BEFORE THE OFFICE OF THE SECRETARY DEPARTMENT OF TRANSPORTATION



### Community Proposal Lynchburg Regional Airport Lynchburg, Virginia DUNS # 010038073 SMALL COMMUNITY AIR SERVICE DOCKET DOT-OST-2011-0119 DEVELOPMENT PROGRAM

Under 49 U.S.C. § 41743 et seg

LYH LOW-FARE AIRLINE SERVICE: AN EXPANDED MARKET MODEL

The Lynchburg Regional Airport and the City of Lynchburg, in partnership with the Lynchburg Regional Chamber of Commerce through its Air Se rvice Development Partnership and the Lynchburg Economic Development Authority hereby applies for a grant in the amount of $800,000 under the Small Community Air Service Development Program.

While Delta Air Lines recently departed the Lynchburg market, it is clear that the current phase of airline consolidation resulting in a new wave of anti-competitive market developments, combined with Delta’s lack of attention to mainta ining competitive, effect ive yield management in the LYH market, has clearly created new opportunities for a replacement air carrier.

The intent of the grant is to develop new airline service between the Lynchburg Regional Airport (LYH) and Atlanta based on that airport’s presence as an established Southeast hub airport which is geographically ideal for serving major markets from the mid-Atlantic region, particularly central and southwest Virginia population centers. To further enhance market potential, possible integrated hub service to near-by Baltimore-Washin gton International Airport (BWI) is a secondary target in order to further maximize traffic flow potential.

The Airport believes that this proposal is consistent with Congressional intent to resolve air service deficiencies in rural areas. The data and research accomplished by the Lynchburg Regional Airport clearly show that this proposed air service will fill a real and unique service opportunity, and the grant funds will represent an investment that will establish air service that is sustainable in the long-term.

The Lynchburg Regional Airport expresses it s appreciation to the Department in its consideration of this grant application.

All correspondence regarding this document should be directed to:

Mr. Mark F. Courtney Airport Director 350 Terminal Drive Suite 100 Lynchburg, Virginia 24502-3532 Tel. (434) 455-6089 Mark.courtney@lynchburgva.govLynchburg Regional Airport Proposal under the Small Community Air Service Development Program 2
Table of Contents

B ACKGROUND AND H ISTORY ................................................................................................................... 3 Air Service Since 2000 A Critical Fare Breakthrough Passenger Tra ffic Gr owth....................................................................................................... .... 4 Current Air Service Profile Air Service Developmen t Recent History .................................................................................. 5 Market Demographics............................................................................................................ .... 6 Primary Service Area Profile................................................................................................... .... 7 Strategic Plan

T HE P ROPOSAL

............................................................................................................................... ...... 7 Objective ...................................................................................................................... ............... 8 Existing LYH Demand Esta blishes Strong Base ....................................................................... 9 An Expanded Market Area ........................................................................................................ . 11 Passenger Potential ............................................................................................................ ....... 12 Revenue Potential .............................................................................................................. ........ 13 An Important Distinction ....................................................................................................... ..... 15

P ROJECT S TRUCTURE ............................................................................................................................. 15 Grant Objective ................................................................................................................ ........... 16 Additional Community Members Project Sponsor

C OMPREHENSIVE M ARKETING P ROGRAM ................................................................................................. 16

A DMINISTRATION OF THE G RANT ............................................................................................................. 17 Revenue Guarantee Pr ogram Agreement................................................................................. 18 Application: Negotiations & Related Term of ProgramLynchburg Regional Airport Proposal under the Small Community Air Service Development Program 3

0 100 200 300 400 500 600 7001/1/20064/1/20067/1/200610/1/20061/1/20074/1/20077/1/200710/1/20071/1/20084/1/20087/1/200810/1/20081/1/20094/1/20097/1/200910/1/20091/1/20104/1/20107/1/201010/1/20101/1/20114/1/2011 LYH Avg Fares Background and History
Lynchburg Regional Airport is classified as a primary service, non- hub air carrier airport serving the central portion of the western half of Virginia. Officially opened in 1931 to serve the needs of a growing aviation industry, scheduled ai rline service was introduced in 1936 by American Airlines, followed by Piedmont Airlines in the early 1940s. Except for a brief period just prior to and during the early part of World War II, LYH has offe red scheduled airline service continuously ever since.
During the period of government regulation of airline routes and fares which lasted until 1978 with the passage of the Airline Deregulation Act, LYH enjoyed a relatively stable level of airline service. Following deregulation, LYH continued to offer adequate service levels as the traditional major air carriers created the “hub and spoke” system in response to the introduction of new-entrant airlines. This created opportunities for LYH since its market size and location were attractive to serve as a “spoke” to near-by Charlotte airport and its hub carrier, Piedmont Airlines. Incorporating a linear route system with a hub-feed business model enabled Piedmont to provide LYH with Boeing 737 service throughout the 1980s.
With the acquisition of Piedmont in 1991 by th en USAir, a recession combined with an initial wave of airline consolidation ushered in the next phase of airline deregulation typified by the widespread use of smaller, turbo-prop airliners de signed to serve the smaller markets. This also occurred in conjunction with a rapid increase in major airline hubs throughout the country and, in particular, throughout the east coast. As a result, LYH began to experience many more flights (albeit with fewer seats) and more choices of airlines. As a result, throughout the 1990s LYH enjoyed unprecedented levels of airline service while attainin g its best passenger year on record in 1994.

