# June 11, 2012

Sponsor: Rochester International Airport

– Rochester, Minnesota

Stephen W. Leqve, Airport Director Congressional Code: MN

- 01
Dun & Bradstreet Number: 077629467 Tax Identification Number (EIN): 416005494 

### Application for Federal Support for New Air Service via:
Revenue Guarantees Advertising/Marketing Program 

### To Support New Non

- Stop Service from Rochester, MN to Denver, Colorado 

# RO CHESTER INTERNATIONAL AIRPORT , ROCHESTER, MN Application Under the Small Community Air Service Development Program Docket DOT

- OST

- 2012

- 0069

Docket DOT

- OST

- 201 2

- 0069



## TABLE OF CONTENTSRochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 2

Letter of Introduction 3 Summary Information

– Appendix C 4
Introduction 7
The Rochester, Minnesota Air Service Market 8
Current and Historical Air Service 11 Air Service Development Efforts 16
Air Service Needs and Deficiencies 17
Rocheste r’s S trategic Plan for New Air Service 20 Proposed New Route 20 Funding Plan 24

I mplementation Timeline 24
Alternate Plan 25 Public/ Private Partnership and Legal Sponsor 2 8 Summary 2 9 Frontier Airlines Letter of Support 3 0

This document has 3 0 pages. One page is the cover, one page is a community support letter and three pages are the Summary of Information . The leaves 24 pages of Grant Application document plus one page is the Airline letter of support

.



## INTRODUCTORY LETTER OF SUPPORT Section PageRochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 3Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 4

SUMMARY INFORMATION

– APPENDIX C

Small Community Air Service Development Program
Docket DOT

- OST

- 201 2

- 0069



### A. Applicant Information

Not a Consortium Community now receives EAS subsidy
Interstate Consortium Intrastate Consortium Community previously received a Small Community Grant If previ ous recipient, Date of Grant: ________________________________ Expiration date of G rant: _______________________ Federal Funds Requested: ______________________ Carrier(s) Service Obtained: ____________________ Destination(s) Served: __________

________________


### B. Public/Private Partnership

Public:

1. Rochester International Airport 2. City of Rochester 3. Olmsted County

Private:

1. The Mayo Clinic 2. IBM, Rochester 3. Rochester Area Chamber of Commerce 4. Rochester Area Economic Development, Inc
5. Rochester Area Conventions and Visitors BureauRochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 5

C. Project Proposal

Marketing Upgrade Aircraft New Route
Travel Bank Service Restoration Subsidy Surface Transportation Regional Service Revenue Guarantee Launch New Carrier Start

- Up Cost Offset First Service Study Secure Additional Service Other (Specify)



### D. Existing Landing Aids at Airport

Full ILS Outer/Middle Marker Published Instrument Approach
Localizer Other:



### E. Project Cost

1. Federal amount requested: $ 500,000
2. State cash financial contribution: $ 0
Local cash financial contribution:
3a. Airport cash funds: $ 25,000
3b. Non

- Airport cash funds: $ 200 ,000
3. Total local cash funds: $ 225, 000
4. TOTAL CASH FUNDING: $ 725 ,000
In

- Kind Contribution:

a. Airport In

- Kind contribution: $ Various Fee Waivers: One year waivers of landing and terminal fees
b. Other I n

- Kind contribution: $ na 5. TOTAL IN

- KIND CONTRIBUTION: $ Undetermined
6. TOTAL PROJECT COST: $ 725,000Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 6

F. In

- Kind Contributions

For funds in lines 4 a (airport in

- kind contribution) and 4 b (other in

- kind contribution), please describe the source(s ) of fund(s) for each. Fee Waivers: One year waivers of landing and terminal fe es (airport)



### G. Is Application Subject to Review by State Under Executive Order 12372 Process?

This application was made available to the State on _____
_. Program is subject to review, but has not been selected by the State. Program is not covered.



