mmm group limited - lethbridge airport

Lethbridge AirportFinancial Assessment and Governance Study

Update 2016

February 2017 | 1216101-000

MMM Group Limited

Lethbridge Airport | Financial Assessment and Governance Strategy Update MMM Group Limited | February 2017 | 1216101

EXECUTIVE SUMMARY

At the request of Lethbridge County and the City of Lethbridge, MMM Group Limited (a WSP Company) completed a 5-year update to the 2011 Financial Assessment and Governance Strategy for Lethbridge Airport (the ‘2011 Study’). The update reflects current market conditions and is intended to assist with future airport governance-related strategic decisions and to aid the Airport Committee in gaining a better understanding of current and future airport activity.

The update incorporates changes in economic conditions and air transport industry trends since 2011, including the entry of WestJet’s Encore 78-Seat Q400 into Canada’s regional air service market. The approach followed in updating the 2011 Study is presented below.

MMM was tasked with updating current market conditions, economics and air transport industry trends through the following tasks:

► Baseline airport conditions were revisited through Stakeholder consultation interviews and web-based surveys.

► An environmental context review was completed to update the economic outlook of the country and took into consideration current government policy initiatives, funding sources, and trends in the air transport industry as they relate to Lethbridge.

► A new baseline activity forecast was prepared following a review and update of previous assumptions. Forecasts of General Aviation activity were updated to reflect current conditions and anticipated growth.

► A technical due diligence of airfield infrastructure and operations was completed including a review of infrastructure assets and any specific constraints to airport development. Requirements for facility improvements to support current and future operations was projected.

► A review of capital projects completed since 2011 was compiled and used to update the 2011 Capital Plan.

► A baseline airport assessment was performed to determine how Lethbridge Airport compares against similar regional airports.

► The commercial due diligence was updated to reflect the most current operating revenues and expenditures. The long-term financial sustainability of the Airport was assessed under the growth scenarios.

► Viable airport governance approaches were reviewed and confirmed and a recommendation of the most appropriate model was provided. The requirements and strategic options for growing demand at the Airport were also identified.


Community engagement was undertaken with a different approach from the 2011 Study. Airport stakeholders identified by the County, City, and project team were interviewed to discuss their general opinions of the Airport as they related to the development of the Airport, passenger air service, and airport governance. Additionally, at the request of the County and City, two web-based surveys were developed to gain the input from a larger sample size. The first survey targeted the general public, while the second targeted the Lethbridge business community. These surveys are presented in Appendix A. Both surveys received a high response rate: the public survey had 1460 responses and the business survey 327 responses.

The Environmental Context Review considered economic outlook and the aviation industry in context to Lethbridge Airport. The current weakness in the petroleum sector is the result of worldwide problems in the supply and demand for petroleum. Alberta’s reliance on synthetic crudes makes it particularly vulnerable to any weakness in the price of oil. The low price elasticity of demand has created strong price volatility.

The aviation sector has suffered from the weak Alberta economy. However, Air Canada, WestJet, and other airlines have continued to improve their offerings at Calgary. The new Calgary service offerings provide better connections for the Lethbridge flights and could stimulate boardings at the Lethbridge Airport. Future flights by WestJet’s Encore regional service are an obvious goal for Lethbridge.

Transport Canada Air Policy Directorate has recently focussed on Canada’s new international air policy with a primary objective to provide a framework that encourages competition and the development of new and expanded international air services. This area of focus does not pertain to Lethbridge Airport or other regional airports. Based on review of available Transport Canada documentation and publications, there appear to be few upcoming changes to airport policy. Specific to Lethbridge Airport, changes in airport policy should not have a significant impact on airport management or governance within the next 2 to 3 years.

Long term traffic forecasts for Lethbridge Airport through to 2040 were prepared and considered:

► Scheduled passenger enplanements and deplanements;

► Itinerant general aviation landings and takeoffs; and

► Local general aviation landings and takeoffs.

The forecasts were generally less optimistic than those prepared in 2011. The 2011 forecasts assumed that the 2007-2010 decline in passenger traffic was the result of the worldwide financial crisis and that once the crisis was resolved, traffic would rebound. However, Lethbridge’s traffic showed no such resilience. Passenger counts for 2015 were less than those of 2007-2009. The low oil prices and the weak provincial economy of 2015-2016 were not expected. The baseline forecasts therefore call for no changes in 2016 activity levels. However, several factors could stimulate traffic growth at Lethbridge Airport.


Current volumes, in conjunction with the future environment generated five forecasting scenarios:

1. Continuation of Air Canada and Air Integra services with no capacity changes.

2. Air Canada upgrades Lethbridge-Calgary service with two daily flights operated by 50-seat aircraft.

3. WestJet Encore inaugurates twice daily Calgary-Lethbridge services.

4. A Low Cost Carrier inaugurates 3/week flights to Lethbridge.

5. Charter airline offers winter-only flights to Mexico or the U.S. Sunbelt.

A high-level review of airport facilities was undertaken to update the conditions, deficiencies, and future requirements of critical infrastructure. The process included the visual inspection of above ground facilities and equipment and consultations with airport staff. This review informed the Airport Capital Plan, specifically the base infrastructure needs. The capital needs summary identified total capital expenditures required over a 20-year planning period for the status quo as well as the four augmented growth scenarios. These costs ranged from $27.3M to $32.4M.

Four airports were selected for comparison with Lethbridge Airport based on a number of criteria, including but not limited to: community population, passenger traffic, governance model, airport facilities, and financial performance (where available). The airports selected were: Nanaimo Airport, Kamloops Airport, Fredericton International Airport, and London International Airport. In general, the comparable airports have improved their financial performance since 2011, thanks in part to successful campaigns to secure new or improved air services. Three new lessons learned from the airports comparison include:

1. Attracting new passenger services will require long-term investment;

2. Lethbridge Airport’s competitive position could be improved by investing in ATB expansion and upgrades; and

3. Airports have significant economic value beyond facilitating passenger services.

The financial performance of Lethbridge Airport in recent years was compared to the analysis completed in the 2011 Study. Since 2010, Airport revenue increased from $1.65M to $1.9M in 2015, an increase of 15%. During the same period, total expenditures increased from $2.37M to $2.4M, an increase of only 1.26%. Historically, the Airport has had significantly greater expenditures than revenues. In 2015, if indirect expenses are removed, the airport had an operating surplus of approximately $340,000.

A variety of governance models have been utilized by airports across Canada. Some are more relevant to larger airports and some to smaller airports. The range includes extremes such as closing the Airport, up to airport authorities that require a large amount of commercial passenger traffic to be effective. The 2011 Study recommended the creation of an Airport Commission to provide a more focused vision for the future development of the Airport. While there have been many changes in Alberta and the aviation industry since the completion of the previous study, an Airport Commission remains the most appropriate governance model for Lethbridge Airport.

There are a number of options that the County and City should consider to aid in increasing the utilization of Lethbridge Airport including: developing public education initiatives, direct marketing, preparing market demand studies, and completing an Airport Master Plan.


Recommendations

Lethbridge County, the City of Lethbridge, and Lethbridge Airport should take the following recommendations into consideration:

► Negotiate a new airport ownership structure between Lethbridge County and the City of Lethbridge.

► Implement an Airport Commission governance model.

► Prepare an Airport Master Plan to guide development and infrastructure for a 20-year planning period. The Plan should provide a balanced approach to passenger air services and aviation commercial lands.

► Investigate the demand for air travel in Lethbridge by preparing a Market Study calculating potential air service demand and identifying travel patterns. A report quantifying this demand should be used in discussions with WestJet and potentially other carriers regarding possible future flights from Lethbridge.

► Consider expansion and improvements to the Air Terminal Building to provide capacity for 2 x DHC8-400 aircraft operating on similar schedules with a reasonable passenger level of service.

► Implement a public education initiative to draw awareness to the potential cost savings of using Lethbridge Airport over competing airports.

► Develop a direct marketing campaign aimed at repatriating passengers lost through leakage to competing airports.

Lethbridge Airport | Financial Assessment and Governance Strategy Update MMM Group Limited | February 2017 | 1216101-000

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TABLE OF CONTENTS

1.0 INTRODUCTION ................................................................................ 1

1.1 Approach ........................................................................................................................... 1

1.2 Community Engagement ................................................................................................. 2 1.2.1 Airport Physical Development .................................................................................. 2 1.2.2 Air Carrier Service .................................................................................................... 2 1.2.3 Airport Governance .................................................................................................. 3 1.2.4 Stakeholder Consultations........................................................................................ 3 1.2.5 Summary of Survey Results ..................................................................................... 4

2.0 ENVIRONMENTAL CONTEXT REVIEW ........................................... 6

2.1 Introduction ....................................................................................................................... 6

2.2 Economic Outlook ............................................................................................................ 6 2.2.1 The Energy Industry and the Alberta Economy........................................................ 6 2.2.2 The World Price for Oil ........................................................................................... 11

2.3 Air Transportation Industry ........................................................................................... 12 2.3.1 Air Traffic ................................................................................................................ 12 2.3.2 Airline Profitability ................................................................................................... 13 2.3.3 Alberta Expansion by Air Canada .......................................................................... 14 2.3.4 Expansion by WestJet/WestJet-Encore ................................................................. 14 2.3.5 New Services by Airlines Not Affiliated with Air Canada or WestJet...................... 16 2.3.6 Low Cost Carriers and New Entrants ..................................................................... 16 2.3.7 Summary ................................................................................................................ 19

2.4 Airport Policy .................................................................................................................. 19

2.5 Airport Capital Assistance Program ............................................................................ 19 2.5.1 Background ............................................................................................................ 19 2.5.2 Current Agreement ................................................................................................. 19 2.5.3 Approved Projects 2016-2017 ................................................................................ 20 2.5.4 Impact on Lethbridge Airport .................................................................................. 20

2.6 SWOT Analysis ............................................................................................................... 20

3.0 MARKET ASSESSMENT AND FORECAST ................................... 22

3.1 Introduction ..................................................................................................................... 22

3.2 Assumptions and Methodology .................................................................................... 22


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3.3 Baseline Forecast ........................................................................................................... 23

3.4 Traffic Growth Forecasts ............................................................................................... 25 3.4.1 Continuation of Status Quo .................................................................................... 25 3.4.2 Capacity Upgrade by Air Canada ........................................................................... 26 3.4.3 Twice Daily Flights to Calgary on WestJet Encore ................................................ 26 3.4.4 Service by a Low Cost Carrier ................................................................................ 27 3.4.5 Charter Flights ........................................................................................................ 28

3.5 General Aviation Forecast ............................................................................................. 30 3.5.1 Classifications ......................................................................................................... 30 3.5.2 GA Forecasts .......................................................................................................... 31

4.0 TECHNICAL DUE DILIGENCE ........................................................ 33

4.1 Airfield Infrastructure ..................................................................................................... 34 4.1.1 Runway 05-23 ........................................................................................................ 34 4.1.2 Runway 12-30 ........................................................................................................ 34 4.1.3 Taxiways ................................................................................................................. 35 4.1.4 Aprons .................................................................................................................... 35 4.1.5 Airside Capacity ...................................................................................................... 36

4.2 Airfield Electrical ............................................................................................................ 37 4.2.1 Visual Approach and Landing Aids ........................................................................ 37 4.2.2 Electronic Navigation and Approach Aids .............................................................. 37 4.2.3 Field Electric Centre ............................................................................................... 37 4.2.4 Airfield Lighting ....................................................................................................... 37 4.2.5 Meteorological Observation .................................................................................... 37

4.3 Air Terminal Building ..................................................................................................... 38 4.3.1 Building Condition ................................................................................................... 38 4.3.2 Space Deficiencies ................................................................................................. 38

4.4 Commercial Facilities .................................................................................................... 39 4.4.1 Current Inventory .................................................................................................... 39 4.4.2 Commercial Land Supply ....................................................................................... 40

4.5 Access Roads and Parking ........................................................................................... 40 4.5.1 Access and Approach Roads ................................................................................. 40 4.5.2 Terminal Frontage and Parking .............................................................................. 40

4.6 Utilities and Services ..................................................................................................... 40 4.6.1 Water Supply and Sanitary Sewage ....................................................................... 40 4.6.2 Electrical and Communications .............................................................................. 40

4.7 Aircraft Services ............................................................................................................. 41


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4.7.1 Fuel Facilities .......................................................................................................... 41 4.7.2 Aircraft De-icing ...................................................................................................... 41

4.8 Access Control and Security ........................................................................................ 41 4.8.1 Airfield ..................................................................................................................... 41 4.8.2 Air Terminal Building .............................................................................................. 41

4.9 Emergency Response .................................................................................................... 41

4.10 Airport Maintenance ....................................................................................................... 42 4.10.1 Services .................................................................................................................. 42 4.10.2 Equipment............................................................................................................... 42 4.10.3 Facilities .................................................................................................................. 42

5.0 AIRPORT CAPITAL PLAN .............................................................. 43

5.1 Introduction ..................................................................................................................... 43

5.2 Asset Management System ........................................................................................... 43

5.3 Base Infrastructure Needs............................................................................................. 44 5.3.1 Airside Pavements .................................................................................................. 44 5.3.2 Groundside Pavements .......................................................................................... 44 5.3.3 Airside Electrical ..................................................................................................... 44 5.3.4 Building and Other Facilities ................................................................................... 45 5.3.5 Mobile Equipment ................................................................................................... 45

5.4 Policies and Planning .................................................................................................... 45

5.5 Safety and Regulatory Requirements .......................................................................... 46

5.6 Condition Assessment .................................................................................................. 46

6.0 BASELINE AIRPORTS COMPARISON .......................................... 49

6.1 Comparative Airport Selection ..................................................................................... 49

6.2 Lethbridge Airport .......................................................................................................... 49

6.3 Comparative Analysis .................................................................................................... 50

6.4 Lessons Learned ............................................................................................................ 57

7.0 COMMERCIAL DUE DILIGENCE.................................................... 59

7.1 Budget Sustainability ..................................................................................................... 59

7.2 Financial Feasibility ....................................................................................................... 61 7.2.1 Revenue ................................................................................................................. 61 7.2.2 Expenditures ........................................................................................................... 62


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7.2.3 Revenue and Expenditure Comparison ................................................................. 62

7.3 Sources of Capital .......................................................................................................... 63 7.3.1 Taxation .................................................................................................................. 63 7.3.2 Capital Loan ........................................................................................................... 63 7.3.3 Airport Improvement Fees ...................................................................................... 64 7.3.4 Public Private Partnership ...................................................................................... 64 7.3.5 Combination ........................................................................................................... 64

7.4 Revenue Alternatives ..................................................................................................... 64 7.4.1 Aeronautical ............................................................................................................ 65 7.4.2 Non-Aeronautical .................................................................................................... 65

8.0 MANAGEMENT AND STRATEGIC PLANNING ............................. 66

8.1 Background ..................................................................................................................... 66

8.2 Current Governance Model ........................................................................................... 66

8.3 Airport Governance Approaches .................................................................................. 66 8.3.1 Sale of Airport ......................................................................................................... 67 8.3.2 Municipally Owned and Operated (Status Quo) ..................................................... 67 8.3.3 Municipally Owned and Contractor Operated ........................................................ 68 8.3.4 Airport Commission ................................................................................................ 68 8.3.5 Municipally Owned and Airport Authority Operated ............................................... 69 8.3.6 Airport Authority ...................................................................................................... 69

8.4 Recommended Option ................................................................................................... 69 8.4.1 Airport Commission ................................................................................................ 69 8.4.2 Commission Structures .......................................................................................... 70 8.4.3 County – City Partnership....................................................................................... 71

8.5 Demand Growth .............................................................................................................. 71 8.5.1 Requirements ......................................................................................................... 71 8.5.2 Strategic Options .................................................................................................... 72

9.0 CONCLUSIONS AND RECOMMENDATIONS ............................... 74

9.1 Conclusions .................................................................................................................... 74

9.2 Recommendations ......................................................................................................... 74


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APPENDICES Appendix A – Web-based Surveys

Appendix B – Survey Results

Appendix C – Lethbridge Market for Air Transportation

Appendix D – Aviation Activity Forecasts

Appendix E - 20 Year Capital Plan Supporting Materials

Appendix F – Governance Model Features

Appendix G – Representative Commission Structures

LIST OF TABLES

Table 1.1 – Financial Assessment and Governance Strategy Update – Stakeholder Consultation List ...... 3

Table 2.1 – Recent Traffic Changes at Alberta Airports ............................................................................. 12

Table 2.2 – Canadian Airline Profits, 2010 and 2015, Millions of Current Dollars ...................................... 13

Table 3.1 – Canada-United States Charter Traffic for Selected City-Pairs and Airlines............................. 29

Table 5.1 – Recommended Pavement Rehabilitation ................................................................................ 44

Table 5.2 – Capital Needs Summary .......................................................................................................... 47

Table 6.1 – Comparative Changes between 1994 and 2015 ..................................................................... 50

Table 6.2 – Lethbridge – Nanaimo Comparison 1994 ................................................................................ 51



Table 6.5 – Lethbridge – Kamloops Comparison 1994 .............................................................................. 53



Table 6.8 – Lethbridge – Fredericton Comparison 1994 ............................................................................ 55

Table 6.9 – Lethbridge – Fredericton Comparison 2011 ............................................................................ 55

Table 6.10 – Lethbridge – Fredericton Comparison 2015 .......................................................................... 56

Table 6.11 – Lethbridge – London Comparison 2015 ................................................................................ 57

Table 7.1 – Capital Cost Funding 1998-2016 ............................................................................................. 60

Table 7.2 – Revenue Generation by Scenario over Baseline ..................................................................... 61

Table 7.3 – 20 Year Revenue and Capital Cost Comparison ..................................................................... 63

Table 7.4 – Airport Improvement Fees by Airport ....................................................................................... 64


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LIST OF FIGURES

Figure 2.1 – Price of Crude Oil ..................................................................................................................... 8

Figure 2.2 – Alberta Production of Conventional and Synthetic Crude Oil, Millions of Cubic Meters per

Day ................................................................................................................................................................ 9

Figure 2.3 – Number of Wells Being Drilled ................................................................................................ 10

Figure 2.4 – Real Alberta GDP ................................................................................................................... 11

Figure 3.1 – Historical and Forecast Baseline Passenger Traffic to 2040 .................................................. 23

Figure 3.2 – Historical and Forecast Baseline Aircraft Movements to 2040 ............................................... 24

Figure 3.3 – Status Quo .............................................................................................................................. 25

Figure 3.4 – Air Canada Upgrade ............................................................................................................... 26

Figure 3.5 – WestJet Encore....................................................................................................................... 27

Figure 3.6 – Low Cost Carrier ..................................................................................................................... 28

Figure 3.7 – Southern Charter .................................................................................................................... 29

Figure 3.8 – Baseline Forecasts Compared to Augmented Forecasts for Year 2025 ................................ 30

Figure 3.9 – Historical and Forecast GA Activity to 2040 ........................................................................... 32

Figure 7.1 – Lethbridge Airport Direct and Indirect Expenses 2012 – 2015 ............................................... 60

Figure 8.1 – Airport Governance Spectrum ................................................................................................ 67


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1.0 INTRODUCTION

At the request of Lethbridge County and the City of Lethbridge, MMM Group Limited (a WSP Company) has completed a 5-year update to the 2011 Financial Assessment and Governance Strategy for Lethbridge Airport (the ‘2011 Study’). This update reflects current market conditions and is intended to assist with future airport governance-related strategic decisions and to aid the Airport Committee in gaining a better understanding of current and future airport activity.

This update incorporates changes in economic conditions and air transport industry trends since 2011, including the entry of WestJet’s Encore 78-Seat Q400 into Canada’s regional air service market. The approach followed in updating the 2011 Study is presented below.

1.1 Approach

The update to the 2011 Lethbridge Airport Financial Assessment and Governance Strategy included the following steps:

► The baseline conditions of the Airport were revisited through stakeholder consultations. In addition to traditional stakeholder interviews, two web-based surveys were developed: one targeting the general public and a second targeting the Lethbridge business community. General opinions on Airport physical development, air carrier service, and governance of the Airport were collected and used to guide the project tasks.

► An environmental context review was completed to update the economic outlook of the country, province and Lethbridge respectively. Current government policy initiatives and funding sources were revisited and trends in the air transport industry as they relate to Lethbridge were identified. The SWOT analysis of the Airport was updated to reflect current conditions.

► A new baseline activity forecast was prepared following a review and update of previous assumptions. Using that baseline, augmented forecasts were developed to reflect recent and established trends in the air transport industry. Forecasts of General Aviation activity were updated to reflect current conditions and anticipated growth.

► A technical due diligence of airfield infrastructure and operations was completed including an audit of infrastructure assets and a review of any specific constraints to Airport development. Based on the augmented forecasts, the requirement for facility improvements to support current and future operations was projected.

► A review of capital projects completed since 2011 was compiled and used to update the 2011 Capital Plan. This plan anticipates major capital expenditures over a twenty year period and is intended to inform City and County budgets and spending decisions.

► A baseline airport assessment was performed to determine how Lethbridge Airport compares against similar regional airports. This comparison was used to determine the operations, finance, and governance methods employed by airports facing similar environmental factors, and their resulting levels of success.


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► The commercial due diligence was updated to reflect the most current operating revenues and expenditures. The long-term financial sustainability of the Airport was assessed under the growth scenarios.

► Viable airport governance approaches were reviewed and confirmed and a recommendation of the most appropriate model was provided. The requirements and strategic options for growing demand at the Airport were identified.

1.2 Community Engagement

Airport stakeholders identified by the County, City, and project team were interviewed to discuss their general opinions of the Airport as they related to the development of the Airport, passenger air service, and airport governance. Additionally, at the request of the County and City, two web-based surveys were developed to gain the input of a larger sample size. The first survey targeted the general public, while the second targeted the Lethbridge business community. These surveys are presented in Appendix A. Both surveys received a high response rate: the public survey had 1460 responses and the business survey 327 responses. The surveys’ tabulated results are presented in Appendix B. A summary of survey results is provided in Section 1.2.5.

1.2.1 Airport Physical Development

Consultations with Airport tenants revealed that there is insufficient land to grow existing airport businesses or to attract new aviation tenants. Some businesses claimed that their business has stagnated for several years because no land has been made available for expansion. Land is available for development; however, there is limited airside and groundside access to these areas and commercial lots have not been prepared and serviced. As a last resort, some new tenants have been leased lots without groundside access.

Stakeholders’ opinions of the terminal building were generally positive, although it was noted that passenger amenities could be improved through the addition of washrooms after security and improved concessions. In general, stakeholders agreed that the terminal could benefit from modest aesthetic improvements. Consultation with an airport successful in recently attracting WestJet Encore service mentioned the importance of accommodating the requirements WestJet places on an airport before providing air service, including secure holdrooms with capacity for simultaneous WestJet and Air Canada flights.

1.2.2 Air Carrier Service

The consensus among stakeholders, including survey respondents, is that Lethbridge is in need of improved passenger air services. The existing Air Canada service is well-used but is marred by high costs and regularly cancelled or oversold flights. Of those consulted, the majority would opt to drive to Calgary before flying if Calgary was their final destination. The Integra Air service to Edmonton is popular with business and institutions (e.g. Lethbridge College, University of Lethbridge, Alberta Health Services). The business community highlighted a desire for direct service to Vancouver or other B.C. destinations.


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Based on both surveys, 18-27 percent of respondents have used Great Falls International Airport for travel in the United States, primarily for leisure. The cost savings, real or perceived, are sufficient motivation for residents of Lethbridge to drive to Calgary or Great Falls to board a flight to a final destination.

1.2.3 Airport Governance

Many of the stakeholders consulted expressed concern about the long-term governance strategy of the Airport. As it was in 2011, the Airport is run as a department of the County under the mandate of not using taxpayer’s dollars to support operations and capital improvements. This governance model was described by some as unfavorable for businesses on the Airport as it does not allow for capital investment to support economic growth. As a result, this has prevented some businesses from growing and deterred new businesses and tenants from choosing Lethbridge Airport. There is a continued interest in the selection of a governance model that will allow the Airport to be operated in a more business-like manner with a mandate for long-term growth and sustainability.

1.2.4 Stakeholder Consultations The list of stakeholder consultations conducted throughout the duration of this study is provided in Table 1-1.

Table 1.1 – Financial Assessment and Governance Strategy Update – Stakeholder Consultation List

Organization Name Title

County of Lethbridge Lorne Hickey Reeve

County of Lethbridge Henry Doeve Deputy Reeve

County of Lethbridge Ken Benson County Councillor

County of Lethbridge Rick Robinson Chief Administrative Officer

County of Lethbridge Diane Urkow Director of Corporate Services

City of Lethbridge Chris Spearman Mayor

City of Lethbridge Garth Sherwin City Manager

City of Lethbridge Jeff Coffman City Councillor

City of Lethbridge Tony Vanden Heuvel Manager of Corporate and Strategic Initiatives

Lethbridge Airport Scott Butchart Airport Manager

Economic Development Lethbridge

Trevor Lewington Chief Executive Officer

Economic Development Lethbridge Erin Crane

Director, Meeting, Event & Partnership Development

Lethbridge Chamber of Commerce Harry Gross President and Chair of the Board


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Lethbridge Chamber of Commerce Karla Pyrch Executive Director

Lethbridge Chamber of Commerce Darrel Koskewich Director

Lethbridge Chamber of Commerce Phil McFarland Director

Air Canada Ron Kaercher Manager, Network Planning Canada

WestJet Chris Hedlen Manager, Network Planning

Integra Air Piers Earl Vice President of Finance

Integra Air Murriah Pearce Customer Service Manager

QL Aviation Services Geoff Price President

West Wind Airspray Ltd. Peter Hansen President

Excel Flight Training Roland Morton Owner, CFI

Chinook Country Tourist Association Nikolaus Wyslouzil Executive Director

Lethbridge College Paula Burns President and CEO

University of Lethbridge Nancy Walker Vice President Finance & Administration

Lethbridge Family Services Sandra Mintz Chief Executive Officer

Lethbridge Family Services Sarah Amies Director

London International Airport Mike Seabrook President and CEO

1.2.5 Summary of Survey Results

Business Survey

There were a total of 327 respondents to the survey targeting Lethbridge businesses.