Air Service Since 2000
Throughout the first decade of 2000, what began as a relatively stable period with three airlines serving the market changed drastically following the tragic events of September 11, 2001. In late fall of that year, United Express announced that it would discontinue all LYH service in January 2002. With passenger demand significantly dimi nished as a result, and when combined with a subsequent recession, LYH passenger traffic suffered considerably an d by 2003 reached a low point of just 95,932 total passengers for the year. This represented a 47 percen t decrease in passengers compared to just five years earlier.
A Critical Fare Breakthrough

A major turning point in LYH’s competitive positi on took place in July 2008 in the wake of ever-increasing LYH airfares that culminated with LYH reaching the unenviable distinction of having the fourth highest average airfares in the country (among those with 50,000 pax or more). In response to a disturbing drop in passenger load factors at LYH following a series of fare increases as a result of dramatic spikes in fuel prices in 2008, US Airways introduced an unprecedented (for an airport our size) low-fare style pricing structure that reduced LYH fares by an average of 57 percent. This advantageous fare environment continues to this day.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 4

Passenger Traffic Growth

The ensuing stimulation in air travel demand as a result of the new fare structure being very competitive with other area airports served by lo w-fare carriers caused tremendous growth in LYH passenger traffic, with passenger levels rising by some 71 percent over a two-year period. In fact, in 2010 LYH recorded its second best passenger year on record, with a total of 185,835 passengers served.

Current Air Service Profile

Due to a number of factors unrelated to central Virginia’s market strength and potential, including continued industry consolidation, fuel price increases and ineffective yield management, Delta discontinued its regional jet service to LYH early in 2011. Since US Airways was clearly the market pricing leader and created a Lynchburg pric ing strategy ideal for encompassing an expanded regional catchment area, US Airways has mainta ined its low-fare carrier pricing model. Consequently, following the departure of Delta, US Airways increased its daily departure frequency in addition to upgrading some of its turbo-prop service to regional jets. The result has been a return of a portion of the service lost when Delta departed the market, with the airport now offering a total of six daily departures to Charlotte with a combination of 37- and 50-seat DeHavilland Dash 8 aircraft and 50-seat Canadair Regional Jets (CRJs).

Nonetheless, despite the presence of a competitive fare environment, the artificially low number of available airline seats offered daily at LYH relative to market area population has resulted in our service area being even more underserved. As the chart here indicates, at current airline service levels some 49 percent of our primary service area passengers drive to other airports for their air travel needs. 18 2 ,8 3 9 18 4 ,574 19 6 ,3 6 1 18 3 ,3 78 176 ,4 3 8 16 1,2 77

12 7,59 0

10 0 ,2 74 12 8 ,2 8 4 110 ,3 74 170 ,10 0

95,932 175,8 18 18 5,8 3 5

10 8 ,4 4 1 12 0 ,174 18 5,79 3 18 2 ,9 8 8

178 ,50 5 18 2 ,4 4 8

118 ,53 5

50,000 70,000 90,000 110,000 130,000 150,000 170,000 190,000 210,000 230,000 250,000199019911992199319941995199619971998199920002001200220032004200520062007200820092010

IAD 5.2%

GSO 3.4% RIC 6.5% CHO 4 .1% Other 1.3 %

ROA 25.0%

RDU 3.5% LYH 5 1.0 %Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 5

It is clear, however, that the vast majority of this leakage is the result of insufficient seat capacity at LYH to meet local air travel demand, combined with the presence of more nonstop air service offerings at other near-by airports, particularly to ATL and Orlando (LYH’s top two markets). In fact, in terms of air travel de mand to just Atlanta or Orlando:

• 11.9 percent of all domestic air travel ge nerated at LYH last year was to Atlanta or Orlando.

And when just five other major Florida de stinations are added to the above total:

• Some 23.4 percent (39,120) of LYH’s total passenger traffic was to/from Atlanta and six major Florida destinations.

Air Service Development Recent History

Over the last five years, Lynchburg Regional Airport has pursued an air service development program centered on a SCASDP grant for $250,000 which was awarded in 2006. The program was designed to provide a total of $350,000 as a “Start-Up Cost Offset” and augmented by marketing and in-kind services for a total value of $405,000. The primary objective was to attract a United Express carrier to serve Washington Dulles as a replacement northern connecting hub, with a secondary hub identified as Philadelphia.

