application under small community air service …

PROPOSAL OF TUCSON INTERNATIONAL AIRPORT ▪ TUCSON, ARIZONA ▪ MARCH 2021 ▪ PAGE 1

APPLICATION UNDER

SMALL COMMUNITY AIR SERVICE DEVELOPMENT PROGRAM

DOCKET DOT-OST-2020-0231

SUMMARY INFORMATION

A. PROVIDE THE LEGAL SPONSOR AND ITS DUN AND BRADSTREET (D&B) DATA UNIVERSAL

NUMBERING SYSTEM (DUNS) NUMBER, INCLUDING +4, EMPLOYEE IDENTIFICATION NUMBER

(EIN) OR TAX ID.

Legal Sponsor Name: Tucson Airport Authority

Name of Signatory Party for Legal Sponsor: Danette Bewley, President/CEO

DUNS Number: 00-690-2688

EIN/Tax ID:

B. LIST THE NAME OF THE COMMUNITY OR CONSORTIUM OF COMMUNITIES APPLYING:

1. Tucson Airport Authority. Tucson, Arizona

C. PROVIDE THE FULL AIRPORT NAME AND 3-LETTER IATA AIRPORT CODE FOR THE

APPLICANT(S) AIRPORT(S) (ONLY PROVIDE CODES FOR THE AIRPORT(S) THAT ARE ACTUALLY

SEEKING SERVICE).

1. Tucson International Airport, TUS

IS THE AIRPORT SEEKING SERVICE NOT LARGER THAN A SMALL HUB AIRPORT UNDER FAA HUB

CLASSIFICATIONS EFFECTIVE ON THE DATE OF SERVICE OF THE ATTACHED ORDER?

Yes No

DOES THE AIRPORT SEEKING SERVICE HOLD AN AIRPORT OPERATING CERTIFICATE ISSUED BY

THE FEDERAL AVIATION ADMINISTRATION UNDER 14 CFR PART 139? (IF “NO”, PLEASE

EXPLAIN WHETHER THE AIRPORT INTENDS TO APPLY FOR A CERTIFICATE OR WHETHER AN

APPLICATION UNDER PART 139 IS PENDING.)

Yes No (explain)

X

X


D. SHOW THE DRIVING DISTANCE FROM THE APPLICANT COMMUNITY TO THE NEAREST:

1. Large hub airport: Phoenix Sky Harbor Int’l (PHX), 119 miles

2. Medium hub airport: San Diego Lindbergh Int’l (SAN), 416 miles

3. Small hub airport: El Paso Int’l (ELP), 319 miles

4. Airport with jet service: Phoenix Sky Harbor (PHX), 119 miles

Note: Provide the airport name and distance, in miles, for each category.

E. LIST THE 2-DIGIT CONGRESSIONAL DISTRICT CODE APPLICABLE TO THE SPONSORING

ORGANIZATION, AND IF A CONSORTIUM, TO EACH PARTICIPATING COMMUNITY.

1. AZ-03

F. APPLICANT INFORMATION: (CHECK ALL THAT APPLY)

Not a Consortium Interstate Consortium Intrastate Consortium

Community (or Consortium member) previously received a Small Community Air

Service Development Program Grant

NOTE: A community that currently receives subsidized Essential Air Service funding,

receives assistance under the Alternate Essential Air Service Pilot Program, or is a participant

in, and has received a grant under, the Community Flexibility Pilot Program, is not eligible for

SCASDP

If previous recipient: Provide year of grant(s): ____; and, the text of the grant agreement

section(s) setting forth the scope of the grant project:

G. PUBLIC/PRIVATE PARTNERSHIPS: (LIST ORGANIZATION NAMES)

PUBLIC PRIVATE

1. Tucson Airport Authority 1. Tucson Metro Chamber of Commerce

2. Visit Tucson

X

X


H. PROJECT PROPOSAL:

1a. GRANT GOALS: (CHECK ALL THAT APPLY)

Launch New Carrier Secure Additional Service Upgrade Aircraft

First Service New Route Service Restoration

Regional Service Surface Transportation Professional Services

Other (explain)

_____________________________________________________________________

1b. GRANT GOALS: (SYNOPSIS)

Concisely describe the scope of the proposed grant project.

Tucson seeks federal funding from the Small Community Air Service Development (SCASD)

Grant program for an innovative incentive plan to secure service in multiple targeted new

markets. The program will provide start-up cost offsets, ground handling credits, and marketing

support to carriers launching service in markets where Tucson has no nonstop currently. The

program will be open to all carriers, but it specifically tailored to those who value low airport

costs and are seeking markets to reduce risk.

1c. GRANT HISTORY:

DOES THIS APPLICATION SEEK TO REPEAT A PAST GRANT PROJECT OF THE COMMUNITY OR

CONSORTIUM (FOR EXAMPLE, A SPECIFIC DESTINATION AIRPORT)?

Yes No

IF THE ANSWER TO THE ABOVE QUESTION IS ‘YES’:

A: WHAT YEAR WAS THE FORMER GRANT AGREEMENT SIGNED? _____

B: HAVE 10 YEARS PASSED SINCE THE PREVIOUS GRANT AGREEMENT WAS SIGNED?

