Northwest Regional Air Service Initiative Steering Committee Meeting Market AnalysisStrategies

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Northwest Regional Air Service Initiative
Steering Committee MeetingMarket
Analysis/Strategies

• June 6, 2007

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Report topics

• Northwest Regional Air Service Initiative
  (NWRASI) background
• Market analysis
• True market estimates
• Pro forma forecasts
• Discussion/input

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IssuesGoalsProject scope

• NWRASI Background

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Air 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

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Goals

• 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

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Project 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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NWRASI airports
12 Oregon and Washington communities participated
in the NWRASI
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True market estimatesPro forma forecasts

• Market Analysis

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Market 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?

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Market 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

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Estimating 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

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Example 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

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Example 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

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True market estimates
Passenger estimates form baseline for pro forma
forecasts
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Pro 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

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Markets selected for pro forma analyses

• Highlighted markets form core for strategies
• 25 pro forma analyses completed

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Key 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
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Results - Boise
Only one market, PUW, was profitable on a system
basis though marginal
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Results 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.
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Results - Portland
All six were positive on a system basis negative
segment basis
Note Load factor capped at 65 percent.
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Results Salt Lake City
Both Wenatchee and Pullman are profitable on a
system basis
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Results 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.
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Results 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.
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Key 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

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IssuesShort-term strategiesLong-term
strategies

• Discussion/input

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Issues

• Short-haul air service operating economics
• Source and availability of appropriate aircraft
• Airfares that are acceptable to the market

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Issue Short-haul service operating economics

• Cost of operating short-haul NWRASI flights does
• not pay for itself on a segment basis

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Issue 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

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Issue 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

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Strategy - 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

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Strategy - 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

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Questions discussion

• Thank you