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STATE 1
OLD WEST REGION ' W2677
COMMUTER AIR SERVICEFEASIBILITY STUDY
SUMMARY REPORTDECEMBER 1975
prepared for the
Old West Regional Commission
by
The Aerospace Corporation
El Segundo, California
Montana State Library
3 0864 1006 2680 6
MONTANA STatc
Montana 596J]
OLD WEST REGION COMMUTER AIR
SERVICE FEASIBILITY STUDY
Summary Report
December 1975
Prepared for the
OLD WEST REGIONAL COMMISSION
by
THE AEROSPACE CORPORATION
El Segundo, California
Digitized by the Internet Archive
in 2012 with funding from
Montana State Library
http://archive.org/details/oldwestregioncom07aero
ACKNOW LEDGMENTS
Appreciation is extended to Mr. Robert P. DeMersseman, Project
Director for the Old West Regional Commission, and to the following state
aeronautics officials for their valuable guidance, assistance, and contribu-
tions in the conduct of this study.
Montana Division of Aeronautics
Michael D. Ferguson
Nebraska Department of Aeronautics
Rudy PeralezJohn R. Auer
North Dakota Aeronautics Commission
Harold J. Vavra
South Dakota Division of Aeronautics
Monte R. SchneiderDonald Kraus
Wyoming Aeronautics Commission
Casimer Krauser
Appreciation is also extended to members of the technical staff of
The Aerospace Corporation contributing to this study, which included the
following:
Ronald M. SelterKeith R. SmithLeon R. BushJoseph A. NeissTony H. Silva
F. William BelinaProject ManagerThe Aerospace Corporation
CONTENTS
ACKNOWLEDGMENTS ii
AN OVERVIEW i
The Study 1
Study Goal and Objectives 2
The Air Service System 2
System Costs 3
Implementation Actions 3
INTRODUCTION AND BACKGROUND 5
The Problem 5
A Possible Solution 7
The Study 7
STUDY GOAL AND OBJECTIVES 9
Goal 9
Objectives 9
SERVICE DEFINITION APPROACH 11
Service Needs 11
Alternative Air Service Strategies 11
Air Travel Demand Analysis 12
Route Structure Analysis 17
LOCAL SERVICE AIRLINE SUBSIDY ANALYSIS 19
RECOMMENDED SYSTEM 23
COMMUTER SYSTEM IMPLEMENTATION 29
Economic Assistance Options 29
Regulatory and Institutional Considerations 29
Alternative Implementation Techniques 31
Implementation Activities 31
TABLES
I Commuter Air Service Replacement Subsidy Savings 22
II Recommended System—Economic Summary 26
III Economic Assistance Options 30
IV Alternative Implementation Techniques 32
FIGURES
1. Old West Region Scheduled Air Service o
2. Old West Region Commuter Air Service Study-
Organization 8
3. Basic Network Concept- -Commuter Air Service 13
4. Subregional Collector Concept- -Commuter Air Service 14
5. Regional Collector Concept- - Commute r Air Service 15
6. Old West Region Air Service Areas 1°
7. Route Analysis 18
8. Local Service Airline Subsidized Routes 20
9. Commuter Replacement Network for Subsidized LocalService Airline Routes 21
10. Recommended Air Service System- -Commuter Air Service .... 24
11. Recommended Air Service System- -CertificatedAir Service 25
12. Implementation Activities 33
AN OVERVIEW
THE STUDY This study assessed the feasibility of using commuter
air carriers, operating twin-engine aircraft on a scheduled
basis, to satisfy the needs of the Old West Region for new
or improved air service. It addressed the following:
o The air service needs of the region
o Alternative air service strategies to meet
these needs
o Estimated patronage in the 1976 and 1985
time periods
o The determination of feasible route structures,
appropriate aircraft, service characteristics,
and operating economics
o Realizable cost savings if federally subsidized
service in the region were replaced by com-
muter air carriers
o Economic support and implementation options
The need for the study arose from the difficulty of
serving many of the region's smaller and more isolated
communities through certificated air carriers using
relatively large aircraft. Many of these communities
presently receive no scheduled air service. Additionally,
the desire of some local service carriers to phase out their
current turboprop aircraft in favor of larger jet aircraft
could result in the loss of certificated air service by a
STUDY GOALAND OBJEC-TIVES
THE AIRSERVICESYSTEM
number of the currently served communities. The study-
was further motivated by recommendations from recent
regional airport and air service studies to investigate the
feasibility of feeder air service through commuter air
carriers.