### H. Is Applicant Delinquent on any Federal Debt?

NoRochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 7

INTRODUCTION

Rochester, Minnesota and southeastern Minnesota have weathered the severe recession of 2009 very well. Rochester’s unemployment rate is one of the lowest in the entire U pper Midwest region. Rochester is home to the world famous Mayo Clinic

, t he largest employer in Minnesota.

Despite one of the strongest economies in the U pper Midwest, Rochester air service is in decline. The Rochester International Airport has suffered significantly from the consolidation of the airline industry. Airline traffic at the Airport has declined 32 % percent since 2007 . This decline is driven by a sharp decline in RST airline capacity since 2007 and by a growing split between the average fare paid at Rochester and that paid 77 miles north at Minneapolis/St. Pau l.

Leakage of both business and leisur e traffic to MSP is at an all time high. Delta Air Lines, having acquired Northwest Airlines in 2008, has dramatically reduced
small

- and medium

- sized market air service in the Upper Midwest and Rochester has not been
immune to this service strategy shift by Delta. The carrier has dramatically reduced both capacity and frequency from Rochester to Minneapolis and eliminated nonstop service to
Detroit. At the same time, American Airlines, Rochester’s other incumbent carrier, has provided a
modest but stable s ervice pattern at Rochester to Chicago O’Hare. This is the entire extent of Rochester air service. It is inadequate to the critical air service needs of the community

.

The aforementioned Mayo Clinic is a national and global health care organization. Local air service is not just essential for the function and management of this vast healthcare and medical research network, it is essential to the efficient movement of patients and their loved ones to Rochester Mayo Clinic facilities, which dr aw over one mil lion visitors each year. In addition to Mayo, Rochester is home to a ma jor IBM facilit y and that facility is dependent on local air service to support its role within th at global firm. A host of second

- and third

- tier product and service suppliers

, in a va st spectrum of businesses

, support these two local major employers.

In short

, effective and reasonably priced air service is essential to the continued health of the Rochester economy. Currently, local air service is in decline and is inadequate for local needs. This document offers a detailed proposal by which Rochester, using SCASD grant funds, can reverse its air service decline by recruiting new service , with a primary target of Denver and
Frontier Airlines. 

### “ Despite one of the strongest economies in the Midwest, Rochester air service is in

decl ine.”Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 8

THE ROCHESTER, MINNESOTA AIR SERVICE MARKET

Location and Population

– R ochester, Minnesota is the largest city in southeastern Minnesota. The city sits at the junction of I

- 90 and State Highways 52, 63 and 14. The city has a population of 106,769 while the Rochester MSA has a population of 186,011 . The 60

- minute catchment area illustrated in red below has an estimated population of 286,840 while the 120

- minute drive radius illustrated in blue, which includes much of the Twin Cities, has a population of 3,255,325.

Breaking the stereotype of rura l Midwestern population decline, t he Rochester MSA population has grown 13% since 2000 and the city of Rochester has registered a 24% population growth during the same period. Rochester’s population is projected to grow at a 1.43% annualized clip
between 2 005 and 2040, according to Woods & Poole Economic estimates from 2011.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 9

The nearby MSAs of La Crosse, Wisconsin

, and Mankato, Minnesota

, have also shown solid population growth in the past decade

. MSA POPULATION GROWTH 200 0

– 2010: US C ENSUS

Rochester’s economy

– The local economy is centered on the Mayo Clinic, which employs about 34,000 locally. Complementing the Mayo Clinic is IBM, the multinational technology and consulting corporation

, which has a large research and production facility in Rochester. Rochester is also home to a branch of the University of Minnesota and there are a total of ten colleges and universities within a one hour dr ive of Rochester. These ten institutions of higher learning have over 34,000 full time students and another nearly 10,000 faculty, administration
and staff.

This strong local economy generates strong demand for
workers. Between 2001 and 2010 the Rochester area’s labor force grew at a rate above that of both the nation
and Minnesota as a whole.