► 51% of these businesses are considered to be growing, 45% stable, and 5% downsizing.

► 75% of the businesses surveyed use air travel with the majority booking between 1 and 12 flights per year.

► Of these flights, the respondents typically originate in Calgary.

► The respondents who do use the Lethbridge Airport cited convenience (short driving distance) as the primary reason.

► The businesses that do not use the Airport cited the high costs and difficulty connecting in Calgary and Edmonton.

► Only 11% of respondents engage in business with firms located at the Airport.

► 7% responded that the Airport influenced their decision to locate or expand in Lethbridge.


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► 28% said their proximity to the Airport is important to their business.

► 17% of businesses surveyed responded that the existing airport facilities and services (including passenger services) have limited their growth.

► The two improvements that the Airport could make to better serve the business community are providing more direct destinations and adding more airlines.

Public Survey

There were a total of 1460 respondents to the survey targeting the residents of Lethbridge.

► 80% of respondents have booked a flight originating in or departing from Lethbridge Airport.

► 82% of the public who have used the Airport cited convenience (short driving distance) as a main reason.

► Of those who use the Airport, on their last through the Airport, only 16% were destined for Calgary or Edmonton.

► 61% of respondents booked their travel directly with an airline, 28% with travel website, and 11% with a traditional travel agent.

► Like the business survey, those that do not use the Airport cited the high costs and difficulty connecting in Calgary and Edmonton.

► Flights booked by the respondents typically originate in Calgary.

► 10% of respondents were not aware that daily flights are offered from Lethbridge to Calgary and Edmonton and 30% of respondents did not know that they could book a flight from Lethbridge using reward points.

► 58% of respondents were not familiar with any on-airport businesses.

► Like the business survey, the two improvements that the Airport could make to better serve the public are providing more direct destinations and adding more airlines.


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2.0 ENVIRONMENTAL CONTEXT REVIEW

2.1 Introduction Future decisions about the development and governance of Lethbridge Airport will be made in context to the environment in which the Airport operates. The environmental context review considers macroeconomic outlook, local economic developments, aviation industry trends, federal airport policy, changes to airport funding, and internal and external strategic factors.

2.2 Economic Outlook

2.2.1 The Energy Industry and the Alberta Economy

In 2015, the energy industry accounted for 18.3 percent of Alberta’s Gross Domestic Product (GDP)1 and employed over 133,000 persons2. The oil and gas industry supports many other sectors of the province. For every person employed directly by the sector, a further 3.5 full-time equivalent employees work for suppliers of the industry. When energy resource employees and their suppliers spend their labour incomes, they create an additional 1.5 jobs throughout Alberta and in all sectors of the economy3.

The oil and gas industry conducts two broad activities. The production activity involves operating currently existing wells and recovery plants to generate current revenues and exploration/development efforts involve developing new sources of oil and gas. The activities include exploration, drilling, constructing new facilities (e.g. pipelines, oil sands extraction plants, upgraders, refineries, etc.) and research and development. The exploration/development activities impose cash demands, with any payback well in the future. Future yields and costs often make the projects very risky. Environmental concerns pose additional concerns; the 2010 explosion at BP’s Deepwater Horizon well in the Gulf of Mexico cost the firm $28 billion in claims and cleanup costs, plus a further $18 billion in legal penalties.

In December 2015, Alberta’s oil industry produced 2.6 million cubic meters of conventional crude and 12.6 million cubic meters of crude oil from the Athabasca oil sands4. Different sources of oil have widely different costs. Canada is a high cost source of crude oil at $41.40 per barrel. The United Kingdom, at $52.50 per barrel, has the highest costs, followed by Brazil at $48.80. Kuwait has the lowest costs at $8.505. The high costs for Canada reflect the large investments and operating costs (e.g. purchase of natural gas) for plants in the oil sands.

The fully allocated cost incorporates daily operating costs, plus the capital costs and depreciation and interest payments for building the extraction installation. The variable costs assume that the plant is already in operation, and therefore neglect the “sunk” ownership expenses. Variable costs include labour, maintenance and any other items needed to maintain current production levels. An added complication is that recovery plants in the oil sands are difficult and costly to restart if production is halted for any reason.

1 Source: Alberta Treasury Board and Finance and Alberta Economic Development and Trade, “Alberta Overview”, May 24, 2016 2 Source: Statistics Canada: Survey of Employment, Payrolls and Hours, 2014 3 Source: Statistics Canada Input-Output Multipliers, Provincial Summary, 2010 4 Source: Government of Alberta, 2016 5 Source: Market Realist, “Should OPEC Interfere to Stabilize the Crude Oil Market?”, January 13 2016


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Cenovus Energy of Calgary has postponed two in situ oil sands recovery plants. Several other projects have been delayed. Canadian Natural Resources, Suncor, Husky Energy and Japan Oil Sands will continue to invest in work now in progress.

The Western Canada Select crude oil contains a solution of bitumen in diluents and both conventional and synthetic crude oils. It is very heavy, and contains 3-3.5 percent sulphur by weight. Sulphur is highly corrosive and sulphur oxides are highly destructive air pollutants. During the January-October period, West Texas Intermediate sold at an average of $42.16 U.S. per barrel. Western Canada select cost $28.47 per barrel6. Ninety-nine percent of Canada’s oil exports go to the United States.

Several factors make Alberta especially sensitive to any weakness in the oil and gas industry:

► Alberta depends heavily on production from the oil sands; this is a high cost source. Any price weaknesses have a severe impact on company earnings.

► The high cost of production could make Alberta’s products among the first to be curtailed in the event of a global oil surplus.

► A large but unknown portion of Alberta’s energy industry is involved with developing new sources (as opposed to operating existing plants). A drop in corporate profitability hampers the companies’ ability to fund development out of retained earnings, and also encourages them to develop new plants more conservatively.

► New energy plants, particularly extraction plants and upgraders for oil sands production, have a very long lead-time. Producers can rapidly adjust their investment schedules in response to weak demands.

► Western Canada Select is a heavy crude with a high sulphur content. It may be less desirable and have higher refining costs than other crudes.

► Western Canada has a heavy reliance on the United States as an export market. It currently lacks the pipelines needed to develop more diversified markets.

Figure 2.1 highlights the recent changes in the price of crude oil for both West Texas Intermediate and Western Canada Select.

6 Source: Government of Alberta Economic Dashboard, December 2, 2016


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Figure 2.1 – Price of Crude Oil

Figure 2.2 shows Alberta’s production of crude oil. The Fort McMurray forest fires caused the large but

temporary drop in production in 2016.

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Figure 2.2 – Alberta Production of Conventional and Synthetic Crude Oil, Millions of Cubic Meters per Day

Low oil prices are particularly detrimental to exploration activity. If demand can already be satisfied by existing wells, it makes little sense to pay the capital costs and take the risks for new ones. Figure 2.3 shows the recent decline in drilling activity in Alberta. Since much of Alberta’s petroleum industry involves not harvesting existing sources but finding new ones, the low prices of crude have caused a particularly severe decline in drilling activity.

Figure 2.3 summarizes recent and historical drilling activity. The chart shows a 12-month moving average to eliminate short term and seasonal effects.

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Figure 2.3 – Number of Wells Being Drilled

The problems of the weak energy sector have propagated throughout the Alberta economy. Between 2010 and 2016, the real GDP of Alberta grew by an average 3.6 percent yearly. Very strong growth (and high oil prices) between 2010 and 2014 were partially undone by a 3.6 percent contraction in 2015 and a further 2.9 percent decline in 2016.

Figure 2.4 shows the recent growth of the Alberta GDP. The recent decline, the result of low oil prices, has been more severe than the problems brought about by the 2007-2009 financial crisis, 9-11 or the end of the dot com correction in 2001-2002.

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Figure 2.4 – Real Alberta GDP

Source: Government of Alberta Department of Finance

2.2.2 The World Price for Oil

The price of oil, like any other product, depends on the supply and demand. The demand for oil is relatively inelastic with respect to price. This means that the consumption of petroleum products will not increase noticeably should the price of oil fall. It also means that, if the supply of oil exceeds the quantity demanded, the price of oil must fall by a large amount to close the gap. A small oversupply of oil will therefore lead to a very large decline in the price and in the profits of oil companies. High cost producers such as Alberta may bear a disproportionate share of the contraction.

China’s demand for oil in the January-May 2016 period fell 2.7 percent from the previous period, according to Standard and Poor’s Global Platts. This reflects the slower growth of China; 9.9 percent annually during 2000-2014 to 6.9 percent in 2015. China’s demand for oil has fallen because the oil-intensive sectors have weakened. The government of China has implemented measures to transition from a capital intensive investment/export-oriented economy financed by foreign debt purchases to a nation driven by services and domestic consumption. During 2016, China took advantage of the low prices to rebuild its strategic reserve of oil. This partially offset the declining demands.

The weak economic conditions in Europe have suppressed the demand for oil. A second factor has been the increasing efficiency of private automobiles. The United States continues to experience very sluggish growth, and the demand for petroleum is substantially less than expected. Growing demands in Russia and India have not offset the weak conditions in the OECD nations and China.

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The supply side has contributed to the petroleum glut. The United States domestic production has doubled since 2005, primarily from the development of Bakken shale deposits. Iraq produced at record rates, and Iran restored production to pre-sanction levels. Canada increased production. Libya re-opened an export terminal, and has restored production. Saudi Arabia, Kuwait, Kazakhstan, Russia and the United Arab Emirates maintained very high levels of output. The civil war in Iraqi Kurdistan has severely reduced the output of oil wells near Mosul. Earlier in 2016, oil production suffered from supply problems in Nigeria, Venezuela, Libya and Canada (the fires at Fort McMurray). These temporary difficulties had no long term impact on the oversupply. The International Energy Agency claims that world oil production grew by 600,000 barrels per day in September 2016 to 97.2 million barrels per day. The higher supply contributed to the weak prices.

The low prices decreased the revenues of Alberta’s oil companies. The high unit costs of Alberta crude, the lower demand for heavy, high-sulphur crude, the increased U.S. production and the province’ reliance on U.S. markets all prompted a decline in crude oil production. This exacerbated the lower prices. The bearish conditions in turn led to less exploration and more conservative investment plans for the oil sands. These multiple shocks to the energy sector quickly spread to every sector of the Alberta economy.

2.3 Air Transportation Industry

2.3.1 Air Traffic

Alberta’s commercial air traffic reflects the difficulties of the energy industry. Both WestJet and Air Canada have adjusted their schedules to reflect changing demands. Table 2.1 shows the recent performance of four of Alberta’s key airports.

Table 2.1 – Recent Traffic Changes at Alberta Airports

Yearly Passengers Compound Annual Changes 2015 2014 2010 2015 vs 2014 2015 vs 2010

Calgary 15,475,759 15,267,396 12,633,709 5.0% 4.1% Edmonton 7,981,074 8,201,416 6,089,099 -2.7% 5.6% Fort McMurray 1,099,663 1,398,416 714,659 -16.0% 9.0% Lethbridge 61,327 58,370 56,994 5.1% 1.5%

Source: Airport websites

The Fort McMurray Airport shows the greatest volatility. Its traffic has the strongest relation to the oil sands. Production and investments in oil sands plants are strongly leveraged on the price of oil. Calgary Airport has benefitted from new services and from its role as a hub for both WestJet and Air Canada. Lethbridge has experienced very sluggish growth since 2010, but showed a strong increase in 2015. Lethbridge’s limited scheduled services, Air Canada to Calgary and Integra Air to Edmonton, make its traffic depend on many airline-specific concerns, particularly product pricing.


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2.3.2 Airline Profitability

The airline industry is very sensitive to economic conditions. High fixed costs, an inability to stockpile its product, a limited ability to respond quickly to any downturn in traffic and a tendency to compete primarily on price have made the industry very vulnerable to external shocks. The 9-11 terrorist attacks on New York and Washington and the 2007-2009 financial crisis caused large and immediate losses to the industry.

Since 2009, airlines have been recovering from the financial crisis. The schedule cutbacks, postponed investment plans, and low fuel prices have boosted airline profits. Many airlines have reported historically high profits.

The International Air Transport Association (IATA) expects world airline profits of $39.4 billion on revenues of $709 billion, for an aggregate net profit margin of 5.6%. 2016 would be the fifth consecutive year of improving aggregate industry profits.

Canada’s airlines have shared in the expansion as shown in Table 2.2 below.

Table 2.2 – Canadian Airline Profits, 2010 and 2015, Millions of Current Dollars 2010 2015 Change %

Air Canada Revenues 10,786 13,868 28.57% Net Income 107 308 187.85% Net Income % Revenues 0.99% 2.22%

Share price, Nov. 26 3.72 14.19

WestJet Revenues 2,609 4,029 54.43% Net Income 137 368 168.61% Net Income % Revenues 5.25% 9.13%

Share Price Nov. 26 13.50 21.26 1

Combined Revenues 13,395 17,897 33.61% Net Income 244 676 177.05% Net Income % Revenues 1.82% 3.78%

Source: Annual reports. Porter Airlines is privately held, and has disclosed very limited information

The improved economics have helped both airlines to expand. They have purchased new aircraft and have inaugurated many new routes; their higher earnings have allowed them to bear the risks of beginning these new routes. The conditions of 2016 are a far better environment for Lethbridge to seek new air services than 2010 for the reasons mentioned above.

While the airlines have benefited from the positive conditions of 2016, the industry in the long term has proven risky and unprofitable. The situation in 2016 is atypical. While some carriers have generated consistent profits, most have proven unprofitable over the long term. The current margins are excellent when compared to earlier years, but usually very poor when compared to other industries. Airlines build up retained earnings during an expansion, but can rapidly generate large losses in a contraction.


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Investors are often reluctant to invest in airlines, and the industry is chronically short of investment capital. Air Canada, United, American and Delta have all experienced bankruptcy in this millennium.

The conditions of 2016 still pose challenges. The airlines must practice conservative expansion policies and build up retained earnings during the favourable periods to prepare for the inevitable downturns. The six year interval of quiet growth and increasing profits is relatively long, and it may be that this good phase is becoming stale. 2016 may be near or at the top of the earnings cycle; conditions are unlikely to get much better, and could get worse.

The positive environment of 2016 has encouraged three low cost carriers to establish services. Overcapacity, fare wars and decreased earnings loom as major threats to airline profitability.

Lethbridge would be prudent to recognize the favourable conditions and respond quickly. It should establish its priorities, develop the business case for new and expanded services, and meet with target airlines. Any unnecessary delays might put its efforts in the midst of a downturn, when carriers are in a crisis mode and unwilling to consider expansion.

2.3.3 Alberta Expansion by Air Canada

Since 2010, Air Canada has continued to expand at Calgary. They offer a nonstop flight to Tokyo, albeit three times weekly during the winter and with the less than ideal 767 aircraft. They attempted to develop a nonstop Calgary-Beijing flight, but could not obtain the necessary slots at the Beijing Capital Airport. In September 2013, it inaugurated a 3/day flight to Red Deer. Its rationale is a matter for speculation; it may have wished to pre-empt entry by WestJet. The airline added Calgary-San Francisco flights in 2015 and upgraded its Calgary-Phoenix route to a year-round operation. The transatlantic routes have been upgraded with the deployment of the 787 Dreamliner. This represents a significant commitment.

2.3.4 Expansion by WestJet/WestJet-Encore

Since 2010, WestJet has inaugurated nonstop flights from Calgary to Orange County, Chicago, Miami, Dallas/Fort Worth, New York, Prince George, Penticton, Houston and other destinations. In the summer of 2016, WestJet launched nonstop flights to London Gatwick from Toronto, Winnipeg, Calgary, Edmonton and Vancouver. In the fall 2016, they announced that they would offer daily Toronto-London and 3/week Calgary-London flights during the 2016-2017 winter season while other Canadian cities would receive summer-only flights to London. WestJet clearly views the Calgary-London route as a priority. During the winter of 2016-2017, they will boost frequencies on selected core domestic routes, several involving Calgary. These new flights have increased the incentive for Lethbridge passengers to drive to Calgary. However, they further strengthen WestJet Calgary’s hub, and increase the traffic feed for a potential Calgary-Lethbridge service.

The 2010 assessment concluded that WestJet was unlikely to inaugurate flights to Lethbridge. Its B737 jets offered a very large capacity in relation to the community’s traffic potential. Furthermore, the jets have very high costs when operating on short stage lengths such as Lethbridge-Calgary. These constraints effectively precluded WestJet from serving many cities across Canada.


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In 2012, WestJet established its Encore subsidiary. Encore operates a fleet of 33 Bombardier Dash 8 Q400 aircraft. As of August 2016, it had orders for a further 9 aircraft. These turboprop aircraft, each seating 78 passengers, could operate many short or low density sectors that would be uneconomical with the B737 fleet. They have made WestJet Encore a strong candidate for Lethbridge.

Since Encore started service in 2013, it has helped WestJet to expand to Fort St. John, Nanaimo, Penticton, Brandon and Boston. Encore will begin serving Sudbury in February 2017. Encore has also helped WestJet rationalize its route network. Encore complements WestJet on the high frequency Toronto-Ottawa route. On routes such as Calgary-Kamloops and Toronto-Quebec City, the Q400s have replaced WestJet B737s. The airline can offer higher frequencies, and deploy lower cost capacity better matched to traffic demands. The large size and high operating costs of the B737 are inappropriate to very short routes such as Toronto-London, Ontario. New Encore flights on this route connect London to WestJet’s strong hub at the Pearson Airport. WestJet can now compete for passengers flying from London to Ottawa, Montreal, New York, Atlantic Canada, Florida and its growing flights to Europe. Previously, WestJet served London only from western Canada by B737’s.

Encore is arguably the best prospect for Lethbridge. While their service would be a matter for speculation, the most likely nonstop destinations would be Edmonton, Vancouver or Calgary. The first two cities would involve the longer distance that would optimize the Dash 8 Q400’s operating economics. However, either route would greatly limit the choice of “beyond” destinations, and restrict the potential revenues. Even just one daily flight might prove problematic. Flights to Calgary would force the aircraft to operate over a very short, high cost flight segment. However, they would provide a very wide range of onward connections, including Edmonton and Vancouver. The airline could consider multiple daily flights.

The “pros” for such a flight are that it would counter Air Canada’s advantage in Lethbridge; an important part of WestJet’s Alberta heartland. It would help WestJet compete for the premium passengers who wish to fly directly to Lethbridge. The short distances might allow a fast Calgary-Lethbridge-Calgary turnaround, using downtime for aircraft dedicated to other routes. There would be no need to allocate an aircraft to the route.

The “cons” for the flight include the high costs of the short segment. The 78-seat aircraft could more than double the capacity at Lethbridge. The community’s total traffic, including surface “leakage”, is probably sufficient for the new service. An analysis of traffic leakage at Lethbridge Airport is presented in Appendix C. However, WestJet will need to charge a premium for passengers flying to and from the Lethbridge Airport. Two questions WestJet would like pose are:

1. Does Lethbridge generate enough premium passengers for both Air Canada and WestJet?; and

2. Why should WestJet offer flights to Lethbridge when passengers are simply driving to its flights in Calgary anyway?

These rhetorical questions can only be addressed through a detailed analysis of ticket coupons. The global distributions systems Marketing Information Data Tables (MIDT) provide the basis for such an inquiry. However, even a very sophisticated formal analysis could only provide incomplete answers. Any WestJet decision on Lethbridge would have a strong judgmental component.


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2.3.5 New Services by Airlines Not Affiliated with Air Canada or WestJet

For a city of its size, Calgary arguably has among the best air services of any point in North America. Few cities can boast a comparable selection of flights, particularly to Europe and Asia.

Since 2010, Calgary has gained many new services by airlines not affiliated with Air Canada. In 2006, British Airways inaugurated nonstop flights to London and has progressively increased its frequencies to a full daily service. The London-Calgary route was among the first to receive British Airways 787 Dreamliner equipment. KLM’s service to Amsterdam, inaugurated in 2009, was expanded to a daily flight in 2012.

In 2016, Hainan Airlines started a nonstop Calgary-Beijing flight. Its other North American destinations include much more populous communities such as Toronto, San Jose/San Francisco, Boston, Seattle and Chicago. Cathay Pacific has expressed an interest in a Calgary-Hong Kong passenger flight, a route it already serves with all-cargo aircraft. Both Emirates and Etihad are seeking changes to Canada’s bilateral agreement with the United Arab Emirates to allow nonstop flights from Calgary to the Arab Gulf.

In December 2016, AeroMexico announced that it would begin daily Mexico City-Calgary flights in the summer of 2017. All flights would use the 737-800. AeroMexico, a SkyTeam member, has a joint fare agreement with WestJet. A closer agreement that involves code sharing would be a reasonable extension of this relationship; but is a matter for speculation.

Delta Air Lines, Alaska and American are well established at Calgary. They do not exchange traffic with Air Canada on any large scale, although circumstances vary.

These new services compete directly or indirectly with Air Canada. Air Canada therefore does not offer attractive joint fares on its connecting flights. With the absence of code sharing, Air Canada’s flights are not listed in any query for beyond-Calgary connections. Passengers connecting from Air Canada to these flights must usually purchase separate tickets and pay the full local fares for each. They must also make additional efforts to develop an itinerary. By any practical measure, Air Canada’s Lethbridge-Calgary service is irrelevant to passengers of non-affiliated airlines. They have no choice but to travel to Calgary by road. As the non-affiliates expand at Calgary, that group of passengers that have a strong price and service disincentive to use Air Canada Lethbridge-Calgary flights may increase7.

2.3.6 Low Cost Carriers and New Entrants Low cost carriers serve many airports throughout the world. A few of the more notable include:

Market Low Cost Carriers and New Entrants United States Allegiant, Spirit, Southwest, Frontier, JetBlue, Virgin America Europe Ryan Air, EasyJet, Norwegian Air Shuttle, Eurowings, Wizzair Australia Virgin Australia, JetStar, Tigerair Australia South America Gol, Easyfly, Wingo Asia Tiger Air, Lion Air, Scoot, Firefly, Spring Airlines, IndiGo, Air Arabia Africa Mango, Jumbojet, kulula com, Fastjet

7 WestJet does share codes with American Airlines, Delta Air Lines, KLM and Hainan Airlines. British Airways discontinued its agreement after WestJet started direct Calgary-London flights.


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The carriers’ strategies vary widely. The most common approaches include:

► Strict control of costs;

► Point-to-point services, avoiding the expenses of an intermediate hub;

► Simplified fleet, usually with one aircraft type;

► Rapid turnaround of aircraft to maximize utilization;

► Using secondary airports in large metropolitan areas to avoid head-to-head retaliation from legacy airlines;

► Using its airports to serve a wide region, thereby causing traffic leakage at established airports;

► No interlining/joint fares with other airlines;

► Focusing on high volume routes;

► Simplified computer reservations system;

► Requiring generous financial incentives from the airports they select;

► Simplified fare structure; and

► Unbundling the product, so that passengers must pay separately for basic transportation, issuing of boarding pass, hand luggage, checked luggage, inflight meals, etc.

Many secondary airports have benefited from low cost carriers. Examples include Southwest Airlines at Manchester, NH and Baltimore, Allegiant at Niagara Falls, NY and Rockford IL (Toronto and Chicago) and Ryan Air at Stanstead and Hahn (for London and Frankfurt). These choices allow the carriers to tap large regions, minimize airport costs, avoid scheduling constraints at congested airports and, most importantly, avoid or minimize retaliation by the established airlines.

The distinction between “low cost” and “traditional” airlines is increasingly diffuse. The “full service” airlines have largely abandoned free meals on domestic flights, charge for checked luggage and advance seat selection and offer fares fully competitive with those of discount airlines. Some offer airline-within-an-airline divisions such as Air Canada Rouge. Low Cost Carriers are increasingly offering premium business products and serving congested airports that they once avoided. Ryan Air is discussing serving “mainline” airports. Southwest flies to New York La Guardia, Washington Reagan National and Caribbean/Latin American destinations that its “classic” business model once circumvented.

New entrants face particular problems. The airline industry is challenging even for well-established carriers. Airlines are very cash-intensive, and there are heavy financial requirements to enter the industry. An airline cannot easily differentiate its product, and competition tends to focus primarily on fares. The worst obstacle to a new entrant is retaliation from established airlines. Both Air Canada and WestJet have publicly stated and demonstrated their commitment to defend themselves against the three new entrants. Although airline load factors have in the last decade risen to the mid-80s, most flights still have a few unoccupied seats. An established airline merely needs to offer a few seats on selected flights at very deep discounts, designing the new fares so that they do not divert passengers from higher fares. A new low fare entrant will need very high passenger loads to be profitable. If the incumbent deprives it of only a handful of passengers, the new entrant could be forced into a money-losing situation.


