1. Northwest Regional Air Service Initiative Steering Committee Meeting Market Analysis/Strategies June 6, 2007

2. Report topics Northwest Regional Air Service Initiative (NWRASI) background Market analysis –True market estimates –Pro forma forecasts Discussion/input

3. Issues Goals Project scope NWRASI Background

4. Air service issues Service in secondary markets is deteriorating Regional airline relationships and fleet trends are increasing small community service issues Industry trends making future service improvements difficult Many leaders in small communities have little understanding of the issues and/or how to address them

5. Goals Improve air service to the OR and WA traveling community Provide better access from secondary markets in OR and WA to the national air transportation system Engage smaller communities in OR and WA in finding solutions to regional air service issues

6. Project scope Phase I: Small community air service development tool kit –Mentor Program –Air service DVD –Small Community Air Service Handbook Phase II: Small community air service market analysis –True market estimates –Pro forma analyses Phase III: Small community air service strategy –Potential air service markets –Service provider options –Service strategies –Recommendations Educate Analyze Strategize

7. NWRASI airports CommunityAirport Code Astoria, ORAstoria Regional AirportAST Klamath Falls, ORKlamath Falls AirportLMT Moses Lake, WAGrant County International AirportMWH Newport, ORNewport Municipal AirportONP Pendleton, OREastern Oregon Regional AirportPDT Port Angeles, WA William R. Fairchild International Airport CLM Pullman, WAPullman-Moscow Regional AirportPUW Redmond, ORRedmond Municipal AirportRDM Roseburg, ORRoseburg Regional AirportRBG Salem, ORSalem Municipal AirportSLE Wenatchee, WAPangborn Memorial AirportEAT Yakima, WAYakima Air TerminalYKM 12 Oregon and Washington communities participated in the NWRASI

8. True market estimates Pro forma forecasts Market Analysis

9. Market analysis - questions 1.Where are air travelers traveling to/from today? 2.How many by origin and destination market? 3.Does it make economic sense to serve these communities?

10. Market analysis - steps Identification of airport catchment areas (ACA) Collection of air travel data (MIDT) Model air travel markets where data does not exist Analyze and summarize market information (total passenger volume by destination) Complete pro forma analyses on potential markets Phase III – Small community air service strategies

11. Estimating air service demand (true market) Methodology –Each NWRASI airport has its own unique air service market –ACA population defined for each market by zip code –Economics and demographics considered for proxy markets –Competing (alternate) airport service considered Data sources –YE 10/2006 MIDT for zip codes included in each catchment area –Airports with existing service combined MIDT and DOT airline data by destination –Airports without existing service estimated using travel factors based on several factors including proximity to larger airports

12. Example – true market estimate w/ air service Like many NWRASI communities, isolated from large population centers Current scheduled air service Airport catchment area population of ~78,368 True market estimate of 119,334 origin and destination passengers annually Portland is the #1 market Klamath Falls: Catchment population78,368 Travel factor1.52 Travel factor proxyN/A Domestic true market109,964 International true market9,370 Total true market119,334 MethodologyLMT DOT/MIDT

13. Example – true market estimate w/o air service No current scheduled air service Airport catchment area population of ~96,724 Used travel factor proxy (Wenatchee) to estimate the true market True market estimate of 114,371 origin and destination passengers annually Seattle is the #1 market Moses Lake: Catchment population96,724 Travel factor1.18 Travel factor proxyEAT Domestic true market100,328 International true market14,043 Total true market114,371 Methodology EAT travel factor and market distribution

14. True market estimates Passenger estimates form baseline for pro forma forecasts Airport Travel factor ACA population True market Travel factor estimate Passenger distribution AST1.3990,739126,213Proxy: OTH LMT1.5278,368119,334MIDT/DOT MWH1.1896,724114,371Proxy: EAT ONP1.3962,29386,646Proxy: OTH PDT0.95116,942111,044MIDT/DOT CLM1.8968,656129,855Prior studyProxy: SEA PUW2.4371,320173,657MIDT/DOT RDM3.14192,256603,389MIDT/DOT RBG2.0693,341191,816Proxy: EUG SLE4.13594,3982,451,941Proxy: PDXMIDT EAT1.18144,021170,450MIDT/DOT YKM0.91259,546237,250MIDT/DOT

