# July 2013 A PPLI C A T ION UNDER TH E S M A LL C O MM UNI T Y A IR SE R VI C E DEVELOP M ENT P R O GR A M , DO CK ET OS T

- 2013

- 0120

– C OVER P A GE

L e g a l S po n s o r a nd A ir po rt I n fo r m at i o n: Duluth I n te rn at i o n a l A ir po rt DUN S : 1322648346 T

a x I d en tifi c a ti on Nu mb e r : 41

- 6005105 Minnesota’s 8 th 

## Cong r e ssi on a l D ist r i ct

# Executive Summary

 

### The Duluth catchment area is about 483,000 people within a 90

- minute drive of DLH, but the airport only enplanes about 150,000

 

### Since 1999, while U.S. capacity has increased almost 20%, DLH seat capacity has fallen by 40%

 

### The result has been that DLH’s average fare paid is 40% higher than for the U.S.*

 

### Currently, only 42% of passengers booked from the Duluth area originate air travel from DLH; the other 58% utilize MSP

 

### Only about 30% (45,000 enplaned passengers) of DLH air traffic is destined for DLH, while the vast majority is originating out of DLH, primarily flying to Orlando, Phoenix & Las Vegas

 

### One bright spot has been United Express service to ORD that was launched in 2009; this service has created network carrier competition and has put a semi

- lid on air fares

 

### With funds made available through the Small Community Air Service Development program, DLH will more aggressively market the airport in an effort to: 1) reduce current “leakage” rate, 2) generate more inbound demand, particularly from Chicago & 3) Solidify United Express service to Chicago, which would make DLH a more competitive air service market and put some downward pressure on air fares

*** Net of Allegiant Airlines; difference is 20% when including Allegiant** 2

# Selected Air Service Initiatives

 

### 2009: Presentations to Allegiant & United Airlines/SkyWest for new air service.

 

### 2009

- 2010: DLH launched an aggressive air service marketing campaign (TV, radio, billboard, direct mail to 90 mile radius, print ads, public relations speaking engagements) to educate the region on new routes (Allegiant

- Orlando & United/ Skywest

- Chicago).

 

### 2010: Presentation to Allegiant Airlines and Sun Country for new route opportunities.

 

### 2010: DLH partnered with local businesses on “Invest in the Northland” initiative (buy local, fly local

– benefits to community/economy).

 

### 2010: Introduced DLH social media facebook page. Quickly grew fan base with brand specific ticket promotions. Used existing email blast distribution list to engage customer feedback.

 

### 2011

- 12: Multiple meetings with Delta, United & Allegiant to analyze flight loads/yield.

 

### 2011: DLH continued comprehensive media plan, primarily TV, local/regional print ads, social media, entertainment and convention venue brand presence.

 

### 2012: Ongoing meetings with Delta, United and Allegiant.

 

### 2012: DLH social media following grew substantially. Increased brand awareness and loyalty.

 

### 2012: DLH launched educational public relations campaign about air service and the benefits of the new passenger terminal . Used targeted electronic marketing to specific demographics.

 

### 2012

- 13: DLH worked with regional business & civic groups as part of a larger regional air service study; key findings indicated significant “leakage” of which this application is addressing

3

# Duluth Catchment Area: About 483,000 people

 

### Within 60 miles:

 Population: 297,000

 Average Household income: $38,000

 128,000 housing units

 

### Arguably, catchment area is closer to 90 miles (circle)

 Due to isolation

 Population: 483,000

 206,000 housing units

 

### DLH catchment area runs as far north as Thunder Bay area

 Just north of Canada

 Roughly 350,000 enplanements from Thunder Bay

4

# DL has historically been the dominant (and at times exclusive) airline at DLH

 

## But, DL has reduced capacity at DLH, with passenger volume declining almost 50% since 2008

 

## From a network carrier perspective, UA has backfilled some of this lost activity

– which has helped fares

 