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The need for a low cost carrier in Canada is questionable. Canada has two strong, profitable domestic/international airlines, Porter, a third presence east of Thunder Bay with visions of expanding westward, and Air Transat. Canada has never had a more healthy or competitive airline industry. Nationair, Astoria, Greyhound, CanJet, Canada 3000, Harmony, Vistajet, Ontario Worldways, Zoom and JetsGo have all tried and failed to establish low cost services. WestJet originally positioned itself as a Low Cost Carrier. It served secondary airports such as Abbotsford and Hamilton, flew one type of aircraft on high volume domestic routes, did not exchange traffic with other airlines and had a very simple fare structure. Now, with transatlantic services, wide body aircraft, turboprop services to secondary markets, code sharing alliances with many airlines, and a 2004 shift of most flights from Hamilton to Toronto Pearson, it has transformed itself from a low cost to a legacy-type airline. This transformation suggests that Canada has little room for a low cost carrier.

Three airlines have established or proposed to establish low cost services within Canada:

1. NewLeaf initiated intra-Canada flights in July 2016. It uses aircraft owned and operated by Flair Airlines;

2. EnerJet of Calgary, which specialized in transporting workers to energy sites, proposes to establish a low cost scheduled airline called Jet Naked; and

3. Canada Jetlines of Richmond, British Columbia has proposed a domestic network that would eventually be expanded to international routes.

Canadian law prohibits foreigners from owning more than 25 percent of a national airline. Enerjet and Canada Jetlines claimed that this rule would prevent them from securing funding. The government agreed to exempt both start-ups from the rule and it will develop a new policy applying to all carriers. The maximum foreign ownership ceiling will be raised to 49 percent. Until recently, no foreign single investor could own more than 25 percent of a Canadian airline.

The new measure will give Canadian carriers wider access to foreign capital markets. However, the greatest obstacles for airline financing are the low profits and high risks. These problems apply with particular force to new entrants.

The three new carriers may bring an era of steeply declining fares and stronger competition. However, there are several caveats. The three new airlines are entering the market at the peak of the industry’s earning cycle and the seven years of expansion are an unusually long period. The expansion may be increasingly stale, and a correction may be overdue. If oil prices increase significantly, all airlines could experience severe earnings pressures. Higher oil prices might promote more development in the oil sands, and Enerjet might then return to its traditional business.

The low cost entrants will face highly focussed and intense retaliation from Air Canada and WestJet. One airline would face major problems capturing enough highly price-sensitive traffic from Air Canada and WestJet to be profitable. However, there will be not one, but three carriers pursuing the same limited traffic. It is unlikely that all three airlines will succeed. Any problems faced by one new entrant could spread to the others. If one airline fails, some passengers might incur financial losses. This might encourage travelers to avoid all of the new entrants. The presence of three new entrants will reduce the chances that even one will succeed.


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2.3.7 Summary

The current weakness in the petroleum sector is the result of worldwide problems in the supply and demand for petroleum. Alberta’s reliance on synthetic crudes makes it particularly vulnerable to any weakness in the price of oil. The low price elasticity of demand has created strong price volatility.

The aviation sector has suffered from the weak Alberta economy. However, Air Canada, WestJet and other airlines have continued to improve their offerings at Calgary. The new Air Canada service offerings provide better connections for the Lethbridge flights and could stimulate boardings at the Lethbridge Airport. Flights by WestJet’s Encore regional service are an obvious goal for Lethbridge.

Three new low cost carriers could provide services to Lethbridge. Although new entrant airlines are inherently risky and there is no compelling evidence that Canada can support another domestic airline, let alone three. Any efforts to bring a new entrant to Lethbridge should be regarded as speculative.

However, Air Canada and WestJet have very strong services at Calgary. This might discourage a strong buildup of low cost carriers at Calgary. By serving Lethbridge, they could develop the poorly served markets of Lethbridge, Medicine Hat, southern Alberta and southeastern British Columbia. However, both WestJet and Air Canada might improve their services to these areas in order to protect their current franchises.

2.4 Airport Policy Transport Canada Air Policy Directorate has recently focussed on Canada’s new international air policy with a primary objective to provide a framework that encourages competition and the development of new and expanded international air services. This area of focus does not pertain to Lethbridge Airport or other regional airports.

Based on review of available Transport Canada documentation and publications, there appear to be few upcoming changes to airport policy. Specific to Lethbridge Airport, changes in airport policy should not have a significant impact on airport management or governance within the next 2 to 3 years.

2.5 Airport Capital Assistance Program

2.5.1 Background

The Airport Capital Assistance Program (ACAP) began in 1995 and provides federal funds to help eligible airports finance capital projects that will maintain and improve aviation safety. Eligible airports are not owned by the federal government and offer year-round regularly scheduled passenger flights.

2.5.2 Current Agreement

ACAP currently funds projects from three priority categories:

1. 1st priority: safety-related airside projects such as rehabilitation of runways, taxiways and aprons, improvements to electrical and lighting systems, and the purchase of aircraft firefighting vehicles.

2. 2nd priority: heavy airside mobile equipment and safety-related items such as runway snow blowers, snowplows and runway sweepers.


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3. 3rd priority: air terminal building/groundside safety-related projects such as wildlife fencing, sprinkler systems, asbestos removal, and barrier-free access.

Currently, ACAP provides up to a combined total of $38 million per year to successful applicant airports.

2.5.3 Approved Projects 2016-2017

According to the approved projects list, all ACAP projects approved for 2016-2017 involved the replacement or rehabilitation projects involving airside pavements and electrical systems or the purchase of fire fighting vehicles for the purpose of maintaining operational safety. None of the projects involve the expansion of facilities and all are intended to improve aviation safety.

Examples of safety-related projects that might be considered expansion include extending perimeter fencing to improve wildlife control capabilities and adding approach lighting or edge lights to improve visibility.

2.5.4 Impact on Lethbridge Airport

Lethbridge Airport is eligible for ACAP funding under the current agreement and will remain eligible for the foreseeable future so long as scheduled passenger service continues. The Airport has been successful in obtaining ACAP funding for both infrastructure and equipment, with $8.1 million allocated to Airport improvement projects between 1998 and 2016.

2.6 SWOT Analysis

The internal and external strategic factors of Lethbridge Airport are categorized into the four groups below.

Strengths

► The Airport is well located to serve southern Alberta. Lethbridge is the 4th largest urban centre in Alberta with the City and County having over 105,000 residents (Census of Canada).

► Fiscal responsibility has placed both the County and the Airport in good financial standing. Should borrowing be required to fund capital improvements, the Airport is well positioned.

► Airport infrastructure is generally in good condition with competent management and a strong infrastructure management program.

► The current airport businesses are well-operated and have a vested interest in the long-term success of the Airport.

Weaknesses

► The declining quality and increasing costs of passenger services have led to a public perception that the Airport is not well suited to serve the community as a whole.

► Consultations have suggested that the County, like many government organizations, is not structured to operate businesses such as the Airport.


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► Historically, the Airport has not been well marketed. Modest marketing efforts have been promising but have not yet yielded positive outcomes.

Opportunities

► Since 1998 the County has been successful in obtaining approximately $8.1 million in funding from ACAP. This source of funding is a realistic possibility for future infrastructure and mobile equipment projects related specifically to aviation safety.

► On November 3, 2016, Minister of Transportation Marc Garneau announced that international companies will be able to own 49 per cent of an airline in Canada – up from the current 25 per cent. Many believe that this will result in increased domestic competition and could see new Low Cost Carriers (LCC) enter the market. These carriers typically avoid large hub airports as much as possible due to congestion and high fees. For example, NewLeaf, a new Canadian LCC, has elected to serve Hamilton, Ontario to avoid the costs associated with Toronto Pearson International.

► Potential new air service prospects include, but are not limited to: increased services to Edmonton, WestJet Encore service to Calgary, Vancouver service, and low-cost carrier service to Canadian destinations east and west.

Threats

► Surface leakage, or the loss of passengers to neighbouring airports due to perceived convenience or cost savings, is a common problem faced by most airports, both international and regional. Calgary and Great Falls are the recipients of the majority of passenger traffic lost by Lethbridge Airport.

► The majority of Canada is served by very few air carriers, with only two offering service coast–to-coast air services. This has proven detrimental to competition, which in the US has led to considerably lower air fares. Lethbridge is currently served by only one of those carriers, resulting in relatively high fares. Should the second carrier attempt to begin service to Lethbridge, a short-term price war would likely see the retreat of one carrier and the return of high fares. The potential impact of the recent change in airline foreign ownership policy may not be realized for years or decades.

► There is a trend in Canadian commercial aviation of movement away from regional services. Regional services typically utilize small aircraft, which cost considerably more to operate on a per seat basis than larger aircraft. Many airlines, including Air Canada, are reducing their frequency to regional airports but maintaining the same capacity by operating larger aircraft. Air Canada currently serves Lethbridge using B1900D 19-passenger aircraft, which have been out of production since 2004 and do not have an obvious successor. Without a replacement for this aircraft, the utilization of larger aircraft types (including the DHC8-300 and Q400) may result in lower flight frequencies.


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3.0 MARKET ASSESSMENT AND FORECAST

3.1 Introduction

Long term traffic forecasts for Lethbridge Airport through to 2040 have been prepared and consider:

► Scheduled passenger enplanements and deplanements;

► Itinerant general aviation landings and takeoffs; and

► Local general aviation landings and takeoffs.

The appropriate governance structure and capital programs will depend on future activity levels. The future traffic volumes will determine the types of aircraft using the Airport, and the appropriate development path. The forecasts will help the Airport allocate its lands to aviation and non-aviation uses. Finally, the optimal structure of airport management and airport governance will hinge on the scale of future aviation and non-aviation activities.

3.2 Assumptions and Methodology

The forecasting approach recognizes the role of the airlines in determining traffic at the Airport. Should airlines increase capacity on existing routes or commence new service to Lethbridge, traffic at the Airport could grow rapidly. Any reduction in fares at Lethbridge relative to those at Calgary and other airports could also stimulate traffic. Many potential passengers now travel by road to other airports, creating a large pool of traffic that could or might support better air services at Lethbridge.

Air traffic at Lethbridge shows little relationship to the provincial GDP, the national GDP, the price of oil or other immediately obvious socioeconomic variables. An inspection of the series suggests that it is merely fluctuating around a central value, with no long term growth trend. While an economic recovery would certainly be conducive to traffic growth, the statistics provide no useful predictive model.

The Low Case assumes that Air Canada would retain the Beech 1900 or an unknown aircraft of equivalent capacity for the foreseeable future and Integra Air would not change its schedules. Traffic would remain at 2015 values.

The Medium and High Cases uses an econometric model to predict future traffic. The Air Canada and WestJet annual reports and financial statements include tables showing passenger revenues and revenue-passenger kilometers. They together show the national volume of traffic and the average yields per revenue passenger-kilometre. Future projections of the national GDP were based on forecasts of the banks, the Bank of Canada and the International Monetary Fund. Future yields consider probable escalations of unit costs. These assumptions, when superimposed on the model, produce forecasts of national aviation activity. The Medium case for Lethbridge assumes that the Airport’s passenger will grow at the same rate as nationwide traffic.


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The High case calls for an accelerated growth of national GDP, combined with a slow growth in operating costs. These rates imply a faster growth for national revenue passenger-kilometers and a correspondingly more aggressive growth of enplaned-deplaned traffic at Lethbridge Airport.

The estimates, when superimposed on forecasts of Alberta’s future GDP growth and recent traffic at Lethbridge Airport, generate forecasts of future passenger traffic growth to 2040.

3.3 Baseline Forecast

Figure 3.1 displays the Low, Medium and High Baseline passenger growth forecasts. The tables in Appendix D list the historical and forecast traffic in detail. Figure 3.2 shows corresponding forecasts for Baseline landings and takeoffs. Under the Medium Case, the Airport would not re-attain the passenger traffic it served in 1989 within the forecast period.

Figure 3.1 – Historical and Forecast Baseline Passenger Traffic to 2040

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Figure 3.2 – Historical and Forecast Baseline Aircraft Movements to 2040

Lethbridge’s passenger traffic has been static or declining since the early 1990s. However, commercial aviation has been growing rapidly throughout Canada and the world. The residents and visitors have participated in this growth; the Airport has not. Airline-specific strategies and constraints have discouraged use of the Lethbridge Airport and have encouraged passengers to drive to competing facilities, particularly Calgary. The high forecasts, although very aggressive, call for the Airport handling fewer passengers in 2040 than it did in 1989.

The Medium and High forecasts use national GDP and nationwide yields as determinants of traffic. However, it is the airlines and their scheduling, pricing and route planning policies that will play the primary role in determining future traffic at Lethbridge.

The forecasts are generally less optimistic than those prepared in 2011. The 2011 forecasts assumed that the 2007-2010 decline in passenger traffic was the result of the worldwide financial crisis. Once the crisis was resolved, traffic would rebound. However, Lethbridge’s traffic showed no such resilience. Passenger counts for 2015 were less than those of 2007-2009. The low oil prices and the weak provincial economy of 2015-2016 were not expected. There is a growing belief that there are many substitutes for petroleum (e.g. shale gas), and that oil prices may grow more slowly, but just as erratically, as in the past. The Beech 1900s serving Lethbridge are a major cause of uncertainty. Any replacement aircraft, while having lower operating costs per passenger, would be much larger. There may be insufficient premium traffic at Lethbridge to support the greatly increased capacity. Finally, WestJet has launched its Encore division. Even a minimal two daily flights would greatly increase aggregate airline capacity at Lethbridge. As of December 2016, WestJet has not announced any intention to serve Lethbridge. The augmented forecasts could permit very strong growth.

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3.4 Traffic Growth Forecasts The baseline forecasts therefore call for no changes in the 2016 level. However, several factors could stimulate traffic growth at Lethbridge Airport. Current volumes, in conjunction with the future environment generate five forecasting scenarios:

1. Continuation of Air Canada and Air Integra services with no capacity changes.

2. Air Canada upgrades Lethbridge-Calgary service with two daily flights operated by 50 seat aircraft.

3. WestJet Encore inaugurates twice daily Calgary-Lethbridge services.

4. A Low Cost Carrier inaugurates 3/week flights to Lethbridge

5. Charter airline offers winter-only flights to Mexico or the U.S. Sunbelt.

Scenarios 2-5 call for additional capacity at air services at Lethbridge. The discussion does not constitute an endorsement or recommendation of any option. The Lethbridge Airport will need to conduct its own evaluations of traffic and revenues, identify its priorities and prepare an appropriate communications package. This discussion only illustrates how each option might affect total traffic.

3.4.1 Continuation of Status Quo

The existing services of Air Canada and Integra Air would continue with modest improvements. Traffic at the Lethbridge Airport would grow in line with the medium baseline forecast. Figure 3.3 illustrates Status Quo growth.

Figure 3.3 – Status Quo

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3.4.2 Capacity Upgrade by Air Canada

The first augmented forecast has Air Canada increasing its Calgary capacity. Two of its daily departures would be upgraded to 50 seat DHC8-300 aircraft from the current 19 seat Beech 1900s. The current load factors would remain unchanged. Figure 3.4 illustrates impact of a capacity upgrade by Air Canada.

Figure 3.4 – Air Canada Upgrade

3.4.3 Twice Daily Flights to Calgary on WestJet Encore

WestJet Encore would offer two daily flights to Calgary using 78 seat Dash Q400s. They would operate at a load factor of 75 percent; somewhat higher than the 67% of the existing flights of Air Canada and Integra Air. The relatively large capacity of the WestJet Encore aircraft would require that they pursue certain low yield segments that currently drive to Calgary. The lower yields in turn would necessitate higher load factors than are the current norm at Lethbridge. The forecasts assume that the WestJet services would divert 15,000 passengers yearly from Air Canada. These assumptions imply a traffic level slightly higher than the all-time record of 123,000 passengers set in 1989. Figure 3.5 illustrates impact of the introduction of WestJet Encore service to Calgary in 2017.

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Figure 3.5 – WestJet Encore

3.4.4 Service by a Low Cost Carrier

Under this option, a low cost carrier would serve Lethbridge three times per week with an aircraft such as a B737. The flight would follow a routing such as Winnipeg-Lethbridge-Vancouver. One hundred persons would deplane and 100 persons would board each flight that stops at Lethbridge. The low cost carrier would increase airport passenger throughput by 31,200 passengers per year to 92,527 passengers.

Most low cost carriers operate high frequency services so that they can spread the fixed costs of a new station over a wide base. Figure 3.6 illustrates demand impact of the introduction of Low Cost Carrier service.

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Figure 3.6 – Low Cost Carrier

3.4.5 Charter Flights

Charter flights by aircraft such as the B737 could operate between Lethbridge and popular vacation destinations. The flights would operate 1-3 times weekly for a 4-6 month period. They would repatriate some of the vacation traffic now driving to Great Falls MT and Allegiant Airlines. Table 3.1 shows charter traffic volumes for selected services for comparison purposes. Figure 3.7 illustrates impact of southern charter operations.

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Figure 3.7 – Southern Charter

Table 3.1 – Canada-United States Charter Traffic for Selected City-Pairs and Airlines

Canadian Point U.S. Point Carrier 2012 2013 2014 2015 Abbotsford Las Vegas WestJet

3,925

Deer Lake Orlando Sunwings

1,374 Fort McMurray Las Vegas WestJet

943

Gander Orlando Sunwings

498 Kelowna Las Vegas WestJet 10,902 8,097 11,791 12,002 Kelowna Phoenix WestJet 5,857 3,773 9,921 9,161 Moncton Orlando Canjet

3,477

Moncton Orlando Air Transat

3,302 Moncton Orlando Sunwings

4,232

Moncton Orlando WestJet 2,760 2,855 3,396 3,445 St. John's Orlando WestJet 5,186 3,585 6,644 6,511 Victoria Las Vegas WestJet 21,102 15,682 26,171 23,763 Victoria Phoenix WestJet 4,930 3,341 4,591 3,843

Source: United States Department of Transportation Database 28IS

No statistical process can provide a realistic estimate of the traffic that a hypothetical series of charter flights would carry. However, a conservative estimate of 8,000 passengers, 4,000 in each direction, offers a realistic target for Lethbridge, similar to the Kelowna-Phoenix market.

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Figure 3.8 displays passenger traffic volumes for year 2025 of the Baseline Case and the augmented forecast scenarios.

Figure 3.8 – Baseline Forecasts Compared to Augmented Forecasts for Year 2025

3.5 General Aviation Forecast

3.5.1 Classifications

Canadian statistics for general aviation are typically divided into four segments and are described below.

1. Other Commercial

This definition includes any flights hired for commercial purposes. The operator holds a license issued by the Canadian Transportation Agency and receives compensation on an arm’s length basis from the entity hiring the flight. This category includes some passenger and cargo charter flights, pipeline inspection, prospecting, crop spraying and many other activities. Statistics Canada defines this category by default as any commercial operation that does not include carriage of passengers or goods on a unit toll basis. Until 1991, this category included many scheduled flights. Published databases still suffer from instances of the wrongful inclusion of scheduled flights in reported general aviation totals.

2. Private

Private flying involves any operation in which the entity that benefits from the flight also owns the aircraft. Recreational flyers who own their own aircraft and corporate aviation departments are the most common generators of “private” operations statistics.

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3. Civil Government

This category describes any flight undertaken by a civilian governmental organization. Common applications include transportation of senior government officials and police operations such as enforcing speed limits.

4. Military

These flight operations include all performed by Canadian and foreign national defence forces.

3.5.2 GA Forecasts

General aviation is typically a forecasting challenge. Its components usually do not follow any major socioeconomic variables. At most airports, general aviation activity responds to site- and company-specific issues such as individual contracts or events. These are inherently difficult to predict. Most of the general aviation segments at Lethbridge have been declining for more than a decade. This experience is common throughout Canada.

In the absence of a formal model, the forecasts use a series of growth rates to predict future activity levels. The Low case assumes that every component of general aviation will continue at its 2014 level. More recent statistics are not available. The Medium case calls for every type of general aviation to grow at the same rate as the medium GDP used for the passenger forecasts. The High case uses growth rates slightly higher than those of the high GDP used for passenger forecasts.

Appendix D shows historical and forecast general aviation activity at Lethbridge Airport. Figure 3.9 summarizes this appendix. The graph omits the medium and high forecasts for civil government and military activity. The differences between the forecast low and high cases for both series is too small to be resolved on the graph.


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Figure 3.9 – Historical and Forecast GA Activity to 2040

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4.0 TECHNICAL DUE DILIGENCE

A high-level review of airport facilities was undertaken to update the conditions, deficiencies, and future requirements of critical infrastructure. The process included the visual inspection of above ground facilities and equipment and consultations with Airport staff.

TP312 5th Edition – Aerodrome Standards and Recommended Practices

Certified airports in Canada are required to comply with national standards for airport activities and construction. In January 2014, Transport Canada presented a draft version of the new Aerodrome Standards and Recommended Practices – TP312 5th Edition. Following industry review, the final document was made effective on September 15th, 2015. The fundamental change in the 5th Edition is the assignment of Aircraft Group Numbers (AGN) based on the wing span, outer main gear span, tail height, and approach speed of the design aircraft. This change prescribes that airports be designed and constructed based on aircraft performance and level of service, and not runway length as was prescribed in the 4th Edition.

Compliance with Transport Canada standards is mandatory to maintain an Airport Operating Certificate.

Areas are established around certain airport components to protect the safety and security of aircraft operations. Depending on the nature of existing facilities and the location of various topographical features adjacent to the site, other restrictions may also apply.

An AGN is assigned to an airport facility that classifies runways and taxiways according to the wingspan, outer main wheel span, tail height, and/or approach speed of the designated design aircraft. In addition, both TP312 4th and 5th Edition classify runways according to their capability to support three types of approaches: Non-Instrument (NI), Non-Precision (NP), and Precision (P). As approaches become more sophisticated (i.e. to permit operations in poorer visibility conditions), greater levels of protection are required.

Grandfathering

According to Transport Canada Advisory Circular AC 302-018, the certification of an airport under 5th Edition standards (or part thereof) that was certified to a previous edition of TP312 is required if:

► There are improvements to the level of service affecting any part of the movement area (e.g. Upgrade from Non-Instrument to Non-Precision, Non-Precision to Precision, or operating visibility); or

► A change of the critical aircraft affecting the Obstacle Limitation and Identification Surfaces, runway strip, and graded area standards, amongst other requirements associated with the change for that particular runway.

While TP312 5th Edition is the new standard, Lethbridge Airport may remain certified under 4th Edition until the design aircraft is changed to an aircraft of a higher AGN, a runway is lengthened, or Runway 12-30’s level of service is improved to precision. However, should one airfield element be improved, it does not necessarily force the improvement/upgrade of all facilities.


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For example, if the level of service of a runway is improved (from non-precision to precision) only a parallel taxiway would have to be modified if it did not meet minimum precision offsets, and not all taxiways. Air Terminal Building and aprons are not included in TP312 5th Edition so any improvement or alteration of these facilities would not trigger recertification under the new standards.

4.1 Airfield Infrastructure

Airside infrastructure consists of two asphalt paved runways: Runway 05-23 (6500' x 200') and Runway 12-30 (5500' x 150'), three taxiways (A, B, and C), and three aprons (I, II, and III). The Air Terminal Building (ATB) located on Apron I has an area of 1,330 m2 and supports scheduled and charter air passenger service8.

4.1.1 Runway 05-23

Runway 05-23 (6,500’ x 200’) is the primary runway and has an asphalt surface. It was rehabilitated in 2005 using Federal Airport Capital Assistance Program (ACAP) funding. The runway remains in good condition and is of sufficient length to support Boeing 737-type aircraft. However, the maximum range and payload of B737 aircraft may be limited by the runway length dependent upon air temperature, winds, and runway surface contamination (e.g. rain, snow).

The primary runway is capable of accommodating medium narrow-body passenger aircraft including the B737 series to destination such as Vancouver, Edmonton, Regina, Winnipeg, and Toronto.

Runways of this type typically need resurfacing every 15 years, but this can vary by traffic and local conditions. Based on little change in the condition of the runway and minimal cracking since the 2011 study, Runway 05-23 may exceed the typical service life of an asphalt runway.

4.1.2 Runway 12-30

The secondary runway (12-30) is 5,500’ x 150’ and is also asphalt. The runway was reconstructed in 2001 with assistance from the federal government via ACAP.

Runway 12-30 is adequate to serve as a secondary, cross-wind runway for the Airport, which is important for training and light aircraft operations where lower crosswind limitations may limit runway availability. Lethbridge is prone to high winds conditions.

The runway is currently in fair condition, with crack repair required seasonally. It is the belief of County staff that the extensive cracking observed may be the result of only partial reconstruction in 2001. The portion of the runway that was fully rehabilitated has experienced far less cracking. Rehabilitation of the runway will be necessary sooner than Runway 05-23, possibly within 5-10 years. The projected timing of this work requires detailed pavement analysis. Due to the wind conditions experienced at the Airport, it is likely that the rehabilitation of Runway 12-30 may be eligible for ACAP funding.