Solid population gr owth and consistent job creation mean a low unemployment rate and the Rochester MSN has one of the lowest in the Upper Midwest.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 10

At the end of 2011 the Rochester MSA , along with the nearby Mankato and La Crosse MSAs, ha d
the lowest unemployment rate s in th e region , well below that of the Twin Cities or Minnesota. MSA Unemployment : Rochester, and Nearby MSAs

Rochester’s economy is anchored by the Mayo Clinic and IBM. Other key economic sectors include food processing, light manufacturing and education.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 11

CURRENT AND HISTORICAL ROCHESTER AIR SERVICE

Air service at Rochester began in 1929 when Northwest Airlines Ford Trimotors began operating, ironically to Chicago and the Twin Cities (St. Paul). From the 1940s to the 1970s service was provided by Branif f, North Central/Republic and Ozark in addition to Northwest. The location of the airport was moved to its current site in 1960. American Airlines began Rochester service in
the 1980s. Rochester has lost an air carrier and air service several times due to industry consolidation. The merger of Northwest and Republic in 1986 cost Rochester a carrier and some
service. TWA had just started St. Louis service at Rochester in 2001 when the merger with American occurred and that service was promptly eliminated. Del ta’s 2008 merger with Northwest has been the most recent blow to Rochester’s efforts to retain and expand its air
service

.

Current Air Service

– C urrently Rochester has Delta Air Lines regional jet service to Minneapolis/St. Paul (MSP) and American Eagle regional jet service to Chicago (ORD). Rochester, Minnesota Air Service 2012

Delta regional jet service to MSP consists of five round trips per day; however, the carrier makes liberal use of day of week no

- ops except for during peak travel periods such as the summer months. Thus

, on some days of the week

, Rochester only has three or four round trips toRochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 12

Minneapolis. American Eagle regional jet service to Chicago has, for the past year, consisted of four round trips per day during winter months and five ro und trips per day for the balance of the year, all with significantly fewer day

- of

- week reductions than Delta employs. Rochester Domestic Network, Allegiant and International Traffic by Year: 2003

- 2011

Traffic History

– R ochester traffic peaked in 2008 at 324,833 O&D, with 83% of that traffic being
domestic network, 9% Allegiant and 8% international. Allegiant provided RST

– LAS service twice per week from late 2007 to early 2010. Allegiant service had little impact on network service.

The decline in R ochester traffic from the 2008 peak is glaring. Many domestic airports suffered traffic declines during the great recession of 2009. Most also saw a significant economic
slowdown and curtailment of travel demand during that period. Most have seen traffic r ecover or at least begin to recover in 2011. Rochester and its diverse health care, education and high tech economy, saw little economic slowdown

, and unemployment peaked well below 7% and has since recovered to around 5%. Yet Rochester’s traffic decline c ontinues, despite a strong economy and ample local air travel demand.

Domestic Capacity, Traffic and Average Fare

- R ochester’s traffic decline is traceable to a sharp decline in capacity coupled with a significant split between the higher average fares p aid in Rochester and the lower average fares paid in Minneapolis. Rochester network carrier capacity
has declined 32 % since 2007. In the same timeframe average domestic fare has climbed 20%

. As
a result

, domestic network traffic is down 32% in that period, despite a strong local economy.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 13 Rochester Domestic Traffic PDEW, SDEW and Average Fare: 2003

- 2011

Capacity and Service Comparison

– A review of Rochester air service operational statistics from 2007, 2011 and those projected for 2012 clearly illustrat e the ongoing decline of service.

Overall, 2011 segments flown are down 23.6 percent from 2007. Offered seats are down a whopping 39.6% in the same period. Unfortunately, projected 2012 statistics promise more of the same with segments flown projected to be down 12.3% and offered seats to decline 14.1%. There may end up being some variation in the American seat count to Chicago in that American Eagle employs both 50

- seat and 44

- seat regional jets on Rochester flights and the precise mix of those can vary from period to period. The loss of Detroit service drives the bulk of 2012’s year over year decline, it appears that 2012 capacity to MSP and ORD will be, finally, relatively stable from the previous year.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 14

Top Domestic Markets

– R ochester’s top twenty dome stic market group is topped by Chicago and also includes six eastern cities, seven southern cities and six western cities. Rochester’s Top Twenty Domestic Markets: Year 2011

Top Domestic Market Average Fares

– A verage fares paid in fifteen of Rochester’ s top twenty
domestic markets are over $200 one way. The sub

- $200 average fare to Chicago and St. Louis can be attributed to the relatively short distance involved in travel to those destinations.

