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Home My WebLink About9/19/2001 - STAFF REPORTS (18) DATE: September 19, 2001 TO: City Council FROM: Assistant City Manager- Special Projects AIR SERVICE DEVELOPMENT 2002 INCENTIVE PROGRAM RECOMMENDATION: It is recommended that the City Council approve an Air Service Development Incentive program for 2002; "Freeport 2002 Air Carrier Operational Cost Reduction Initiative." SUMMARY: A recent recommendation from the SH&E Marketing Report for the Airport was to develop better year-round air carrier service. "Freeport 2002 Air Carrier Operational Cost Reduction Initiative"is being developed as a financial incentive to air carriers to raise their level of air service during the summer months and shoulder season. BACKGROUND: The primary recommendation coming from the recent SH&E Airport Marketing Report was to develop year-round air carrier service. Palm Springs Airport has always suffered through very low levels of air service in the summer months. This lack of service is seen by many as a serious deterrent to successfully marketing the local tourism and convention amenities. The summer season is also a difficult time to convince airlines to move aircraft to the Palm Springs market as they have so many other opportunities to fly markets that are proven performers. The SH&E marketing report focused on many aspects of airport marketing; however, under the air service marketing component they recommended: "PSP should develop a marketing package to offer carriers specifically targeting shoulder and summer seasons. Elements could include discounts to carriers, advertising, and vacation promotional packages." Any incentive packages that the Airport develops must be equally accessible by any and all air carriers and needs to result in at least a revenue neutral position for the Airport. The Airport receives its revenues from non-airline and airline sources. The airline rates & charges are a small portion of their cost to operate at an airport. The non- airline revenues are mostly derived from the passengers that are brought by the airlines. Each passenger that comes through the Airport in the summer months generates approximately $8.39 in non-airline revenue. The trick to developing a revenue neutral incentive program is to find a way to reduce airline operating cost so as to attract new flights/carriers that will bring new passengers. The attached "Freeport 2002 Air Carrier Operational Cost Reduction Initiative" is a package developed by staff directed at reducing the cost to air carriers to operate 10740 September 19, 2001 Page Two during the shoulder and summer months. Specifically, the initiative rebates all or portions of the landing fees in April through November for signatory carriers and to a lessor degree for non-signatory carriers. (Note: Signatory carriers are those that have a signed long-term agreement to operate at the Airport.) The firstelement of this initiative isto reward/incentivizethe airlines for those summer flights they continue to provide byrebating landing fees by 50% for the three-month summer period. The second element is designed to incentivize carriers to add flights by rebating the landing fees by 100% for the three-month summer period. The third element is designed to encourage new flights during the "shoulder season" (September, October, November, April, May) by rebating landing fees during those periods. Projected landing fees for this last summer are as follows: June Jul August $51,165 $51,499 $51,197 The 50% rebate for existing flights would cost the Airport $25,852in this fiscal year, and$51,348 in the following fiscal year. The rebate of landing fees for new flights will not negatively impact the Airport as they are new flights not having previously been in the revenue projections. However, the new flights should bring new passengers that will in turn generate non-airline revenues forthe Airport which will hopefully offset the lost landing fees. One flight that the Airport is already working on with Alaska is a year-round Seattle. Alaska would probably provide such service with a 737-700 configured with 120 seats. Over the 90 days summer period, this one flight would add 10,800 inbound seats which could translate to 7020 new passengers(utilizing 65%load factor). Those 7020 passengers could generate$58,898 in non-airline revenue to the Airport and$24,822 in PFC's ($4.42/passenger @ 80% factor); for a total revenue of$83,720. So, with only one new flight, the dollars lost via the first element of the initiative will be more than made up. It is proposed that the initiative would be effective January 1, 2002. The Airport Commission, at its September 5 meeting, discussedthis item and has unanimously recommended its approval to City Council. A Resolution which would put this incentive program in place for calendar 2002 is attached for City Council consideration. ALLEN K SMOOT, AAE Assistant —Ciittyy Manager- Special Projects APPZ ' City Manager ATTACHMENTS:1. Freeport 2002 Flyer REVIEWED BY DEPT.OF FINANCE 2. Resolution / A FREEPORT 2002 AIR CARRIER OPERATIONAL COST REDUCTION INITIATIVE The Airport, with the assistance of its Marketing Consultant, SH&E, has recently completed the development of a strategic marketing plan for the Airport. That plan has been embraced by the Airport Commission