Steamboat's winter airline seats down 11 percent

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Frontier off Steamboat’s flight schedule

Steamboat Ski and Resort Corp. Airline Program Director Janet Fischer confirmed Friday that Frontier's daily flight from Denver, which brought some competition to United Express on that route last winter, will not be offered this winter.

“The opportunity to have that midday Embraer (jet) on Frontier was just not there this year,” Fischer said.

— Despite a projection of $950,000 in new revenue from the 0.25 percent sales tax dedicated to the resort airline program, Steamboat Ski and Resort Corp. officials and Local Marketing District board members are looking at an 11 percent reduction in available airline seats for the coming 2012-13 ski season.

Ski Corp. Airline Program Director Janet Fischer told the Local Marketing District board Friday that the number of arriving seats for the coming season now stands at 109,000 with the possibility of an additional 2,700 coming from Denver on United Express.

Local Marketing District Chairman Steve Dawes said during the board’s meeting Friday that he thinks it will be important that the board be prepared to explain the situation in early October, when it hosts an open house to educate and take questions from the community.

“How did we get $400,000 more revenue and get 11 percent fewer seats?” Dawes asked rhetorically. “I think a lot of people will be taken aback when they are likely expecting (the tax) would create more seats.”

Dawes’ reference was to the $417,214 collected by the 0.25 percent sales tax as of Tuesday. However, a preliminary projection anticipates that number could grow to $950,000 by the end of the year.

Board member Chuck Porter said part of the message to the public needs to be a reminder that the winter airline program, deemed essential to Steamboat’s resort economy, would be in far more difficult circumstances had the tax not been approved by voters.

Fischer said following the meeting that there is strategic thinking behind the 11 percent reduction in inbound seats. Seeking to improve efficiency, the new airline program includes eliminating some, but not all, Tuesday and Wednesday flights from Atlanta and Chicago as well as a smaller, but still full-sized, aircraft on some Tuesdays and Wednesdays from Houston.

Tuesday flights in particular are the lowest performing for Steamboat, and much of the 11 percent is accounted for by those reductions, Fischer said. The decision also freed up funds to add Saturday and Sunday service on United from Los Angeles International Airport, a key portal for the growing number of Australians coming to Steamboat as well as affluent communities in Southern California.

Airline costs keep rising

Voters passed the new sales tax by a large margin in November 2011, and collections began in January. Monies collected this year first will become available to be applied to the 2012-13 ski season flight program next year when the bills come due.

Ski Corp. officials, consulting with the Local Marketing District board, have been adjusting the airline schedule to make the most efficient use of available funds in the face of escalating demands for revenue guarantees from the three airlines that now serve the Steamboat market: American, Delta and United. Airline mergers and fleet reductions have reduced competition while placing a premium on operating full, or nearly full, flights.

Revenue guarantee demands can be traced in part to disappointing snowfall last ski season, which led to less demand for flights into Steamboat, which in turn led to discounting and poorer financial performances. The disappointing performance on the Steamboat flights translated into a perception of increased risk on the part of the airlines, causing them to seek to reduce their exposure through higher revenue guarantees.

Steadily escalating fuel prices for the airlines during the four-month period the flights operated have led to revenue guarantee caps of just more than $4 million for this coming season’s flight program compared with last year’s caps of $3.57 million.

The Local Marketing District board calculates it has in the neighborhood of $2 million available for the 2012-13 ski season, which includes an anticipated $1 million from a pre-existing 2 percent lodging tax. Revenue projections also include dipping into the final $350,000 in the Local Marketing District’s reserve fund balance.

Ski Corp., which has committed to contributing the first $1.1 million toward revenue guarantees, already has indicated it would as much as double that amount to make this year’s numbers work.

The Local Marketing District board, which was not scheduled to meet in August, has added an Aug. 24 meeting to work toward finalizing its budget before it is expected to present the final financial package to Steamboat Springs City Council on Sept. 18.

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

Comments

Scott Wedel 2 years, 5 months ago

“I think a lot of people will be taken aback when they are likely expecting (the tax) would create more seats.”

Local marketing district wonders where the public got the idea that there would be more seats? They have already forgotten what they promised during the campaign for the increased tax.

140,000+ was the number promised by those that promoted the ballot measure. Head of the SB Chamber even had the audacity to promote the economic effect that would occur when EVERY SINGLE 140,000+ seats were occupied by tourists.

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jerry carlton 2 years, 5 months ago

Since .25% did not work, add another .5% or maybe 1.5%. Steamboat taxpayers have lots of money.