Yes No

X

X

X

X

X

X


IF THE ANSWER TO ‘B’ ABOVE IS ‘NO,’ THE APPLICANT SHOULD APPLY FOR A

FORMAL WAIVER OF THE TEN-YEAR SAME PROJECT LIMITATION (SEE SECTION C.1.

“SAME PROJECT LIMITATION”). THE REQUEST FOR WAIVER SHOULD INCLUDE A) A

STATEMENT THAT THE COMMUNITY OR CONSORTIUM IS REQUESTING A WAIVER

OF THE LIMITATION IN ACCORDANCE WITH THE PROVISIONS OF 49 U.S.C. § 41743(C)

(4)(C); AND B) INFORMATION AND EVIDENCE TO SUPPORT A FINDING THAT THE

APPLICANT SPENT LITTLE OR NO MONEY ON ITS PREVIOUS PROJECT OR ENCOUNTERED

INDUSTRY OR ENVIRONMENTAL CHALLENGES, DUE TO CIRCUMSTANCES THAT WERE

REASONABLY BEYOND THE CONTROL OF THE COMMUNITY OR CONSORTIUM. IF YOU

HAVE ANY QUESTIONS ABOUT YOUR COMMUNITY’S PAST GRANTS, PLEASE CONTACT

THE DEPARTMENT.

2. FINANCIAL TOOLS TO BE USED: (CHECK ALL THAT APPLY)

Marketing (including Advertising): promotion of the air service to the public

Start-up Cost Offset: offsetting expenses to assist an air service provider in setting up a

new station and starting new service (for example, ticket counter reconfiguration)

Revenue Guarantee: an agreement with an air service provider setting forth a minimum

guaranteed profit margin, a portion of which is eligible for reimbursement by the

community

Recruitment of U.S. Air Carrier: air service development activities to recruit new air

service, including expenses for airport marketers to meet with air service providers to make

the case for new air service

Fee Waivers: waiver of airport fees, such as landing fees, to encourage new air service;

counted as in-kind contributions only

Ground Handling Fee: reimbursement of expenses for passenger, cabin, and ramp (below

wing) services provided by third party ground handlers

Travel Bank: travel pledges, or deposited monetary funds, from participating parties for

the purchase of air travel on a U.S. air carrier, with defined procedures for the subsequent

use of the pledges or the deposited funds; counted as in-kind contributions only

Other (explain below)

______________________________________________________________________

X

X

X

X

X


I. EXISTING LANDING AIDS AT LOCAL AIRPORT:

Full ILS Outer/Middle Marker Published Instrument Approach

Localizer Other (specify)

J. PROJECT COST: DO NOT ENTER TEXT IN SHADED AREA

REMINDER: LOCAL CASH CONTRIBUTIONS MAY NOT BE PROVIDED BY AN AIR CARRIER (SEE “TYPES

OF CONTRIBUTIONS FOR REFERENCE).

LINE DESCRIPTION SUB TOTAL TOTAL AMOUNT

1 Federal amount requested $648,200

2 State cash financial contribution $0

Local cash financial contribution

3a Airport cash funds $0

3b Non-airport cash funds $350,000

3 Total local cash funds (3a + 3b) $350,000

4 TOTAL CASH FUNDING (1+2+3) $998,200

In-Kind contribution

5a Airport In-Kind contribution** TBA

5b Other In-Kind contribution** TBA

5 TOTAL IN-KIND CONTRIBUTION

(5a + 5b)

TBA

6 TOTAL PROJECT COST (4+5) $998,200

K. IN-KIND CONTRIBUTIONS

For funds in lines 5a (Airport In-Kind contribution) and 5b (Other In-Kind contribution), please describe

the source(s) of fund(s) and the value ($) of each.

Tucson International Airport will provide landing fee waivers, terminal rent credits, and in-kind marketing

support in accordance with its airline incentive policy. The value of these waivers will vary based on the aircraft

used for the service and the frequency and duration of service.

X

X

X

X


L. IS THIS APPLICATION SUBJECT TO REVIEW BY AN AFFECTED STATE UNDER EXECUTIVE

ORDER 12372 PROCESS?

a. This application was made available to the State under the Executive Order 12372

Process for review on (date) _____________.

b. Program is subject to E.O. 12372, but has not been selected by the State for review.

c. Program is not covered by E.O. 12372.

M. IS THE LEAD APPLICANT OR ANY CO-APPLICANTS DELINQUENT ON ANY FEDERAL DEBT?

(IF “YES”, PROVIDE EXPLANATION)

No Yes (explain)

___________________________________________________________________

X

X


Legal Sponsor 7

Introductory Letters of Support: Allegiant Air and Sun Country Airlines 8

Introduction 10

The Tucson Air Service Market 11

Catchment Area Demographics 11

Performance of Current Service 14

Air Service Needs and Deficiencies 16

Reduction in Airline Capacity 16

Regional Fare Environment 18

Passenger Retention and Leakage 19

Air Service Development Plan 20

Targeted Service: New, nonstop routes 21

Funding Plan 23

Project Timeline 24

Public/Private Partnership 25

Final Thoughts 26

The Tucson Airport Authority, which operates Tucson International Airport, is the legal sponsor responsible

for this Grant application. The Authority is a governmental agency.

