HomeMy WebLinkAbout2/7/2007 - STAFF REPORTS - 4.D. .ti�pA�MSp4
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DATE: JAN ARY 117, 2 07�p -SFPX�BUSINESS
SUBJECT: PALM SPRINGS INTERNATIONAL AIRPORT INCENTIVE PROGRAM
FROM: David H. Ready, City Manager
BY: Aviation Department
SUMMARY
Airport staff is requesting approval for the Air Service Incentive Program to be used in
air service development efforts.
RECOMMENDATION:
1. Approve Resolution No. , A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF PALM SPRINGS APPROVING THE ESTABLISHMENT OF AN AIR
SERVICE INCENTIVE PROGRAM.
2. Authorize the City Manager to execute all necessary documentation.
STAFF ANALYSIS
Incentives increasingly are becoming standard procedure for small hub airports such as
Palm Springs International to attract new air service by mitigating some portion of an
airline's startup costs on a new route. In a 2003 GAO study, 11 of 17 small hub airports
studied had financial incentive programs in place, with some ranging well above
$100,000 in annual value. In many cases, having no incentive program at all is a clear
disadvantage when competing for proposed service with other similar airports.
In recent years, many of our airport advertising campaigns have been directed at local
customers through print, television, radio, and other media. These expenditures were
often not connected with supporting new service, but were used to raise general
awareness of the airport. Also, there was little consistency in how the funds were spent.
Sometimes advertising was directed towards certain new services, but not others, and
also in varying amounts. The proposed program will specifically call out the advertising
and marketing funds which are available to any airline fulfilling the criteria for air service
ITEM NO.- _
incentives. The incentives will be granted according to a consistent set of criteria. We
will reduce the amount of advertising that was previously directed towards increasing
local awareness, as we establish an incentive program focused on promoting new air
service.
Though our efforts are centered on our top origin-destination (0&D) markets with no
nonstop service at all, we are also interested in converting seasonal service to year-
round, in order to further reduce the seasonality of our air service.
The key components of any effective air service incentive program are that it is
available on an equitable basis to any airline fulfilling the criteria for the incentive and
therefore meets legal scrutiny, provides a return on the airport's investment, and most
importantly, increases the likelihood of a carrier entering the market and beginning the
new route.
This program is not designed to completely offset an airline's risk of operating the new
service, but to help an airline market its new service and to reduce its operational costs
while building demand for the new route. It also shows the airport's commitment toward
helping ensure that the new route or airline is successful in our market.
Our program features two components:
1) Operational credits equal to up to twelve months of landing fees
Landing fees will be charged but then credited, on a monthly basis, to the carrier for a
maximum period of twelve months, or until the carrier reduces service levels on the
route below its original level, whichever comes first. Depending on the equipment and
service level, this portion of the incentive program can represent a savings in excess of
$50,000 annually for the carrier. To put this amount in context, Palm Springs
International Airport expects to collect approximately $12 million in landing fees in total
in FY2007.
2) Funds for marketing and advertising the new service
Our program provides a modest amount of marketing and advertising for the express
purposes of stimulating demand at the launch of the new service. The Airport will
review the proposed expenditures and reimburse the carrier up to the amount of the
incentive. In order to receive better pricing, the carrier may ask the Airport to place local
advertisements. These expenditures must follow the announcement of a launch date for
new service.
Palm Springs International Airport Air Service Incentive program
Award New Strategic New Pay Year-Round Marketing
YYPA Carrier Market Destination Fre uenc Service Incentive
1 ✓ $50,000
2 ✓ ✓ ✓ ✓ $30,000
3 ✓ ✓ $15.000
4 ✓ ✓ ✓ $15,000
5 ✓ ✓ ✓ $15,000
6 ✓ ✓ ✓ $15,000
Award 1: Any Nonstop Service to a Strategic Market
"Strategic Market" is defined as service to New York (JFK or Newark) or
Washington/Baltimore (Dulles or Baltimore). New York-LaGuardia and Reagan
National cannot currently be served nonstop from Palm Springs due to federal capacity
restrictions at these airports.
For service to one of these destinations, total award amount will be $50,000 plus the
calculated value of landing fees, which would likely be modest initially as these
destinations would likely be served less than daily and only seasonally.
Award 2: Unserved destination new carrier, daily frequency, ear-round
Funds are available for new scheduled service to PSP that meets all of the following
criteria:
• Unserved airport
• New carrier
• Daily frequency
• Year-round service
For daily service, total award amount will be $30,000 in marketing support plus the
calculated value of landing fees, which will vary by aircraft type. A typical annual value
for landing fees would be $55,000.