Average Fares in Rochester’s Top Twenty Domestic Markets: 2 011Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 15

Airport Carrier Market Share

– D elta has managed to retain Northwest’s position as Rochester’s number one carrier in terms of share of domestic passengers. In 2011 Delta garnered 56.5% of RST’s domestic traffic while American carried 43.5%

Domestic Traffic Distribution by Region

– R ochester’s nationwide distribution of traffic shows an orientation to the east, which is somewhat reflective of its current service, which is to MSP (north) and Chicago ( e ast). Only 33% of Rochester’s 2011 domestic traffic was to destinations west of the Mississippi.

Alternative Airports

– For all practical purposes there is one alternative airport for Rochester residents in that City Hall is 77 miles from the Minneapolis/St. Paul International Airport.

MSP drive tim e can vary greatly depending on Twin City metro area traffic conditions. While La Crosse is only a little over an hour away, it currently offers the same airlines and routes as Rochester. Both Mason City and Waterloo have recently been abandoned by Delta u nder the auspices of the EAS program, with Great Lakes B1900s assuming M ason City service and American Eagle regional jets assuming Waterloo service. Sioux Falls is 3.5 hours distant.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 16

ROCHESTER’S AIR SERVICE DEVELOPMENT EFFORTS

The Rochester Internatio nal Airport understands that small

- and medium

- sized airports must aggressively market their air services and have continuous dialogue with both incumbent airlines and potential new entrant airlines.

The Airport has spent an average of $3 2

, 302 annually f or the past five years on air service marketing and promotion. 2011 spending was $39,662, up 46% from 2010.

The Airport recognizes that the art and science of advertising is changing. The Airport now participates in social media venues,
such as Facebook a nd Twitter

, and experiments with different mixes of media spend, always seeking the best return on advertising dollars.

In January of 2012 Sixel Consulting facilitated local community meetings to discuss air service
retention and recruitment. In March of 2012 Rochester attended the Network Conference and had meetings with American, Delta, Allegiant Air and Sun Country airlines.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 17

ROC HESTER AIR SERVICE DEFICIENCIES AND NEEDS

Rochester’s Air Service Deficiencies

– R ochester enplanements have declined by 35% since 2007. This decline has occurred despite the Rochester area economy weathering the great
recession rather well. Rochester’s economy pivots on the fortunes of the Mayo Clinic and IBM and both world renowned firms have continued to grow the scope of their businesses and services in the past five years. Yet, b oth American and Delta have measurably reduced Rochester capacity since 2007

, and Delta has ended Detroit hub service, leaving RST with only
MSP and ORD hub access. At the same time Rochester ave rage domestic fares have increased, especially in relationship to Minneapolis average fares. The combination of huge losses in capacity , the loss of Detroit service, and significant average fare differences with nearby Minneapolis has put Rochester’s econo mically essential loca l air service in serious decline.

Rochester recognizes that network
airlines have reduced service in many cities. But even in comparison to other cities in the Upper Midwest
that have service from at least two airlines, Rochester has suffered the largest capacity loss in the group.
Rochester has lost more than a third of its seat capacity in the period. Duluth has lost a quarter of its seats in the period, Cedar Rapids has lost 20% and the balance of the group has lost measurably l ess than that.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 18

Rochester’s inadequate airline capacity is
also illustrated in the measure of airline seats offered per capita. Again

, measured against the eight other cities in the region
with service from at least two network carriers, Rochester’s servi ce deficiency is clear. Only Duluth has fewer seats per capita and both Duluth and Rochester rank well below the rest of the group.

Unfortunately Rochester does little better in a comparison of current average domestic fares with the same group of Upper Midwest cities with service from at least two network carriers.

