RTA and CBMR prepare to negotiate airline contracts

Debate sparks fear over future of transportation

The Gunnison Valley RTA and Crested Butte Mountain Resort (CBMR) are preparing to renegotiate annual contracts with the airlines serving the Gunnison-Crested Butte Regional Airport. Budget crunches and the potential for rising airline guarantees—payments made to airlines when revenue guarantees are not met—are raising concerns about the sustainability of air transportation funding.

And that’s sparking fear among local businesses, worried that airlines will fly fewer tourists to Crested Butte next winter. Some are even asking if the Valley can continue to fund the airline program without gutting ground transportation.
According to RTA executive director Scott Truex, “We are not really at risk of losing one to the other. I am very confident we will have both next winter, but what’s not determined is what shape they will have.”
Local business owners from up valley and down showed up at the RTA’s Friday, March 11 board meeting to urge the board to do what it can to keep airline service at current levels as they find the balance between ground and air transportation.
“We’ve been enjoying a small uptick in business this season,” said Shaun Hartigan, proprietor of The Last Steep in Crested Butte. “Its scary to think about the possibility next season of less people coming in. [The tourist] experience in Crested Butte is still good—everyone loves this place. Their only beef is how hard it is to get here, and to get out of here. To hear flights might be decreased is nerve-wracking.”
Business owners like Hartigan intuitively know what a 2008 Colorado Department of Transportation study confirmed: the Gunnison Airport boosts the local economy. As CBMR director of Crested Butte Vacations Jeff Moffet reminded the board, the study demonstrated that $55 million in payroll indirectly or directly extend from the airport and into the Gunnison Valley economy.
But the economic benefits of the airline program come at a cost. In exchange for regular service, the RTA and CBMR guarantee airlines a minimum level of revenue. When that minimum isn’t met, the organizations pay a minimum revenue guarantee (MRG)—but that fee doesn’t always cover an airline’s losses, according to RTA board chair Jonathan Houck.
“It’s a formula. Oftentimes the guarantee doesn’t cover the actual loss,” Houck said. “So the guarantee might be $500,000 but the airline might lose $800,000.” That leaves the airline with a $300,000 loss.
The challenge comes when the loss to the airlines grows beyond a couple of hundred thousand dollars—as started to happen dramatically in 2008-2009. According to Kent Myers, airline consultant to the RTA, the air program significantly increased the number of seats coming into Gunnison just as the economy took its turn for the worst. It was the perfect storm that no one saw coming, and the airlines serving the airport lost over $3 million in revenue, leaving the RTA and CBMR to pay a MRG cap of $1.4 million. The airline losses have decreased since then, but they have continued. Last year, the partners paid a guarantee of $1.25 million, and this year they will pay a total guarantee of $1,190,000.
As airline caps go up, finding the funding becomes a challenge, according to Houck. “If we pay the full caps this year and the airline raises caps next year, then we have to come up with more money to maintain the same level of service. You accept that you pay some caps and guarantees as you grow the program, but [the goal is to] get the program to a point where you fly in enough people that the airline is making money. You pay less caps and use that money to go after another market.”
That has yet to materialize for the RTA, and if the program reaches a point where it can’t come up with funding for the full guarantees, that could mean reducing airline capacity. That’s when local businesses get nervous—including CBMR, RTA’s air program partner. CBMR has assumed a larger role in financing the air program since decreases in tax revenue have hurt the RTA’s budget, contributing $800,000 to this year’s budget compared to $325,000 paid by the RTA. According to CBMR, that’s money that could be put toward marketing the airfare.
“On behalf of the ski area, there is a lot of burden on our program right now,” CBMR chief operations officer Ken Stone said at Friday’s board meeting. “We’d like to see the money put into [transportation] put elsewhere… We are watching a decline because people can’t get here when they want to.”
RTA board member Bill Nesbitt asked for more detail: “Is there any way to establish how many seats we are missing?”
“There are days we are under-performing, and days we don’t have enough seats,” CBMR vice president of sales and marketing Daren Cole replied. “We have 70 to 75 percent capacity at hotels, but no more availability at the airport.”
But adding more airline seats isn’t as simple as cherry-picking the best dates to add more seats, airline consultant Meyers told the board.
“If you want to switch from a [smaller plane] to a 757 for a two-hour segment, the airline has to find a segment on the same timeframe, and take that aircraft and put it on our segment. Then they have a [smaller plane] that needs to go somewhere else. They have substantially reduced their inventory, so it is very, very limited,” Meyers said. In addition, he argued, airlines move those planes to the locations that will make the most money. “Say the airline has a flight. It can send it to Gunnison or Aspen. Which one do you choose?”
For CMBR, the choice is simple: fund the air program.
“We’re subsidizing $47 per passenger to fly them in here… [The question is,] what’s the ROI [Return on Investment] for funding the bus? What’s the ROI on air service? [At CBMR] we run some of our services on a deficit because it helps us have an amenity that helps us offer other services. This can’t be an emotional decision based on whether we want bus or air. What’s the impact to everyone in this community? That’s the way we’re running the ski area right now.”
The idea of scrapping ground transportation didn’t sit well with the board, whose mission includes the provision of ground transportation as long as it’s financially feasible.
“Going back to 2005, we’re partners, and partners share in good and bad,” Nesbitt addressed CMBR. “But the fact is that the RTA has paid over $3 million and CBMR has paid [just over a million]. I don’t like hearing we’re the bad guys, or that we need to start printing out money… I’m sensing us versus them, and I don’t like that. If we’re going to gut the transportation system, then we need to tell voters that… We may need to go back to the ballot.“
 “I don’t see this as adversarial,” Moffet said. “We’ve touched on the schedule and that it’s the glue that keeps us coming together. We’re not going to cherry-pick just to get this weekend and that weekend. But there are opportunities [to increase seats].”
Board chair Houck kept the group on track before tension could escalate, reminding the board that they are elected to represent the public and a ballot measure might not be required, before steering the group toward the end of the meeting. He invited any final comments before the RTA and CMBR entered an executive session to negotiate next year’s partnership.
Gunnison attorney Mike Dawson, who was part of the Economic Development Committee that established the air program, urged the board to remember the origins of the transportation program.
“One of few accomplishments [of the EDC] was getting the air program going,” said Dawson. “One of the biggest economic drivers we can create is airplanes coming in here. Buses were always an afterthought. They were, ‘If we can grow this program, we will have buses.’ And we did that, and that was a great accomplishment. But we came into this knowing we would always pay those guarantees. It’s three times the return on investment. This is not about amenities, this is about economics.”
But both the RTA and CMBR are careful to state that neither group is advocating for the end of ground transportation, acknowledging that the service has already been reduced as far as it can be and still qualify for operating grants from the Colorado Department of Transportation.
“It’s not an either-or,” board chair Houck said after the meeting. “Everyone understands that both ground and air transportation are critical to the community. No one is suggesting that either one should stay or go. It’s just a balancing act, and right now we have pretty minimal revenues for both.”
 “The solution as we see it, and I think we are all in agreement after the executive session, is that we need to optimize our flight schedule as much as possible,” said Moffet. “Shed a few seats on days that had more than enough [capacity] and find more seats on peak arrival days and holiday time periods.”
It’s a balancing act being addressed throughout Colorado, as communities like Steamboat Springs, which is in the process of trying to establish an RTA, see similar trends in airline service. The RTA will continue to meet publicly in the coming weeks with the goal of negotiating airline service by April or May, when airlines post winter flights for sale.