Our View: Airline program is key to our economy

Advertisement

Editorial Board, Sept. 25, 2011, to January 2012

  • Scott Stanford, general manager
  • Brent Boyer, editor
  • Tom Ross, reporter

Contact the editorial board at 970-871-4221 or editor@SteamboatToday.com. Would you like to be a member of the board? Fill out a letter of interest now.

We encourage Steamboat Springs voters to support Referendum 2B, which would implement a quarter-cent sales tax increase in the city to pay for airline revenue guarantees.

Airline revenue guarantees are used to ensure direct ski season jet flights into Yampa Valley Regional Airport from key markets such as Dallas, Houston, New York, Atlanta and Chicago. Airlines would prefer to fly more profitable business routes but will agree to fly into Steamboat Springs if they can get specific revenue guarantees for the flights. If the load factors don’t pan out during ski season, Steamboat’s winter air program makes up the difference.

Since 2004, when voters approved a 1 percent tax on lodging to pay for the airline revenue guarantees, the cost of the airline program essentially has been split between Steamboat Ski and Resort Corp. and the lodging tax, along with lesser contributions from the business community. Before 2004, nearly all the cost of the earlier, smaller program was borne by Ski Corp.

The cost of the airline program fluctuates depending on the performance of the flights. Last season, Steamboat put up $2.69 million in guarantees for 118,360 inbound airline seats. The guarantees actually wound up costing $1.9 million. At the peak of the program — the winter of 2007-08 — Steamboat risked $2.45 million in guarantees for 162,700 inbound seats. The actual cost of the program that winter was $1.75 million.

The economic collapse since the winter of 2007-08 has jeopardized the air program severely. Consolidation in the airline industry has meant less competition and higher prices for fewer seats. Booking declines and competitive price decreases in lodging have resulted in tax revenue decreases locally. The net impact is that the airline program has a declining base of funding to pay for ever-increasing flight costs. Without a significant change, there won’t be enough funding in two years to pay for even 100,000 seats.

To date, available airline seats have declined 27 percent in three winters. We can ill afford further seat erosion.

We know it’s not an ideal time to pursue an increase in the sales tax. Residents have been burdened by declining home values, a rising unemployment rate and increased food costs. They’re already paying $8.40 in sales tax on every $100 they spend in local stores and restaurants. It is hard to ask them to pony up another quarter.

But it is a small investment with a proven return. Estimates are that the quarter-cent sales tax would raise about $1 million per year, with half of that coming from locals and the other half being paid by visitors to Steamboat Springs. The goal is to use locals’ $500,000 annual investment to get back to 160,000 available seats by 2016. Based on proven load factors and revenue-per-visitor data, the extra seats translate into an additional $25 million to $30 million per year in local economic activity, and about 475 new jobs, returning $6 to $9 in local wages for every dollar of local taxes paid, according to estimates by local economist Scott Ford.

Some things to note about the proposed tax:

■ It is scheduled to sunset in five years, though advocates could seek renewal of the tax or even an increase at that time.

■ Ski Corp. will continue to commit as much as $1.3 million per year to the program, and its funding will be first in.

■ The 1 percent lodging tax will continue to support the program.

Steamboat’s airline program always has been the envy of other destination resorts. It has been vital to our tourist economy, and we would ask residents to bolster the stability of the program by voting “yes” on Referendum 2B this fall.

Comments

steamboatsprings 3 years, 2 months ago

Well said, the air program is key to nearly all facets of our local economy along with the public and business owned amenities that we all enjoy.

0

seeuski 3 years, 2 months ago

Vote out the Marxists in 2012, that is your only hope.

0

Scott Wedel 3 years, 2 months ago

Honestly, a tax flat out given to a corporation with no public oversight?

Look at the complete lack of data released regarding the subsidy program. How much are we paying for empty seats?

If we had a airline subsidy district with a public board accountable to the public that can not only know of the financial details of the program, but change it as needed then maybe it would be acceptable.

But simply giving the money to Ski Corps and trusting that they will do a good job with our tax dollars is ludicrous

So how does Vail and Edwards region do it during the winter? Vail Resorts pay 100% of the program during the winter. Apparently, their company is a bit more skilled at managing the winter airline subsidies than our Ski Corps because they bring in many more flights and say it costs them only $250,000 per winter. Apparently, the key in managing the airline seats program to minimize the needed subsidy is FILLING THE SEATS and so offering discounts as needed. Something our Ski Corps is apparently unwilling to do.

So doesn't Vail area have a publicly funded airline subsidy program? Why yes, they do. During Summer and Fall they publicly funded public board does provide airline subsidies. The board represents the public and they make public decisions on how to spend public funds.

