Telluride air program hits up RTA for airline funds

Asks for up to $150,000 from Gunnison Valley

In an airline game that’s continually stacked against regional ski-community airports, Telluride and Montrose think they’ve found a way to change the game and they are asking Gunnison County to play.

After a year of negotiations, local officials are launching a partnership with a new, low-cost carrier that will fly into the Montrose Regional Airport from San Francisco and Phoenix. It will be the first time a low-cost carrier has served the region, and they’re making an argument that it could benefit Crested Butte.
At the latest meeting of the Gunnison Valley Rural Transportation Authority (RTA), organizers of the new air service asked for financial support from within the Gunnison Valley. Having initially reached out to Crested Butte Mountain Resort (CBMR), at the resort’s request Scott Stewart, director of the Telluride Montrose Regional Air Organization, and Mike Martelon, president and CEO of the Telluride Tourism Board, outlined the program to the RTA.
“This is an effort to… pool regional resources to the mutual benefit of everyone involved. That’s the spirit with which we’re coming forth,” Stewart said.
The men did not name the carrier, citing contractual obligations, but did say that it is a travel company specializing in low-cost, direct airline service that averages a 90 percent load factor. The airline is looking to establish direct flights from San Francisco and Phoenix to Montrose, though it would fly from outlying airports rather than the major, international airports.
Stewart believes that’s a potential 9,500-plus winter passengers arriving into Montrose, and he’s estimated an 11 percent cut, or approximately 1,000 seats, for the Gunnison Crested Butte market. Historically about 4 percent of Montrose arrivals end up in Crested Butte.
Stewart calculated that each arriving guest would spend an average of $1,100 (CBMR routinely estimates that arriving guests spend an average of $1,300) and collectively contribute more than $3 million per year to the Gunnison Valley economy. He and Martelon envision a partnership where CBMR has a significant branding presence, possibly alternating advertising between the two resorts.
“It will ultimately be co-branded…” said Martelon. “There may be a way that we can do alternating creative so that Crested Butte is the only one for one particular ad and then Telluride comes up next. I want to have Crested Butte have some on its own [marketing] and some marketing that would be a co-op message with both resorts.”
He and Stewart cited a number of additional advantages: Gunnison and Crested Butte would get to take advantage of an aircraft that can’t fly into the Gunnison airport due to the altitude; the arrival of a low-cost carrier could create incentives for major carriers to reduce the price of flights into the Gunnison/Crested Butte airport; and regional partnership could give Telluride and Crested Butte a leg up in competing against larger resorts like Vail.
“The other thing that low fares do is create a new market… Historically you can look at wherever they’ve gone and all of a sudden enplanements have gone up,” Stewart added.
A minimum of $650,000 is being sought to cover revenue guarantees and marketing, although the ultimate goal is to raise as much as $1 million. By kicking in $150,000, Stewart said, Gunnison and Crested Butte could be part of the launch. CBMR general manager Ethan Mueller liked the idea that CBMR would have its own branding presence, but wanted some reassurance the airline felt confident it could hit such high load factors when the ski industry averages around 60 percent.
“That’s their system average and they’re feeling confident they can do that into Montrose and Telluride, but are they in any ski markets now in the west?” Mueller asked.
Stewart said the contract was days from being signed, which indicated the airline’s confidence. He added that the airline does fly from Phoenix to Bozeman, which includes the ski industry but doesn’t rely solely on ski tourism, so it was difficult to give an apples-to-apples comparison.
RTA airline consultant Kent Myers liked the concept but had some cautions for board members. “The concept is sound. Over the last 10 years, from 1999 to 2009, the number of passengers across the country who shifted to low-cost carriers went from 10 percent to 30 percent. That’s a 300 percent increase in market shares,” he said. He added that the Montrose airport is the only airport in the Colorado mountains that can offer this service because low-cost carriers don’t have the fleet to fly into high-altitude airports.
But Myers added that a similar service into Myrtle Beach last year had to drop two of its markets because the flight did not do well enough. While the airline flying into Montrose would have better name recognition and serves larger airports, he cautioned the RTA that a lot of marketing dollars were spent to promote that program. He also pointed out that the new service wouldn’t fly out of international airports; the Phoenix Mesa Gateway airport, for example, is 45 minutes from Phoenix International Airport.
“I am caught in-between here. I would endorse this program if I knew more details about it, but on the other side of it there is inherent risk with this thing and I want that clearly understood,” Myers said.
What wasn’t clearly understood, however, was the next step for the RTA. In order to participate in the launch, a decision to contribute would have to be made within a week, and in order to participate at all a decision would have to be made within a month or two. Stewart was clear that he and Martelon did not expect the entire contribution to come from the RTA, and statutorily the RTA cannot give more than $45,000. Seventy percent of that $150,000 would be earmarked for marketing, and Truex reminded the board that the RTA can contribute money only to airline revenue guarantees.
Commissioner Paula Swenson pointed out that cash flow would not be available until July or August of 2013. “One of the things we’ve been pushing for is not to borrow money from Peter to pay Paul for our program. We just went out and begged, borrowed and stole money,” said Swenson, referring to $89,000 in contributions raised from the municipalities and most recently, Western Colorado State University.
“No,” said board member Bill Nesbitt. “We begged and borrowed, but we didn’t steal.”
“Look at the percentage we’re asked to pay for. We’re looking at an 11 percent return and being asked to put in about 24 percent. That might be a sticking point—maybe we don’t get in on the ground level,” Swenson added.
“They didn’t full-on say this but the sense I got was if we don’t go in this year, I don’t know if we get the option next year,” Mueller cautioned, saying he liked the equal footing the resort would have for marketing and partnerships among smaller resorts were becoming an important strategy to stay competitive.
“We would definitely entertain partnering on this if others came forward, if the RTA comes with $45,000. Quite frankly, when I first heard of this idea I didn’t even think about going out to the community because of the $89,000 factor we all just went through, but are there not other opportunities? Could the Tourism Association participate?” he said.
“I can’t give you an answer in a week’s time,” said Swenson, who is on the Local Marketing District board that allocates funds to the TA. “If this came to us six weeks ago, eight weeks ago, not now… I can’t even begin to take it to a board in a week.”
Truex cautioned the board that giving money to an air program in another county would be a game changer for the RTA, something it had never done before. As the group started to spin over what its next step should be and whether staff should further analyze the request, Crested Butte Mayor Aaron Huckstep said, “We’re not telling Scott [Truex] do this; we’re saying go analyze it. None of us can take this information and decide today. We at a minimum can have informal conversations with our boards,” he said.
“They have shared their sense of urgency, now [staff] will get back to us whether we have a sense of urgency,” said Gunnison Mayor Jonathan Houck.
In the end, the board directed staff to further analyze the request, which came just minutes after the RTA passed a fiscal policy “to have a year-end unrestricted fund balance of at least $400,000 or 40 percent of annual sales tax revenues (whichever is greater) at the end of each calendar year.”