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Chris Dowden 2 years, 5 months ago

Blah blah, someone call Richard Branson, get Virgin America in here free....no worries. He's just crazy enough to do it, and give him an exclusive.

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Sam Jones 2 years, 5 months ago

“How did we get $400,000 more revenue and get 11 percent fewer seats?” Dawes asked rhetorically. “I think a lot of people will be taken aback when they are likely expecting (the tax) would create more seats.”

I am not "taken aback " at all. Not even remotely surprised. The minority of us who argued against the airline tax always argued that additional seats will NOT create addition demand for those seats. And thus it is so. "Would have been worse if we didn't do it " logic was the same used by George Bush in late 2008 when he demanded an unconditional $700B from congress to bail out the banks. And now we see with clarity how ineffective supply side stimulus is when demand is absent.

Our business owners and the chamber need to start thinking critically about what will drive real and sustainable demand locally. Hint -the answer is not snow farming or tourism. Real and sustainable demand comes from those who live here year round and spend 20 times what any visitor could spend in a year. The recent talk about location neutral business owners and families is the key to sustainable, non-cyclical economic welfare in town. Are we a ski area with a town next to it? Or an outrageously great town that happens to have a ski area near it. Time to ask that hard question.

Sincerely

Sam Jones Location Neutral Business owner

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Steve Lewis 2 years, 4 months ago

Sam, You are right, the airline program was inevitably going struggle with its goal of "more seats". Particularly with their focus on distant markets and this dropping of the regional flights (Denver -Frontier). I see this reported reduction as common sense from the LMD board, though I'm very surprised at the high cost. Our previous seat number targets put contract guarantees before market reality, and this cost seems the airlines' response.

Perhaps someone can answer your central question - defining our town's relationship with the ski area. But this is the question I propose instead: What are the actual benefits of our valley’s overall economy from the air program?

It is not enough to allow the airline program is "deemed essential” to Steamboat’s economy." Thanks to that depth of discussion last year, we are now a public participant to this program, contributing roughly 1/3 of its planned funding, but we have no say in its implementation. Before the same proposition prematurely shows up on another ballot, its time to ask, "How essential?"

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Steve Lewis 2 years, 4 months ago

I voted for the tax. The 5 year sunset is probably why. Yes I can guess that I benefit from the air program. I'd like to know how much, and that the overall community benefit is matched with the community's stake. One way to balance that would be more year round flights.

In my perception, the program presents a risk. Of the 1/3 party contributors, Ski Corp and the lodges have different, shorter term goals than the community paying that final 1/3. The ups and downs of this program represents variations in skiers and pillows to Ski Corp and the lodges, but to the community and other investors that variation is felt more deeply, as businesses/jobs/homes gained and businesses/jobs/homes lost. Its fine to compete and have the best restaurants, etc, survive in a natural market, but it is another matter to present this artificial "passenger uncertainty" as a permanent condition.

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rhys jones 2 years, 4 months ago

I've had a problem with this tax since Day 1, more than just the public supporting private enterprise, and I think now I am getting a handle on the shell game going on.

I worked under Kent Myers here my first year, he who pioneered the air program, by arranging to lengthen the runways in Hayden so as to accommodate bigger jets and negotiating all the flight guarantee programs. Then he moved on to Vail and did the same things for them. And I digress.

As I understood it, the guarantee works like this: We guarantee the airlines would make X amount all winter. We pick up any shortfall at the end of the season.

So if we guarantee $5 million and they sell $5.5 million it doesn't cost a DIME. All that tax is PROFIT.

What I want to hear is how the numbers have come out in the past: How much money was actually LOST through the program? How much did they have to make up? I would suspect very little. Which is why we are hearing about higher guarantees, not lost revenues. Cry me a river.

Our taxes just fatten a cash cow.

That said, it was their camera gig that brought me to town in the first place, so I guess I shouldn't complain..

Rhys Jones Location Neutral Moneypit Custodian

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Scott Wedel 2 years, 4 months ago

I argued against and voted against the tax.

When I looked at the historical flight data, it suggested to me that with or without subsidies that about 60,000 seats will be occupied. And then we spend all this money to try to get another 10,000 to 20,000 seats occupied. Or about $300 per extra tourist.

In quite a drastic difference from Vail Resorts which operates its program to make the revenue guarantees and thus, in the end, cost nothing. So they pick flights that they expect to fill. If they have flights that need to be filled then they work to fill them by discounting costs or vacation packages.

Thus, I think the basic problem with our flights program is that it is expected to be operated to cost lots of money due to lots of empty seats. You cannot fix that sort of problem by giving the program more money.

