HomeMy WebLinkAbout6/19/2002 - STAFF REPORTS (2) DATE: June 19, 2002
TO: City Council
FROM: Executive Director-Airports
SIMAT, HELLIESEN & EICHNER (SH&E) CONTRACT EXTENSION
RECOMMENDATION:
It is recommended that City Council approve Amendment#2 to the SH&E Air Service
Development/Airport Marketing Consulting Agreement.
SUMMARY:
This action would result in a one-year extension of the Air Service
Development/Airport Marketing Agreement withSH&E. This extension contemplates
a very aggressive campaign over the one-year period. Air service development is
crucial to a strong economic development effort,thus the more than doubling of effort
in this proposed campaign.
BACKGROUND:
Eighteen (18) months ago, the City conducted a nationwide search for a firm to help
develop an Air Service Development/Marketing Program for the Airport. The result
of the search was the hiring of SH&E to first conduct an air service baseline study and
then provide a year of air service development/marketing assistance. During the later
consulting assignment, one of the key objectives was to provide training for the
Airport's staff so that they could be fully prepared to meet with airlines. This sounds
simple; however, there was a great deal of teaching and learning necessary to turn
our mind set from taking larger delegations of high ranking political figures to meet
with airline CEO's to a format of airport staff meeting with airline service/route
planners. No longer could City staff arrive with just demographics of the Valley and
inform the airlines that we felt they should serve the Valley. Now we had to be ready
to answer the tough questions that the airline folks asked. These questions were
answered because staff was equipped with forecasts and other data relevant to the
airlines and prepared by SH&E. At a recent meeting of the CVA Long Term Air
Service Committee, SH&E walked those in attendance through a shortened version
of the data they produced for the airport to use with the airlines (sample attached).
The first year contract with SH&E contemplated an average monthly retainer of$4,000
to be on call to assist Airport staff in data development and industry insight. The
contract also included development of three presentation packages for specific air
carriers, an update of the"leakage study" and development of a marketing program.
As staff met with the carriers, specific requests for additional data were generated;
those requests were provided under the on-call retainer. The original retainer was
based on an estimate of 40 hours per month of work; our data demands pushed
SH&E well beyond the original expectation.
1R
Even with the events of"9/11," the partnership of SH&E, Airport staff and the local
tourism community resulted in a new carrier/market in Horizon Air to Sacramento. It
also resulted in Northwest's expanded season and their second flight. But, more
importantly,their training of our staff has been very successful and currently the staff
has conversations ongoing with twelve carriers.
The CVA's Long Term Air Service Committee has been struggling with the issue of,
What should the long term plan be; do we need to raise money for subsidy? SH&E's
recent report to that committee strongly recommended that the Valley "stay-the-
course" with the current Airport program; speak with one voice, offer incentives of
advertising, hotel rooms, etc., and push hard over the next twelve months. The CVA
committee consensus appeared to be that of appreciation for the effort and agreement
to "stay-the-course."
The proposed contract extension would do as follows:
1. Extend the term for 12 months; and
2. Increase retainer to $5000 monthly; and
3. Require a complete hub system analysis of all the Airport's incumbent carriers
for$21,000; and
4. Develop eight (8) carrier forecasts & presentations for$68,000; and
5. Develop marketing materials for$20,000; all
6. For a total cost of$180,000, including up to $11,000 for reimbursables.
The funding for this increased contract was included in the recently approved Airport
2002/03 budget(Account 415-6002-45520, "Advertising"); no City general funds are
involved and some of the funds may be reimbursed should the Airport be successful
in obtaining a new federal grant for air service development.
In the recitals of the Amendment, the Airport's air service goals for 2002/03 are
spelled out as follows:
• Summer east/west jet service without a cash subsidy; and
• Expanded summer service to Pacific Northwest; and
• Winter weekend east coast nonstop service; and
• Expanded shoulder season service; and
• Reestablish Denver nonstop service; and
• Winter nonstop to the south; and
• Overall expansion of the number of seats.
