Title: Northwest Regional Air Service Initiative Steering Committee Meeting Market AnalysisStrategies
1Northwest Regional Air Service Initiative
Steering Committee MeetingMarket
Analysis/Strategies
2Report topics
- Northwest Regional Air Service Initiative
(NWRASI) background - Market analysis
- True market estimates
- Pro forma forecasts
- Discussion/input
3IssuesGoalsProject scope
4Air service issues
- Service in secondary markets is deteriorating
- Regional airline relationships and fleet trends
are increasing small community service issues - Industry trends making future service
improvements difficult - Many leaders in small communities have little
understanding of the issues and/or how to address
them
5Goals
- Improve air service to the OR and WA traveling
community - Provide better access from secondary markets in
OR and WA to the national air transportation
system - Engage smaller communities in OR and WA in
finding solutions to regional air service issues
6Project scope
- Phase I Small community air service development
tool kit - Mentor Program
- Air service DVD
- Small Community Air Service Handbook
- Phase II Small community air service market
analysis - True market estimates
- Pro forma analyses
- Phase III Small community air service strategy
- Potential air service markets
- Service provider options
- Service strategies
- Recommendations
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7NWRASI airports
12 Oregon and Washington communities participated
in the NWRASI
8True market estimatesPro forma forecasts
9Market analysis - questions
- Where are air travelers traveling to/from today?
- How many by origin and destination market?
- Does it make economic sense to serve these
communities?
10Market analysis - steps
- Identification of airport catchment areas (ACA)
- Collection of air travel data (MIDT)
- Model air travel markets where data does not
exist - Analyze and summarize market information (total
passenger volume by destination) - Complete pro forma analyses on potential markets
11Estimating air service demand (true market)
- Methodology
- Each NWRASI airport has its own unique air
service market - ACA population defined for each market by zip
code - Economics and demographics considered for proxy
markets - Competing (alternate) airport service considered
- Data sources
- YE 10/2006 MIDT for zip codes included in each
catchment area - Airports with existing service combined MIDT and
DOT airline data by destination - Airports without existing service estimated using
travel factors based on several factors including
proximity to larger airports
12Example true market estimate w/ air service
- Like many NWRASI communities, isolated from large
population centers - Current scheduled air service
- Airport catchment area population of 78,368
- True market estimate of 119,334 origin and
destination passengers annually - Portland is the 1 market
13Example true market estimate w/o air service
- No current scheduled air service
- Airport catchment area population of 96,724
- Used travel factor proxy (Wenatchee) to estimate
the true market - True market estimate of 114,371 origin and
destination passengers annually - Seattle is the 1 market
14True market estimates
Passenger estimates form baseline for pro forma
forecasts
15Pro forma market screening
- Each pro forma is stand alone
- Frequency Minimum service in a new market is 2
roundtrips to be viable - Aircraft size 19-, 30-, or 37-seat turboprop
aircraft (74-seat if demand permits) and 50-seat
regional jets - Appropriate destinations and connecting hubs
- Codeshares with dominant hub carrier PDXAS/QX,
SLCDL, DEN/SFOUA, PHXUS, BOI/GEGuniversal
codeshare - Best case scenario for NWRASI participants
16Markets selected for pro forma analyses
- Highlighted markets form core for strategies
- 25 pro forma analyses completed
17Key pro forma forecast elements
- Passengers forecast based on connecting
opportunities and stimulation - Average fares based on reported fares where
service exists and reported fares in proxy market
where no service exists - Segment revenue determined by pro-rating
connecting market revenue based on square root of
the miles - Estimated operating costs based on Form 41
carrier costs reported to the US DOT and
manufacturer cost curves
PUW
Segment 1
Beyond
SLC
Segment profit/ loss a key consideration by
airlines
18Results - Boise
Only one market, PUW, was profitable on a system
basis though marginal
19Results Denver/Phoenix
Only one market, RDM, was analyzed for Denver and
Phoenix service
Although segment negative, both Denver and
Phoenix would provide ample system profits
Note Load factor capped at 80 percent.
20Results - Portland
All six were positive on a system basis negative
segment basis
Note Load factor capped at 65 percent.
21Results Salt Lake City
Both Wenatchee and Pullman are profitable on a
system basis
22Results San Francisco
Only Klamath Falls is positive on a segment
basis 2 airports are negative on a system basis,
Pullman and Yakima
Note Load factor capped at a 70 percent load
factor for 30-seat aircraft and 80 percent for
50-seat aircraft.
23Results Seattle
All 6 pro formas were negative on a segment basis
but positive on a system basis
Note Load factor capped at a 65 percent load
factor for 19-seat aircraft and 70 percent for
37-seat aircraft.
24Key strategy considerations
- No point-to-point service
- With one exception, short-haul service does not
pay for itself - All service will require either cross-subsidy or
direct subsidy
- All markets require codeshare at the hub to
survive - Service provided by multiple airlines are
required to meet NWRASI hub and aircraft
requirements
25IssuesShort-term strategiesLong-term
strategies
26Issues
- Short-haul air service operating economics
- Source and availability of appropriate aircraft
- Airfares that are acceptable to the market
27Issue Short-haul service operating economics
- Cost of operating short-haul NWRASI flights does
- not pay for itself on a segment basis
28Issue Sources of appropriate aircraft
- Airlines operating 19-, 30-, and 37-seat
- aircraft in the western US
- 19-seat B-1900s getting very old
- No new technology short-haul aircraft
29Issue Acceptable short-haul market airfares
- Must be low enough to limit passenger diversion
to larger airports and low-fare carriers - Requires codeshare to allow publishing of through
fares rather than two local fares - Low fares require some type of subsidy
- Cross subsidy by carrier (pro-rate adjustment)
- Seat-buy by carrier
- Non-airline direct subsidy
30Strategy - discussion
- Narrow the scope of the NWRASI initial program by
focusing on high utility hubs that can be served
with the same aircraft type - PDX and SEA service with 19- or 30-seat aircraft
offer the greatest utility to the largest number
of NWRASI airports
31Strategy - steps
- Step 1 Engage Alaska Airlines/Horizon Air in
high level discussions about NWRASI code-share
needs at SEA and PDX - Step 2 Issue RFP seeking expressions of
interest on operating 19-37 seat aircraft in
designated Portland and Seattle markets - RFP sponsors State Economic Development
Agency/State DOTs - Step 3 Solicit proposals for respondents in Step
2 (offer a payment to offset the cost of
preparing a proposal) - Will provide insight into potential subsidy
needed - Step 4 A. Investigate/lobby for sources of
needed subsidy dollars (federal, state, local) - B. If no response to RFP, make presentations to
potential service providers - Step 5 Develop a plan to address individual
NWRASI service needs at DEN, SFO, PHX, and SLC
32Questions discussion