Tucson Airport Authority

Tucson International Airport

7250 South Tucson Boulevard

Tucson, Arizona 85756

Danette Bewley, President/CEO

(520) 573-4833

[email protected]

TABLE OF CONTENTS

SECTION PAGE NUMBER

LEGAL SPONSOR


INTRODUCTORY LETTER OF SUPPORT: ALLEGIANT AIR


INTRODUCTORY LETTER OF SUPPORT: SUN COUNTRY AIRLINES


Before the pandemic, Tucson would draw almost seven million tourists a year to its national parks, deserts,

UNESCO heritage sites, restaurants, and world class resorts. Nearly 70% of its almost 16,000 hotel rooms

were filled. Tourists were responsible for more than 25% of the region’s economic activity. They supported

high average fares at Tucson International Airport – 10% higher than peer airports.

The pandemic devastated Tucson’s tourist economy. An estimated 10,000 Tucsonans have lost their

tourism-related jobs – about 40% of the workforce. Tourism revenue dropped by a billion dollars in 2020

– or 45%. Hotels are running less than 50% full – even though most of Tucson attractions are outdoors

making them easier places to practice and social distancing.

The tourist economy of southern Arizona needs help in recovery. This application is aimed at providing

new, low cost service in target markets that generate inbound tourists. It is supported by Visit Tucson,

which has put increased capacity at Tucson International Airport at

the center of its recovery plan.

Tucson has lost almost 40% of its airline capacity because of the

pandemic – almost two million fewer available seats this year than in

2019 – along with three nonstop routes. With so few available seats,

airlines will be able to charge a premium for flights to Tucson when

demand returns. This will, in turn, choke the Tucson market’s tourism potential, as cost-conscious tourists

will choose other markets for their first vacations since 2019.

Tucson seeks federal funding from the Small Community Air Service Development (SCASD) Grant

program for an innovative incentive plan to secure service in multiple new markets. The program will

provide start-up cost offsets, ground handling credits, and marketing support to carriers launching service

in markets where Tucson has no nonstop currently. The program will be open to all carriers, but it is

specifically tailored to those who value low airport costs and are seeking markets to reduce risk.

The community is behind this effort pledging $350,000 of the funding for the nearly million-dollar project.

The timing of this award is crucial. It simply cannot wait as Tucson works to restore jobs and revenue in

its tourism industry post-pandemic.

INTRODUCTION

“The pandemic devastated Tucson’s tourist economy. Almost 10,000 Tucsonans

have lost their tourism-related jobs – about 40%

of the workforce.”


Tucson has been hard hit by the pandemic. As a major tourist destination, the impacts have been more

severe than in many other similar-sized markets. Before the pandemic, Tucson generated an average of

17,808 visitors per day – almost seven million per year – who spent $2.6 billion each year in the market.

Tucson is home to 149 hotels and resorts with 15,677 total available rooms. Today, most of those rooms

sit empty with many out of work.

In addition to seven million tourists,

Tucson International Airport serves a

population of more than a million people

in its metro area. The Airport’s

catchment area, seen in the shaded area in

map 1, has 1,330,200 residents as of the

2019 US Census estimate, up 4.8% from

2010. The Tucson Metropolitan

Statistical Area (MSA) has 1,093,777

residents as of the 2019 US Census

estimate and has grown 6.4% since 2010.

There are very few towns, and very few

residents, to the north of Tucson along I-

10 towards Phoenix.

Visit Tucson, the official tourism and

marketing agency for the region, and a

partner in this application, reports leisure

travel remains the dominant sector in

Tucson, with little to no meetings, sports or events business. Government and corporate travel are other

sectors which have helped Tucson in recent months, but that business collapsed during the holidays and has

yet to recover.

Tucson’s lodging performance follows closely the number of COVID-19 cases in Arizona. A strong

increase in June was muted by rising COVID-19 cases in July. October growth was lost during the latter

THE TUCSON AIR SERVICE MARKET

MAP 1: TUCSON INT’L AIRPORT CATCHMENT AREA CY 2019; SOURCE: US CENSUS BUREAU


half of November due to the

rising number of cases, combined

with holiday travel warnings and

media coverage about

local/regional curfews. Tucson’s

December tourism business was

dismal due to high cases and fear

of travel.

While Visit Tucson is hopeful

widespread distribution of

COVID-19 vaccines should

begin to bring back travel in the

second half of 2021, the market’s

peak is typically between

December and May – so

Tucson will not

experience actual

recovery until 2022. And

it will be more difficult

for tourists to get to

Tucson because of the

Airport’s loss of service.

As of March 2021,

Tucson has lost nonstops

in three of its 19 pre-

pandemic nonstop

markets. While it has

current nonstops in 17

markets, it lost nonstops

to San Diego, San Jose, and Bellingham (refer to map 2). All of those markets were served by low cost

carriers and all generated significant inbound tourist traffic.

MAP 2: NONSTOP SERVICE AT TUCSON MARCH 2021; SOURCE: AIRLINE DATA, INC.

