Airline revenue guarantees jump to $5.7 million
Arriving airline seats up 4 percent for 2016-17 ski season
Airline program managers say for the 2016-17 ski season, Yampa Valley Regional Airport will see approximately 121,600 arriving seats, representing an increase of 4 percent, or 4,700 seats, over the 2015-16 ski season. Those numbers are approximate pending the details of some non-contracted flights.
Steamboat Springs — Steamboat Ski and Resort Corp. Airline Program Director Janet Fischer said July 15 the amount of minimum revenues required by the airlines to secure 2016-17 ski season air service to Yampa Valley Regional Airport will increase by $1 million from the previous winter’s $4.7 million.
But Fischer also told members of the Local Marketing District Board, who oversee the airline program, she anticipates the final bill will come in beneath those minimum revenue guarantees of $5.7 million as it did following the 2015-16 ski season.
What matters most is the final tab, and the airline program finished last winter owing the airlines $2 million against the $4.7 million cap.
“We are forecasting to come in under caps for the coming winter based on (anticipated) load factors, average fares (or yield) and fuel costs,” Fischer said. “What we pay goes up and down with fuel prices.”
Every spring and summer, Ski Corp. airline officials, consulting with the LMD board, explore the possibility of flights from new cities and on new airlines, but they also renew contracts on existing routes with Alaska, United, Delta and American Airlines. The terms are subject to changing market conditions.
The amount of the minimum revenue guarantee attached to each route reflects the airlines’ calculation of the financial risk they are taking on to operate that flight, Fischer said.
Some of Fischer’s optimism about coming in under the new caps next spring can likely be attributed to the fiscal performance of the 2015-16 winter flight program. The final bill owed the airlines was less than half of the maximum cap on revenue guarantees.
She said Ski Corp., as required, contributed the first $1.1 million to the $2 million owed, and the balance of $900,000 came from sales tax revenues. None of the monies were taken from existing reserves or the accommodation tax that goes into the airline fund.
Based in part on the favorable gap between revenue caps and the final cost of last winter’s flight program, city of Steamboat Springs Finance Director Kim Weber told LMD Board members she projects they can expect to carry a reserve fund of $7.2 million into the new year.
Fischer said the factors behind the increased revenue guarantees required by the airlines include how profitable they are right now and a factor referred to as “opportunity cost,” which implies that the airlines might be able to charge more for seats if the plane was flying a route that attracts more business travelers, for instance, than leisure travelers.
“The opportunity cost (means that) the airlines may have a more profitable place to put that plane than (Yampa Valley Regional Airport),” Fischer said. “That’s happening a lot right now. The airlines are very successful.”
And there are other factors in the jump in the minimum revenue guarantees for the coming winter.
Fischer said the success of the airline program in contracting for twice weekly ski season flights into the Yampa Valley from San Diego on Alaska Airlines accounts for some of the increase in minimum revenue guarantees.
Another factor pushing revenue guarantees higher, Fischer said, is a switch to aircraft with more seating capacity on several routes.
United Airlines will upgrade Saturday flights from Chicago from a 70-passenger CR7 aircraft to a 166-passenger 737-800. Capacity on weekend United flights to Yampa Valley Regional Airport from Newark, New Jersey, will increase from 150 to 166 seats, and the weekend Washington-Dulles flight will go from 128 to 150 seats.
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