Award 3:
For less than daily service by a new carrier to an unserved destination, scheduled year-
round, total marketing support is limited to $15,000 plus the calculated value of landing
fees.
Award 4: Existing destination new carrier, daily service ear round
Funds are available for new scheduled service to PSP that meets all of the following
criteria:
• New carrier
• Daily service
• Year-round service
Total award amount will be $15,000 in marketing support plus the calculated value of
landing fees, which will vary by aircraft type. A typical annual value for landing fees
would be $55,000.
Award 5: Unserved_destination, new carrier, daily service
Funds are available for new scheduled service to PSP that meets all of the following
criteria:
• New carrier
• Daily service
• New destination
Total award amount will be $15,000 in marketing support plus the calculated value of
landing fees, which will vary by aircraft type and length of season.
Award 6: Unserved destination, existing carrier, daily service, year round
Total award will be $15,000 in marketing support plus the calculated value of landing
fees, which will vary by aircraft type. A typical annual value for landing fees would be
$55,000.
The program criteria, amount of funding, and list of strategic destinations are subject to
annual adjustment. This program will be budgeted each fiscal year in the Airport's
operating expenses under "Advertising." For FY2007, existing funds in the Airport
advertising budget will be applied toward any successful recruitment of service which
qualifies for the incentive.
Note that this program does not prohibit the creation of other offers or incentives
specifically geared to attract or support new service that may be funded by other
community organizations such as the Palm Springs Desert Resorts Convention and
Visitors Authority (CVA) or the Palm Springs Bureau of Tourism. The Airport is actively
advising the CVA in their creation of a marketing plan for key air markets.
This Air Service Incentive Program gives the Airport an additional tool to attract the type
of service that we believe is important for the city and the entire Coachella Valley. By
stimulating more airline activity, not only will we be able to maintain a low-cost structure
for airlines but we also will attract more customer demand, leading to higher service
levels and a possible decline in ticket prices.
The Airport Commission unanimously recommended City Council approval of this Air
Service Incentive Program at their December 6, 2006 meeting.
FISCAL IMPACT:
Incentive awards under this program will be paid initially from the "Airport Advertising
Account" which has a budgeted amount of $50,000 for all forms of advertising. If it is
determined that additional funds are needed to provide qualified incentive awards, staff
will recommend to City Council a budget adjustment- However, in next year's budget,
Airport staff will propose that funds be allocated specifically to a marketing support
account for this incentive program.
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Relative to the potential loss of landing fees, in FY2006, the Airport collected $1.13
j million and projects that fees in this area will reach $1.20 million in FY2007. However,
without new service, additional landing fees would not be collected. Yet, given the
relatively short term of the proposed landing fee waiver, the negative fiscal impact is
expected to be nominal depending upon on the type of new airline equipment and
i service levels proposed. Moreover, the incentive program ultimately represents a
positive impact to the Airport's budget in excess of the waived landing fees as is
I illustrated in the attached Exhibit "B."
Richard S. Walsh, A.A.E., Director of Aviation
David H. Ready, City ager
Attachments:
Exhibit A- Palm Springs International- Top 0&D Markets
Exhibit B- Service Example
Resolution
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EXHIBIT A
Palm Springs International-To O & D Markets- Domestic Carriers Only
durokni
Nonstop•Service
Rank" Uesinafionw_ .„..,._.........
1 San Francisco ear-round
2 Seattle/Tacoma seasonal
3 Chicago-O'Hare ear-round
4 Portland, OR seasonal
5 New York-Newark none
6 Minneapolis/St. Paul seasonal
7 Denver, CO ear-round
8 Sacramento, CA ear-round
9 Vancouver, BC seasonal
10 Washington, DC/Baltimore, MD none
11 Dallas/Fort Worth ear-round
12 Las Vegas ear-round
13 Boston none
14 Phoenix ear-round
15 Salt Lake City ear-round
16 Philadelphia none
17 Las An eles ear-round
18 Houston-intercontinental seasonal
19 Atlanta seasonal
20 Detroit none
21 Kansas City none
22 St. Louis none
23 Spokane, WA none
24 Cleveland, OH none
25 Omaha, NE none
Definitions:
"New carrier" is defined as one which has not served PSP within the last three years.
If two new carriers begin service to the same destination in the same season, both
would be eligible for an incentive. A carrier is only eligible for one award per new
service.
