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Business Observer Friday, Apr. 30, 2004 18 years ago

The Bailout for SRQ

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The Sarasota-Manatee Airport Authority is asking taxpayers for $500,000 to subsidize a low-fare carrier. Here's the authority's case for why you should do it.

The Bailout for SRQ

The Sarasota-Manatee Airport Authority is asking taxpayers for $500,000 to subsidize a low-fare carrier. Here's the authority's case for why you should do it.

he operators of Sarasota-Bradenton International Airport have been proud over the years that the airport has been a contributor to local tax dollars and not a consumer of them.

It looks like that's about to change.

With Fred Piccolo, president of the airport, as spokesman for the Sarasota-Manatee Aviation Authority, airport officials on April 26 asked for their first local taxpayer handout - $250,000 each from Sarasota and Manatee counties.

With $500,000 in taxpayer funds, plus a matching $500,000 from the airport's own coffers, the airport authority would have $1 million for a marketing campaign aimed at boosting passenger traffic at the struggling airport.

The airport authority at the same time is hoping the local contributions and commitments will help it win a $1.5 million grant from the federal government. That money would be used as a "revenue guarantee" - a subsidy - to attract a low-fare airline to provide service.

The situation obviously is desperate. In a form letter designed for U.S. congressmen, handed out as part of an information packet at a meeting of elected officials April 22 at the airport, the airport authority says: "The economic viability of this facility is in serious jeopardy."

Indeed, even though the airport authority is far from broke - it has $7 million in reserves (money that cannot be used for revenue guarantees), the steady descent in passenger traffic and airline service over the past decade has the airport flying for a crash landing.

In the paragraphs that follow, GCBR shares many of the details of Piccolo's presentation to regional elected officials - the dour statistics, the problems, the reasons, proposed solution and alternatives:

Bad news in numbers

× Passenger traffic at Sarasota-Bradenton International has declined 47% between 1990-2003.

× Passenger totals have declined by more than 948,000 between 1990-2003.

× Enplaned passenger counts have fallen 243,000 since 1998.

× Daily air carrier operations have declined 75% since 1990.

× Charter service has ceased with Sun Country, Southeast Airlines, Canada 3000 and Air Transat (45,000 passengers).

× Five major air carriers have left.

× TWA, AA Eagle, US Express and Gulfstream have ceased operations in the past two years.

× Northwest Airlines has downgraded service from year-round to seasonal.

× US Airways will downgrade to regional jets starting in May.

Why the decline?

× The market dictates service. Tampa and Fort Myers simply have greater numbers of passengers and low-fare carriers - critical mass.

× As noted in a study for the airport authority, "the geography of the state and the availability of low-cost rental cars allows large regional airports like Tampa to overlap nearby airports and be the origin or destination airport for travelers across a wide area."

Possible solutions

× Small Community Air Service Grant.

Sarasota-Bradenton International had a low-cost carrier willing to provide 230,000 seats annually. But a primary factor in attracting the airline was a $1.5 million subsidy, or revenue guarantee.

× As of April 26, the Sarasota-Manatee Airport Authority has asked for $250,000 each from Manatee and Sarasota counties and any additional funds that other jurisdictions would be willing to contribute.

× The airport authority wants to be able to refer to those contributions as examples of widespread community support in its grant application.

× At the same time, the authority is asking Congress for permission to be able to use its reserves for revenue guarantees. Piccolo says if the authority prevails in that request, it would reimburse taxpayers the $500,000.

× The authority also is asking for local media organizations to publicize the airport's efforts with discounted advertising.

Will the subsidy work?

× The airport authority has crafted proformas for the next four years showing that the $500,000 taxpayer contribution would be only a one-time contribution because it expects the low-fare carrier to be profitable after the first year (see boxes). Piccolo said the proformas are conservative in their revenue and passenger projections.

Proposal challenges

× The deadline to apply for the federal grant is May 14. The airport authority needs commitments from the counties and local media before then. The Sarasota County Commission already has agreed to contribute $250,000. The Manatee County Commission will vote on the matter May 4.

The case for taxpayer support

× The airport authority says: "The airport has been a significant contributor to the economic vitality of the bi-county area at no cost to the local community for many years."

× "Failure to act now could eventually lead to the need for a much greater level of assistance from the community," says the airport board.

Alternatives if help is rejected

× The airport could continue operating for about two to three years at its present rate of decline before its reserves would be exhausted.

× The airport could petition the county commissions to levy a property tax for the airport. This is permissible under present state law.

× The airport could seek taxing power from the Legislature.

× The airport could seek assumption of public safety functions by the counties. This would save the airport (and cost the counties) $2.5 million annually.

ECONOMIC IMPACT

OF SRQ

Effect of Tenants at SRQ

Jobs1,472

Payroll$42.4 million

Output$172.5 million

Effect of visitors using SRQ

Jobs15,713

Payroll$335.3 million

Output$786.0 million

Total impact

Jobs17,185

Payroll$377.7 million

Output$958.5 million

FOUR-YEAR PROFORMA

The following assumes flights of a 117-seat Sabra Express B717-200 from Sarasota-Bradenton International to Atlanta.

Year 1Year 2Year 3Year 4

12 months fromJan. 2005Jan. 2006Jan. 2007Jan. 2008

Market Size400,000400,000400,000400,000

Frequency (Weekly)21212121

Base Market Forecast170,000173,400176,868180,405

% Capped at set level of 95%0.2%0.6%1.0%1.5%

Pass. Forecast (constrained)169,587172,406175,040177,727

Load Factor %66.2%67.3%68.3%69.2%

Breakeven Load Factor %67.3%66.8%65.5%64.2%

Average Passenger Yield66.067.368.670.0

Yield Increase (%)0%2%2%2%

Revenue (000)$11,360$11,778$12,196$12,630

Total Passenger Variable Cost (000)($282)($288)($295)($302)

Total Fixed Direct Operating Costs (000)($4,584)($4,730)($4,730)($4,743)

Contribution (000)$6,494$6,760$7,171$7,585)

Total ASCs($4,928)($4,928)($4,928)($4,941)

Net Operating Profit/Loss (000)$1,567$1,833$2,244$2,644

Total contribution to overheads($1,756)($1,756)($1,756)($1,761)

Fully Allocated Profit/Loss (000)($190)$76$488$883

P/L Margin(1.7%)0.6%4.0%7.0%

Source: SMAA

ESTIMATION OF ROUTE COST AND BREAKEVEN

The following assumes flights of a 117-seat Sabra Express B717-200 from Sarasota-Bradenton International to Atlanta with an average fare of $66.

Direct Operating CostsAvg. one-way

Airplane fuel & oil886

Maintenance, Materials, Repair390

Landing, parking, facilities24

Airplane handling, servicing690

ATC charges0

Crew per diem0

Other costs0

Contigencies103

Fixed direct oper. costs2,093

Indirect and Fixed Costs

Wages, salaries465

Leases, depreciation, amort.1,530

Insurance255

Total indirect costs2,250

G&A802

Less route support(0)

Total fixed costs5,145

Total cost$5,276

Passenger Variable CostsPer Pass.

Passenger charge0.00

Commission0.66

CRS, distribution0.00

Catering1.00

Other costs0.00

Total PVCs/Passenger1.66

Avg. Yield (fare net of PVCs)64.34

Other passenger income1.00

RevenuePer sector

Capacity117

Breakeven load factor67.3%

On-board load78.7

Net passenger revenue5,145

Cargo revenue0

Net revenue5,145

Total sector revenue$5,276

Source: SMAA

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