The study goal was to evaluate the technical and
economic feasibility of a commuter air service system
satisfying the needs for new or improved air service in
the Old West Region. Major objectives included the
following: the definition of a preferred overall air service
strategy for the region and a feasible commuter air service
system compatible with that strategy; comparison of com-
muter replacement service economics with local service
airline federal subsidy requirements; and the identification
of financial assistance and implementation options.
A feasible commuter air service system has been
defined that would provide new air service to over 125,000
residents of the region and improved air service to over
one million. The implementation of this system would also di-
rectly and indirectly create a number of new job opportunities
Using 6 fifteen-passenger aircraft and 27 eight-
passenger aircraft, scheduled air service could be pro-
vided to 18 of the region's communities for the first time.
Additionally, 43 currently served communities would
benefit from improved service. Over 1300 persons per
day are projected to use the system in 1976. The recom-
mended commuter air service system would provide a
minimum of two daily round trips between the served
communities and their principal communities of travel
interest. Although all routes are not anticipated to be
profitable in the beginning, it is a system reflecting a
SYSTEMCOSTS
realistic balance between service provided, economic
assistance needs, and implementation considerations.
Of the 51 routes identified in the recommended air
service system, 15 are projected to be profitable. It is
estimated that these routes would have a cumulative esti-
mated annual profit potential of $1, 645, 000 under mature
demand conditions. Thirty-six are projected to be eco-
nomically marginal and will require a total of $1, 743, 000
in annual economic assistance. However, should the entire
system be implemented such that projected profits from
the more viable routes could be available to offset losses
of the economically marginal routes, it is estimated that
only $9 8, 100 would be required to serve the region and
still provide the commuter air carrier operators with a
fair return on investment. Although this amount is anti-
cipated to be somewhat higher during the first year of
operations, aggressive community, state, and regional
promotion and support should significantly reduce such
economic assistance needs in the future. Implementation
of the recommended system would provide efficient re-
placement commuter air service on some presently
subsidized local service airline routes. This system could
save approximately $5, 500, 000 in federal subsidy. Costs
of needed airport improvements to facilitate scheduled
commuter air service are approximately $560,000, of
which $492,000 is eligible for 75 percent funding under
the federal Airport Development Aid Program. Savings,
however, can be realized at some airports that would no
longer require extensive development to accommodate
certificated air carrier jet aircraft to retain or obtain
scheduled air service.
IMPLEMEN-TATIONACTIONS
Implementation of the recommended system will
require cooperation between the federal government, the
Old West Regional Commission, and the states and com-
munities involved. Ideally, in order to best benefit from
economy of scale and cross -subsidy potentials, imple-
mentation should be accomplished on a total system basis.
However, as differing priorities for service needs as well
as differing schedules and plans for continuing current
certificated air service exist, the system would more
realistically be implemented on a phased basis. In view
of the benefits to the taxpayers of the region as well as
the nation, one major funding source is the federal
government. Appropriate action could allow federal
economic assistance to be provided directly to the states
or the commuter air carriers involved. Other options
include provision of federal economic assistance through
the Old West Regional Commission and financial participa-
tion by the states and communities.
