical Category Mature

Market Statistical Category Mature

Market

Operational Days 365 Operational Days 365

Operations 730 Operations 730

Cost Per Operation $1,400 Cost Per Operation $1,450

Available Seats Per Departure 19 Availab le Seats Per Departure 19

Segments per day 2 Segments per day 2

Onboard Passengers 5687 Onboard Passengers 5964

Load Factor 41% Load Factor 43%

Average Yield $165 Average Yield $165

Great Lakes Segment Cost $1,022,000 Great Lakes Segment Cost $1,058,500

Great Lakes System Revenue $938,306 Great Lakes System Revenue $984,07723 | Page Revenue Guarantee Owed $83,695 Revenue Guarantee Owed $74,424

Great Lakes Year 1 Year 2 Year 3 Year 4 Year 5

Projected Shortfall $ 83

, 695 $ 51

, 538 $ 28

, 653 ( $ 3,504) ( $ 49 ,2 75)

Additional Passengers 5 687 6105 6 242 6 658 6 935

Tax Impact $53,261 $58,527 $61,193 $63,918 $66,692

As the market service matures in year 2 the cost of the guarantee goes down as marketing increases the

awareness of the servi ce and load factors rise. It is estimated that development of the market brings the

service close to a breakeven or better by year three . Additionally, TMRAO receives funds for air service

development via a 2% tax in Telluride and Mountain Village on Lodgi ng and Restaurants. By year 2 it is

estimated that the increase in passengers will generate about $58,000 additional in taxes per year due

to the AM Great Lakes Denver service which should more than offset projected ongoing payouts to

Great Lakes after yea r two.

Alternate Plan

Telluride, has had preliminary discussions with US Airways and Great Lakes Aviation about both the new

air service objectives (2 nd Carrier Summer/Earlier AM flight Summer/Winter) , which is encouraging

. However, the airline industry is extremely dynamic and ever changing. If these airlines cannot initiate

service in the summer from Phoenix (US Airways) and service in the early morning (Great Lakes)

Telluride would look for another carrier new 2 nd summer service that provides significa nt national

connections via a hub airport into the national transportation system and would offer competition to

Great Lakes/United. Additionally Telluride would look for an early am flight with any hubbing carrier (1 st

with another United Denver code

- shar e option and then with another hubbing carrier) that can provide

more convenient connections and the ability to fly in one day eastward where the travelers can arrive in

the same day and/or at a reasonable hour on the east coast.



## Strategic Plan Implementa tion and Funding

Public/Private Partnership

The Telluride Regional Airport is the acting sponsor of this application. The Telluride Montrose Regional

Air Organization (TMRAO) is committed to completing the strategic plan outlined herein and will provide

al l of the local cash funds in support of the application and most of the in

- kind support. TMRAO’s

membership is made up of the Governments of Town of Telluride, Town of Mountain Village, City of

Montrose and key regional businesses like: Telluride Ski Resor t, The Peaks Resort, Cappella Hotel and

over 75 additional supporting businesses in this public/private economic development organization.

Telluride Airport as sponsor, will execute all federal grant offers, process all associated reimbursement

requests a nd oversee grant administration. The Telluride Airport, TMRAO, Telluride Ski Resort and24 | Page Marketing Telluride Inc., and the Telluride Airport will administer the marketing campaign. TMRAO will

solicit and coordinate the revenue guarantee program including pa ying the local match and assist the

Telluride Airport in monitoring the strategic plan and performance tracking.

Incentive and Support Plan

The proposed air service plan will require an air carrier to undertake risk during the first year of service.

This risk reduces as the program matures but the start

- up risk over the first couple of year s must be

addressed. A couple of elements are proposed in our plan to mitigate the risk: a revenue guarantee and

a marketing campaign. The widespread participation in ou r community partnership via The Telluride

Montrose Regional Air Organization (TMRAO) helps to further support the plan.

Revenue Guarantee

The Strategic Plan proposes to use a revenue guarantee to limit the risk of the targeted air carriers and

provide an incentive to attain the targeted air service during this volatile time for the airlines. The pro

forma projections for the associated service demonstrate a movement to a reduced /eliminated and /or

self

- sustainable shortfall within about 3 years. (ie...within 3 years the short fall is projected to fall below

the tax generation monies th at the service will produce for TMRAO funding ) Within about 5 years the

service is projected to reach self

- sustainability where there is no short fall. Both the proposed AM

Denve r flight and the summer Phoenix flight; show an approximately $1 8 0,000 combined shortfall in

year one and about a $ 10 5,000 combined shortfall in year 2. By year three the shortfall is projected to

be about $ 60 k combined which is below the projected additio nal local air service generated tax

collections . The net short fall over the three year ramp

- up of the service is projected to be

approximately $400,000. To mitigate airline risk for both services the strategic plan proposes a revenue

guarantee amount of $ 4 00,000 total ($ 3 00,000 from SCASD grant cash funds and $100,000 from local

cash funds

– The excess is for any potential underestimation of guarantee payments with Telluride

proposing an 75 %/2 5 % split on federal/local guarantee payments)

.