It must also be emphasized that this fare comparison is not one of apples to apples, in the sense that Rochester is only 77 miles from Minneapolis. All the other cities
listed are substantia lly, to one degree or another

, located much further from any major hub airport.
Rochester’s 2011 average fare is $23 or 13% higher than that at nearby Minneapolis/ St . Paul.

Rochester’s significant capacity decline and high average fare, especially in comp arison to nearby MSP, show that the community has a clear and pressing deficiency of air service, especially in light of the continuing strength of the local economy.

It has already been noted that Rochester domestic traffic is significantly oriented to t he east (page 15), with only 33% of total Rochester domestic traffic in 2011 involving destinations west of the Mississippi. This imbalance is caused by two factors :  The location and orientation of RST’s two hubs with MSP being north and ORD being east.
 An even wider average fare gap between RST and MSP when only western and southern
destinations are measured. $187 $190 $191 $198 $198 $210 $210 $219 $270

$0 $50 $100 $150 $200 $250 $300 MSP FSD MLI MSN DSM DLH RST CID LSE 

# 2011 AVERAGE FARERochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 19

Rochester’s fare gap with MSP when only western and southern destinations are considered is even more pronounced than the overall gap between the two airports. Average Fare to 50 Western Destinations: MSP vs RST The graph at right measures the MSP vs. RST average fare to 50 cities west and south of Rochester for years 2007 to 2011. The 50 cities are all west of the Mississippi

, but exclude any in Iowa, Nebraska or the
Dakotas.

The fare gap has widened from $19 and 12% in 2007 to $34 and 19% in 2011.

One element of Rochester’s traffic decline is increased leakage to MSP due to the average fare gap. That gap is even more
of an issue when destina tions to the west
and south are considered.

Rochester’s Air Service Needs

– Rochester has seen a dramatic decline in network carrier capacity in the past five years. The average fare gap with MSP has widened in that timeframe as well, especially when dest inations to the west and south are considered.

Rochester needs an injection of additional airline capacity and an additional destination airport. The current situation is reaching a critical stage. Capacity reductions and a widening average fare gap vs. M SP c reate more traffic leakage to MSP. More leakage to MSP reduces RST enplanements, which in turn has caused more Delta and American capacity reductions. It is a negative cycle and threatens to become a death spiral that leads to first one, then perhaps

e ven the other of the incumbent carriers dropping all service.

That outcome is unacceptable to the Rochester International Airport, the City of Rochester, the key economic drivers of the Mayo Clinic and IBM, the surrounding communities and the citizens
of the Rochester area. Effective and competitively priced air transportation is essential to the community’s and regions overall economic health. The Airport and the communities that rely on
it are determined to recruit additional air service to reverse the c urrent declines.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 20

ROCHESTER’S STRATEGIC PLAN FOR NEW AIR SERVICE

The Rochester International Airport, with the support of its public and private partners, intends to reverse the alarming declines in local air service capacity and traffic. The Airport inte nds to
recruit new air service to a new destination while continuing to work with incumbent carriers to reverse traffic declines on existing routes.

Proposed New Route

– T he Airport has identified that new service that would be most complementary to exist ing MSP and ORD hub rou tes would be to the west or south. The number one target new destination is Denver, where both Frontier and United Airlines have connecting hub operations. Other potential new destinations that would be consistent with Rochester’s
go als are Dallas/Fort Worth, where American has a large connecting hub, Atlanta, where Delta Air Lines has a large connecting hub and Phoenix, where US Airways has a connecting hub.

Of the four potential target new destinations, Denver is the closest to Roc hester, which does aid new route cost metrics. From Rochester, Denver provides efficient connections to the entire western half of the nation, from the Great Plains to the Pacific Coast.

Frontier Airlines has written a letter of support for this Grant app lication. That carrier and Denver service will be the primary target of this application. The other route/carrier options outlined above will be discussed in the Alternative Plan section of this application.