Airline subsidies may be important to the local economy, but if it is important enough to require public funding then it is too important to trust that Ski Corps is doing it correctly. With public funding must come public oversight and without public oversight I refuse to tax myself and others.

So I am voting NO.

0

housepoor 3 years, 2 months ago

Like it or not we are in bed with ski corp and the airline program is crucial to our economy, that said I would like to see more transparency and at some focus on year round service instead of just the winter program.

0

grundy 3 years, 2 months ago

Actually, not everyone is in bed with ski corp, though I will concede that most are. IMO, the argument that everyone will benefit is outweighed by the fact that a few will benefit much, much more than the rest. This strikes me as a very selective and duplicitous brand of socialism.

0

rhys jones 3 years, 2 months ago

This is the same Ski Corp which prefers South Americans and Europeans over Americans? What are they doing for you? Vote no.

0

cindy constantine 3 years, 2 months ago

"Steamboat's airline program has always been the envy of other destination resorts." SAY WHAT--can you please cite an example??? Aren't we a destination resort in the summer as well without an airline program?

0

Scott Wedel 3 years, 2 months ago

"If the load factors don’t pan out during ski season, Steamboat’s winter air program makes up the difference."

Well, that is apparently the fundamental difference between how Ski Corps runs our airline subsidy program and Vail Resorts runs theirs.

The people in charge of Vail's program remove the "If" and their people make sure the load factors pan out. They bundle in package and do whatever it takes to fill their airplane seats.

Here, it is "other people's" money to Ski Corps. So they have no need to offer discounts or packages to fill the seats. It doesn't cost Ski Corps hardly anything to have some extra empty seats and, if the tax passes, it will cost them even less in the future.

Considering how many flights come in from so many different places and that it is a year round flights program, there is no doubt that Vail's program blows away SB's.

0

Scott Wedel 3 years, 2 months ago

I think the lack of public accountability on how the money is spend should doom this attempt to fund the airline subsidy program.

I think a similar tax, but with a public board could be put on next April's Colorado municipal ballot and so it could still be enacted before next winter.

0

Scott Wedel 3 years, 2 months ago

yvb, I live in Routt County and I get to vote on this issue. But then I also live within SB city limits.

So then, "we" are not going to vote no because you don't get to vote on this issue. But I get to vote no.

0

cindy constantine 3 years, 2 months ago

Deer Valley is ranked 1st or 2nd by Ski Magazine. Their lift tickets are $90 per day. Steamboat is ranked 14th or 15th and our lift tickets are $97 per day. Vail Assoc. offers their locals reduced pass prices because they value the locals and realize that the locals are a key component of their advertising program. Steamboat RAISED their ski pass prices this coming season and do not offer any local discounts. Now they are asking the locals for a tax increase to support the airline program. They do not seem to realize that the community is very symbiotic-scratch my back and I will scratch yours. Yes, a high percentage of the locals are employed in a resort related business, but until Ski Corp realizes that it has to be a win-win for all, I doubt that this referendum will pass. They also have an obligation to the second homeowners to present an atractive package so their units can stay rented. The national workforce planned reduction numbers were released this morning and are downright scary!!! Time to start putting atractive packages together TODAY before the few skiiers that are left will put Steamboat in their plans. The planes WILL get filled as Scott mentioned if ski corp is proactive. WE have the BEST ski area employees in the industry in Steamboat but until we have an ownership group that understands the biz we are all screwed IMHO. Come on Editorial Board, this sentiment cannot be news to you. This is a common topic of conversation among the locals and it would behoove you to take note. The whole scenario just make me so sad as I love my community and my mountain!!

0

Scott Ford 3 years, 2 months ago

Hi Scott W. - One of the areas it took me a long time to get my head wrapped around was "Load Factor" as it is used in the airline industry. It is not based on the number of occupied seats divided by the number of available seats on any given flight. The airline industry uses a unit of measurement called Available Seat Miles. (ASMs). The important thing about ASMs is that they apply only to revenue generating seats.

For example if an airline carrier had 200 available seats for sale on a flight segment of 500 miles there would be 100,000 ASMs. If they sold 175 seats the result would be would 87,500 Revenue Seat Miles RSMs (RSMs divided by ASMs = Load Factor.) In this example the load factor would be 87.5%.