Marketing Plan

It is critical to jumpstart new air service initiatives by creating service awareness in the community and

in the cases of Destination Tourism markets like Telluride to destination guests in order to change travel

habits and recapture locals and visitors w ho have been utilizing competing airports. Air carriers

predominantly market on a national level with a brand focus and don’t have funds or marketing

programs for small markets within their systems. This leaves the local community to step

- up with a

marketi ng program in order to support its local service.

Marketing Goals

Increase local awareness of improved air service for east bound business and leisure travelers as well as

new summer service via a new 2 nd carrier to a hub connecting airport. Increase dest ination guest

awareness of additional service to the Telluride Airport. The effectiveness of the campaign will be

measured by changes to the enplanement levels with the goal to increase Great Lakes enplanements by

about 23 50 passengers over the first year, US Airways enplanements by about 185 0 passengers and25 | Page total enplanements by about 4200 passengers to a total Telluride Airport enplanement level over 1 5 ,000

yearly enplanements.

Further measurement of the m arketing goals for the Great Lakes AM Denver flig ht and the US Airways

summer Phoenix flight will include goals of obtaining a 41 % load factor for the Great Lakes flight and a

5 5 % load factor for the US Airways flight in the first year. Second year load factor targets are a 44 % load

Factor on the Great L akes Denver AM flight in year two and a 60 % year two load factor on the US

Airways flight. Incremental load factor increases are targeted for years 3

– 5.

Marketing Plan

The Telluride specific marketing plan in support of the proposed new service that wo uld include SCASD

funds requested would take place over 2 6

- 2 8 months ( Ideally t wo years plus a 2

- 4 month lead time

before the introduction of the new service). As with the guarantee element of the strategy, the initial

effort is considered a start

- up effor t.

Upon the completion of the start

- up period, local community marketing efforts will continue in support

of the SCASD obtained air service in perpetuity via various local marketing organizations . A committee

made up of the Telluride Airport, Marketing T elluride, Inc...(The local visitors bureau), The Telluride

Montrose Regional Air Organization and Telluride Ski Resort have devised the proposed plan that will

spend the cash dedicated to this Marketing plan; including utilizing SCASD funds for marketing and the

Telluride Airport and TMRAO cash dedicated to the marketing plan. In addition, this same committee

will coordinate the cash driven marketing plan with local in

- kind efforts (Approximately $100,000 in

value) to maximize the effectiveness of the new air service awareness program. While ad plans over this

period of time need to be somewhat fluid to get the most exposure and program awareness for the

dollars spent (And taking advantage of advertising buy deals and opportunities that may come up), the

prese nt plan anticipates spending 25 % of the cash funds locally and 75 % in a handful of key Destination

Markets a nd/or targeted national media. In the T elluride region the local newspapers are the

predominant media so most of the local expenditures would go to print. This split between local and

destination efforts mirrors the historical usage of the flights from the Telluride Airport.

Division of Marketing Budget Advertising Type

Budget Local Destination

Print 70% 40%

Internet n/a 20%

Radio 20% 10%

I n

- Flight n/a 20%

Direct Mail 10% n/a

Other n/a 10%

Print Media is the predominant local source in26 | Page Telluride’s Small Community

Timeline

To benchmark the marketing efforts passenger enplanements will be tracked monthly and reviewed

quarterly (By Seas on). Since the goal is to increase the use of the Telluride Airport

, enplanements are

the best indicator of success. Marketing Plan Adjustments will be made pending the results of

enplanement growth versus our strategic plan growth targets.

