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Attracting and Securing Air ServiceSeptember 2014

Prepared by

Sixel Consulting Group, Inc.Michael Gordon

Air Service Strategy and Development Consultantmichael.gordon@sixelconsulting.com

sixelconsulting.com

Attracting and Securing Air ServiceSeptember 2014

Prepared by

Sixel Consulting Group, Inc.Michael Gordon

Air Service Strategy and Development Consultantmichael.gordon@sixelconsulting.com

sixelconsulting.com

AgendaAgenda

State of the IndustryDomestic Air Service TrendsNetwork ChangesAttracting and Securing Air Service

State of the IndustryDomestic Air Service TrendsNetwork ChangesAttracting and Securing Air Service

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Jet Fuel Prices Are at the “New Normal”

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

Spot Price of Jet Fuel – U.S. Gulf CoastJanuary 1, 1994 – September 1, 2014

Source: US Energy Information Administration

0%

5%

10%

15%

20%

25%

30%

35%

40%

1995:10.8%

Fuel as a Percentage of Airline CostCalendar Year 1991 – Calendar Year 2013; Worldwide Airlines

Source: Sixel Consulting Group Analysis of ICAO and IATA Estimates, April 2014

Today: 35.9%

Fuel Is the Single Largest Airline Expense

Airlines Have Less Control over ExpensesAirlines Have Fewer Ways to Cut Expenses

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Increasing Costs Have Spurred Consolidation19781978 20002000

TodayToday

19901990

Share of Domestic U.S. Capacity (Total Scheduled Seats)Calendar Year 2013

5.7%

1.4%1.5%3.4%3.9%

16.6%

21.1%21.4%

25.0%

0%

5%

10%

15%

20%

25%

30%

Domestic U.S. Capacity - 2013

Source: Sixel Consulting Group Analysis of OAG Schedule Data

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We Rely on Smaller Planes More than Others

Share of Scheduled Departures by Aircraft Type and RegionCalendar Year 2013

Small RJLarge RJTurboprop

Source: IATASource: IATA

24.5%

14.1%

8.3%

3.0%12.4%

14.3%

5.6%13.9%

15.3%

1.7% 3.5%

12.9%

Domestic Airline Industry Review

Low Cost Carriers Continued to Grow

Large Airlines Remained Stable with Limited Growth

The Transition to Larger Regional Jets Continues

Fuel Prices Remain Stable

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New Airline Industry Landscape Emerging

Four Viable Business Models Emerging

Large Global Network Carriers (AA, DL, UA)

ULCC (Allegiant, Spirit, Frontier)

Traditional LCC (Southwest, jetBlue)

Regional/Niche (SkyWest, Cape Air)

All Business Models Viable, but ULCC and Large

Global Network Carriers Are the Most Profitable

Domestically the ULCC Segment Will Grow the Most

Industry at a Point of Financial Stability

Airlines Have Become Financially More Rational –

They Are Now Less Driven by Market Share

Most Airlines Have Been Profitable for Several Years

in a Row

Money-Losing Hubs Have Been Eliminated

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Trends in Air Service

Role of the 50-Seat RJ Is Shrinking – but Not Dying

Markets need both local and flow traffic to flourish

Large RJ’s (65-85 Seats) Are Replacing 50-Seat RJ’s on

Longer Flights and Higher Demand Markets

Flight Frequency in Many Markets Is Decreasing

50-Seat Jets Still Economically Viable in Small Markets

under 700 Miles

Economics on Very Short Markets Being Challenged

Low Cost Carriers Are Often Competing More with

Discretionary Income than Network Carriers

CVG – Delta Air Lines – 2008

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CVG – Delta Air Lines – 2015

CVG – Allegiant Travel Company – 2013

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CVG – Allegiant Travel Company – 2015

CVG – Frontier Airlines – 2011

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CVG – Frontier Airlines – 2015

CLE – United/Continental Airlines – 2006

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CLE – United Airlines – 2015

CLE – Frontier Airlines – 2011

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CLE – Frontier Airlines – 2015

LAS – American/US Airways – 2007

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LAS – American/US Airways – 2015

