Understanding Airline and Passenger Choice in Multi-Airport Regions (2013)

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29 Case studies provide a powerful mechanism for under- standing how, through revealed preference, choice factors interrelate. A key element of this study is the performance of case studies that are instructive, provide insight, and are applicable to as many airports as possible. The case study process is described in greater detail in Appendix C. In summary, the case study selection and per- formance process involved the review and categorization of multi-airport systems in the United States, with the objec- tive of understanding both their diversity and common- ality, and thereby selecting a set of case studies that best represents this diversity and provides instructive results. A meticulous process utilizing a series of considerations (“fil- ters”) on an initial universe of the 100 largest U.S. population centers was used to determine which case studies should be undertaken. This filtering process resulted in the identifi- cation of 59 regions as candidates for case study consider- ation. Each of the 59 candidate regions was then subjected to a high-level analysis and review, with the objective of identifying trends in traffic that suggest that airlines and significant volumes of passengers changed their airport choice(s) in the region during the study period. This review enabled the research team to reduce the number of potential case study candidates for subsequent review and analysis from 59 to 21. Regional profiles were prepared for each of the 21 case study candidates. The profiles were prepared to provide an evaluation, at a macro level, of the geographic, traffic/service, pricing, competition, and other defining characteristics of each of the 21 candidate regions and the airports within each region. The research team sought, through this evaluation, to identify those regions that would likely provide the most instructive, relevant, and diverse case studies. The parameters of the regional profiles are described in Appendix C. After review, discussion, and assessment of the regional profiles, the decision was made to perform five case studies focused on the following regions: • Los Angeles Basin offers several interesting dynamics for further study. The region’s core structure—with a major international facility surrounded by several suburban air- ports offering substantive service options—should pro- vide substantive insight into key facets of both airline and passenger choices. • San Francisco Bay Area has seven airports of very differ- ent sizes and service offerings, and has experienced a significant shift in domestic airline service patterns and passenger choice. The dynamic of different fare structures at the airports in the region is also involved—more diverse service and greater volume of capacity appears to be driving traffic trends, notwithstanding fare levels. Other factors, such as ease of ground access and proximity of airport options, also appear to be involved. • Western Carolina represents a classic case of a large major airline hub that dominates surrounding communities. The lack of unique geographic hindrances and the pres- ence of LCCs throughout the region provide an interesting opportunity to analyze the effects of fares, service quality, distance and access time, and other competitive consider- ations on passenger choice. • Northern Gulf Coast presents the opportunity to assess in detail the factors impacting customer and airline choice for a group of small hub airports, where service at more than one airport may be an option for many travelers. Airline choice factors are in play in this region, with the recent opening of a new airport, the introduction of LCC service, and the short- lived service of an airline offering a “travel company” product. • Central Wisconsin, at its core, consists of five small-to- medium-sized airports offering similar services and pric- ing across a large, primarily rural region. Although the potential insight to be gained into airline and passenger choice from analysis of the services at the core airports is likely limited, the presence of much larger airports within 2 hours of three of the five core airports adds an additional complexity to the situation that provides for interesting insight into the multiple dynamics of passenger choice. C H A P T E R 6 Regional Case Studies

30 Case Study 1: Los Angeles Basin Passenger Choice in a Congested Megalopolis with Multiple Airport Options The Los Angeles Basin is one of the world’s largest metro- politan areas, and is served by a major international airport and several regional airports offering substantial air service from other parts of the region (“the Basin”). Los Angeles Inter- national Airport (LAX) serves as the region’s primary gateway, with over 800 peak-period daily departures—including over 130 international departures to 30 different countries. Within the core of the Basin, four other airports offer substantive levels of service, primarily to major domestic connecting hubs and regional destinations within California and the Western United States. These regional airports are • John Wayne Airport (SNA)—in central Orange County, approximately 50 minutes south-southeast of LAX; • Long Beach Airport (LGB)—in Long Beach, approximately 30 minutes south of LAX; • Ontario International Airport (ONT)—in the “Inland Empire” area, approximately 65 minutes east of LAX; and • Bob Hope Airport (BUR)—just west of central Burbank, approximately 40 minutes north of LAX. Two additional airports serve leisure-oriented communi- ties just outside of the core of the Basin: • Palm Springs International Airport (PSP)—just west of Palm Springs, approximately 2 hours 15 minutes east of LAX; and • Santa Barbara Airport (SBA)—several miles north of cen- tral Santa Barbara, approximately 2 hours northwest of LAX (all MapQuest). The drive times indicated do not take into account the impact of surface traffic congestion, which is a major issue across the entire region. While the Basin is home to one of the most developed regional highway infrastructures in the world, traffic congestion permeates many aspects of life across the region—including airport choice by air travelers. Often, time-of-day traffic patterns are a primary factor in airport choice, in addition to other common factors such as air ser- vice levels, airfares, etc. Of the five core airports, LAX, SNA, and ONT have service from a broad range of legacy carriers (along with primary LCCs), while LGB and BUR have more limited service patterns. Overview of the Region The Los Angeles Basin spans over 150 miles from north to south and 175 miles from east to west (Great Circle Mapper), and is home to over 18 million people (U.S. Census 2011). It represents the second largest metropolitan area in the United States, and the 13th largest in the world. The demographic and economic center of the region is the city of Los Angeles, with more than 3.8 million residents (U.S. Census 2011). In addition, there are other large segments of the region that, if viewed as stand-alone metropolitan areas, would be among the largest in the country. The remainder of Los Angeles County (outside of the city limits) is home to 6.1 million residents (U.S. Census 2011). To the immediate south, Orange County is home to 3.1 million (U.S. Census 2011). To the east, the Inland Empire region of Ontario-Riverside-San Bernardino is home to 4.3 million people (U.S. Census 2011). The smaller, leisure- focused communities of Palm Springs and Santa Barbara pro- vide additional population centers at the northern and eastern edges of the Basin, which is shown in Exhibit 6-1. The economy of the region is dispersed throughout several large commercial centers/business districts. Throughout Los Angeles County, these include a core center in Downtown Los Angeles, supplemented by secondary centers in Century City, Long Beach, Glendale, Burbank, and elsewhere. Pri- mary Orange County commercial centers include Newport Center (Newport Beach), South Coast Metro (Costa Mesa), and Irvine. Major business districts in the Inland Empire include the central districts of Riverside and San Bernardino. In general, commercial and corporate activity throughout the Basin tends to be more dispersed than is seen in many other major metropolitan areas. Exhibit 6-2 summarizes recent demographic and employ- ment trends across the region over the period from 2000 to 2010. During this period, the most rapid growth took place in the Inland Empire region, with a nearly 30% increase in population over the 10-year span. Though not identified in this exhibit, this region has experienced a disproportionate impact from the recent economic downturn. Employment trends throughout the period display similar trends. Personal and household income data throughout the region’s metropolitan statistical areas (MSAs) can be seen in Exhibit 6-3. Published income levels are relatively consistent through three of the four defined regions, although there are significant variations in subregions within the defined areas (particularly the large Los Angeles/Orange County MSA). The Inland Empire area consistently generates moderately lower per capita income levels, a trend which has likely con- tinued beyond the time period of the data presented. Summary of Airports in the Region The largest airport in the region is Los Angeles Interna- tional (LAX). LAX serves as a major international gateway, particularly to Asia and the Pacific. As of July 2012, LAX

31 Exhibit 6-1. Map of the Los Angeles Basin region. Exhibit 6-2. Change in population and employment by MSA, 2010 vs. 2000 (Los Angeles Basin Region). # % # % Los Angeles-Long Beach-Santa Ana, CA 12,392.7 12,849.4 456.7 4% 7,308.5 7,305.4 (3.0) 0% Oxnard-Thousand Oaks-Ventura, CA 756.5 825.7 69.2 9% 400.8 417.3 16.5 4% Riverside-San Bernardino-Ontario, CA 3,277.0 4,245.8 968.8 30% 1,373.8 1,608.8 234.9 17% Santa Barbara-Santa Maria-Goleta, CA 400.0 424.7 24.7 6% 247.5 250.4 2.9 1% Subtotal 16,826.2 18,345.6 1,519.4 9% 9,330.6 9,581.9 251.3 3% MSA Population (000) Employment (000) 2000 2010 Change 2000 2010 Change Exhibit 6-3. Change in per capita and per household personal income, 2010 vs. 2000 (Los Angeles Basin Region). # % # % Los Angeles-Long Beach-Santa Ana, CA 35,456 40,028 4,572 13% 106,351 119,680 13,329 13% Oxnard-Thousand Oaks-Ventura, CA 38,201 42,151 3,950 10% 116,778 128,666 11,888 10% Riverside-San Bernardino-Ontario, CA 26,209 27,402 1,193 5% 80,960 87,909 6,949 9% Santa Barbara-Santa Maria-Goleta, CA 37,111 41,595 4,484 12% 105,073 119,904 14,831 14% Average 34,244 37,794 3,550 10% 102,291 114,040 11,749 11% MSA Per Capita Personal Income (2005 constant dollars) Mean Household Total Personal Income (2005 constant dollars) 2000 2010 Change 2000 2010 Change

32 offered 824 daily departures to 155 nonstop destinations around the world. LAX offers very high-frequency service to key domestic destinations, as well as many destinations out- side of North America. The other four commercial airports in the core Basin serve as regional complements to LAX, and offer the following varying levels of service: • John Wayne Airport (SNA) is located in the Santa Ana/ Irvine region of central Orange County. Nine carriers cur- rently operate from SNA, operating 118 daily departures to 21 nonstop destinations. Southwest Airlines (WN) oper- ates with the most frequency from SNA—46 daily depar- tures, more than twice as many as any other carrier. Air service at SNA consists primarily of operations into large legacy airline hubs and to key regional destinations. • Long Beach Airport (LGB) is located just outside of Long Beach off the 405 Freeway, roughly halfway between LAX and SNA. Four carriers currently operate from LGB, with JetBlue (B6) operating 31 of the airport’s 43 daily depar- tures to 12 of the airport’s 13 destinations. Alaska (AS), Delta (DL), and US Airways (US) also offer service to sev- eral hubs, but none with more than five daily departures. • Ontario International Airport (ONT) is located approxi- mately an hour east of Los Angeles in the Inland Empire region. Seven carriers currently operate from ONT, with a total of 65 daily departures to 15 nonstop destinations. WN is the largest carrier at ONT with 34 daily departures to seven nonstop destinations, six of which are in the West- ern United States. As recently as August 2008, ONT offered more than 100 daily departures. • Bob Hope Airport (BUR) is located near the town of Bur- bank, just to the north of Los Angeles. Six carriers currently operate at BUR, offering 72 daily departures to 11 nonstop destinations, almost all in the Western United States (with the exception of twice daily to JFK). WN is the largest carrier at BUR, with 47 daily departures to six nonstop destinations. In addition, the two other airports that serve smaller, leisure- oriented communities on the periphery of the region offer the following: • Palm Springs International Airport (PSP) is located just out- side of the town of Palm Springs. Eight carriers serve PSP with a total of 21 daily departures, although seasonal service typically doubles that total in the winter. During the sea- sonal peak, 10 carriers serve the market—led by UA, with 19 daily departures to five nonstop destinations. • Santa Barbara Airport (SBA) is located just north of the city of Santa Barbara. Five carriers serve SBA with a total of 33 daily departures to six nonstop destinations (five during the off-peak). UA is the largest carrier at SBA, with 20 daily departures to three nonstop destinations. Exhibit 6-4 highlights service, traffic, and fare information at each of the area’s seven airports, including 10-year traffic growth rates for each. Throughout the last 10 years, passenger growth in the core area of the Basin has concentrated at LAX and SNA, with total growth of 11% and 12% respectively, and at LGB—which has seen traffic increase more than 300% with the market entrance Exhibit 6-4. Summary of air service choices at Los Angeles Basin airports. Airport Passenger Traffic* (YE 1q 2012) Flight Frequency (July 2012) Seats (July 2012) Average Seats Per Flight (July 2012) Average Airfare (YE 1q 2012) Ten-Year Total Traffic Growth* Los Angeles (LAX) 63,034,644 25,332 3,257,001 142 $227 11% Orange County (SNA) 8,598,820 3,660 496,822 136 $174 12% Ontario (ONT) 4,559,424 2,010 252,567 126 $164 -32% Burbank (BUR) 4,442,596 2,230 262,867 118 $140 -9% Long Beach (LGB) 3,069,000 1,341 173,968 130 $113 348% Palm Springs (PSP) 1,597,122 662 40,208 61 $196 27% Santa Barbara (SBA) 719.322 1,034 45,599 44 $221 7% REGION TOTAL or AVG 86,020,938 36,269 4,866,442 134 $203 9% U.S. TOTAL 437,373,548 $172 12%

