Title
International Air Service Incentive Program
Description
Request the City Council approve the Phoenix Sky Harbor International Airport air service marketing incentives program in order to provide additional, and more attractive, options to airlines to serve the Phoenix market to international destinations.
Report
Summary
The Phoenix Airport System supports nearly $30 billion in economic impact. Each new route results in additional jobs and income to the community. In fact, international nonstop flights alone account for over $3 billion in annual economic impact.
Obtaining new routes to serve the customers of Phoenix Sky Harbor International Airport is competitive. Airlines are increasingly selective on which markets they choose to operate international air service. Airlines choose markets that provide the greatest revenue opportunity based on aircraft availability and the high cost of operating international routes. In the route selection process Phoenix competes not only with other cities in the United States (U.S.), but with cities worldwide. The decision to serve a new market represents a significant investment and financial risk to the carrier.
It has become an industry practice for airports to partner with airlines by reducing an airline's financial risk during the important start-up period through an incentive program. When faced with a choice on where to place new service, airline incentive programs can help influence the airline decision-making process.
The proposed international air service incentive program will be open to all airlines including existing carriers serving Phoenix Sky Harbor International Airport and new market entrants. Airlines that begin service to designated unserved or underserved markets during the program period will be eligible for incentives.
The updated, proposed 3-year program (July 1, 2017- June 30, 2020) includes the following additional terms for international flights:
* Increasing marketing funds to North and Central America from $500,000 to $750,000.
* Considering South America an “overseas” market due to the distance.
* Increasing overseas marketing funds from $1.5 million to $2 million to promote the flight.
* Allowing for fee waivers to assist with airport start-up costs.
* Instituting a “net new” credit to incent international airlines to increase total passengers up to $2 million.
* Provide the Director of Aviation Services the authority to negotiate the program terms directly with airlines, within the City Council approved budget, in order to secure additional service.
* All spending within this program to support any specific airline must first be approved by City Council on a case-by-case basis.
Target cities include, but are not limited to Montreal, Monterrey, Tokyo, Beijing, Shanghai, Frankfurt, Paris, Rome and Sao Paolo. This list will vary as conditions change and will be kept up to date at all times. One of the most critical aspects of this program is that no money is spent unless an airline actually flies to Phoenix. Funds are only spent in order to support an airline that has committed to a qualifying route. A year may go by with no airline starting new service or using the incentives, while the next year several airlines may utilize the incentives.
Program Term
3-year program offering: July 1, 2017- June 30, 2020.
Financial Impact
Funds are available in the Aviation Department's fiscal year 2017-2020 operating budget to support this international air service development program.
Concurrence/Previous Council Action
This item was presented and discussed at the Phoenix Aviation Advisory Board (PAAB) and the PAAB's Business Development Subcommittee recommended approval.
Location
Phoenix Sky Harbor International Airport is located at 3400 E. Sky Harbor Blvd.
Department
Responsible Department
This item is submitted by Deputy City Manager Paul Blue and the Aviation Department.