15. Pro forma market screening Each pro forma is stand alone Frequency: Minimum service in a new market is 2 roundtrips to be viable Aircraft size: 19-, 30-, or 37-seat turboprop aircraft (74-seat if demand permits) and 50-seat regional jets Appropriate destinations and connecting hubs Codeshares with dominant hub carrier: PDX=AS/QX, SLC=DL, DEN/SFO=UA, PHX=US, BOI/GEG=universal codeshare Best case scenario for NWRASI participants

16. Markets selected for pro forma analyses Highlighted markets form core for strategies 25 pro forma analyses completed Hub NWRASI airport ASTCLMEATLMTMWHONP PD T PUWRBGRDMSLEYKM Boise Denver Phoenix Portland Salt Lake City San Francisco Seattle Spokane

17. Key pro forma forecast elements Passengers forecast based on connecting opportunities and stimulation Average fares based on reported fares where service exists and reported fares in proxy market where no service exists Segment revenue determined by pro-rating connecting market revenue based on square root of the miles Estimated operating costs based on Form 41 carrier costs reported to the US DOT and manufacturer cost curves SLC PUW Segment 1 Beyond Segment profit/ loss a key consideration by airlines

18. Results - Boise Statistical categoryMWHPDTPUW Seats per aircraft19 Roundtrips222 Onboard passengers8,9218,76314,662 Load factor32.2%31.6%52.9% Local fare$150$130$124 Connect fare$159$211$199 Average fare$157$210$186 Segment revenue$757,646$676,989$1,238,528 System revenue$1,398,821$1,841,187$2,734,066 Segment cost$2,455,414$1,829,020$2,022,579 System cost$2,705,473$2,283,057$2,605,839 Segment profit/(loss)($1,697,768)($1,152,031)($784,051) System profit/(loss)($1,306,652)($441,870)$128,227 System margin-93.4%-24.0%4.7% Only one market, PUW, was profitable on a system basis though marginal

19. Results – Denver/Phoenix Only one market, RDM, was analyzed for Denver and Phoenix service Although segment negative, both Denver and Phoenix would provide ample system profits Statistical categoryRDM-DENRDM-PHX Seats per aircraft50 Roundtrips22 Unconstrained passengers $79,724$63,442 Onboard passengers$58,400 Load factor80.0% Local fare$191$180 Connect fare $247$234 Average fare$231$212 Segment revenue$8,379,814$8,187,023 System revenue$13,479,203$12,379,057 Segment cost$8,900,990$8,841,584 System cost$10,889,752$10,476,477 Segment profit/(loss)($521,176)($654,561) System profit/(loss)$2,589,452$1,902,580 System margin19.2%15.4% Note: Load factor capped at 80 percent.

20. Results - Portland All six were positive on a system basis; negative segment basis Statistical category CLMEATMWHPUWRBGYKM Seats/aircraft19 Roundtrips323222 Unconstrained pax$28,653$21,536$26,259$21,993$25,512$17,729 Onboard pax$27,047$18,031$26,259$18,031 $17,729 Load factor65.0% 63.1%65.0% 63.9% Local fare$125$113$125$161$108$96 Connect fare$171$185$173$191$168$197 Average fare$169$157$167$184$165$176 Segment revenue$1,533,559$1,457,991$1,750,969$1,701,181$1,027,254$1,135,729 System revenue$4,581,147$2,824,234$4,384,193$3,313,384$2,967,099$3,128,712 Segment cost$2,632,665$1,665,668$2,747,458$2,335,847$1,645,956$1,299,231 System cost$3,821,224$2,198,502$3,774,416$2,964,606$2,402,496$2,076,494 Segment loss($1,099,106)($207,676)($996,489)($634,665)($618,702)($163,502) System profit$759,923$625,732$609,777$348,779$564,604$1,052,218 System margin16.6%22.2%13.9%10.5%19.0%33.6% Note: Load factor capped at 65 percent.