Strategic Pla n Funding

The Telluride Regional Airport is seeking $ 4 00,000 of US Department of Transportation funding to be

used to address the high air fares, local traveler leakage and insufficient service and competition at the

Telluride Regional Airport. These funds will go towards airline guarantees and marketing with Telluride

community support of the strategic plan bringing in another $ 2 0 0,000 (3 3 % of total support) in cash and

in

- kind support . The Telluride Airport and the Telluride Montrose Regional Air Organiza tion is well

positioned and organized to continue support of the service after the initial start

- up assistance from the

DOT via the SCASD Grant is exhausted. Below is a summary chart of the strategic plan expenditures:

Funding Source

US DOT Airp ort Non

- Airport Non

- Airport

Description Cash Cash Cash In

- Kind Total

Airline Support Program

Revenue Guarantee $300,000 $100,000 $400,000

Marketing Campaign $100,000 $0 $100,000 $200,000

Total $400,000 $0 $100,000 $ 100,000 $600,000

Percent of Total Project 66.67% 16.67% 16.67%

Percent of Total Cash

Contribution 80.00% 20.00%

Percent of Revenue Guarantee 75.00% 25.00%

Non

- DOT funding sources provide 2 5 percent of the cash funding and 3 3 percent o f the total support for

the complete program.

Non

- Airport Funding Source Cash In

- Kind Total

TMRAO $100,000 $100,000

Marketing Telluride, Inc. $50,000 $50,000

Telluride Ski Resort $50,000 $50,000

Total $100,000 $100,000 $200,000

Projec t continuation and sustainability

The pro

- forma and analysis indicate that by year three the air service costs will reduce to a level where

the taxes generated by the increased visitors can continue to fund the effort. By year five a breakeven

proposition with no air payment is possible. It should be noted, however that changing conditions like27 | Page rising fuel costs and/or lower than expected onboard passengers or lower ticket revenues as caused by a

continuation or reversion to a down economy could impact the flight performance in relation to the pro

forma. The pro

- forma, however, is a conservative derived analysis where revenues and average ticket

costs, for example, are low and based on 2008 results which was a down year for passenger revenue.

Via the commitm ent by TMRAO on both the marketing and revenue guarantee side, the community is

committed to insuring the success of the service in the long term and will work to see it succeed.



## Schedule and Monitoring

Milestones

The following milestones are proposed to t rack the progress of this air service initiative:

Marketing campaign plan completion/initiation

October 20 1 0 / February 201 1 :

The finalization of the marketing campaign specific ad buys and the start of the advertising of the new

service that will begin i n Mid

- December will take place. Finalization of the marketing campaign is

dependent on the date of the air service announcement and initiation and will take place no sooner

than 30 days before air service start. The marketing campaign is estimated to run 2 2

- 24 weeks during

the two

- year start

- up of the new air service. The new AM Great Lakes Flight to Denver would have the

October 20 1 0 anticipated marketing plan initiation date and the summer US Airways flight from Denver

the February 201 1 initiation date. { If the am Great Lakes/United flight to Denver does not start until

Summer 2011 then the timing noted here would shift to April 2011}

Service initiation

Mid

- December 20 1 0 / Early June 201 1 :

The service (s) start date is ground zero for the other dates criti cal to the plan. It is anticipated that

service would start in mid

- December {Great Lakes/United} . The start date of course is dependent on

finalizing agreements with the airlines and the availability of the right

- size aircraft for the market. It is

targete d for the daily Great Lakes /United Denver AM flight to have the start date of Mid

- December

20 1 0 with the US Airways summer flight starting in Early June 20 11

.

Revenue Guarantee Contract Completion

January 201 1/May 2011 :

Typically, due to ever changing ai rline conditions the airlines don’t like to run revenue guarantee

contracts longer than one year and for seasonal service will often terminate the contract at the end of

the scheduled season. With this in mind, the Great Lakes /United AM Denv er Flight would be expected to

t erminate in December 201 1 or May/June 2012 if started in summer ( as would the US Airways summer

Phoenix flight terminate in May/June 2012) . We would look to re

- contract for another year/season just

after the completion of the previous cont ract.

Alternate Plan

December 31, 201028 | Page If the two key air service directions are not met/begun by December 31, 201 1 , the sponsor will propose

an alternate plan that meets the overall objectives of this grant application o n or before this date

Monitoring the program

Enplanement numbers and Marketing expenditures will be reviewed on a monthly basis in order to

assess the effectiveness of the program. Also to be evaluated on a quarterly basis , the average airfares

versus the historical average airfares to Te lluride will be reviewed using the DOT Airport data. (Note:

there will be some lag time on this analysis as it is dependent on the arrival of the DOT data). TMRAO

will also evaluate on a monthly basis average airfares to key markets to serve as a more curr ent check

on the DOT average airfare data.



## Appendix A

- Airline and Community Support