INTRODUCTION AND BACKGROUND
• The Problem
The states in the Old West Region (Montana, Nebraska, North Dakota, South
Dakota, and Wyoming) share the problem of other Western states in having a
number of small communities located large distances from the region's
population centers. Because of these large distances, the lack of alternative
ground transportation modes, and winter weather factors, air service is not
only desired but also often critically needed for business, medical, airline
connection, shopping, and recreational travel purposes. As many of these
communities are sparsely populated, it is not always feasible to fulfill this
need with certificated local service or trunk airlines using large aircraft.
Although the region is currently served by three certificated trunk airlines
and three local service carriers, relatively large aircraft are used and a
number of communities receive less than two round trips per day to points
of principal travel interest (see Figure 1). Additionally, there are over 90 iso-
lated communities in the region with populations above 2, 000 persons that re-
ceive no air service at all. To compound the frequency of service problem
further, two of the three local service airlines have indicated their intention to
phase out their 50-passenger turboprop aircraft in favor of larger jet aircraft in
the immediate future. The third local service carrier indicates a desire to
continue to operate turboprop aircraft until 1985, at which time it projects
that a suitable 60- to 70-passenger jet aircraft may be available. Thus,
unless significant patronage increases can occur in many of the region's
smaller communities, loss of current air service may occur.
Another potential problem in retaining convenient certificated air service is
the impact of regulatory reform currently under discussion at the federal
level. Depending upon the final form that such deregulation may take, many
observers project that the economically marginal routes would be the first to
lose current certificated service.
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• A Possible Solution
One answer to these problems can be the implementation of scheduled air
service through commuter airlines. Such airlines, operating reliable twin-
engine aircraft, can economically serve many small communities at a
service frequency much higher than would be feasible for certificated air
carriers operating larger aircraft. In recent years these airlines have
proven themselves to be a significant part of the nation's transportation
system. In FY 1974, 222 scheduled commuter operators served 725 airports
and carried 6. 3 million passengers and 131,000 tons of cargo and mail.
Almost 60 percent of the communities served had populations of less than
50,000 persons.
• The Study
In view of these problems and as a result of recommendations from prior
regional airport and air service studies, the Old West Regional Commission
sponsored this study to examine the technical and economic feasibility of a
commuter air system satisfying the needs for improved or new air service
in the Old West Region. The study addressed the service needs of the
region; investigated alternative air service strategies to best meet these
needs; projected commuter air service patronage in 1976 and 1985; defined
route structures, aircraft, service characteristics, and attendant economics
of operation; assessed airport adequacy; investigated potential savings in federal
subsidies; evaluated financing needs and funding sources; and examined
alternative implementation options.
The study was conducted by The Aerospace Corporation, El Segundo,
California, for the Old West Regional Commission. Policy guidance was
provided by the governors of the five states (through their designated alternates)
and the Old West Regional Commission Federal Co-Chairman. Technical
inputs and guidance were provided by the aeronautics officials and staffs of
the various state aeronautics departments, divisions, and commissions
(see Figure 2).
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STUDY GOAL AND OBJECTIVES
• Goal
The study goal was to evaluate the technical and economic feasibility of a
commuter air system satisfying the needs for improved or new air services
in the Old West Region in the 1976 and 1985 time periods.
• Objectives
Specific study objectives included the following:
o Determination of the feasibility of commuter air carrier service
to provide new service where needed and to replace certificated
air carrier service where minimal service levels currently exist.
o Determination of the feasibility of commuter air carrier replac-
ing certificated air carrier service in markets currently employ-
ing older turboprop aircraft and in which the certificated air
carriers do not envision demand levels sufficient to be served
by pure jet aircraft.
o Evaluation of the feasibility of a regional collector airport con-
cept wherein commuter air carriers would provide feeder service
to collector points served by certificated air carriers.
o Comparison of the economics of commuter air carrier service in
place of currently subsidized certificated air carrier services
within the region.
o Evaluation of means to implement the most promising commuter
air service system.
SERVICE DEFINITION APPROACH
The service definition activities included the determination of service needs
within the region, the definition of alternative air service strategies, the pro-
jection of commuter air service patronage for 1976 and 1985, and the defini-
tion of appropriate route structures, aircraft, service characteristics, and
related economics as required to serve these needs best.
