Air service funds in nosedive

Seats into YVRA declining as lodging revenues decline

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— Declining lodging tax revenues has Local Marketing District funds in “a downward spiral,” Steve Dawes said, that will mean not only fewer airplane seats into the Yampa Valley this winter, but also a potential for fewer seats in years to come.

Dawes is chairman of the board of directors for the marketing district, which uses a 2 percent tax on lodging across the city to help fund airline service programs at Yampa Valley Regional Airport in Hayden. He and Sandy Evans Hall, the marketing district’s secretary and executive vice president of the Steamboat Springs Chamber Resort Association, recently advised Steamboat Springs City Council of what they called a “self-fulfilling prophecy”: Fewer airline seats funded by the district means fewer visitors to the Yampa Valley, which means less revenue for the district, which means less money to buy airline seats the following year, and so on.

Evans Hall said lodging tax revenues are down about 35 percent since 2008, a reflection of the economic recession. That decrease in revenues translates into a 13 percent decrease in airline seats into YVRA this winter, with 120,738 available seats for 2010-11 compared to 138,182 available seats last winter. That’s on top of the 13 percent decrease a year ago compared to 2008-09, when there were 158,349 available seats into the valley.

At the same time as lodging tax revenues have decreased, Evans Hall said, the cost of airline service has increased, because of factors including fuel surcharges.

The marketing district is using about $500,000 of its $1 million reserve fund for this winter’s airline service program.

“On a conservative basis, we’ve got about two more years,” Dawes said.

City Manager Jon Roberts said marketing district leaders have been concerned for more than a year about declining revenues.

“Any time you’re depleting reserves for ongoing operations, that’s a red flag,” Roberts said. “Ultimately, a turnaround in the economy would change that scenario.”

Evans Hall said the Cham­ber, through a transportation solutions group, has formed a Regional Transportation Authority task force, which is exploring the idea of a tax measure to provide another revenue source for airline programs.

“We anticipate, probably in the next two years, we’ll need some form of additional revenue to maintain (airline) capacity into our valley,” Evans Hall said. “This year, we’re lower than we feel we should be.”

Evans Hall said the earliest an RTA could appear on local ballots would be November 2011. The group is putting together a presentation of RTA needs and potential benefits to present to community groups, she said. That outreach is planned for January through April and will be followed by analysis of community feedback and, potentially, polling late next spring to gauge the community’s appetite for such a vote.

Evans Hall acknowledged last week that the appetite could be meager.

“I don’t know if in this economic climate, we have a chance of passing anything,” she told the City Council.

But the stakes could be high, according to the marketing district’s 2011 operating plan, which the City Council appro­­­ved unanimously last week.

“The Local Marketing Dist­­rict board has determined that unless revenues in lodging tax increase significantly, the reserves will be completely depleted in two years, resulting in dramatic reduction in air service to the Yampa Valley,” the plan states.

Comments

Scott Wedel 3 years, 6 months ago

This is why people hate government's logic that the only thing that remains the same is government's demand for more money.

We see a 13% decline in airline seats and a 33% decline in lodging. Well, any normal person would suggest that means they already have more airline seats than is needed. But government decides that means they should go the public to get a tax increase.

So instead of draining the reserves in two years and rapidly creating a crisis situation when the cuts will be really severe in two years, why won't they act responsibly and use the reserve over several years?

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ybul 3 years, 6 months ago

So given macro economic conditions that got us into this mess, too much debt at the government, corporate and private levels, when does a realistic opinion of when we come out of this downturn occur?

I really do not foresee climbing out of the economic climate we are in for quite some time.

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sodacreekpizza 3 years, 6 months ago

Scott, the 33% decline quoted lodging is a revenue decline. This result is a combination of the number of people coming and the rate they pay per night, so no, it does not follow that the need for seats is reduced by that same amount.

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Scott Wedel 3 years, 6 months ago

Well, as I read their data, last year's load factor (percentage of occupied seats) was 61%.

The overall airline industry is currently profitable because they cuts flights (available seats) and increased their load factor to around 80%.

A load factor of 61% strongly suggests that there is no problem with a lack of airline seats causing any problems for those interested in visiting SB. Considering that local load factor has been more typically around 70% for the past decade (peak of 75% in 2005), 61% suggests the LMD has a bigger problem of having more seats than they can fill.

That is not a self fulfilling prophecy because if the seats were occupied instead of empty then the LMD could subsidize enough seats into SB. The problem is that the LMD is subsidizing empty seats and that is very expensive.