Unfortunately, considering industry and economic trends during the period, the program proved insufficient as an economic incentive to ov ercome other challenges being faced by identifiedairline prospects. Despite LYH being granted a one-year extension at the end of the grant’s threeyear term, the airport and partnership were unsuccessful in attracting a recipient airline and the grant expired in 2010. One major obstacle that LYH faced with the previous grant to provide an incentive program to airlines was the simple fact that, considering the economic times, the financial value of the total package was clearly inadequate to garner much attention.

Since losing all Delta Connection service in early 2011, the airport and partnership have primarily concentrated on new serv ice potential based on United Expr ess service to IAD, along with possible PHL service provided by US Airways. Despite very encouraging meetings, the continued uncertainty of aircraft availability and mainline partner negotiations on the part of United Express (Pinnacle/Colgan), have yet to yield successful results. In terms of PHL service, US Airways has also expressed little interest in serving LYH from there, preferring to concentrate on CLT. Recent attendance at the ACI Jump Start airline planners meet ing yielded similar results, although the overall mood was strikingly more upbeat than previous meetings.

Marketing and promotional efforts. Over the last five years, LYH has developed and implemented a multi-media marketing and promotional program targeted specifically to the airport’s scheduled airline services. Built around an outdoor advertising (billboard) saturation strategy, the program has focused on promoting the airport’s strengths as a provider of competitive low fares, close-by location and convenient access. Primary campaigns center on spring and fall peak-travel periods which are supplemented with targeted radio advertising, fare specific newspaper ads and other print media to reinforce the airport’s brand image.

The primary goal of the airport’s marketing strategy is to build and maintain the airport’s brand through its slogan, “Check Lynchburg First.” Through numerous repetitive campaigns centered on this theme over the past five years, the program has been quite successful in achievingLynchburg Regional Airport Proposal under the Small Community Air Service Development Program 6 its goals and the airport’s name recognition remains high. Below is a sampling of some of the billboards and print ads that have been used during this time.

Market Demographics

In December of 2010, LYH undertook a passenger survey in order to identify a number of travel and demographic characteristics of our pass engers. The method of data collection was based on a capture-style approach in the passenger boarding areas in order to ensure a representative sample (8 percent). The following highlights the most salient findings:

Reason for Travel: Business 47.5% Leisure 52.5%

Originating (Virginia) Pax: 63.5% Destination (Visiting) Pax: 36.5%

Overall, the results pointed to a strong bala nce of business travel demand with leisure. Results varied somewhat from hist orical trends based on the stimulative effect of LYH’s low-fare offerings which attracted more leisure travelers. The results also reinforced the impact of a competitive fare environment which, when combined with more flights and seat capacity, allows the local air service area to be better served.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 7 Primary Service Area Profile

Lynchburg Regional Airport is strategically located in Virginia’s Region 2000. This 2,000 square mile area in central Virginia serves as Lynchburg Regional Airport’s Primary Service Area. It is comprised of Amherst County, Appomattox County, City of Bedford, Bedford County, Campbell County, and the City of Lynchburg.

Over 247,000 people live and work in Central Virginia’s historic and picturesque region. Virginia’s Region 2000 is a remarkable example of public-private cooperation: business and civic leaders, educators and government officials working together to create a supportive environment for business. This is one of the many reasons why four counties and two cities have combined their strengths and unique attributes to market the region’s outstanding workforce, education and training, transportation, and quality of life.

Strategic Plan

Lynchburg Regional Airport is in the final stag es of developing an air service strategic plan with the primary goal to help the airport and community focus their coordinated efforts and resources on targeted scheduled airlines which, based on their business mo dels, route strategies and geographic concentration, make the most sense to pursue on a prioritized basis. Emphasis is being placed on major airlines, or their regional affiliates, which could offer the greatest number of domestic and internationa l destinations most desired by busine ss and corporate interests. One of those airlines identified in the strategic plan is AirTran Airways by virtue of its strategic connecting hub location at ATL and its complementary pricing stru cture to that which has been effective at LYH. Moreover, AirTran was targeted due to its considerable promise in an Expanded Market Area model.

A timeline for implementation of this plan is expected to cover a one-to-three year planning horizon.

The Proposal

This proposal represents an unusual opportunity for a small non-hub airport to take advantage of a unique set of circumstances that will enable LYH to attract air service provided by an established low-fare carrier, AirTran Airways, whic h operates aircraft in the more efficient 117- passenger configuration. The viability of supporting such service is based upon four primary factors:

1. The proven success of a competitive and wide-r anging, low-fare airline pricing structure established in 2008 that has been profitable.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 8
2. A geographic location which is situated in close proximity to two larger air service market areas, one of which due to its more traditional legacy carrier pricing structure, clearly expands LYH’s normal catchment area beyond its normal borders based on the fact that the primary determinant in a consum er’s purchase decision for air travel is based upon price.

