Funding platform for Vail direct flights

With customs occurring in Toronto, direct flights from Canada began in December into Eagle County Regional Airport.  Boosters have long been intrigued by potential for more international connections. Photo courtesy of Eagle County.

With customs occurring in Toronto, direct flights from Canada began in December into Eagle County Regional Airport. Boosters have long been intrigued by potential for more international connections. Photo courtesy of Eagle County.

Vail-area group looks into funding options for expanded flights

Business improvement district among options

by Allen Best

VAIL, Colo. – Eagle County Regional Airport has 195,000 available incoming seats this year, second only to Aspen among mountain resort destinations of the West.

Could things be better? Some people seem to think so. An effort is underway to broaden the public funding similar to what other resort communities have done.

Vail Resorts, owner of Vail Mountain and Beaver Creek, the two single greatest beneficiaries of winter-time flights, has provided the financial wherewithal for winter flights, in some years paying out up to $2 million in revenue guarantees. The company in recent years has not publicly disclosed its financial commitment. Some people close to the situation think revenue guarantees are paid for two or so of the dozens of flights into the airport.

Vail Resorts did not consent to an interview for this article.

Non-winter flights have been sponsored by a not-for-profit consortium called the EGE Air Alliance. Founded in 2002, it provided revenue guarantees for flights from Dallas and, beginning last summer, for Houston. The Dallas flights no longer require subsidies, but the inaugural summer of Houston flights had a load factor of 62 percent, far below the industry standard for profitability of 80 percent. A subsidy of $400,000 was paid to the airline, the money coming from contributions from local governments and businesses.

If the platform for funding were broadened,  flights from Minneapolis, Chicago and Washington D.C. could be expanded, says Greg Phillips, the aviation director at the airport.

“To get us in the door requires revenue guarantees,” says Phillips. “(Airlines) won’t talk to us without that. So if we have to have a revenue guarantee, we need to look at models that provide longer-term funding.”

Most mountain destination resorts of the West have had air service since the 1970s, beginning as connecting flights to regional airports, such as Denver. With Crested Butte first and Steamboat second, airports in the 1980s began shifting toward non-stop flights from major markets. For that, most airlines wanted revenue guarantees.

Ski area operators usually were the first to pick up the bill. Since 2000, however, Steamboat Springs, Telluride-Montrose, and Crested Butte-Gunnison have all created public-funding platforms that rely in large measure on sales taxes. In Steamboat’s case, the funding is buttressed by a lodging tax within a narrowly defined area.

A similar support mechanism was created this year when voters in Ketchum approved a sales tax. Sun Valley voters had previously approved that measure, but contingent upon approval by Ketchum.

Still another model that Vail and Eagle County flight boosters are examining was adopted in November by Mammoth Lakes. There, a business improvement district was formed to levy fees on businesses within that district.

“Think of the 16th Street Mall in Denver,” says Kent Myers, of Airplanners, a consultancy retained by the group, in describing a business improvement district. Businesses, not residential property, are assessed fees, he explains. “We’re toying around with that,” he says.

Still another possibility is a business license fee.

In most and possibly all cases, that tax kitty is buttressed by continued contributions from ski area operators and sometimes local municipalities and county governments.

Three major airlines now dominate the higher-end flight market. Photo courtesy of Eagle County.

Three major airlines now dominate the higher-end flight market. Photo courtesy of Eagle County.

Aspen has so far been able to avoid outright subsidies, although marketing funds created during the last two years for new flights walk and quack like the duck of revenue guarantees. A package last year involved local governments laying out $225,000 complemented by an undisclosed contribution from the Aspen Skiing Co. A similar package was engineered this year for another flight.

“No airline will come into any resort destination without some sort of economic incentive package. That’s just the reality of working with airlines today,” said Bill Tomcich, president of Stay Aspen Snowmass.

Jackson Hole does provide revenue guarantees, but town and county sales taxes are just 10 percent of the funds. The rest comes from 200 businesses that chip in an average of $200 each, according to a report in the Vail Daily.

All can point easily to the importance of air service: Steamboat brings in 70 percent of the total winter vacation visitors. At Jackson Hole, it’s 90 percent.

Triggering the discussion

Why the conversation now about a broader funding platform?