M2
The Airport Commission, at its regular meeting of June 5, 2002, discussed this
proposed amendment and unanimously recommends City Council approval.
ALLEN F. SMOOT, AAE
Executive Director-Airports
APPR EVO D
City Manager
ATTACHMENTS:
1. Minute Order
2. Amendment#2
3. Sample Air Carrier Analysis
REVIEWED BY DEn OF FINANCE
1�43
Projected Passengers for Proposed Alaska Airlines
Palm Springs-Sacramento Nonstop Service
1 Daily Roundtrips Operated With 70-Seat DH8*
L 4.... .. a.. ... e
Local Market =
PSP—Sacramento 439 53,083 10.0% 64,230 1.00 64,230 73.5% 47.8% 30,686 $105 $3,230,949 13,471,239
Connect Markets
Seattle 605 163,471 0.0% 163,471 1.00 163,471 3.0% 1.9% 3,152 $115 $361,894 1,906,861 -
Portland, OR 478 98,289 0.0% 98,289 1.00 98,289 10.1% 6.5% 6,432 $114 $732,556 3,074,563
Beyond Total 261,760 261,760 261,760 9,584 1,094,450 4,981,424
" SH&E estimates based on travel agency survey and inbound visitor survey
. n, ,
-Z-..>e F'i LLZ Page 1
Financial Results for Proposed Alaska Airlines
Palm Springs-Sacramento Nonstop Service
9 Daily Roundtrip Operated With 70-Seat DH8
Passenger $4,325,400
Cargo* 231 ,303
Total Revenue $4,556,703
Direct i $2,297,967
Indirect $1,936,725
Total Expenses $4,234,692
_.
Estimated at 5.3% of Passenger Revenue
Operating Statistics for Proposed Alaska Airlines
Palm Springs—Sacramento Nonstop Service
1 Daily Roundtrip Operated With 70-Seat DH8
Annual Departures (@98.5% Completion) 719
Available Seats with 70-Seat DH8 50,334
Segment Distance 439
Annual Aircraft Miles 315,663
AS M's 22,096,407
RPM's 17,678,605
Block Hours per Flight 1 .5
Annual Block Hours 1,079
Alaska Segment Passengers 40,270
Segment Load Factor 80.0%
RASM $0.2062
iCASM $0.1916 1
Page 3
Operating Expenses for Proposed Alaska Airlines
Palm Springs—Sacramento Nonstop Service
9 Daily Roundtrip Operated With 70-Seat DH8
Direct Operating Expenses *
Flying Operations $ 1,027 per Block Hr 1,079 $ 1,107,399
Maintenance $ 835 per Block Hr 1,079 $ 900.777
Ownership $ 269 per Block Hr 1,079 $ 289,790
T 0 i _ _ ,en 3t _
IndirectOperating Expenses-Local Segment
Passenger Service $0.013 per RPM 17,678,605 $ 234,794
Aircraft & Traffic Servicing $13.65 per Seat 50,334 $ 687,122
Promotion & Sales 15.8% of Psgr Rev $4,325,400 $ 682,161
General & Administrative $0.006 per ASM 22,096,407 $ 135,653
Subtotal $ 1,739,730
Indirect Operating Expenses-Beyond OAK
PassengerService $0.013 per RPM 4,981,424 $ 66,160
Aircraft & Traffic Servicing $13.65 per Seat 9,584 $ 130,835
Subtotal $ 196,994
Z
SH&E estimate based on F28
Page 4
Schedule for Proposed Alaska Airlines
Palm Springs—Sacramento Nonstop Service
1 Daily Roundtrip Operated With 70-Seat DH8
12:00 Leave Arrive 19:05
13:45 Arrive Leave 17:40
7-7 -7777
Pale 5
AMENDMENT NO. 2
AGREEMENT NO. 4334, AIRPORT MARKETING CONSULTING SERVICES
This Second Amendment to Agreement No.4334 for contract services,(herein"Agreement")made
and entered into this day of 2002,by and between the CITY OF
PALM SPRINGS, (herein"City")and SIMAT,HELLIESEN&EICHNER,INC. (SH&E) (herein
"Contractor") is hereby effective July 1, 2002.