Airline Destination 2020 2021 Change

AA DFW 1,177 942 -19.9%

LAX 200

ORD 322 71 -77.9%

PHX 711 365 -48.6%

AA Total 2,410 1,378 -42.8%

AS PDX 150 76 -49.2%

SEA 292 300 2.9%

SJC

AS Total 441 376 -14.7%

DL ATL 406 380 -6.4%

LAX 186 191 2.7%

MSP 151 191 26.1%

SEA 213 132 -38.1%

SLC 211 293 38.5%

DL Total 1,169 1,187 1.6%

F9 DEN 84 59 -29.5%

F9 Total 84 59 -29.5%

G4 BLI 45

IND 51 48 -6.6%

LAS 40

PVU 51 44 -14.1%

G4 Total 148 132 -10.6%

March

CHART 1: TUCSON SCHEDULED SERVICE BY AIRLINE AND ROUTE MARCH 2021 VS. MARCH 2020; SOURCE: AIRLINE DATA, INC.

Airline Destination 2020 2021 Change

SY MSP 60 48 -20.0%

SY Total 72 48 -33.3%

UA DEN 366 250 -31.7%

IAH 418 145 -65.2%

ORD 151 70 -53.6%

SFO 252 156 -37.9%

UA Total 1,187 622 -47.6%

WN DEN 387 304 -21.4%

HOU 141

LAS 351 309 -11.9%

LAX 392

MDW 191 148 -22.5%

OAK 84

SAN 308

SJC 125

WN Total 1,754 1,000 -43.0%

Grand Total 7,264 4,803 -33.9%

March


Tucson’s capacity for March is down 34% from March of 2020, which was down 10% from March of 2019

as the pandemic took hold (refer to chart 1 on the previous page). In March of 2019, airlines serving Tucson

offered an average of almost 7,300 seats per day. In March of 2021, those airlines will offer an average of

just 4,800 seats per day. The capacity reduction is especially troublesome as it comes in Tucson’s peak

month for passengers.

With the market reliant

on tourism, Tucson’s

passengers collapsed in

second quarter of last

year and have yet to fully

recover. Airlines serving

Tucson carried an

average of just 763

passengers per day each

way (PDEW) in second

quarter 2020, down from

4,945 PDEW in 2019 – a

loss of 85% of the market’s passengers (refer to chart 2). Passengers did not recover much in third quarter,

averaging 1,583 PDEW, or just 37% of 2019 third quarter passengers.

At the beginning of 2020, Tucson was on

pace to hit passenger levels not seen since

2010. It served 2% more passengers in

January and February of 2020 than it did

in 2019 (refer to chart 3). By March,

passengers were at just 55% of the

previous year’s levels. Then, Tucson saw

the deepest April passenger collapse of

any market in the southwest – with

passengers just 6% of 2019 levels.

Tucson passengers began a slow recovery through October, and the market’s growth seemed encouraging,

with October passengers back to 45% of 2019 levels (refer to chart 3). But rising cases curtailed passenger

CHART 3: SHARE OF TUCSON 2019 PASSENGERS BY 2020 MONTH JANUARY – DECEMBER 2020; SOURCE: AIRLINE DATA, INC.

CHART 2: TUCSON O&D PASSENGERS FIRST QUARTER 2016 – THIRD QUARTER 2020; SOURCE: AIRLINE DATA, INC.


growth, and inbound tourists, as previously noted by Visit Tucson. By December, Tucson was serving just

38% of the number of passengers it saw in 2019.

Tucson International

Airport was in the

midst of a promising

period of growth

before the pandemic

hit. Passengers had

grown by 11% in the

last five years before

the pandemic, adding

an average of 558

passengers per day

each way (PDEW)

despite some of the

highest fares among

the larger airports in

the southwest (refer to chart 4). Despite that growth, Tucson passengers were still down by 19% since

2008, a loss of an average of 1,091 PDEW. The market had potential to grow back to the 2008 record, but

the pandemic has made that a distant goal.

Tucson’s fares were much lower

in 2008. Since then, they have

increased by 27%, or $45 each

way, to an average of $214 each

way (refer to chart 4). Despite

the entrance of Allegiant,

Frontier, and Sun Country into the Tucson market in the last three years, fares are holding steady as other

airlines have been able to command fare premiums for daily service. A significant increase in seats from

ultra low cost carriers will be required to lower fares.

Before the pandemic, Tucson’s passenger retention increased by almost five points from year ended first

quarter 2017 (YE1Q17) to the year ended first quarter 2019 (YE1Q19) – from 62.6% to 67.3% (refer to

CHART 4: O&D PASSENGERS AND AVERAGE ONE WAY FARE YE1Q08 – YE1Q20; SOURCE: AIRLINE DATA, INC.

CHART 5: AIRPORT USED BY TUCSON CATCHMENT PASSENGERS YEAR ENDED FIRST QUARTER 2019; SOURCE: VOLAIRE AVIATION, INC.


chart 5 on the previous page). Tucson International Airport averaged 4,310 passengers per day each way

(PDEW) in YE1Q17 and grew passengers to 4,777 PDEW in YE1Q19 – an increase of 11%. Tucson lost

31.6% of its market to Phoenix Sky Harbor in YE1Q19, which was down more than four points from 36.1%

in YE1Q17. The total market size grew by an average of 206 PDEW

from YE1Q17 to the YE1Q19, or 3%, with the majority of new

passengers using Tucson, and not driving to Phoenix airports.