21. Results – Salt Lake City Both Wenatchee and Pullman are profitable on a system basis Statistical categoryEATPUW Seats per aircraft50 Roundtrips22 Onboard passengers39,34840,891 Load factor53.9%56.0% Local fare$212$167 Connect fare$229$221 Average fare$226$214 Segment revenue$4,649,189$4,253,753 System revenue$8,907,199$8,759,756 Segment cost$6,802,743$5,927,505 System cost$8,463,367$7,684,846 Segment profit/(loss)($2,153,554)($1,673,752) System profit/(loss)$443,832$1,074,910 System margin5.0%12.3%

22. Results – San Francisco Only Klamath Falls is positive on a segment basis; 2 airports are negative on a system basis, Pullman and Yakima Statistical category LMTPUWRBGRDMSLEYKM Seats/aircraft30503050 Roundtrips323332 Unconstrained pax$41,673$26,220$63,121$79,145$273,199$26,907 Onboard pax$41,673$26,220$45,990$79,145$87,600$26,907 Load factor63.4%35.9%70.0%72.3%80.0%36.9% Local fare$186$192$142$148$130$175 Connect fare$248$214$182$201$164$222 Average fare$235$211$177$189$158$215 Segment revenue$4,592,794$3,129,934$3,663,338$7,941,328$7,395,448$3,192,976 System revenue$9,785,693$5,534,403$8,118,372$14,997,442$13,877,823$5,792,846 Segment cost$3,858,676$7,299,230$4,501,612$8,608,730$9,106,608$6,910,819 System cost$5,883,906$8,236,973$6,239,075$11,360,615$11,634,734$7,924,768 Segment profit/(loss)$734,118($4,169,296)($838,273)($667,402)($1,711,160)($3,717,843) System profit/(loss)$3,901,787($2,702,570)$1,879,297$3,636,828$2,243,089($2,131,922) System margin39.9%-48.8%23.1%24.2%16.2%-36.8% Note: Load factor capped at a 70 percent load factor for 30-seat aircraft and 80 percent for 50-seat aircraft.

23. Results – Seattle All 6 pro formas were negative on a segment basis but positive on a system basis Note: Load factor capped at a 65 percent load factor for 19-seat aircraft and 70 percent for 37-seat aircraft. Statistical category ASTCLMMWHONPPDTSLE Seats/aircraft19 37 Roundtrips333333 Unconstrained pax$44,481$40,931$46,685$25,585$32,144$233,324 Onboard pax$27,047 $25,585$27,047$56,721 Load factor65.0% 61.5%65.0%70.0% Local fare$125N/A$97$125$127$125 Connect fare$183 $187$184$234$184 Average fare$172$183$166$182$223$181 Segment revenue$1,625,404$1,017,614$1,656,074$1,461,138$2,041,059$3,011,956 System revenue$4,664,156$4,946,130$4,483,814$4,664,473$6,033,140$10,249,633 Segment cost$1,883,884$1,383,216$2,220,663$2,974,050$2,869,509$4,325,540 System cost$3,068,998$2,915,338$3,323,482$4,223,351$4,426,420$7,148,234 Segment loss($258,480)($365,603)($564,589)($1,512,912)($828,450)($1,313,583) System profit$1,595,158$2,030,792$1,160,332$441,122$1,606,720$3,101,399 System margin34.2%41.1%25.9%9.5%26.6%30.3%

24. Key strategy considerations No point-to-point service With one exception, short-haul service does not pay for itself All service will require either cross-subsidy or direct subsidy All markets require codeshare at the hub to survive Service provided by multiple airlines are required to meet NWRASI hub and aircraft requirements