3. While the current low-fare pr icing structure has been succ essful, the business model of the traditional legacy carriers has relied upon smaller, regional airline aircraft which have not provided sufficient capacity to adequately meet local demand considering recent airline and hub consolidations (e.g. le ss frequency), let alone provide additional capacity to meet the expanded regional footprint made possible by a low-fare pricing environment.

4. While AirTran/Southwest have long served the eastern (Tidewater) portion of the Virginia, and currently serves all three airpor ts in that region (ORF, PHF, RIC), AirTran has no presence whatsoever in the southwest and west-central portion of the state.

While the concept of a smaller airport competing with near-by larger airports has long been demonstrated by airports such as Akron-Canton (CAK) and Newport News (PHF), those models were primarily based upon gaining market share from a much larger combined market area with other larger airports which also offered comparable, low- fare pricing structures. Conversely, the basis for this proposal is for LYH to establish a unique market niche based upon the assumption that other non-LYH carriers located within a portion of its expanded service area will not respond with competitive price matching.

This proposal, however, is not intended to dimi nish the role or value of LYH’s existing, fullservice air service provider, US Airways. Rather, through market stimulation and an expanded service area made possible through LYH’s current low-fare pricing structure, this proposal is intended to provide additional growth opportunities for the incumbent carrier. Indeed, since the targeted carrier will attract considerable origin and destination traffic to a major business market not served nonstop by the incumbent (ATL), combined wi th the targeted carrier’s lack of service to the highly lucrative international markets served by the incumbent, the new service will prove to be mostly complementary.

Objective

The Lynchburg Regional Airport continues to represent considerable untapped air service potential, with a number of unique strengths which would add to the potential success of this approach. The Department's approval of this gran t application will allow the community to pursue a unique regional approach based upon LYH’s attractive central location within a 756,400 population service area. Consequently, the project’s primary obje ctive will be to leverage this central location with the market strength of portions of two surrou nding, easily accessible metropolitan service areas to attract replacement ATL air service based on LYH’ s proven ability to generate a profitable mix of passenger traffic in a low-fare pricing environment.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 9

MSA Population: Lynchburg – 252,600 Roanoke – 302,200 Charlottesville – 201,600 TOTAL POPULATION: 756,400

Existing LYH Demand Establishes Strong Base

As noted earlier, at current LYH service levels some 49 percent of Region 2000 airline passengers drive to other airports for their air travel needs. It is clear, however, that the vast majority of this leakage is the result of insufficient seat capacity at LYH to meet local air travel demand, combined with the presence of more nonstop air service offerings at other near-by airports, particularly to ATL and Orlando (LYH’s top two markets) . In fact, in terms of air travel demand to just Atlanta or Orlando:

• 11.9 percent (19,870) of all domestic air travel generated at LYH last year was to Atlanta or Orlando.

And when just five other major Florida de stinations are added to the above total:

• Some 23.4 percent (39,120) of LYH’s total passenger traffic was to Altanta and six major Florida destinations.

Clearly, the lack of adequate air service to Atlanta and the subsequent traffic flow to Florida markets alone makes a strong case for the viability of replacement service to ATL via AirTran. At current fare levels, therefore, the presence of a low-fare airline offering higher capacity, mid-size Boeing 717 aircraft as compared to 50-seat regional jets would attract air travelers from throughout this expanded service area.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 10