33 of B6. The other core suburban airports—BUR and ONT— have both seen declines in traffic, with ONT down more than 30% during the period (and even more from an interim period in mid-2008). Both of the peripheral airports have seen slight- to-moderate increases throughout the period, with PSP up more than 25% and SBA up 7% in the last 10 years. Inter-Airport Competition in the Region The five airports in the core area of the Basin fit a basic profile—one major international gateway airport surrounded by several regional facilities serving their respective communi- ties. As a result, much of the passenger choice dynamic revolves around the relative convenience of each of the regional airports compared to the broad service offerings offered at LAX. As a major international gateway without a true hub pat- tern of service, LAX offers a diversified carrier service profile. As of November 2012, UA (25%), AA (20%), WN (14%), and DL (13%) combined to offer over 70% of departures, with the remainder coming from a combination of more than 50 other domestic and international carriers. At the three suburban air- ports (SNA, ONT, BUR), WN maintains a strong departure profile—with more than twice the departures of any other car- rier at each airport (including a 66% departure share at BUR). B6 maintains a similar 66% departure level at LGB, which is lacking service from multiple major carriers—including AA, UA, and WN. Finally, the peripheral airports at SBA and PSP offer more of a regional airport service profile, with UA rep- resenting approximately 40% of departures at each (although PSP experiences a considerable seasonal service pattern). Four of the five airports in the core area of the region have similar domestic airfare situations. WN’s large presence at LAX, SNA, BUR, and ONT plays a significant role in this dynamic, particularly in regional western and intra-California markets. The one exception to this is LGB, where overall fare levels are primarily influenced by the B6 focus city. LAX and SNA tend to generate higher aggregate average domestic fares, but this is in large part due to the presence of generally longer- haul services at these airports. SBA and PSP tend to produce higher fare levels than the other five airports, because neither airport offers significant LCC service and competing airports are at least 1 hour away by car. Exhibit 6-5 highlights the top 10 O&D markets (with aver- age fare levels) across the seven facilities for the year ending 1Q 2012. The similarities in the market lists of SNA, ONT, and BUR are notable, reflecting their comparable roles in the regional air transportation system. Geographic and/or Surface Access Issues Surface access is a significant passenger choice factor across much of the Basin. The continued development of the regional airports within the Basin is the result, in part, of the heavy con- gestion and delay situation that is prevalent for many driving trips to LAX. The size of the region, combined with often heavy traffic, contribute to the long drive times. Exhibit 6-6 details published drive times from various Basin communities to each of the region’s airports. However, actual commute times throughout most times of the day are typically much longer than those published. As is shown by the data in Exhibit 6-6, there are substantial distances between many communities in the region. In addition, traffic conditions can create drive times as much as two to three times the figures indicated, depending on the time of day. The dilemma faced by passengers in more remote communities like Palm Springs and Santa Barbara is the non-optimal choice of using limited service options at their nearby regional airports versus facing long drive times to other airports within the Basin, or even the nearest airport just outside the Basin. Passenger Choice Dynamics A summary of key passenger choice dynamics and decision drivers evident in this region follow: • Surface access issues across most parts of the region— Passenger commute times remain a primary passenger choice driver in the Los Angeles Basin. Given the presence of several regional facilities across the area, the traffic situ- ation in the Basin drives the airport choice for a large pro- portion of travelers. • Nonstop service availability from various Basin airports to various destinations—Although the regional airports in the Basin provide passengers with viable alternatives to driving to LAX, these facilities offer varying levels of service (in all cases substantially less than LAX), often presenting passengers with deciding between a more reasonable drive time vs. substantially more diverse nonstop air service offerings. • Airline presence at various facilities—Airports throughout the region also have different levels of air service by par- ticular airlines, which can at times drive consumer choice (particularly to loyal customers of the various legacy car- riers). While LAX and, to a lesser extent, SNA offer service from legacy and many primary LCCs, the other regional facilities have a less comprehensive airline presence. • Differing dynamics at peripheral airports SBA/PSP—The airports in the outlying markets of Palm Springs and Santa Barbara tend to offer more limited service profiles and are far enough away from the core of the Basin to propel a dif- ferent passenger choice dynamic. Drive times to the other regional airports and their more robust service offerings are often quite difficult due to the combination of distance and traffic congestion.

34 Exhibit 6-5. Top 10 destinations by Los Angeles Basin airports—passengers and fares. LAX BUR LGB Destination Passengers Average Fare Destination Passengers Average Fare Destination Passengers Average Fare JFK 2,470,780 $301 OAK 697,520 $113 LAS 385,150 $58 SFO 2,003,750 $93 LAS 506,270 $102 SLC 350,570 $97 ORD 1,285,690 $180 SMF 397,350 $121 SEA 344,420 $109 LAS 1,247,450 $80 SJC 386,910 $111 OAK 275,870 $77 SEA 1,000,160 $140 PHX 355,480 $104 SFO 251,530 $75 HNL 977,170 $249 SEA 273,150 $134 PDX 201,250 $114 DEN 973,270 $121 JFK 190,190 $217 SMF 183,570 $79 DFW 953,890 $159 PDX 152,610 $144 JFK 166,260 $217 BOS 890,690 $236 DFW 108,010 $166 IAD 109,960 $195 IAD 876,000 $249 DEN 99,580 $156 ORD 92,640 $144 PSP SNA SBA Destination Passengers Average Fare Destination Passengers Average Fare Destination Passengers Average Fare SEA 156,450 $140 SFO 527,600 $122 DEN 71,900 $146 SFO 152,900 $145 SEA 524,620 $133 SEA 45,460 $161 PDX 75,070 $148 PHX 502,830 $113 SFO 41,460 $213 BLI 64,560 $128 DEN 501,670 $120 PHX 38,150 $127 ORD 59,010 $216 SJC 470,230 $126 ORD 21,130 $199 MSP 48,550 $194 OAK 433,330 $124 JFK 19,520 $244 DEN 36,770 $184 SMF 385,620 $123 DFW 18,070 $197 DFW 31,500 $226 ORD 302,180 $198 BOS 17,950 $247 LGA 24,170 $209 DFW 295,730 $200 PDX 17,150 $184 SMF 21,680 $126 LAS 295,390 $115 IAD 15,190 $220 ONT Destination Passengers Average Fare SMF 405,970 $121 OAK 402,220 $108 SEA 267,350 $127 PHX 254,920 $106 SJC 246,550 $103 LAS 180,970 $100 PDX 162,580 $136 DEN 154,180 $144 DFW 136,700 $182 SLC 82,360 $151 Exhibit 6-6. Published drive times between key Los Angeles Basin population centers and airports. LAX SNA ONT LGB BUR SBA PSP City Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Los Angeles, CA 19 0:25 40 0:48 40 0:44 25 0:31 16 0:19 105 1:52 110 1:57 Irvine, CA 43 0:50 3 0:06 41 0:47 24 0:30 53 1:04 147 2:38 95 1:44 San Bernardino, CA 76 1:23 51 1:00 21 0:23 67 1:15 67 1:13 160 2:49 57 1:02 Glendale, CA 27 0:37 47 0:58 43 0:49 33 0:42 10 0:13 103 1:49 113 2:02 Santa Barbara, CA 97 1:45 135 2:24 134 2:22 116 2:04 89 1:37 10 0:14 205 3:35 Palm Springs, CA 124 2:13 97 1:48 71 1:15 112 2:03 122 2:11 215 3:46 0.3 0:01 San Clemente, CA 66 1:14 27 0:32 62 1:09 47 0:55 76 1:27 170 3:02 117 2:07 Thousand Oaks, CA 44 0:51 83 1:33 82 1:28 64 1:10 37 0:43 63 1:07 152 2:41 Source: MapQuest.com.

35 Airline Choice Dynamics Airline choice dynamics across the region’s airports tend to vary based on each airline’s business model. Legacy Carriers Legacy carriers have tended to structure their LAX services to provide extensive service to/from their domestic hubs and focus cities. Given that the Los Angeles Basin is bounded on one side by the Pacific Ocean, its geographic location is not suitable for an omni-directional domestic hub. As a result, AA, UA, and to a lesser extent DL use LAX as a “gateway” for international and selected domestic destinations. Legacy car- rier service choices at the various regional facilities appear to vary somewhat by airport. While SNA and ONT have histori- cally been “must serve” airports due their highly populated immediate catchment areas, the recent economic downturn in the Inland Empire has contributed to reduced service at ONT. The other airports in the region—including SBA and PSP—appear to be evaluated by each legacy carrier based on the fundamental considerations of route-specific economic performance, network contribution, and conformance with their business models. Niche Domestic Carriers/Low-Cost Carriers Southwest Airlines has a significant presence at four of the seven airports in the Basin. Other low-cost and niche carriers appear to be making service decisions based to a large extent on their ability to access the largest possible catchment area with the most reasonable operating economics. While mul- tiple carriers are attempting to achieve this goal from LAX (including ULCCs Allegiant and Spirit), JetBlue established a large base of operations at LGB. Interestingly, other than Southwest and JetBlue, LCC presence at the other regional airports is very limited. Case Study 2: San Francisco Bay Airline Choice of Airports in an Integrated Region Air service trends in the San Francisco Bay region, shown in Exhibit 6-7, offer instructive insights into airline choice in a densely populated region with multiple major and second- ary airports. The convenient availability of multiple airports and air service options for air travelers located throughout this region, and the competitive environment it fosters, provides an excellent basis for a case study regarding the primary fac- tors and considerations related to airline decisions about air- port choice. Overview of the Region The San Francisco Bay region is defined for this case study as encompassing an area from the Pacific Ocean to the west to a portion of the Central Valley of California to the east, and from the Sonoma Valley and Napa Valley to the north to the areas south of San Jose/Silicon Valley, extending roughly to the city of Gilmore. The defined region extends approxi- mately 150 miles north to south and approximately 100 miles east to west. Although the region is typically defined as not including areas of the Central Valley, a broader definition is used in this case study in order to include airports that could provide service to populations in the more tradition- ally defined areas of the region, or that use air services at the major airports in the center of the region. At the center of the region is the San Francisco Bay, which separates the communities on the San Francisco Peninsula from those communities to the east and north. Communi- ties in the southern areas of the region can access both the Peninsula and the eastern areas of the region without having to cross a bridge over the San Francisco Bay. The region is densely populated, with 7.4 million residents encompassing four MSAs. • The largest and most central of the region’s MSAs is San Francisco/Oakland/Fremont, with a population of more than 4.3 million. • In the southern part of the region, the San Jose/Sunnyvale/ Santa Clara MSA has a population of more than 1.8 mil- lion, anchored by the city of San Jose and the adjacent areas that comprise Silicon Valley. The city of San Jose is the tenth largest city in the United States. • In the eastern part of the region are the Stockton MSA, with approximately 687,000 residents, and the Modesto MSA, with approximately 515,000 residents. These MSAs, although geographically close to the major population cen- ters to the west, are distinct and separate. These communi- ties use air services at Sacramento International Airport (SMF), in addition to the major airports in the western part of the region. • To the north lie numerous small communities that use air services at the airports in San Francisco and Oakland, and to a much smaller extent, the airports and air services in Sacramento. These communities include the areas north from San Rafael, Novato, Napa, and Sonoma Counties. For this case study, the Sacramento MSA has not been included in the San Francisco Bay region, or included in this analysis. Although some travelers in the northern and eastern areas of the region use air services at SMF, leakage to SMF from the region as a whole is not of sufficient magnitude to significantly impact the evaluations made in this case study.

36 Exhibits 6-8 and 6-9 summarize the change in population, employment, and key income data for each of the MSAs in the region. For the region as a whole, population grew by 7% during the decade 2000-2010. However, employment declined by 6% during the same period. The decline in employment was most significant in the San Jose MSA (-11%), and somewhat less so in the San Francisco/Oakland MSA (-4%). The high point of employment in the “dot.com” boom, primarily relating to the San Jose MSA, occurred in the year 2000, creating a high base for subsequent comparison, and thereby account- ing for much of the negative growth indicated in the data. While population growth was strong in the MSAs to the east, employment growth was modest, with 1% growth in Exhibit 6-8. Change in population and employment, 2000–2010 (San Francisco Bay region). Source: Woods & Poole. # % # % Modesto, CA 449.5 515.4 65.9 15% 207.4 209.5 2.1 1% San Francisco-Oakland-Fremont, CA 4,135.9 4,345.3 209.4 5% 2,804.0 2,685.1 (118.9) -4% San Jose-Sunnyvale-Santa Clara, CA 1,738.7 1,843.3 104.5 6% 1,295.1 1,146.3 (148.8) -11% Stockton, CA 567.9 687.7 119.9 21% 257.1 268.5 11.4 4% Subtotal 6,892.0 7,391.7 499.7 7% 4,563.7 4,309.5 (254.2) -6% MSA Population (000) Employment (000) 2000 2010 Change 2000 2010 Change Exhibit 6-7. Map of the San Francisco Bay region.

37 the Modesto MSA and 4% growth in the Stockton MSA over the 10-year period. A significant decline in personal per capita income occurred during the period in the San Jose MSA (-16%), and mean household personal income declined (-17%) as well. This is likely to have been primarily the result of the severe employ- ment loss in the aftermath of the “dot.com” boom. During this period, these income metrics remained relatively constant in the San Francisco/Oakland MSA, resulting in somewhat higher income metrics for the San Francisco/Oakland MSA than for the San Jose MSA in 2010. Comparison of data between different MSAs, while provid- ing a broad sense of regional trends, does not provide sufficient detail to distinguish trends occurring within areas of the MSAs. MSAs also do not necessarily define catchment areas for air- ports within a region, especially within regions that are relatively compact and where access to alternative airports is relatively easy. Likewise, comparisons of MSAs should not be considered comparisons of areas within MSAs, such as cities or counties. Summary of Airports in the Region The San Francisco Bay region is served by three large com- mercial service airports. The region is also served by three smaller airports that have very limited commercial service. All of these airports are geographically dispersed in the region, have evolved into separate air service characteristics, and assumed different roles in the market. • San Francisco International Airport (SFO) is operated by the City of San Francisco, and is located just south of San Francisco on the western shore of the San Francisco Bay. It is the largest commercial service airport in the region, and served more than 41 million passengers in 2011. It is the most used airport for passengers who originate from, or designate their travel to, the region, a connecting hub for United Airlines, and a gateway for international services by both U.S. and foreign flag airlines. To accommodate traffic growth, the airport has undergone extensive development and expansion over the past decade. This development has enabled the expansion of air services and improvement of customer service at the airport, but airspace and airside con- gestion and delay remain a concern, especially during the morning peak. Approximately one-third of SFO commer- cial operations are with regional aircraft (primarily United Express). Air traffic congestion and delay at SFO impact air- line operations and passenger services, with recent growth of services further exacerbating the situation. • Oakland International Airport (OAK) is operated by the Port of Oakland, and is located within the City of Oak- land, on the eastern shore of the Bay. In recent years the airport has served primarily as a focal point for services by LCCs. The airport handled 9,521,862 passengers in 2011, of which 74% flew on Southwest Airlines. OAK was the epicenter of air service competition in the early 2000s, but has experienced a significant decline in passenger lev- els since 2007. Most legacy carrier services have migrated substantial portions of their services to SFO, due in large part to the introduction of significant competitive services there by Virgin America. The general restraint being exer- cised by all U.S. airlines regarding air service capacity in an overall environment of soft demand has also been a major factor impacting air service levels at OAK in recent years. • Mineta San Jose International Airport (SJC) is operated by the city of San Jose, and is located within the city of San Jose, in the southern part of the region. Air services at SJC are diversified, handling 8,260,903 passengers in 2011. SJC has undergone major redevelopment and expansion of airport facilities to provide for growth and improve conve- nience to air travelers. Half of SJC traffic is carried by South- west Airlines, with various services by other carriers. This diversity of service is in keeping with the broad employment base in the San Jose area, including the Silicon Valley tech- nology center and other business travel drivers based in the San Jose area. Service levels are highest in the California and western U.S. markets, and much less prevalent in long-haul or international markets. Exhibit 6-9. Change in per capita and mean household personal income, 2000–2010 (San Francisco Bay region). Source: Woods & Poole. # % # % Modesto, CA 27,049 29,407 2,358 9% 82,272 90,682 8,410 10% San Francisco-Oakland-Fremont, CA 55,316 55,591 275 0% 144,856 145,642 786 1% San Jose-Sunnyvale-Santa Clara, CA 61,023 51,133 (9,890) -16% 179,761 149,222 (30,539) -17% Stockton, CA 28,010 28,704 694 2% 84,709 89,950 5,241 6% Average 42,850 41,209 (1,641) -4% 122,900 118,874 (4,026) -3% MSA Per Capita Personal Income (2005 constant dollars) Mean Household Total Personal Income (2005 constant dollars) 2000 2010 Change 2000 2010 Change