For the situation to be a self fulfilling prophecy would require a high load factor (ie close to industry standard of 80%) and yet still not have enough lodging revenues to increase the number of seats into the valley. Then the LMD could rightly complain that despite despite having occupied seats that they were being forced to cut the number of seats.

A reasonable subsidy program makes the argument that increasing the number of airline seats will increase the number of visitors, but that increase in capacity will also increase the number of empty seats. The key of a successful program is to pay for enough seats to get the additional tourists while not paying for too many empty seats.

To put it bluntly, the public should reject any hint of a tax to enable the local marketing district to subsidize so many empty seats. Instead the LMD should have the competence to operate their flight subsidy program with a 70% load factor. At which point they probably won't need a tax to support it.

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Scott Wedel 3 years, 6 months ago

ybul, As for an economic recovery, typically resort areas recover a year or two after the general economy. So it is easy enough to know when we should see stronger results because we can see what we has happened last year. So we should expect flat to very mild increase in numbers this winter.

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Oscar 3 years, 6 months ago

There's another reason for declining number of passengers into YVRA. We now have only one airline flying in here (UA) during 9 months of the year and that monopoly has caused ticket prices to go through the roof, as you would expect with a monopoly. You can very often fly anywhere in the USA from Denver (2-3 hours) for less than you can for the price of a ticket from Denver to YVRA (26 minutres). On several occasions, I have found that I can fly from YVRA to Denver for something like $450 and then connect to other cities in the US for about $20 more. I just checked on the price of a ticket for this week to and from Denver and it was $522. It's been has high as $700+. We need to somehow break that monopoly. More people will come here if the price of a ticket was reasonable.

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gettinold 3 years, 6 months ago

Oscar, Ask anyone you know who has flown through YVRA during the monopoly 9 month period if their flight was empty. United can charge more because of the convienence of flying from the regional airport, but they are still in competion with denver prices. I bet the price is so high to and from denver because of the limited availability (around 130 seats to and from denver daily) rather than just because they can. Why have a sale on the last seat on the plane?

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Scott Wedel 3 years, 6 months ago

gettinold, Well, according to our local marketing district, the flights are 61% full. Hardly limited availability.

Pricing is set by the airline to be most profitable for them. The people willing to fly instead of driving to Denver are probably not too concerned about price so a higher priced ticket has minimal effect on the number of those tickets they sell. And if UAL makes the flight to Denver expensive, but the next leg cheap then the overall trip cost is not that bad, but they lock in everyone from SB into flying UAL for the entire trip.

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gettinold 3 years, 6 months ago

Scott,

That 61% in not just summer which was what I was talking about. Look at booking a flight to and from denver now there is limited availability. There was more availability during peak summer with 3 flights daily. Oscar is pricing flights with very limited availability, no wonder the price is high. I fly in and out of hayden frequently and the prices are generally comparable to denver. Sometimes they are more but planning ahead and some flexability work great for me. Also I do get that United in a buisness to make money, like I said why have a sale on the last seat on the plane.

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Jon Quinn 3 years, 6 months ago

Scott, you simply amaze me. We have people in our community working hard every day to insure the success of the air program. Believe me, they are more than competent.

This is not a big daily commuter route from DC to NY we are talking about. The load factor ebbs and flows with our tourist seasons. Christmas week the load factor is close to 100%. Carriers are willing to commit routes for the entire season, not part of it. We cannot simply say that we want a couple extra flights added on for the really busy times, it does not work that way.

Without the air program and the community's ongoing commitment to subsidizing flights to our valley, no carrier would commit any significant inventory to our market.

There is also one structural problem with how the LMD collects its funding. Increasingly the "pillows" we have in town do not contribute lodging tax because they are privately owned condomiums and not hotel rooms. This trend in the lodging industry has also put pressure on the revenue stream for the air program and the bottom line is that we need to find solutions fairly soon or airline service to our resort community will quickly begin to wane.

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Scott Wedel 3 years, 6 months ago

Jon, Have you bothered to read the included spreadsheet?

I doubt it because if you had then you would see that a load factor of 61% is a bit of an anomaly and the flight program has a historical load factor about 70% with a peak of 75%.

To take your argument seriously would require believing that holiday factors and so on that allowed 22% (75% is 122% of 61%) higher load factors in the past are no longer present. So apparently you are arguing that this year they have canceled Christmas and New Year's.

Operating an airline subsidy program with a load factor of 61% is not acceptable and not sustainable.

