TO: HONORABLE MAYOR FROM: John Aitken
AND CITY COUNCIL
SUBJECT: PROPOSED ADDITIONS TO DATE: September 29, 2022
AIR SERVICE SUPPORT PROGRAM
Approved Date
10/12/22
RECOMMENDATION
Adopt a resolution revising the Airport Air Service Support Program to provide additional benefits for domestic and international new entrant carriers that have not previously served our airport with scheduled commercial flights, including fee waivers for ticket counters and boarding gates, and additional marketing funds on a case-by-case basis with City Council’s approval for airlines that meet the program’s threshold requirements, and repeal Resolution No. 79885.
OUTCOME
City Council approval of this recommendation will allow eligible airlines that will be offering scheduled commercial flights for the first time at Norman Y. Mineta San José International Airport (SJC or Airport) to qualify for additional New Entrant fee waivers and increased marketing funds for promoting their new brand. By including waivers for ticket counters and boarding gates for a defined 12-month period and additional marketing funds above levels in the current program, the Airport will be better positioned to compete with other airports that are aggressively seeking new service from a variety of new entrant airlines.
For airlines already serving SJC and those that have provided flights in the past, the Airport’s existing Air Service Support Program already provides benefits in the form of landing fee waivers and dedicated marketing funds for all carriers meeting the requirements of the program.
BACKGROUND
The Airport is a strategic asset for achieving the City’s economic development goals. Air service provides an essential link to support and sustain Silicon Valley’s quality of life by moving people and products between San José and both domestic and global destinations. Gaining better access to national and international markets and technology centers has long been a priority of COUNCIL AGENDA: 10/25/22
FILE: 22-1567
ITEM: 5.1
HONORABLE MAYOR AND CITY COUNCIL
September 29, 2022
Subject: Proposed Additions to Air Service Support Program
the region’s businesses. Community and business leaders and air travelers have clearly expressed their strong desire to the Airport for improved access between San José and key domestic and international cities.
The Airport continues to maintain a formal Air Service Support Program that has continued to evolve since its introduction in 2006. The SJC program, similar to those that are widely used across the industry, remains consistent with the Federal Aviation Administration’s (FAA) policies, and is designed to offer limited-time support for the expansion of commercial airline service. The Mayor and City Council have been consistently and unanimously supportive of this program, having seen the net positive revenue and economic impact benefits of new service that helped achieve SJC’s record setting pace over the last several years prior to the Covid-19 pandemic.
Today, however, the pandemic impact is rapidly changing the landscape for commercial airline service around the globe. Airlines have experienced staggering financial losses, thousands of jobs have been shed despite the federal Coronavirus Aid, Relief, and Economic Security Act funding, and the timeline for travel recovery continues to unfold. For these reasons, the Airport continues to take a strong approach to communicate our partnership commitment to the commercial airlines that have served the domestic and international travel needs of our community while reaching out to newly emerging airlines that offer new choices for business and leisure travel.
ANALYSIS
To remain competitive with other airports, Airport staff recommends maintaining our existing Air Service Support Program while increasing the incentive benefits available to commercial airlines that have not previously served SJC. Staff further recommends the proposed additional fee waivers be limited to a 12-month period. Eligibility for existing benefits or newly added benefits will continue to require an airline to meet the program’s minimum requirements including specific authorization by City Council for each proposed qualifying application.
Throughout the past two years, major airports in such markets as Philadelphia, Indianapolis, San Antonio, and Los Angeles have modified their incentive programs to better attract airline service.
San Francisco International Airport has now captured multiple low-cost carriers with the help of significant operating cost reductions being offered to these airlines.
The following table (Exhibit A) summarizes the current Air Service Support Program benefits by category of airline service, with the proposed additional fee waivers and marketing funds highlighted in the “New Entrant Carrier” row at the bottom of the table. Those proposed benefits will only apply to airlines that have not previously served SJC with commercial passenger flights and meet the stated qualifications in the program. All marketing funds must be approved by airport staff to meet the FAA standards and are used to reimburse the qualified airlines for their specific promotional initiatives.
HONORABLE MAYOR AND CITY COUNCIL
September 29, 2022
Subject: Proposed Additions to Air Service Support Program
Exhibit A: SJC Air Service Support Program with Proposed New Entrant Additions
With all previous support program requests approved unanimously by City Council, Airport staff has demonstrated that the combination of non-waived fees and net spending by new passengers more than offset the carefully calculated waivers and marketing funds. The Airport, therefore, captures net positive benefits while offering our community additional options for domestic and international travel. Each application brought before City Council provides a specific analysis of fee waivers, marketing funds, non-waived fees, customer spending, and overall economic impact to the community.
Recommended Support
This recommended addition of New Entrant benefits to the existing Air Service Support Program applies to City Council-approved airline route applications and does not require additional funds at this time.