38 • Stockton Metropolitan Airport (SCK), located in San Joaquin County, handled 99,484 passengers in 2011, based on the service provided by Allegiant Airlines. Although Allegiant’s services have varied somewhat since its entry in 2006, most of the service has focused on Las Vegas and the leisure market. Travelers to and from this area typically use SMF and the major airports to the west for overall air service. • Modesto City-County Airport (MOD), located due east of San Jose and south of Stockton, handled 45,986 pas- sengers in 2011, based on feeder services by United Airlines (United Express) to SFO, as well as low-fare leisure charter services. • Sonoma County Airport (STS), at the northern part of the region, is located in Santa Rosa. STS, served by Alaska Air- lines (AS), handled 214,681 passengers in 2011. The ser- vices at STS provide air service alternatives for travel to and from four important destinations: Los Angeles, San Diego, Portland, and Seattle (Alaska Airlines’ primary hub). Since the commencement of Alaska Airline services in 2007, STS has experienced rapid growth as area residents in, and visi- tors to, the northern part of the region have had access to STS as an alternative to SFO or OAK (or alternative air services at Sacramento International Airport). Geographic and/or Surface Access Issues Access to the three large commercial service airports in the region is available via major Interstate highways and state high- ways over various routings. Each of these three airports is within less than a 1-hour drive from most of the region (the most notable exception being access between SJC and the northern- most areas of the region). The other three smaller airports are also well connected with surface access to the broader region, although access is more difficult to those airports for travelers to and from the San Francisco Peninsula. The two primary inhibitors of access to each of the airports from various points in the region are the presence of • San Francisco Bay and the resulting need to use bridges or drive around the Bay, and • Significant roadway traffic congestion on the primary Interstate highways serving portions of the region (i.e., US 101, I-880, I-280, I-580). The region ranks high among U.S. metropolitan areas regarding traffic congestion, with the San Francisco/Oakland area ranking fourth and the San Jose area ranking thirteenth in Texas Transportation Institute’s 2010 Urban MobTravel Time Index. Traffic congestion on US 101 leading south from the Napa and Sonoma County areas is understood to be a significant factor in the growth of air service at STS. The Bay Area Rapid Transit System (BART) provides access for major population centers in the northern San Francisco Bay area to SFO (direct service) and OAK (via shuttle bus connection from nearest station). CalTrain service to SFO and SJC is available, with the connection to SJC via a free bus link. Access in the southern part of the region is primarily by automobile and bus service. In the Central Valley, stretching to the northern and eastern boundaries of the region, ground access is well developed via Interstate and state highway net- works. Estimated drive times and distances are provided in Exhibit 6-10. Competition among Airports in the Region Each of the airports in the region is, to some degree, com- peting with another airport in the region. Nonetheless, all of the five smaller airports are most challenged by San Francisco International Airport (SFO), with its diverse air service offer- ings. The results of this competition are evident in the pas- senger traffic trends and shifts that have occurred during the past decade. During the period 2002–2006, the three largest airports in the region (SFO, OAK, and SJC) experienced similar patterns of air traffic growth. However, since 2007, traffic trend rela- tionships have changed significantly, with SFO experiencing Exhibit 6-10. Estimated distances and driving times (San Francisco Bay region). SFO OAK SJC City Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Santa Rosa, CA 67 1:27 68 1:19 98 1:53 Concord, CA 41 0:53 31 0:42 52 1:02 Hayward, CA 23 0:27 9 0:17 27 0:35 Livermore, CA 47 0:54 28 0:37 30 0:43 Stockton, CA 85 1:29 66 1:12 72 1:23 Modesto, CA 94 1:38 75 1:21 81 1:32 Source: MapQuest.com

39 steady growth in domestic traffic while OAK and SJC passen- ger traffic has declined since 2007. Traffic and Service Levels A close examination of traffic and service trends at each of the airports in the region is instructive. San Francisco International Airport (SFO) United Airlines has operated a hub, international gateway, and operations base at San Francisco International Airport for many decades. During the decade immediately after the reduction in flying in 2001–2002, United maintained a steady level of activity at a level lower than that operated before 2000. For much of that same period, American Airlines and Delta Air Lines were either the No. 2 or No. 3 carrier. However, in 2007–2008, the competitive environment at SFO changed sig- nificantly with the expansion of services by LCCs, as well as other legacy carriers. • In 2007, Southwest Airlines resumed services at SFO, after a 4-year absence. This reentry at SFO coincided with a sig- nificant reduction in its services at OAK. • In 2007, following the US Airways/America West merger, US Airways significantly increased services at SFO. • In 2008, Virgin America Airlines commenced services at SFO, making it a focus city and base for its operations. • By 2011–2012, Virgin America and Southwest had become, interchangeably, the No. 2 and No. 3 carriers at SFO (after United). • As shown in Exhibit 6-11, the levels of traffic carried by United, American, Delta, Alaska, and US Airways were not significantly affected by the service expansions by South- west and Virgin America, indicating that these service expansions generated traffic stimulation and/or traffic shift from other areas of the region. Oakland International Airport (OAK) Oakland was the beneficiary of substantial growth in air service by Southwest Airlines during the period 2002–2007, making Southwest Airlines by far the dominant provider of air service. However, during the 2007–2008 timeframe, Southwest reduced its operation at Oakland in response to competitive developments at SFO, and has since maintained a steady level of activity at this lower level. Accordingly, the timing of Southwest’s service reduction at OAK coincided with its reentry and expansion of activity at SFO. Oakland also benefited from the entry and growth of JetBlue, but on a much smaller scale. JetBlue’s traffic at Oak- land peaked in 2006, and has declined since then. During the pre-2007 period, other carriers also experienced some growth in traffic, but their subsequent pullback paralleled that of LCCs. Domestic O&D trends for OAK during this period are shown in Exhibit 6-12. Exhibit 6-11. SFO domestic O&D traffic trends (Q1 2000–Q2 2012).

40 San Jose (SJC) Southwest Airlines is the long-standing top provider of air service at San Jose. Over the past decade, Southwest has maintained a steady level of service at SJC. In the 2002–2006 timeframe, American Airlines was the clear No. 2 carrier at SJC, with US Airways a distant No. 3. Other carriers operated at consistent, but lower, levels at SJC throughout the decade, as shown in Exhibit 6-13. However, since 2008–2009, both American and US Air- ways activity at SJC has declined to the point where they have traffic levels that are comparable to that of other carriers, with the exception of Southwest. American developed a hub at SJC during the 1990s, but dismantled the hub over time. Subsequently, American shifted a greater share of its regional capacity to SFO; this is understood to have been largely the result of the competitive response of the legacy carriers to the entry and buildup of services at SFO. The loss of service Exhibit 6-12. OAK domestic O&D traffic trends (Q1 2000–Q2 2012). Exhibit 6-13. SJC domestic O&D traffic trends (Q1 2000–Q2 2012).

41 and capacity at SJC has prompted a substantial shift of air travel (approximately 30%) from the San Jose area to air ser- vices provided at SFO. However, notable air service growth at SJC is evident in the past 2 years by Alaska Airlines, including extensive new services to Hawaii and Mexico. Modesto (MOD) Scheduled commercial air service at Modesto is provided by United Airlines. As shown in Exhibit 6-14, United’s activity tripled in 2006–2007, due to expansion of services. Subse- quently, United returned its activity to previous levels and has maintained those levels to date. Stockton (SCK) As shown in Exhibit 6-15, in the early years of the study period, America West served Stockton for a short time, but terminated that service in 2003. After several years without commercial air service, Allegiant Airlines entered Stock- ton in 2006, bringing an immediate jump in traffic activity. Although very reliant on seasonal demand, resulting in large Exhibit 6-14. MOD domestic O&D traffic trends (Q1 2000–Q2 2012). Exhibit 6-15. SCK domestic O&D traffic trends (Q1 2000–Q2 2012).

42 Exhibit 6-16. STS domestic O&D traffic trends (Q1 2000–Q2 2012). swings in activity levels, passenger traffic at Stockton has demonstrated a general upward trend. It is understood that service reductions at SMF have also prompted greater use of Allegiant services at SCK by leisure travelers to and from the Sacramento area. Santa Rosa (STS) Santa Rosa Airport (STS) has a long history of commercial service, including both regional feeder services and services to Southern California and Las Vegas. However, such services ended with the cessation of services by United Airlines at the end of 2001. The relatively affluent passenger base, com- bined with the increasing difficulty of highway access to SFO or OAK, resulted in the entry of Alaska Airlines into Santa Rosa in 2007. This entry was based on the combination of several considerations: Horizon Airlines’ ability to make an independent decision about its services, a $1 million incen- tive package partly funded by a DOT Small Community Air Service Development (SCASD) grant, and the formation of a community ticket bank. As shown in Exhibit 6-16, the Alaska Airlines service (substituting for Horizon) quickly resulted in traffic levels that were four times that which United had expe- rienced earlier in the decade. Alaska’s services to its Seattle hub, as well as to other destinations, significantly improved the air service available at the airport, helping the airport to retain air travelers based in, or coming to, the Santa Rosa area of the region. Although services are currently limited by the airport’s runway length, additional air services may be offered at STS in the future when runway extension at STS is com- pleted, and if congestion continues to impede surface access from the northern part of the region to SFO. Fare Competition The above-noted variety of traffic growth patterns at airports in the region has occurred even as the relationship among average fares at the airports in the region has remained rela- tively unchanged. SFO has consistently experienced the high- est average overall domestic airfares among the six airports, with a significant differential compared to the other airports. However, this differential is largely the result of more long- haul service at SFO, compared to the other airports in the region. A review of the average fares in the top O&D markets at each of the three major airports provides a better indicator of options available to travelers. Although there are exceptions, pricing in many specific city-pair markets is generally closely aligned among the big three airports. The relatively lower average fares in several SFO markets reflects the competitive- ness of services in those markets. However, the differentials are very modest. Exhibit 6-17 summarizes passenger traffic levels and aver- age fares in the top ten city-pair markets at each of the three major airports in the region. Notable observations follow: • The top markets served at SFO include major markets in the eastern areas of the United States. Many top markets to the East enjoy nonstop services at SFO. SFO is a focal point for transcontinental flights (i.e., SFO to New York, Chicago, Boston, Washington, DC). In contrast, the top markets served at OAK and SJC are West Coast or western U.S. markets, reflecting the concentration of short- and medium-haul services that are offered by Southwest Air- lines, among other carriers, at OAK and SJC as well as SFO.

43 • Average pricing levels in West Coast and western U.S. markets are similar at the three airports, suggesting general city-pair pricing relationships that recognize the relative proximity of the three airports and the variety of air service options avail- able to air travelers in these high-volume markets. However, the services from SFO to the eastern United States (involving both nonstop and connecting services) have higher average fare levels, as would be expected with fewer service options in the region and the longer stage length. Passenger Choice Dynamics Following is a summary of key passenger choice dynamics and decision drivers that are evident in this region. Airfares Are Relatively Undifferentiated in Many Markets The level and diversity of services at the multiple airports in the region result in relatively undifferentiated pricing for air services in many city-pair markets. Major California mar- kets served with substantial capacity by multiple carriers from SFO evidence significantly lower average fares. Other- wise, with the exception of Stockton (with the Allegiant ser- vices), choice of airport by passengers does not appear to be clearly impacted by airline pricing. Surface Access to Airports in the Region Is Generally Convenient In general, ground access to SFO does not appear to have impeded the growth of passenger traffic. The shift and con- centration of air services at SFO resulted in more capacity and service options at SFO than at the other airports in the region, creating a magnet for traffic. Mass transit access and airport landside improvements at SFO (parking and rental car facility expansions) have been made in recent years. Although proximity and convenience to home or workplace is typically a positive factor in airport choice by air travelers, the experi- ence in this region indicates that extensive service offerings by multiple carriers in a competitive environment will draw travelers from anywhere in the region to the preferred air service. However, the STS experience also demonstrates that there is a point at which surface access constraints, combined with alternative air service offerings, will shift some traffic from the dominant airport to the more convenient local airport. Niche Airline Services Coexist with Large LCC Presence Notwithstanding the concentration of services at SFO, and the continued prominence of OAK and SJC for Southwest Airlines services, the viability of niche-market services at sec- ondary airports is clearly demonstrated. The Virgin America services at SFO, the Allegiant services at STK, and the Alaska Airlines services at STS demonstrate the ability of differenti- ated services to thrive in an environment dominated by larger airports and major network and low-cost carriers. Airline Choice Dynamics Air Service Shifts Driven Primarily by Consolidation and Competition During the course of the study period, shifts in air service appear to be driven primarily by airline business model con- siderations, such as economies of concentration and competi- tive response, rather than by the buying power of communities within the region. In addition, travelers in the region have Exhibit 6-17. San Francisco Bay region O&D passenger traffic and average fares in top city-pair markets (YE Q2 2012). SFO OAK SJC Destination PDEW Avg O/W Fare Destination PDEW Avg O/W Fare Dest. PDEW Avg O/W Fare LAX 2,599 $92 BUR 931 $112 LAX 870 $103 JFK 2,402 $283 LAS 880 $90 SAN 794 $118 LAS 1,615 $100 SAN 838 $108 SEA 670 $126 ORD 1,525 $196 LAX 830 $107 LAS 637 $110 SAN 1,445 $97 SEA 809 $112 SNA 628 $126 BOS 1,401 $253 SNA 581 $123 BUR 518 $111 SEA 1,283 $120 ONT 541 $107 PHX 507 $147 IAD 1,143 $265 PHX 531 $133 PDX 459 $140 DFW 980 $161 PDX 474 $133 DEN 377 $161 DEN 974 $140 SLC 402 $143 ONT 330 $103

