Title
Air Service Incentive Program (Ordinance S-50660)
Description
Request to authorize the City Manager, or his designee, to approve a new 2024-28 Air Service Incentive Program for Phoenix Sky Harbor International Airport (Program). The maximum amount being requested to support new international nonstop flights will be up to $5 million per incentive contract and this amount will include airport fee waivers and marketing fund reimbursements. The amount per destination is prorated based on distance, frequency, and location. Further request authorization for the City Controller to disburse all monies related to this item.
Report
Summary
International flights result in a $3.4 billion economic impact to the Greater Phoenix region each year. Obtaining new nonstop international air service is extremely competitive. Aircraft are scarce and movable assets that may be placed between any two destinations in the world. Airlines choose new service routes based on several factors including passenger demand, competitive environment, and the revenue opportunity in relation to the route operational expenses. Incentives for airport fee waivers help reduce the significant operational costs an airline incurs when starting new international service. Marketing funds also assist to promote the new service and support its continued success.
It is an industry-wide and federally-approved practice for airports to support new air service through the implementation of an incentive program that reduces an airline's financial risk during the critical route start-up period. When faced with a choice between where to place new service, airline incentive programs make the business case stronger for an airport.
On Dec. 7, 2023, the Federal Aviation Administration (FAA) released new guidelines for airport air service incentive programs. The program for Phoenix Sky Harbor International Airport has been revised to comply with the new guidelines.
Contract Term
The Program will be effective on or about April 10, 2024 through April 10, 2028. The terms of individual incentive contracts under the approved Program will range between one and three years as provided by the FAA's guidance.
Concurrence/Previous Council Action
The Phoenix Aviation Advisory Board recommended approval of this item on the Feb. 15, 2024, by a vote of 7-0.
The Transportation, Infrastructure and Planning Subcommittee recommended approval of this item on Feb. 21, 2024, by a vote of 4-0.
Financial Impact
The maximum amount being requested for supporting each new international nonstop route will not exceed $5 million per incentive contract. This amount includes airport fee waivers and marketing reimbursement funds. The amount per destination is then prorated based on distance, frequency, and location. Funds are available in the Aviation Department budget to support the program.
Location
Phoenix Sky Harbor International Airport, 2485 E. Buckeye Road
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and the Aviation Department.