• Service Needs
Needs for new or improved air service within the region were established by-
first assessing the current certificated air service and identifying deficien-
cies wherein less than two conveniently scheduled round trips a day were
provided from each currently served community to its principal community
of travel interest. Routes currently employing turboprop aircraft that may
be subject to being replaced by jet aircraft (and whose current patronage
levels or community airport facilities would not appropriately support larger
jet aircraft) were also identified as candidates for replacement commuter
service. New service candidates were selected in view of population and iso-
lation criteria as well as qualitative factors such as state economic develop-
ment priorities, available medical facilities, special development projects,
and other local factors.
Historical travel patterns and volumes were assessed from available data to
identify communities of primary travel interest both within the region as well
as principal cities outside the region. Trading patterns within the region
were also evaluated as another indicator of travel desire.
• Alternative Air Service Strategies
Three primary alternative air service strategies were examined for feasibil-
ity in view of the improved and new air service needs and the specific study
objectives. These included the following:
1 1
o A Basic Network Concept designed as a readily implementable
system that would provide new service where needed and replace
current certificated air service only where certain minimum
service levels were not provided (see Figure 3).
o A Subregional Collector Concept designed to explore a readily
implementable commuter system that would feed a number of
regional collector points that would, in turn, be interconnected
by certificated air service (see Figure 4).
o A Regional Collector Concept designed to provide an extensive
commuter system feeding a limited number of regional collector
points that would be interconnected by certificated air service
(see Figure 5).
A fourth alternative, a commuter air service network to provide total
replacement service in current subsidized local service airline markets,
was also investigated and is discussed in the "Local Service Airline
Subsidy Analysis" section of this summary.
Of the three proposed air service strategies initially considered, the more
extreme Regional Collective Concept was shown to have a number of serious
impediments to its implementation. Therefore, the Basic Network Concept
and the Subregional Collector Concept were selected as the more feasible
for subsequent detailed examination. Also, the fourth alternative, a major
commuter replacement network for current subsidized air service, was
examined in detail.
• Air Travel Demand Analysis
For each of the candidate communities in the alternatives selected for detailed
examination, a service area was defined (see Figure 6). This service area
represented an approximate thirty-minute driving time area from which
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persons were projected to use the air service from the designated community.
Populations for these service areas were then determined for the 1976 and
1985 time periods.
Air travel demand projections were made for each candidate city-pair
identified in the selected air service alternatives. These demand projections
used traditional analytical techniques that correlated travel propensity with
population and distance. The projections also considered historical air
travel demand for communities having a history of prior air service and for
communities having available automobile travel data.
• Route Structure Analysis
In view of the air travel demand projections between communities, commuter
air service routes were defined to best connect the candidate service com-
munities with their principal communities of travel interest considering both
intra- and inter -regional travel desires. The most appropriate sizes of exist-
ing commuter aircraft and service frequencies for these routes were then de-
termined in view of providing at least two round trips per day at reasonable
aircraft load factors. Economic analyses of the service were than accomplished
to evaluate direct and indirect operating costs (including an appropriate return
on investment to the operator) and projected revenues at various fare levels
(see Figure 7). Other route structure analysis considerations included sea-
sonal variations of the air travel demand and the most effective assignment of
aircraft to routes to optimize aircraft utilization. Airport improvements
necessary to support scheduled commuter air service properly at the candi-
date service points were also defined.
17
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SERVICE COSTSECONOMIC
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LOCAL SERVICE AIRLINE SUBSIDY ANALYSIS
An integral part of the study was the determination of potential savings that
could be achieved through total replacement of service by currently subsi-
dized local service airlines in the region with an appropriate commuter air
service network providing equal or superior service. Subsidy data from
FY 1974 for these routes was obtained directly from the Civil Aeronautics
Board (see Figure 8). This data included the subsidy need for each route seg-
ment and the actual subsidy paid. A commuter replacement service route net-
work alternative was then defined for those route segments actually requiring
subsidy and not served by nonsubsidized trunk airlines (see Figure 9). Air
demand was projected and aircraft sizes and service characteristics deter-
mined to best serve these replaced segments with equal or superior service
frequencies. The economics associated with this replacement service were
then assessed and compared with the subsidy paid to the local service airlines.