44 demonstrated their willingness to drive to airports throughout the region for services they prefer. Strategic and Competitive Considerations in a Relatively Neutral Fare Environment The relative similarity in airfare levels for comparable air services in the region indicates that substantial competition among a diversity of airlines exists throughout the region. As a result, airport choice is not significantly driven by markedly different airfare environments at the various airports. The rev- enue profile of air services in the region is only modestly dif- ferentiated, so airline choice regarding a particular airport to serve does not appear to be driven by an expectation of signifi- cantly different revenue profiles at each airport. Rather, airport choice is driven by strategic and competitive issues. The one exception to this generality occurs at Stockton, where Allegiant provides ultra-low-cost services for the leisure market. Efficiencies of Service Concentration The efficiencies to airlines that result from economies of scale are an incentive for concentration of services at fewer airports. SFO’s long-standing status as an airline hub and international gateway provided a base of activity for United Airlines’ growth and consolidation. The initiation, growth, and concentration of services at SFO by Virgin America also indicate the power of operational concentration. SFO has undertaken the facil- ity development needed to accommodate such concentration, although airspace and airfield capacity remain a concern. Competitive Responses to ULCC Substantial Market Entry The establishment at SFO of a base of operation and growth by Virgin America has clearly been a major factor in the consolidation of services at SFO by United and the shift of a substantial share of services by Southwest and JetBlue from OAK to SFO. The emergence of competition at SFO by an airline with a distinct business model (one that seeks to com- pete with both network and low-cost carriers) has compelled competitive responses by the market-share leaders in the region. The resulting “turf war” continues, and its outcome cannot be predicted. Case Study 3: Western Carolina Passenger Choice among Multiple Small Hub Airports and a Major Hub Airport This region represents a classic case for examining passen- ger choice between a large major network airline hub and smaller airports in multiple nearby communities with vary- ing service options. Charlotte Douglas International Airport (CLT) is one of US Airways’ principal hubs and enjoys ser- vice to over 100 destinations, including several international markets. North Carolina airports in Asheville and Greens- boro, and South Carolina airports in Greenville-Spartanburg and Columbia, offer competitive alternatives for many area residents. Service at each of those airports tends to be dominated by US Airways and Delta Air Lines. The other legacy network carriers also provide nonstop services to one or more of their hubs. To the extent that the smaller airports enjoy service from LCCs, it is generally offered by Allegiant to various locations in Florida. In early 2011, Southwest Airlines commenced service at Greenville-Spartanburg. Asheville enjoyed service from AirTran for several years, but that ser- vice was dropped in early 2012 following the merger with Southwest. The region is interconnected with Interstate highways that provide good surface access to each of the region’s airports. Surface access generally is not considered to be congested, and there are no unique geographic considerations such as large bodies of water that hamper access. As a result, the choices that residents and visitors make when flying to or from the region’s several airports are most likely driven by personal calculations involving airfares, frequency, service quality, and convenience (accessibility). Overview of the Region’s Population and Economy The Western Carolina region, spanning the western borders of both North Carolina and South Carolina, has at its center the Charlotte metropolitan area, a financial and transportation hub in the U.S. Southeast. The region stretches 185 miles north to south (Greensboro to Columbia) and 170 miles from west to east (Asheville to Greensboro) as shown in Exhibit 6-18. The region’s population of more than 5.5 million has grown over the past decade at twice the U.S. national rate. Charlotte is the largest city in North Carolina and the 17th largest in the United States. With a population of roughly 1.8 million in the MSA, the city is a major financial center. On the western edge of the region is Asheville. The largest city in western North Carolina (MSA population more than 425,000) and near Great Smoky Mountains National Park, this area has a growing, affluent retirement population.3 To the north, the region is bounded by Greensboro, Winston-Salem, and High Point, North Carolina. Collectively referred to as the Piedmont-Triad, the region’s economy has 3 http://www.ashevillecvb.com/marketing-public-relations/accolades- media-praise/.

45 historically been known for furniture manufacturing, textiles, and tobacco. The combined area is home to over 1.2 million people. To the southwest in South Carolina, is the Greenville- Spartanburg area. Greenville is the largest city of the Greenville-Spartanburg-Anderson combined statistical area (CSA), which had a population of 1,266,995 at the 2010 census, making it the largest CSA in South Carolina. Green- ville’s economy, formerly based largely on textile manu- facturing, is now the North American home of BMW and Michelin, as well as several other major international firms. Finally, to the southeast is Columbia, South Carolina’s capital and largest metropolitan area (nearly 800,000). Columbia’s diverse economic base includes 31 Fortune 500 companies, and the city serves as a service center for the insurance, telecommunications, computer, and real estate industries.4 Exhibits 6-19 and 6-20 summarize the change in popu- lation, employment, and key income data for each of the MSAs in the region. The region’s population growth between 2000 and 2010 was nearly double the national average. Total employment in the region’s MSAs also grew, but not at the same rate as its population. Partly as a result, two key mea- sures of income decreased slightly. Per capita income and average household income are greater in the Charlotte area than in the other MSAs within the region. Average incomes rose over the period in Asheville, Columbia, Greenville, and Spartanburg, but declined elsewhere. Summary of Airports in the Region As shown in Exhibit 6-21, the region is dominated by Charlotte Douglas International Airport (CLT), a large hub that serves as a major international gateway for US Airways. CLT dwarfs the other airports in the region in terms of enplanements and operations. It is the 7th largest U.S. airport in terms of operation and 11th largest in passenger traffic. As of September 2012, CLT received service from nine carri- ers, and offered passengers 672 daily scheduled departures to 142 nonstop destinations.5 Exhibit 6-18. Map of the Western Carolina region. 4 http://www.city-data.com/us-cities/The-South/Columbia-Economy.html. 5 http://charmeck.org/city/charlotte/Airport/AboutCLT/Pages/Fast%20Facts. aspx. Retrieved 3 January 2012.

46 Exhibit 6-19. Change in population and employment, 2000–2010 (Western Carolina). Source: Woods & Poole. # % # % Charlotte-Gastonia-Rock Hill, NC-SC 1,339.9 1,764.3 424.4 32% 930.5 1,047.8 117.3 13% Columbia, SC 649.6 769.9 120.4 19% 421.6 451.3 29.7 7% Greensboro-High Point, NC 645.4 725.3 79.9 12% 437.5 426.0 (11.5) -3% Greenville-Mauldin-Easley, SC 561.4 638.6 77.1 14% 363.1 381.3 18.2 5% Winston-Salem, NC 423.5 478.4 54.9 13% 262.6 263.1 0.5 0% Asheville, NC 370.6 425.5 54.9 15% 215.3 235.6 20.3 9% Hickory-Lenoir-Morganton, NC 343.2 365.4 22.2 6% 221.2 190.8 (30.4) -14% Spartanburg, SC 254.4 284.7 30.3 12% 148.0 148.3 0.3 0% Subtotal 4,588.1 5,452.2 864.1 19% 2,999.8 3,144.2 144.4 5% MSA Population (000) Employment (000) 2000 2010 Change 2000 2010 Change Exhibit 6-20. Change in per capita and mean household personal income, 2000–2010 (Western Carolina). Source: Woods & Poole. # % # % Charlotte-Gastonia-Rock Hill, NC-SC 37,015 35,180 (1,835) -5% 94,728 90,908 (3,820) -4% Columbia, SC 30,799 31,775 976 3% 77,920 79,635 1,715 2% Greensboro-High Point, NC 32,235 32,141 (94) 0% 79,163 78,443 (720) -1% Greenville-Mauldin-Easley, SC 30,472 31,243 771 3% 76,108 78,318 2,210 3% Winston-Salem, NC 33,668 32,799 (869) -3% 81,870 79,972 (1,898) -2% Asheville, NC 29,957 31,278 1,321 4% 69,964 72,351 2,387 3% Hickory-Lenoir-Morganton, NC 28,679 28,018 (661) -2% 71,890 69,638 (2,252) -3% Spartanburg, SC 27,743 28,333 590 2% 70,303 72,072 1,769 3% Average 31,321 31,346 25 0% 77,743 77,667 (76) 0% MSA Per Capita Personal Income (2005 constant dollars) Mean Household Total Personal Income (2005 constant dollars) 2000 2010 Change 2000 2010 Change Exhibit 6-21. Summary of air service choices at Western Carolina’s airports. Airport Average Daily Flights Average Daily Seat Capacity Average Seats per Flight Average Fare (October 2011) (October 2011) (October 2011) (Domestic) Charlotte (CLT) 617 58,891 95 $174 Greensboro (GSO) 53 3,300 62 $166 Greenville (GSP) 51 3,568 70 $173 Columbia (CAE) 33 1,899 57 $232 Asheville (AVL) 25 1,338 54 $169

47 Passengers also are able to choose from service at four other small hub airports in the region (At each of those air- ports, service is largely dominated by Delta and US Airways): • Asheville Regional (AVL) is the smallest of the airports in terms of departures, capacity, and enplanements. It is dominated by service from Delta and US Airways. As of the fourth quarter of 2011, AVL had nonstop service to 11 locations, including Orlando (Sanford), served weekly by Allegiant.6 All of those destinations also were served at CLT. AVL is understood to leak passengers primarily to CLT, and secondarily to Greenville-Spartanburg. • Piedmont-Triad International Airport (GSO), located roughly equidistant from the downtown areas of Greens- boro, Winston-Salem, and High Point, has service from all legacy network carriers along with Allegiant. GSO had nonstop service to 15 locations, all of which also were served at CLT. Allegiant offered service to Punta Gorda and Orlando (Sanford). GSO most commonly leaks about half of its passenger traffic to Charlotte (30%) and Raleigh- Durham (20%). • Greenville-Spartanburg International Airport (GSP) is distinct from the other airports in the region, with service by Southwest that commenced in January 2011. With the arrival of service by Southwest, passenger traffic at GSP has increased significantly, and the airport has unveiled a new $115 million Terminal Improvement Program that will double the airport’s size.7 GSP has nonstop service to 22 locations. Historically, GSP most commonly has leaked passengers to Atlanta and Charlotte. • Columbia Metropolitan (CAE) is the second smallest of the airports in the region in terms of departures, capacity, and enplanements. It is dominated by service from Delta and US Airways. CAE has nonstop service to 10 locations, each of which was also served at CLT. At the end of 2011, it had no service from an LCC. CAE most commonly leaks passengers to Charlotte. Geographic and/or Surface Access Issues The region has no unusual geographic or surface access issues that impede passenger access to any of the airports. All of the metropolitan areas are linked by Interstate high- ways, and each airport is close to Interstate highways.8 As a result, no location within the region is more than approxi- mately 2 hour’s drive to CLT, making a trip to Charlotte for air service a competitive option, as shown in Exhibit 6-22. In addition, GSP also is relatively close to both AVL and CAE, increasing the competitiveness of its service offerings to trav- elers at those locations. Key Airline Choice Dynamics US Airways and Delta dominate service in the region. Each airport has nonstop service to the key hubs, CLT, and Hartsfield-Jackson Atlanta International Airport (ATL), as well as service from either airline to New York’s LaGuardia Airport. Until the merger of Northwest and Delta, several of the airports had service to both Cincinnati and Mem- phis, but in general those services have been abandoned as Delta has consolidated its operations in Atlanta. GSO retains a daily flight to Cincinnati to support specific commercial relationships between the two areas. American and United generally serve each of the airports in the region with flights to one or more of their hubs, typi- cally with regional aircraft. This provides nonstop service to those hubs for passengers originating in the region whose business or leisure demands may take them there, and for frequent flyers on those networks whose destinations are in the region. However, in the same way that the post-merger Delta has rationalized some of its service, the merged United- Continental has also realigned some of its services. In 2012, United announced that it was dropping service to Greens- boro and Asheville from Houston. Exhibit 6-22. Estimated distances and driving times (Western Carolina). Asheville, NC 15 0:17 160 2:35 125 2:08 167 2:46 78 1:20 Columbia, SC 143 2:15 7 0:13 95 1:38 191 3:14 103 1:42 Charloe, NC 112 2:03 103 1:47 8 0:14 100 1:44 92 1:37 Greensboro, NC 179 3:00 193 3:15 96 1:40 11 0:19 177 3:00 Greenville, SC 48 1:00 106 1:46 97 1:43 196 3:20 14 0:18 Miles GSO Drive me (hr:min) GSP Drive me (hr:min) Miles Miles Miles MilesDrive me (hr:min) Drive me (hr:min) Drive me (hr:min) AVL CAE CLT Source: MapQuest.com 6 Data for the number of nonstop destinations served represents actual airports served during the 4th quarter of 2011. 7 http://www.goupstate.com/article/20120719/ARTICLES/120719633. 8 None of the airports are served by local rail systems. The long-range transporta- tion plan for the Charlotte Mecklenburg area includes light rail access from the city center to CLT. See Destination: 2030—Charlotte Area Transit System. Each of the airports has ground service from taxis, limos, and local municipal buses, except for GSP and CAE, which have no scheduled bus service.