WITNESSETH
WHEREAS SH&E, in partnership with the Airport Staff and the Valley Tourism Industry, has
successfiAly conducted Air Service Development and Marketing for the Palm Springs International
Airport even in the shadow of the impacts of"9/11'; and
WHEREAS the Airport's 2002-03 air service development goals are to:
• Establish sruumer east/west jet service without a cash subsidy; and
• Expand summer service to the Pacific Northwest; and
• Establish winter weekend east coast nonstop service; and
• Expand "shoulder" season air service; and
• Reestablish Denver nonstop service; and
• Establish a winter nonstop to the South; and
• Expand inbound seats by 7%.
NOW THEREFORE, the parties heretofor and in consideration of the covenants and agreements
hereinafter contained to be observed and performed, the representative parties DO HEREBY
AGREE TO AMEND THE AGREEMENT AS FOLLOWS:
Section 1. Section 2.1 Contract Sum,is hereby amended to reflect that the maximum fiscal year
2002/03 contract amount shall not exceed One Hundred Eighty Thousand Dollars,
($180,000).
Section 2. Section 5.1 Term, is hereby amended by extending the term through June 30, 2003.
Section 3. Exhibit "A" Scope of Services, is hereby deleted in its entirety and replaced as
follows:
EXHIBIT A
SCOPE OF SERVICES
AIRPORT MARKETING/ADVERTISING/PUBLICITY CONSULTING SERVICES
Contractor shall provide the following services in Air Service Marketing during the terru of the
Contract:
44 9
Number Task
A-1 Provide a Network System analysis relevant to the hub systems of existing carriers.
Identification of under-served routes and O&D markets not currently served shall be
a high priority in this analysis.
A-2 Develop carrier forecasts and presentations for eight carriers which may consist of
the following— Midwest Express, Frontier, Delta, Horizon, Spirit, Southwest,
SkyWest and Jet Blue.
A-3 Provide data analysis on connect markets of existing carriers as it relates to PSP
connections.
A-4 Develop economic forecasts and relevant data analysis for other targeted carriers.
A-5 Provide strategic counsel to the Airport staff for regular communications with
incumbent and target air carriers.
A-6 Maintain databases on existing air carrier service performance and benchmark them
against relevant system averages and comparable communities across the United
States. Such statistics will include load factors,revenue,yield,fare,connect markets
and market growth rates.
A-7 Provide counsel and recommendations on marketing packages for targeted carriers
and advertising campaigns.
Contractor shall provide the following services in the areas of advertising and publicity during the
term of the contract.
Number Task
B-1 Working with PSP staff, develop a proactive strategic communications plan.
B-2 Work with PSP staff and its local publicity firm on Web-site integration with overall
marketing program.
B-3 Work with PSP staff on implementation of local marketing plan
B-4 Develop and implement with PSP staff community outreach program to capture
local market leakage
B-5 Continue to work with PSP staff to develop various marketing/advertising materials
to include creative writing, concept development, design, camera ready art work of
Page 2
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the marketing pieces.
Section 4. Exhibit`B"Schedule of Compensation,is hereby deleted in its entirety and replaced
as follows:
EXHIBIT`B"
SCHEDULE OF COMPENSATION
Contractor shall be compensated as follows:
The Scope of Work,Exhibit"A," lists twelve(12) separate tasks to be provided under the contract.
Some tasks have fixed fees, while others are ongoing and shall be compensated urider the retainer
fee.
Ninnber Task Cost
A-1 Hub system analysis of existing carriers $21,000
A-2 Forecasts &presentations ( 8 carriers) $68,000
A-3 Develop forecasts and relevant data on carriers Retainer
As requested during the 12-month period.