Southwest Airlines – Intra-Florida Fall 2010

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Southwest Airlines – Intra-Florida 2015

DAL – Southwest Airlines – 2010

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DAL – Southwest Airlines – 2015

State of North Dakota – 2006

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State of North Dakota – 2015

Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

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Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

• Define catchment area and identify airports within catchment area

• Develop market study approach

• Create and perform market analysis (surveys, focus groups) for each type of airport user

• Analyze the catchment area’s economy, economic trends and economic ties to other areas in the country and the world

• Create air service development strategy based on market study findings and formalize the strategy in the Air Service Development Master Plan

Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

• Define catchment area and identify airports within catchment area

• Develop market study approach

• Create and perform market analysis (surveys, focus groups) for each type of airport user

• Analyze the catchment area’s economy, economic trends and economic ties to other areas in the country and the world

• Create air service development strategy based on market study findings and formalize the strategy in the Air Service Development Master Plan

• Identify gaps in current air service via analysis of market sizes and average fares

• Identify airlines that could fill gaps

• Develop marketing and incentive support plan

• Rank opportunities based on gaps in existing service

• Determine local and flow market sizes via a specific hub

• Estimate stimulation based on new nonstop service and changes in average fare

• Estimate impact on existing air service and determine if new service would adversely impact existing service

• Determine which opportunities are most viable and worth moving forward

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Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

• Define catchment area and identify airports within catchment area

• Develop market study approach

• Create and perform market analysis (surveys, focus groups) for each type of airport user

• Analyze the catchment area’s economy, economic trends and economic ties to other areas in the country and the world

• Create air service development strategy based on market study findings and formalize the strategy in the Air Service Development Master Plan

• Summarize the opportunity

• Analyze historical, current and planned air service

• Prepare economic demographic and industry analysis

• Prepare overview of the community to include quality of life metrics and an overview of tourism in the market

• Summarize macro traffic and revenue trends for all airports within the catchment area as a whole and at specific airports

• Prepare analysis of the opportunity to include market size estimates, average fares and market size stimulation

• Prepare summary of airport data and information to include airfield and facility availability and constraints

• Identify gaps in current air service via analysis of market sizes and average fares

• Identify airlines that could fill gaps

• Develop marketing and incentive support plan

• Rank opportunities based on gaps in existing service

• Determine local and flow market sizes via a specific hub

• Estimate stimulation based on new nonstop service and changes in average fare

• Estimate impact on existing air service and determine if new service would adversely impact existing service

• Determine which opportunities are most viable and worth moving forward

Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

• Define catchment area and identify airports within catchment area

• Develop market study approach

• Create and perform market analysis (surveys, focus groups) for each type of airport user

• Analyze the catchment area’s economy, economic trends and economic ties to other areas in the country and the world

• Create air service development strategy based on market study findings and formalize the strategy in the Air Service Development Master Plan

• Summarize the opportunity

• Analyze historical, current and planned air service

• Prepare economic demographic and industry analysis

• Prepare overview of the community to include quality of life metrics and an overview of tourism in the market

• Summarize macro traffic and revenue trends for all airports within the catchment area as a whole and at specific airports

• Prepare analysis of the opportunity to include market size estimates, average fares and market size stimulation

• Prepare summary of airport data and information to include airfield and facility availability and constraints

• Schedule airline meeting(s)

• Meet with and present business case to airlines

• Follow-up with airline after meeting to resolve any questions or issues the airline would like addressed before making a decision

• Tailor marketing and incentive support plans for the specific opportunity

• Identify gaps in current air service via analysis of market sizes and average fares

• Identify airlines that could fill gaps

• Develop marketing and incentive support plan

• Rank opportunities based on gaps in existing service

• Determine local and flow market sizes via a specific hub

• Estimate stimulation based on new nonstop service and changes in average fare

• Estimate impact on existing air service and determine if new service would adversely impact existing service

• Determine which opportunities are most viable and worth moving forward

9/4/2014

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Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

• Define catchment area and identify airports within catchment area

• Develop market study approach

• Create and perform market analysis (surveys, focus groups) for each type of airport user

• Analyze the catchment area’s economy, economic trends and economic ties to other areas in the country and the world