and the City Council. A critical recommendation from the plan is, "PSP should develop a marketing package to offer carriers specifically targeting shoulder and summer seasons. Elements could include discounts to carriers, advertising and vacation promotional packages." To address the issue of discounts without adversely affecting Airport revenues, the Airport will offer to rebate all or a portion of the landing fees for signatory carriers and to a lessor degree for non- signatory carriers so that actual fees collected during the incentive period will be as follows: 1. For new flights during the period of September 1 through November 30, landing fees shall be non-signatory carriers $,32/1000 lbs. and for signatory carriers shall be $.0/1000 lbs. 2. For new flights during the period of April 1 through May 31, landing fees shall be non- signatory carriers $.32/1000 lbs. and for signatory carriers shall be $.0/1000 lbs. 3. For existing flights during the period of June 1 through August 31, landing fees shall be non- signatory carriers $.78/1000 lbs. and for signatory carriers shall be $.62/1000 lbs. 4. For new flights during the period of June 1 through August 31, landing fees shall be non- signatory carriers $.32/1000 lbs. and for signatory carriers shall be $.0/1000 lbs. Definitions: "New Flight"shall be a departure not provided during the same period of the prior year, but shall not include a new departure created by removing a large aircraft and replacing it with two smaller departures. "Existing Flight" shall be a departure provided during the same period of the prior year. "Signatory Carrier"is an air carrier that has executed a Palm Springs Airport Operating and Lease Agreement. "Non-Signatory Carrier' is an air carrier that has not executed a Palm Springs Airport Operating and Lease Agreement. �,9 3 RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS , CALIFORNIA, ESTABLISHING AN AIR SERVICE DEVELOPMENT 2002 INCENTIVE PROGRAM SO AS TO REBATE ALL OR A PORTION OF CONTRACTUALLY ESTABLISHED LANDING FEES DURING INCENTIVE PERIODS. WHEREAS the Palm Springs International Airport recently contracted for an Airport Marketing Study with Simat, Helliesen & Eichner from Boston, Massachusetts; and WHEREAS one of the key recommendations in the area of air service development is that "PSP should develop a marketing package to offercarriers specifically targeting shoulder and summer seasons. Elements could include discounts to carriers, advertising and vacation promotional packages."; and WHEREAS the consultant and Airport staff have found that during the traditional winter season in Palm Springs air carriers have no hesitation to provide service to meet the demand but are very hesitant to expand into the shoulderseasons and even more hesitant to fly during the summer; and WHEREAS in response to the airlines'hesitation to fly during certain periods,Airport staff and the Airport Commission have developed a landing fee rebate program which would reward airlines for continuing to fly to Palm Springs during the summer of 2002 and for introducing new flights anytime between April through November of 2002; and WHEREAS any incentive program offered must be equitable to any and all air carriers in its administration and effect; and WHEREAS landing fees for signatory carriers are established by the Airline Use and Lease Agreement and landing fees for non-signatory carriers are established in the Comprehensive Fee Schedule adopted by Resolution No. 19757; and WHEREAS not to upset the operation of the Airline Use and Lease Agreement or the fees established by the Comprehensive Fee Schedule,the proposed incentive program has been developed as a rebate, not a waiver of fees, NOW THEREFORE BE IT RESOLVED that the"Freeport 2002 Air Carrier Operational Cost Reduction Initiative" is hereby approved as a landing fee rebate program so as landing fees actively collected during the incentive periods shall be as follows: 1. For new flights during the period of September 1 through November 30, landing fees shall be non-signatory carriers $.32/1000 lbs. and for signatory carriers shall be $.011000 lbs. 2. For new flights during the period of April 1 through May 31, landing fees shall be non- signatory carriers $.32/1000 lbs. and for signatory carriers shall be $.0/1000 lbs. P74 September 6, 2001 Page Two 3. For existing flights during the period of June 1 through August 31, landing fees shall be non-signatory carriers$.78/1000 lbs. and for signatory carriers shall be$.62/1000 lbs. 4. For new flights during the period of June 1 through August 31, landing fees shallbe non-signatory carriers$.32/1000 lbs. and for signatory carriers shall be$.0/1000 lbs. Definitions: "New Flight" shall be a departure not provided during the same period of the prior year, but shall not include a new departure created by removing a large aircraft and replacing it with two smaller departures. "Existing Flight" shall be a departure provided during the same period of the prior year. "Signatory Carrier" is an air carrier that has executed a Palm Springs Airport Operating and Lease Agreement. "Non-Signatory Carrier" is an air carrier that has not executed a Palm Springs Airport Operating and Lease Agreement. ADOPTED this day of , 2001. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED &APPROVED AS TO FORM