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Scott Wedel 3 years, 6 months ago

And I would have much confidence in the operation of the air subsidy program if the LMD had simply said that they had issues last year that resulted in a load factor of 61%. That they know 61% is unacceptable and expect to return to about a 70% load factor this year.

That is not what we got. We got them saying that they want a tax to better fund the LMD so it has more money to spend on air subsidies. That makes it sound like they think 61% load factor is now acceptable and expected in the future which is why they need a tax increase. Well, that makes me question their competence.

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Jon Quinn 3 years, 6 months ago

Of course I have read the materials Scott, and of course we saw a significant drop in load last year. You are right that the current course is unsustainable, but again, you are missing the point. In order for us to have the capacity we need in the heavy times, we need to make commitments to the carriers to guarantee them a certain level of revenue for the season. Lodging properties are working twice as hard these days to fill their rooms, and therefore fill those airline seats. Imagine how much more difficult that task would be in 3 or 4 years if they could not tell their prospects they could fly into Hayden, but instead have to take a 4-5 hour van shuttle from Denver?

The bottom line Scott is that people in this community work on these issues diligently. If you have constructive advice, I would encourage you to reach out to Sandy or to Steve, or maybe attend a meeting. If all you want to do is inform the world that everyone (except you of course) is incompetent, stupid, and doing a bad job... well then I believe you have found your forum right here.

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ybul 3 years, 6 months ago

Jon,

What about chartering a flight into the airport for the music fest from Dallas or somewhere else? I know I have been on charter flights before that go from point a to point be for a specific event and while they might be expensive, one could have a chartered flight for the music fest after the holiday. Sometimes it seems that we are simply trying to have more revenue no matter what the cost. Sometimes in analyzing what the optimum level of something we find that a reduction in an input actually yields a higher net profit.

An example would be an accountant who inherited their family farm with a pivot on it. They used to grow corn under it with fertilization every year. They did an analysis of their operation and decided the most expensive input was the fertilizer and killed that input. Their yield went down but the net margin went up. We simply focus on the gross revenue a lot of the time and fail to take a step back and actually focus on wether a decision we make is moving us closer to the goal the valley has for implementing that tax to bring in tourists.

What is the end goal, more tourists bringing in more money. Is that all we look to in our decision making process, to analyze wether we are moving closer to or further from our goal in taking this action. That action being subsidizing flights, could those fund be used to bring us closer to a community goal, what is that vision, where are we headed, maybe upon further analysis doing something else provides the larger community more benefit than cheap airfare, which appears unsustainable (the basis of sustainable would be profitable in the long term without an external input or subsidy).

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Jon Quinn 3 years, 6 months ago

Ybul, thank you for the suggestions. And you're correct that it is always important to consider whether what we are attempting to achieve is in fact what the community wants. I'm sure that the LMD is open to any and all suggestions. It does not have to be an RTA. Maybe there is another way to achieve our goals. I like the charter to musicfest. Sounds like a party! Our air program is vital to our city and county for the business community and for the resort industry alike. It is hard to even estimate the economic vitality which is flown in to our community each year because we have an air program. Let's find a way to keep it going.

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Scott Wedel 3 years, 6 months ago

Jon, The constructive advice is to; 1) focus on improving load factors 2) Admit that 61% load factor is a huge problem 3) State the planned load factor for next year

It is beyond comprehension that a LMD and City Council would be discussing a tax hike for a LMD when then LMD won't admit things went poorly last year and won't disclose target load factors for next year. How can the public have any means of knowing whether the LMD is doing a good job when they won't even disclose their own targets?

I note that the more the seats are filled then the less the required subsidy. So when there is heavy traffic then the required subsidy is much less. So the issue of being prepared for a strong economic recovery and heavy traffic is a problem that largely solves itself.

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ybul 3 years, 6 months ago

Jon,

We do need to keep the economic vitality going. But sometimes less is more. Yes plenty of people have large investments in keeping the hamster wheel going. However, maybe there is a new optimum (NOT MAXIMUM) level of air service the valley should be providing. Scott's figures would suggest that a few less seats might just provide for a better optimum.

In trying to achieve the maximum you are experiencing deminishing returns. Somewhere there is a sweet spot for the community to help bring in air travelers into the region. However, that sweet spot might not be where it used to be.

As opposed to just blanket levels of service for the year. What about advertising a package deal in Chicago for a week for those peak weeks. You are hitting the markets that provide a lions share of the visitors. Increasing capacity when we need increased capacity and letting capacity dwindle when it is not needed.

Think outside of the box maybe even think outside the room the box is in. Maybe we are barking up the wrong tree or should be looking at wether what we are doing is actually moving us to the broader community goal.

