Air Transportation Liaison Committee Update WYDOT AERONAUTICS DIVISION AIR SERVICE ENHANCEMENT PROGRAM (ASEP) SEPTEMBER 9 TH, 2 0 1 5 Overview Wyoming air service overview. State and federal funds expended during FY2015 for air service. Individual project overview for FY2015. ASEP budget forecast through FY2018. Wyoming Air Service Overview In 2014, Wyoming commercial airports served a record 1.1 million passengers. Notable improvements: Casper - Natrona County International (CPR), Cody - Yellowstone Regional (COD), Laramie - Laramie Regional (LAR), and Jackson Hole (JAC) all saw record passenger numbers for 2014. Regional Jet service was introduced in February 2015 for Gillette – Campbell County Airport (GCC), Laramie Regional Airport (LAR), and Rock Springs – Sweetwater County Airport (RKS) resulting in better reliability and increased ridership. Wyoming Air Service Overview However, that success has not been shared by all of Wyoming's commercial airports. Sheridan County Airport (SHR) lost all commercial air service April 1st, 2015 when Great Lakes Airlines terminated service. Cheyenne Regional Airport (CYS), Riverton Regional Airport (RIW), and SHR all fell below the 10,000 enplanement threshold in 2014, a requirement to qualify for $1 million in Federal Airport Improvement Funding (AIP). Projected airline capacity out of Wyoming through the end of 2015 is expected to be at a 10 year low. Roughly half of all Wyoming passengers still opt for out of state airports for their air service needs. Wyoming Air Service Overview 2014 proved to be a record year for the major airlines in North America, generating almost $8 billion dollars in profit. However, recent industry regulation changes and trends make it difficult to retain or grow air service for several commercial airports in Wyoming served by regional airlines. Pilot staffing shortages. Operational cost increases. Capacity discipline. Aircraft retirements. Pilot Shortage Qualified pilot shortages continue to present challenges to regional airline staffing. FAR 117 forced an increase in pilot staffing requirements that cost the airline industry an estimated $200 million dollars. 1,500 hour co-pilot hiring rule roughly adds $100,000 and several years to the process of becoming an airline pilot. This rule has in effect siphoned off the number of available and qualified co-pilots for the regional airline industry to draw from. Mandatory 14,000 pilot retirements through 2022 will continue to draw from the regional airlines. At the same time, the number of student pilots continues to decline. A four-year degree with the associated training required for an ATP license can exceed $200,000. Pilot Shortage Compounding the pilot shortage is the issue of pay at the regional airline level. Before the 1,500 hour rule went into effect, new pilots were generally hired by regional carriers after obtaining their pilot license and graduating from a two or four year college program. These pilots were then able to gain valuable flight time and airline experience in order to obtain their ATP license while earning an entry level wage. Pilots do not go to regional carriers for a flight career; rather they go there to gain experience in order to move to mainline carriers which offer substantially higher pay. The experience they once gained at a regional carrier is now a hiring requirement which in many cases forces them to pay for their own flight time to reach the 1,500 hour minimum. Capacity Purchase Agreements (CPA) with major airlines exacerbate the pay issue with these contracts traditionally going to the lowest bidder. Pilot Shortage According to Bryan Bedford, CEO of Republic Airways Holdings Inc., “Regional airlines used to hire pilots with 500 hours and give them on-the-job-training. Now, to achieve 1,500 hours, would-be airline pilots must "tow banners, crop dust, hoist sky divers, run freight at night, to try to build time in single-piston airplanes," he said. "That is not exactly the experience that is going to be relevant in the commercial-airline world, but it is essentially what we're asking them to do." Operational Challenges Commercial aircraft operating with 50 or fewer seats decreased more than 40% over the past 5 years. Commercial aircraft with 50 or fewer seats are no longer being manufactured. With operational and maintenance costs escalating, these airframes continue to be retired. Cost reduction and fleet streamlining, or a reduction in the number of operated aircraft types, are trending at the regional airlines. In June of 2015 SkyWest discontinued flying all Brasilia 30 seat aircraft citing “overall efficiency and long-term profitability” and in part “in response to increased costs and additional challenges associated with new FAR 117 flight and duty rules implemented January 2014.” Operational Challenges The pilot shortage adds pressure to these already economically challenged aircraft. Fewer pilots are better utilized operating larger aircraft with higher profitability margins. As the costs of maintaining, crewing, and operating