48 At the end of 2011, each airport in the region except Columbia also had service from an LCC. Columbia has had LCC service at different times since 2009 (Allegiant, Spirit, and Vision). However, none of the LCC airlines have remained in CAE over an extended time. At CLT, JetBlue and AirTran both operated multiple daily flights to several des- tinations. The other airports in the region had service from Allegiant to one or more Florida destinations. Vision Airlines also operated briefly in 2011 at AVL, CAE, and GSP. Arguably the most interesting development in the region’s air service was the commencement of services by Southwest at GSP in the first quarter of 2011, with the launch of services to Balti- more, Houston, Chicago, and Nashville. Local airports may find it difficult to influence the percep- tions that airline planners have about their area’s economy. Those perceptions directly influence the amount and type of service or capacity that airlines are willing to commit to an airport. At Asheville, for example, it has been noted that the area continues to be regarded principally as a seasonal leisure destination, despite the growing local economy and increas- ing affluence. Changes in Passenger Traffic and Service Over the past 10 years, passenger traffic has generally declined at all airports in the region, with the notable exception of Char- lotte. Traffic at CLT has grown steadily over the period and now surpasses 35 million, an increase of over 15 million (74%) since 2002. Traffic at AVL also grew steadily for a while, but then declined significantly when AirTran discontinued its service there at the beginning of 2012. Between the middle of 2005 and the first half of 2011, GSO, CAE, and GSP experienced marked decreases in traffic. Begin- ning in early 2011, however, GSP’s traffic began to rebound, due mostly to the entry of Southwest in the first quarter. Indeed, since Southwest’s entry, GSP has reported significant growth in year-over-year traffic, as shown in Exhibit 6-23. GSO’s traffic also began to improve, which is attributable to improvement in the local and national economy. Fare Competition among Airports in the Region Differences in airfares are generally considered to be the most important reason for passengers to use one airport over another. Passengers typically face the question of whether the difference in fares offered at a particular airport is great enough to influence their behavior. At what point is the price difference great enough to convince a passenger to drive to an alternative airport to save money? This is an individual pas- senger choice, dependent on the hierarchy of choice factors for that individual in the context of air service in a region. Average airfares at the region’s airports differ signifi- cantly, (by $66 one way or nearly 40%), ranging from $166 at GSO to $232 in CAE.9 Some of the difference is attribut- able to the absence of LCC service at CAE, but broad averages mask the issue that matters most to an individual traveler’s choice: fare levels in specific city-pair markets. In addition, average fare data reveal little about what may be important to business travelers: the level of fares purchased shortly before the date of travel (“walk-up fares”). Average fares in many major city-pair markets differed dramatically among airports in the region. Exhibit 6-24 sum- marizes the average fares in the largest 10 markets (in terms of passenger traffic) in the region. The exhibit also shows the percentage difference between the highest and lowest average fares. In some cases, the highest average fare was more than double the lowest average fare. Although average fares from Columbia are often higher than other airports in the region, they are often competitive with fares provided at Charlotte. For example, the average fares from CAE to Dallas-Ft. Worth and to Los Angeles Inter- national were lower than those at CLT. Also, the difference in Exhibit 6-23. Trends in passenger traffic at Western Carolina airports. 9 Fare data shown throughout the chapter are for calendar year 2011.

49 average fares between the two cities is relatively small in other markets, such as PHL, EWR, and LAS. CAE’s average fares also compare relatively well with fares offered in some markets from GSP, where Southwest Airline’s presence affects pricing in many markets. It is apparent that the fares at Columbia and Asheville, although on average higher overall, are often very competitive with fares at other airports in the region in key city-pair markets. As expected, the presence of an LCC at an airport exerts downward pressure on pricing. At GSO and GSP, Allegiant’s services to Orlando-Sanford (SFB) and St. Petersburg/ Clearwater (PIE) help check fares offered by other airlines to Orlando (MCO) and Tampa (TPA). Southwest’s service at GSP also provides price competition on routes to Baltimore, Chicago, Houston, and other locations. It is understood that, since AirTran ceased service at AVL, there has been a growing perception that fares have risen, which is causing substantial passenger leakage. Key Passenger Choice Dynamics The significant effect of new lower fares on passenger choice can be seen by examining the influence that the entry of Southwest has had on passenger traffic in the region. Effect of Entry of Southwest at GSP Southwest began service at GSP in the first quarter of 2011 with seven daily flights to five locations: Baltimore-Washington International (BWI) and MDW (double dailies) and single frequencies to BNA, HOU, and MCO. Allegiant Airlines, which had moved its Orlando service from Sanford to MCO in 2010, switched back to SFB. WN’s entry provides three daily one-stop flights to Boston Logan International Airport, Denver International Airport, and McCarran International Airport in Las Vegas. According to press reports, prior to Southwest’s entry, GSP had struggled to attract passengers, leaking about two- thirds of its local air passenger base to the major airports in Atlanta and Charlotte. It is widely agreed in the community that these losses were attributable to a lack of direct flights, airline service reductions, and air travelers seeking lower fares.10 With the new Southwest flights, the airport’s traffic has increased 43% since the start of services. The airport expe- rienced some of the “traditional Southwest effect” of traffic stimulation due to lower fares, and Southwest’s entry helped GSP stem the tide of passenger leakage to alternative airports. GSP’s September 2012 leakage study found that leakage had dropped by roughly 10 percentage points, and that the air- port was attracting new passengers from Tennessee, North Carolina, and other areas in South Carolina. Traffic to Southwest’s nonstop destinations and key beyond points jumped significantly. Exhibit 6-25 shows the change in passenger traffic and average airfares for the airports that Southwest serves nonstop from GSP, as well as in selected Southwest one-stop markets. Except for the Orlando market that was already served by Allegiant, traffic increased signifi- cantly in each one, and fares generally fell. The exhibit also includes data for traffic and fares at other airports near those served by Southwest (e.g., Houston Bush Intercontinental as a point of comparison to Houston Hobby, Chicago O’Hare as a point of comparison to Chicago Midway). Sources in the community are convinced that Southwest has stimulated the business of the airport’s other carriers. Not all of the growth in GSP’s traffic has been due solely to Southwest; traffic increased for other carriers as well. Southwest’s presence also encouraged the incumbents to adjust their prices in order to retain their valued business passengers. Southwest’s entry at GSP provided new passenger choice options for travelers that might otherwise have used AVL, CAE, and CLT. Asheville sources indicate that Southwest’s Exhibit 6-24. Average fares in selected top markets from Western Carolina airports (in current dollars). AVL CAE CLT GSO GSP Baltimore-Washington - BWI $154.96 $239.69 $141.65 $149.95 $120.97 98% Boston Logan - BOS $183.80 $219.71 $129.72 $133.00 $183.71 69% Chicago O'Hare - ORD $95.20 $232.72 $200.19 $198.73 $168.29 144% Dallas/Ft. Worth - DFW $193.01 $201.35 $219.08 $228.00 $207.82 18% Las Vegas McCarran - LAS $201.52 $229.10 $198.92 $203.20 $195.32 17% Los Angeles - LAX $213.47 $244.79 $261.24 $221.17 $220.91 22% New York LaGuardia - LGA $159.62 $160.45 $137.25 $130.10 $152.64 23% Newark Liberty - EWR $172.93 $230.01 $211.48 $195.50 $172.57 33% Orlando - MCO $110.30 $228.05 $128.23 $152.86 $119.10 107% Philadelphia - PHL $170.21 $279.61 $205.56 $162.59 $237.94 72% Origin Airport Destination % difference 10 http://www.goupstate.com/article/20120304/articles/203041019.

50 entry at GSP has had a negative effect on AVL’s traffic, although some of that effect was compounded by other shifts in operations at the airport. AVL’s Houston passenger traffic, for example, dropped by 40% between the third quarter of 2010 (before WN’s entry) to the third quarter of 2011. On the other hand, AVL has not lost much of its Chicago-bound traffic, with traffic to Chicago increasing over the period. In this respect, there appears to have been a measured com- petitive response by United, with more capacity and larger aircraft being provided in the AVL-ORD market. The data suggest that some traffic at Charlotte also may have moved to GSP; passenger traffic to Chicago, in particular, declined roughly 10% in CLT; average fares from CLT to both MDW and ORD were notably higher than those at GSP. Differences in Service Quality at Airports in the Region Travelers also tend to consider the quality of air service in weighing differences in airfares. Although there is significant subjectivity regarding how passengers assess “air service qual- ity,” the commonly accepted industry measures include non- stop flights (vs. connecting service), aircraft size, and flight frequency. Service reliability (i.e., flight cancellations) at non- hub airports also can be a major factor that contributes to passenger leakage. All of these issues are prevalent in Western Carolina. CLT, as a major network airline’s hub, offers significantly more flight options than any of the other airports in the region. CLT received service from nine carriers, and offered passengers 672 daily scheduled departures to 142 nonstop destinations.11 For the major markets in the region, CLT offers far more daily nonstop flights than any of the other airports. Exhibit 6-26 summarizes the number of daily frequencies offered at each airport. Many of the destinations served from the smaller air- ports only have service by regional jet (RJ) equipment, which for the purposes of this report, is defined as any air- craft that holds less than 100 passengers. Only the LCCs tend to use larger aircraft, with Allegiant operating 150-seat MD80-series aircraft, Southwest operating various Boeing 737s (122 to 143 seats), and AirTran previously operating Boeing 717s (117 seats). Delta also operated large main- line aircraft in its service to ATL from each of the airports except AVL. Despite the new travel options presented by Southwest at GSP, it is recognized locally that it will continue to be diffi- cult for GSP to compete against CLT for passengers based in the populated areas between Charlotte and GSP because CLT offers so many more service frequencies and nonstop destina- tions. In addition, many passengers will not want to make a short flight from GSP to CLT only to wait for an hour for a connecting flight. Those passengers will simply drive to CLT for the first segment of their flight instead. Exhibit 6-25. Change in passenger traffic and average fares in selected markets at GSP. Passenger Traffic Average Fares Destination Q3 2010 Q3 2011 % Change Q3 2010 Q3 2011 % Change BWI 1,420 18,990 1237.3% 202 118 -41.8% DCA 8,460 5,860 -30.7% 182 203 11.5% Baltimore/Washington Total 9,880 24,850 151.5% - - - HOU 500 5,860 1072.0% 297 159 -46.3% IAH 6,960 9,130 31.2% 235 197 -1630.0% Houston Total 7,460 14,990 100.9% - - - MCO 24,130 11,080 -54.1% 53 120 127.0% SFB - 14,350 - - 43 - Orlando Total 24,130 25,430 5.4% - - - MDW 710 17,710 2394.4% 208 130 -37.4% ORD 10,590 12,960 22.4% 215 166 -22.7% Chicago Total 11,300 30,670 171.4% - - - BNA 940 7,530 701.1% 284 111 -60.9% BOS 4,250 6,000 41.2% 184 171 -7.0% DEN 6,650 10,160 52.8% 229 187 -18.1% LAS 4,940 8,030 62.6% 193 196 1.2% Note: Data are for the third quarter of each year. Fares are shown in nominal dollars. 11 http://charmeck.org/city/charlotte/Airport/AboutCLT/Pages/Fast%20Facts. aspx. Retrieved 16 November 2012.

51 Florida, across Mobile Bay in Southern Alabama and into Southeast Mississippi. On its southern border is the Gulf of Mexico; to the north is primarily land in agricultural use and undeveloped woodlands. The region, shown in Exhibit 6-27, represents a market area with fragmented air traffic demand served by a series of airports that have traditionally captured their respective core markets (within a 1-hour drive from each airport), while competing for passenger traffic generated by neighboring markets. The overlapping air service catchment areas are characterized by the concentration of population cen- ters proximate to the Interstate 10 (I-10) corridor. The compe- tition for airline passengers within this region is facilitated by the general ease of access to multiple airports for passengers. In the last 5 years, the region’s air service has been impacted by major changes in the airline industry, including consoli- dation, the fluctuations in U.S. domestic air carrier capacity (primarily among legacy carriers), and hub consolidation and closure. Major changes also have occurred within the region, most notably the May 2010 opening of a new airport at Panama City (Northwest Florida Beaches International Air- port, ECP) and the arrival of new LCC services by Southwest Airlines. At Northwest Florida Regional Airport (VPS), Vision Airlines introduced its travel company product that offered customers short-haul service to multiple markets during 2011. The acquisition of AirTran by Southwest Airlines changed the focus of the long-standing AirTran service in the region at Pensacola, and brought to an end its operations at Gulfport. The dynamics of passenger choice continue to evolve as the profile of the air services offered at the region’s five airports continues to adapt to changes in the airline industry. Overview of the Region’s Population and Economy The MSAs in the region, from west to east along I-10, are Gulfport, Mobile, Pensacola, Fort Walton Beach and Pan- Exhibit 6-26. Nonstop destinations and flight frequencies from smaller airports in Western Carolina compared to Charlotte. Market AVL CAE GSO GSP CLT CLT 8 7 9 7 - ATL 8 9 9 9 20 ORD 2 3 4 3 16 LGA 1 1 6 1 15 DFW - 3 3 3 13 PHL - 3 5 3 10 EWR 2 - 4 2 13 DTW 1 1 3 3 11 IAD - 3 3 3 11 DCA - 3 3 3 11 IAH 1 1 2 2 12 BWI - - - 2 11 MIA - - 1 - 10 MCO 1 - - 1 9 CVG - - 1 1 8 CLE - - - 1 8 BNA - - - 1 8 MDW - - - 2 - HOU - - - 1 - PIE - - - 1 - Note: CLT also includes service to other destinations not served at any of the other regional airports. CLT has no nonstop service to Chicago Midway Airport (MDW), Houston Hobby Airport (HOU), or St. Petersburg/Clearwater (PIE). Exhibit 6-27. Map of the Northern Gulf Coast region. Case Study 4: Northern Gulf Coast Passenger Choice in a Multi “Small Hub Airport” Region The Northern Gulf Coast region encompasses a multi- state area (Florida, Alabama, and Mississippi) east to west of approximately 235 miles, spanning the beaches of Northwest