8 Lethbridge Airport ULCC Short Term Accommodation Plan, April 2015


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4.1.3 Taxiways

Taxiway A

Taxiway ‘A’ is a 23m wide, Code D (AGN IV equivalent) taxiway of asphalt construction that connects Apron I to the intersection of Runways 05-23 and 12-30. The taxiway is believed to be adequate for its current and future operators.

The taxiway has not been rehabilitated since the transfer of the Airport to the County in 1996. It is in poor condition with extensive transverse and longitudinal cracking. The 2011 study recommended that Taxiway A be rehabilitated in the short term (1-5 years).

Taxiway B

Taxiway ‘B’ is a 23m wide, Code B (AGN II equivalent) taxiway of asphalt construction that connects Apron I to Runway 12-30. The taxiway is adequate for its current purpose. It cannot be upgraded to Code C or D (AGN III or IV) to handle larger aircraft due to the proximity of nearby buildings and infrastructure. This is not considered to be a significant issue for long-term planning.

A portion of the taxiway was rehabilitated in 1998 and the entire taxiway underwent rehabilitation in 2006. Taxiway ‘B’ is in good condition and should be capable of accommodating the traffic forecasted. Routine pavement maintenance will be required as it deteriorates over its normal life-cycle.

Taxiway C

Taxiway ‘C’ is a 23m wide, Code D (AGN IV equivalent) taxiway of asphalt construction that connects Apron II to Taxiway ‘A’. The taxiway is adequate for its current and anticipated purpose. Taxiway ‘C’ has not been rehabilitated since the transfer of the Airport to the County in 1996 and is in need of rehabilitation. This should be coordinated with the rehabilitation of Runway 12-30 and Taxiway ‘A’ in the short-term.

4.1.4 Aprons

Apron I

Apron I is the main public apron accommodating scheduled air service and itinerant activities. The apron is located adjacent to the ATB and is 142m x 95m. It is constructed primarily of Portland Cement (PC) concrete construction with asphalt pavement around the perimeter in safety zones, and more lightly used areas. The apron is of sufficient capacity to accommodate scheduled air services throughout the baseline forecasted period. However, if significant air service development occurs, additional apron area may be required, depending on the size of aircraft, flight schedules, and the potential for overlapping operations. There is space for modest expansion of the apron to the north and south.

The concrete areas appear to be in good condition, but the asphalt areas are have deteriorated. The condition of the asphalt pavement portion of Apron I should be monitored. Rehabilitation may be required in the short (1-5 years) or medium term (5-10 years).


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Apron II

Apron II is 162m x 84m and is constructed of PC concrete. It serves general aviation traffic and is the preferred area for accommodating itinerant aircraft. The apron is used primarily by Air West Flight Support, QL Aviation Services, and Excel Flight Training and has sufficient capacity for future operations.

Portions of the apron are in poor condition and require the replacement of concrete panels. Consultation with the primary users of Apron II did not highlight the current apron condition as a concern.

Apron III

Apron III is 104m x 81m and used by itinerant and local GA aircraft and adjacent commercial activities. Constructed of asphaltic concrete, it was rehabilitated in 1998 using ACAP funding. The apron serves Integra Air and Southern Aero Aviation operations. It remains in good condition with no visible signs of cracking.

4.1.5 Airside Capacity

Current air traffic levels are below the operating capacity of the airfield infrastructure, specifically the capacity of the runway, taxiway and apron systems. Assuming similar aircraft types will utilize the Airport and passenger traffic grows in line with the medium baseline growth projections, additional infrastructure will not be required. However, under certain air service growth scenarios, additional airside infrastructure may be necessary.

► Should expanded airline schedules cause apron occupancy challenges and congestion at peak times, expansion of Apron I may be required.

► Additional taxiways are required to access commercial land development and, in the event Airport traffic levels grow significantly, a parallel taxiway system serving Runway 05-23 may ultimately be required.

► The 2011 Study proposed that the most important project to increase capacity would be the extension of Runway 05-23 to accommodate higher performance jets such as 75-seat CRJ 200 regional jets (which require longer take-off distances at higher elevation airports), and for heavier longer range aircraft such as the B737-800 operating at unrestricted weights in summer conditions. Within the last 5 years, both Air Canada and WestJet have added 78-seat DHC8-400 aircraft to their fleets serving many of the same markets as the CRJ. While some potential future service may benefit from a longer primary runway, it is recommended that the County and City confirm the requirements of the air carriers before significant investment is made in a runway extension.


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4.2 Airfield Electrical

4.2.1 Visual Approach and Landing Aids

Both runways are equipped with runway edge lighting and approach lighting.

Runway 05 is supported by a SSALR High Intensity approach lighting system to complement its Instrument Landing System (ILS). Upgrades were made to the approach lighting system in 2002 using ACAP funding.

Runway 23 is equipped with a Type II Precision Approach Path Indicator (PAPI) system. Consultations with airport users suggest that installing PAPIs on the remaining 3 runways would not improve operational efficiency or safety by a noticeable level.

Based on consultations with scheduled passenger and general aviation operators, the Airport’s current inventory of visual approach and landing aids is adequate and will not require substantial upgrades within the 20-year planning horizon.

4.2.2 Electronic Navigation and Approach Aids

The Airport is served by 3 electronic navigation and approach aids consisting of a Non-Directional Beacon (NDB), co-located VHF Omni-directional Range (VOR) and Distance Measuring Equipment (DME), and an Instrument Landing System (ILS) for Runway 05. The installation, operation, maintenance and related costs of navigational and approach aids are the responsibility of NAV CANADA. The existing navigational and approach aids are adequate for the duration of the 20-year planning horizon.

4.2.3 Field Electric Centre

The Field Electric Centre (FEC), which controls the distribution of electricity to airfield lighting and visual aids, is located north of Taxiway ‘B’. The FEC is in good condition and capable of serving the Airport throughout the forecasted baseline period. Consultation with airport staff suggests that the FEC has sufficient capacity for future projects.

4.2.4 Airfield Lighting

A survey of airport infrastructure completed by AECOM in 2008 found the airfield electrical infrastructure to be in good condition. This includes approach lighting, and runway and taxiway edge lighting. This was reconfirmed during consultation with airport staff in 2016.

4.2.5 Meteorological Observation

A meteorological observation station is located south of the intersection of the two runways, adjacent to the site of the former Air Traffic Control Tower. Like the electronic navigation and approach aids, the operation and maintenance of the station falls under the jurisdiction of NAV CANADA.


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4.3 Air Terminal Building

4.3.1 Building Condition

The Terminal Building was constructed in 1979 by Transport Canada. Based on visual inspection, consultations with airport staff, and previous reports, the building is in good structural condition. However, many of the finishes including flooring and wall coverings are dated. Consultations suggest that modest renovations of public areas may improve public perception of the Airport. It is understood that floor tiles containing asbestos were used in several areas which will impact the time and cost associated with renovations.

4.3.2 Space Deficiencies

At its peak in 1989, the ATB handled 123,000 passengers per year. At that time, Time Air connected Lethbridge to a number of destinations in western Canada. Since then, a portion of the first floor has been assigned to the Canada Border Services Agency (CBSA) for processing international and transborder passengers. In 2001, the Canadian Air Transport Security Authority (CATSA) was also assigned space for screening of passengers and baggage. These additional uses have reduced available public space for regular terminal operations.

The existing secure hold room now seats 89 passengers. In the winter of 2006-2007, Air Transat offered flights to Puerto Vallarta from Lethbridge using B737-700 aircraft with 135 seats. Though this service was short-lived, it required temporary modifications to the terminal and utilization of all public areas as a secure hold room, rendering the terminal closed to the public during the pre-boarding period. Special arrangements were also made for processing arriving international passengers.

Based on current traffic, there appear to be no overall ATB space deficiencies.

The required size of the terminal in the future should be based on peak hour passenger volumes and agreed levels of service. These are derived from a combination of aircraft size, airline schedules and peak hour passenger throughput. Increases in aircraft size, sectors served (i.e. international, trans-border, domestic) and / or frequencies beyond current levels may require adaptation of existing spaces, followed by progressive expansion of the ground floor area of the building. An assessment of the ATB was undertaken by LPS AVIA Consulting in 2015 that identified space requirements to support a new LLC operating B737 aircraft. The following recommendations were made:

► Reconfiguration of the passenger check-in area to provide one additional check-in position and adequate queuing space;

► Addition of an ‘overflow queuing area’ to support passenger check-in;

► Relocation of the airport security office to the existing janitor’s office;

► Provision of designated passenger security queue with a glass feature wall;

► Reconfiguration of the secure passenger holdroom by removing the vestibule on western side, and extending into the three storage rooms to the east of the existing holdroom;

► Provision of two departure gates within the expanded secure passenger holdroom;


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► Designation of an unsecure passenger holding area adjacent to the arrivals area;

► Provision of barrier-free washrooms within the expanded secure passenger holdroom;

The requirements may be less for a DHC8-400 operator and additional assessment would be required.

Referencing the consultant’s experience, WestJet Encore has a list of requirements which must be met before establishing air service at an airport. Consultation with an airport successful in attracting Encore service confirmed that WestJet requires an airport to have a holdroom capable of serving simultaneous Q400 (78 seat per aircraft) operations with the understanding that Air Canada will match the WestJet Encore service, at least initially. The County and City will have to commit a significant investment in the terminal building to facilitate significant improvements in air services.

4.4 Commercial Facilities

4.4.1 Current Inventory

Airside

Airside commercial facilities are those that have direct access to the taxiways and runways and are generally leased by companies that are directly involved in the operation of aircraft. The following companies lease airside commercial lots at Lethbridge Airport:

► Integra Air;

► Air West Flight Support;

► Southern Aero Aviation; and

► West Wind Airspray Ltd.

The above companies offer a mix of passenger and general aviation services and include scheduled passenger operations, fixed base operations, and agricultural spraying. All airside commercial tenants at Lethbridge Airport are directly involved in aircraft operations.

Groundside

Groundside commercial facilities are those that are located on airport property, but do not have direct access to taxiways or runways. Companies that lease groundside lots are rarely involved in aircraft operations, though companies that provide a service that supports the aviation industry are preferable. The following companies lease groundside commercial lots:

► Airport Self Storage;

► Western RV Country;

► TNT Trucking

► Salmon and Sons Funeral Homes; and

► SRI Homes

None of the above companies are involved in the aviation industry at the Airport. Although it is rare for all groundside tenants to be involved in aviation, the presence of one or two companies supporting aviation or aircraft operations may aid in attracting both airside and groundside commercial tenants.


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4.4.2 Commercial Land Supply

Airside

There is limited land currently accessible for additional airside commercial development lots. It has been suggested that Taxiway ‘B’ be extended to the north to allow for future airside development. This would make available a considerable amount of additional land for commercial development. Consultation revealed that some airport businesses have had expansion limited by a lack of airside commercial land and some prospective tenants have selected other airports to base their operations based on airside commercial land available and lower development costs.

Groundside

There are currently lots available for lease to groundside tenants. There is also groundside land available for future development should there be demand in the future. It is recommended that, if at all possible, this land be reserved for uses complementary to aviation business activity.

4.5 Access Roads and Parking

4.5.1 Access and Approach Roads

Both the airside and groundside access roads are in good condition. Stubb Ross Road and Kenyon Drive were both reconstructed in 2009. The rehabilitation of these roads is expected to be required within 20-year planning horizon.

4.5.2 Terminal Frontage and Parking

The terminal building is accessed using a two lane frontage road with a drop-off lane and a passing lane. Using County funds the frontage road and the parking lot were resurfaced in 2014 and will likely not require rehabilitation within the 20-year planning horizon.

4.6 Utilities and Services

4.6.1 Water Supply and Sanitary Sewage

Potable water is provided to the Airport from the City water system. Sanitary sewage is collected and processed in a lagoon located remotely on the south side of the Airport. Interest has been expressed in connecting the Airport to the City’s sanitary sewer system, although there is no clear timeline or agreement on this project.

Consultations with Airport staff suggest that the lagoon system is sufficient for the time being, though the growth forecasted for the status quo scenario may necessitate expansion of the lagoon if connecting to the City system is not possible.

4.6.2 Electrical and Communications

Epcor is the primary electricity provider for the County and Fortis has been contracted to manage distribution. Telecommunications are provided to the Airport by Telus Communications. Both of these services are currently adequate. Any upgrades are assumed to be the responsibility of the providers.


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4.7 Aircraft Services

4.7.1 Fuel Facilities

Two aviation fuel facilities are operated at the Airport. Both generic and branded Jet-A and AvGas are available. Both fuel retailers operate fuel trucks to reduce congestion at their fuel cabinets. Based on current fuel storage capacity, the fuel facilities are adequate for the 20-year planning horizon.

The County owns a fuel facility adjacent to the Maintenance Building supporting airport mobile equipment. The system consists of surface pumps and subterranean tanks. Consultations suggest that due to the age of the system, future removal or replacement may be warranted in the short-term. The possibility of soil contamination due to leaking tanks may require site remediation at the time of replacement.

4.7.2 Aircraft De-icing

Aircraft de-icing is performed on an ad hoc basis using de-icing equipment and fluid provided by Southern Aero Aviation. De-icing operations are performed irregularly and based on consultations with airport staff, construction of a dedicated de-icing area or purchase of glycol collection equipment is not warranted due to the low volumes involved and the limited number of de-icing event days.

4.8 Access Control and Security

4.8.1 Airfield

Control of access to the airfield in the core area including the aprons, terminal building, and airside tenant facilities is maintained utilizing chain link fencing and automated vehicle gates. Locking gates are also located at each of the access road entry points. In 2016, a full perimeter wildlife fence was installed with a combination of County and ACAP funding.

4.8.2 Air Terminal Building

Access to the restricted areas of the terminal building and access to the airside through the terminal building is controlled utilizing both manual and electronic locking systems. These systems are effective and will be sufficient throughout the forecasted period. Airport security is provided by Commissionaires.

4.9 Emergency Response Emergency Response Services (ERS) are provided by the City of Lethbridge Fire and Emergency Services. At one time, these services were provided on site based in the existing fire hall. These operations ceased due to a reduction in air traffic and the high costs associated with on-site emergency response services. The requirement for on-site services is dependent upon the number of enplaned and deplaned passengers annually. As stated in CAR 303.02, an airport does not require on site ERS if it serves less than 180,000 passengers per year. Lethbridge Airport is not expected to reach this volume within the 20-year planning horizon.


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4.10 Airport Maintenance

4.10.1 Services

Lethbridge Airport staff provide the following maintenance services:

► Snow Clearing;

► Maintenance of Water and Sewer Systems;

► Maintenance of the Field Electrical Centre;

► Runway, taxiway, and apron repair;

► General Building Maintenance; and

► Vehicle and Equipment Maintenance.

4.10.2 Equipment

Consultations and analysis suggest that the current fleet of airport mobile equipment is sufficient for maintenance operations. Equipment is maintained in-house and replaced only when it has exceeded its useful life. The following equipment has been purchased since 2001:

► 2005 – Pick-up Truck (County)

► 2006 – Electrician’s Van (County)

► 2007 – Staff Car (County)

► 2009 – Schulte Mower and Ride-On Mower (County)

► 2012 – Runway Snow Blower, Runway Sweeper, and Runway Condition Reporting System (ACAP & County)

► 2016 – Runway Plow Truck (ACAP & County)

► 2016 – Side-by-Side Unit (County)

Based on the contemplated air service development scenarios, and consultations with maintenance staff, no additional pieces of mobile equipment are expected to be needed.

4.10.3 Facilities

The Maintenance Garage is a two-storey steel frame structure with a concrete slab-on-grade. The building was constructed in 1987 and is in good condition. There are four equipment bays for equipment maintenance and equipment storage. The building contains a meeting room, locker room, washrooms, and maintenance office. An oversize garage door was installed in 2016 to accommodate the new snow blower. The building is sufficient for equipment maintenance and storage for the duration of the 20-year planning horizon.


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5.0 AIRPORT CAPITAL PLAN

5.1 Introduction

The Airport Capital Plan will aid the County and City in making decisions concerning investment in Lethbridge Airport to support economic growth and overall air service availability.

Airports require ongoing maintenance and capital investment to sustain their operational capability, to meet mandatory safety and licensing standards, and to generate economic benefits for the community which they serve. The Capital Plan has considered the following elements:

► The Asset Management System

► Base Infrastructure Needs

► Policies and Planning

► Safety and Regulatory Requirements

► Condition Assessment

A review of these five major categories form the basis for the 20 Year Capital Plan.

5.2 Asset Management System

An Asset Management System quantifies existing infrastructure and equipment inventories. Updates to this system are required regularly as the condition of each asset changes.

An Asset Management System enhances the knowledge of capital assets and their associated values. It also forms a basis for investment decision making for the short, medium, and long term planning horizons. Assets usually include airside pavements, groundside pavements, airside electrical, buildings, and mobile equipment.

Lethbridge Airport has documented asset construction, acquisitions, and maintenance since the County took control of the Airport from Transport Canada in 1996. However, there are some additional steps that could be taken to improve upon past documenting efforts. As a first step, a more detailed inventory of the assets should be developed. This would involve the following:

► Taking detailed photographs of all assets, including spaced photos along runways, with concentrations in touchdown areas;

► Consolidating all existing hard copy plans and specifications, along with any aerial photos that may exist; and

► Developing and updating a condition rating system for all assets.

Once all asset information is collected and merged into a single Asset Management System, it will require regular maintenance and updating.


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5.3 Base Infrastructure Needs

5.3.1 Airside Pavements

The Airport’s airside pavements consist of two (2) runways, three (3) taxiways, and three (3) aprons for which the County is responsible. The 2011 Study presented the following table showing the current pavement conditions, the most recent remedial efforts, and the recommended priority of future rehabilitation to maintain status quo operations. No airside pavements have been rehabilitated since the 2011 Study.

Table 5.1 – Recommended Pavement Rehabilitation

Airside Element Last Rehabilitation Current Condition 2016

Recommended Rehabilitation Year

Runway 05-23 2005 Good 2025

Runway 12-30 2001 Good 2021

Taxi ‘A’ 1985 Poor 2017

Taxi ‘B’ 2006 Good 2026

Taxi ‘C’ 1985 Poor 2017

Apron I 1991 Poor 2017

Apron II 1951 Poor 2017

Apron III 1998 Good 2018

As of 2016, taxiways ‘A’ and ‘C’ require rehabilitation based on the extensive cracking observed. Aprons I and II also require rehabilitation in the immediate term. The Airport has established a rigorous crack sealing program; however, the pavements associated with these taxiways and aprons may soon degrade to the point that loose asphalt could pose a risk to aviation safety.

5.3.2 Groundside Pavements

The main access road to the airport and the parking lot were resurfaced in 2014 and are in good condition. Stubb Ross Road was resurfaced in 2009 and is observed to be in good condition. With respect to capacity, the groundside pavement elements are above satisfactory given current traffic levels at the Lethbridge Airport.

5.3.3 Airside Electrical

A Field Electric Centre (FEC) is the central location at which electrical power is provided to the airport, transformed to the correct voltage for specialized aviation applications, and distributed to various facilities. The FEC also contains switching equipment and emergency power generation equipment, all housed in the FEC building, north of Taxi ‘B’.

The FEC at the Lethbridge Airport was constructed in 1991 by Transport Canada. The facility meets current operational requirements; however significant infrastructure upgrades would result in load expansion to the FEC and require increased capacity. Under current operational conditions, the FEC capacity is sufficient.


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Runway edge lighting and approach lighting are in good operational condition and are not expected to require significant rehabilitation efforts within the 20 Year Capital Plan. Taxiway and apron edge lighting are also expected to be sufficient throughout the planning horizon.

5.3.4 Building and Other Facilities

At current operational levels, the Air Terminal Building meets all needs of the Airport in terms of capacity and circulation requirements. However, with the architectural and HVAC components of the building receiving limited remedial works since its construction in 1979, it does require some minor upgrades. In addition, the construction of bathrooms in the passenger hold room would greatly improve passenger comfort.

The Maintenance Facility provides adequate capacity for Airport Mobile Equipment storage and maintenance at current operational levels. The building was modified in 2016 to accommodate new equipment.

The pump house includes storage tanks, pipes, valves, and a control system. Currently, there is inadequate water storage volume to meet fire suppression requirements; the capacity of the water storage tank requires expansion.

5.3.5 Mobile Equipment

The Airport has an up-to-date and effective mobile equipment database, which is used to keep track of equipment, and to help plan for equipment replacement and future equipment acquisitions as required. Through County and ACAP funding, the Airport has replaced much of its equipment fleet since 2005.

5.4 Policies and Planning

Certain airport policies and standards are required to defend budgets, prioritize projects and spending, and assist in establishing an effective organizational model for the future.

A recommended list of Policies and Standards that should be kept up to date are the following:

► Asset Management System

► Winter Maintenance Plans

► Emergency Response Plan

► Master or Development Plans

► Business Plans

► Land Use Plans

Up to date Winter Maintenance Plans and Emergency Plans ensure that safe and viable operations continue at the Airport. Master Plans, Development Plans, and Business Plans look at future development and ensure a rationale for timely, cost effective airport remedial works and capital investments or upgrades.


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The Airport generally has sufficient plans to support its operations.

The Airport Master Plan was completed in 2000. Transport Canada typically recommends that Master Plans be updated every 5 years to reflect the changing economic, physical, and social aspects of a region that an airport serves as well as to reflect changes at the airport itself. A new Master Plan will ensure that airport staff and stakeholders can efficiently plan, prioritize, and obtain funding for projects. Business Plan components can form part of an Airport Master Plan.

5.5 Safety and Regulatory Requirements

Airports that support scheduled services must be ‘Certified’ by Transport Canada, thereby ensuring conformance with national standards for design and safety. Transport Canada developed comprehensive operational and technical standards for airport design and operations based on over 50 years of experience. Following these standards will result in the best long-term performance of infrastructure and provide a rationale for cost efficient investment. Additionally, the mandate for Canadian airports to adhere to Safety Management System requirements is a significant cost.

It is understood that Lethbridge Airport is currently in compliance with all Transport Canada airport certification requirements.

5.6 Condition Assessment

The update to the 20 Year Capital Needs Assessment presented in Appendix E shows predicted expenditures for capital projects over the next 20 years for status-quo operations as well as for each augmented traffic scenario. Table 5.2 provides a summary of this information.

Capital costs were derived for each scenario utilizing “Tangible Capital Asset Valuation for PSAB 3150”, prepared by AECOM in 2008, as a base. Consultations were held with the Airport Manager in 2011 and again in 2016 to confirm the condition of specific infrastructure. Additionally, the condition of assets was updated based on rehabilitation projects undertaken since the completion of the AECOM report. Project costs have been escalated to 2016 values.


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Table 5.2 – Capital Needs Summary

Item/Facility Current Condition

Status Quo

Air Canada Upgrade

West Jet Encore

Low Cost Carrier

Southern Charter

Airside Pavement

Runway 05-23 Good $4,415,2391 $4,415,2391 $4,415,2391 $8,381,9832 $4,415,2391

Runway 12-30 Good $2,939,6201 $2,939,6201 $2,939,6201 $2,939,6201 $2,939,6201

Taxi ‘A’ Poor $697,1433 $697,1433 $697,1433 $697,1433 $697,1433

Taxi ‘B’ Good $1,278,0961 $1,278,0961 $1,278,0961 $1,278,0961 $,278,0961

Taxi ‘C’ Poor $406,6673 $406,6673 $406,6673 $406,6673 $406,6673

Apron I Poor $1,057,3343 $1,057,3343 $1,057,3343 $1,057,3343 $1,057,3343

Apron II Poor $348,5723 $348,5723 $348,5723 $348,5723 $348,5723

Apron III Good $313,7143 $313,7143 $313,7143 $313,7143 $313,7143

Groundside Pavement

Access Road Poor $220,7623 $220,7623 $220,7623 $220,7623 $220,7623

Stubb Ross Road Good $1,208,3813 $1,208,3813 $1,208,3813 $1,208,3813 $1,208,3813

Kenyon Drive Good $418,2863 $418,2863 $418,2863 $418,2863 $418,2863

Parking Lot Poor $92,9523 $92,9523 $92,9523 $92,9523 $92,9523

Airside Electrical

FEC Fair $2,230,8583 $2,230,8583 $2,230,8583 $2,230,8583 $2,230,8583

05-23 Lighting Good N/A* N/A N/A N/A N/A

12-30 Lighting Good N/A N/A N/A N/A N/A

Approach Lighting Good N/A N/A N/A N/A N/A

Taxi ‘A’ Lighting Good N/A N/A N/A N/A N/A

Taxi ‘B’ Lighting Good N/A N/A N/A N/A N/A

Taxi ‘C’ Lighting Good N/A N/A N/A N/A N/A

Apron Edge Lighting Good N/A N/A N/A N/A N/A

Legacy AWOS N/A N/A N/A N/A N/A N/A

Building and Other Facilities

ATB Fair/Good $10,021,4313 $11,038,0984 $12,141,9074 $11,038,0984 $11,038,0984

Maintenance Facility Good

N/A N/A N/A N/A N/A

Airport Fire Hall Good N/A N/A N/A N/A N/A

Pump House Fair $1,382,6673 $1,382,6673 $1,382,6673 $1,382,6673 $1,382,6673

Perimeter Fence Good N/A N/A N/A N/A N/A

Maintenance Equipment

All Equipment $336,9525 $336,9525 $336,9525 $336,9525 $336,9525

TOTALS $27,368,672 $28,385,339 $29,489,149 $32,352,083 $28,385,339


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1 Based on Lethbridge Airport Capital Project History and corrected for anticipated future cost 2 Based on Lethbridge Airport Capital Project History and corrected for anticipated future cost, including proposed

facility upgrade. 3 Cost derived from AECOM Tangible Capital Asset Valuation for PSAB 3150 – 2008 including correction for

anticipated future cost where applicable 4 Cost derived from AECOM Tangible Capital Asset Valuation for PSAB 3150 – 2008 and corrected for anticipated

future cost, including proposed facility upgrade. 5 Based on average life cycle of current maintenance equipment inventory and consultations with airport staff * Items listed as N/A are not anticipated to require rehabilitation, expansion, or upgrade within the 20 Year Capital

Plan.


