Fly Steamboat program faces funding crisis

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— Resort leaders in Steamboat Springs are studying the creation of a rural transit authority and with it a new countywide sales tax of as much as 1 percent to help stave off what they call an impending crisis in funding the Fly Steamboat program.

The program provides minimum revenue guarantees to airlines that secure commercial flights into Yampa Valley Regional Air­port, particularly during ski season. Half of the $2.5 million budget for the ski season jet program comes from a 2 percent lodging tax within a local marketing district that covers most but not all of Steamboat. But officials say even with reductions in the flight program, the operation is burning through reserves.

“We’re upside down, and our revenues are less than what we’re spending,” Steamboat Springs Chamber Resort Association Executive Vice President Sandy Evans Hall said. “With the lodging community discounting rates, we can see that we can’t recover off the average daily rates. The lodging industry was hit first and will be the last to come back, and all of our tax revenue is in that one basket.”

Chris Diamond, Steamboat Ski and Resort Corp. president and CEO, told the Routt County Board of Commissioners on Jan. 25 that available airline seats have decreased 29 percent from the high three years ago and predicted that the airline program would burn through the last of a $1 million reserve fund by the end of ski season 2012-13. He cautioned that Routt County’s economic recovery is at risk if airline capacity continues to decline.

Lodging taxes are down 35 percent from the past two years, and although the local marketing district reserves can fund this winter’s airline program and winter 2011-12, the program would go into “an extreme deficit” in the winter of 2012-13 without additional revenues, Diamond said.

City finance official Bob Litzau confirmed Tuesday that annual local marketing district tax revenues have declined from $1.48 million in 2008 to $1.14 million in 2009 and $1.04 million in 2010.

City Council Presi­dent Pro Tem Jon Quinn said that al­­though the Steam­boat Springs City Coun­­­­­cil has not been formally advised of a bid for a rural transit authority tax, it is monitoring the situation.

“I think funding for the airline program is critical,” Quinn said. “Maybe a (rural transit authority) is a solution, or maybe there is something else out there.”

Evans Hall said the annual performance of the airline program and its fiscal condition depends on revenue yields from flights. The local marking district board projects its revenues for the coming year.

This year’s total airline program budget is a more than $2.5 million, and the local marketing district pledged $996,000 in expected lodging tax receipts toward its share of about $1.3 million, leaving the possibility of spending $346,000 in reserves if the worst-case scenario played out. Projections now suggest that the full $346,000 of reserves will be needed when the final 2010-11 airline cost figures are in, Evans Hall said.

Subsidizing air service

Evans Hall said the board of the local marketing district would spend the spring researching the possibilities for propping up the airline program before choosing a direction in June. Options include creating a rural transit authority that would collect as much as 1 percent sales tax as well as vehicle registration fees to generate from $500,000 to $700,000 annually to supplement the local marketing district for as long as a decade.

“We’ll draft sample ballot language, conduct phone polls and educate the community” before deciding whether to seek a ballot question in November, Evans Hall said. If that route is found not to be feasible, the board might turn to temporarily raising the local marketing district tax to bridge the gap.

Evans Hall said the challenges for the local marketing district go beyond declining numbers of visitors and the need to discount room rates to attract vacationers.

The growing prevalence of timeshare and vacation club accommodations, which as private residences cannot be taxed, undermines the ability to fund the airline program. And although the city is doing a better job than ever of collecting lodging taxes from the vacation rental of private homes, the proliferation of vacation rental by owner portals makes the task more difficult.

County Commissioner Doug Monger said Jan. 25 that it appeared that increasing airline program subsidies while passenger numbers declined was not a sustainable model, and he predicted that persuading the community to continue subsidizing the airline program would continue to be a challenge.

Airline Program Director Jan­et Fischer responded that research shows that an increase in subsidies would continue to return benefits to the community.

Fischer said the cost of subsidies on a per-passenger basis is $30 in winter. Even if the cost of the service jumped to $47 to $50 per passenger, each of those passengers is spending about $1,150 here, justifying the investment, Fischer concluded.

– To reach Tom Ross, call 970-871-4205 or e-mail tross@SteamboatToday.com

Comments

beentheredonethat 3 years, 10 months ago

increasing airline program subsidies while passenger numbers declined was not a sustainable model

enough said.

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Scott Wedel 3 years, 10 months ago

Well, the program is in trouble because it is subsidizing too many empty seats.

It is all wonderful and great to point out how much some people spend when they are in SB, but paying for empty seats does not work.

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Steve Lewis 3 years, 10 months ago

“Critical” and “unsustainable” are both fair descriptions in my opinion. Too bad they describe the same thing.

In 2008, the airlines’ first response to rising fuel costs was to drop regional services. Without the subsidy, free market air service would likely have abandoned us already and thus, along with other resorts, we are riding a bubble of our own making. I state the obvious, sorry.