EXHIBIT B
' Service Example:
New carrier, existing destination, daily, Frontier
i year-round Airlines
Palm Springs-Denver
Annual Departures 365
I Two-Way Annual O & D Passengers 58,000
i Aircraft Type CRJ700
Net Annual Market Stimulation Rate 15%
I
PSP Incremental Originating
Passengers 8,700
Additional Revenue From:
PFC $ 39,150
Parking $ 21,162
Car Rental $ 51,965
Concessions $ 10,663
Landing Fees $ 30,569
Landing Fee Surcharge $ 3,741
Loading Bridge Fee $ 14,600
Terminal Fee $ 13,050
Terminal Space Lease $ -
Total Additional Revenue $ 184,900
Landing Fee Credit $ (30,569)
Incremental Revenue $ 154,331
Incentive Amount $15,000
Payback (months) 2
Assumptions:
$4.50 PFC
$2.43 Average gross parking revenue per enplanement
Average Airport rental car revenue per
$6.97 enplanement
$1.23 Airport's concession revenue per enplanement
$1,25 Signatory Landing Fee per 1000 pounds
$0.43 Landing Fee Surcharge
$40.00 Loading Bridge Fee-Signatory- per use
Terminal Operation Fee per enplanement
$1.46 (average)
50% incremental passengers living outside PSP area
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS, CALIFORNIA,
ADOPTING AN AIR SERVICE INCENTIVE
PROGRAM.
WHEREAS the City Manager has recommended, and the City Council desires to
approve, the adoption of an Air Service Incentive Program for the Palm Springs
International Airport.
WHEREAS, City staff has completed an analysis of the Palm Springs air service
market and believes that this program will be beneficial to Palm Springs
International Airport's air service development efforts;
WHEREAS, the incentives, if offered, are expected to be revenue-positive for the
Airport in less than six months;
WHEREAS, funding for the incentive program is provided within the Airport's
marketing budget;
WHEREAS, six types of new service are eligible for incentives, as follows:
Award 1: Any Nonstop Service to a Strategic Market:
"Strategic Market" is defined as service to New York (JFK or Newark-EWR) or
Washington/Baltimore (Dulles-[AD or Baltimore-BWI). Total award amount will
be $50,000 plus the calculated value of landing fees.
Award 2: Unserved destination, new carrier, daily frequency, year-round
Total award amount will be $30,000 in marketing support plus the calculated
value of landing fees, which will vary by aircraft type. A typical annual value for
landing fees would be $56,000.
Award 3: For less than daily service by a new carrier to an unserved destination,
scheduled year-round, total marketing support is limited to $16,000 plus the
calculated value of landing fees.
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Award 4: Existing destination, new carrier, daily service, year round
Total award amount will be $15,000 in marketing support plus the calculated
value of landing fees, which will vary by aircraft type. A typical annual value for
landing fees would be $55,000,
I Award 5: Unserved destination, new carrier, daily service
Total award amount will be $15,000 in marketing support plus the calculated
i value of landing fees, which will vary by aircraft type and length of season.
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Award 6: Unserved destination, existing carrier, daily service, year round
Resolution No.
Page 2
Total award will be $15,000 in marketing support plus the calculated value of
landing fees, which will vary by aircraft type. A typical value for landing fees
would be $55,000; and
WHEREAS, the program criteria, amount of funding, and list of strategic
destinations are subject to annual review.
THE COUNCIL OF THE CITY OF PALM SPRINGS RESOLVES:
SECTION 1: The City Manager is authorized to formulate and implement a final
Air Services Incentive Program as generally described in this Resolution and the
City Council Staff Report dated January 17, 2007, including the waiver of landing
fees and the expenditure of no more than $50,000, on a cumulative basis,
without the approval of the City Council.
SECTION 2. This Resolution and the Air Services Incentive Program shall
terminate on February 1, 2008, unless otherwise extended by the City Council
prior to such termination date.
ADOPTED THIS 17th day of January, 2007.
David H. Ready, City Manager
ATTEST:
James Thompson, City Clerk
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Resolution No.
Page 3
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) ss.
I
CITY OF PALM SPRINGS )
I, JAMES THOMPSON, City Clerk of the City of Palm Springs, hereby certify that
! Resolution No. is a full, true and correct copy, and was duly adopted at a
regular meeting of the City Council of the City of Palm Springs on January 3,
2007, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
James Thompson, City Clerk
City of Palm Springs, California