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Air Service Support RequestMasterpiece on the Mississippi TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Air Service Support Request DATE: September 2, 2010 The City of Dubuque budgeted $150,000 as a revenue guarantee for commercial air service at Dubuque Regional Airport. Airport Operations & Maintenance Supervisor Todd Dalsing is recommending leveraging that money as a match for a Federal /State Small Community Air Service Grant application with other partners to develop a pool of $856,045 to enhance air service, which could include a fourth flight. I concur with the recommendation and respectfully request Mayor and City Council approval. Michael C. Van Milligen MCVM:jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Todd Dalsing, Airport Operations & Maintenance Supervisor Dubuque bfrel Al4medcaCity 2007 Q DUBUQUE REGIONAL AIRPORT Airport Commissioners + Steve Accinelli Doug Brotherton Charles Daoud Mike Santillo Sue Hafkemeyer August 26, 2010 Mr. Michael Van Milligen Dubuque City Manager 50 W. 13 Street Dubuque, IA 52001 Dear Mr. Van Milligen: 0 II RE: Air Service Support Request 11000 Airport Road + Dubuque, Iowa 52003 Tel: 563 -589 -4128 Fax: 563 -589 -4108 wwwfydbq.com As you are aware, the Dubuque Regional Airport and the level of existing air service are subject to significant external pressures from competing airports and general condition of the economy. Since 2001, we have lost technically three carriers, United Express in 2001, Northwest Airlink in 2003 and Northwest Airlink/Delta Connection in 2008 along with much of our flexibility of selecting hubs. As a result, in late 2005, the City, County and the Chamber all discussed appropriating funds to assist in attracting quality air service. Establishing a pool of funds from a community can help mitigate the high fuel prices, air carriers losing billions of dollars a year, and numerous bankruptcies which have created a new paradigm for small communities who seek improved air service. Airlines call this "risk sharing." They consider the sharing of risk to be crucial to any discussion of restoration of air service. The most effective means of risk sharing is a revenue guarantee. This consists of the community and /or selected businesses providing a minimum revenue guarantee. This generally requires the community and air carrier agree to a certain amount in which the air carrier will not lose money for trying out the service. In 2007, the City of Dubuque, Dubuque County and the Dubuque Area Chamber of Commerce all committed to funding a revenue guarantee to assist the Dubuque Airport in attracting additional air service. The total revenue guarantee was $425,000 and the breakdown was: • City of Dubuque $250,000 • Dubuque County $125,000 • Dubuque Area Chamber $50,000 In November 2007, a delegation of Dubuque business leaders visited Northwest Airlines Headquarters to discuss the possibility of adding flights to Minneapolis /St. Paul International Airport. In February 2008, Northwest Airlines announced it will begin service to Dubuque with two flights per day starting June 2008. Northwest requested $100,000 to be used in marketing the new service, all of which came out of the City of Dubuque's portion of the revenue guarantee contribution. Northwest began operating two flights to /from Minneapolis /St. Paul International Airport on June 20, 2008. In October 2008, Northwest announced they will be merging with Delta Airlines. Dubuque Airport was told that the merger will not affect service, but Delta airlines developed a new Midwest strategy that did not include flights to /from Dubuque and Delta airlines subsequently pulled its service in August 2009. During that same time frame, in November 2008, due to high fuel costs and collapsing economy, American Airlines /American Eagle Airlines announced it will pull one flight per day to /from Chicago O'Hare. That left Dubuque with three flights per day to /from Chicago O'Hare Airport and two flights per day to /from Minneapolis /St. Paul. High fuel costs continued into early 2009, along with the collapsing economy, mortgage crisis and job losses creating an unstable financial situation for airlines. In March 2009, American Airlines /American Eagle requested a revenue guarantee of $320,000 to keep the third flight (Flight #4226) operating in Dubuque. The funding for this revenue guarantee was financially supported by the community revenue guarantee. American Airlines /American Eagle, so far to date, has never asked Dubuque for any of the revenue guarantee funding regarding the flight and the signed contract with them will be concluded on September 1, 2010. Today, August 2010, Dubuque has three flights per day to /from Chicago O'Hare with American Eagle /American Airlines. Many business leaders and travelers have expressed the need for additional air service for connectivity. A recent Mead & Hunt Passenger Demand Analysis study confirms Dubuque is lacking service to the west region of the U.S. The Department of Transportation has recently passed a bill that helps small non -hub airports with monetary support. This bill titled Small Community Air Service Development Pilot Program Grant has $10 million that may be disbursed to 40 communities across the United States. The grant proposal clearly states that the core objective of the Pilot Program is to promote community involvement in addressing air service issues through public /private partnerships. This includes having a financial commitment from the community to achieve our developmental objectives. The DOT does recognize that some communities may have greater financial resources than others, but they still expect a direct relationship between the amount of Federal support that a community seeks and the amount that it is prepared to contribute toward the proposed grant application. The Small Community Grant application is specifically written $500,000 in funding from the Department of Transportation to gain additional air service with west region capabilities. The grant application is due on Thursday August 26, 2010. The financial breakdown is: DOT Small Community Grant Request: $500,000 In Kind Marketing: $31,045 Potential Community Support: $325,000 ** Grant Total $856,045 ** Potential