I hope Chris Diamond's plan does not represent that of the LMD board. Rather than applying all reserves to next year and planning “an extreme deficit” in the winter of 2012-13, the LMD board should taper down the subsidy and apply it much more evenly to the LMD’s remaining tenure.

We should also approach the other subsidizing resorts and work together rather than against each other. Any of these programs "crashing" in the manner Diamond describes would hurt market confidence in the other resorts' viability.

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ralph cantafio 3 years, 10 months ago

This information may be available, but my questions would be: 1) is there any reliable 3rd party economics available to determine empirically whether this is a good investment of the dollars of our community; 2) on the same lines - is there any cost/benefit analysis demonstrating that there really is any net benefit derived from this program; and 3) to the extent there is a benefit, who precisely does benefit? I think these are all fair questions whether or not one is engaged in analysis of the existing program or the creation of a rural transit authority. I would hate to learn that all of this is done based on a mere presumption of a greater public benefit to only learn that either there is no benefit or that the benefit is not adequately distributed to make this truly a community (as opposed to a special interest) issue.

My point is that typically good decisions are a product of good information.

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Scott Wedel 3 years, 10 months ago

Ralph, You want detailed information from a group that will not even release current yield (occupied vs empty seats)?

And the idea of there being reliable 3rd party economics to determine empirically if this is a good investment is asking more from economics that it can be expected to answer. It would be an extremely difficult question to know how many passengers that this time got onto the flight to SB that would have chosen elsewhere because of differences in airline subsidizes. Already, a significant number of tourists arrive via shuttle or rental car so it is reasonable to expect some that were denied airline seats would simply find alternative transportation. And trying to determine that would require knowing what people would do given hypothetical options which is impossible to accurately determine. Unfortunately, the only really good way to get reliable numbers would be to cease having subsidized airline flights for a period of time in order to get good data, but that would be a risky strategy if tourists depended upon the subsidizes.

It is not even clear how many airline seats would remain if there were no or minimum subsidizes. It would make sense to expect that there is some number of airline passengers that will fly here regardless so it might be profitable for United Express to provide fewer seats and a shorter season without any subsidizes. Obviously, when there is the possibility of a subsidy then the airline argues there will be no seats, but what would happen in the absence of a subsidy is also speculation.

The situation gets real complicated when one contemplates alternative subsidy schemes. What if we simply provided a $25/$50/$100 cash coupon based upon the room rate for those with confirmed hotel (that pays the lodging tax) reservation? Which would leave the timeshares and others not funding the airline program in the cold.

Also, airline seats also affect the ability of local businesses to operate efficiently. So there is also the question of to what extent the airline subsidy helps Smartwool and so on.

Overall, I suggest the situation is too complex to have a 3rd party empirical cost benefit analysis that another 3rd party economist might not argue is simply the result of the starting point assumptions and that different assumptions give a completely different analysis.

Thus, I think the only workable method to judge the merits of the airline subsidy program is to ask simple question of whether the program is working or not. When we get the yield numbers then we can ponder whether $1.3M for that number of occupied vs that number of empty seats is worthwhile.

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ybul 3 years, 10 months ago

So for arguments sake, if one took the budget of 2.5 million and gave a $40/day discount on the lift ticket for those with three or more nights stay in a revenue generating accommodation you would have 62,500 skier days. given the deficit cut half the budget and you have 31250 skier days. How many skier days does having a flight into Steamboat springs generate versus simply having lower ticket prices?

What if you stay for 2 nights you get $10 off two days, 3 nights $15 off 3 days up to $40 off for 10 days or something like that. Those people that are coming in from overseas, will see a small change in airfare but a large change in their ticket prices. That difference in ticket prices will make someone drive/shuttle from DIA if the air service is not there. Throw in an exclusion on Christmas/New Years or cut the discount.

Get creative and staff the airport for the airlines and/or charter flights from major cities for week long stays. Have the plane fly into Chicago and pick up people for a week stay drop them off at the airport and have the plane take passengers back to LA after their week stay.

Get creative, think outside the room the box is in. Just because the current program is set up the way it is does not mean that it could not be rethought to be much more productive than it is.

The fear is that if we do away with the subsidies the airlines will go away, they are here all year, but with much reduced service. They will be here all winter, with lower levels of service even without the subsidy.

Then one really needs to consider wether throwing money are airplane seats is really the most cost effective means at yielding the end results that are being sought after, which I am not sure that they are known, except to put more skis on the hill, which should not be the goal, it is simply a means to a goal that is unknown to me.

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Steve Lewis 3 years, 10 months ago

http://www.steamboattoday.com/news/2006/apr/15/airline_boosts_service/

The linked 2006 article does not state a “cost per passenger”, but if I read its seasonal program cost, $950,000, and ski season passenger count, 110,000, correctly in comparison to today’s numbers, the airline program’s cost per passenger may be rising fairly fast. This trend could be published in the next presentation on this topic. It may be the article represents an anomaly, rather than a trend?

The article mentioned a load factor of 71%, the highest to that point.