CONCLUSION
SJC dramatically increased its ability to serve the City’s business and leisure travelers through several consecutive years of record-breaking air service expansion. Unfortunately, the outbreak and impact of the Covid-19 virus dramatically altered the entire global commercial aviation industry, leading to border closures, quarantines, aircraft groundings, and a number of policy decisions that virtually shut down large sectors of travel.
Service Landing Fee
Waiver
Ticket Counter &
Gate Fees Waiver
Marketing
Funds
New Short-Haul Domestic* 100% for 12 Months n/a Up to $25,000 New or Added Long-Haul Domestic100% for 18 Months n/a Up to $75,000 New International Within North
Ame rica 100% for 18 Months n/a Up to $100,000
New International Outside North
Ame rica 100% for 18 Months n/a Up to $500,000
Ne w Entrant Carrie r
(not previously served SJC) As Above 100% for 12 Months As Above + Up to $100,000
SJC Airline Air Service
Support Program
HONORABLE MAYOR AND CITY COUNCIL
September 29, 2022
Subject: Proposed Additions to Air Service Support Program
Locally, this situation also led to a derailing of SJC’s continued record-setting trajectory, leading to the same 90% or greater passenger reductions seen across the nation compared to 2019. As of this writing, domestic flights and passengers are showing continued signs of recovery, yet we remain approximately 20% below 2019 levels. New commercial airlines have emerged, and other carriers that have not previously served SJC are considered possible candidates for entering our market. Enhancing our existing Air Service Support Program provides the opportunity to better compete for a wider range of airlines in an effort to return to the record-breaking pace of prior years.
Under these circumstances, the Airport proposes and recommends adding the New Entrant Carrier benefits to the existing Air Service Support Program.
EVALUATION AND FOLLOW-UP
Airport staff will continue to monitor the application of the program specific to each City Council-approved airline and qualifying route to ensure adherence to program requirements.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
POLICY ALTERNATIVES
Alternative #1: City Council may choose not to approve the proposal for enhancing the existing Air Service Support Program by adding benefits targeted for New Entrant commercial airlines.
Pros: None.
Cons: If City Council does not approve the recommended action, new entrant airlines may follow the examples of their peers in choosing to serve other airports, including San Francisco International Airport, creating further imbalance of air service within our region, or discouraging these airlines from serving SJC. Flights may be put in jeopardy and the airlines may choose not to operate the services altogether, as other airports become better options for the allocation of aircraft.
Reason for not recommending: As SJC’s domestic and international travel continues to lag pre-Covid levels, the Airport’s recommendation to provide additional benefits for new entrant airlines further recognizes the unique challenges new entrants face when entering a new market with no prior operations or customer base. The start-up costs of these operations are significant,
HONORABLE MAYOR AND CITY COUNCIL
September 29, 2022
Subject: Proposed Additions to Air Service Support Program
and the proposed additional benefits provide support for the airlines while making SJC a more attractive and competitive market for new service.
PUBLIC OUTREACH
This memorandum will be posted on both the Airport’s website and on the City’s Council Agenda website for the October 25, 2022 City Council meeting.
COORDINATION
This memorandum was coordinated with the City Attorney’s Office and the City Manager’s Budget Office.
COMMISSION RECOMMENDATION
No commission recommendation or input is associated with this action.
FISCAL/POLICY ALIGNMENT
The Air Service Support Program aligns with the City’s Economic Development Strategy #9 “Keep Developing a Competitive, World Class Airport, and Attract New Air Service.”
Application of approved fee waivers and dedicated marketing funds to assist the air carriers in succeeding financially will benefit the City.
COST SUMMARY/IMPLICATIONS
The existing and proposed fee waivers offered to qualifying airlines through our Air Service Support Program temporarily reduce an airline’s costs during the initial phases of a new route’s operations. However, the increased revenue from parking, concessions, car rentals, passenger facility charges, and other Airport services that will directly result from increased air service is expected to offset the short-term loss of revenue from waived airline fees and dedicated marketing funds to promote the new flights. In addition, greater economic impacts for the City result from the addition of these new flights.
The availability of SJC’s support program encourages both existing airlines and new entrant carriers to offer enhanced competition and new destinations. Airport staff views this Air Service Support Program, consistent with FAA policies, an investment in expanded airline service to SJC
HONORABLE MAYOR AND CITY COUNCIL
September 29, 2022
Subject: Proposed Additions to Air Service Support Program
and our community as well as a competitive tool that recognizes widespread initiatives by other airports.
CEQA
Not a project, File No. PP17-003, Agreements/Contracts (New or Amended) resulting in no physical changes to the environment.
/s/
JOHN AITKEN, A.A.E.
Director of Aviation
For questions, please contact Mark Kiehl, Manager, Air Service Development at [email protected] or (408) 392-3624.