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6.0 BASELINE AIRPORTS COMPARISON

6.1 Comparative Airport Selection

Key information and performance metrics were collected for a number of Canadian airports including: population served, annual passengers, air service, and governance model. The three airports selected in 2011 have been included and their most current data has been provided to compare their performance to Lethbridge. An additional airport, London International, was also analyzed because of its similarities to Lethbridge and the Airport’s success in attracting WestJet Encore service.

Table 6.1 illustrates the relationship between community population, passenger traffic, and governance model at a series of Canadian airports. The airports selected for comparison with Lethbridge Airport are highlighted below.

6.2 Lethbridge Airport

The Lethbridge Airport has witnessed significant changes since 1994. Upon transfer from Transport Canada in 1996, the Airport became a department of the County of Lethbridge. In the past 20 years the community population has increased 46% while the annual passenger movements have decreased from 72,342 to 61,327 (15%). Aircraft movements have also decreased from 26,830 to 24,706 (8%).

This decline has been associated in part with the sale of Time Air, a Lethbridge-based regional airline, to Canadian Airlines, resulting in the eventual termination of its operations. Air Canada has continued its Calgary-Lethbridge route utilizing 19-seat B1900D aircraft. Additionally, Integra Air offers service between Lethbridge and Edmonton using small, 16-seat aircraft. These airlines have not offered the flight options nor achieved the traffic volumes associated with Time Air’s peak of success. The introduction of Allegiant Air service from Great Falls Airport has resulted in the leakage of more passengers south of the border.

With the exception of required rehabilitations, Lethbridge Airport facilities have remained essentially unchanged for the past 20 years, with the exception of the narrowing of Runway 12-30 during the last rehabilitation program in an effort to reduce costs. Consultations in 2011 and 2016 revealed a demand for access to airside commercial land to support airport businesses, which has yet to be made available.

Conversely, since 1994, the Airport’s financial performance has improved, with a 313% increase in revenue compared to a 100% increase in expenses. However, the annual deficit has for the most part remained unchanged. The Airport is not yet approaching complete financial sustainability, which is the desire of both the County and the City.

Table 6.1 outlines the comparative changes in Lethbridge Airport and the surrounding community between 1994 and 2015.


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Table 6.1 – Comparative Changes between 1994 and 2015

Airport Characteristics 1994 2011 2015

Population 64,938 87,388 94,804

Operator Transport Canada County of Lethbridge County of Lethbridge

Governance Model Federal Department Municipal Department Municipal Department

Longest Runway (ft.) 6,500 6,500 6,500

Scheduled Passenger Carriers 2 2 2

Largest Scheduled Aircraft (seats) Dash 8 - 100 (37) Dash 8 - 300 (50) B1900D (19)

Passenger Movements 82,657 56,994 61,327

Aircraft Movements 34,292 21,593 24,706

Revenues $460,400.00 $1,654,408 $1,907,410

Expenses $1,228,820.00 $2,371,238 $2,406,041

Surplus/(Deficit) $(768,420.00) $(716,830) $(498,631)

6.3 Comparative Analysis Four airports were selected for comparison with Lethbridge Airport based on a number of criteria, including but not limited to:

► community population;

► passenger traffic;

► governance model;

► airport facilities; and

► financial performance (where available).

The airports selected were: Nanaimo Airport, Kamloops Airport, Fredericton International Airport, and London International Airport.

Nanaimo Airport

In 1994 (BC Stats – 1996) Nanaimo had twice the population of Lethbridge. Like Lethbridge, the Airport was owned by Transport Canada, though it was operated by the City of Nanaimo. At that time the Airport had one 5,000’ runway and was served by DHC8-100 aircraft. Nanaimo Airport was comparable to Lethbridge with regards to passenger movements with 91,186 annual movements, only 10% more than Lethbridge. However, Nanaimo had considerably more aircraft movements with 53,744, suggesting the presence of a flying school or other local aviation operation. The 1994 comparison of Lethbridge and Nanaimo is presented in Table 6.3. In 2015, Nanaimo had a population 14% larger than Lethbridge.

The Airport is now owned and operated by the City of Nanaimo and governed using an Airport Commission. While the population of the community has not grown at the same rate as Lethbridge, annual passenger movements are considerably higher (411% higher than Lethbridge) with 40% more aircraft movements. Unlike Lethbridge, Nanaimo has improved their airside facilities with the extension of their runway to 6,600’ to accept larger turboprop aircraft. Since the 2011 Study, Nanaimo has been successful in attracting WestJet Encore 78-seat DHC8-400 service.


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Nanaimo has also been successful in managing its finances with revenues 100% greater than Lethbridge and a difference in expenses of 8%. This is attributed to the considerable increase in passenger traffic and related fees over the past 20 years. The 2011 comparison of Lethbridge and Nanaimo is presented in Table 6.3.

Table 6.2 – Lethbridge – Nanaimo Comparison 1994

Airport Characteristics Lethbridge Nanaimo

Community Population 64,938 85,381

Operator Transport Canada City of Nanaimo

Governance Model Federal Department Federal Department

Longest Runway (ft) 6,500 5,000

Scheduled Passenger Carriers 2 2

Largest Scheduled Aircraft (seats) Dash 8-100 (37) Dash 8-100 (37)

Passenger Movements 82,657 91,186

Aircraft Movements 34,292 53,744

Revenues $ 460,400.00 N/A

Expenses $ 1,228,820.00 N/A

Surplus/(Deficit) $ (768,420.00) N/A




Operator County of Lethbridge City of Nanaimo

Governance Model Municipal Department Airport Commission



Largest Scheduled Aircraft (seats) Dash 8-300 (50) Dash 8-300 (50)



Revenues $1,654,408 $2,794,458

Expenses $2,371,238 $1,986,341

Surplus/(Deficit) $(716,830) $808,117

Since the 2011 Study, Nanaimo Airport has improved its financial performance partly through an increase in revenue generated by vehicle parking. In 2015, parking revenue was approximately $500,000 higher than 2011. The 2015 comparison of Lethbridge and Nanaimo is presented in Table 6.4.


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Operator County of Lethbridge City of Nanaimo

Governance Model Municipal Department Airport Commission



Largest Scheduled Aircraft (seats) B1900D (19) Dash 8-400 (78)


Aircraft Movements 24,706 34,548*

Revenues $1,907,410 $4,060,577

Expenses $2,406,041 $2,590,985

Surplus/(Deficit) $ (498,631) $1,469,592

* TP577 for the year 2014

Kamloops Airport

In 1994, Lethbridge and Kamloops were both owned and operated by Transport Canada. Kamloops had a shorter primary runway at 5,000’ but was served by larger, jet aircraft such as the BAe 146.

At that time, Kamloops processed 35% more passengers annually. Additionally, Kamloops had revenues 50% higher than Lethbridge with expenses only 32% higher, though both airports had expenses considerably higher than revenues. This was not uncommon for airports operated by Transport Canada.

Kamloops is similar to Nanaimo in its decision to implement an airport commission when the Airport was transferred from Transport Canada. The Kamloops Airport Commission has extended the runway to 8,000’ to accept Boeing 737 aircraft. While Lethbridge passenger movements have declined since 1994, Kamloops movements doubled between 1994 and 2011. However, even with passenger movements considerably higher than Lethbridge, Kamloops revenues are only marginally higher. This may be attributed to lower fees or fewer commercial tenants, due to an increase in passenger volumes, or a combination thereof. Since 2011, Kamloops has been successful in eliminating their operating deficit and now produces a healthy operating surplus. The comparisons for 1994, 2011, and 2015 are presented in Tables 6.6, 6.7, and 6.8 respectively.


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Table 6.5 – Lethbridge – Kamloops Comparison 1994

Airport Characteristics Lethbridge Kamloops

Community Population * 64,938 94,724

Operator Transport Canada Transport Canada




Largest Scheduled Aircraft (seats) Dash 8-100 (37) BAe 146 (77)



Revenues $460,400.00 $689,500

Expenses $1,228,820.00 $1,618,757

Surplus/(Deficit) $(768,420.00) $(929,257)

* 1996 population (BC Stats)




Operator County of Lethbridge Kamloops Airport Ltd

Governance Model Municipal Department Commission



Largest Scheduled Aircraft (seats) Dash 8-300 (50) B 737-800 (166)



Revenues $1,654,408 $1,514,185

Expenses $2,371,238 $1,671,204

Surplus/(Deficit) $(716,830) $(157,019)


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Operator County of Lethbridge Kamloops Airport Ltd

Governance Model Municipal Department Commission



Largest Scheduled Aircraft (seats) B1900D (19) B 737-800 (168)

Passenger Movements 61,327 N/A


Revenues $1,907,410 $2,287,875

Expenses $2,406,041 $2,036,668

Surplus/(Deficit) $(498,631) $251,207

Fredericton International Airport

In 1994, Fredericton Airport was owned and operated by Transport Canada. With a population 28% smaller than Lethbridge, Fredericton experienced over 213,000 passenger movements annually, 158% more than Lethbridge. This was supported by 5 air carriers serving the Airport, compared to the 2 serving Lethbridge at the time. Though Fredericton had considerably higher revenues, it operated a deficit 4% higher than Lethbridge, suggesting that Fredericton was better able to manage operational expenses. The City of Fredericton has grown at a much slower rate than Lethbridge with some suggesting that their population growth has stalled with 21% growth since 1994 compared to Lethbridge’s 46% growth during the same time.

The Airport is now operated by an Airport Authority, which has greater borrowing power than a municipal department. The Authority has used this power to obtain the capital funds required to extend the runway from 6,000’ to 8,000’, allowing for improved service by regional jets. And, unlike the majority of Canadian airports, Fredericton has been able to achieve a sizable operating surplus. Lethbridge suffers leakage primarily to two airports in the region, Calgary and Great Falls. Fredericton competes with three other airports in the region, all considered international airports including St. John, Moncton, and Halifax. However, during the same period of time, Fredericton’s passenger volumes have increased. Like Nanaimo, Fredericton has attracted WestJet Encore service. The comparisons for 1994, 2011, and 2015 are presented in Tables 6.9, 6.10, and 6.11 respectively.


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Table 6.8 – Lethbridge – Fredericton Comparison 1994

Airport Characteristics Lethbridge Fredericton


Operator Transport Canada Transport Canada




Largest Scheduled Aircraft (seats) Dash 8-100 (37) DC-9 (91)



Revenues $460,400.00 $1,672,400

Expenses $1,228,820.00 $(2,473,187)

Surplus/(Deficit) $(768,420.00) $(800,787)




Operator County of Lethbridge Greater Fredericton AA

Governance Model Municipal Department Airport Authority



Largest Scheduled Aircraft (seats)

Dash 8-300 (50) CRJ (50)


Aircraft Movements 21,593 104,643 **

Revenues $1,654,408 $7,176,760

Expenses $2,371,238 $5,561,144

Surplus/(Deficit) $(716,830) $1,615,616

** 48,282 (46%) of aircraft movements were local (i.e. flight schools)


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Operator County of Lethbridge Greater Fredericton AA

Governance Model Municipal Department Airport Authority


Scheduled Passenger Carriers 2 2 (+2 charter)

Largest Scheduled Aircraft (seats) B1900D (19) Dash 8-400 (78)



Revenues $1,907,410 $8,930,000

Expenses $2,406,041 $7,564,000

Surplus/(Deficit) $ (498,631) $1,366,000

London International Airport

The London International Airport was included in the update to the Baseline Airports Comparison because London has achieved goals that Lethbridge is striving to achieve, including financial sustainability and WestJet Encore service. The Airport has also achieved these goals while operating in a competitive environment similar to Lethbridge. London International is approximately 1 hour and 40 minutes from Toronto Pearson International and 2 hours and 30 minutes from Detroit Metropolitan Wayne County Airport.

Consultation with the Greater London International Airport Authority provided insight into the steps taken to successfully attract WestJet Encore service to the Airport. The process initially began with regular meetings between the Airport and airline to discuss the product being offered and how it could be successfully implemented in London. The Airport Authority mentioned during consultations that meetings between local politicians and airlines rarely carried the intended weight with the airline having an interest solely in the financial viability of a new route. The Airport Authority utilized the strategy of having a third party consultant prepare a detailed market analysis to provide proof to the airline that there was sufficient demand to support a new service.

The consultation with London also confirmed that airlines like WestJet are likely to have infrastructure demands to provide the greatest opportunity for a new service to succeed. One of these demands is a passenger holdroom capable of accommodating 150-160 passengers, or two DHC8-400 aircraft. It is WestJet’s experience that at the commencement of service, Air Canada is likely to match the schedule with the same aircraft type. Without adequate terminal space, the passenger experience could be poor and the service could fail. London was fortunate to have this capacity prior to attracting WestJet Encore. Beyond a multi-year airline engagement strategy, significant investment in terminal building improvements and expansion would be necessary at Lethbridge Airport to attract WestJet Encore service.


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The Airport Authority did comment that they have been very pleased with the new service as well as the changes they have witnessed in the existing Air Canada service. WestJet providing London-Toronto service has yielded strong load factors for both airlines and has seen larger and higher performance aircraft used to serve the Air Canada flights (such as the DHC8-400). The Airport Authority did have concerns about the predatory tactics that Air Canada may have employed to combat the new WestJet service, but admitted that there concerns were unwarranted.

In addition to scheduled charter and passenger services, London has placed emphasis on airport business and has attracted 19 aviation and non-aviation tenants, including small aircraft manufacturer Diamond Aircraft Industries.

Table 6.11 – Lethbridge – London Comparison 2015

Airport Characteristics Lethbridge London Community Population 94,804 366,150

Operator County of Lethbridge Greater London International AA

Governance Model Municipal Department Airport Authority Longest Runway (ft) 6,500 8,800’ Scheduled Passenger Carriers 2 2 (+3 charter) Largest Scheduled Aircraft (seats)

B1900D (19) B737-800 (168)

Passenger Movements 61,327 477,584 Aircraft Movements 24,706 65,371 Revenues $1,907,410 $10,815,123 Expenses $2,406,041 $9,974,617 Surplus/(Deficit) $ (498,631) $840,506

6.4 Lessons Learned At the conclusion of the Baseline Airports Comparison, the 2011 Study identified five lessons learned, which are still valid and relevant to the 2016 Study Update. The lessons learned were:

1. The importance of selecting an appropriate governance model. Nanaimo and Kamloops have both had financial and operational success utilizing the airport commission governance model. Both have surpassed their former traffic volumes and are approaching or have achieved financial self-sufficiency. Fredericton’s selection of an airport authority was equally appropriate based on the success they have experienced.

2. Effective implementation of the selected governance model is critical to long-term success. The selection of experienced and competent personnel and staff will ensure the governance model achieves its goals.

3. Most successful airports are dynamic. Airports included in the comparison were able to recognize the competitive advantage that could be gained from extending their runways to accommodate larger aircraft and attract airlines offering better services. Lethbridge Airport appears to have remained more static with the most prevalent change to facilities being a reduction in width of the secondary runway.


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4. An airport must be run as a business with one of its primary goals being competition in the market place, not maintaining the status quo.

5. Success may take time. The implementation of a new governance model may require initial expenditures and may not produce noticeable improvements immediately, but if clear goals are identified and achieving those goals is the top priority, then the airport governance model will likely succeed.

The update to the Baseline Airports Comparison has identified additional lessons:

6. Attracting new passenger services will require investment. The County should be prepared to invest funds and resources to pursue and attract a second established air carrier. Investment in improved infrastructure will likely be required as well.

7. Lethbridge Airport’s competitive position could be improved by investing in ATB expansion and upgrades to support improved air services.

8. Airports have value outside of passenger services. While all of the airports in the comparison have established successful passenger services, they also realize the value in diverse airport business that generates significant economic benefits for the communities they serve.


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7.0 COMMERCIAL DUE DILIGENCE

7.1 Budget Sustainability

The success of many regional airports in Canada is measured not in the profit generated, but their financial sustainability. The goal of most airports is to be financially self-sufficient and therefore not require grants or subsidies from the communities they serve. Depending on the environment in which the airport operates and the population it serves, the services it provides, and the management and governance structure in place, there may be considerable challenges to achieving this goal. Consultation with County and City officials revealed that it is their long-term vision that the Airport be financially self-sufficient, though the timeline for meeting this objective may fall outside of the 20-year planning horizon.

The ultimate goal of most airports is not necessarily to be financially profitable, but to facilitate greater economic benefit in a region. Though an airport may be perceived as a draw on municipal resources, it is crucial to understand that the expenses accrued at an airport are frequently offset by economic gains within the community. These economic gains often far outweigh an airport’s operating deficit.

A review of the financial performance of Lethbridge Airport in recent years was compared to the analysis completed in the 2011 Study. Since 2010, Airport revenue has increased from $1.65M to $1.9M in 2015, and increase of 15%. The primary sources of the increased revenue were identified and include parking fees, government transfers, and passenger facility fees. Two of the three items are associated with passenger activity. Passenger movements have grown steadily since 2012. However, an increase in revenue does not necessarily indicate an increase in the use of an airport.

During the same period, total expenditures have increased from $2.37M to $2.4M, an increase of 1.26%. The contributors to this increase have been wages and benefits and amortization. Both amortization and enhanced marketing costs are considered to be indirect expenses. Indirect expenses are those that are not related to the operations of the Airport. The inclusion of amortization in a budget is a common accounting practice, but it may affect how the financial performance of the Airport is perceived. Historically, the Airport has had significantly greater expenditures than revenues. In 2015, if indirect expenses are removed, the airport had an operating surplus of approximately $340,000.

Expenditures are more difficult to associate directly to passenger volumes. However, the conclusion can be drawn from a variety of observations that airport management has been successful in controlling expenditures. Over the past four years, revenues have grown at a greater rate than expenditures.

Lethbridge Airport is in a good financial position when compared to many Canadian airports.

Figure 7.1 illustrates the impact of indirect expenses on the perceived financial performance of the Airport for the years 2012-2015.


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Figure 7.1 – Lethbridge Airport Direct and Indirect Expenses 2012 – 2015

There are significant capital costs associated with operating and maintaining an airport. Between 1998 and 2016, approximately $10.92 million has been spent at the Airport on infrastructure rehabilitation, upgrades, and mobile equipment replacement. Utilizing ACAP and other Federal and Provincial programs, the County was responsible for 25% of the capital requirements. Table 7.1 presents the capital fund allocations between 1998 and 2016.

Table 7.1 – Capital Cost Funding 1998-2016

Project Total County Other ACAP $ 8,760,294 $ 643,249 $ 8,117,045 Non-ACAP $ 2,158,898 $ 2,136,798 $ 22,100 Total $ 10,919,192 $ 2,780,047 $ 8,139,145 Percent 25% 75%

This Transfer Fund provided by Transport Canada when the Airport was transferred to the County was used sparingly, but was exhausted in 2009 to reconstruct Stubb Ross Road and Kenyon Drive; both groundside access roads. Since the exhaustion of this fund, all future capital funding will be sourced from ACAP and other government programs, or directly from the County or City. The Airport has continued to be very successful in obtaining funding from ACAP with a number of projects funded primarily or entirely by the program.

ACAP has an emphasis on safety related projects, including runway approach lighting upgrades and pavement rehabilitation. In order for the Airport to obtain ACAP funding for future rehabilitation projects, that infrastructure may have to deteriorate to the point where it poses a risk to the safety of airport users.

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

2012 2013 2014 2015

Revenue Direct Expenses Direct + Indirect Expenses


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This is not a recommended approach to asset management because, beyond placing public safety at risk, it could compromise the relationship between Lethbridge Airport and current tenants and threaten the Airport’s ability to attract new tenants and users. It is recommended that the County not rely entirely on ACAP funding for rehabilitation projects. Additionally, eligibility for ACAP funding is contingent upon scheduled passenger service. If Lethbridge were no longer served by a scheduled passenger carrier, the Airport would not be eligible for this funding.

7.2 Financial Feasibility

The assessment of the financial feasibility of the Airport considers the traffic and market growth scenarios identified in Chapter 3. Consideration was also given to the financial impact of major new investments in airport capability as well as the sources where funds may be obtained.

7.2.1 Revenue

An analysis of airport revenue was completed to identify the potential financial benefit that could be realized from each of the augmented scenarios. The analysis focused on direct revenue (revenue generated from improvements to passenger air services). Indirect revenues were omitted due to their unpredictability. For example, the gain from the sale of assets and enhanced marketing costs recovered were sizable contributors to the Airport’s operating revenue. These have not been recorded every year and their future values cannot be reasonably predicted.

The incremental increase in revenue over the baseline forecast was determined for each of the augmented scenarios. This was accomplished by identifying the revenues that are directly related to the number of passengers using the Airport on an annual basis. These revenues included parking fees, vending machines, air service fees, and passenger facilities fees.

Based on historical values for each of these line items, a factor was calculated and applied to the passenger movements forecast for each scenario presented in Chapter 3.

Table 7.2 presents the incremental revenue over the baseline for each of the augmented forecasts.

Table 7.2 – Revenue Generation by Scenario over Baseline

Annual Incremental Revenue Over Baseline

Air Canada Upgrades

WestJet Encore

Low Cost Carrier

Southern Charter

$ 405,778 $ 914,260 $ 419,534 $ 107,573

Air Canada Upgrades

Relative to the other growth scenarios, an upgrade in Air Canada’s service to Calgary will have a moderate impact on direct revenue. Although the increase may not appear significant, this scenario is an improvement on an already existing service and its occurrence is realistic in the short-term. The increase in revenue is expected to be $405,000 above the baseline. Additionally, the improvement of this service would require the fewest development resources by airport management.


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WestJet Encore

The addition of WestJet Encore service on the Lethbridge - Calgary route would have a significant impact on direct revenue. This service could potentially increase direct revenue by approximately $915,000 annually over the baseline. However, the development of this scenario would be very much dependent upon the air carrier.

Though efforts by the County and City could improve the likelihood of WestJet Encore service on this route, the decision would ultimately be in the hands of the air carrier. It is important to understand that an air carriers’ decision making process is based on their best interests and would only commence service if demand could be quantified, and a positive business case prepared.

Low Cost Carrier

Similar to an increase in capacity to Calgary, service by a Low Cost Carrier could potentially have a significant impact on direct revenues. This scenario could increase direct revenue by approximately $420,000 annually. However, like increased Calgary capacity, LCC service, regardless of the routing, would also depend upon the long-term goals of an airline and the local demand for the service.

Southern Charter

The commencement of a weekly charter operation to a southern destination during the winter months would not have a significant impact on direct revenues. Because of the low frequency and short operating period, a very modest increase in revenue would be realized, approximately $107,000 annually above the baseline. Because of its minimal impact on revenue, if this option were selected, it is recommended that an additional option also be pursued.

7.2.2 Expenditures

The Airport may face several cost challenges in the coming years. As much as possible, an airport should pass on expenses to its users. However, the airline industry is increasingly aggressive in opposing changes in user charges. Many communities have lost services after they raised their airport fees and charges.

Like indirect revenues, most operational expenses cannot be tied directly to passenger traffic. Additionally, many of these expenses, including wages and benefits, travel and sustenance, equipment repairs, and utilities, would not be affected by a change in passenger traffic.

7.2.3 Revenue and Expenditure Comparison

The comparison of the revenue generated relative to the capital cost of each scenario is intended to define the potential financial surplus or deficit that can be attributed to each air service development option.

Table 7.3 presents a 20 Year Revenue and Capital Cost Comparison. For the purpose of comparison, direct revenue refers to the amount of revenue derived directly from the forecasted increase in passenger traffic. This provides the increase in net revenue generated by each scenario.


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Capital costs refer to the capital required to rehabilitate and improve airport facilities to support the traffic in each scenario as determined in Chapter 5. The Difference column represents the gap forecasted between the increased revenue and capital costs.

Table 7.3 – 20 Year Revenue and Capital Cost Comparison

Scenario 20 Year Direct Revenue Over

Baseline 20 Year Capital

Cost Difference

Air Canada Upgrades $8,115,553 $28,385,000 $(20,269,447) WestJet Encore $18,285,208 $29,489,000 $(11,203,792) Low Cost Carrier $8,390,671 $32,352,000 $(23,961,329) Southern Charter $2,151,454 $28,385,000 $(26,233,546)

Based on the forecasted revenues and capital costs, there will be a gap between the capital requirements of each scenario and the generated revenue regardless of the option pursued. While the projected gap between increased revenue and capital cost is an estimate, it suggests that the Airport will not be able to fund further development without alternative funding sources.

7.3 Sources of Capital It is anticipated that the mandate to not spend taxpayers’ dollars to fund airport operations will continue under the current governance model. Also, while Lethbridge Airport has been successful in obtaining federal funding for a number improvement projects, programs that are not directly related to improving aviation safety are not eligible for ACAP funding. However, there are a number alternate capital sources that may be applicable.