## Also, Allegiant has augmented air service, with nonstop service to selected leisure destinations

 

### But Allegiant only offers service to 3 markets with no connections

5

# While DL is still dominant #1 at DLH, Allegiant & particularly United offer alternatives

 

### Allegiant serves DLH well to leisure

- oriented destinations, but those markets are limited

 Phoenix

- Mesa (AZA), Las Vegas (LAS) and Orlando

- Sanford (SFB) are only 3 markets served from DLH

 

### United offers an alternative to Delta, with connections throughout the U.S. over it’s Chicago hub

 United service is key to DLH’s competitive air service situation; without United, and Delta would have a monopoly at DLH (with the exception of the 3 markets served nonstop by Allegiant)

6

# DLH capacity growth has badly lagged U.S. trends

– resulting in fares 40% above U.S. average *

40% 60% 80% 100% 120% 140% 160%Dec-99Nov-00Oct-01Sep-02Aug-03Jul-04Jun-05May-06Apr-07Mar-08Feb-09Jan-10Dec-10Nov-11Oct-12 

## DLH & U.S. Departing Seats Indexed to CY 1999

DLH U.S. DLH ex-G4

$250 $300 $350 $400 $450 $500 $5504Q004Q014Q024Q034Q044Q054Q064Q074Q084Q094Q104Q114Q12 

## Average paid round

- trip air fare Net of taxes & pfc’s

DLH U.S. DLH ex-G4

*** Net of Allegiant Airlines**

7

# UA is somewhat muting high DLH air fares

 

## UA fares are typically close to 20% below DL fares at DLH in top markets

 

## In addition, this puts a fare lid on DL air fares

 

## Without UA in market, DL would essentially have a monopoly at DLH

– with the exception of Allegiant

 

### Allegiant only serves 3 markets: Orlando

Sanford, Phoenix

- Mesa & Las Vegas

 

## Average Fare: average paid round

- trip air fare, net of taxes & pfc’s Rank Market DL UA % Diff 1 ORD $289 $233 -19% 2 DTW $534 $399 -25% 3 LGA $482 $426 -12% 4 DCA $481 $375 -22% 5 LAX $499 $456 -9% 6 DEN $462 $435 -6% 7 ATL $523 $416 -20% 8 SEA $527 $423 -20% 9 SFO $527 $377 -28% 10 BOS $491 $422 -14% 11 DFW $572 $453 -21% 12 IAH $596 $493 -17% 13 RSW $453 $341 -25% 14 PDX $534 $517 -3% 15 CLE $630 $547 -13% 16 PHL $564 $502 -11% 17 TPA $484 $397 -18% 18 STL $428 $409 -5% 19 IND $533 $452 -15% 20 SLC $567 $452 -20% Average -16% Average Fare Comparison in top DLH Markets

8

# DLH inbound traffic is down about 20% since 2008

30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 110,000 120,0004Q003Q012Q021Q034Q033Q042Q051Q064Q063Q072Q081Q094Q093Q102Q111Q124Q12 

### DLH Enplaned Passengers By DLH origin & destination traffic

Origin
Destination  

## As noted earlier, Allegiant has grown their presence at DLH

 

## This has resulted in good growth in outbound DLH air travel

 

## At the same time, already depressed inbound demand to DLH has declined further

– down about 20% since 2008

 

## Currently, only 30% of DLH air traffic is inbound to DLH

 

### This is bad for tourism

 

### Bad for generating local economic activity

9

# Top DLH O&D Markets

– Much of demand takes place to Allegiant

- served leisure

- oriented destination markets

 

## Top 2 markets generate almost 20% of total DLH traffic

 

### 2 Allegiant markets

 

### Las Vegas demand grew about 6

- fold after G4 entered market; Phoenix & Orlando have also grown significantly

 

## Most of top markets are leisure focused

– almost 30% in total

 

## Tied to this, 70% of DLH traffic is outbound

 