With service cuts it will be difficult for Tucson to retain a majority

of passengers when demand returns. Because of Tucson’s tourism

economy, its recovery will be tied to the ability of the Airport to

quickly secure service to restore seats. The service restoration does not need to seek a direct, one-for-one

replacement of the same routes, but a forward-looking recruitment of service in markets which will

immediately generate new inbound trips.

As Visit Tucson wrote in its plan for recovery: “Tucson is reliant on flights to bring in customers—primarily

to Tucson International Airport (TUS). TUS, like many mid-sized airports, lost much of its airlift during

the pandemic. A big variable in Tucson’s travel recovery will be how quickly previous air service returns

to TUS once herd immunity from the virus is achieved.”

“A big variable in Tucson’s travel recovery will be how

quickly previous air service returns to TUS

once herd immunity from the virus is achieved.”


As the pandemic comes to an end, Tucson simply needs airline seats. Inbound tourists will be critical to

economic recovery in southern Arizona. Tucson is the only airport in the region and the largest source of

out-of-state visitors.

With huge pandemic-

related capacity cuts,

Tucson must secure new

flights, new nonstop

cities, and work with its

airlines to restore lost

seats.

In 2020, Tucson

International Airport

lost 36% of its airline

capacity (refer to chart

6). This spring, even with more people flying, Tucson will have just 66% of its pre-pandemic capacity

restored. In 2020, airlines serving Tucson offered an average of 2,300 fewer departing seats per day than

they did in 2019. Tucson lost a total of 1.7 million inbound seats. Schedules for 2021 are not yet filed, but

if the trends continue, Tucson would expect airlines to offer about two million fewer seats this year than

they did in 2019. It is clear the Airport must work expeditiously to restore lost capacity.

Data from Visit Tucson shows hotel occupancy falling

from almost 70% in 2019 to just 47% in 2020 (refer to

chart 7). At the same time, Tucson’s tourism industry

lost an estimated 10,000 jobs in 2020, or 40% of its

employment. Tourism businesses employed 24,770

people in Tucson in 2019. In 2020, employment dropped

to 14,900 people – a devastating impact on the Tucson

economy.

AIR SERVICE NEEDS AND DEFICIENCIES

CHART 6: SCHEDULED AIRLINE SEATS IN TUCSON 2020 VS. 2019; SOURCE: AIRLINE DATA, INC.

CHART 7: TUCSON LODGING OCCUPANCY 2016 – 2020; SOURCE: VISIT TUCSON


Tucson’s travel industry includes lodging, restaurants, attractions, arts and cultural amenities, performing

arts venues, events, rental cars, ride-share programs, bars, nightlife, retail, and much more. The industry

workers in those thousands of Tucson businesses are struggling to find work.

Direct travel spending in Tucson topped $2.6 billion in 2019. It dropped to just $1.5 billion in 2020

according to data collected by Visit Tucson. The loss of $1.1 billion in outside spending represented a drop

of almost 45%. The revenue loss resulted in state and local tax revenue dropping from almost $220 million

in 2019 to just $132 million in 2020 and taking almost $90 million from tax coffers resulting in a cash

crunch for government at virtually all levels.

Lodging room revenue took a huge dive in

2020, to $275 million, down from $433

million in 2019 (refer to chart 8). Hotels and

resorts saw 37% less revenue in 2020 than in

2019, after forecasting a market record before

the pandemic began. Revenue had been

steadily increasing as Tucson became a more

popular destination, from about $350 million

in 2016 to more than $430

million in 2019. Hotels and

resorts will rely on an influx of

airline passengers to fill rooms

when the pandemic ends.

Demand for travel to Tucson is

still strong – even in the

pandemic. The region features

many outdoor attractions, like

Saguaro National Park, golf

courses, hiking trails, and

mountain terrain. Demand was

evident in Tucson’s ability to

retain passengers during the pandemic. Between June and November of 2020, Tucson passengers declined

61% as compared to 2019, as its capacity was down 70% in the period (refer to chart 9). Tucson’s passenger

CHART 8: TUCSON LODGING REVENUE 2016 – 2020; SOURCE: VISIT TUCSON

CHART 9: PASSENGER CHANGE AT LARGE AIRPORTS IN THE SOUTHWEST JUNE – NOVEMBER 2020 VS 2019; SOURCE: AIRLINE DATA, INC. TSA DATA


decline was fifth-best in the

southwest, and 11-points better

than the regional average of a

72% decline in passengers.

Tucson was in the middle of the

pack on load factor during the

summer period from June to

September of 2020. It filled an

average of 54% of its seats,

which was near the regional

average of 56% (refer to chart

10). Many of Tucson’s largest

carriers, including Alaska, Delta,

and Southwest, all limited their

capacity to just 67% of the seats on

their Tucson flights, resulting in

artificially low load factors.

Demand was relatively strong

despite the pandemic, illustrating

Tucson’s popularity.