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Scott Wedel 2 years, 4 months ago

Rhys, Ski Corps has been operating the flight subsidies program with the expectation that all the money committed will be spent. So while Vail Resorts puts a few million at risk, they make a real effort to meet the revenue targets to get it back.

From the airlines' perspective the revenue guarantees is simple logical business practice and is not taking advantage of a community. From their perspective, there is a resort town that wants lots of flights that the airline can't easily sell on its own. So the airline says that if the resort town thinks they are so good at selling vacation packages and promoting itself then go ahead and sell the seats. The airline will provide the seats, but not just on the resort town's hopes and promises, but upon revenue guarantees.

And since Ski Corps expects revenues to fall short by the amount of the revenue guarantees then that raises a red flag for the airlines. That tells the airlines that Ski Corps internal expectation of revenues is way under than the guaranteed amount. So they are not dealing with a resort town that is truly hoping to meet the guaranteed amount. Nope, the airlines are dealing with a resort town expecting revenues to come in way short and the town's goal in negotiations is to get as many seats for the lowest cost.

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mark hartless 2 years, 4 months ago

To sum up what Scott is saying...

Government, in cahoots with airlines on this particular occasion, has delivered yet another "solution" to the sheeple.

I will repeat one of my favorite unanswered questions: If the man-of-the-house leaves cheese out on the floor overnight, and if the mice take the cheese, who is to blame, the mice or the man-of-the-house? So do we blame the airlines for knowing how to conduct negotiations? Do we blame our representatives for being "negotiationally challenged"? Or, worst of all, do we blame our representatives for knowingly being in cahoots with airlines and setting us, the taxpayers, up for yet another screwing?

Tha old addage comes to mind: Screw me once, shame on you. Screw me twice, shame on ME! Yet the public always seems stupid enough to keep comming back for "just one more try"... like the wife who just can't resist getting the stuffings beat out of herself by the husband that keeps saying how much "he loves her".

Will Americans ever start looking at the RESULTS of government instead of the stated intentions?????????????????

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Scott Wedel 2 years, 4 months ago

Mark, Except that government is not really in charge here. It is Ski Corps doing the negotiations. It is Ski Corps getting squeezed by the airlines that, along with the Chamber have decided they cannot fix the costs by filling the seats, but instead need public funding to keep this fiasco rolling along.

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JJ Southard 2 years, 4 months ago

I am business owner in Steamboat that did NOT vote for this tax. The people wearing the airplane hats, waving at me to Vote Yes! I saw this all along.

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Steve Lewis 2 years, 4 months ago

Good points I had not appreciated. Our sales tax and accommodations taxes expect to be spent. The program is geared to operate at the margin. My concern has been the aggressively high seat numbers contracted. I'd support lower numbers, but this program's board seems annually drawn to a fiscal cliff. Thanks Scott - Vail risks much less, or nothing by being conservative with seat numbers. They do have the advantage of I-70 car traffic, while we are more remote.

I asked about the City's control of the sales tax money. Answer: It's not the City's money. I believe because the sales tax ballot was written to benefit the LMD, and the sales tax revenue is actually the LMD's money. By law the City approves the annual LMD budget, with a deadline to do so by September 30. It requires 2 readings, so the Sept 18 agenda date indicates the City will not be asking serious questions about that budget.

The LMD is having its open house and answering questions in October - after this winter's deal is approved by September 30.

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Scott Wedel 2 years, 4 months ago

Steve, Well, Vail Resorts runs their winter program and it is not clear that they put less money at risk. There are far more seats into Eagle Airport than Hayden. It is not clear what flights have revenue guarantees and which the airlines fly because they know they can fill them without guarantees. But what is most important to the airlines is that Vail Resorts has a record of making the revenue targets. I suspect that Vail Resorts makes it a business priority to meet revenue targets and so discounts the lodging and lift tickets part of a fly ski vacation package as needed to fill seats.

Thus, the negotiations between Vail Resorts and the airlines is more like: Airlines: What flights do you want and expect to make revenue? And just so I don't get fired if there is a disaster and you don't meet revenue targets, how much you got for revenue guarantees?

Meanwhile, Ski Corps business plan appears to be to not make revenue targets.

So say there is am option to being in flight from LAX to both airports which airline's data says there needs to be $1M of revenue for the year and the airline think they can easily enough sell $750K of seats. So when airline talks to Vail Resorts then airline can be pretty sure flight will make the $1M or minimally be close. So airline could require $150K in revenue guarantees and feel safe that sales plus guarantees will meet or exceed $1M.