Here is where it is bit goofy. Since load factor is not based on the actual number of passengers on the flight but the number of ASMs sold, flights arrive all the time with seats occupied by non-revenue passengers. (Non-revenue passengers included folks such as crews, air carrier employees, family members, frequent Flyers or bump coupon fliers - whatever.) Therefore, we could have a plane with 200 seats arrive at Hayden 95% full of people. However, if there were only 20 seats for sale and 10 of them were occupied the load factor for that flight would be 50%. Go figure!

0

Scott Ford 3 years, 2 months ago

Hi All - As the official Yampa Valley data geek below are some 2010 calendar year statistics from the Bureau of Transportation Statistics that may help us put some of this discussion in context.

Yampa Valley Regional Flights/1,748 Passengers / 107,101 Load Factor / 61.8

Eagle County Regional Flights/2,397 Passengers / 203,218 Load Factor / 68.5

Sardy Field (Aspen) Flights/5,068 Passengers / 221,668 Load Factor / 67.3

Montrose Regional Airport Flights/2,408 Passengers / 96,239 Load Factor / 73.1

Durango/La Plata County Regional Airport Flights/4,208 Passengers / 162,620 Load Factor / 71.34

Gunnison/Crested Butte Regional Flights/847 Passengers / 36,113 Load Factor / 54.8

With some extra digging we can drill down to the monthly level data

0

jk 3 years, 2 months ago

Wondering where chickadees chirp is relating to this ballot issue? No questions here??

0

rhys jones 3 years, 2 months ago

chickadees limit their commentary to "pots" they are paid to stir.

0

cindy constantine 3 years, 2 months ago

Scott F-

Are any assumptions to be made by the fact our load factor was next to last?

0

Scott Wedel 3 years, 2 months ago

Cindy, I am not Scott F, but it is normally easier for larger markets to occupy a higher percentage of seats. So it is not surprising that Gunnison with only 847 flights and 36,113 passengers has the lowest load factor.

Since both Aspen and Vail are about 67% and the actual cost of their subsidies was affordable ($250K or so for Vail) then it suggests that is about the sweet spot of filling seats vs losing revenues from cutting prices too far.

It is surprising to me that Montrose which is modestly fewer seats than SB has such a higher load factor.

Regardless, I consider that data shows that SB's program is not particularly effectively well run.

0

Travellingiant 3 years, 2 months ago

Are we going to start subsidizing the restaurants during mud season now too?

0

Scott Ford 3 years, 2 months ago

Hi Scott W and Cindy - We need to keep in mind that the numbers shown above are for a full 12 months of 2010 for all the commercial air carriers that are flying into one of the listed airports. There are likely a lot of things that influence load factor that are beyond my understanding of the industry. However, it seems to me that when comparing total load factor the YVRA seems to be in the same basic range as the other airports.

Data description / Load Factor ALL Carriers Dec 2010 thru Mar 2011 by month. Aspen = 55%;63%;64%;66% Eagle = 57%;67%;64%;72% Montrose = 56%;71%;69%;74% YVRA = 57%;67%71%;75% (Source US Bureau of Transportation Statistics)

The number of flights are very different; however; these load factors are so close to each other, it seems that we may be bumping up against a reality that exist that is not isolated to only our area when it comes to load factors.

Scott W / What is your sense of what we are seeing here?

Although I have not done the analysis to prior years it seems that the load factor percentages stay about the same regardless of the number of flights year after year. It seems on the surface that the data indicates that we are doing about as well as can be expected in comparison to other similar air service markets.

I would appreciate any enlightenment someone may want to offer.

0

cindy constantine 3 years, 2 months ago

Since we compare pretty equally to other ski resorts (at least during the 4 key months) who provide a lot less subsidy to the airline program (Vail comes to mind) why would we need to provide any more funding? Your analysis to me, Scott, seems to indicate that we do not need a tax increase. Maybe this referendum came about because of advanced bookings and pass sales that were way below expectations for the coming season. However, Ski Corp does not share that important piece of the puzzle.

0

Scott Wedel 3 years, 2 months ago

Scott F, Well, I go back to the basic issue. The public is being asked to tax itself for a subsidy that has no transparency on the money is to be spent. It makes no sense that the public is being asked to dig through FAA and such to try to figure out what is going on.

I think that the real number which airlines judge their financial operating picture is revenue per ASM. But that number is relevant as an overall number because some flights linking commercial centers might have a higher percentage of business travelers while flights to resorts might have more traveling on frequent flyers. But the frequent flyer program might be important for attracting business flyers on other flights. And so seat pricing is carefully monitored and changed to attempt to maximize revenue by selling enough seats to just about fill the plane while leaving enough seats to sell to last second travelers at higher prices.