LYH MAV ‐ AirTran Destinations
Jan ‐ Dec 2010

Apt NStop Inbound + Outbound Corrected Corrected One

‐ Way YIELD Rank NAME Code Miles Passengers Pax / Day Revenues Avg. Fare /CPM

1 Wm B Hartsfield ATL 389 11,370 31.0 $1,771,280 $155.79 39.7 2 Dallas/Ft Wor In DFW 1,054 7,750 21.0 $1,298,240 $167.52 14.9 3 Orlando Intl MCO 625 7,320 20.0 $829,610 $113.34 16.3 4 Charlotte CLT 175 6,310 17.0 $544,190 $86.24 49.3
5 New York City Area 367 5,900 16.0 $980,830 $166.24 23.4 6 Chicago Area 557 5,710 16.0 $890,370 $155.93 18.5
7 Denver Intl DEN 1,385 5,030 14.0 $863,140 $171.60 11.0
8 McCarran Intl LAS 1,986 4,920 13.0 $865,550 $175.92 8.3
9 Fort Laud Intl FLL 777 4,870 13.0 $609,110 $125.07 14.6 10 Logan Intl BOS 557 4,540 12.0 $691,470 $152.31 16.8
11 Houston Area 1,062 4,480 12.0 $810,730 $180.97 16.6 12 Tampa Intl TPA 673 4,080 11.0 $574,960 $140.92 19.6
13 Los Angeles Intl LAX 2,203 3,900 11.0 $839,070 $215.15 9.2 14 Sky Harbor Intl PHX 1,862 3,840 11.0 $678,670 $176.74 8.8 15 Jacksonville Int JAX 493 3,500 10.0 $407,100 $116.31 20.6
16 St Paul Intl MSP 896 3,310 9.0 $595,760 $179.99 15.2 17 Wayne County DTW 403 3,150 9.0 $530,750 $168.49 23.2
18 San Francisco In SFO 2,352 3,060 8.0 $677,480 $221.40 8.8 19 Seattle/Tacoma I SEA 2,281 2,680 7.0 $628,090 $234.36 9.1
20 West Palm Beach PBI 735 2,570 7.0 $351,690 $136.85 16.7 21 Memphis Intl MEM 622 2,490 7.0 $359,670 $144.45 20.6
22 SW Florida Reg RSW 758 2,400 7.0 $286,190 $119.25 14.3
23 San Antonio Intl SAT 1,233 2,290 6.0 $372,550 $162.68 12.8
24 Moisant Intl MSY 812 2,040 6.0 $309,080 $151.51 18.5 25 Indianapolis IND 418 1,880 5.0 $276,080 $146.85 21.5
26 Kansas City Intl MCI 853 1,860 5.0 $296,720 $159.52 15.4 27 Lambert

‐ St Louis STL 616 1,840 5.0 $400,880 $217.87 27.8 28 Newark Intl EWR 357 1,810 5.0 $374,270 $206.78 29.4 29 Milwaukee MKE 602 1,690 5.0 $293,100 $173.43 18.0
30 Port Columbus In CMH 271 1,440 4.0 $233,850 $162.39 31.2 31 Buffalo BUF 388 1,180 3.0 $140,890 $119.40 16.4 32 Rochester ROC 408 1,180 3.0 $196,850 $166.82 19.6 33 Akron/Canton Reg CAK 275 1,080 3.0 $193,330 $179.01 31.5 34 Sarasota/Bradent SRQ 712 890 2.0 $118,240 $132.85 17.1 35 Pensacola Reg PNS 658 790 2.0 $104,890 $132.77 20.1 36 Portland PWM 639 760 2.0 $103,830 $136.62 13.7 37 Pittsburgh Intl PIT 226 650 2.0 $94,980 $146.12 26.8 38 Philadelphia Int PHL 277 640 2.0 $206,340 $322.41 52.0
39 Jm Cox Dayton In DAY 324 620 2.0 $91,730 $147.95 27.1 40 Westchester Coun HPN 392 360 1.0 $77,510 $215.31 28.3 41 Mid

‐ Continent ICT 1,001 280 1.0 $66,160 $236.27 19.1
42 Luis Munoz Marin SJU 1,527 240 1.0 $70,850 $295.20 15.9 43 Baltimore/Wash I BWI 188 100 0.0 $25,150 $251.50 47.0 44 Bloomington

‐ Norm BMI 567 80 0.0 $15,520 $194.02 21.0 45 Flint FNT 457 50 0.0 $7,620 $152.32 14.7
46 Branson BKG 20 0.0 $3,290 $164.50 17.6
47 Dulles Intl IAD 146 10 0.0 $2,400 $240.10 48.5 TOTAL FOR BASE LYH 126,960 347 $20,160,060 $158.79 15.8

Source: 4Q10 AIRS O&D Data (Current passenger traffic befo re stimulation)Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 11 Below: Sample of AirTran destinations served out of Atlanta

Dallas

Ft. Lauderdale Phoenix

Tampa Lynchburg

Las Vegas

Houston Los Angeles San Francisco Kansas CIt y St. Louis

New Orleans Minneapolis/St. Paul

Portland

Indianapolis Boston

San Antonio

Ft. Myers West Palm Beach Pensacola Milwaukee

Branson

Orlando BWI

Jacksonville Memphis 

## AirTran Will Provide Excellent Coverage to Major Markets

Atlanta Boston

Buffalo Chicago

Denver New York Pittsburgh Seattle

Detroit

An Expanded Market Area

As recent market research has shown, even a limited amount of air service at competitive, low-fare style pricing has stretched LYH’s tradit ional geographic market area considerably. Complemented by convenient, un congested vehicle drive times of approximately one hour, LYH passengers have been drawn from a considerably broader area of 60-100 miles.

The Expanded Market Area population is based upon the traditional LYH air service catchment area, combined with only a portion of the Roanoke and Charlottesville catchment areas that are closest geographically to LYH. As depicted here, recent market research revealed LYH’s potential to attract passengers from these areas area despite offering seat capacities considerably below even local market demand.

