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Home My WebLink About3/20/2002 - STAFF REPORTS (13) DATE: March 20, 2002 TO: City Council FROM: Executive Director-Airports AIR SERVICE DEVELOPMENT SUMMER 2002 INCENTIVE PROGRAM RECOMMENDATION: It is recommended that the City Council approve a SummerAir 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. 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 aftermath of the terrorist attacks of September 11 have seriously hurt the Airport in the form of 25% less flights and have added to the urgency to deal with the already slow summer seasons. 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 in light of "9/I1", must 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 total cost to fly. 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. U l l 4 March 20, 2002 Page Two The attached "Freeport Summer 2002 Air Carrier Operational Cost Reduction Initiative" is a package developed by staff directed at reducing the cost to air carriers to operate during the shoulder and summer months. Specifically,the initiative rebates all of the landing fees in June, July and August for signatory carriers and to a lessor degree for non-signatory carriers for any new flights introduced in the market. (Note: Signatory carriers are those that have a signed long-term agreement to operate at the Airport.) The initiative is designed to reward/incentivize the airlines for any new summer flights by rebating landing fees for the three-month summer period. The rebate of landing fees for new flights will not have a negative impact on the Airport as they are 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 for the Airport. A 737-700 configured with 120 seats over the 90-day summer period, 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 initiative would generate new revenue for the Airport. It is proposed that the initiative would be effective June 1, 2002 for the summer of 2002. The Airport Commission at its March 6, 2002, meeting unanimously endorsed this program. A Resolution which would put this incentive program in place for sum mer 2002 its attached. v ALLEN F. SMOOT, AAE Executive Director-Airports APPROVED City Manager ATTACHMENTS: 1. Freeport 2002 Flyer 2. Resolution REVIEWED BY DK OF FINANCE 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 embraces 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 smnmer season. 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 of the landing fees for any new flights this suumner for signatory carriers and to a lessor degree for non-signatory carriers so that actual fees collected during the incentive period will be 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 small 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. RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS , CALIFORNIA, ESTABLISHING AN AIR SERVICE DEVELOPMENT SUMMER 2002 INCENTIVE PROGRAM SO AS TO REBATE ALL OR A PORTION OF ESTABLISHED LANDING FEES DURING THE INCENTIVE PERIOD. 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 shoulder seasons 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 introducing new flights anytime between June through August 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 Summer 2002 Air Carrier Operational Cost Reduction Initiative" is hereby approved as a landing fee rebate program with its actual implementation being the collection of landing fees for new flights during the period of June 1,2002 through August 31,2002, at non-signatory carriers$.32/1000 lbs. and for signatory carriers at $.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. March 20, 2002 Page Two "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 12002. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED &APPROVED AS TO FORM