Salem councilors want more information before they authorize subsidies for new airline

Salem city councilors indicated Monday they were not yet ready to sign off on new subsidies for a new commercial air carrier, but first want to learn how much money it would take to seal a deal. 

That conversation will happen on Sept. 8 after councilors unanimously voted Monday to send city staff out to understand the terms potential airlines would consider to come to Salem, and what flights could be offered. 

While Travel Salem indicated it is currently in talks with airlines, no commercial carrier has stepped forward publicly with hopes of operating out of Salem’s airport. 

Councilors spent the meeting asking the city’s air service development consultant questions focused on their concerns that rekindling commercial air service in Salem could be both complicated and invite risk.  

Mark Becktel, the city’s public works operations manager, told councilors they have two options when it comes to commercial air service: aggressively pursuing and growing commercial air service, or foregoing the enterprise altogether 

Regardless of what option is chosen, the airport’s finances will continue on an unsustainable trajectory without tapping into other revenue sources like landing fees and development of airport property, he said. 

The choice comes after Avelo Airlines pulled out of Salem after less than two years offering commercial flights to Nevada and California. The budget airline’s last Salem flight was Aug. 10.

Before its departure, Avelo flew about 90,000 passengers on 820 flights bringing in an estimated $32.5 million in visitor spending to the area during the first 19 months of service, according to a report to the council.

The airline’s departure was followed by the resignation of two top airport officials including Salem Airport Manager John Paskell. 

The city now finds itself in stiff competition with 360 other airports around the country to attract a new airline all while the clock is ticking before the federal government removes Transportation Security Administration equipment from Salem – Willamette Valley Airport come November, said Jack Penning, the city’s air service development consultant. 

Penning said the city would need at least a letter of intent from an airline to keep the TSA equipment. If a letter is not produced and the equipment is removed, it could take years to get the equipment back, complicating any efforts to restart commercial air service in Salem.   

Penning said that to guarantee commercial air service the city would need to come up with around $3-$4 million in subsidies, and at least $1.5 million for an airline to even consider Salem. 

Penning also said while Salem is disadvantaged compared to other communities when it comes to getting commercial air service, it is not out of the realm of possibility. 

“You have a market that has shown that it was nearing profitability and that it will be long-term profitable. And some of the other markets that have large guarantees (subsidies) are never going to graduate beyond a subsidized air service,” Penning said. “Salem will. What the airlines that are growing fastest are looking for, they want to know, five years from now, ‘Am I going to make money?’” 

During its time in Salem, Avelo had an agreement with the city ensuring it got a certain amount of revenue even if ticket sales and revenue for flights fell below the airline’s targets. 

The $1.2 million in subsidies came from a $850,000 federal grant and $350,000 from private donations raised by Travel Salem. 

Through the end of June, Salem spent $854,733 of that total, or 71%. Of that, about $600,000 came from the federal grant. About $250,000 came from private donations. 

On Monday, Salem Mayor Julie Hoy asked Penning if all low-cost airlines like Avelo rely on revenue guarantee agreements. 

“Not every. Every city like us. Every city with risk. Our risk is demonstrable now because we did use revenue guarantee funds,” Penning said. “Because of that we have proven that in the startup we will need to have that fund put together. And so any market that looks similar goes through this.” 

Penning compared Salem to airports in Eugene and Redmond which have successfully attracted new carriers like Breeze Airways. The data showed that while Avelo was making $10,000 per flight on flights out of Salem, it was making $15,000 on flights out of Eugene. 

“How did a city airport like Eugene and Redmond turn around in two days and offer incentives to Breeze Airways?” City Councilor Paul Tigan asked Penning. “What had they already put in place to make that happen?” 

Penning said higher revenues and standard incentive programs already in place helped set cities like Eugene ahead of Salem. Eugene also was able to rally significant private investment, Penning said. 

“The bottom line is, all over the United States, there are different incentive programs, some state, some local, that we compete against being here in Salem that we have no control over and that make it more difficult for us to recruit without developing the revenue guarantee,” Penning said. 

RELATED COVERAGE:

With Avelo exiting Salem, aviation advocates pivot to recruiting new airline

Avelo pulls out of Salem

Travel Salem working with new airline with hopes of resuming commercial air service

Two top airport officials resign days after Avelo announces it will cease service in Salem

Contact reporter Joe Siess: [email protected] or 503-335-7790.

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