July 2013

APPLICATION UNDER THE SMALL COMMUNITYAIR SERVICE DEVELOPMENT

PROGRAM,

DOCKET OST-2013-0120 – COVER PAGE

Legal Sponsor and Airport Information: Duluth International Airport 

DUNS: 1322648346

Tax Identification Number: 41-6005105 Minnesota’s 8th Congressional District
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

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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-99

Nov-00

Oct-01

Sep-02

Aug-03

Jul-04

Jun-05

May-06

Apr-07

Mar-08

Feb-09

Jan-10

Dec-10

Nov-11

Oct-12

DLH & U.S. Departing Seats 

Indexed to CY 1999

DLH

U.S.

DLH ex-G4

$250

$300

$350

$400

$450

$500

$550

4Q004Q014Q024Q034Q044Q054Q064Q074Q084Q094Q104Q114Q12

Average paid round-trip air fare

Net of taxes & pfc’s

DLH U.S. DLH ex-G4

* Net of Allegiant Airlines

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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: OrlandoSanford, 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

120,000

4Q003Q012Q021Q034Q033Q042Q051Q064Q063Q072Q081Q094Q093Q102Q111Q124Q12

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

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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

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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

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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

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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)

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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/Facebook page for airline ticket promotions.

 All media will include a call to action to direct customers to website and/or 

Facebook 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.

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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)

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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.

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Funding requirements

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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: Will 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: Ads 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: To 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 target audiences.

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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

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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 DuluthSuperior 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 DuluthSuperior’s leakage and to solidify air service competition in the coming 

years; both would also have the effect of moderating air fare increases

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