7.3.1 Taxation

The Airport could draw capital from County taxpayers to finance improvement projects. If a partnership could be formed between the County and City, the tax pool from which to draw would be considerably larger, reducing the burden on County taxpayers. However, this is unlikely to be the preferred source as the Airport has operated since the time of transfer with a mandate not to use taxpayer dollars. The County must determine if this mandate remains feasible in the long-term and is in the best interest of the region.

7.3.2 Capital Loan

Both the County and City of Lethbridge have strong credit ratings resulting from many years of fiscal responsibility. Because of this, the County or City would have little difficulty obtaining loans on capital markets. The County may be hesitant to pursue this option as it has in the past avoided holding debt whenever possible.


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7.3.3 Airport Improvement Fees

Airport Improvement Fees (AIF) are a widely used method for raising capital for improvement and expansion projects. Lethbridge Airport currently collects a $15 AIF. This fee is charged on each passenger processed in the terminal building. A review of AIF’s currently charged by Canadian airports suggests the fee currently charged is on par with other regional airports. Raising it higher could produce a competitive disadvantage and promote further surface leakage to Calgary and Great Falls. A table of AIFs by airport is presented in Table 7.4.

Table 7.4 – Airport Improvement Fees by Airport

Airport Airport Improvement Fee (December 2016)

Abbotsford, BC $5 Fort McMurray, AB $30 Fredericton, NB $20 Grande Prairie, AB $20 Kamloops, BC $10 Lethbridge, AB $15 London, ON $15 Nanaimo, BC $10 Red Deer, AB $10

7.3.4 Public Private Partnership

A Public Private Partnership (PPP) project was contemplated for the Airport and included restoration and development of airside and groundside commercial property. The arrangement proposed that a private company take over control of these lands, invest in restoration and infrastructure, and have control of all development and leases for a pre-determined period. Meetings with PPP Canada revealed that the proposed project did not have a project value high enough to be a viable PPP project. PPP projects have been implemented at a number of airports in Canada, but have been all-encompassing and included the operations, development, maintenance, and governance for an extended period of time (i.e. 100 years).

7.3.5 Combination

Based on the sources identified, it is recommended that a combination of funding methods be employed. With the exception of taxation, none of the above options are solely capable of bridging the gap between increased revenue and estimated capital costs. Due to the mandate to not use taxpayer dollars as well as the current governance structure, it is assumed that utilizing taxation alone is not acceptable.

7.4 Revenue Alternatives In addition to alternate capital sources and revenue generated by improved air services, the Airport should also consider alternate sources of revenue to increase the current direct operating surplus. Based on a review of revenue generating activities currently employed at Canadian airports, the following aeronautical and non-aeronautical examples are recommended for evaluation.


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7.4.1 Aeronautical

The establishment of a college aviation program could be a complementary source of revenue for Lethbridge Airport. For example, the Seneca Flight Training Program currently bases their operations at the Peterborough Airport. The college leases land for hangars to house aircraft, classrooms, and simulators. They also purchase a large quantity of Avgas on a consistent basis. Lethbridge Airport is well located in proximity to Lethbridge College and the University of Lethbridge, which are both capable of implementing an aviation management, flight training, or aircraft maintenance program.

Alternately or in coordination with a post- secondary flight training program, Lethbridge Airport is also well suited to host a flying school targeted at foreign students. Currently, the Moncton Flying Club offers a flight training program specifically for Chinese students. Both India and China’s recent investment in civil aviation has created a major demand for pilots. Lethbridge’s established Chinese community would make it attractive to Chinese flight students seeking training abroad. These operations would also require land for hangar and classroom construction as well as a supply of aviation fuel. A secondary economic benefit would be a requirement for residence for students.

7.4.2 Non-Aeronautical

There are numerous non-aeronautical commercial operations that could complement existing airport activity. Preferred non-aeronautical business would complement aeronautical business at Lethbridge Airport.

The development of commercial business including retail with highway frontage is an appropriate use of airport lands not already reserved for future aeronautical development. The demand for commercial development lots would have to be measured and evaluated based on a review of space currently available. It is recommended that this land be leased long-term, and not sold, to allow the airport to maintain control of surrounding lands. However, this option would likely require an initial capital expenditure for the installation of site services.


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8.0 MANAGEMENT AND STRATEGIC PLANNING

8.1 Background

The County and City of Lethbridge are re-examining the airport’s future vision, including the most appropriate governance structure. The appropriate structure will contribute to making better decisions that are in the best interests of the Airport and the region.

Lethbridge Airport is an important tool for the County and City to achieve their economic objectives. It can be a mechanism for economic development by attracting increased passenger services, growing established businesses, attracting new aviation businesses, and developing tourism and recreational activities. The airport governance structure will guide the type and scope of development.

There are very few small airports in Canada that generate a financial operating surplus, what some define as financially sustainable. An airport properly developed and managed is an economic generator where the cost is incurred at the airport but the benefit is realized in the businesses throughout the community. Municipalities benefit from the increased tax base, more employment, greater economic activity, and improved ability to attract new activity. There are a range of effective governance options that have been implemented in Canadian airports.

8.2 Current Governance Model

Lethbridge Airport is currently owned and operated by Lethbridge County. The Airport is managed on a day-to-day basis by an Airport Manager and a staff of full-time employees.

The requirement for certain infrastructure upgrades has led to the exhaustion of the transfer fund created by the Federal Government at the time of transfer of ownership. The point is approaching where County taxpayer dollars could potentially be required to operate and maintain the Airport. This is not in accordance with the mandate set out by the County at the time of transfer. Development of the Airport has stagnated due a lack of capital investment.

The requirement for increased financial support is a cause of concern at the community level. Local residents see the Airport as a means for personal and business travel. Over the past two decades, air services offered have decreased and the perceived value seen in the Airport has declined as supported by consultations with stakeholders.

8.3 Airport Governance Approaches

A variety of governance models have been utilized by airports across Canada. Some are more relevant to larger airports and some to smaller airports. The range includes extremes such as closing the Airport, up to airport authorities that require a large amount of commercial passenger traffic to be effective. For each option there can be different operating arrangements.


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The municipality can operate the Airport with their own employees, the Airport can be operated by a contractor reporting to a municipal official, or a system could be put in place where a contractor would be responsible for reporting to an airport commission or committee.

An airport governance structure is not dictated by who operates the airport, but by how decisions affecting the operations and development of the airport are made. The range of governance approaches is illustrated in Figure 8.1. The significant features of each governance option are summarized below and in greater detail in Appendix F.

Figure 8.1 – Airport Governance Spectrum

8.3.1 Sale of Airport

Selling the Airport may be expensive as there may be obligations to be met by the owner. If the Airport is sold, all the risks and obligations will need to be valued and become part of the sale price. In most cases, the cost to immediately bring the Airport into a simplified sale condition will outweigh the price a potential buyer may be willing to pay for the airport.

If the Airport were sold, the County would have little or no control over the activity that may take place on the airport property, reducing the ability to ensure the Airport is an economic driver for the community.

8.3.2 Municipally Owned and Operated (Status Quo)

Under this model, the Airport is operated by the municipality and managed by an Airport Committee comprised of elected officials. Elected officials who are appointed to the Airport Committee are subject to frequent change and do not necessarily cover all the important skills to plan, govern and operate the Airport. As elected councillors, committee members may have conflicting priorities when determining what is best for their constituents and the Airport. There may be times when the priorities of one may be in conflict with the priorities of the other.

The County has the responsibility to hire and manage the staff at the Airport and ensure appropriate staff support activities (i.e. training, licensing, and benefits). This adds to the administrative burden. The County has direct control over airport planning and operations and also carries liability for legal and regulatory obligations.


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8.3.3 Municipally Owned and Contractor Operated

This option is similar to the municipally owned and operated option, with the exception that a private entity would operate the Airport under a contract arrangement. The contract conditions typically have a company operate the airport for a fee. This would eliminate the day-to-day operational obligation, but there is typically a cost associated with this model. The cost usually includes a profit for the company operating the airport. The contractor is not focused on cost efficiency or additional revenue generation unless they share in the gain. There is little incentive for the private operator to promote the airport unless there is some form of compensation for time and costs incurred. The private operator could assist in the airport administration, but this would be part of the fee.

If this governance option were selected, the County would still carry legal and regulatory obligations. The overall integration of the airport in regional plans and site planning would remain with the County. In general, the main benefit of this option is that day-to-day operations are removed from the direct responsibility of the County. The main concern is that this option is more costly than the present approach, unless a benevolent group is prepared to operate the airport at minimal cost.

8.3.4 Airport Commission

An Airport Commission is a group of appointed individuals with the expertise and time to focus on the planning, management, development, and promotion of the airport. The Commission would bring a more business-like focus to the current airport operations to reduce the cost-revenue gap. Commission members would be responsible for the oversight of the day-to-day operations, relieving the Airport Committee of this task.

The Airport Commission would have more consistency of membership as their appointment could be for a longer term than each municipal election. The individuals would bring the skills that are important to develop the airport. Commission members often use their local contacts to promote and encourage airport funding.

The Airport Commission would develop plans for the airport in coordination with the regional plans developed by the County. The County would own the land and carry the legal and regulatory obligations. There would be a continuing need for a contribution from the County, but with the knowledge and experience of Commission members, the amount of the contribution should be reduced.

An Airport Commission comes with the benefit of the use and availability of skilled and experienced individuals focused on improving and developing the airport, consistent with the objectives of the County. The airport priorities are their main concern and as appointed persons they are not in conflict with other County priorities. This governance model offers many attractive features for the Lethbridge Airport. It should reduce the contributions, relieve the municipal councillors of the additional work load, provide a dedicated effort to develop and promote the airport, and bring enhanced credibility to the marketing of the airport to business and governments.


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8.3.5 Municipally Owned and Airport Authority Operated

This is an appropriate option when a large airport authority wishes to have a smaller airport to enhance their network of services. This is not a common governance structure in Canada.

Most satellite airports for large Airport Authorities were part of the original transfer from the federal government. In this model, the Airport Authority becomes the tenant on the airport and the County becomes the landlord. Depending on the arrangement, the County can be removed from operational responsibilities and liabilities.

The Airport Authority makes and carries out all decisions concerning airport planning, funding, construction, customer relations, and meeting all applicable laws and regulations. County employees become employees of the Airport Authority in the initial stages, after which collective bargaining processes affect the future hiring and compensation for airport employees.

Airport Authorities are created under provincial legislation. If an arrangement is made with an Airport Authority outside the province, there may be legal difficulties. This model assumes that the Airport Authority will always make decisions concerning the Lethbridge Airport in the best interest of the people using the airport. Ideally, decisions would be made strictly for business or financial purposes and not political interests.

8.3.6 Airport Authority

The Airport Authority is most applicable for very large airports with high volumes of commercial and private aircraft operations. The Authority is created by a Provincial statute which gives it significant powers to charge fees and incur debt. The Authority has full power to plan, develop and operate the airport. This model is expensive to operate and is generally not applicable to a municipal airport.

8.4 Recommended Option

8.4.1 Airport Commission

The 2011 Study recommended the creation of an Airport Commission to provide a more focused vision for the future development of the Airport. While there have been many changes in Alberta and the aviation industry since the completion of the previous study, an Airport Commission remains the most appropriate governance model for Lethbridge Airport.

In the short-term, it is recommended that an Airport Commission be established that reports to the Airport Committee representing both the County and City.

This strategy could assist in an orderly transition to a more traditional Airport Commission approach. The transition would permit the County and City to evaluate the performance of an Airport Commission as well as become more comfortable with the change in governance. Afterwards, an Airport Commission reporting directly to County and City councils should be implemented. Representative Airport Commission structures are provided in Appendix G.


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8.4.2 Commission Structures

There are a number of Airport Commission structures currently in use in North America. The structure selected is dependent upon the desired level of involvement of the commission members. The following structures were selected as examples because of the varying level of involvement of the members and the success of each airport.

Nanaimo Airport Commission

The Nanaimo Airport Commission also has two functions, the Board of Directors and the Staff.

► The Board consists of the Chair (City of Nanaimo), Vice Chair (Nanaimo Chamber of Commerce), and six Board Members (Town of Ladysmith, Cowichan Valley Regional District, The Regional District of Nanaimo, and three members from the general community). These members are appointed but are not elected officials, allowing them to serve the predetermined 3 year term.

► The Staff is comprised of the CEO, Manager of Operations and Maintenance, Business Manager, Manager of Safety and Security, Safety and Security Officer, and Office Administrator.

Comox Valley Airport Commission

The Comox Valley Airport Commission is comprised of two segments: the Board of Directors and the Staff.

► In the Comox Commission, the Chief Executive Officer (CEO) sits on the board and is responsible for airport employees. The Board is comprised of the Chair, Vice Chair, Secretary, Treasurer, and five Directors, all of whom represent a function critical to the operation and management of an airport (i.e. marketing, human resources, engineering, law, etc.).

► The Airport staff is comprised of the Manager of Operations, Deputy Manager of Operations, Manager Airside, Manager Finance, Marketing Manager, and Administration. These individuals are responsible for the day-to-day management of the Airport. They report to the CEO who then reports directly to the Chair of the Board. In total, the commission consists of 16 people.

John Wayne Airport – Orange County, CA

John Wayne Airport is owned and operated by the County of Orange. The five-member Orange County Board of Supervisors oversees the management of County government and its districts. The five Supervisors are elected by districts to four-year terms by the citizens of Orange County. The Board creates policy for the management of the Airport. The Board also appoints a five-member advisory commission called the Orange County Airport Commission that makes recommendations to the Board for development, maintenance and operation of John Wayne Airport. Commission members have terms that are concurrent with the term of the County Supervisor that made the appointment.

The Orange County Airport Commission makes recommendations to the Orange County Board of Supervisors for development, maintenance and operation of the airport. It advises the Board of Supervisors and makes recommendations on any matter pertaining to airports or air transportation. It also conducts investigations as it may deem necessary. The Airport Commission consists of five members who are appointed by the Board of Supervisors.


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The Airport Director develops Airport policy and administers all activities associated with the operation of the airport. The Airport Director has direct responsibilities for five Airport divisions which include: Business Development, Facilities, Finance & Administration, Operations and Public Affairs. He oversees the Airport staff and the Airport budget.

8.4.3 County – City Partnership Airport Commission is recommended for the future governance of Lethbridge Airport; however, it is crucial that the future ownership of the Airport also be determined. It is recommended that a partnership between the County and City of Lethbridge be established. Three forms of partnership are outlined below:

Owner Partners

The partnership could share the liability for the Airport through the physical transfer of a portion of airport property from the County to the City.

Memorandum of Understanding

A Memorandum of Understanding (MOU) can be signed by the County and the City that would outline the structure and composition of the Airport Commission, the responsibility for financial contributions, and legal liability for Airport Operations. An MOU does not necessarily require an equal partnership.

Corporation

A third partnership option would be the creation of a corporation. This corporation would be completely separate from both the County and the City, but would be comprised of appointed officials from both parties. This option would have different liability and fiscal implications from an Owner Partnership or MOU, which would be dependent upon the structure of the corporation.

8.5 Demand Growth

8.5.1 Requirements It is the interest of both the County and the City that the utilization of Lethbridge Airport increases in the short-term. This utilization can relate to passenger services offered as well as commercial use.

Passenger Services

Both the public and business survey suggest that in improvement in passenger services would have the greatest impact on the utilization of the airport. According to the survey results only 1.0% of business respondents and 4.7% of public respondents stated that improving the passenger experience through improved terminal amenities was the one improvement that would encourage their greater use of Lethbridge Airport, although air carriers such as WestJet Encore would like demand ATB expansion and upgrades prior to initiating a new service. The remainder of the respondents indicated improved passenger services.


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These included:

► Increased flight frequency;

► More convenient flight schedules;

► More direct destinations;

► Additional airline choices; and

► Larger aircraft

‘More Direct Destinations’ and ‘Additional Airline Choices’ were the most popular response in both the business and public surveys. It is important to note that the improvement factors listed above are primarily under the control of air carriers, further justifying the need for air service marketing.

Commercial Development

Consultations conducted with airport businesses revealed that demand for airside commercial land already exists. A number of airport tenants cited a lack of available commercial land as an impediment to the growth of their businesses as well as a detractor to new businesses selecting Lethbridge Airport as a location to base their operations.

8.5.2 Strategic Options

There are a number of options that the County and City should consider to aid in increasing the utilization of Lethbridge Airport:

Public Education – Consultations with a variety of stakeholders produced anecdotal evidence that an effort to increase the public’s understanding of the airport and airline fee structures could go a long way towards increasing utilization of the airport.

On more than one occasion, an individual found a seat-sale for a flight from Calgary to another Canadian city. That individual then found the price for a return flight from Lethbridge to Calgary and added it to the seat-sale fare. The resulting combined fare proved too expensive and the individual elected to drive to Calgary. Most airlines offer deep discounts on the initial short flights that bring passengers into their larger system. If the individual had selected Lethbridge as their origin, they would have likely been provided a price very similar if not the same as a flight originating in Calgary.

An example of a public education initiative is the cost calculator created by Red Deer Airport that allows a prospective traveler to enter the cost of their desired flight from Red Deer, Edmonton, and Calgary and then calculate the ‘actual’ cost of the flight including parking, travel time, and mileage. A similar calculator showing Lethbridge, Calgary, and Great Falls may be a useful tool in educating the public on the true value of the airport.

Direct Marketing – Edmonton International Airport ran a successful ad campaign asking travelers to break “the Calgary Habit”, referring the common practice of more than 1 million Edmontonians of driving to Calgary to fly to other destinations. The Airport claims that the campaign helped to repatriate almost 20,000 passengers. Lethbridge could consider a similar campaign; however, a campaign with a name similar to the ‘break the Calgary habit’ may be viewed as lacking originality and not produce the desired results.


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Demand Identification – Consultations with an airport successful in attracting new air services revealed that airlines must have hard evidence that there is a high probability for success before introducing a new service. One strategy to gather this evidence is through a Market Demand Study. This study would identify the total demand for air travel in the region, the amount of leakage to surrounding airports, and the amounts of traffic that could be repatriated by this new service. A Market Demand Study is a powerful tool to use during discussion or negotiations with an airline. Consultations suggest that approaching an airline without hard evidence often proves to be fruitless.

Airport Master Plan – An Airport Master Plan is a strategic study used to define the long-term development plan for an airport. Lethbridge Airport does not currently have a Master Plan, which has proven a significant hurdle in developing existing lands and growing existing and prospective aviation businesses. These plans are typically updated every 5 to 10 years to account for regional and industry changes and to align with owner’s current goals and objectives.


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9.0 CONCLUSIONS AND RECOMMENDATIONS

9.1 Conclusions

1. Access to air transportation will remain a critical requirement for the future growth of the Lethbridge region in a global economy.

2. Residents have demonstrated a high propensity to travel by air in the past. Air travel is currently at a low due to airline consolidations, few air service options, and fierce competition among airports.

3. Both the business community and general public have expressed a desire for improved air services, specifically, more direct flights and additional carrier options.

4. Commercial activity is expected to grow as airport land, infrastructure, and services are made available.

5. Lethbridge Airport is technically well-equipped and in generally good condition.

6. Lethbridge Airport operates with a modest operating surplus, but is unlikely to accumulate financial reserves to fund long-term capital needs.

7. Significant growth scenarios may be achieved with relatively modest capital investments.

8. WestJet Encore’s DHC8-400 turboprop aircraft could operate many short or low density sectors that would be uneconomical with the main carrier’s B737 fleet. This has made WestJet Encore a strong candidate for Lethbridge.

9. The current ownership and governance structure has not facilitated the levels of growth demonstrated by comparable airports.

10. Implementation of a new ownership and governance model could significantly increase the level of activity at the airport and service provided to the region.

11. Implementation of an ownership partnership between the City and County is necessary to facilitate implementation of a new governance model.

9.2 Recommendations

1. Negotiate a new airport ownership structure between Lethbridge County and the City of Lethbridge.

2. Implement an Airport Commission governance model.

3. Prepare an Airport Master Plan to guide development and infrastructure for a 20-year planning period. The Plan should provide a balanced approach to passenger air services and aviation commercial lands.


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4. Investigate the demand for air travel in Lethbridge by preparing a Market Study quantifying potential air service demand and identifying travel patterns. A report quantifying this demand should be used in discussions with WestJet and potentially other carriers regarding possible future flights from Lethbridge.

5. Consider expansion and improvements to Air Terminal Building to provide capacity for 2 x DHC8-400 aircraft operating on similar schedules with a reasonable passenger level of service.

6. Implement a public education initiative to draw awareness to the potential cost savings of using Lethbridge Airport over competing airports.

7. Develop a direct marketing campaign aimed at repatriating passengers lost through leakage to competing airports.

APPE

ND

IX A

– Stakeholder S

urveys

Please take a few minutes to provide your input on Lethbridge Airport. Your feedback and opinionswill inform an updated Financial Assessment and Governance Study and will help to guide thefuture development of the Airport to better meet your needs.

This survey is targeting business travel. A survey for the general public (leisure travel) is availablehere https://www.surveymonkey.com/r/flylethbridge.

1

https://www.surveymonkey.com/r/flylethbridge

Name

Company

Email Address

Phone Number

1. Please provide the following the respondent name and company. If we may contact you for clarification purposes, please provide your email address or phone number.

*

2. How many do you employ in Lethbridge and surrounding area?*

3. Which term best describes your business’ current status?

Growing

Downsizing

Stable

4. Do you or your employees use air travel for business?*

Yes

No

2

5. On average, how many flights does your Lethbridge business book per year? (regardless of originor final destination)

1-6

7-12

13-24

25-36

37+

Calgary / Edmonton

Other CanadianDestination

International (includingUSA)

6. For these flights, please provide the approximate percentage for each of the following origins / finaldestinations.Three (3) values must add up to 100.

Lethbridge

Calgary

Great Falls

7. For these flights, please provide the approximate percentage for the starting/terminating at each of thefollowing airports.Three (3) values must add up to 100.

3

8. What are the reasons your organization utilizes Lethbridge Airport? (select all that apply)

Not applicable (do not use Lethbridge)

Convenience (short driving distance)

Availability of Flights

Airline Promotion (seat sale)

Other (please specify)

4

9. Which of the following are reasons your organization does not use Lethbridge Airport for businesstravel? (select all that apply)

Not applicable (Lethbridge Airport is Used)

Did Not Know Option Existed

High Cost

Difficulty connecting in Calgary/Edmonton (flight schedule)

Small Aircraft

Air Terminal Amenities


5

10. Do you do business with firms located at the airport?

Yes

No

11. Did the airport influence your decision to locate or expand in Lethbridge?

Yes

No

12. Is your proximity to Lethbridge Airport important to your business (business travel, hot shot deliveries,etc.)?

Yes

No

13. Have the existing airport facilities or services (including passenger services) limited the growth of yourbusiness?

No

Yes

14. What one improvement would encourage your greater use of Lethbridge Airport?

Increased Flight Frequency

More Convenient Flight Schedules

More Direct Destinations

Additional Airline Choices

Improved passenger experience (e.g. air terminal amenities)

Aircraft Size


6

Please take a few minutes to provide your input on Lethbridge Airport. Your feedback and opinionswill inform an updated Financial Assessment and Governance Study and will help to guide thefuture development of the Airport to better meet your needs.

This survey is specifically targeting leisure travelers.

1

1. Have you ever booked a flight from Lethbridge Airport?*

Yes

No

2

2. Why did you choose Lethbridge Airport? (select all that apply)

Convenience (short driving distance)

Availability of flights

Airline Promotion (seat sale)


3. During your last trip through Lethbridge Airport, were either Calgary or Edmonton your final destination ordid you connect to another flight?

Calgary or Edmonton was my final destination.

I connected to another flight in Calgary or Edmonton.


4. How did you book your last flight through Lethbridge?

Traditional Travel Agent

Travel Website (e.g. Expedia, Travelocity)

Direct Airline Reservation (online or by phone)

3

5. Why have you not flown from Lethbridge Airport? (select all that apply)

I didn't know I could

High Cost

Difficulty connecting in Calgary/Edmonton (Flight Schedule)

Small Aircraft

Air Terminal Amenities


4

Lethbridge

Calgary

Great Falls

Other

6. Over the past 5 years, what percentage of your flights started or ended at the following airports.Values must add up to 100.

7. Did you know that multiple daily flights are offered from Lethbridge to Calgary and Lethbridge toEdmonton?

Yes

No

8. Did you know that you can redeem reward points to purchase seats on flights departing Lethbridge?

Yes

No

9. Beyond passenger flights, Lethbridge Airport offers many other services including flight training, aircraftrentals and crop spraying. Are you familiar with any on-airport businesses?

Yes

No


10. What one improvement would encourage your greater use of Lethbridge Airport?


More Convenient Flight Schedules



Improved passenger experience (e.g. air terminal amenities)

Aircraft Size

5

APPE

ND

IX B

– Stakeholder S

urveys Results

Results of Business Survey

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

100.0%

102.0%

Name Company Email Address Phone Number

Please provide the following the respondent name and company. If we may contact you for clarification purposes, please provide your email address or

phone number.

Which term best describes your business’ current status?

Growing

Downsizing

Stable

Do you or your employees use air travel for business?