The Rochester International Airport and its com munity and private sector partners propose to
use a combination of local

, non

- airport funding ($200,000), airport marketing funding ($25,000) and a DOT Small Community Air Service Development Grant in the amount of $500,000, plus
various airport related ne w service fee waivers, to support new Frontier service to Denver.

Frontier is an evolving airline. The airline has just completed the comb in ing of Frontier and Midwest Airlines and is in the process of an ownership change, with Republic Airways planning a spin

- off of Frontier from the Republic family. Frontier’s evolution does not stop there. The carrier is changing its product offering, route structure and service frequency model. The carrier already has low costs compared to its peers ; it is no w seeking to emulate Spirit Airlines and move into the Ultra Low Cost category of carrier. The bulk of carrier operations are concentrated at Denver, where a traditional hub/spoke operating system is deployed.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 21

Another element of the carrier’s evolution is the deplo yment from the Denver hub o f 99

- to
136

- seat aircraft in single frequency service from small

- and medium

- sized cities nationwide.

It is this aspect of Frontier’s business model that fits perfectly with Rochester’s goal of stopping traffic leakage by int roducing a new route and new capacity into the
market. Frontier has introduced this single frequency 99

- to
136

- seat service model to at least 18 cities since 2010.

Note that of the eleven new routes of this type introduced in 2010 or 2011, six have see n frequency increases as of this writing, some to double daily service status (gold highlight)

.

Of the 18 new markets listed, eight are markets wherein the Frontier service is the first nonstop service to Denver. Another, Provo, Utah

, (PVU) was a market w ithout any air service prior to Frontier and Denver.

While only preliminary year over year DOT traffic and average fare data is available on many of
the markets and none is available
on those introduced in late 2011 or in 2012, data that is available
for markets east of Denver, that are similar to Rochester, is illuminating.

Knoxville and Newport News are
two markets where Frontier service is the first Denver nonstop. Des Moines, Madison and Sioux
Falls are near Rochester but had United Denver service.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 22

T he traffic stimulation rates and average fare reduction s are impressive, most particularly in the
Denver local market for all markets and in the connect market for Knoxville and Newport News where Denver is a new connecting hub with all the associated posi tive impacts on traveler options.

Frontier single frequency schedules for these various new markets range from 4 times a week to 7 times a week, at start, and consist of midday turn timing or RON timing patterns.

For purposes of this analysis, a six

- day

- a

- week RON timing pattern will be used for a Frontier E

- 190 to operate Rochester

– Denver. This is a pattern the carrier is currently using in Sioux Falls (FSD).

This schedule will generate online connections to the entire Frontier system and that of co de sharing partner Great Lakes in the intermountain and far west regions.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 23

This service pattern will generate 612 annual segments and 60,588
new seats at Rochester on 1,193.4 block hours of flying.

For purposes of forecasting traffic result s from Fro ntier service, the Rochester
catchment area is assumed to include La Crosse, WI

, and Mason City, IA. Both cities are just a little over one hour’s freeway drive from RST. La Crosse fares are higher than at RST and the service pattern is similar : Delta to M SP and American to ORD. Mason City has lost its
network service and now has high fare Great Lakes turboprop service.

The forecast summary at left assumes
stimulation rates in line with what Frontier
has achieved in other single frequency examples shown.

Results are for year 2013 with Frontier service assumed to be in operation during that year. The numbers at left imply an 81.9% load factor for Frontier at
the assumed stimulation and share
rates.

Gauging incumbent carrier reaction to a new carrier and ne w service at Rochester is difficult. In this instance American has little at stake, as their existing pattern of service is east to ORD and the bulk of their RST market capture is in that direction. Delta carries the bulk of RST’s current west
and southwes t bound flows; however the carrier already competes with Frontier, and Sun Country and Southwest, at MSP in many west and southwest ci ty pairs. At Sioux Falls (2011) and Bismarck (2012) incumbent carrier reaction to Frontier single frequency service has be en muted.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 24