• Existing Combined Draw from Expanded Market Area - 9% • Projected Combined Draw with QSI/Capacity Stimulation - 18%

LYH Passengers from Select Markets 6.3%

2.7%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

ROA CHOLynchburg Regional Airport Proposal under the Small Community Air Service Development Program 12 Passenger Potential

Total passenger traffic generated under the prop osal scenario has been calculated below. Variables used to determine projected traffic genera tion by AirTran in the LYH Expanded Market Area were based on actual past performance with a similar, low-fare fare pricing structure that would typically be utilized by AirTran.

Air Tran

Type Aircraft Boeing 717 Seating Configuration 117 (mixed class) Initial Frequency 2.57 flights/day (average) Total Daily Departure Seats 300 (average) Projected Average Load Factor (LF) 85% Projected Daily Passengers 510 (enplaned plus deplaned) Projected Annual Passengers 186,150 Capacity Share 53% Market Share 59%

US Airways

Projected Annual Passengers 125,332 Capacity Share 47% Market Share 41%

Total LYH Market Potential 311,482 Passengers

 Based upon the following assumptions: 1. 20% core leakage to other airports due to nonstops, greater international connections, low-fare seats sold out, etc. 2. 18% air travel stimulation from Expanded Market locations. 3. US Airways service levels remain stable. 4. Total LYH capacity:

a. 300 AirTran daily departure seats at 85% LF. b. 262 US Airways daily departure seats at 75% LF.

The listing below depicts the combined passenger traffic generated by the three airports made up in the expanded regional service area as an indicator of current air travel demand. Due to airline pricing disparities between markets, it is anticipated that the majority of passengers attracted to LYH from the Expanded Market Area would represent net-new passengers and not shifted market share. The destinations are ranked by number of passengers served, and include the current nonstop destinations served by AirTran from its hub at ATL.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 13

LYH + ROA + CHO Destinations served from ATL by Air Tran Jan ‐ Dec, 2010
A/P Code Nstop Inbound + Outbound One

‐ Way Yield

Rank Name Code Miles Passengers Pax/Day Revenues Avg. Fare /CPM

1 Orlando Area 617 60,870 166.0 $5,691,060 $93.50 14.3
2 New York City Area 364 63,660 175.0 $9,283,350 $145.83 33.4
3 Wm B Hartsfield ATL 393 49,120 135.0 $9,600,180 $195.44 48.7
4 Chicago Area 544 42,850 117.0 $7,991,260 $186.49 27.3
5 Dallas/Ft Wor In DFW 1,047 30,500 84.0 $5,888,400 $193.06 16.7
6 Denver Intl DEN 1,373 28,880 79.0 $5,264,020 $182.27 11.6
7 Logan Intl BOS 542 28,010 77.0 $4,410,830 $157.47 22.5
8 Los Angeles Intl LAX 2,195 27,520 75.0 $6,098,480 $221.60 9.3
9 Charlotte CLT 200 25,600 70.0 $3,218,370 $125.72 61.7
10 Philadelphia Int PHL 266 25,430 70.0 $4,079,870 $160.44 55.8
11 San Francisco In SFO 2,345 24,970 68.0 $5,593,970 $224.03 8.8
12 McCarran Intl LAS 1,971 24,720 68.0 $4,834,820 $195.58 9.1
13 Houston Area 1,063 23,040 63.0 $4,458,950 $193.53 17.1
14 Tampa Intl TPA 691 21,660 59.0 $3,295,900 $152.17 20.0
15 Fort Laud Intl FLL 794 20,280 56.0 $3,027,230 $149.27 16.9
16 Sky Harbor Intl PHX 1,858 18,770 51.0 $3,670,770 $195.57 9.7
17 St Paul Intl MSP 881 18,590 51.0 $4,008,080 $215.60 19.0
18 Seattle/Tacoma I SEA 2,266 17,850 49.0 $3,989,590 $223.51 9.0
19 Wayne County DTW 386 15,480 42.0 $3,363,680 $217.29 39.6
20 Kansas City Intl MCI 842 13,630 37.0 $2,226,850 $163.38 15.6
21 Jacksonville Int JAX 511 12,910 35.0 $1,927,970 $149.34 25.8
22 Moisant Intl MSY 830 12,330 34.0 $2,061,310 $167.18 18.8
23 Milwaukee MKE 583 12,170 33.0 $1,709,340 $140.46 17.8
24 San Antonio Intl SAT 1,229 11,940 33.0 $2,139,150 $179.16 13.6
25 Lambert