Now when the airline is talking to Ski Corps then if airline asks for $250K and Ski Corps says yes then airline knows that Ski Corps is expecting revenue to be $750K. And now the airline has got to ask how confident is the airline on the airline's projection of $750K being an easy number to hit. And if the airline gets cautious then they say they are only confident of $650K in sales and so now ask $350K in guarantees.

So, Vail Resorts almost certainly pays much less in revenue guarantees then Ski Corps pays for the same flight.

I note that Ski Corps has an incentive to not make revenue targets. Assuming they can discount midweek packages or such to fill seats then they make more money if they discount the airfares instead of lodging or lift tickets. Ski Corps is only paying part of the airline revenue guarantees. So if they discount $30 off of lift tickets then that costs them $30. But if they discount $30 off of airline tickets then that costs them $10 - their portion of the revenue guarantee.

And so we see how economic incentives drive business decisions. When Vail Resorts decides where to discount a ski vacation package then their goal is to meet airline revenue targets so they can minimize the amount of money at risk from guarantees. When Ski Corps decide where to discount then they take it out of airline fares.

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Scott Wedel 2 years, 4 months ago

Steve, As for the LMD, I believe the actual negotiations with the airlines is done by Ski Corps and the negotiations are confidential. So all the LMD and city can do is ratify what Ski Corps did or cancel the flights program for this year.

The LMD meeting that would matter would be the one that sets the financial objectives for the next year's program. LMD board to be financially competent should set a minimum standard of making 50% of the guarantees and thus getting half of a year's budgeted money back. And make it clear to Ski Corps that as the negotiator of airline seats that they are a vendor that will be replaced for poor performance.

But it is my understanding that Ski Corps is given seats on the LMD board so the above can never happen.

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Steve Lewis 2 years, 4 months ago

Scott, Perhaps your negotiation scenario is accurate. The fundamentals we agree on are that Steamboat's air program is aggressive; the airlines know Steamboat's targets are a bigger risk and negotiate accordingly.

The sales tax makes the rest of us a 1/3 silent partner to the above, with one important exception - the City must approve the budget each year. The City could easily engage this budget months ahead of the deadline and force fiscal discipline.

If I were on CC, I don't know that I would change this year's budget. The 11% drop in seats is the largest one-year drop I would want to see. But I would be extremely interested in the surrounding efforts of our partners to fill those seats.

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mark hartless 2 years, 4 months ago

Scott, I actually thought after I wrote in that I should have directed some flak at Ski Corp. However, is it, or is it not government (in this case the City) that has the final say about taxes? Take out the word "airlines" in my last post and replace it with "Ski-Corp", or just add the words "and Ski-Corp" after the word "airline". What exactly does that change about my point?

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Scott Wedel 2 years, 4 months ago

Mark, Not that it makes a lot of difference, but this airline subsidy program is truly a Ski Corps and Chamber program. They've convinced the public to use the power of government to provide a funding source.

City government appears too afraid to confront Ski Corps and the Chamber on this issue because they represent such a large constituency and have the financial resources to defeat anyone that opposes them.

The only real check on the situation is that the tax sunsets in 5 years and then it will not be able to run on the false claims of it bringing in 140,000 tourists a year, but on the reality of what they have managed to do.

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jerry carlton 2 years, 4 months ago

Scott Does not matter if it sunsets. The people of Steamboat Springs and Routt County very seldom meet a tax they do not like. They keep voting for them.

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Steve Lewis 2 years, 4 months ago

I suspect we will see a premature return of this tax ballot. A little additional math on the info in this article and the info at YestoAir.com is sobering. Particularly the annual "guarantee" amount per "available seat", whose trend since 2007 seems fundamental and challenging, particularly for a program operating at the margin like ours.

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John Weibel 2 years, 4 months ago

Everyone is fighting over a shrinking pie, or is it pie in the sky presentations?

Could not find the article on who is lining up for 1% sales tax. But an idea would be to use a little of those funds to place signs at the entrance of town stating the rules of engagement for bikers and drivers, ie giving bikers 3 feet of room, etc.. That might go a long way to making everyone happier.

my part time employee who bikes to work stated that more often than not those who buzz him are from out of state. So maybe they just do not know the rules.

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Scott Wedel 2 years, 4 months ago

"Doing the same thing over and over again and expecting different results" is one definition of insanity.

But here and the airline flights program does that one better by expecting that scaling up a failure will make it a great success.

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Steve Lewis 2 years, 4 months ago

When typing about the YestoAir website I didn't intend to be linking anything, but the result was a link to a different ballot in Idaho. Here is the site I referred to:

http://www.yes2air.com/learn-more/

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