Before the pandemic, airlines were

able to generate premium revenue

on Tucson flights. Tucson had the

fourth-highest fare of larger

airports in the southwest – those

airports with at least two million annual passengers – at $214 each way (refer to chart 11). Removing the

large international markets of San Francisco and Los Angeles, Tucson’s fare was the second highest among

peer markets, behind only Palm Springs. Passengers pay a premium of $19 each way, or 10%, to fly into

Tucson instead of Phoenix.

Tucson’s fares are high because of the limited penetration of low cost and ultra low cost carrier (LCC and

ULCC) service into the market. Tucson’s passenger retention study, completed for the year ended first

CHART 11: ONE WAY FARE IN SOUTHWEST REGION YEAR ENDED FIRST QUARTER 2021; SOURCE: AIRLINE DATA, INC.

CHART 10: LOAD FACTOR AT LARGE AIRPORTS IN THE SOUTHWEST JUNE – SEPTEMBER 2020; SOURCE: AIRLINE DATA, INC. US DOT T100 DATA


quarter 2019, before the pandemic, showed

just 1.5% of Tucson passengers flew on

ULCCs. The same data shows just 29% of

passengers flew on either an LCC or ULCC.

The “big three” carriers – American, Delta, and

United – still combine to capture more than

64% of Tucson passengers (refer to chart 12).

American continues to be the largest carrier in

the Tucson catchment area, carrying almost

36% of all passengers, or an average of 1,565

passengers per day each way (PDEW) at

Tucson International Airport and another 696

PDEW who drive to Phoenix (refer to chart

13).

With legacy, network carriers

dominating the market, Tucson

passengers are subject to higher fares

than at virtually all other peer markets.

This trend will likely be exacerbated by

Tucson’s lack of sufficient capacity as

demand returns post-pandemic. With so

few available seats, airlines will be able

to charge a premium for flights to

Tucson. This will, in turn, choke the

Tucson market’s tourism demand, as

cost-conscious tourists will choose other

markets for their first vacations since

2019.

CHART 12: CARRIER SHARE FOR CATCHMENT PASSENGERS YE1Q19; SOURCE: VOLAIRE AVIATION, INC.

CHART 13: CATCHMENT PASSENGERS BY CARRIER AND AIRPORT YE1Q19; SOURCE: VOLAIRE AVIATION, INC.

Rank Airline Code Airline TUS PHX AZA Total

1 AA American 1,565.3 696.5 2,261.8

2 WN Southwest 1,301.1 783.1 2,084.3

3 DL Delta 635.6 175.0 810.6

4 UA United 614.8 147.9 762.7

5 AS Alaska 283.7 47.9 331.6

6 F9 Frontier 34.1 62.1 96.3

7 G4 Allegiant 19.6 76.4 96.0

8 SY Sun Country 20.7 16.3 37.0

9 B6 JetBlue 27.3 27.3

10 HA Hawaiian 16.7 16.7

15 Largest Airlines 4,479.8 1,990.0 76.4 6,546.2

All Other Airlines 0.1 0.0 0.1

All Airlines 4,479.9 1,990.0 76.4 6,546.2

Passengers per Day Each Way


Visit Tucson, in its recovery plan, forecasts that the pent-up demand for leisure travel will lead to an uptick

in vacations and getaways in the second half of 2021 as potential visitors receive COVID-19 vaccines. It

has come up with a number of strategies to ensure Tucson is top-of-mind for potential vacationers as soon

as they feel comfortable traveling.

At the center of the plan: Tucson airline service. It writes that it must work with, “Tucson Airport

Authority’s (TAA) board and CEO regarding how the region can best help them with air-service

development efforts. They are the experts in this lucrative, niche industry, but we need to know what it

will take to bring back the number of air seats to pre-pandemic levels and in cities that best meet the airlines’

and metro Tucson’s needs.”

Tucson’s air service

development plan seeks to

leverage community

financial support from

groups such as Visit Tucson

for a Small Community Air

Service Development

(SCASD) Grant to bring

new low cost airline service

to the community. The plan

seeks service in source

markets for inbound tourists

and is squarely aimed at

jumpstarting Tucson’s

tourist economy.

There are 115,000 people around the country who own second homes in Tucson. The location of their main

home, as determined by the address where they have their Pima County property tax bill sent, gives a good

indication of where tourists come from (refer to map 3). Areas with large concentrations of second

homeowners tend to attract friends and relatives who come to visit them, and new visitors tend to take trips

AIR SERVICE DEVELOPMENT PLAN

MAP 3: ORIGIN OF HOMEOWNERS IN PIMA COUNTY, ARIZONA BY ZIP CODE FISCAL YEAR 2020; SOURCE: VOLAIRE ANALYSIS OF PIMA COUNTY TAX DATA


to Tucson from these areas after they hear about the trips others have taken. The Airport has also noted

that new service tends to do best when its added in markets with large numbers of second homeowners,

such as Alaska’s nonstops to Portland, which were immediately profitable when added several years ago.

Based on this data, meshed with the Airport’s most recent passenger retention study, it has identified several

markets that would be likely be able to support less-than-daily low cost airline service (refer to map 4).