• Create air service development strategy based on market study findings and formalize the strategy in the Air Service Development Master Plan

• Summarize the opportunity

• Analyze historical, current and planned air service

• Prepare economic demographic and industry analysis

• Prepare overview of the community to include quality of life metrics and an overview of tourism in the market

• Summarize macro traffic and revenue trends for all airports within the catchment area as a whole and at specific airports

• Prepare analysis of the opportunity to include market size estimates, average fares and market size stimulation

• Prepare summary of airport data and information to include airfield and facility availability and constraints

• Schedule airline meeting(s)

• Meet with and present business case to airlines

• Follow-up with airline after meeting to resolve any questions or issues the airline would like addressed before making a decision

• Tailor marketing and incentive support plans for the specific opportunity

• Develop marketing, media and public relations plans

• Plan announcement event and prepare announcement materials

• Hold announcement event

• Implement marketing plan

• Identify gaps in current air service via analysis of market sizes and average fares

• Identify airlines that could fill gaps

• Develop marketing and incentive support plan

• Rank opportunities based on gaps in existing service

• Determine local and flow market sizes via a specific hub

• Estimate stimulation based on new nonstop service and changes in average fare

• Estimate impact on existing air service and determine if new service would adversely impact existing service

• Determine which opportunities are most viable and worth moving forward

Attracting and Securing Airline Service Air Service Development Methodology

PresentBusiness

Cases

Build Business

Cases

Identify and Rank

Opportunities

Create Air Service Strategy

Launch Service

Monitor Performance

• Define catchment area and identify airports within catchment area

• Develop market study approach

• Create and perform market analysis (surveys, focus groups) for each type of airport user

• Analyze the catchment area’s economy, economic trends and economic ties to other areas in the country and the world

• Create air service development strategy based on market study findings and formalize the strategy in the Air Service Development Master Plan

• Summarize the opportunity

• Analyze historical, current and planned air service

• Prepare economic demographic and industry analysis

• Prepare overview of the community to include quality of life metrics and an overview of tourism in the market

• Summarize macro traffic and revenue trends for all airports within the catchment area as a whole and at specific airports

• Prepare analysis of the opportunity to include market size estimates, average fares and market size stimulation

• Prepare summary of airport data and information to include airfield and facility availability and constraints

• Schedule airline meeting(s)

• Meet with and present business case to airlines

• Follow-up with airline after meeting to resolve any questions or issues the airline would like addressed before making a decision

• Tailor marketing and incentive support plans for the specific opportunity

• Develop marketing, media and public relations plans

• Plan announcement event and prepare announcement materials

• Hold announcement event

• Implement marketing plan

• Work with airline to determine initial success

• Adjust marketing plan as required

• Analyze impact on existing service

• Periodically meet and communicate with airline to understand their perception of the new route’s performance and maintain the relationship with the airline

• Identify gaps in current air service via analysis of market sizes and average fares

• Identify airlines that could fill gaps

• Develop marketing and incentive support plan

• Rank opportunities based on gaps in existing service

• Determine local and flow market sizes via a specific hub

• Estimate stimulation based on new nonstop service and changes in average fare

• Estimate impact on existing air service and determine if new service would adversely impact existing service

• Determine which opportunities are most viable and worth moving forward

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Summary

• Leakage and Retention Analysis – Know The Marketand Catchment Area

• Increase Support and Usage of Existing Service

• Airline Current and Future Schedule Impact

• New Route Analysis

• New Market Incentives – Airport Costs – Short Term /Long Term. MRG?

• New and Existing Route Business Case Analysis andPresentation of the Business Case to Air Carriers

• Development of Community Support Initiatives

Attracting and Securing Air Service August September 2014

Prepared by

Sixel Consulting Group, Inc.Michael Gordon

Air Service Strategy and Development Consultantmichael.gordon@sixelconsulting.com

sixelconsulting.com

Attracting and Securing Air Service August September 2014

Prepared by

Sixel Consulting Group, Inc.Michael Gordon

Air Service Strategy and Development Consultantmichael.gordon@sixelconsulting.com

sixelconsulting.com