So anyway the airline subsidy program must count frequent flyers into SB more like paying customers than as nonrevenue seats.

It looks like Telluride/Montrose are willing to promise up to $1.9M, but are confident that actual costs will be about $450K. It is not clear what Vail Resorts guarantees during the winter, but they claim their actual expense is about $250K.

It seems reasonable to expect that SB should be expected to guarantee something around $1.5M and expect that actual cost to be less than $500K.

If Ski Corps agrees to put in $1.3M a year then it is hardly obvious why any additional revenues are needed to operate the program. It looks like the program needs to have a reserve of a couple million with expected expenditures of $500K. I see nothing in the other programs suggesting why SB needs an operating budget of $2.3M for a winter airline subsidy program.

Maybe I am missing something big, but it seems that SB airline subsidy program costs far more that the others. That the guaranteed revenues for the various programs are in the same ballpark, but it looks like SB misses the guarantees by a far larger amount that the others.

0

Scott Ford 3 years, 2 months ago

Hi Cindy - I know that Aspen provides no subsidies and Vail Associates does not disclosed the amount they are paying. Vail could be paying the most and we would not have any way of knowing.

Here is yet another piece of data that may help us puzzle together the big picture. This data is from the 1st Quarter of 2011 and it reflects the average fare paid by a passenger arriving at the airport. This is an average fare that would include both Round Trip and One-Way fares for all carriers. Aspen / $569.83 Eagle / $600.00 Montrose / $511.65 Gunnison / $496.00 YVRA / $432.96

On average, it was cheaper during the 1st quarter of 2011 to fly to YVRA than to any of the other resorts. It would appear on the surface that we are attracting passenger that are likely very price sensitive. We obviously are a good airfare value compared to Eagle.

0

cindy constantine 3 years, 2 months ago

We need to have a full accounting disclosure before it make sense to "get on board" with this referendum.

0

Scott Wedel 3 years, 2 months ago

Scott F, But with how many seats are being sold as part of packages then how much of the package price is airlines vs lift tickets is fungible.

And the number is certainly affected by the number of passengers coming from DIA vs long haul flights from Houston, Chicago and so on. So we need to know how many passengers from DIA vs long haul to see if there is any real pricing difference.

"It would appear on the surface that we are attracting passenger that are likely very price sensitive."

Well, not really because we are not filling up our planes any better than Eagle. I suspect that Eagle is highest because it is closest drive to DIA and has more I70 shuttle visitors. If not, then it means that people will pay 60% more to fly into Eagle than into SB. And so an awful of SB tourists would rather vacation in Vail, but they just cannot afford it. Which suggests there are real deep problems on the horizon for SB that have nothing to do with airline subsidies since tourists need SB to be that much cheaper than the competition for them to come here.

0

Scott Wedel 3 years, 2 months ago

I think this all suggests the City Council did not serve the public well by putting this on the ballot. They did not insist upon the research and release of information to allow the public to make an informed vote.

All we are left with is a newspaper that has failed to ask any questions of Ski Corps regarding the airline subsidy program, but is willing to say it is needed for the local tourism economy.

When Scott Ford is left scrambling for data then there is no one else in the City that is well informed on the issue except for a few Ski Corps employees whom are not saying anything. I have asked the City for the information they have regarding this program and they had nothing.

0

John Fielding 3 years, 2 months ago

. I believe some means of support for air service is appropriate, just like buses and highways, but I still have some questions that must be answered before I could support this proposal.

When the presentation of the proposal was made at a candidates forum last week, I did some quick math based on the answers to the questions I asked and came up with about $8 per ticket sold would cover the share the new tax is to fund. I would appreciate someone in the know calculating this figure more precisly.

I asked if a terminal fee had been considered and was told "it's complicated, Chris Diamond would know".

My next question is what happens to the money if the funds needed for the subsidy are less than the tax collected? That seems a real possibility based on the information in the editorial.

Anyone know these answers?

.

0

Scott Wedel 3 years, 2 months ago

John, Well, the historical manner which the air subsidy program has dealt with money left over from the previous year is to roll it into next year's program. And so next year they can guarantee new flights that don't fill up, cost them lots of money and thus solve the problem of having extra money.

It is real hard to tell since the air program releases little data, but it would appear that SB would get no less than 60,000 seats without any subsidies because that short hop from Denver appears to be profitable for the airlines.

So not every seat requires equal subsidies. The long haul flights have a much higher cost per seat. A few years ago when they paid a lot for seats from Chicago then that appeared to have a $50 per seat subsidy.

Anyway, seems to me that we should be able to have a program that costs less than $500K a year to operate and needs like $2M reserves to provide the initial guarantees.