These markets all have

large numbers of second

homeowners, and enough

pre-pandemic passenger

demand to fill flights.

These markets will also

bring in mostly

vacationers, to fill empty

hotel rooms, rent cars, eat

at restaurants, and help the

Tucson tourist economy

rebound.

Among the target markets

are four cities in the

Midwest, one city in the

south, and one city in the

west (refer to map 4). The

Midwest cities, which include Kansas City (MCI), Omaha (OMA), Rockford (Chicago – RFD), and St.

Louis (MidAmerica – BLV), each have more than 1,000 people who own second homes in Tucson. Tucson

has been seeking service to Austin, which has the highest concentration of second homeowners in Texas,

with more than 3,500. Tucson lost San Jose service due to the pandemic, but it seeks to replace that service

with flights to Oakland, which is closer to the highest concentration of Tucson second homeowners in the

Bay Area – more than 5,000 in total.

The Airport’s passenger retention study backs up the data from the tax assessor illustrating the pre-

pandemic demand for service from these points into Tucson. The study shows that collectively, the seven

target markets for low cost service generated an average of 923 passengers per day each way (PDEW) to

MAP 4: POTENTIAL TARGET MARKETS FOR NONSTOP FLIGHTS FISCAL YEAR 2020; SOURCE: VOLAIRE ANALYSIS OF PIMA COUNTY TAX DATA


and from Tucson, as of the year ended first quarter 2019, before the pandemic (refer to chart 14). Those

passengers paid an average of $169 each way to get to Tucson. Tucson International Airport retained just

68% of those

passengers,

with 32%

driving to

Phoenix for

flights.

The largest

potential market before the pandemic, was Oakland, which generated an average of 379 passengers per day

each way (PDEW) at a one way fare of $137 (refer to chart 14). Rockford/Chicago ranks as the second

largest potential market, with 299 PDEW, followed by Kansas City, St. Louis, and Austin. Even the

smallest market, Omaha, still generated an average of almost 51 PDEW before the pandemic, which is more

than enough to support twice-weekly service.

All of these markets are heavily skewed to inbound Tucson passengers, which indicates they generate a lot

of vacation demand to Tucson. Each market has at least 57% of passengers originating in the market and

traveling to Tucson as the destination. These markets are specifically picked to generate new tourist visits

to Tucson to help with pandemic recovery.

This project will use creative incentives

designed to offset costs for carriers entering

new markets. The Grant award will allow

the Airport and its partners to offer start-up

cost offsets, including the ability to pay for

equipment needed at Tucson International Airport to operate new and expanded service, ground handling

credits, to offset the cost of paying for new crew members in Tucson, and marketing and advertising cash

to promote the service, primarily in the markets feeding passengers into Tucson.

The incentives will be on a “per route” basis, with a target of seven new, less-than-daily routes. Each route

will be eligible for $25,000 in start-up cost offsets, $67,600 in ground handling credits, and $50,000 in

marketing and advertising cash (refer to chart 15). Ground handling credits will be offered at $650 per

aircraft “turn” (the arrival of the aircraft, servicing, and subsequent departure) for the first 104 “turns” in

CHART 14: STATISTICAL ANALYSIS OF TARGET MARKETS YEAR ENDED FIRST QUARTER 2019; SOURCE: VOLAIRE AVIATION, INC.

TUS Leaked TRUE TRUE TUS Leaked Avg Total

Rank Airport Metro Area PDEW PDEW PDEW O&D Pax Pax Pax Fare Revenue

1 Oakland/Bay Area 286.2 92.6 378.9 276,575 208,947 67,628 $137 $37,960,912.85

2 Rockford/Chicago 205.7 92.1 297.8 217,429 150,187 67,242 $211 $45,921,726.95

3 Kansas City 36.8 32.3 69.1 50,442 26,840 23,602 $167 $8,442,182.52

4 St. Louis/Belleville 37.9 28.5 66.4 48,455 27,637 20,818 $181 $8,770,071.20

5 Austin 40.7 19.3 60.0 43,795 29,720 14,075 $173 $7,557,027.78

6 Omaha 24.5 26.1 50.6 36,941 17,871 19,070 $154 $5,672,289.71

Total of Markets Above 631.8 291.0 922.8 673636.9 169.7119 114324211.0

CHART 15: INCENTIVE FUNDING PLAN SOURCE: TUCSON INT’L AIRPORT

Funding Use Per Route Total Amount

Start-Up Cost Offsets $25,000 $175,000

Ground Handling Credits $67,600 $473,200

Marketing and Advertising $50,000 $350,000

Landing Fee and Terminal Rent Waivers TBA TBA

Total $142,600 $998,200


each new market. The offsets would cover the first 12-months of ground handling on a new route assuming

it was served twice per week.

The total project cost is just shy of $1 million (refer to chart 15 on the previous page). Each new route –

up to seven new routes in total – will be eligible for almost $143,000 in incentives. The project will include

a total of $175,000 in start-up cost offsets, $473,200 in ground handling credits, and $350,000 in marketing

spend.