25. Issues Short-term strategies Long-term strategies Discussion/input

26. Issues 1.Short-haul air service operating economics 2.Source and availability of appropriate aircraft 3.Airfares that are acceptable to the market

27. Issue – Short-haul service operating economics Cost of operating short-haul NWRASI flights does not pay for itself on a segment basis Flight segment Segment profit/(loss) System profit/(loss) 50-seat regional jet EAT-SLC($2,153,554)$443,832 PUW-SFO($4,169,296)($2,702,570) PUW-SLC($1,673,752)$1,074,910 RDM-DEN($521,176)$2,589,452 RDM-PHX($654,561)$1,902,580 RDM-SFO($667,402)$3,636,828 SLE-SFO($1,711,160)$2,243,089 YKM-SFO($3,717,843)($2,131,922) 37-seat turboprop SLE-SEA($1,313,583)$3,101,399 30-seat turboprop LMT-SFO$734,118$3,901,787 RBG-SFO($838,273)$1,879,297 Flight segment Segment profit/(loss) System profit/(loss) 19-seat turboprop AST-SEA($258,480)$1,595,158 CLM-PDX($1,099,106)$759,923 CLM-SEA($365,603)$2,030,792 EAT-PDX($207,676)$625,752 MWH-BOI($1,697,768)($1,306,652) MWH-PDX($996,489)$609,777 MWH-SEA($564,589)$1,160,332 ONP-SEA($1,512,912)$441,122 PDT-BOI($1,152,031)($441,870) PDT-SEA($828,450)$1,606,720 PUW-BOI($784,051)$128,227 PUW-PDX($634,665)$348,779 RBG-PDX($618,702)$564,604 YKM-PDX($163,502)$1,052,218

28. Issue – Sources of appropriate aircraft Airlines operating 19-, 30-, and 37-seat aircraft in the western US Airline 19-seat B1900 30-seat EMB 120 37-seat Dash 8-200 Remarks SkyWest X Possible available aircraft Horizon XPhase out by 2009 Big SkyX Short-term focus on Boston/Delta Great LakesXX Focus on EAS in Midwest Mesa/Air MidwestX Focus on Kansas City operations - phase out of 19-seat aircraft Kenmore May be future possibility 19-seat B-1900s getting very old No new technology short-haul aircraft

29. Issue – Acceptable short-haul market airfares Must be low enough to limit passenger diversion to larger airports and low-fare carriers Requires codeshare to allow publishing of through fares rather than two local fares Low fares require some type of subsidy –Cross subsidy by carrier (pro-rate adjustment) –Seat-buy by carrier –Non-airline direct subsidy

30. Strategy - discussion Narrow the scope of the NWRASI initial program by focusing on high utility hubs that can be served with the same aircraft type PDX and SEA service with 19- or 30-seat aircraft offer the greatest utility to the largest number of NWRASI airports Economically viable NWRASI new service opportunities: HubASTONPCLMLMTRDMEATYKMMWHPDTPUWRBGSLE BOI X DEN X PHX X PDX X XXX XX SLC X X SFO XX XX SEAXXX XX X GEG

31. Strategy - steps Step 1:Engage Alaska Airlines/Horizon Air in high level discussions about NWRASI code-share needs at SEA and PDX Step 2: Issue RFP seeking expressions of interest on operating 19-37 seat aircraft in designated Portland and Seattle markets RFP sponsors: State Economic Development Agency/State DOTs Step 3:Solicit proposals for respondents in Step 2 (offer a payment to offset the cost of preparing a proposal) Will provide insight into potential subsidy needed Step 4:A. Investigate/lobby for sources of needed subsidy dollars (federal, state, local) B. If no response to RFP, make presentations to potential service providers Step 5:Develop a plan to address individual NWRASI service needs at DEN, SFO, PHX, and SLC

32. Thank you Questions & discussion