Next Destination: MRG
Recruiting an airline: What's an MRG?
To attract a major airline we need to put together a competitive and complete recruitment package. That entails:
Data demonstrating demand in the “catchment area,” which we have in the “Leakage and Retention Study.”
Community and regional support- especially the business community. This is in place and growing. See Letters of Support page.
A marketing plan to promote the new service: Travel Salem has prepared a 2-year marketing plan, and it has been funded by the ROAR Grant. See Grants page.
And now lastly, a Minimum Revenue Guarantee (MRG).
So just what is an MRG? The Minimum Revenue Guarantee is a fund to back-fill potential shortfalls in the airline’s revenue during the first two years of operation.
And that means what exactly? If the actual passenger ticket revenue falls short of the target revenue minimum (determined during the recruitment process ), then the fund reimburses the airline on a quarterly basis. The local funds are kept in a dedicated bank account with a fiduciary. The grant money reimburses the City as needed. This is only for the start-up period of 2 years.
Here’s how it works:
The money for the $1.75 million target comes from two sources in our plan:
2. Local private sector pledges. The pledgers will deposit money into the dedicated fund only after an airline commits to starting new service. Our goal is a minimum of $1 million.
After the first 3 months of operations, if ticket revenue does not meet or exceed the pre-negotiated Minimum Revenue  the Minimum Revenue Guarantee (MRG) fund is tapped to make the airline whole. This happens quarterly during the 2-year start-up period.
Only a portion of the local funds are used during initial draw down of the MRG funds. A ratio that includes mostly grant money and only a part of the local fund is used first, protecting the majority of the local fund.
If enough tickets are purchased, filling approximately 85% of seats, the MRG is never used
and the funds are given back to the donors.
We only need to capture about 10% of existing ticket buyers in our area to fill the planes to 85%.
With MRG participants encouraging their organization, family, and friends to fly out of Salem, the fund creates organic word-of-mouth demand.
The reason we need to raise the MRG is competition. We are in competition with many other cites and airports who are also trying to attract or expand their airline service. In order to illustrate the competitive space we are in, here's a list of airports at this week's conference competing for airline service:
Abilene TX, Springfield IL, Appleton NY, Atlantic City, Austin, Baton Rouge, Birmingham, Brownsville TX, Casper WY, Central Wisconsin, Charlotte, Chattanooga, Chicago Rockford, Clinton AR, Coastal Carolina, Columbia, Corpus Christi, Dayton, De Moines, Dayton OH, Daytona Beach FL, Fairbanks, Fort Smith, Gainsville, Gary-Chicago, Grand Junction, Binghampton, Idaho Falls, Jackson, Kalamazoo, Key West, LaCrosse, Lake Charles LA, Loredo, Lousiville, Lynchburg, Memphis, Mid-America St Louis, Middle Georgia, Montgomery, New York Stewart, Williamsburg, NW Arkansas, Pitt County/Greenville, Presque Isle, Reno, Richmond, Spokane, Stockton, St Augustine, Syracuse, Tallahassee, Tri-Cities, TN, Tuscon, Tweed/New Haven, Vail, Valdosta, Vero Beach, Waterloo, Western Reserve OH.
Any of these that already have service and are looking to expand are a LOWER risk than SLE getting start-up service. The airlines have limited numbers of planes and crews- and it's easier for them to go lower risk. We need our incentive package complete and robust.
All pledges at this time are NON-BINDING. Only after an airline commits to bring service will Pledgers be asked to actually contribute their pledge amount to the fund.
Footnote : The minimum revenue is negotiated by our air service recruitment consultant, who has approximate figures on operational costs for different aircraft and operating crews. This target will be realistic and based on industry norms.
Footnote : Based on a 50-seat regional jet fling twice per day. For SFO the capture rate needed is 6.7%, for SEA 10.5%, for DEN 7.9%