### Most markets are about 50% Cumulative % DLH Rank Market Psgrs Fare Revenue % of Ttl Origin

1 Las Vegas 46 $137 $6,350 11% 93 2 Phoenix-Mesa 28 $94 $2,656 18% 84 3 Chicago O'Hare 27 $100 $2,713 24% 61 4 Orlando-Sanford 14 $122 $1,681 27% 95 5 Detroit 13 $240 $3,080 30% 56 6 NYC LaGuardia 8 $216 $1,761 32% 62 7 Orlando 8 $207 $1,676 34% 81 8 Denver 7 $231 $1,653 36% 60 9 Phoenix Sky Harbor 7 $222 $1,547 38% 69 10 Atlanta 7 $255 $1,775 39% 47 11 Seattle 7 $249 $1,669 41% 67 12 Washington Reagan 7 $236 $1,569 42% 61 13 Los Angeles 6 $240 $1,550 44% 66 14 San Francisco 6 $221 $1,359 45% 64 15 Boston 5 $222 $1,219 47% 65 16 Dallas Fort Worth 5 $265 $1,406 48% 61 17 Minneapolis-St. Paul 5 $136 $654 49% 54 18 Houston-Bush 5 $287 $1,377 50% 57 19 Fort Myers 5 $215 $1,028 51% 89 20 Portland 5 $257 $1,159 52% 68 Per Day: YE 2Q12 Top DLH O&D Markets: YE 2Q12

10

# Duluth “leakage” is high & has worsened over time

– primarily driven by relative fare difference vs MSP

38% 49% 58%

0% 10% 20% 30% 40% 50% 60% 70%

1995 2000 2012 

### DLH "Leakage": 1995

- 2012 Bookings w/ i 30 miles

 

## Drivers of leakage:

 Capacity: Which is down 40% over the past decade+

 Air Fares: Driven by the lack of capacity, DLH’s average fare paid is about 40% higher than for comparable U.S. markets

 Relative capacity/fare differences versus MSP, which is a roughly 3 hour drive from the DLH catchment area Rank* Market DLH MSP % Diff 1 ORD $226 $213 6% 2 DTW $508 $488 4% 3 MCO $412 $323 28% 4 LGA $473 $446 6% 5 DCA $456 $414 10% 6 LAX $491 $426 15% 7 DEN $460 $232 98% 8 ATL $517 $376 38% 9 SEA $527 $377 40% 10 PHX $473 $320 48% 11 SFO $491 $464 6% 12 BOS $466 $452 3% 13 DFW $550 $408 35% 14 IAH $554 $548 1% 15 RSW $433 $367 18% 16 PDX $528 $464 14% 17 CLE $581 $472 23% 18 PIT $574 $429 34% 19 PHL $543 $518 5% 20 TPA $459 $383 20% Average Paid Round-Trip Air Fares: CY 2012 Net of Taxes & PFC's

11

# PROJECT PROPOSAL

Goals

• Our goal for this grant program is to: 1) reduce passenger leakage from the current 58% to 50% and 2) Increase Chicago O&D demand by 25%. These increases will ensure that the current service, particularly UA Express service to Chicago, is self

- sustaining and will also be a catalyst for better air fares and eventually, more air service


# Tactics Overview

• To achieve this increase in traffic, four distinct types of marketing and advertising will be undertaken to help create brand awareness with regard to Duluth as a destination/tourism market. This is one of the cornerstones outlined in the recently released FAA publication Marketing Guidebook for Small Airports

12

# Traditional Media

DLH Catchment Area

 

### TV & Radio spots: Will be used on traditional NBC, CBS and ABC channels along with targeted cable. Radio will be used to target certain demographics.

 

### In Airport Ads: Will be used on both the TV’s/MUFIDS system in ticket counter lobby/baggage claim and gate concourse area in the new passenger terminal.