52 ama City. The region’s total population (see Exhibit 6-28) is over 1.77 million residents. The region’s economy (see Exhibit 6-29) is anchored by the military, health care, aero- space, defense, and tourism/hospitality sectors. To varying degrees, each of the markets in the region is primarily reliant on these sectors to drive economic activity and demand for air service. The Gulfport MSA and Biloxi MSA at the western bound- ary of the Northern Gulf Coast, are, respectively, the second and fifth largest areas in Mississippi. The main drivers of the economy in the Gulfport/Biloxi area are the gaming and tour- ism sectors, seafood industry, and the military. Keesler Air Force Base is the major public sector employer in southern Mississippi. Across the Florida/Alabama state line and west of Mobile Bay is the Mobile MSA, the second largest metropolitan area in Alabama. Mobile is Alabama’s major seaport, with an MSA population of 400,000. Mobile is also home to a diverse group of companies including Airbus North America, Thys- senKrupp Stainless Steel, Aker Solutions, Austal Limited, and Ryla, Inc. Further east on I-10, the Pensacola MSA, with a population of 450,000, is the largest metropolitan area in the Northern Gulf Coast region. Naval Air Station Pensacola, the cradle of naval aviation, is a major employer in the region. Other major employers include health care providers and financial services companies. East of Pensacola is the Fort Walton Beach-Destin MSA, the home of Eglin Air Force Base. Fort Walton Beach and the nearby beach community of Destin, Florida, are major tour- ist markets for visitors from the U.S. Southeast and Midwest. On the eastern edge of the region in Florida is the Panama City MSA, the smallest of the five markets in the region, with a population of 169,270. Its economy is anchored Exhibit 6-28. Change in population and employment, 2000–2010 (Northern Gulf Coast). # % # % Crestview-Fort Walton Beach-Destin, FL 171.2 180.7 9.5 6% 111.8 120.2 8.4 7% Gulfport-Biloxi, MS 247.0 249.7 2.6 1% 150.9 148.8 (2.1) -1% Mobile, AL 400.1 413.3 13.2 3% 217.8 228.1 10.4 5% Panama City-Lynn Haven-Panama City Beach, FL 148.4 169.3 20.9 14% 82.8 97.5 14.7 18% Pensacola-Ferry Pass- Brent, FL 413.1 450.0 36.9 9% 211.6 220.3 8.7 4% Escambia, AL 38.3 38.3 (0.0) 0% 18.9 16.9 (2.1) -11% Calhoun, FL 13.0 14.6 1.6 12% 4.3 4.7 0.4 9% Gulf, FL 14.6 15.8 1.3 9% 4.5 5.4 0.9 21% Walton, FL 40.8 55.2 14.5 36% 16.6 26.3 9.8 59% Washington, FL 21.0 24.9 3.9 18% 8.3 8.6 0.3 4% George, MS 19.3 22.7 3.4 18% 6.6 7.9 1.3 20% Jackson, MS 132.0 139.7 7.7 6% 65.5 67.9 2.4 4% Subtotal 1,658.8 1,774.2 115.4 7% 899.6 952.7 53.1 6% MSA/County Population (000) Employment (000) 2000 2010 Change 2000 2010 Change Exhibit 6-29. Change in per capita and mean household personal income, 2000–2010 (Northern Gulf Coast). # % # % Crestview-Fort Walton Beach-Destin, FL 30,589 37,732 7,143 23% 76,676 92,221 15,545 20% Gulfport-Biloxi, MS 27,181 31,800 4,619 17% 69,805 81,315 11,510 16% Mobile, AL 24,335 28,715 4,380 18% 63,625 73,859 10,234 16% Panama City-Lynn Haven-Panama City Beach, FL 26,996 32,903 5,907 22% 65,902 79,705 13,803 21% Pensacola-Ferry Pass- Brent, FL 26,718 31,989 5,271 20% 67,694 79,666 11,972 18% Escambia, AL 21,287 24,667 3,380 16% 53,356 62,303 8,947 17% Calhoun, FL 18,182 20,614 2,432 13% 47,190 53,406 6,216 13% Gulf, FL 19,052 24,003 4,951 26% 43,884 58,946 15,062 34% Walton, FL 21,325 27,944 6,619 31% 50,368 66,894 16,526 33% Washington, FL 20,046 21,632 1,586 8% 50,086 55,493 5,407 11% George, MS 21,421 24,608 3,187 15% 59,787 68,209 8,422 14% Jackson, MS 25,732 31,767 6,035 23% 70,138 84,356 14,218 20% Average 23,572 28,198 4,626 20% 59,876 71,364 11,489 19% MSA/County Per Capita Personal Income (2005 constant dollars) Mean Household Total Personal Income (2005 constant dollars) 2000 2010 Change 2000 2010 Change

53 by the hospitality industry, real estate development, and the defense sector. Tyndall Air Force Base, east of Panama City, is the home of the 325th Fighter Wing and a major employer. The St. Joe Company, the largest private landowner in Florida, is headquartered in the market. In the last decade, the market began an economic transition from timber and agriculture business to a greater reliance on tourism, the military, and the service sectors of the economy. Port Panama City offers ser- vices for general, bulk, and containerized cargo that provides the market with access to the global market. Summary of Airports Serving the Region Five commercial service airports operate in the three-state region of the Northern Gulf Coast. A key characteristic of the region is the lack of a dominant airport (medium or large hub airport within the region offering high-frequency nonstop ser- vice to multiple markets, that includes a major presence by one or more LCCs) that air travelers would likely chose over other options due to significantly greater air service offerings. Gulfport-Biloxi International Airport—Gulfport, Mississippi Gulfport-Biloxi International Airport (GPT) is the small- est commercial service airport, measured in passenger traf- fic, in the region. A regional airport authority operates the airport. Delta is the largest air carrier, followed by American, United, and US Airways. As with all other airports in the region except ECP, there is daily nonstop service to Dallas/ Fort Worth International Airport (DFW), Houston’s George Bush Intercontinental Airport (IAH), Hartsfield-Jackson Atlanta International Airport (ATL) and Charlotte Doug- las International Airport (CLT). In addition, Vision Airlines offers limited nonstop service to Tampa-St. Petersburg. Mobile Regional Airport—Mobile, Alabama The Mobile Airport Authority operates Mobile Regional Airport. American, Delta, United, and US Airways offer ser- vice to ATL, DFW, IAH, and CLT. Unlike the other four air- ports in the region, MOB has not had scheduled service from an LCC during the last 5 years. Pensacola International Airport—Pensacola, Florida PNS is the busiest airport in the region in terms of passen- ger traffic and airline capacity. The City of Pensacola operates PNS. Delta Air Lines is the largest carrier at PNS, along with a full range of legacy network carriers with nonstop service to nine destinations. AirTran, one of the region’s two LCCs, offers nonstop service to Atlanta. Northwest Florida Regional Airport— Fort Walton Beach, Florida Okaloosa County, Florida, operates VPS at Eglin Air Force Base under a joint-use agreement with the United States Air Force. American, Delta, United, and US Airways offer non- stop service to ATL, CLT, DCA, DFW, and IAH. Northwest Florida Beaches International Airport—Panama City, Florida The new Panama City airport (ECP) opened in March 2010, replacing the downtown airport (PFN). ECP is located 40 miles from I-10 and 22 miles from the center of Panama City. The airport is served by Delta Air Lines to Atlanta and Southwest Airlines to Houston Hobby, BWI, BNA, MDW, and STL, seasonally. ECP is the only airport in the region where Delta does not capture the largest share of passenger traffic or offer the greatest seat capacity. Surface Access Issues As shown in Exhibit 6-30, each of the five airports in the region is no more than a 2-hour drive from at least two other airports, and adjacent airports are within a 60- to 90-minute drive east or west. As a result of this close geographic prox- imity, the market experiences overlapping airport catchment areas. Passengers can take advantage of this ease of access to more than one airport to take advantage of nonstop services Exhibit 6-30. Estimated distances and driving times (Northern Gulf Coast). ECP VPS PNS MOB GPT City Miles Drive Time (Hr:Min) Miles Drive Time (Hr:Min) Miles Drive Time (Hr:Min) Miles Drive Time (Hr:Min) Miles Drive Time (Hr:Min) Panama City, FL 22 0:23 69 1:36 134 2:30 202 3:35 256 4:20 Valparaiso, FL 58 1:19 4 0:06 63 1:08 130 2:14 185 2:59 Pensacola, FL 124 2:10 69 1:11 6 0:12 75 1:19 130 2:04 Mobile, AL 170 2:53 116 1:55 57 1:01 12 0:23 72 1:10 Gulport, MS 243 4:00 189 3:02 130 2:08 68 1:13 4 0:07

54 not available at the airport nearest to their offices/homes, and to shop for the most advantageous airline ticket pricing. Each of the airports in the region is accessible via I-10, with GPT the nearest to I-10 (2 miles) and ECP the farthest (40 miles). In most cases, access via I-10 to each of the air- ports in the region offers air travelers the option of utilizing two or more airports for their air travel needs. Drive times between the airports vary from 70 to 92 minutes. The lack of ground access congestion,12 coupled with the LCCs such as AirTran (at PNS) selling the market as the “Pensacola/Gulf Coast” and Southwest (at ECP) selling it as the “Northwest Florida Beaches Area,” indicates the airlines’ rec- ognition that ease of movement between airports and markets can expand passenger access to LCC service options. Overlapping Catchment Areas Passenger choice in the Gulf Coast region is impacted by the presence of overlapping airport catchment areas (an air service market area with airports located within 60 to 90 min- utes of other airport(s) where customers have the choice of multiple airports in the region). Each airport in the region serves a core market area within approximately 1 hour of the airport. It is not uncommon in markets with multiple small hub airports, such as this region, for the airports to com- pete aggressively through local advertising, airline incentive packages, revenue guarantees for airlines, customer loyalty rewards programs, and partnerships with local business and government entities. Each airport in the region offers an air- line incentive package either independently or in conjunction with its community partners. Local advertising and customer loyalty programs are also offered by some of the airports to attract and retain customers from the Northern Gulf Coast. Marketing efforts are targeted to the airport’s core market area and adjacent or overlapping market areas, as in the Gulf Coast region, to the east and west of the airport. Each airport’s marketing efforts better inform customers of the air services available at each airport, and the pricing options available. Over time, customers readily recognize the benefit of considering air travel at both their local airport as well as other airports in the region. On third-party travel sites (i.e., kayak.com, priceline.com, expedia.com), the region is sold via the multiple airports in the market. These distribution channels offer the air travel consumer a range of fares at airports within the region. This choice highlights the highly competitive nature of this multi- airport market and its overlapping catchment areas. Air Service in the Region Air service at each airport has the common element of ser- vice by Delta Air Lines to its Atlanta hub. Delta’s service to Atlanta at each of the airports in the region offers the larg- est pool of nonstop seats. All airports, with the exception of Panama City, have service by AA, UA, and US to one or more hubs. At each of the airports in the region, again with the exception of Panama City, Delta captures 45% or more of the passenger traffic. Delta’s overall share of passenger traffic at the five airports is 50%, as shown in Exhibit 6-31. As shown in Exhibit 6-32, the largest carrier in the region, Delta offers each market multiple daily nonstop flights to Exhibit 6-31. Northern Gulf Coast airline domestic market shares summary (YE Q2 2011). Airport AA CO DL UA US WN FL Other Gulfport (GPT) 13.9 16.4 48.0 - 11.9 - 8.1 0.7 Mobile (MOB) 13.8 17.3 55.6 2.5 10.7 - - N/A Pensacola (PNS) 12.7 8.7 45.9 4.1 10.3 - 15.2 N/A Ft. Walton (VPS) 20.1 8.8 56.3 1.2 13.2 - - 0.4 Panama City (PFN/ECP) - - 42.3 - - 57.7 - N/A Region 12.7 8.8 50.4 2.0 10.9 6.7 6.1 2.4 Exhibit 6-32. Nonstop services offered (Northern Gulf Coast). Airport GPT MOB PNS VPS ECP IAH Yes Yes Yes Yes HOU Yes DFW Yes Yes Yes Yes IAD Yes DCA Yes Yes CLT Yes Yes Yes Yes TPA Yes MCO Yes STL Yes BWI Yes BNA Yes PIE Yes ATL Yes Yes Yes Yes Yes Note: Yes = narrowbody service. Source: OAG, Nonstop Schedules. 12 Of the top 111 metropolitan areas in the United States, only the Pensacola Ferry Pass MSA, of the five markets in the Gulf Coast region, was evaluated by the Texas Transportation Institute Urban Mobility Study. Pensacola ranked 98th of the 111 metro areas and its delay factor was in line with the overall average for small metro markets.

55 its hub in Atlanta. Prior to Delta’s acquisition of Northwest Airlines, the five airports in the region each enjoyed non- stop service to Northwest’s hub at Memphis (MEM). Delta’s 2008 acquisition of Northwest Airlines further solidified its position in the region. Delta expanded its frequent flyer customer base and, in 2012, consolidated its services in the region to ATL. Each of the five airports in the region has different service levels. Delta Air Lines offers mainline service with narrow body equipment (i.e., B737, MD-80 series, or comparable). United/ Continental, American, and US Airways each served the air- ports in the region with small and large regional jets. AirTran’s service at PNS to ATL since 2001 has been offered with B717 aircraft, with seasonal up-gauging to B737 aircraft. Southwest Airlines operates an all-B737 fleet on its services at ECP. Delta’s mainline service offerings at each airport, including first-class cabin and, more frequency/seat capacity, combined with the strength of its domestic and international network at ATL, are powerful competitive tools. The pattern of air service by the major legacy carriers at the five airports in the region has been relatively stable since 2007. The Delta/Northwest merger and consolidation in 2008 resulted in the loss of nonstop services that had been pro- vided by Northwest Airlines. Until May 2010, Pensacola International Airport was the only airport in the region with a consistent pattern of sched- uled low-cost-carrier service. At PNS, AirTran Airways (now wholly owned by Southwest) has offered nonstop service to Atlanta since 2001. At the opening of ECP in May 2010, a second major low-cost-carrier option became available to passengers in the region, with Southwest Airlines service to four nonstop markets year round and one seasonally. Overall annual scheduled airline capacity in the Northern Gulf Coast region measured in available seat miles (ASMs) was up 3.8% from 2007 (5,620,994 ASMs) to 2011 (5,835,733 ASMs). Airfares The pattern of air service in the region, predominantly offered by legacy network carriers, has a direct impact on the passenger’s choice of airline ticket pricing. Traditionally, the region’s average fares are higher than average U.S. fares. The regional market has not benefited from the presence of a large LCC at any of its airports. Easy access to a medium or large hub airport with a major LCC presence is also not present. A large LCC presence13 in a regional market or at a nearby easily accessible medium-sized or larger hub airport can provide effective competition and airfare discipline to the market. As indicated in Exhibit 6-33, average fares have trended down at ECP as service has been offered by South- west, due to market stimulation. However, this downward fare trend at ECP has not translated into broadly lower fares at other airports in the region. The overall capacity being offered by Southwest Airlines at ECP does not offer the region’s air travelers a level of low-cost service options that would bring about competitive response from legacy net- work carriers at nearby airports. In addition, the location of ECP at the eastern end of the region limits its potential impact on service and fares at other airports in the region that are much farther to the west. For the period ending in the 2nd quarter of 2012, the average fares at ECP remained 13 Adequate LCC seat departures relative to the overall market size. The presence of Southwest Airlines at ECP and AirTran at PNS and during part of the period from 2007-2011 at GPT offered customers lower air fares, but not a level of LCC capacity to drive down fares overall in the region. Exhibit 6-33. Northern Gulf Coast average domestic airfares (YE Q2 2002–YE Q2 2011).