Yes

No

On average, how many flights does your Lethbridge business book per year? (regardless of origin or final destination)

1-6

7-12

13-24

25-36

37+

.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

Calgary / Edmonton Other Canadian Destination International (includingUSA)

For these flights, please provide the approximate percentage for each of the following origins / final destinations.Three (3) values must add up to 100.

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10.00

20.00

30.00

40.00

50.00

60.00

70.00

Lethbridge Calgary Great Falls

For these flights, please provide the approximate percentage for the starting/terminating at each of the following airports.Three (3) values must

add up to 100.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Not applicable(do not useLethbridge)

Convenience(short driving

distance)

Availability ofFlights

AirlinePromotion (seat

sale)

Other (pleasespecify)

What are the reasons your organization utilizes Lethbridge Airport? (select all that apply)

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Not

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Which of the following are reasons your organization does not use Lethbridge Airport for business travel? (select all that apply)

Do you do business with firms located at the airport?

Yes

No

Did the airport influence your decision to locate or expand in Lethbridge?

Yes

No

Is your proximity to Lethbridge Airport important to your business (business travel, hot shot deliveries, etc.)?

Yes

No

Have the existing airport facilities or services (including passenger services) limited the growth of your business?

No

Yes

What one improvement would encourage your greater use of Lethbridge Airport?


More Convenient FlightSchedules



Improved passenger experience(e.g. air terminal amenities)

Aircraft Size


Results of Public Survey

Have you ever booked a flight from Lethbridge Airport?

Yes

No

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Convenience (shortdriving distance)

Availability of flights Airline Promotion(seat sale)

Other (pleasespecify)

Why did you choose Lethbridge Airport? (select all that apply)

During your last trip through Lethbridge Airport, were either Calgary or Edmonton your final destination or did you connect to another flight?

Calgary or Edmonton was myfinal destination.

I connected to another flight inCalgary or Edmonton.

How did you book your last flight through Lethbridge?

Traditional Travel Agent

Travel Website (e.g. Expedia,Travelocity)

Direct Airline Reservation(online or by phone)

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%

I did

n't k

now

I co

uld

Hig

h C

ost

Diff

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onne

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Cal

gary

/Edm

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Sm

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ircra

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Air

Ter

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men

ities

Oth

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esp

ecify

)

Why have you not flown from Lethbridge Airport? (select all that apply)

.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Lethbridge Calgary Great Falls Other

Over the past 5 years, what percentage of your flights started or ended at the following airports.Values must add up to 100.

Did you know that multiple daily flights are offered from Lethbridge to Calgary and Lethbridge to Edmonton?

Yes

No

Did you know that you can redeem reward points to purchase seats on flights departing Lethbridge?

Yes

No

Beyond passenger flights, Lethbridge Airport offers many other services including flight training, aircraft rentals and crop spraying. Are you familiar

with any on-airport businesses?

Yes

No

What one improvement would encourage your greater use of Lethbridge Airport?


More Convenient FlightSchedules



Improved passenger experience(e.g. air terminal amenities)

Aircraft Size

APPE

ND

IX C

– Lethbridge Market for A

ir Transportation

The Lethbridge Market for Air Transportation

A. Introduction

Many Lethbridge travelers use the Calgary airport. The traffic volumes reported by the Lethbridge Airport understate the “true” air traffic of the community and latent traffic may offer opportunities for new air services at the Lethbridge Airport. This appendix quantifies the air traffic at Lethbridge. It considers both traffic now using the Airport, and the “leakage” of passengers to other Alberta airports.

B. Methods for Measuring Traffic Leakage

Three “bottom up” methods can be used to estimate leakage. They aggregate individual transactions to develop estimates of the population.

User surveys query individual persons about their travel patterns. Their accuracy depends heavily on response rates and persons who respond to the survey are not necessarily representative of the population.

Vehicle license plate surveys can be very informative. They would involve collecting at least 1000 license plate numbers of vehicles in the parking lots of the Calgary and Great Falls airports. The license plates would be traced to the community of domicile. This would yield the proportion of vehicles based in Lethbridge and surrounding areas. These ratios would be applied to the Calgary airport’s total traffic to generate an estimate of passenger leakage.

A third method is to purchase ticket coupon data from a global distribution system. The records show the origin, destination, fare and point of sale. A ticket sold in Lethbridge would presumably involve a local resident. A ticket showing Calgary as the point of origin would indicate a leakage passenger.

Each method has unique strengths and weaknesses and are labour-intensive and costly. None of these methods can accurately survey inbound passengers. A Tokyo-Lethbridge passenger who flies to Calgary and continues to Lethbridge by surface transport will elude the survey. There would therefore be no record of the passenger in any parking lot survey. The associated ticket coupon would have no mention of Lethbridge. A survey of local hotels, businesses and the University of Lethbridge could, in theory, quantify the inbound leakage. In practice, this traffic is fragmented and would not yield credible results.

The estimates for Lethbridge use a “top down” or cross-sectional procedure. The method assumes that the people of Lethbridge and surrounding communities make an “average” amount of air travel, whether from the Lethbridge Airport or others. The community also attracts out-of-town visitors at a rate that depends on its population. The approach used airport traffic and the SMSA population of a sample of communities. The sample excluded major hubs (where many passengers are connecting between flights) and communities where high rates of leakage are expected (e.g. Medicine Hat, Windsor, Swift Current). The analysis used data for 2011, the last census. The sample generated an estimate of annual enplanements per unit population. This was applied to the Lethbridge census metropolitan area to calculate an estimate of the “true” traffic.

This overall approach can be more sophisticated by considering community employment levels, personal incomes and recent immigration patterns. These factors would call for a multiple regression analysis rather a simple average. The econometric approach would lead to greater precision; however, the estimates would not be sufficiently different to affect the findings and recommendations.

A final method involves examining historical traffic statistics. In 1989, the airport handled 123,000 passengers, twice the 2015 value. Lethbridge’s total demand, both using the airport and driving to Calgary/Great Falls, must have grown significantly in the more than twenty years since this all-time high. This volume, escalated to 2016, provides an absolute floor on the “true” traffic at Lethbridge.

C. Estimate of Total Lethbridge Market

Figure 1 summarizes the estimation process. The cities on the chart presumably have only moderate leakage. The blue bars denote the cities used to calculate passengers per unit population. The cities shown with the green bars were not included in the calculations. They illustrate facts relevant to Lethbridge.

Figure 1 – Cross-sectional Estimation of Lethbridge Traffic

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Pass

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Residents of Lethbridge make little use of the airport. The traffic per unit population is very low; only one tenth of the Canadian average. The index for Calgary is 2.7 times the Canadian average. The Calgary activity includes large numbers of connecting passengers on WestJet and Air Canada, plus leakage from much of Alberta and eastern British Columbia. Even the Edmonton Airport is greatly concerned about the loss of traffic to Calgary. The Great Falls airport serves a large part of Montana. Table 1 shows the cross-sectional estimates for the air traffic at Lethbridge.

Table 1 – Lethbridge Air Traffic, Direct and Leakage

Passengers Using Lethbridge Airport 2015 61,327

Surface Leakage 327,380

Total Passengers 388,707

Leakage rate 84.2%

The 2010 analysis calculated a total market size of 180,413 passengers per year. With 56,994 passengers using the Airport in 2010, this corresponded to a leakage rate of about 70%. The large difference in the 2010 and current estimates of market size result from differences in methodology. The earlier cross-sectional estimate used a log-linear regression rather than a simple average. While care is taken to ensure consistency, these methods are unavoidably sensitive to the cities in the sample and to the definitions of their metropolitan statistical areas. The regression models also considered immigration and personal incomes. Their double-log specification can create wide differences. The earlier analysis combined the cross-sectional model with MIDT data while current estimates made no use of MIDT.

The differences in the total estimated traffic are large. The regression models use a double logarithmic specification that could amplify any irregularities in the sample. The leakage rates are still very similar; however, they do not affect the overall conclusions or recommended strategies.

D. Role of Lethbridge-Calgary Flights in Air Canada’s Network

Airports seek to maximize the number of passengers, airlines, runway activity, nonstop destinations and operating revenues. An airport would prefer to serve as the sole gateway to the community so that any airline wishing to develop Lethbridge’s traffic must serve the Lethbridge Airport. The airport is largely indifferent about the fares its passengers pay to the airlines.

Airlines are primarily interested in yield or unit revenue. They are much less concerned about raw volumes. Premium passengers are of overwhelming importance to profitability. Airlines usually have little difficulty filling a flight; the real challenge is to obtain unit revenues that are high enough to permit profitability.

The airlines recognize that they do not need to fly to the Lethbridge Airport to capture passengers traveling to and from Lethbridge. Why should they go to the expense of flying planes to Lethbridge when passengers will simply drive to Calgary?

Rather, the airlines view routes such as Lethbridge-Calgary as a means to boost unit revenues by attracting a large share of premium passengers. They are similar in many ways to business class seating, airport lounges, frequent flyer plans and other “perks.”

A similar project for another city involved a detailed analysis of ticket coupon data. Fares for flights directly from the community to any destination were much higher than the fares from a nearby large hub. The fares were still higher even when the analysts corrected for the short flight to the hub. Clearly, this small, low volume air service was helping the airline obtain higher unit revenues in the remainder of its network. The analysis then considered the leakage traffic alone. It looked at passengers who drove from the community to a nearby large airport. The company that operated the local service had much higher unit revenues (measured per passenger or passenger-kilometer) than the other airlines. The local air service clearly gave the airline an advantage for obtaining premium traffic, even for leakage passengers. While the modest air service and the severe leakage were a frustration for the community, the flights seemed to be serving the airline extremely well. If this situation applies to Lethbridge, then Air Canada’s modest service gives it a revenue advantage over WestJet, even for Calgary leakage passengers.

A premium passenger may fly the Lethbridge-Calgary sector four times per year, and drive to Calgary for eight other trips. The four trips might justify membership in Air Canada’s frequent flyer plan. This would provide a strong incentive for the passenger to patronize Air Canada on the eight other trips. Otherwise, the passenger might be indifferent as to the choice of airline, and would likely choose the least expensive flight, possibly on a competitor.

E. Reasons for Flying Directly to and From Lethbridge

The Air Canada service provides the highest frequencies of any public transportation. Table 2 shows the flight schedule for the 2016-2017 winter periods. Six flights operate on weekdays and four on weekends.

Table 2 – Air Canada Schedule at Lethbridge

Flight Number Depart Lethbridge Arrive Calgary Days of Operation 7212 0515 0604 Daily 7214 1010 1053 Daily 7216 1305 1354 Daily 7218 1535 1626 Daily 7220 1725 1814 Except Saturday 7222 1920 2011 Except Saturday

Air Georgian, a private company based at Toronto’s Pearson Airport, operates the service on behalf of and under conditions specified by Air Canada.

Public transportation by surface modes is limited. Greyhound offers a daily northbound departure at 4:05 AM, arriving at the downtown Calgary terminal at 7:10 AM. After a 5 hour 20 minute layover, passengers can connect to the airport, arriving at 1250 AM. The southbound trip leaves the downtown Calgary bus terminal at 10:15 PM, arriving in Lethbridge at 1:25 AM. Greyhound has not listed any connections from the Calgary Airport to Lethbridge. Red Arrow offers trips leaving Lethbridge at 8:00 AM and 5:30 PM, arriving at the Calgary airport at 11:40 AM and 9:10 PM, respectively. Buses leave the Calgary Airport at 10:45 AM and 5:15 PM. The buses stop in downtown Calgary. The Red Arrow schedule, while carefully optimized, could necessitate lengthy waits for some passengers at the Calgary Airport.

The flight is the simplest way to reach Lethbridge. Passengers arriving in an unfamiliar destination can face many unpleasant surprises. They may need to experience a cold Alberta winter or risk high taxi fares. Passengers traveling between Lethbridge and Calgary by bus must locate the boarding place for the bus at the airport. The bus may leave them at an inconvenient or unfamiliar part of Lethbridge. Even if such problems do not materialize, the passenger’s knowledge that they might occur will be a source of anxiety. This would compound the inherent anxiety of travel; of arriving tired, disoriented and jet-lagged.

The airline industry operates under worldwide standards. Passengers will be fully familiar with how the industry operates. Transfers from other Air Canada flights to Air Canada’s Lethbridge service are relatively seamless. The chances of an unpleasant surprise are very small. If an incoming is late or entry formalities take unusually long, Air Canada retains responsibility for passengers going on to Lethbridge on its flights. Other passengers using surface modes are on their own. The Lethbridge-Calgary flights are partly a form of insurance against the inherent uncertainties of travel. They transfer risks of flight delays and other problems from the passenger to the airline.

In many instances, flying directly to and from Lethbridge costs $150-$180 more than a corresponding itinerary at Calgary. Fuel costs, wear and tear on a passenger’s car, and parking costs at the Calgary Airport can rapidly eliminate any savings. Inbound visitors may pay car rental charges The Red Arrow bus costs $56.50 in each direction. In many instances, the direct Lethbridge flights are cost-competitive with surface modes to the Calgary airport.

The Lethbridge-Calgary flight assists meters and greeters. Members of the immediate family often drive passengers to and from the airport. This is feasible for the Lethbridge Airport, but the Calgary Airport is too far for most meters and greeters. For some elderly or infirm passengers, this immediate support is very important.

Expense claims are simplified. The passenger must make one transaction for the flight to Lethbridge. There is no need to make a separate accounting for the Lethbridge-Calgary sector. There is no need to retain the receipts for ground transportation.

An out-of-town visitor may want to make a long stay in Lethbridge. By flying directly into Lethbridge, she eliminates the problems of returning a rented vehicle to the place of origin. A Lethbridge resident departing on a long trip does not need to worry about parking a vehicle at the Calgary Airport.

The Lethbridge-Calgary flights help passengers accumulate points on airline frequent flyer plans. In some instances, passengers redeeming points on frequent flyer plans can use the Lethbridge service at no cost. A Lethbridge-Calgary-London England return trip requires the same number of points as a Calgary-London trip.

Both residents and visitors can benefit from the Lethbridge-Calgary flights. On balance, out-of-town visitors to Lethbridge have the most to gain by flying to and from the Lethbridge Airport.

F. Reasons for Accessing Lethbridge Through Calgary

Air Canada’s Lethbridge-Calgary flights primarily serve passengers continuing beyond Calgary on Air Canada. There are very few provisions for other airlines. Passengers transferring to other carriers must usually pay the full local Lethbridge-Calgary fare. A Lethbridge passenger flying on WestJet, British Airways, KLM, Delta, American or Hainan Airlines has a very strong incentive to travel to Calgary on a surface mode.

Even on Air Canada, the Lethbridge flights can be costly. Their purpose is not to direct as many Lethbridge passengers to Air Canada as possible, but to offer a boutique product to maximize system wide unit revenues. Table 3 compares Air Canada fares from Calgary and Lethbridge to selected destinations.

Table 3 – Lowest Fares from Calgary and Lethbridge to Selected Destinations

Destination Departure Return Lowest Return Fare From

Lethbridge Calgary

Vancouver Nov 21 Nov 22 555.26 380.33

Toronto Dec. 5 Dec. 9 727.85 425.17

Las Vegas Jan. 15 Jan. 22 446.21 301.06

Shanghai Jan. 6 Jan. 21 843.60 672.40

London Jan. 6 Jan. 21 865.87 715.97

Source: Orbitz, November 20, 2016

The table shows the lowest fares available from Lethbridge and Calgary on certain dates. The table does not necessarily show Air Canada’s pricing behavior. For example, the fare to Toronto as shown is $300 more from Lethbridge than from Calgary. The two fares may be very different in terms of advance booking, minimum stay and other terms. It is possible that Air Canada publishes a fare for Lethbridge-Toronto that is a slightly more expensive counterpart to the $425.17 Calgary fare. However, passengers may have already purchased this fare, and it therefore did not appear on the display. A review of several premium fares showed a Lethbridge-Calgary fare differential of about $100.00.

The higher fares or, more precisely, the small inventories of discount-priced seats, is a major deterrent to flying on Air Canada directly from Lethbridge. The economics of the direct flight are especially poor for

families on discretionary travel. A specific flight may offer too few low priced seats to accommodate a group. Each member may then have to pay a higher fare than expected. The group can spread the costs of driving over several persons.

Air Canada’s Beech 1900 aircraft have only 19 seats. Air Canada’s yield managers may be unable to assign significant numbers of seats to discount fares on the Lethbridge-Calgary flights. This could deter families from using the flights. Any fare issues are as much a result of capacity as pricing policies.

The Beech 1900s pose other problems. Flights at Lethbridge have an overall load factor of 67 percent, based on the airport’s traffic and published airline schedules. This is relatively high for a short haul commuter service. Sometimes, the flights will be completely full. A Vancouver-Lethbridge passenger may purchase a premium ticket for flexibility. If her meeting in Vancouver finishes early, she can take an earlier Vancouver-Calgary flight. However, her connecting flight to Lethbridge may be full, and she will have lost the flexibility she sought.

Many passengers do not like small turboprop aircraft. Their limited cabins are especially inconvenient for passengers traveling with large or awkward items.

The Beech 1900s pose a problem for Air Canada and its commuter affiliates. Many entered service in 1997 and have high operating costs per seat-kilometer. Most U.S. carriers retired these aircraft 10 or more years ago. The North American industry has been disposing of even 50-seat regional jets because of their high costs. Finding suitable replacements for the Beech 1900s may be difficult. Mainline carriers are now buying few aircraft of less than 60 seats. The 76 seat Dash 8 Q400 is replacing older and smaller aircraft on many routes. Air Canada may face a difficult choice of promoting its Lethbridge service with much larger aircraft or eliminating all service to Lethbridge. Many cities have lost air services from this dilemma.

Residents of Lethbridge travel frequently to Calgary for a wide range of social and business activities. By driving to the Calgary airport, they can combine travel with many other activities.

Many persons prefer using their own vehicles despite the higher costs and, sometimes, the longer transit times. A private vehicle is often an extension of a person’s private space. It offers the psychological advantages of being “at home” that the anonymity of public transportation lacks. They experience these feelings when driving to and from the Calgary airport.

In many instances, the time savings from flying directly to and from Lethbridge are modest. Any advantages decline rapidly for residents of northwestern Lethbridge and areas closer to Calgary. Table 4 compares total times for flying and driving. Although Air Canada encourages passengers to check in at least 90 minutes before a flight1, the calculations use a period of one hour at both airports. Air Canada imposes minimum connecting times of 35, 50 and 45 minutes for domestic-domestic, domestic-transborder and domestic-international travel, respectively, at Calgary Airport.

1 120 minutes for U.S. and most international destinations

Table 4 – Comparison of Travel Times, Flying Directly from Lethbridge versus Traveling to Calgary

Flying Directly From Lethbridge

Step Time (Minutes)

Drive from home to Lethbridge Airport 15

Park Car 5

Check-in at airport, wait to board flight 60

Flight to Calgary 49

Connecting time (domestic) 35

Total 164

Driving from Lethbridge to the Calgary Airport

Step Time (Minutes)

Drive from home to Calgary Airport 152

Park Car 10

Check-in at airport, wait to board flight 60

Total 222

The Lethbridge flights offer a maximum saving of 58 minutes. The relative benefits of the direct flight are very sensitive to the connecting times at Calgary. Any domestic-to-domestic connection exceeding 93 minutes will eliminate these benefits. Table 5 shows connecting services between Lethbridge and selected cities, based on Air Canada’s winter 2016-2017 schedule.

Table 5 – Connections from Lethbridge to Selected Cities

Lethbridge-Calgary Flight Connecting Flight from Calgary

Destination Flight Number Arrives Calgary Flight Departs Calgary

Connecting Time

Vancouver 7212 0604 205 0755 1:51

7214 1053 211 1140 0:47

7216 1354 219 1510 1:16

7218 1626 223 1730 1:04

7220 1814 225 1950 1:36

7222 2011 229 2115 1:04

Toronto 7212 0604 174 0700 0:56

7214 1053 128 1330 2:37

7216 1354 130 1555 2:01

7218 1626 140 1745 1:19

7220 1814 146 00301 6:16

7222 2011 146 0030 4:19

Tokyo 7216 1354 9 1440 0:46

London UK 7218 1626 850 1840 2:14

The table shows that most connecting times are somewhat longer than the 35 minute ideal. They negate much or all of the time benefits of the Lethbridge flights.

Passengers using the Lethbridge-Calgary flights also lose flexibility in their choice of timings. Lethbridge-Vancouver passengers have a choice of six departures daily, and four on weekends. From Calgary, depending on the day, Air Canada offers up to twelve departures daily. WestJet also has a strong offering. There are nine Calgary-Toronto departures on Air Canada. Lethbridge has connections to only five. Some low frequency destinations such as Ottawa and Halifax may involve lengthy connecting times at Calgary.

G. Leakage via Great Falls

Despite the expensive U.S. dollar of 2016, Great Falls MT is attracting growing numbers of Canadian passengers. The airport has services by Alaska and Frontier Airlines. Most importantly, Allegiant Airlines, an ultra-low cost carrier, offers low frequency flights to recreational destinations. It started serving Great Falls in 2007 from Las Vegas. It added routes to Phoenix in 2009 and to Los Angeles in 2014.

Allegiant Airlines is as much a tour wholesaler as an airline. It offers low priced all-inclusive packages besides just transportation-only tickets. Since it serves primarily leisure passengers who plan their trips well in advance, it has very high load factors. It connects mostly secondary airports such as Rockford IL, South Bend IN, Cedar Rapids IA and Bangor ME to several “focus cities” including Las Vegas, Orlando/Sanford FL, Phoenix Mesa, Fort Lauderdale and several other cities. It has been particularly aggressive in seeking Canadian traffic through small airports immediately south of the border. It serves Bellingham as a proxy for Vancouver, Niagara Falls NY for Toronto and Plattsburgh for Montreal. In the fall of 2016, it started flights to Ogdensburg NY to capture Ottawa passengers.

Besides the low fares, the Great Falls flights offer low parking rates. Transborder passengers tend to prefer clearing entry formalities at land border crossings rather than at airports.

In 2014, the Great Falls airport estimated that 60,000-80,000 Canadian passengers use the low cost services each year2. In 2014, the airport served 386,644 passengers. The Great Falls Airport has distributed free parking coupons in Lethbridge and Medicine Hat to encourage Canadian traffic.

The Great Falls flights compete primarily with charter flights from the Lethbridge Airport. Both services target discretionary, fare-sensitive passengers who will drive long distances and plan their days of travel around paying the lowest possible fare. These passengers are almost irrelevant to Air Canada’s Lethbridge-Calgary flights. Air Canada is providing a premium, “boutique” service for high fare passengers. Should WestJet begin its own Calgary-Lethbridge service, it is very unlikely that it could offers fares of interest to the Montana leakage traffic. Seasonal, low frequency charter services from Lethbridge to popular U.S. destinations would provide effective competition to Allegiant at Great Falls.

H. Summary Conclusions

Lethbridge loses fully 84 percent of its passenger traffic to competing airports, particularly Calgary. Great Falls is also a growing factor for transborder passengers.

Air Canada’s Lethbridge-Calgary service offers a high quality, specialized product directed to premium passengers. Its primary purpose is to help Air Canada compete for the most profitable segments of the southern Alberta market. The fact that many Lethbridge passengers travel by surface to competing airports does not necessarily reduce the success of the service.

There are many reasons for using the air service, and many reasons for driving to competing airports. For some passengers, the service can offer a genuine reduction in total travel costs.

2 Source: Kristen Inbody, “Allegiant Air Adds Great Falls-Los Angeles Flight, ”Great Falls Tribune, June 22 2014

The Lethbridge-Calgary flight may face challenges in the future. The Beech 19 aircraft have high costs per available seat-kilometer. They will eventually need replacing. The replacement aircraft will likely offer considerably more capacity that the 19 seats on existing flights. The airline must then choose between lowering frequencies to maintain a comparable daily capacity, “promoting” existing flights to the larger aircraft or discontinuing services to Lethbridge altogether. Many airports throughout North America have lost services from this process.

There is no evidence that Air Canada’s scheduling, capacity or pricing are in any way excessive, monopolistic or abusive. Its Lethbridge operation is a high cost product for premium traffic, and is managed accordingly. Price-sensitive passengers have many other options.

The situation at Lethbridge is altogether typical of similar-sized communities that are situated close to larger airports. Traffic leakage of the degree experienced by Lethbridge is almost universal. In Canada, Kitchener-Waterloo, Windsor, Hamilton, Medicine Hat, Victoria, Red Deer and many other communities experience similar or even higher leakage rates. In the United States, similar problems are the rule for most communities of a half million or less.

Even the largest airports confront this problem. Edmonton loses considerable traffic to Calgary, and many Vancouver passengers board flights at Seattle-Tacoma. The Greater Toronto Airport Authority is very concerned about a loss of traffic to Buffalo and Niagara Falls while Montreal loses traffic to Plattsburgh NY. Ottawa loses considerable international traffic to Montreal.

The reasons for the high leakage rates and the issues of community access and airport are almost always identical. There is nothing unusual about traffic leakage at Lethbridge.

I. Strategies for Improved Air Service

Lethbridge should accept a high leakage rate as inevitable.