 

### Print Ads: Will be used in local/regional publications such as Duluth/Superior magazine, Positively Superior, Duluthian, Duluth News Tribune, Superior Telegram and Thunder Bay Daily.

 

### Billboard advertising: Will be used in strategic locations: Canadian border, highway leading to Superior, WI and highway leading to the upper part of MI.



## ORD Market Area

 

### TV & Radio spots: Cable/Radio will be used to target certain demographics.

 

### In Airport Ads: Will be used in certain gate concourse areas.

 

### Billboard advertising: Will be used extensively near O’Hare airport.

 

### Print Ads: Will be placed strategically in small local publications along with the in

- flight magazine.

 

### Buses/Subway: Will placed targeted ads on both buses and the Chicago Subway (El) system. Ads will target value conscious travelers with regard to upper Minnesota outdoor travel vacations (similar to what has been done in he past by the State of Michigan and to some degree, Wyoming )

13

# Web Site/Social Media/Email Distribution/Electronic Web Advertising

 

## DLH will build on the CVB’s new web design and user applications to reach customers in catchment area communities.

 

## DLH will enhance their web site to add a Trip Calculator. It will be a tool in calculating actual costs of traveling when you choose to drive to far away airports. This element is critical in helping customers compare actual travel costs. Should result in less leakage to other airports.

 

## Additional website options: low cost widgets, social media integration and email notification for low cost fares, social media advertising that sends customers to airport website/ F acebook page for airline ticket promotions.

 

## All media will include a call to action to direct customers to website and/or F acebook page resulting in a direct link for updated information and brand awareness of the air carriers.

 

## The use of social media and advertising will help DLH communicate key messages. Adding video to our web and social media presence is important to making the user experience more interactive.

 

## Additionally, we plan to advertise on travel websites which will increase brand awareness, loyalty and ultimately generate more bookings.

 

## CVB will dedicate a primary page of their website to air transportation.

14

# Community/Regional Marketing and Business Partner Commitment

 

### The local CVB (Visit Duluth), Explore Minnesota Tourism, the Chambers of Commerce (Duluth, Hermantown, Superior, Cloquet ), local businesses, Arrowhead Regional Development Commission (ARDC), and Area Partnership for Economic Expansion (APEX) have been strong supporters of the airport. They will be valuable partners in our efforts to aggressively market our services

.
 

### The airport will work diligently with our media partners to leverage the dollars in both paid and earned media we spend to promote tourism, travel and quality of life in the community

.
 

### DLH will work with the local chambers to include airport/airlines brand specific promotional material in newcomer packets for military, business relocation and the general population

.
 

### DLH staff will launch a comprehensive public relations outreach campaign to businesses and civic groups in the community.

 

### To help ensure successful implementation of the marketing plan, DLH has partnered with various regional entities, many of whom are making financial contributions, while others are providing in

- kind services such as advertising and brand exposure

.
 

### DLH has $100,000 committed for regional entities to support this effort and another $50,000 of in

- kind advertising support

– for a total of $150,000 local match

 

### Explore Minnesota Tourism (EMT)

- $25,000

 

### Visit Duluth

- $25,000

 

### City of Duluth

- $20,000

 

### Duluth Airport Authority

- $30,000

 

### Visit Duluth

- $50,000 (in

- kind )

15

# Passenger Loyalty/Reward Program

 

## DLH will use some grant money to help introduce a Customer Loyalty/Reward program that is designed to encourage passengers to fly local. Customers will be rewarded for joining, by receiving discounts on parking, concessions and miles for future airline travel

.

 

## Signing up will be free of charge. As a thank you gift, the customer will be mailed a welcome gift. The loyalty program will either be associated with a specific credit card that the member already has or the customer will be given a special loyalty card that can be swiped at each participating concession at the airport. DLH staff will use a software program to manage the members/program.