Community Support Breakdown • Chamber of Commerce contribution $50,000* • Dubuque County contribution $125,000* • City of Dubuque Economic CIP $150,000* DESCRIPTION CASH IN KIND Television: TOTAL KWWL -TV. local NBC affiliate television station 510,000 510,000 520,000 Raffia J Queen B Radio, localy owned radio stations S10,005 $10,005 520.010 Cumulus Broadcasting, local radio stations 510,080 55,040 515,120 Outdoor: 1 Lamar Advertising. local !Aboard $10,425 56,000 S16,425 Total $40,510 $31,045 $71,555 Our goal is to continue positive growth for the region by applying for and hopefully receiving the Small Community Air Service Development Pilot Program Grant in 2010. If successful with the grant application the Dubuque Regional Airport will start the process of meeting with airline representatives to establish additional service to the west region. Airport staff is gathering all the information needed for the written portion of the grant. To further gain regional support for the grant and to grow air connectivity a consortium of communities needs to be established. Letters of support have been solicited from the surrounding communities; to date DBQ Airport has received over 50 support letters. The financial breakdown of DBQ's Small Community Air Service Grant application is: DESCRIPTION Airline attentive pro • ram: Marketing campaign Revenue guarantee Consultant fees Total Percent of total project FUNDING SOURCE US DOT AIRPORT NON- AIRPORT IN- CASH CASH KIND CASH Ill -KIND TOTAL -_- 5500,000 $600,000 58% $0 0% $0 540,510 $259,490 525,000 $326,000 38% $31,045 $31,045 4% $759,490 S25,000 $856,045 Percent of cash contribution The Dubuque Regional Airport is working hard to gain more flights. Below is a list of proactive steps to improve and add service. 1. In 2006, the Dubuque Regional Airport purchased $980,000 worth of airline ground support equipment for airlines to use. 2. The Dubuque Regional Airport Commission voted in January 2010 to continue low costs for carriers by continuing a rate freeze for another year at 2001 rates on landings, rents, charges etc. 3. Applying for Grants - a. Iowa Department of Transportation Air Service Enhancement Grant — to help defray costs of adding a fourth flight to /from Chicago O'Hare on American Eagle /American Airlines. $183,000 b. Department of Transportation — Small Community Air Service Development Grant to add service with west region possibilities. $500,000 c. Iowa Department of Transportation Air Service Sustainment Grant — to help continue marketing of American Eagle /American Airlines service $25,000. 4. Hiring a Contract Sales Consultant — to meet face to face with local business leaders discussing air travel concerns out of Dubuque. 5. A Dubuque delegation of business leaders will be meeting with American Airlines in Dallas on August 27, 2010 to discuss the return of the fourth flight to /from Chicago O'Hare. 6. FIyDBQ Rewards program — thanks travelers for choosing DBQ by giving rewards, coupons, American Airline AAdvantage miles, American Airlines Admirals Club memberships. The DBQ Airport Commission has already committed to keeping operating costs low for air carriers at a significantly reduced rate, but that alone has proven insufficient to attract a new carrier or expanded service from American Eagle. American has already succeeded here in DBQ with a "risk sharing" approach. With the funding from the Small Community Air Service Development grant and community involvement we believe we will be able to attract more air service. This is why we are reviewing our recruitment tools and seeking confirmation of the $150,000 from the City of Dubuque. Your support is requested. Sincerely, Michael Santillo Dubuque Regional Airport Commission Chairperson CC: Airport Commission • Q i t DUBUQUE REGIONAL AIRPORT Memorandum To: Todd Dalsing From: Karin Spisak, Marketing Coordinator Date: August 26, 2010 Subject: SCASDP grant application INTRODUCTION: Dubuque Regional Airport is applying for the Small Community Air Service Development Grant to assist in gaining additional air service to west region of U.S. BACKGROUND: Community support funding of $325,000 are pledged to an air service agreement with American Airlines regarding a revenue guarantee for the third flight operating at Dubuque until September 1, 2010. So far American Airlines never signed nor has asked for any of the funds and the air service agreement. Community Support funding breakdown consists of: City of Dubuque: $150,000 Dubuque County: $125,000 Dubuque Area Chamber of Commerce: $ 50,000 Total $325,000 The Small Community Grant Application is due on August 26, 2010. The Dubuque Regional Airport staff fully understands that the community support funding will not be available until after September 1, 2010. If before September 1, 2010, American Airlines requests the community support funding, then the Airport will withdraw the Small Community Air Service Grant application. If after September 1,2010 and American Airlines does not request the air service funds, the intent of Dubuque Regional Airport is to roll over the community support funds into matching funds for the Small Community Air Service Development Grant application. The more community support funds applied, the better the chances for grant approval. Dubuque Regional Airport Commission has sent letters to the three community support funding entities, the City of Dubuque, the Chamber of Commerce and Dubuque County explaining the grant application and requesting funds. The Small Community Grant application is specifically written for $500,000 in funding from the Department of Transportation to gain additional air service with west region capabilities. The financial breakdown is: DOT Small Community Grant Request: $500,000 Potential Community Support Funds: $325,000 In Kind Marketing: $ 31,045 Grant Total $856,045 Telephone : Fax : e -mail : (563) 589 -4237 (563) 589 -4108 kspisak@cityofdubuque.org RECOMMENDATION: Apply for Small Community Air Service Development Grant. BUDGET IMPACT: City of Dubuque, Capital Improvement Funds: $150,000 Airport Marketing Budget (Mead & Hunt): $ 14,950 ACTION STEP: Airport Commission respectfully requests City CIP funds of $150,000 to be put towards the Small Community Air Service grant application.