The Tucson community is working together through the pandemic to

develop air service incentives for new routes. Altogether, local partners

will pledge $350,000 to match this Grant funding request (refer to chart

16). The entirety of the local portion of the funding will go to the

marketing and advertising incentive for new routes. Tucson International Airport is requesting $648,200

in Grant-supported funding for the project. Grant funding will be used specifically for the start-up cost

offsets and ground handling credits. The Airport will also offer its standard incentive plan as an in-kind

incentive. That includes landing fee waivers and terminal rent credits, dependent on the frequency of

service, the aircraft used, and the distance of the flight. The value of those in-kind incentives will only be

determined once a specific carrier has chosen a market, an aircraft, and a schedule.

The local community cash will represent 35% of the total project cost (refer to chart 16). The Department

of Transportation share is 65% of the project cost. The community will take a large share of the risk in the

project as a demonstration of its commitment to recruit service to bring tourists to Tucson and to ensure

that service is successful.

Community partners understand their role in funding air service incentives, after having raised funding to

support a revenue guarantee for service to and from New York City. While that service was seasonal,

community partners believe it was a success and have used it to demonstrate how local funding can be

leveraged for service.

Throughout the pandemic, the Airport has continued to communicate on a weekly basis with its incumbent

carriers and potential new entrants. At the time of the writing of this application, the project is well

underway.

CHART 16: SOURCES OF FUNDING SOURCE: TUCSON INT’L AIRPORT

Funding Source Amount

Local Contributors/Visit Tucson $350,000

SCASD Grant Award $648,200

Total $998,200


Assuming the Department of Transportation awards this Grant in spring of 2021, and a contract is executed

quickly, the Airport will work toward a new service announcement by summer of 2021 (refer to chart 17).

This would allow for a service launch in Tucson’s high tourist season, by December of this year. It is

anticipated the incentive for new routes would

remain open for a period of three years, but it will

only be available for the first seven new routes

launched. With this in mind, the Airport could

close the grant much sooner than anticipated –

currently winter of 2023 – if airlines add all seven

new routes more quickly.

While this project has specific targets for service,

based on extensive research and analysis, the incentive would be open to any carrier that launches service

in a market without a current nonstop from Tucson International Airport. That will ensure fairness to all

carriers regardless of business type. It will also allow for the Airport to more quickly recruit new service,

in unserved markets, as rapidly as it can following the pandemic.

CHART 17: PROJECT TIMELINE SOURCE: TUCSON INT’L AIRPORT

Task Targeted Date

SCASD Grant Award Spring 2021

Finalized SCASD Grant Contract Spring 2021

Continue Meetings with Targeted Carriers Spring/Summer 2021

First Routes Announced Summer 2021

Development of Initial Advertising Fall 2021

First Services Launch Dec-21

SCASD Grant Closed Winter 2023


A number of local organizations, businesses, and private citizens will pledge to support Tucson’s first-ever

Small Community Air Service Development Grant project. This diverse group of partners will come from

all sectors of the local economy and represent the Airport and community’s broad outreach in preparation

for this application.

Visit Tucson is a major partner in this application. It has rebuilding air service at the center of its tourism

recovery plan. It writes, “Travelers infuse local economies with new revenue that generates jobs and tax

revenue that lowers the amounts paid by locals for government services. This leads to local taxpayers

having more disposable income for purchases, which benefits community businesses. It’s a virtuous cycle.”

Together, the members of the public-private partnership has raised $350,000 in support for this Grant

application and new service in Tucson.

PUBLIC/PRIVATE PARTNERSHIP


Tucson International Airport is at the center of the economic recovery plan for southern Arizona. As one

of the largest tourist draws in the west, the Airport is working with Visit Tucson and other community

partners to restore air service lost during the pandemic as quickly as possible.

Tourism revenues have plummeted by almost half, including taxes which fund Visit Tucson. The Airport

seeks this Small Community Air Service Development (SCASD) Grant award to further local dollars

available for the recruitment of air service to bring tourists back to the region.

The service restoration does not seek a direct, one-for-one replacement of lost routes, but a forward-looking

recruitment of service in markets that will immediately generate new inbound trips. The proposed project

is an innovative incentive plan to secure service to up to seven new cities. The program will provide start-

up cost offsets, ground handling credits, and marketing support to carriers launching service in markets

where Tucson has no nonstop currently. The program will be open to

all carriers, but it is specifically tailored to those who value low airport

costs and are seeking markets to reduce risk.

Tucson has never before won a Small Community Air Service

Development Grant. Tucson fell from the ranks of the medium hub airports to a small hub in 2009, but

originally the Program was only open to airports that were classified as small and non-hubs in 1997. This

put Tucson at a distinct disadvantage in air service recruitment as other small hubs won Grants, such as

Spokane, and secured new service with Grant-supported incentives.

Now that the Airport is eligible and has developed a local cash match of $350,000 for the million-dollar

project, it seeks federal support to help a region recover from the devastating impacts of the pandemic. The

federal share of the project is just 65%. But that funding will go a long way, adding tens of thousands of

inbound seats to the market and bringing millions in tourist dollars to an economy that is reeling.

FINAL THOUGHTS

“The proposed project is an innovative incentive

plan to secure service to up to seven new cities.”

application under small community air service …

Documents