56 above the U.S. average of $174. The ECP average fare, slightly above the U.S. average, was the lowest in the region at $176, followed by PNS at $194, VPS at $216, GPT at $220, and MOB at $235. It is widely accepted that price is generally the primary driver of passenger choice among air travel providers. In a multi-airport market such as the Northern Gulf Coast, com- prised of five non-hub and small hub airports, traffic demand will respond to airline pricing. Exhibit 6-34 shows the impact of new services and the airline pricing structure at ECP, with a substantial increase in traffic levels. For the year ending December 31, 2011, ECP traffic increased 232% compared to the historic traffic levels for the last full calendar year (2009) of operation at (now closed) PFN. Airports with LCC service experienced increased passen- ger traffic as follows: • Increases in traffic occurred at GPT in 2008, 2009, and again in 2010. • At VPS, the entry of low-cost service by Vision Airlines had a positive impact on overall traffic levels in 2011. Ser- vice was introduced in December 2010, targeting inbound travel to the Gulf Coast at VPS. In March 2011, Vision added 15 nonstop destinations from VPS. Vision’s service peaked with 22 markets in the summer of 2011, but by the fall of 2011, the service was discontinued. • AirTran’s service from PNS to Atlanta has contributed to the growth in traffic there. Also, during this period, Ameri- can Airlines added service from PNS to Miami (MIA). • The most dramatic impact on traffic levels can be seen at ECP, where Southwest Airlines began service in May 2010. Along with Southwest Airlines, Delta’s competitive response at ECP helped drive increased passenger demand. Passenger Choice Dynamics The region’s airports have competed vigorously over the past 5 years to retain and attract new airline services. Three of the airports (along with their respective local partners) suc- ceeded in attracting new or returning LCC services during this period. Passenger choices in the market (see Exhibit 6-35) were impacted by these efforts, and, reciprocally, those passen- ger choice impacts played a role in demonstrating the viability of these services. However, the sustainability of each airline ser- vice will ultimately be largely determined by the combination of underlying demand for the air service, and the compatibility of the market and airport choices made by each airline in the context of its business model. Vision Airlines at VPS—In December 2010, Vision Air- lines began seasonal service between VPS and Niagara Falls. As part of an overall business strategy to expand its service offerings to include scheduled service, Vision then announced the launch of nonstop service at VPS to 15 pre- dominantly short-haul markets in the East and Midwest as of March 2011. The Vision service was designed to stimulate demand in markets that did not have nonstop service to any of the airports in the region. Vision’s services were offered on Exhibit 6-34. Northern Gulf Coast onboard passenger trends.

57 a less-than-daily basis in many of the markets in the region. Vision’s service at VPS was strongly encouraged and support- ed by the airport operator, the local tourism board, and eco- nomic development organizations. At its peak during 2011, Vision offered service to 22 markets from VPS with a mix of mainline jet (B737) and regional turbo prop (Dornier 328) aircraft. Vision ceased offering service at VPS in April 2012, in conjunction with its announcement to cease all schedule operation and return its focus to the charter market. AirTran at GPT—AirTran offered nonstop services in 2007 and 2008 from GPT to ATL, TPA, and FLL. The services were withdrawn at the beginning of 2009 following the expi- ration of an agreement with local casino operators. In Janu- ary 2010, AirTran returned to GPT under a block space agree- ment with local casinos to provide service (three flights per week) to Atlanta and Tampa. The service was discontinued in March 2011, following the expiration of the agreement with the local casinos and the announcement of the acquisition of AirTran by Southwest Airlines. Southwest Airlines at ECP—In May 2010, Panama City opened a new airport, at a capital cost of $330 million. The new airport (Northwest Florida Beaches International Air- port or ECP) is the first entirely new commercial service air- port in the United States designed and constructed in the last 11 years. The airport’s inaugural flight was operated by Southwest Airlines, offering its first service to the Northern Gulf Coast region. The service from Southwest Airlines at ECP was secured by an agreement between Southwest Air- lines and the St. Joe Company, a major landowner in North- west Florida. The agreement provided a revenue guarantee to Southwest Airlines in exchange for a commitment to a minimum level of service. Other public and private entities in the Panama City area supplemented this commitment.14 The agreement with Southwest Airlines resulted in the availability of new lower fares in the eastern Florida panhandle, as well as more nonstop options and service on mainline equipment. At ECP, the Southwest Airlines’ service initially provided nonstop service in four markets: BWI, BNA, HOU, and MCO. Subsequently, Southwest added seasonal nonstop service to STL (in 2011), and ceased service to MCO. The entry of Southwest Airlines, and the competitive response of Delta Air Lines, has resulted in ECP traffic growth of nearly 200% dur- ing the period 2009–2011. Airline Choice Dynamics Airline Consolidation Impacts on Air Service Quality Small hub markets with easily accessible and nearby com- petitive airports are understood to have experienced significant impacts on service levels and passenger choice, in large part due to airline industry consolidation. In the past 10 years (2002 to 2012), the U.S. airline industry has experienced widespread mergers and failures. In the Northern Gulf Coast region these mergers have resulted in decreased inter-hub competition and a general decrease in air carrier capacity in the region.15 Prior to the Delta/Northwest merger, each airport in the region enjoyed service by Northwest Airlines to Memphis. As Exhibit 6-35. Northern Gulf Coast onboard traffic and capacity (2007–2011). Data source: U.S. Department of Transportation, T-100 database, 2007 to 2011. Total Onboard Passengers Airport 2007 2008 2009 2010 2011 Percentage Change 2007 - 2011 Percentage Change 2009 - 2011 ECP/PFN 318,914 321,929 300,785 649,989 900,534 182.38% 199.39% GPT 879,548 884,388 655,855 706,075 660,639 -24.89% 0.73% MOB 605,363 569,498 556,959 548,567 572,671 -5.40% 2.82% PNS 1,647,213 1,487,320 1,315,750 1,445,855 1,487,795 -9.68% 13.08% VPS 756,181 742,558 745,391 694,389 843,551 11.55% 13.17% Regional Total 4,207,219 4,005,693 3,574,740 4,044,875 4,465,190 6.13% 24.91% Total Onboard Seats Airport 2007 2008 2009 2010 2011 Percentage Change 2007 - 2011 Percentage Change 2009 - 2011 ECP/PFN 465,503 488,052 381,640 937,979 1,270,693 172.97% 232.96% GPT 1,154,766 1,253,586 871,629 933,362 856,263 -25.85% -1.76% MOB 851,356 857,040 827,359 784,724 783,605 -7.96% -5.29% PNS 2,121,492 1,935,556 1,709,035 1,861,152 1,838,840 -13.32% 7.60% VPS 1,027,877 1,108,503 989,588 963,586 1,086,332 5.69% 9.78% Regional Total 5,620,994 5,642,737 4,779,251 5,480,803 5,835,733 3.82% 22.11% 14 “Strategic Alliance Agreement For Air Service between Southwest Airlines Co. and St. Joe.” St. Joe Company, United States Securities and Exchange Commis- sion, 8-K filing, October 21, 2009. Agreement terminated July 2, 2012. 15 See “Northern Gulf Coast On-Board Traffic and Capacity 2007 to 2011.”

58 of July 2012, no airport in the region had service to Memphis. Delta’s realignment of its overall domestic system, including its Memphis hub, caused the region to lose nonstop service to Memphis. The United and Continental merger resulted in an increase in service from the combined airline. Continental Airlines used to offer nonstop service to Houston (IAH) from GPT, MOB, PNS,16 and VPS. Prior to the merger, United only served the region with PNS service to Washington, D.C. (IAD). The United/Continental combination enabled the carrier to lever- age its combined systems to offer a greater range of services to the Northern Gulf Coast market. At the time of this writ- ing, United offers nonstop service at PNS to IAD, IAH, and seasonally to ORD. MOB service by United will be expanded to include nonstop service to ORD in April 2013. These expanded options for travelers in the region are expected to provide greater inter-hub competition and resulting expanded passenger choice. LCC Services Involving Community Incentives The mix of LCC services (i.e., scheduled or charter opera- tions) at the region’s airports has evolved during the period 2007 to 2012, as follows: • AirTran Airways at GPT—2008, 2009, 2010; • Vision Airlines at GPT—2012; • AirTran Airways at PNS—from November 2001; • Vision Airlines at VPS—2010, 2011; and • Southwest Airlines at ECP—from May 2010. A common aspect of community efforts to attract these services was a risk-mitigation (incentive) package offered by the airport operator and/or its regional partners. In each case, the carrier decided to institute service following agree- ment on the risk-mitigation package. Most notably, the offer of a risk-mitigation package was instrumental in convinc- ing Southwest Airlines to initiate service for the first time at ECP, which was one of the first “small” stations (i.e., less than 10 departures per day) opened by the airline. Case Study 5: Central Wisconsin Smaller Airports with Similar Air Services Compete with Hub Airports on the Region’s Periphery Central Wisconsin is served with six airports in Green Bay, Appleton, Steven Point/Wausau, La Crosse, Eau Claire, and Rhinelander. Not far to the south, in the more heavily popu- lated portion of the state, are the large metropolitan areas of Madison and Milwaukee, both of which have airports that are significantly larger than any other airports in the state. To the west, just across Wisconsin’s border with Minnesota, is the Delta hub at Minneapolis-St. Paul. As is often the case with small airports, there are relatively few nonstop service options available for travelers. Such flights are typically to network carrier hubs, where flights from spoke airports can connect to outbound flights across the network. The choice that passengers from small airports make then generally is simplified to choosing among differ- ent hubs over which they prefer to connect. The competing airports may all be served by the same carriers operating over the same hubs. Slightly larger airports may have service from additional carriers operating over different hubs. Another dimension in Wisconsin is the presence of a ULCC operating at one airport that is relatively centrally located, which draws passengers from throughout the region for leisure destina- tions in Florida and the Southwest. To the extent that fares are comparable, passenger choice becomes focused on service differences and convenience, espe- cially flight frequencies and times (which can depend on hub connections), ease of access to the airport, and aircraft type. In northern Central Wisconsin, however, passengers find that lower fares (and more flight options) are available at Milwau- kee, and are often choosing to drive there to use that service. Overview Shown in Exhibit 6-36, this region encompasses several airports throughout central and northern Wisconsin. The area ranges approximately 200 miles east to west and roughly 250 miles north to south and includes several relatively small population centers. Central Wisconsin includes several relatively small MSAs, many of which are contiguous. These include the Green Bay MSA (population 306,241), Appleton MSA (popula- tion 225,666), Oshkosh-Neenah MSA (population 167,100), Fond du Lac MSA (population 101,665), Wausau MSA (population 134,063), and Eau Claire MSA (population 161,151). The La Crosse MSA, on the western edge of the region, has a population of 133,896. The six-county region surrounding the airport at Rhinelander does not consti- tute an MSA; the population in that entire area is less than 130,000. The Fond du Lac MSA area lies between Appleton and Milwaukee. On the southern edge of the region are the state’s two larg- est urban areas, the regions surrounding Madison (includ- ing the Janesville area, population 792,258) and Milwaukee (including the Sheboygan and Racine areas, population 1,868,226). These are the dominant economic areas of the state. See Exhibits 6-37 and 6-38 for population/employment and income summaries. 16 Gulfstream, now Silver Airways, displayed the CO and UA code on its PNS- TPA and MCO services.