This comparison showed that, although $9. 5 million in subsidy was paid the
local service airlines in FY 1974, the net cost of replacement service by com-
muter air carriers is projected to be only about $600, 000--an annual net
savings of almost $9. million while providing an additional 124 aircraft
departures per day within the region (see Table I).
Although major savings could be realized by almost total replacement of the
current subsidized certificated service, the resultant recommended commuter
network only assumes replacement of selected subsidized routes. Replaced
routes in the recommended system are those not considered by the airlines to
be potentially profitable jet aircraft markets or not currently receiving
adequate service frequencies, or both. This more conservative approach
was taken to define a realistically implementable commuter system that can
satisfy near-term as well as long-term air service needs in the region.
19
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RECOMMENDED SYSTEM
Subsequent to the detailed assessment of the primary air service alternative
strategies, a recommended commuter air service network was defined com-
bining the more advantageous features of each alternative examined. Initially,
route segments were deleted where economic assistance ratios exceeded
unity (i.e. , the subsidy need per person exceeded the fare paid). The
remaining route segments were then combined principally utilizing the
Subregional Collector feeder principle but including selected routes from the
Basic Network strategy as well (see Figures 10 and 11). Additional analyses
were then performed on this recommended system, including economic
assessments of breakeven service conditions for a potential operator as well
as conditions involving a 12.35 percent annual average return on investment
to the operator. Additionally, as it will typically require one year for the
air travel demand to build up to a mature level, first-year economics of the
recommended routes were also determined. Additional analyses performed
for the recommended system included an assessment of the impacts on
current certificated air service, the value of an additional passenger per day
in terms of route profit, system economics in 1985, and the federal subsidy
savings should only the subsidized local service route segments that pertain
to the recommended system be replaced.
The recommended system consists of 15 routes that are estimated to be
profitable under 1976 mature patronage levels and 36 routes that will initially
require some level of economic assistance. Whereas the profitable routes
should provide an annual net profit of $1 , 645, 000 in excess of the 12 . 35 per-
cent operator annual average return on investment, the economic needs of the
economically marginal routes is $1,743,000. Should the total system be
implemented in a manner that can take full advantage of cross-subsidy
(i.e. , using profits from profitable routes to offset economic losses of the
other routes), a net deficit of only $98, 100 per year would result (see Table II)
23
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By 1985, total system implementation would negate any economic assistance
needs and is projected to return a net system profit of $594, 000.
The recommended system assumes the deletion of certain certificated airline
routes that still may be contrary to immediate airline plans. The system
may thus be more realistically implemented on a phased basis. It has been
structured, however, such that phased implementation would not totally
negate system integrity. Should proper promotion and support be provided
at the state and community level, economic viability of all routes mayeventually be achieved.
The FY 1974 federal subsidy payments for those subsidized local service
route segments that would be replaced by commuter air service in the
recommended system are approximately $5. 5 million. When compared with
a net annual cost of approximately $98, 000 for a cross-subsidized commuter
system, a savings of almost $5. 5 million can be realized.
Minimal airport improvements would be required within the region to imple-
ment the recommended commuter air service system. Although certain
airports within the region will require the addition of simplified instrument
approach aids, medium intensity runway lights, and mobile terminal facili-
ties, the cost of such facilities for the entire region is approximately
$561,500. Of this cost, $492,350 is eligible for 75 percent federal funding
under the Airport Development Aid Program.
27
COMMUTER SYSTEM IMPLEMENTATION
The study also addressed various needs and options pertaining to the
implementation of the recommended commuter air service system. These
included the identification of economic support options available at the federal,
regional, state, and local levels; regulatory and institutional considerations;
and overall activities that must be accomplished to implement the system.