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Scott Wedel 3 years, 6 months ago

The thinking inside or outside the box should be that if we are going to subsidize an airline to provide additional seating capacity to SB then we need those seats to be occupied.

We should not be considering yet another tax so that we can afford to subsidize lots of empty seats.

If tourist travel behavior and so on have changed so that the tried and true methods of getting tourists into seats no longer works as well then the solution is not a tax to enable throwing more money at the problem. Instead we need to figure out the new reality and adjust. Maybe we should be discussing how the ski industry itself is facing a terrible problem of attracting new people to the sport and is instead stuck with an ever older demographic. While the aging baby boomers were able to use their accumulated wealth to buy resort real estate and drive that boom for a few years, there is the risk that as they continue to get older that they will ski less and less.

When ski industry skier days is growing at a slower rate than the overall US population then that means the industry is in decline. That is a far bigger issue to deal with 4 or 5 years out.

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Jon Quinn 3 years, 6 months ago

No offense to either of you, but I still feel like you are missing the point here. Steamboat is more than just a ski town. It is a year round tourist destination and a thriving business community. The air program enables a level of air service to our community which supports both the business and tourist elements of our economy. The cost of providing the air program has increased and load factor has decreased. You're both right, that is not sustainable. That was precisely the point that the LMD was making. I would argue that not having the air program at all is also not sustainable. Our local non tourist related business benefits from air service to our valley, and it certainly makes us much more attractive as a tourist destination. Eliminating the air program in 2-3 years means threatening our ability to recover from the downturn.

It is fine to say that we just need to "right size" the air program, but it is not as simple an equation as you make it out to be, and there are many who would argue that the air program is the right size and downsizing would be a dangerous and slippery slope. In any event, I just want to emphasize that it is not just as easy as saying that we just need to increase load factors by either decreasing seats, or increasing passenger counts. This is not going to be an easy predicament to get out of, and I think the conversation should start now as it will take time to find a solution.

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Kevin Nerney 3 years, 6 months ago

I think the major problem with the entire local economy is that we don't control our own destitny. We are beholden to "Ski Corp" since we don't own the mountain yet we subsidize their advertising, we are beholden to the airlines since we don't own the planes yet we as a "city" buy seats. Ski Corp could decide to just walk away at any time (or go belly up as other ski corps. have done) and we as town would be screwed. Dave King and his Triple Crown could have left entirely and we again would have been screwed. The airlines can decide not to come and then we'd have two airports that don't turn a profit, once again being screwed beyond our control. We need to look at the bigger picture and set ourselves up to survive on our own so in case we do get screwed at least we get kissed first. Shooting down CMC and 700 while losing money on the Iron Horse is not enabling us to survive on our own.

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housepoor 3 years, 6 months ago

We need to offer something the other Colorado ski resorts don't have besides the best snow..... HOW ABOUT A CASINO!!!!

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Scott Wedel 3 years, 6 months ago

Jon, Well if the new reality is about 90,000 air passengers a year requiring a subsidy of about $30 per passenger and there is no alternative that costs less then go ahead and put that up for a vote.

For $2.5M a year, I'd be willing to fly out of Eagle Airport. I think it would make more sense to spend $2.5M a year on local amenities that benefit everyone and make SB that much nicer of a place to visit for all that come here. $2.5M a year would pay for a very nice rec center and so on. And Eagle is an hour and half hours while Hayden is half an hour. So that is a lot of money for an extra hour of travel time.

It would also be interesting if deciding not to pay $2.6M for airline subsidies would truly result in no flight service to Hayden or if the airlines could figure out how fewer full flights could be operated profitably.

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ybul 3 years, 6 months ago

--It would also be interesting if deciding not to pay $2.6M for airline subsidies would truly result in no flight service to Hayden or if the airlines could figure out how fewer full flights could be operated profitably.--

This, there are zero subsidies in the summer if I am not mistaken. The only subsidies come in the winter to get the skiers here. We have jet service in the summer because there is a demand. There will still be commercial service of some sort without subsidy. Just do not know what that level is.

Right now we are chasing maximum revenues and have deminishing returns. We need to scale back and find the optimum levels of support so that we do have an airport that does have jet service many times of the year.

Heck 2.5 million annually could pay for a lot of mult-day discount tickets for midweek specials for denver residents. It could fund multiple start up business' that draw in revenue. There is so much 2.5 million could be used for that might have enhance the communities quality of life more than simply chasing after ever greater quantities of life.

Peace and out

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