59 Exhibit 6-36. Map of Central Wisconsin. Exhibit 6-37. Summary of population and employment (Wisconsin). # % # % Appleton, WI 202.6 226.0 23.3 12% 131.9 146.3 14.3 11% Eau Claire, WI 148.7 161.4 12.8 9% 99.6 103.2 3.6 4% Fond Du Lac, WI 97.4 101.7 4.3 4% 60.7 57.1 (3.6) -6% Green Bay, WI 283.3 306.7 23.4 8% 195.7 202.4 6.6 3% Madison, WI 503.7 569.9 66.2 13% 387.1 425.9 38.8 10% Milwaukee-Waukesha-West Allis, WI 1,502.4 1,557.2 54.8 4% 1,002.4 966.3 (36.1) -4% Oshkosh-Neenah, WI 157.1 167.1 10.0 6% 106.1 107.9 1.8 2% Sheboygan, WI 112.7 115.5 2.7 2% 75.8 73.8 (2.0) -3% Wausau, WI 126.0 134.1 8.1 6% 84.7 85.6 0.9 1% Subtotal 3,133.9 3,339.6 205.7 7% 2,144.1 2,168.4 24.3 1% MSA Population (000) Employment (000) 2000 2010 Change 2000 2010 Change Source: Woods & Poole. Exhibit 6-38. Summary of key income statistics (Wisconsin). Source: Woods & Poole. # % # % Appleton, WI 32,945 33,932 987 3% 86,645 85,793 (852) -1% Eau Claire, WI 29,357 31,625 2,268 8% 73,480 76,840 3,360 5% Fond Du Lac, WI 31,533 32,776 1,243 4% 80,054 79,534 (520) -1% Green Bay, WI 32,724 34,326 1,602 5% 82,796 84,537 1,741 2% Madison, WI 37,380 40,517 3,137 8% 89,752 95,603 5,851 7% Milwaukee-Waukesha-West Allis, WI 37,027 39,466 2,439 7% 92,786 97,022 4,236 5% Oshkosh-Neenah, WI 31,817 34,105 2,288 7% 78,020 80,593 2,573 3% Sheboygan, WI 32,666 34,700 2,034 6% 82,252 84,586 2,334 3% Wausau, WI 30,960 32,797 1,837 6% 80,699 81,863 1,164 1% Average 32,934 34,916 1,982 6% 82,943 85,152 2,210 3% MSA Per Capita Personal Income (2005 constant dollars) Mean Household Total Personal Income (2005 constant dollars) 2000 2010 Change 2000 2010 Change

60 Exhibit 6-39. Air service summary (Central Wisconsin). Note: Enplanements are from CY 2011. Airlines, average daily departures and nonstop destinations are from September 2012. United has announced that it will discontinue its CLE-GRB service. Airport 2011 Enplanements Carriers Avg. Daily Departures Non-stop Destinations Destinations Green Bay 352,157 AA, DL, UA 18.7 4 CLE, DTW, MSP, ORD Appleton 222,795 DL, G4, UA 14.6 6 ATL, AZA, DTW, LAS, MSP, ORD Central Wisconsin 135,965 AA, DL, UA 9.4 3 DTW, MSP, ORD La Crosse 102,958 AA, DL 8.1 3 DTW, MSP, ORD Rhinelander 26,764 F9 1.6 1 MKE Eau Claire 19,097 UA 2 1 ORD Milwaukee 4,671,976 AA, AC, DL, FL, F9, UA, US, WN 120.2 34 See note below Summary of Airports in the Region Six commercial airports are included in this region as shown in Exhibit 6-39. In descending order of passenger vol- ume, these are as follows: • Austin Straubel International Airport (GRB) at Green Bay receives service from American, Delta, and United. Begin- ning in October 2012, it started to receive service from a new tour operator to Orlando. Frontier formerly served GRB, but discontinued service in November 2011. • Appleton—Outagamie County Regional Airport (ATW) has service from Delta Air Lines (MSP, ATL, and DTW) and United (ORD). ATW is the only airport in the region with service from an LCC; it is the “regional home” of Alle- giant Airlines. • Central Wisconsin Airport (CWA) is a regional airport located roughly equidistant between Stevens Point and Wausau. It is currently served by three airlines: Delta, United, and American. • The La Crosse Municipal Airport (LSE) offers nonstop air- line service by American Airlines and Delta Air Lines. • Rhinelander/Oneida County Airport (RHI) has EAS- subsidized service to Milwaukee, which is currently provided by Frontier. The airport serves the northeastern section of the state. • Chippewa Valley Regional Airport (EAU), located outside of Eau Claire, has two EAS-subsidized daily nonstops on United Express to Chicago O’Hare. Travelers in the region also have service options available at the much larger airports at Madison and Milwaukee. Those in the western half of the state also have service available at Minneapolis-St. Paul International Airport. • Madison and south-central Wisconsin is served by Dane County Regional Airport (MSN). In September 2012, MSN had nonstop service from four airlines—American, Delta, Frontier, and United—to 12 different airports. • Milwaukee General Mitchell International Airport (MKE), the largest airport in the state, has service from eight air- lines, including all of the major legacy network airlines, Frontier (which operates a hub at the airport), Southwest, and Air Canada. As of September 11, 2012, MKE had non- stop service to 34 airports. • Minneapolis-St. Paul International Airport (MSP). One of Delta’s largest hubs, MSP served 33 million passengers and accommodated 436,506 landings and takeoffs in 2011. MSP is the 12th busiest airfield in the United States. In July 2012, airlines at MSP operated scheduled non- stop services to 138 U.S. cities, 8 Canadian cities, and 3 European cities. Geographic and/or Surface Access Issues All of the metropolitan areas are connected by a network of U.S. and state highways. Traffic congestion is not a con- sideration, given the rural nature of the region. Three of the region’s airports are very close to one another. Green Bay and Appleton are within 30 minutes of each other, and CWA is roughly 90 minutes from both GRB and ATW. Each of these airports is conveniently located adjacent to major highways. Distance and drive time are shown in Exhibit 6-40. For passengers going to or from the Eau Claire area, CWA and LSE are within relatively short drives, as is MSP. Each is less than 2 hours’ drive. Passengers in the Eau Claire area tend to leak to MSP rather than other Wisconsin airports. Rhinelander is more geographically isolated. Despite that, it is understood that passengers from that area leak to the air- port in Milwaukee and to other airports in the region. Fare Competition among Airports in the Region Between Appleton and Green Bay, where passengers gen- erally have more flight options compared with the other smaller north-central airports, average airfares have tended

61 to be generally competitive. Fare differentials in many mar- kets were often around $10. Average fares to Las Vegas from ATW were certainly influenced by Allegiant’s presence in the market. Average fares available at ATW and GRB are generally less than those at both CWA and LSE. However, passengers also may consider travelling via Milwaukee or Madison, both of which generally offer more flight options at lower average fares. In each of the 10 markets examined, average fares from Milwaukee were less expen- sive than those at both Appleton and Green Bay. In 7 of the 10 markets, average fares were less than those at both ATW and GRB. For example, the average fare from ATW to DEN is $63 greater than that at MKE, and $86 greater to ATL. Simi- larly, compared to the average fare to Phoenix from CWA, the average fare offered from MKE was $65 cheaper. Exhibit 6-41 summarizes the average fares in the top pas- senger markets for the smaller airports in northern and cen- tral Wisconsin and compares them to the average fares from Milwaukee. The column labeled “% difference” shows the dif- ference in average airfares between MKE and the highest fare available at other Wisconsin airports. As a result of these fare differentials and the LCC options available at MKE, it is widely recognized that each of the air- ports tend to leak passengers to Milwaukee. This includes leisure and business travelers. Because of their price sensitiv- ity, leisure passengers—particularly if they are traveling as a family to a destination in Florida or the Southwest—are will- ing to drive several hours to reduce their travel cost. Business passengers are not indifferent to airfares, and may drive to MKE, especially if they are able to use a nonstop at a lower fare than is otherwise available at one of the smaller airports in the region. For leisure passengers traveling to leisure destinations, ATW’s nonstop service from Allegiant to Phoenix or Florida offers a clear alternative to the other airports’ connecting options via network airlines. ATW draws leisure passengers from throughout the northern parts of the state, and as far away as the Upper Peninsula of Michigan, for this service. Exhibit 6-40. Distance and driving time between airports (Central Wisconsin). ATW CWA EAU GRB LSE RHI MKE City Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Miles Drive Time (Hr: Min) Appleton, WI 5 0:08 90 1:35 196 3:23 29 0:36 170 2:23 158 2:46 114 2:01 Mosinee, WI 89 1:33 2 0:04 99 1:50 100 1:43 156 2:49 71 1:15 182 3:11 Eau Claire, WI 199 3:21 112 1:53 5 0:11 193 3:15 86 1:50 155 2:39 252 4:13 Green Bay, WI 35 0:41 100 1:44 189 3:16 8 0:15 201 3:55 152 2:38 127 2:13 La Crosse, WI 171 3:22 156 2:48 90 1:53 199 3:51 7 0:15 224 3:58 216 3:29 Rhinelander, WI 159 2:45 72 1:17 153 2:40 153 2:39 226 4:02 4 0:08 252 4:23 Milwaukee, WI 107 1:52 175 3:02 250 4:10 118 2:01 209 3:31 243 4:12 9 0:16 Exhibit 6-41. Average fares in top markets compared to fares available at MSN or MKE. Origin Airport Destination ATW GRB CWA LSE MKE % Difference LAS $141 $185 $205 $220 $140 -36% DEN $180 $164 - $187 $117 -37% ATL $217 $226 - $255 $131 -49% DFW $203 $191 $217 $227 $150 -34% PHX $181 $177 $201 $208 $136 -35% MCO $159 $169 $192 $211 $129 -39% LAX $227 $220 - $272 $159 -42% ORD $99 $121 $171 $107 $66 -61% DTW $257 $230 - - $166 -36% LGA $179 $174 - - $110 -38% Note: Average fare data were not available at EAU or RHI because of data limitations—each had less than 5 Passengers Daily Each Way (PDEW) in each market. Similarly, average fares are not shown from CWA for markets with less than 5 PDEW.

62 Passenger Choice Dynamics Similar Levels of Air Service at Each of the Airports in the Region The airports in Central Wisconsin are similar in terms of the limited number of nonstop destinations served, but dif- fer somewhat in terms of the number and capacity of daily flights. Only ATW offers flights to ATL, which draws pas- sengers from throughout the region for the convenience of nonstop service and the extensive connections available at ATL to destinations not available via DTW or MSP. Other- wise, passengers flying out of Central Wisconsin can choose among three options for connections to their destinations. For example, passengers flying to Portland, Oregon, can choose to connect at Chicago O’Hare on American or United or to con- nect at Detroit or Minneapolis on Delta. This decision may be based on convenience to the nearest airport, frequent flyer affiliations, or flight frequencies. Exhibit 6-42 shows that Green Bay offers the greatest num- ber of daily flight frequencies, and passengers may opt for the flexibility offered there. DL uses larger regional jets in its oper- ations to GRB and ATW compared to other airports in the region, so passengers with a strong preference for business- class seating may use one of those two airports. The two airports in the region that are served by EAS-sub- sidized flights—Eau Claire and Rhinelander—face particular challenges in attracting and retaining passengers. They are served by only one carrier to one destination: EAU has service on United Express to ORD, and RHI has service on Frontier to MKE. Limited Fare Options and Hub-Access Opportunities The biggest challenge at these airports involves relatively high fares and limited connecting opportunities. Both EAU and RHI urge local passengers to check the service and fare options available at the local airport before assuming that the best travel option requires a long drive to another air- port. However, both airports also have confronted issues with passengers’ affinity for a particular airline’s frequent flyer program. EAU’s service had formerly been provided by Mesaba to MSP. After Mesaba discontinued that service, the Department of Transportation awarded it to United Express. It is understood that some travelers who had frequent flyer benefits from Northwest/Delta are now driving to MSP for service on DL rather than switching to United’s program. At RHI, EAS service transitions to Delta in January 2013. Local expectations are that enplanements will increase after the transition because passengers will have better connecting opportunities and frequent flyer program affiliations. Airports Compete for Traffic by Offering Amenities The smaller airports compete with one another by provid- ing various amenities to passengers. LSE, for example, adver- tises its “close, convenient and low-priced parking, modern and comfortable terminal facilities, hassle-free security lines, and—most importantly—friendly people.” GRB launched a “FlyGRB” marketing initiative in 2012 aimed at local business and leisure passengers. ATW offers a loyalty award program that allows travelers to earn points redeemable for free parking and prizes. For all passengers, ATW provides free Wi-Fi, and touts its “shorter security lines and comfortable surround- ings.” CWA says that passengers “ . . . won’t have to drive for hours, put up with big-city traffic, deal with congested drop- off areas, pay outrageous parking fees and taxi fares, or wait in long lines at airline check-in counters and security points” and it markets “Fly CWA First.” Each airport tries to remind its travelers that the local airport is close to home—something that matters after a long trip. Air Service Reliability Concerns In general, local concerns about losing passengers because of unreliable service are not evident. However, the flight times are often frustrating to business travelers. Often, the Exhibit 6-42. Average daily flights and available seats from Wisconsin airports to key hubs. Notes: Average daily flights rounded to nearest whole number. Rhinelander only has flights to MKE. Daily Schedule of Flights and Seats ATL DTW MSP ORD Airport Flights Seats Flights Seats Flights Seats Flights Seats Green Bay - - 5 302 4 288 8 389 Appleton 2 128 3 185 3 173 5 268 Central Wisconsin - - 2 97 3 140 5 226 La Crosse - - 1 42 3 142 4 194 Eau Claire - - - - - - 2 100 Rhinelander - - - - - - - - Milwaukee 11 1,462 5 477 9 1,228 12 575

63 first flights out and last flights back are ill-timed for same- day, round-trip travel. Concerns also are expressed about schedule completion with the last flight back to the airport, which, if a sufficiently regular occurrence, results in business travelers avoiding the local airport and driving to the hub to ensure that they would not be marooned at the hub on their return trip. Airline Choice Dynamics Spoke-to-Hub Services at Smaller Airports Fit the Legacy Carrier Business Models Each of the smaller airports in Wisconsin is a spoke to one or more hubs in airline networks. Except for the two EAS air- ports (EAU and RHI), which are only served by one carrier, the airports have service from at least two network carriers. Delta is the dominant carrier at ATW, CWA, GRB, and LSE. Both Delta and United serve all of the airports to their hubs in Chicago, Detroit, and Minneapolis. ATW is the one smaller airport with service to Atlanta. American operates to Chicago from CWA, GRB, and LSE. Among the legacy network airlines, only US Airways does not offer service at any of the smaller airports in the region (except via codeshare with United). Milwaukee is fundamentally different from the other air- ports in the region. MKE had previously served as a hub for Midwest Express, which was taken over by Republic (Fron- tier) in 2010. In early 2004, Midwest Express operated to 45 destinations. By the fall of 2010, the number of destina- tions served by Frontier at MKE had fallen to 33. In 2011, the parent company of Frontier, Republic Airways Holdings, announced that it was eliminating the hub service at MKE, and has since dropped the number of nonstop destinations served to four. Historically, MKE also had considerable service from other LCCs. AirTran’s operations grew from 5 destinations in 2004 to 23 in mid 2011. And as Frontier’s operations have declined, Southwest’s presence at MKE has grown. Southwest launched service at MKE in early 2010 with service to 6 locations, and has expanded at the end of 2012 to a total of 15. ULCC Can Serve the Region from One Airport Outside of MKE, there is limited service from LCCs in the region. Allegiant effectively serves the entire region through its operations at Appleton. Appleton’s relatively central loca- tion within the more heavily populated area in the eastern central region of the state enables Allegiant extensive market access in the region. Allegiant provides year-round service to Las Vegas and seasonal service to Florida. It added service to Phoenix-Mesa in early 2012.