‐ St Louis STL 610 11,840 32.0 $2,274,220 $192.08 23.8
26 Indianapolis IND 406 11,310 31.0 $1,788,260 $158.11 23.6
27 West Palm Beach PBI 755 10,850 30.0 $1,677,140 $154.58 18.3
28 Washington DC Area 179 10,050 27.0 $1,289,260 $128.28 69.1
29 SW Florida Reg RSW 778 9,860 27.0 $1,477,280 $149.83 17.9
30 Memphis Intl MEM 631 9,030 25.0 $1,622,200 $179.65 24.3
31 Buffalo BUF 375 5,680 16.0 $840,210 $147.92 23.8
32 Sarasota/Bradent SRQ 738 5,240 14.0 $794,480 $151.62 19.3
33 Portland PWM 622 5,030 14.0 $774,850 $154.04 21.0
34 Port Columbus In CMH 262 4,840 13.0 $799,830 $165.25 32.2
35 Rochester ROC 398 4,380 12.0 $759,730 $173.45 27.4
36 Pensacola Reg PNS 673 3,870 11.0 $634,860 $164.05 23.8
37 Jm Cox Dayton In DAY 320 3,170 9.0 $554,940 $175.06 30.7
38 Luis Munoz Marin SJU 1,549 2,530 7.0 $695,830 $275.03 15.2
39 Pittsburgh Intl PIT 214 2,430 7.0 $444,160 $182.78 40.0
40 Mid

‐ Continent ICT 990 1,940 5.0 $439,950 $226.78 18.8
41 Akron/Canton Reg CAK 267 1,860 5.0 $323,660 $174.01 30.8
42 Westchester Coun HPN 392 1,600 4.0 $302,090 $188.81 33.9
43 Bloomington

‐ Norm BMI 567 980 3.0 $201,650 $205.77 22.6
44 Flint FNT 439 450 1.0 $73,950 $164.32 29.7
45 Baltimore/Wash I BWI 205 410 1.0 $158,900 $387.56 76.6
46 Raleigh/Durham RDU 155 160 0.0 $45,100 $281.86 79.3
47 Tidewater Area 202 300 1.0 $115,710 $385.70 88.8 TOTALS 779,690 2135.0 $124,347,050 $159.48 17.5

Source: 4Q 10 AIRS O&D Data

Revenue Potential

Revenue yield assumptions are based upon actu al U.S. DOT Origin and Destination survey data from a one-year period ending the 2 nd Quarter 2010 which represents a valid sample for a oneyear period during which a comparab le low-fare pricing structure was in place at LYH. The higher USLynchburg Regional Airport Proposal under the Small Community Air Service Development Program 14 Airways domestic yield figure and average fare am ount were used in recognition of US Airways’ standing as the pricing leader in the LYH market, and in light of its much more effective yield management results than Delta (d espite fare matching).



## 12.97 17.17



## 0.0 5.0 10.0 15.0 20.0

Domestic DL US

Individual Airline Yield Comparison Source: 2Q10 AIRS O&D Data

As compared below, an historically un derserved regional LYH air service market area combined with a strong balance of business travel demand has helped to maintain a profitable market environment despite LYH’s existing low-fare pricing structure. For instance, while relatively comparable with both ROA and CHO, LYH actually has generated a domestic passenger yield that is some 17.6 percent higher than Newport News while generating 23 percent higher average fares.

12.97¢ 17.17¢ 17.60¢ 17.30¢

14.60¢



## 0.0 5.0 10.0 15.0 20.0

Domestic ROA CHO PHF 

## DL US ROA CHO PHF

Yield Comparison Source: 2Q10 & 4Q10 AIRS O&D DataLynchburg Regional Airport Proposal under the Small Community Air Service Development Program 15

$174 $180 $186

$141



## $0 $50 $100 $150 $200

LYH ROA CHO PHF 

## LYH ROA CHO PHF

Average Fare Comparison Source: 4Q10 AIRS O&D Data

An Important Distinction

In addition, an important distinction in the project scenario is the fact that all three commercial service airports in the eastern half of Virginia are served by AirTran/Southwest, whereas the Southwest and West-Central portion of the state are not served by either carrier. Clearly, LYH AirTran service based on an Expanded Market Area model would fill a void in the combined carriers’ route systems.

Project Structure

This proposal requests $800,000 in grant funds from the Program to attract and establish service by a targeted low-fare airline, AirTran. The primary hub airport targeted for AirTran service will be Hartsfield-Jackson Atlanta International Airport (ATL), with secondary service targeted to Baltimore-Washington International (BWI). This will be matched by at least $180,000 in locallygenerated funds, $50,000 in combined marketin g/advertising support, as well as approximately $120,000 in waived landing fees for the new carrier for a period of one-year (based on a one-year minimum commitment). Total value of the financial incentive will be approximately $1,120,000

The goal is to use $950,000 of the combined funds to provide a “Revenue Guarantee” to cover any losses which would normally exist during the initial market development period of up to one year. An additional $30,000 in community fu nds and $20,000 in airport funds are intended to be used for marketing the new service, includin g the costs of negotiating with the carrier and developing an aggressive advertis ing and community support program.