 

## DLH will partner with local tourism businesses and organizations to provide some gifts and rewards for the program. Once implemented, partners could include the airlines, airport related concessionaires, local restaurants, retailers and regional hoteliers.

 

## The loyalty program may also include entrance to a secure business lounge that will provide our elite business travelers a quiet place to conduct private business meetings or to enjoy complimentary newspapers, access to Wi

- Fi and specialty coffee/snacks

.

16

# Funding requirements

17 Planned Marketing Budget
TV Ads: 3 campaigns each year (3

- week schedule each) $100,000
Radio: 3 campaigns each year (2

- months schedule each) $52,800
O'Hare Promotion: 3 Locations(3 month duration for each) 4 Cycles $389,176

- O'Hare Bulletin Boards $73,294

- O'Hare signage $24,000

Loyalty Program: Initial Set

- Up Launch Fee $3,500 Kiosk for Customer Participation $12,000 Dedicated Airport Marketing Investment to Launch Loyalty Program $10,000 Initial thank you gift and postage $2,500

Social Media: Year Round Ad Placement facebook/other $12,000 Newspaper: 5 Regional Papers

- 2 x each year (3 month Run each) $52,000
Outdoor: Duluth regional outdoor (Two 4

- week buys) $36,000
United in

- flight magazine (3 placements over nine months) $103,338
Total $773,314

# Timing/Plan of Proposed Marketing Program

 

## Radio and TV: Spots to begin almost immediately upon awarding of grant. Air time schedules will be negotiated with emphasis on lead up to peak travel/booking times in the Fall and Spring.

 

## Newspaper: Ads will be placed in 7 Regional papers in the Catchment areas for periods of time that coincide with peak travel/booking seasons. These ads will push the hassle free and convenience factor message.

 

## Billboards: W ill be placed in 3 strategic locations immediately upon design, production completion to coincide with the Radio and TV campaign (Fall and Spring, 2014

- 2016). Locations to vary each time and will be strategically chosen.

 

## Social Media and Web: A ds to begin immediately following grant award. Will place emphasis on hassle free, no driving and convenience factor in ads that will be placed in front of unique users with a history of travel related web and search tendencies. Schedule constant, spread out. Less connected to peak travel/booking times.

 

## Loyalty/Rewards Program: T o be planned in August/September with equipment purchases and business partners secured by late fall 2013. Anticipate a launch by start of 2014 with a kick off Media Event held at the Airport

. ***Marketing program will be constantly monitored for effectiveness and tweaked as needed based on ability to reach the targe t a udiences.

18

# How this proposal differs relative to earlier grant

 

# In 2003, DLH was awarded a $1.5 million Small Community Air Service Development grant to support American Eagle service to Chicago (ORD)

 

# The service lasted until September 2004, at which time AA exited DLH

 

## AA blamed fuel price surge and lack of landing slot availability at ORD

 

# This proposal differs in the following regards:

 

## This proposal is for marketing of DLH

- ORD service for $700,000; prior proposal did not address marketing

 

## The current UA service has been operating since December 2009 and has been upgraded from 2x daily service to most recently, 3x daily service

– and United Express notes that the service has been successful

 

## The goal for this proposal is to solidify & grow DLH

- ORD service, with a focus upon generating more Chicago origin traffic into Duluth, resulting in additional economic stimulus for the region

19

# Closing Thoughts

 

# Relative DLH air traffic growth has lagged comparable U.S. rates of growth of over 20 years due to a lack of capacity growth and subsequent fare levels

 

# DLH fares are about 40% higher than for the U.S. in comparable markets

 

# Tied in part to the aforementioned lack of capacity growth and relative fare levels, approximately 58% of passengers booked from the Duluth

Superior Catchment area originate their travel from MSP

 

# Duluth

- Superior is proposing an aggressive marketing program that is supported by the local community and is targeted to reduce Duluth

Superior’s leakage and to solidify air service competition in the coming years; both would also have the effect of moderating air fare increases

20