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Chad Fleischer 3 years, 10 months ago

Steamboat is a true destination ski resort and therefore I do not question the importance of the airlines that service our community but as a business owner there are a few things that concern me with how the program is run and what I believe the City can do to gain back serious tax dollars for this program. 1. The vertical integration that the ski area now has is continuing to erode the spread of dollars that flow into Steamboat. Why is it that if you book with a lodging company you get discounted lift tickets but only if you book with a lodging company. The lodging company and the ski area benefit but we all pay for the discount. I agree that discounting the airfare is a better way to go vs a lift ticket that we get sales tax dollars on and a higher lodging fee that we get more money from. 2. VRBO.com and HomeAway.com have soared in this town from less than 100 units for rent by owner 5 years ago to well over 500 now. Think about the amount of unregistered and non taxed beds in this town. Its no wonder our lodging barometer is way down and tax rev is down...they can no longer be tracked but are still in this town. Even Steamboat Resorts uses VRBO.com as an important tool for generating lodging traffic. These are two examples of why we are hurting and I think it is fair to only give discounts for airfares and keep the lift tickets a standard cost and the City to crack down on VRBO and the non tax rev being generated from lodging in this town. If we all subsidize the air transport we should all have equal interests yet Steamboat Central Reservations, Ski Corp and the lodging companies seem to be getting the best of both worlds in many ways. Not saying these can't be debated or are the answers but certainly valid discussion points.

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ybul 3 years, 10 months ago

Chad,

It is my understanding that there is no sales tax on a lift ticket. Maybe I am wrong.

If there is no lodging tax being paid, then there is no discount on a lift ticket for a long stay, plain and simple. That way you bring those entities into the tax mix. Just giving a discount for airfare allows those to keep operating under the current paradigm.

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Scott Wedel 3 years, 10 months ago

It is my understanding that the airline subsidy is not a straightforward subsidy of X dollars per passenger, but a more complex sliding scale of SB paying to promote the flights, promising some number of passengers and paying if not enough take the flight. When they meet their expectations then the program is, in a sense, free because the money went to marketing SB which to the Chamber is always a worthwhile program.

But it all becomes a disaster when they do no meet their guarantees because that is a large expenditure that simply goes to the airline to cover their presumed losses operating flights with too many empty seats.

So, in theory, if they picked a lower number of seats that they knew they would meet then they could reduce the program's marketing costs and not pay for missing the target.

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Steve Lewis 3 years, 10 months ago

Ybul, you are correct. The ski area pays no sales tax on lift tickets. They do contribute $100,000 or so to local organizations as a "trade" on that.

Scott, So in effect we guarantee x number of seats are occupied, and pay if they are not. That's as I thought. I also thought there was some fraction of their budget allowed for marketing. But I did not understand that a majority of the LMD spending in a given year could be for marketing. Per the link above, in an earlier year, we had a peak of winter passengers and still spent $950,000 of LMD money. It went to marketing?

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Scott Wedel 3 years, 10 months ago

Steve, Reading that article, I am no longer sure of the use of the LMD money. I just recall it being emphasized by the promoters of the airline program of how so much of what is spent is attributed to marketing and how a cynic could argue that it was little different from a direct subsidy because it pays for marketing that the airline would likely pay for regardless.

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Steve Lewis 3 years, 10 months ago

Ralph Cantafio's post above is on the money. Good decisions flow from good information.

The RTA meeting I attended focused on its potential outreach and poll for deciding about a ballot. I watched a draft presentation and feel they need to explain more than they have on the airline portion. Otherwise I suspect very few people polled will understand the use of money taxed into the airline program. Once on the ballot, the level of understanding will go way up and this poll should encounter that reality.

For example. The existing airline funding is noted in their presentation as dropping as a function of lodging revenues. But the upcoming sunset of the source of that funding, the LMD, was not mentioned.

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Steve Lewis 3 years, 10 months ago

Chad, I don't follow your point about the discounts: "The lodging company and the ski area benefit but we all pay for the discount." How do we all pay for the discount?

You began your post saying, “Steamboat is a true destination ski resort and therefore I do not question the importance of the airlines that service our community”. I agree the airline service is important, but its continued presence at current levels is an open question. Certainly this article suggests that question exists.

Rising fuel costs in 2008 have already established the airlines reaction to such costs will be the elimination of some regional services. Our airline service may diminish for free market reasons that this artificial subsidy cannot overcome.

And even the part we control appears to be anything but smooth sailing. I'm disappointed the LMD's management of the fund would entertain full air service next year and an "extreme deficit" the year after that. Similarly each sunset of the LMD or this proposed RTA presents more uncertainty. I would think extensions of either would be balloted at least two years in advance of their sunset.

These uncertainties bother me, and likely you too. Rather than expand the program and increase these hazards, perhaps we need to taper and constrain this program instead.

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Steve Lewis 3 years, 10 months ago

I may be mistaken about a sunset of the LMD lodging tax. Checking that.

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