Based upon the airport’s demonstrated market demand and passenger revenue generation to Atlanta as an origin/destination point, the predominant flow of air travel to Southeastern destinations and points west, and the combination of a proven expanded service area due to existing LYH fare advantages, this proposal is expected to result in establishing a sustainable level of new service without the need for further financial assistance.

If the project is not self-sustaining after the grant awards expires, the airport and the local parties will consider additional local financial incentives based on an evaluation of deficiencies in service levels, scheduling, destinatio ns served or other factors.Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 16

Grant Objective

Therefore, the grant will be used as follows:

 To implement a “Revenue Guarantee Program” to support the service during the first year of operations. The intent is to establish a clear and straightforward revenue guarantee methodology with the targeted airline of up to $950,000 ($800,000 from the grant) for a minimum of three daily departures on peak days (averaging 2.57 flights/day) to Atlanta (ATL) or, as combined, with Baltimore/Washington Internat ional (mix TBD). This approach will also encompass an in-kind contribution in the form of a waiver of landing fees during the same one-year period. (Specifics regarding this program are provided in a subsequent section.)

 A focused Marketing and Advertising Campaign to support the service. The campaign will be designed to support the new service as well as encourage additional pa ssenger traffic on the existing air service provider at Lynchburg Regional Airport. This campaign will be patternedafter the very successful program that was implemented as part of the introduction of a lowfare pricing structure by US Airways in July 2008.

Additional Community Members

The Lynchburg Regional Economic Development Authority and the Lynchb urg area Air Service Development Partnership (a collection of businesses and civic groups in the region) will represent the Community participation in this application and supports this proposal. This group directly supports air service at LYH:

• The Air Service Development Partnership is a committee of the Lynchburg Regional Chamber of Commerce

• It is comprised of companies that collectively spend nearly $15 million in air travel per year.

Project Sponsor

The City of Lynchburg, Virginia is the official sponsor in submitting this application.

Comprehensive Marketing Program

The Airport and the City of Lynchburg are focused upon making the new service as successful as possible in as short a period of time as possi ble. To accomplish this, a comprehensive marketing and advertising program will be implemented to support the new multi-directional connecting northern hub service.

The plan is to allocate a minimum of $50,000 toward the following:

MEMBER TICKET SALES AREVA $7,882,159 Genworth $1,800,000 BWX Technologies $1,605,977 M/A-COM Wireless $1,059,427 Liberty University $400,000 J Crew $200,000 Flowserve $200,000 Barr Labs $184,000 Centra Health $140,000 RR Donnelly $100,000 TOTAL $13,571,563Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 17

 A multi-media advertising plan in the Lynchburg Regional Airport service announcing the new service and promoting it throughout the one-year period.

 Targeted mailings to key generators of business travel. Working with major employers in the LYH area, the marketing plan will endeavor to identify additional traffic sources.

 Targeted business receptions to promote the new service.

 Civic presentations will be made to showcase the new service.

The programs will be developed locally, and will also concentrate on increasing public awareness of the range of air service offered at LYH by both US Airways and the new carrier.

Administration of the Grant

The total financial value of the project will be $1,120,000, with $800,000 from the Grant program, $180,000 from the Community, $20,000 from airport marketing funds, and the remaining $120,000 from in-kind contributions from the Airport in the form of waived landing fees. Division of cost and distribution of the combined funds will be as follows:Lynchburg Regional Airport Proposal under the Small Community Air Service Development Program 18 Source & Use of Project Funds

Rev. Guarantee and In-Kind Serv. Marketing & Advertising Totals

Lynchburg Community $150,000 $30,000 $180,000 Landing Fee Waiver Est. $120,000 $120,000 Grant Program $800,000 $800,000 Airport Advertising $20,000 $20,000 Totals $1,070,000 $50,000 $1,120,000

Revenue Guarantee Program Agreement

To provide risk sharing during the first year of route development, this proposal intends to make available to the airline a fund of $950,000 to provide guaranteed revenue to the chosen airline to be paid in mutually agreeable installments. This will be supplemented with approximately $120,000 of in-kind contributions from the Airport in the form of a waiver of landing fees for the service during its first year of operation.

1. The airline and the community will negoti ate and determine an acceptable revenuereporting requirement so that the airport may track relative performance during the oneyear period.

2. The Department will be provided a progre ss report on a quarterly basis, or on an alternative schedule that it determines.

Application: Negotiations & Related

Based on a demonstrated lack of adequate nonstop air service to Atlanta and market demand to other Southeastern destinations, Lynchburg Regional Airport plans to target AirTran Airways solely through this program. This is part ly based upon the recent market opportunity that was created to ATL by the departure of Delta Connection service at LYH earlier this year.

Term of Program

The Grant is requested for a period of one-year from the time service commences, and is based upon a minimum one-year service commitment by the carrier.

X:Backup to G/SCASD Proposal 2011/SCASD Proposal.Aug 2011