Community Conjuring Airline Revenue Guarantee – December 22, 2012

Saturday, December 22, 2012

Daniel Mintz

Eye Correspondent

HUMBOLDT – The Federal Aviation Authority’s $750,000 grant for recruiting a new airline to the county’s main airport came with a catch – the community would have to kick in $250,000 of its own money to raise the funding to $1 million.

Last week, the successful fundraising effort was announced and negotiations for springtime airline start-up are underway. The county’s Headwaters Fund will match the $125,000 that was raised and a $1 million revenue guarantee will be offered to airlines for service start-up.

Contributors included multiple local businesses, tribes, firms and city governments. The City of Arcata contributed $10,000 and Humboldt State University gave $15,000.

A revenue guarantee pledges coverage if a new airline doesn’t draw enough ticket revenue in its early phases of service. “This is the only way that regional airports like ours obtain extra air service,” said Don Ehnebuske, executive director of the Redwood Region Economic Development Commission (RREDC), which has assisted the county’s Department of Public Works with the recruitment effort.

Previously, the county lost a $500,000 revenue guarantee that was pledged to Delta Airlines for starting flights to Salt Lake City. Delta didn’t reach a per-plane passenger load threshold, discontinued its service and kept the money, which came from the county’s Headwaters Fund.

But it’s a gamble that can yield substantial payoff. “You have to play this game, otherwise you don’t get the air service, and new service really pays off for the community as a whole,” Ehnebuske said.

There’s data to demonstrate that, he added. The McKinleyville-based Arcata-Eureka Airport only has a single airline now and without competition, flight fares are higher. “They distinctly shot up when we went down to one airline,” Ehnebuske said.

A one-way ticket to Los Angeles was priced at about $140 when both United and Horizon offered flights there, he continued. “The last time I looked, it was well over $100 beyond that and it happened the day after Horizon was out.”

The airport’s total number of passengers drops due to the higher ticket prices, said Ehnebuske. He said the airport’s total number of passengers per year peaked at 111,000 and now ranges between 60,000 and 65,000.

“The key thing to consider is that the FAA funds airport construction projects based on total numbers of passengers and we’re losing millions of dollars a year of construction money,” Ehnebuske said.

The revenue guarantee will be structured differently this time, he added. The county has hired an attorney that specializes in airline negotiations and an agreement on the guarantee has been pre-written. The conditions of Delta’s revenue guarantee were outlined in an agreement that the airline had drafted.

Funding a guarantee hampered the county’s negotiations with American Airlines last year. The airline backed out of the deal because a requested $1.25 million of revenue guarantee funding couldn’t be secured timely enough.

Ehnebuske said American had originally asked for an even higher revenue guarantee. He said the current $1 million offer is firm and the county and RREDC is in negotiations with American and four other airlines.

The federal grant is for establishing a new eastern route to and from the Arcata-Eureka Airport but according to a county press release announcing the grant last summer, “The route could potentially include fueling stops and layovers within the state or region, which would allow Humboldt passengers to purchase flights to intermediate locations as well as the final eastern destinations.”

Intermediate stops could include Salt Lake City, Phoenix, Denver and even Los Angeles, depending on the scope of the service and the carrier.

 

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