Funding Plan

– T he City of Rochester Economic Development Fund will provide the $200,000 in local non airport Grant matching funds. The Airport will contribute $25,000 in mark et ing fund s outside of its normal marketing budget for 2013 . The tota l Grant cash fund will then be $725,000, with 69% being from the DOT and 31% from the Rochester Air Service Fund and the Rochester International Airport. The Airport will also offer to the

new carrier or new service its standard incentive package, which co nsists of $50,000 in dedicated marketing funding and a six

- month waiver of airport
fees. Since this is our standard incentive package we were not clear if we can count it as a matching fund. Should the Department deem it matching funds it would be added to the total Grant funding. Should additional local non

airport funding be needed to support new air service after Grant funding was over, the Air Service fund and local concerned parties from the Public/Private Partnership would provide those funds as appro priate. Prior to detailed discussion with the carrier the precise allocation of Grant funding between risk abatement and marketing is unknown. At a minimum, the $25,000 in grant funding provided by the Airport, combined with the $50,000 in standard first y ear marketing funds would provide a total of $75,000 in marketing money even if the carrier asked for a $700,000 risk abatement allocation.

Implementation Timeline

– The Rochester International Airport anticipates that new air service supported by the Grant can begin in 2013. The following timeline is based on an assumption that the Department will issue its
Grant awards in August and that Frontier, or an alternative carrier, would be able to start service promptly. The fickle nature of the
airline indu stry can undo the best timeline plan. The bulk of this timeline would shift according when a carrier could commit to start service and actually start that service. For example, Frontier is interested in our market and the single frequency service concept i s a proven and important element in the carrier’s business plan. At the same time, Frontier is being spun off by its owner, Republic Airlines, and the ultimate outcome of that spin

- off is unknown. For that reason we request that any Grant award be for
thre e years, in the event that carrier commitment takes longer than anticipated.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 25

Alternative Plans

– Should Frontier, for any reason, be unwilling or unable to ultimately begin
Rochester

– Denver service in a prompt manner, the Airport has alternative plans fo r use of the Grant to bring critically needed new air service to Rochester. As noted on page 20, Rochester has identified three alternative options for bringing needed new air service to the community.
AMREICAN EAGLE SERVICE RST

- DFW American Airlines S ervice to Dallas/Fort Worth

– American has provided
Rochester

– Chicago
service for more than two
decades. The carrier is currently in restructuring and its American Eagle
fleet is part of that restructuring. The carrier is not in a position to make
any co mmitments regarding growth in the Rochester market during its restructuring. The carrier intends to emerge from Chapter 11 in 2013 and has bold plans to redevelop its Eagle operation, with lower costs and a broader array of more cost effective regional jet service options. DFW is American’s largest hub and will remain so after reorganization. American will continue to grow the DFW hub, especially in 2013 and beyond

, with new regional
fleet cost metrics. Most Midwestern region American markets are linked to both the Chicago and Dallas hubs. It is logical and consistent with American’s market strategies to see the potential for Rochester to gain D FW service, complementing ORD service

, after American completes its reorganization and begins to again grow its dom estic network. While space does not permit a full and detailed discussion of the potential for American service to DFW, i n this example of RST

– DFW service, a single daily regional jet service has only to capture 27% of existing potential traffic, not

con sidering traffic stimulation , to achieve an 80% load factor.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 26

Delta Air Lines Service to Atlanta

– Delta’s Atlanta hub is the largest in the world, with 1,00 5 peak day departures to 208 domestic and international destinations. The Atlanta hub offers
unmatc hed Delta network connections to every continent and a blanket of destinations in the
Southeast and Atlantic seaboard region.

In this example of RST

– ATL service a single daily large regional jet service would need to capture 42% of the existing traffic, not considering stimulation, to achieve an 80% load factor.