A-4 Economic forecasts Retainer
A-5 Strategic Coimsel for Air Service Retainer
A-6 Develop carrier statistics (revenue,yield) Retainer
A-7 Develop marketing packages (incentives) Retainer
B-1 Strategic communications planning Retainer
B-2 Marketing/web site integration Retainer
B-3 Local marketing plan Retainer
B-4 Local community outreach Retainer
B-5 Development of Marketing materials $20,000
The retainer shall be as follows:
Page 3
01 //
Monthly $S,OOO.mo
Contractor will be compensated monthly based on the above retainer schedule and based on the
percentage of work completed on Tasks A-2 and B-1. Reimbursables shall be compensated at cost
plus 10%, with all travel by air to be approved in advance, up to a maximum of$11,000.
Section 5. Exhibit"C" Schedule of Perfonnance is hereby added to read as follows:
Exhibit"C"
SCHEDULE OF PERFORMANCE
Time-line: This is a year-long project. Work Item A-1 shall be completed in the first 5 months of
the contract and work item A-2 carrier forecasts and presentation materials will be completed within
3 weeks of PSP staff's request as air carrier meetings are scheduled. All retainer compensated work
and work item B-5 shall be performed throughout the term as requested by the City with activities
reported in the monthly report outlined under"deliverables."
Deliverables: Work item A-1 shall include two bound copies of the analysis. Work item A-2 shall
include adequate numbers of hard copies of the presentation for airline attendees and five (5) extra
copies to the Airport. Work item B-1 shall include two bound copies of the plan to the Airport.
Monthly reports, including updated statistics shall be provided to the Airport by the 10" of each
month for the previous month. Work item B-5 shall include camera ready art work for the marketing
pieces.
Except as specifically worded herein,all terms and conditions of the Agreement shall remain in full
force and effect and performance of services under the Agreement shall be governed by the
provisions of the Agreement.
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IN WITNESS WHEREOF, the parties have executed and entered into this Agreement as of the
date first written above.
CITY OF PALM SPRINGS
ATTEST: a municipal corporation
By: By:
City Clerk City Manager
APPROVED AS TO FORM:
By:
City Attorney
CONTRACTOR: Check one:_Individual_Partnership_Corporation
Corporations require two notarized signatures: One from each of the following: A. Chairman of Board, President, or any Vice
President AND B.Secretary,Assistant Secretary,Treasurer,Assistant Treasurer,or Chief Financial Officer).
By: By:
Signature (notarized) Signature(notarized)
Name: Name:
Title: Title:
State of I State of
County of Iss County of Iss
On___beforeme, On before me,
personally appeared personally appeared
personally known to me (or proved to me on the basis of personally known to me (or proved to me on the basis of
satisfactory evidence)to be the person(s)whose name(s)is/are satisfactory evidence)to be the person(s)whose name(s)is/are
subscribedto thewithin instrument and acknowledged to methat subscribedto the within instrumentand acknowledged to methat
he/she/they executed the same in his/her/their authorized he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s),or the entity upon behalf of which the instrument the person(s), or the entity upon behalf of which the
person(s)acted,executed the instrument. persons)acted,executed the instrument.
WITNESS my hand and official seal. WITNESS my hand and official seal.
Notary Signature: Notary Signature:
Notary Seal: Notary Seal:
IA 13
MINUTE ORDER NO.
APPROVING AMENDMENT NO. 2 TO
AGREEMENT NO. 4334 WITH SIMAT, HELLIESEN
& EICHNER, INC. FOR AN ADDITIONAL YEAR OF
AIR SERVICE DEVELOPMENT AND MARKETING
FOR AN AMOUNT NOT-TO-EXCEED $180,000.
I HEREBY CERTIFY that this Minute Order approving Amendment No. 2 to
Agreement No. 4334 with Simat, Helliesen & Eichner, Inc. for an additional year of
Air Service Development and Marketing for an amount not-to-exceed$180,000,was
adopted by the City Council of the City of Palm Springs, California, in a meeting
thereof held on the 19ffi day of June, 2002.
PATRICIA A. SANDERS
City Clerk