A sales tax hike expected to bring in $1M a year is real money and could be put to more beneficial tourist draws. We could have weekly fireworks shows during the winter, kids and tourists love fireworks. Or a chariot racing series at Howelson. Or whatever.

Regardless, since we do we approve a sales tax to be given to a corporation for their promotional campaigns? If there is going to be a public tax then there has to be a public body controlling how it is spent.

0

Steve Lewis 3 years, 2 months ago

The LMD lodging tax used for the airline program is incorrectly stated. That tax is 2% .

0

Kevin Chapman 3 years, 2 months ago

VOTE NO ON 2B!!! It is impossible to believe this increase will only last 5 years. No accounting information on how this money is spent. Place this burden on the ski area and the tourism industry in the form of bed tax raises not the general public and every single thing that they purchase in city limits. How ridiculous is it that we ALREADY pay 8.4% sales tax (in total) and how someone can stand behind raising that.

0

ybul 3 years, 2 months ago

So a question... does not ski core already receive the benefit of not paying sales tax on lift tickets. In addition correct me if I am wrong is not this ski area one of the most profitable.

It seems to me that a bigger key to our economy would be investing in business' like honey stinger or such that make products and ship them out via loan guarantees or direct investment. Put CMC small business center to work, with funds generated by the sales tax. This way if those ventures are successful the community gets paid back plus a little which then can be used to build the economy further.

A million dollars a year could go a long way to create more draws for the community. Loan the money to Yampa Valley Feeds to refurbish their grain elevators and put in a bakery on Lincoln using local grains. That would have minimal cost, those breads could be sent into other ski towns restaurants, Denver or elsewhere. just like in San Fran bread could be a component of the tourism economy.

That might require 20% of one years worth of the tax receipts and if successful could be funneled back into a new business venture that adds more draws to the community which helps all.

Then how about a real butcher shop which uses local beef, pork, poultry adds value to these products and ships them off with a Steamboat logo that causes people to want to come here for other reasons and to enjoy everything else that is here and elsewhere for that matter (yet we would have a bakery, butcher shop or other things that would add reasons for people to want to come here versus silverthorn, vail, aspen.)

Could rattle off another 20-50 ideas, but unfortunately I neither have the capital to risk on these ventures nor the desire to have that many people working for me. I would prefer to find a way for say the community foundation - which could use its funds to help people become less dependent upon the services that it is investing in multinationals to raise money for. To invest in these fledgling opportunities which would provide an opportunity for an individual to control their own destiny as opposed to working as a maid, dishwasher, etc..

I really do not see how this is the best way to make the economy more vibrant in the long run. It simply feeds the current paradigm, which does not seem to be on the most stable foundation today.

0

vanguy 3 years, 2 months ago

It seems to me that the success of tourism benefits a lot more businesses and jobs than just the Ski Corp and the Lodging Companies. Yet, more than 95% of air service funding has come solely from these two groups up to this point.

Most people I know who live in Steamboat (and actually work for a living) seem to understand the direct connection between their paychecks and the dollars spent by tourists.

This culture is why Steamboat has such a great reputation for hospitality, when compared to other mountain destinations. This culture is why visitors come back for repeat visits.

As a community, let us NEVER lose sight of the fact that the paying traveler has a choice whether or not to visit Steamboat. It also never hurts for locals to remind Ski Corp. of this fact every once in awhile.

Air service is our lifeline as a resort community.

If it is a pain in the A$$ to get here, there are certainly more convenient destinations for people to take a ski vacation.

Non-rental second homeowners and timeshare resorts like Wyndham don't contribute any LMD tax revenue because there isn't a lodging transaction involved. Yet, these two sub-groups alone consume hundreds of air seats every week.

And how many VRBO rentals aren't paying their lodging taxes?? The city could make a small fortune investigating this issue...but I digress.

I believe the 2B Tax is a great way for non-rental tourists to contribute to air our service, especially those that use the service and don't currently help pay for it.

Me, personally, I'm voting for 2B.

I admittedly waste at least $20 every week on stupid stuff I really don't need.

I'd gladly give this community $20 a year to help secure air service, if it means that me and my friends will continue to have jobs, maybe even experience some career growth someday.

I'd gladly give this community $20 if it means our businesses can afford to stay open year-round.

Most importantly, I'd gladly give this community $20 so that, as my parents get older, and travel becomes more difficult for them, there is still a convenient and affordable way for them to fly to Hayden and visit their grandchildren from time to time.

0

Requires free registration

Posting comments requires a free account and verification.