US Airways Service to Phoenix

– US Airways operates a connecting hub at Phoenix with 274 daily departures to 77 domestic and international destinations. While Phoenix may not seem, on the
surf ace, to be an optimal hub for Rochester, three nuances suggest that it could be one.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 27

 The Mayo Clinic has a major satellite facility in Mesa, Arizona

, with great demand for
business travel between Rochester and Mesa . T his demand currently leaks by car to MS P

.  The Mayo Clinic is committed to a major growth strategy for its facilities and services in
Mexico and Central America , and the PHX hub can meet related traffic demand.
 US Airways has interest in a merger with American. There is much speculation that su ch a merger is a possible outcome of American’s reorganization. Such a merger would mean
the combined carrier is simply “connecting the
dots” with RST

– PHX service.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

## 28

ROCHESTER’S PUBLIC PRIVATE PARTNERSHIP AND LEGAL SPONSER

T he Rochester Airport Company operates the Rochester International Airport under a contract with the city of Rochester. The Airport Company works closely with all interested parties and
stakeholders to ensure the entire community, both public and private, is engaged on the crit ical matter of the preservation and growth of local air service.

Rochester’s Public Private Partnership

– Rochester’s public/private partnership for Air Service draws members from a wide cross section of the community. The Partnership receives regular

co mmunication from the Airport Company on air service matters. If Rochester is awarded a SCASD grant these partners will play an active role in assisting the airport in community wide communication regarding grant supported
new air service.

Among Partnersh ip members from the public
sector
, the City of Rochester has taken a very active role in airport affairs via oversight of its contract with the Rochester Airport Company for operation of the airport. Olmsted County officials have no direct responsibilities related to the Airport and therefore take a less active role in its oversight. The Rochester International Airport’s interest in local air service is self evident.

Among Partnership members from the private sector; The Mayo Clinic and IBM considers local air service absolutely essential to the mobility of its personnel to support its global operations

. Mayo also depends on local air service for the movement of patients and their caregivers. The Area Chamber’s mission statement says that it will represent local business on economic and government issues. The mission of the RCVB is to foster a public/private partnership to promote
Rochester. The RAEDI’s mission is to promote area economic development and effective local
air service is essential to the succes s of that mission.

Legal Sponsor

– The Rochester International Airport is the legal sponsor of this Grant application and will assume the role of administration and oversight for a Grant.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

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SUMMARY

Rochester, Minnesota

, is a city of great institutions, l ike the Mayo Clinic, and great businesses, like IBM. It has a strong economy and its Airport is convenient to a large area of southeastern Minnesota and northeastern Iowa. Despite its great medical and business infrastructure, local air
service is in serio us decline ; capacity and traffic are down 32% since 2007.

The Airport and its community partners are determined to reverse the serious decline in traffic. To do nothing is to likely watch while local air service continue s to decline until one of the two

r emaining carrier’s leaves, with the other one potentially right behind it. A tipping point where service and traffic declines accelerate may not be that far off.

This is an unacceptable outcome for Rochester. The world renowned Mayo Clinic, headquartered in Rochester and the largest employer in Minnesota, needs local air service to both move its personnel around the nation and the globe and to be able to offer the best possible experience to the hundreds of thousands of visiting patients and their loved on es and supporters who come to Rochester for the best medical care in the world. Many of these patients come from great distances domestically and throughout the world.

The Rochester International Airport and its public and private sector supporters are de termined to recruit new air service to Rochester. A critical mass of local air service is essential to support the travel needs of the community and region.

This Grant application is a key step in the effort to draw new air service to Rochester. The
busin ess case outlined herein for Denver, and alternatively

, but in less detail

, for Atlanta, Dallas or Phoenix, demonstrates that Rochester has a good business case for new air service. However, Rochester must also deal with being in the shadow of Minneapolis and it is this shadow that causes potential new entrant carriers, or expansion by incumbents, to not make the risk

- reward cut with prospective airlines.

Rochester has seen the pain of air service loss that has occurred in Toledo, Ohio, in a geographic sit uation similar to that of Rochester. We also note that last year the Department awarded Toledo a Grant for purposes similar to what this application has outlined. We believe our case of Grant funding is at least as strong, if not stronger, than that of Tol edo. We urge the Department to award the Grant funding proposed in this application.Rochester, Minnesota International Airport • Small Community Air Service Development Grant Proposal • June 2012 

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