• Economic Assistance Options
Because of the significant federal subsidy savings that could be realized by
implementing the commuter air service system, solicitation of federal eco-
nomic assistance is recommended as one of the primary support options.
Such assistance could take a number of forms (see Table III). One option is
the provision of subsidy payments directly to commuter operators, perhaps
subject to limited certification of such carriers. Limited certification could
have the advantage of enabling direct subsidies as well as (1) selected route
protection for the carriers, and (2) eligibility for federal government guar-
antees of capital equipment loans. Another form federal assistance could take
would be payment to the states, communities, or operators through a region-
ally aware organization such as the Old West Regional Commission. Alterna-
tively, there are a number of direct and indirect assistance options available
to the state and local communities, including various forms of contract agree-
ments, seat guarantees, provision of free or low-cost services, tax relief,
and direct subsidy payments.
• Regulatory and Institutional Considerations
The study also addressed current intrastate regulatory requirements and
aviation taxation. Each of the five states in the region currently regulates,
or is empowered to regulate, commuter air carriers operating within the
state. Whereas interstate cooperation will be necessary if the commuter
air service system is to be implemented, no significant inconsistencies exist
between each state's requirements that would have a detrimental effect upon
29
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30
such implementation. Each state in the region also currently taxes commuter
air carriers in a number of categories. These include aviation fuel, aircraft
registration, airline flight property, and aircraft sales and use tax. Minor
differences exist between states; however, each category represents a poten-
tial revenue source that either could possibly be used to support commuter
air service implementation or, alternatively, could be waived during the early
periods while an operator is attempting to establish viable service.
• Alternative Implementation Techniques
Ideally, special methods and techniques to implement commuter air service
should not be required as commuter operators are normally eager to enter
any market that has a reasonable profit potential. However, as a number of
the recommended system routes are projected to be economically marginal,
special techniques may be required. Special methods examined to implement
the entire system included regional contracts let by a state or multi- state
organization (these contracts could be awarded to a single operator or groups
of operators), the establishment of a quasi-public operating corporation (simi-
lar to Amtrak), and airline operation by a state or multi- state organization
(see Table IV). As differences in certificated air carrier future planning and
available economic assistance may not be totally compatible with immediate
implementation of the entire system, other methods were also examined. These
included contracts for individual route segments, the purchase and leasing back
to an operator of aircraft by the state or multi- state organization, and the con-
tracting between a state or multi- state organization for selected operational
services that would then be made available to a commuter operator (e.g. , ser-
vices related to reservations, ticketing, and flight information). The study
identified the advantages and disadvantages of these techniques so that they
may be considered in selecting methods to implement an effective commuter
air service system.
• Implementation Activities
Regardless of the method to be pursued to implement the commuter air ser-
vice, there are certain basic actions that must be taken (see Figure 12). These
31
TABLE IV. ALTERNATIVE IMPLEMENTATIONTECHNIQUES
System Implementation Options
• State and Multi- State System Contract
• State and Multi-State Airline Ownership
• Quasi-Public Operating Corporation
Route Segment Implementation Options
• Route Segment Bidding
• Aircraft Leasing to Operators
• Special Service Contracts
32
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include necessary activities to publicize the results of this study within the
region and the development of policies to provide a coordinated framework
within which economic assistance can be solicited and the appropriate imple-
mentation methods and techniques can be selected. Subsequent to determina-
tion of these policies and acquisition of appropriate assistance needs, any
necessary organizational entities to effect implementation must be created and
appropriate operators selected to initiate the air service. Subsequently the
service must be monitored, evaluated, and changed as required to best meet
the needs of the region.
Appropriate coordination at the federal, regional, state, local, and operator
levels must be made in order to implement the commuter system properly.
The majority of the related implementation activities must be at least ini-
tiated, if not accomplished, by the governmental and aviation leaders at the
state and local levels.
34