Air Canada is providing a valuable service to the community. The flights give Lethbridge instant recognition on any computer reservations screen throughout the world. Air Canada’s service faces several threats, including the high operating costs of the Beech 1900 and their economic obsolescence. Any measures to attract additional carriers will inevitably affect Air Canada. The community should pursue additional airlines cautiously. Preserving the Air Canada service should be a community priority. A strategy focusing solely on retaining Air Canada and seeking no new carriers would be overly conservative, but defensible. Specific air service development recommendations include:

1. Develop Grass Roots Support for Air Canada

The Air Canada service creates value for both residents and visitors. Under this measure, the airport would develop a series of evaluations, notices and other materials that would appear on its website, the local newspapers, and, possibly advertising media. These materials would demonstrate in a simple but convincing manner the advantages of using the Air Canada flights. The initiative would proceed with the knowledge and support of Air Canada.

Members of the Lethbridge community would meet with Air Canada route planners to discuss each party’s concerns about the Lethbridge-Calgary flights. A major topic should be the future of the Beech 1900s. Each party would obtain a better understanding of the other. The meeting would also demonstrate to Air Canada the importance that Lethbridge attaches to the service.

2. Seek Lethbridge-Calgary Flights by WestJet Encore

WestJet is a strong, profitable and rapidly growing carrier. From Calgary, its headquarters and primary hub, it has comprehensive services on domestic and transborder routes, and a small but expanding international network. Lethbridge is an important part of its Alberta heartland.

A Lethbridge-Calgary service would help divert high yield traffic from Air Canada and provide additional feed to WestJet’s Calgary hub.

Lethbridge has already approached WestJet about such a flight. A service may be contingent on WestJet’s receiving more Dash 8 Q400 aircraft. However, the short distance may permit aircraft deployed on other routes to serve Lethbridge during any schedule downtime.

The major obstacle is that a twice daily service would expand total capacity at Lethbridge by 160 percent. While the total Lethbridge market, including leakage traffic, could readily fill the aircraft, the issue of fares is very complex. The community would need to establish that there are enough passengers who are willing to pay a fare premium to ensure a profitable service.

Any “pitch” to WestJet should focus primarily on fares/yields. Demonstrating that the Air Canada flight has a positive network-wide impact on average yields would be a very powerful argument.

3. Seek a Low Cost Carrier

NewLeaf has established an embryonic low cost operation in Canada. In the summer of 2017, Jet Naked and Jetlines Canada also plan to offer low cost domestic flights. All three airlines will be seeking poorly served communities.

The Lethbridge Airport should meet with each Low Cost Carrier to discuss a route to the community. The Airport would prepare a package summarizing the economic rationale.

This step has several caveats. New entrants are inherently risky. There is no evidence that Canada can support one low cost carrier, let alone three. New entrants often have inadequate cash. They commonly demand very large financial concessions from the airports they serve. Many airports have made large investments in new entrants without any lasting benefit. Most importantly, the incumbents have resented the generous financial packages. Many incumbent airlines have eliminated flights, while publicly blaming airport management for favoring competitors.

4. Develop Assistance Program for New Services

The Airport could develop a program of landing and terminal fee rebates and marketing assistance. The financial terms might be linked to new destinations or increased traffic. The program would be totally transparent and impartial. It would be open to any carrier serving the airport, including incumbents Air Canada and Integra Air.

The assistance program would anticipate the demands of Low Cost Carriers. It would improve the Airport’s negotiating position and counter any demands for more generous assistance. The community should proceed cautiously. Air Canada has expressed considerable anger over what it views as discriminatory and destructive financial assistance paid by other communities to its competitors. It has claimed that these programs were a factor in its discontinuation of certain services.

5. Seek Charter Carriers

Carriers such as Sunquest operate seasonal charter flights to leisure destinations in the United States, Caribbean and Latin America. They serve many Canadian points, including Regina, Saskatoon, Prince George, Penticton, Kelowna and Abbotsford. Flights from Lethbridge could serve a large part of southern Alberta and southeastern British Columbia.

Allegiant Airlines has a license to fly into Canada. However, its scheduled network lies wholly within the United States. A carrier operating charter flights from Lethbridge could serve many destinations in the U.S. Sunbelt, Mexico and the Caribbean.

The tour wholesalers will determine the scale of charter activity at Lethbridge. They assemble all-inclusive tours, including air transportation, hotels, and access to certain attractions. Passengers can also purchase only air transportation. The airline operating the charter exercises only limited control over a flight’s logistics. The wholesaler instructs the airline where and when to fly. Some wholesalers such as Sunquest own their own fleets of aircraft. Any “pitch” for charter flights by Lethbridge should be directed to the tour wholesalers. An approach based on low landing fees, favourable parking rates and passenger amenities such as storage rooms to hold heavy winter clothing of passengers traveling south could serve as inducements. The flights could attract passengers from northerly areas such as High River and Claresholm.

The scale of the charter flights varies widely, from daily year-round departures from the largest airports to a handful of flights carrying a few hundred persons. The Lethbridge-Calgary flights of Air Canada likely see little use by charter passengers flying out of Calgary. Charter flights tend to have very low unit revenues. They are usually priced separately from scheduled services. Passengers using Air Canada’s flight would usually pay the full local Lethbridge-Calgary fare, on top of the price of the charter flight. The cost difference between flying and driving from Lethbridge would be especially large for families.

The charter flights would provide a wider range of destinations than is available from Great Falls on Allegiant Airlines. The effect on Air Canada would be minimal.

6. Seek WestJet Bus Service

A primary goal of this report is to increase utilization of Lethbridge airport. This strategy would likely divert some passengers from the Air Canada flights onto surface modes. However, it would enhance competition at Lethbridge and greatly raise the community’s profile.

The County and the City of Lethbridge would work with WestJet to establish a Calgary-Lethbridge bus service. Vehicles would operate nonstop between Lethbridge and the Calgary Airport. Each trip would bear a WestJet flight number and be listed in computer reservations systems. It would be integrated as closely as possible to WestJet’s flights.

The Dash 8 Q400 creates many new opportunities for WestJet. However, with 76 seats it is still very large for airports such as Red Deer, Medicine Hat and Lethbridge. Even two daily flights to any point would more than double total capacity at Lethbridge. WestJet therefore must cede much of its Alberta heartland to Air Canada.

A bus or minibus service would give WestJet many of the advantages of its own flights. The costs would be much lower than for a flight. It might be able to set aside a large block of discounted seats. WestJet could expand its bus service to include Medicine Hat, Red Deer, Drumheller, and Banff. The proposal would directly address a major challenge facing WestJet; its problems serving several communities in southern Alberta. A Lethbridge-Calgary bus service might be the first step to establishing scheduled flights. However, this is too speculative to serve as the primary goal.

WestJet and other airlines are often approached by communities seeking scheduled flights. The community proposals are often overly ambitious and fail to address the airlines’ primary concerns. By proposing a bus service, Lethbridge would demonstrate an uncommon level of sophistication and creativity. The Airport might raise this during a discussion of traditional air services.

APPE

ND

IX D

– Aviation A

ctivity Forecast

Table 1 – Lethbridge Passenger Forecasts

Historical Low Medium High 1977 77,100 1978 79,300 1979 86,600 1980 99,100 1981 102,900 1982 101,700 1983 86,700 1984 93,840 1985 96,900 1986 102,900 1987 110,000 1988 110,700 1989 123,000 1990 115,531 1991 92,100 1992 82,636 1993 73,199 1994 72,811 1995 69,162 1996 72,342 1997 68,564 1998 68,278 1999 66,306 2000 61,236 2001 63,954 2002 54,357 2003 53,470 2004 56,141 2005 61,442 2006 56,359 2007 63,787 2008 63,052 2009 63,389 2010 56,994 2011 55,470 2012 53,849 2013 54,855 2014 58,370 2015 61,327 2016 62,000

Table 1 – Lethbridge Passenger Forecasts

(Cont’d)

Historical Low Medium High 2017 61,327 63,045 63,193 2018 61,327 64,620 65,158 2019 61,327 66,133 67,118 2020 61,327 67,456 69,067 2021 61,327 68,895 71,194 2022 61,327 70,274 73,339 2023 61,327 71,578 75,500 2024 61,327 72,791 77,675 2025 61,327 73,892 79,858 2026 61,327 75,365 82,009 2027 61,327 76,795 84,109 2028 61,327 78,172 86,166 2029 61,327 79,488 88,319 2030 61,327 80,600 90,582 2031 61,327 81,796 92,982 2032 61,327 83,082 95,517 2033 61,327 84,487 98,197 2034 61,327 86,042 101,030 2035 61,327 87,778 104,021 2036 61,327 89,589 106,936 2037 61,327 91,629 109,907 2038 61,327 93,920 112,934 2039 61,327 96,477 116,019 2040 61,327 99,309 119,162

Table 2 – General Aviation Historical Activity and Forecasts

Other Commercial Private Civil Government Military Local

1996 5,850 5,024 495 473 1997 10,236 5,263 280 437 -

1998 10,014 6,070 365 549 -

1999 11,440 6,590 274 229 13,345

2000 8,745 6,021 245 194 11,328

2001 8,891 5,268 242 359 15,786

2002 7,113 6,220 339 136 13,184

2003 7,554 3,863 443 273 9,002

2004 6,464 4,057 340 286 8,910

2005 7,277 4,333 292 224 9,064

2006 6,993 4,848 289 169 10,934

2007 6,962 5,507 263 410 9,838

2008 7,969 4,828 217 434 11,381

2009 5,636 5,507 223 472 8,888

2010 4,632 4,848 239 214 10,002

2011 4,607 4,545 204 341 7,716

2012 4,946 4,670 213 370 8,745

2013 5,776 4,690 207 316 10,044

2014 4598 3756 119 358 6966 Source: Statistics Canada TP577, Aircraft Movement Statistics

Table 2 – General Aviation Historical Activity and Forecasts

(Cont’d)

Low Forecast Medium Forecast High Forecast Other

Commercial Private Civil Government Military Local Other

Commercial Private Civil Government Military Local Other

Commercial Private Civil Government Military Local

2017 4598 3756 119 358 6966 4,598 3,756 119 358 6,966 4,598 3,756 119 358 6,966 2018 4598 3756 119 358 6966 4,695 3,835 121 366 7,112 4,741 3,872 123 369 7,182

2019 4598 3756 119 358 6966 4,793 3,915 124 373 7,262 4,887 3,992 126 381 7,405

2020 4598 3756 119 358 6966 4,889 3,994 127 381 7,407 5,039 4,116 130 392 7,634

2021 4598 3756 119 358 6966 4,987 4,074 129 388 7,555 5,195 4,244 134 404 7,871

2022 4598 3756 119 358 6966 5,087 4,155 132 396 7,706 5,356 4,375 139 417 8,115

2023 4598 3756 119 358 6966 5,188 4,238 134 404 7,860 5,522 4,511 143 430 8,366

2024 4598 3756 119 358 6966 5,292 4,323 137 412 8,017 5,694 4,651 147 443 8,626

2025 4598 3756 119 358 6966 5,398 4,409 140 420 8,178 5,870 4,795 152 457 8,893

2026 4598 3756 119 358 6966 5,506 4,498 142 429 8,341 6,046 4,939 156 471 9,160

2027 4598 3756 119 358 6966 5,616 4,588 145 437 8,508 6,221 5,082 161 484 9,426

2028 4598 3756 119 358 6966 5,728 4,679 148 446 8,678 6,396 5,224 166 498 9,689

2029 4598 3756 119 358 6966 5,843 4,773 151 455 8,852 6,575 5,371 170 512 9,961

2030 4598 3756 119 358 6966 5,954 4,864 154 464 9,020 6,759 5,521 175 526 10,240

2031 4598 3756 119 358 6966 6,067 4,956 157 472 9,191 6,948 5,676 180 541 10,526

2032 4598 3756 119 358 6966 6,182 5,050 160 481 9,366 7,143 5,835 185 556 10,821

2033 4598 3756 119 358 6966 6,300 5,146 163 490 9,544 7,343 5,998 190 572 11,124

2034 4598 3756 119 358 6966 6,419 5,244 166 500 9,725 7,548 6,166 195 588 11,436

2035 4598 3756 119 358 6966 6,541 5,343 169 509 9,910 7,760 6,339 201 604 11,756

2036 4598 3756 119 358 6966 6,659 5,440 172 518 10,089 7,969 6,510 206 620 12,073

2037 4598 3756 119 358 6966 6,779 5,538 175 528 10,270 8,184 6,685 212 637 12,399

2038 4598 3756 119 358 6966 6,901 5,637 179 537 10,455 8,405 6,866 218 654 12,734

2039 4598 3756 119 358 6966 7,025 5,739 182 547 10,643 8,632 7,051 223 672 13,078

2040 4598 3756 119 358 6966 7,152 5,842 185 557 10,835 8,865 7,242 229 690 13,431

APPE

ND

IX E

– 20 Year C

apital Plan S

upporting Materials

Status Quo – Condition Assessment Summary

Item/Facility Last

Rehabilitation, Construction,

Purchase

Current Condition

Priority or

Status General Comments

Recommended Rehabilitation

Year

Estimated Rehabilitation

Cost

Airside Pavement

Runway 05-23 2005 Good 4 Reconstructed in 2005, in good condition 2025 $4,415,239

Runway 12-30 2001 Good 3 Overlaid in 2001 with noticeable cracking 2021 $2,939,620

Taxi ‘A’ 1985 Poor 1 Significant cracking, requires overlay 2017 $697,143

Taxi ‘B’ 2006 Good 4 Good condition, no cracking observed 2026 $1,278,096

Taxi ‘C’ 1985 Poor 1 Significant cracking, requires overlay 2017 $406,667

Apron I 1991 Poor 1 Minimal cracking in asphalt portion 2017 $1,057,334

Apron II 1951 Poor 1 Original to Airport, noticeable localized cracking 2017 $348,572

Apron III 1998 Good 3 Good condition, no noticeable cracking 2018 $313,714

Groundside Pavement Access Road 2014 Poor 4 In good condition 2034 $220,762 Stubb Ross Road 2009 Good 4 In good condition 2029 $1,208,381 Kenyon Drive 2009 Good 4 In good condition 2029 $418,286 Parking Lot 2014 Poor 4 In good condition 2034 $92,952

Item/Facility

Last Rehabilitation, Construction,

Purchase

Current Condition

Priority or



Year


Cost

Airside Electrical

FEC 1991 Fair 2 Approaching capacity. Expansion will depend on future development at the airport.

2017 $2,230,858

Runway 05-23 Edge Lighting 1996 Good 4 In good operational condition 2036 N/A


Runway Approach Lighting 2002 Good 4 Includes approach lighting for 05-23

& 12-30 2036 N/A

Taxi ‘A’ Edge Lighting 2001 Good 4 In good operational condition 2041 N/A Taxi ‘B’ Edge Lighting 2006 Good 4 In good operational condition 2046 N/A Taxi ‘C’ Edge Lighting 2001 Good 4 In good operational condition 2041 N/A Apron Edge Lighting 2001 Good 4 In good operational condition 2041 N/A Legacy AWOS N/A N/A N/A NAV CANADA Responsibility N/A N/A Building and Other Facilities

ATB 1979 Fair/Good 4 Structural Component and Roofing in Good Condition. Architectural and HVAC in Fair condition

2029 $10,021,431

Maintenance Facility 1987 Good 4

New Bay doors installed as a result of hangar fire. Oversized bay dorr installed to accommodate equipment.

2037 N/A

Airport Fire Hall 1986 Good 4

Buildings structural elements in Good condition while the roofing should be monitored for future repairs. Currently used for storage. Fire services provided by City.

2036 N/A

Pump House 1985 Fair 3

Includes Storage tank, pumps, pipes and valves, and control systems. Inadequate water storage for fore suppression

2030 $1,382,667

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Mobile Equipment Staff Car 2007 Good 4 2027 $30,210 Pick-Up Truck 2005 Good 4 2030 $34,857 Pick-Up Truck 1992 Fair 4 2017 $31,371 Pick-Up Truck 1993 Fair 4 2017 $31,371 Full Size Van 2006 Fair 4 2026 $29,048 Flat Bed Truck 1984 Fair 3 2017 $40,667 Plow/Dump Truck 2013 Good 4 2053 N/A Plow/Dump Truck 1995 Fair 3 2035 N/A Loader 1995 Fair 3 2035 N/A Blower 2012 Good 4 2052 N/A

Grader 1975 Fair 4 Grader from the County is used so the priority is low to acquire a new grader

N/A N/A

Sweeper 1995 Fair 4 2045 N/A Blower Head 1995 Fair 4 2035 N/A Sweeper 2012 Good 4 2062 N/A Plow Reversible 1980 Fair 3 2030 $17,429 Plow Reversible 1995 Fair 3 2045 N/A Tail Gate Sander 1990 Fair 3 2040 N/A Farm Tractor 1995 Fair 4 2035 N/A Tractor Garden 1993 Fair 4 2033 N/A Riding Mower 2009 Good 4 2036 N/A Skid Loader 1998 Fair 4 2038 N/A Mower 2000 Good 4 2040 N/A Hot Tar Machine 1986 Fair 3 2026 $69,714 Line Stripper 1990 Fair 3 2030 $52,286

Air Canada Upgrade - Condition Assessment Summary

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Airside Pavement










Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Airside Electrical


2017 $2,230,858




& 12-30 2036 N/A


ATB 1979 Fair/Good 4

Structural Component and Roofing in Good Condition. Architectural and HVAC in Fair Condition. Would require an additional capacity of 220 m2 to facilitate passenger volume associated with DSH8-400.

2029 $11,038,098



2037 N/A



2036 N/A



2030 $1,382,667

Item/Facility


Purchase

Current Condition

Priority or



Year


Cost


Grader 1975 Fair 4 Grader from the County is used so the priority is low to acquire a new

grader N/A N/A

Sweeper 1995 Fair 4 2045 N/A

Blower Head 1995 Fair 4 2035 N/A Sweeper 2012 Good 4 2062 N/A Plow Reversible 1980 Fair 3 2030 $17,429 Plow Reversible 1995 Fair 3 2045 N/A Tail Gate Sander 1990 Fair 3 2040 N/A Farm Tractor 1995 Fair 4 2035 N/A Tractor Garden 1993 Fair 4 2033 N/A Riding Mower 2009 Good 4 2036 N/A Skid Loader 1998 Fair 4 2038 N/A Mower 2000 Good 4 2040 N/A Hot Tar Machine 1986 Fair 3 2026 $69,714 Line Stripper 1990 Fair 3 2030 $52,286

WestJet Encore - Condition Assessment Summary

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Airside Pavement




Taxi ‘B’ 2006 Good 4 Good condition, no cracking observed 2026 1278095.5






Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Airside Electrical


2017 $2,230,858




& 12-30 2036 N/A



Structural Component and Roofing in Good Condition. Architectural and HVAC in Fair Condition. Would require an additional capacity of 220 m2 to facilitate passenger volume associated with 2 x DSH8-400.

2029 $12,141,907



2037 N/A



2036 N/A



2030 $1,382,667

Item/Facility Last


Purchase

Current Condition

Priority or Status General Comments


Year


Cost


Grader 1975 Fair 4 Grader from the County is used so the priority is low to acquire a new grader N/A N/A


Low Cost Carrier - Condition Assessment Summary

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Airside Pavement Runway 05-23 2005 Good 1 Requires a 1,200' extension 2017 $3,966,744

Runway 05-23 2005 Good 4 Reconstructed in 2005, in good condition 2025 $441,524



Taxi ‘B’ 2006 Good 4 Good condition, no cracking observed 2026 1278095.5






Item/Facility


Purchase

Current Condition

Priority or



Year


Cost

Airside Electrical


2017 $2,230,858




& 12-30 2036 N/A




2029 $11,038,098



2037 N/A



2036 N/A



2030 $1,382,667

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost



N/A N/A


Southern Charter - Condition Assessment Summary

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost

Airside Pavement










Item/Facility


Purchase

Current Condition

Priority or



Year


Cost

Airside Electrical


2017 $2,230,858




& 12-30 2036 N/A




2029 $11,038,098



2037 N/A



2036 N/A



2030 $1,382,667

Item/Facility Last


Purchase

Current Condition

Priority or



Year


Cost



N/A N/A


APPE

ND

IX F – G

overnance Model Features

Table 1 – Significant Airport Governance Features Governance Option Significant Features

No involvement (sell Airport)

-No involvement in airport ownership or funding. -No managerial effort required after sale.

-Loss of potential future economic asset. -Loss of future potential economic generator. -Cost to sell could be significant (environmental responsibilities, obligations to those at then airport with leases etc.). -Loss of future marketing tool to encourage future business development. -Significant effort and political will required to sell airport. Very difficult to find an “acceptable buyer” (politically acceptable, acceptable to aviation and business community, etc.) -Likely to include commitment to significant upgrades and financial assistance in the short term. -Totally removed from airport business - Use of facilities may be inconsistent with County priorities -Ensure compliance with City, regional, and provincial plans through agreements and by-laws -New owner may be a competitor in some future aviation opportunities -May be difficult to explain the accusation that the airport is being run for profit and not for the best interest of the people of Lethbridge -Accusations of cutting corners to make greater profits will always exist

Governance Option Significant Features

Municipality own and operate with current airport committee. (Status-Quo)

-Airport available for future development. -Municipalities maintain control over future airport planning and development. -Communications with Councils very direct and frequent -Use as a tool for economic development -Ensure consistency with local, regional, and provincial plans -Direct contact with businesses and customers using the airport

-Subsidies continue -Elected officials on airport board -No assurance of appropriate skill mix on airport board. -Potential missed business opportunities. -County responsible to administer the airport operations (hire manager, training, etc.). -Municipalities carry safety and any legislative liabilities (Environment, employee safety, aviation safety regulations etc.). -Airport Board membership changes may take place with each election. -Managerial effort to operate the airport -County staff time used on airport issues -Financial risk borne by the County (all losses are the responsibility of the taxpayers) -Fee increases are a political issue -Operational risk (i.e. aircraft accident, fire, etc.) -Airport staff are specialized employees of the County and require contract negotiations -Specialized airport knowledge not normally part of the County skill set (i.e. airport operations, aviation planning, etc.) -Raising capital on outside markets could be difficult -Major infrastructure improvements will be difficult to fund within County budgets

Governance Option Significant Features Municipality own and utilize a private contractor reporting to existing Airport Committee.

-Removes day to day operating responsibility. -Airport board have reduced time commitment.

-Could be more costly (operator must make a profit) A party willing to operate the airport for little or no cost would be very helpful (there may be very few potential groups prepared to do this). -Airport may not be developed in a direction in the best interest of the municipalities. -Municipalities carry any safety and legislative liabilities. -Private contractor may not be willing or able to pursue new opportunities for airport development. -Little incentive for operator to cut costs or make efficiency gains. -Some managerial effort to manage the airport -Financial risk remains if revenue does not exceed costs -Some specialized knowledge still required (i.e. knowledgeable contractor, advice to County, etc.) -Raising capital on outside markets could be difficult

Governance Option Significant Features

Airport Commission -Better expertise to manage the development of the airport. -More business like focus on running the airport. -Commission is responsible for the day to day airport management (remove responsibility from municipalities). -More consistency in membership on a commission. -More likely to find business opportunities for the airport. -Better able to find cost cutting and revenue generating opportunities. -Municipalities own land and direct airport development consistent with municipal plans.

-Contributions will be required. -Liability remains with the municipalities. -Loss of direct day-to-day management of airport

Governance Option Significant Features Municipally owned and Airport Authority Operated

-All risk of financial loss taken by AA -All operational risk taken by AA -All staffing and training done by AA -All labour negotiations done by AA -No specialized staff needed by City -No City managerial effort needed for airport issues -Good ability to raise capital on outside markets -Major infrastructure improvements will be quicker -No cost to pay contractor -AA focuses it efforts only on Lethbridge County Airport -AA markets and promotes only Lethbridge County Airport

-Quite removed from business and customer relations -Ensure compliance with City plans through agreements, bylaws etc. -Less able to use airport to achieve other City objectives. Done through discussion and agreement

Airport Authority (This model is most applicable to very large scheduled passenger traffic type airports)

-Liability removed from municipalities. -Municipalities continue to own land and assets.

-Significant overhead cost. -Integration with regional planning more difficult. -Requires significant passenger volumes or a large contribution to operations is necessary. -Legislation required -Legislative (Acts) regulatory responsibility remains -More difficult to align with County and City Planning -Legislative and financial risks remain

APPE

ND

IX G

– Representative C

omm

ission Structures

Chair

City of Nanaimo

Vice Chair

Nanaimo Chamber of Commerce

Board Member

Community

CEO

Business Manager

Manager of Operations & Maintenance

Manager of Safetyand Security

Safety and SecurityOfficer

Environmental DataSpecialist

Office Administrator

Board Member

Community

Board Member

Community

Board Member

Town of Ladysmith

Board Member

Cowichan Valley R.D.

Board Member

RD of Nanaimo

Nanaimo Airport Commission Structure

Chair

Vice Chair

Secretary

CEO

Director

Treasurer

Comox Valley Airport Commission Structure

Manager

Operations

AdministrationDirector

Director

Manager

Airside

Manager

Finance

Deputy Manager

Operations

Manager

Marketing

Director

Director

Airport Director

John Wayne Airport Governance Structure

County Board

of Supervisors

County

Executive Office

Assistant

Airport Director

Finance &

AdministrationOperations Public AffairsFacilities

Business

Development

County Counsel

Human Resources

Arts CommissionAirport Commission

MMM Group Limited

mmm group limited - lethbridge airport

Documents