these aircraft increase, more carriers opt to park these airplanes. Currently 8 out 10 Wyoming commercial airports operate, or will operate, daily service exclusively utilizing aircraft with 50 seats or less. In the future, these communities will have to support aircraft with 66 seats or more, or face losing air service all together. Capacity Discipline Airlines today are not growing capacity (down 17% since 2004). Industry wide mergers over the last decade have led to just 6 airlines making up over 90% of the domestic market in 2014. Top Domestic Airlines 2004 2014 American 17% American 24% Delta 16% Delta 20% United 14% United 19% Southwest 11% Southwest 18% Northwest 8% JetBlue 5% Continental 8% Alaska 5% US Airways 7% Other 9% America West 4% Alaska 3% JetBlue 3% Other 9% Capacity Discipline US Domestic Airline Capacity 1,000,000,000 950,000,000 900,000,000 850,000,000 800,000,000 Annual Seats Annual 750,000,000 700,000,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 While capacity has leveled off over the past few years, airlines continue to practice discipline in any growth. This has created fuller flights, and intense competition among airports and communities across the nation for both increased capacity levels and new market service. Air Service Challenges What this means for Wyoming. Home state airline Great Lakes continues to struggle with reliability due to lack of available pilots. SHR lost commercial air service effective April 1st, 2015. SHR, RIW, and CYS all fell below the 10,000 enplanement mark in 2014 required to collect 1M dollars annually in Airport Improvement (AIP) funding from the federal government, and all three will fall below that mark again in 2015. Finding new service in our communities that are struggling has proven challenging. Some carriers have expressed interest in serving several of our communities, however a shortage of crew resources continues to be the road block to implementing any new service. Economic Impacts of Air Service Why does it matter? Aeronautics Division “2013 Wyoming Airports Economic Impact Study.” Total annual Economic impacts for all commercial airline functions in Wyoming totaled more than $1B. This study included on-airport (administration, tenants, and capital investment) and off-airport impacts (visitor spending). A total loss of commercial service, or inadequate service could have a potentially devastating effect to those local economies and the state as a whole. This study does not include economic development losses due to inadequate air service. Future Air Service Solutions Dedicated fleet of aircraft in Wyoming Through an agreement with an airline, several aircraft would serve most of our Wyoming airports exclusively. The airline would be responsible for operations, such as crew staffing, aircraft maintenance, and fuel expenses. The community and state manage the commercial aspects, such as pricing, schedules, and marketing. This concept gives Wyoming control over their own investment. Currently we have to rely on the airlines to monitor pricing, scheduling, and reliability needs in Wyoming. This gives Wyoming control over these revenue generating areas. Aeronautics Commission recently approved service in SHR with Key Lime Air; this new project reflects the concept on a smaller scale. If successful, this service has potential to grow to other communities in need of adequate air service in WY such as RIW. What Are We Doing? The Air Service Development Program continues to actively seek solutions to, and mitigate the effects of, challenges facing small community air service. Support efforts to allow carriers who operate aircraft with 30 seats or less through an exemption from that would allow them to hire co- pilots under Part 135 rules. Support Senator Enzi's bill allowing our airports with 10,000 or more enplanements in 2012 to keep their AIP funding through 2017. Serve on the Air Service Committee for the National Association of State Aviation Officials (NASAO) to advocate for the air service needs of rural states. Engage current and potential air service providers for solutions. Educate stakeholders on the challenges facing commercial air service in Wyoming. Air Service Funding Expended FY2015 State funding – Air Service Enhancement Program (ASEP). Created by the legislature in 2004 to support and enhance commercial air service throughout the state. As of June 30, 2015 the ASEP expended a total of 26.9 million dollars in state funding since the program’s inception in 2004. During FY2015 a total of 2.8 million dollars was granted to four communities seeking to enter into Minimum Revenue Guarantees (MRG) with an airline for commercial air service. Air Service Funding Expended FY2015 Federal grant funding - Essential Air Service (EAS) Federal subsidy, paid directly to the airlines, is used to provide air service in 163 rural communities across the country. As of February 2012 only those communities participating in the program between 9/2010 – 9/2011 remained eligible for the program; no new communities can participate.