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The Daily Sentinel Economic Focus Nov. 2018: The Lodging Tax and Direct Flights

November 18, 2018 – We’re changing the narrative over here at GJEP, replacing terms such as distressed and rural with high-tech and metropolitan. You might think this effort is a little premature, but the Grand Valley is the largest metropolitan area in western Colorado.  150,000 strong with a University of 11,000 and a regional airport with 16 daily flights to 6 destinations. While we’ve done a great job with tourism marketing over the years, we haven’t done a good job marketing ourselves as a great place to do business and GJEP plans to tackle that in 2019 with the launch of a business brand for the valley. Increasing air service to the Grand Junction Regional airport is vitally important to our efforts at growing a thriving and diverse economy and now that we’ve passed the lodging tax, we have the funding needed to do that.

Let’s talk about how that works. The Air Service Alliance is a committee organized by the Greater Grand Junction Chamber of Commerce that is dedicated to increasing air service for both tourism and business travel at the Grand Junction Regional Airport. CMU, Mesa County, GJEP and the Grand Junction Regional Airport sit on that committee as well. 1% of the new lodging tax will go to the Air Service Alliance to subsidize flights, which we expect to be about $500,000 per year. This subsidy is called a minimum revenue guarantee, which guarantees payment to the airlines for the minimum number of seats needed for a flight to be profitable. If the flight requires 50 seats to be sold and only 35 are sold, the Air Service Alliance will pay the difference for the 15 seats. If the flight sells 50 seats, we pay nothing. The minimum revenue guarantee allows airlines to “try” out new flights in the hopes that they eventually become profitable and pay for themselves. The airlines are fairly risk averse and won’t do this on their own.

When you read about direct flights from Montrose to New York for ridiculously low rates, it’s because Telluride Resort pays minimum revenue guarantees for those flights. They are seasonal flights completely geared towards bringing in skiers and rarely are they profitable. The airlines would never schedule those flights without the guarantee. While we always hope to increase tourism numbers, we’re more interested in helping our own business community by offering more flights to more places for less money.

When you look at the top 10 destinations of people leaving Grand Junction, the number one destination is Los Angeles- which is interesting because we don’t have a direct flight to LA. Last summer, American Airlines did try it out and cancelled it after a few months because it wasn’t profitable. That should come as no surprise since the flight was a Saturday only flight. A twice weekly flight to LA that would serve both business and tourism travel could be a pretty safe bet for us to start out with.

Dallas, Phoenix, and Las Vegas are the second, third and fourth destinations most travelled to and we already have direct flights to those locations. The fifth destination is San Francisco and this could be a winner since it is a hub that connects to Asia, which could be great for our business and manufacturing community. If there are already a lot of people travelling there, this is a great example of a flight that could eventually become profitable and drop the subsidy.

A flight that connects east seems to be supported by the numbers since New York is #6 and Chicago is #7. However, it’s not a simple matter of calling up the airlines and ordering up a flight. There is a lot of relationship and route building that go into these decisions including the fact that airlines don’t like to fly over their own hubs. With Denver being a major hub to the east, this could be difficult. The long distances to New York and Chicago also work against us – the longer the airplane is in the air, the more it costs the airline to operate.

The last important point for the general public anxious to see the lodging tax put to use is that new routes can take a year to build. Our partners at the Grand Junction Regional airport will be working closely with our airlines to build in a new flight with the intention that it will eventually become profitable and we can move that minimum revenue guarantee to the next best location. This is a long term effort to build robust air service that is sustainable, consistent and serves the needs of our community. As that air service builds, we should see prices go down, but with a lack of competition and no low-cost carriers, this is not something we can expect to happen in the near term.

I’d like to personally thank the public for supporting the Lodging Tax, which gives us the tools to better market the area, bring in competitive sporting events and- most important to GJEP’s efforts- increase air service to Grand Junction. It’s not unreasonable to imagine a day when the Grand Junction Regional (soon to be International) Airport is a hub airport, which might make terms like high-tech and metropolitan a little more believable.

 

This article originally appeared in The Daily Sentinel on November 18, 2018, as part of “Economic Focus”, a GJEP’monthly column.