Chris Romer, chief executive of the Vail Valley Partnership, which has a primary mission of promoting destination tourism, points to two triggers. One is the consolidation of the airlines into three majors—Delta, United and American—from eight or nine major airlines at one time.

The second trigger is replacement of the Boeing 757s with their 188-passenger loads by the 130-passenger Airbus 319. This loss of 50 to 60 passengers per plane has been one primary reason for the 27 percent decline of available seats since 2007-08, the peak year for enplanements.

A third reason identified by Myers is the recession, which caused airlines to put some planes into storage at desert parking lots. Not all those planes have been returned into operation.

As enplanements have declined into Eagle to 195,000, Aspen has surged to 208,000 seats this winter, an all-time high. This is despite the fact that the largest plane flying into Aspen has 50 fewer seats than the smaller planes now flying into Eagle.

This shift to smaller planes isn’t necessarily a bad thing for the Vail market, Romer concedes. The smaller planes allow more flexibility, including the potential to add second flights in markets currently served by one flight. The increment is smaller, and so is the risk.

In Jackson Hole, 90 percent of winter visitors arrive via the airport.

In Jackson Hole, 90 percent of winter visitors arrive via the airport.

But risk remains, which is why a broader funding platform is needed, says Romer. He doesn’t see public funding for individual flights as necessarily permanent. “As people become aware of non-stop options, it can take two, three or four years to build up to the point that the airline doesn’t need the public subsidy,” he says.

While all options remain on the table, Romer confirms that one of them is to shift public funding for winter flights away from Vail Resorts as the sole financial backstop. But the new funding platform would not be in lieu of Vail Resorts. “They would be full partners,” says Romer.

To guide this conversation, the EGE Air Alliance retained Kent Myers, who began arranging direct service for Steamboat Springs in the mid-1980s before moving to Vail in 1991 to do the same thing for Vail Resorts. His firm now works on the Crested Butte, Mammoth Lakes and other programs.

A second consultant, Campbell-Hill Aviation Group, was hired by Eagle County commissioners last March at a cost of $50,000. The firm, which is headquartered in metropolitan Washington D.C., is to 1) analyze the domestic market potential for expanded flights; and 2) study the feasibility of international flights. Its report is due in late winter.

International flights

Can more international flights be part of this expansion? Since the early 1990s, there have been flights, but usually charters, from Mexico and Canada, or with stops along the way. On Dec. 14, the first non-stop international carrier air service, a flight from Toronto, arrived. Passengers on the Air Canada plane cleared customs in Toronto before departing, and did so again once returning to Toronto.

A customs facility at Eagle County would encourage more flights, probably from Mexico. A 2009 study estimated the cost of renovating an existing building for that purpose at $2.6 million and, more burdensome, an annual cost of $700,000 or $800,000 for operations.

Phillips, the aviation director, says even that cost isn’t an absolute killer.

What will make it work, he explains, are the bulging growth numbers for the international market in Brazil and other developing countries.

“I’m an optimist, and I feel confident that at some point we will make it work.”

Campbell-Hill, the consulting firm, is also charged with examining potential for the international flights.

In making the case for a new tax, a key argument is the value of the direct flights to the local economy. Romer argues that the airport is unappreciated. He cites a poll that found 25 percent of the people who fly into Eagle County Regional would not fly there if not for the direct access.

“And those are the guests we want to go after,” he says.

Committee members say they expect a decision in January about what approach will be taken to the public. The business improvement district, because it includes so much of Vail Resorts property, might well be the most easily palatable model with the least pushback.

Gleanings from Aspen and Vail

Gleanings from stories published recently in the Vail Daily, Aspen Times, and Aspen Daily News:

Sardy Field, the airport at Aspen

Sardy Field, the airport at Aspen

• The Aspen/Pitkin County Airport generates $841 million in economic output each year, and the Eagle County Regional Airport $636 million, according to a study from the Colorado Department of Transportation.

• Fewer than 20 percent of flights into Jackson Hole this winter will be subsidized.

• Commuter flights from Denver and one flight from Chicago are the only flights into Steamboat not subsidized.

• About 20 percent of passengers flying into Eagle County Airport are not headed to Vail or Beaver Creek, roughly 30 miles away, but instead to Aspen.

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