PORT OF SEATTLE
MEMORANDUM
COMMISSION AGENDA
Item No.
6b
Date of Meeting
September 27, 2011
DATE: September 26, 2011
TO: Tay Yoshitani, Chief Executive Officer
FROM: Michael Ehl, Director Aviation Operations
Kazue Ishiwata, Air Services Development Manager
SUBJECT: Revised Incentive Program for New Commercial Air Service for Seattle-Tacoma
International Airport
ACTION REQUESTED:
Request Commission authorization for the Chief Executive Officer to implement a revised
incentive program for new commercial air service for Seattle-Tacoma International Airport
(Airport) to include a proposed new category of services (Category A) for extra-long-haul
international operations.
SYNOPSIS:
The purpose of this action is to enhance the Airport’s incentive program for international air
services specifically for longer distance with higher operating costs on the part of the airlines,
with the goal of increasing our chance of attracting the type of services that are also projected to
bring a higher amount of revenue to the Aviation Division, as well as the economic benefit to
both the local community and region.
The previously authorized incentive program has proven to be an effective tool in final
inducement in the carriers’ decision-making process. However, we have encountered a higher
hurdle to pass when it comes to certain markets with longer distance, as carriers cite a
significantly increased risk involved due to the high cost such of extended-range aircraft, as well
as additional crew and fuel.
The proposed modification would increase our opportunity to attain some of the more
challenging but valuable routes by presenting better risk mitigation to the carrier.
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
September 26, 2011
Page 2 of 3
PROGRAM COMPARISON OF CURRENT PROGRAM VS. PROPOSED PROGRAM:
Proposed Servie Category:
Service Category
Description
NEW Category A
International nonstop air service of 6,000 miles and longer to an
unserved new city
Category B (was A)
International nonstop air service of 4,000 miles to less than 6,000 miles
to an unserved new city
Category C (was B)
International nonstop air service of 2,000 miles to less than 4,000 miles
to an unserved new city
Category D (was C)
New competitive international nonstop air service of 4,000 miles and
longer on an existing route
Category E (was D)
Small community air service for unserved destinations in Washington,
Oregon and/or Idaho
Part II Incentive: Temporary waivers of landing fee and terminal facility charge
International Arrivals
Facility Fee Waiver
Common Use Aircraft
Gate and Lobby Fees
Year 1
Year 2
Year 1
Year 2
Year 1
Year 2
New Category A
100%
100%
100%
100%
N/A
N/A
Category B
100%
75%
75%
75%
N/A
N/A
Category C
75%
N/A
75%
N/A
N/A
N/A
Category D
N/A
N/A
N/A
N/A
N/A
N/A
Category E
100%
100%
N/A
N/A
100%
100%
Part III Incentive: Joint Marketing Program
Service Category
Usage Timeline
New Category A
2 years, not to exceed 3 budget years
Category B
2 years, not to exceed 3 budget years
Category C
2 years, not to exceed 3 budget years
Category D
1 year, not to exceed 2 budget years
Category E
N/A
Notes: The eligibility of the categories remain the same except for one element. Only for the
proposed new Category A, we would require a minimum of five scheduled round trips each week
(as opposed to the three weekly in the previously authorized program) in order to maximize our
return on investment and assure a higher level of revenue. If the carrier does not meet the
eligibility fully, the benefit to the carrier would be limited to the lower-tier program’s level. The
COMMISSION AGENDA
Tay Yoshitani, Chief Executive Officer
September 26, 2011
Page 3 of 3
Federal Aviation Administration (FAA) does not allow an incentive program to be categorized
by aircraft size or seats, while it is permitted by the regional or distance differentiation.
FINANCIAL IMPLICATIONS:
Below is an example of a fee waiver structure based on a B777-300ER example, at 75% load
factor for 350 seats, under the newly proposed category, compared to the previously authorized
maximum benefit for the same service:
Airport Charges
Standard Annual
Cost to Airlines
Waived %
Waived Amount
Estimate Cost
Paid by Airlines
Landing Fee
$ 579,613
100%
$ 579,613
$ 0
Gate/Lobby
$ 483,260
-
-
$ 483,260
International Arrival
Facility Charge (per
passenger)
$ 395,499
100%
$395,499
$ 0
International Arrival
Facility Charge
(fixed charge)
$ 40,030
-
-
$ 40,030
Ramp Tower Fee
$ 2,387
-
-
$ 2,387
Baggage Make-Up
$ 123,918
-
-
$ 123,918
PFC Revenue
$ 431,978
-
-
$ 431,978
Total for Year One
(excluding ticket
counters and office
space rental)
$ 2,056,685
$ 975,112
$ 1,081,573
Total for Two Years
$ 4,113,370
$ 1,950,224
$ 2,163,146
Total for Two Years
under the previously
authorized program
$ 4,113,370
100%/ 75%
waiver
$ 1,607,572
$ 2,505798
Notes: In addition to the above, a new entrant carrier normally requires ticket counter space (at
approximately $53,000 annually for six counter positions for three hours at 2011 rate of $8.05
per position), as well as office rental revenue (at approximately $100,000 annually for 450 sq
feet office). Additional revenues from the indirect revenue in parking and concession are also
expected but are not included here.
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS:
June 28, 2011 – The Commission approved a revised incentive program consistent with
recently-published Federal Aviation Administration guidelines.