Successful Air Service

Development
Presented by:
Jared Harckham, Vice President
Carlos Ozores, Principal

Airports Commercial Management Forum

Miami, FL, June 19-20, 2014
INTRODUCTION TO ICF SH&E

ICF Aviation (formerly SH&E) is one of the world’s largest

and most experienced aviation and aerospace consulting
firms

Airports • Airlines • Aerospace & MRO • Asset Advisory • Safety & Security

 50+ years in business (founded 1963)

 100+ professional staff
− Dedicated exclusively to aviation and aerospace
− Recruited from the industry
 Specialized, focused expertise and proprietary knowledge
 Broad functional capabilities
 More than 8,000 private sector and public sector assignments
 Backed by parent company ICF International ($937M revenue)
 Global presence
New York • Boston • London • Singapore • Beijing • Hong Kong
MARCO CONCEPTUAL

ICF SH&E Air Service Development – Client Airports

Calgary Birmingham

Boston
Salt Lake City Denver
Baltimore-Wash.
Los Angeles DFW
Seoul Incheon, Atlanta
Korea Los Cabos Miami
(GAP) Guadalajara
(GAP) San Juan
Puerto
Vallarta
• Mexico 9 additional GAP (GAP)
Colombia (National Study)
• 4 ASA airports Mexico City
metro area. Quito
National study for
Sec. of Tourism Peru 12 Airports

Montevideo
AVIATION INVESTMENT ADVISORY QUALIFICATIONS & EXPERIENCE

ICF SH&E has an unmatched global airline client list

World regions where ICF SH&E has worked

 Air Service Development is an important tool for tapping into the
enormous traffic growth expected for Latin America
Average Annual Growth of RPKs by Region
2013-2032

Intra-South America 7.4%

Central America - South America 6.5%

North America - South America 6.1%

South America - Europe 4.8%

Intra-Central America 4.6%

Central America - Europe 4.5%

Central America - North America 4.2%

Total Latin America 6.9%

Total World 5.0%

0 0.02 0.04 0.06 0.08

RPK = Revenue Passenger Kilometer, or passenger transported one kilometer. Standard industry measure of traffic.

Source: Boeing Commercial Market Outlook, 2013-2032

What is Air Service Development (ASD)?

Proactive strategy to influence airlines’

decision-making process and increase
air service by communicating the
strengths of your airport – while talking
to airlines in their own “language”
Why is Air Service Development important for airports?

Competition for new air

service is intense, and
airlines don’t have enough
staff to study every market
thoroughly
What are the benefits of an Air Service Development Program?

 Increase airport revenues

– Aeronautical
– Commercial
– Economic Impact for the community

 Positive impact on the economy

– Generates greater demand  more
traffic

 Helps maintain relationships with

your most important clients:
Airlines
What are the objectives of this session?

 Understand the value of an Air

Service Development Program
 Establish an order of priorities of airlines
and routes that your airport should
promote
 Understand the network planning process of an airline
 Learn how to conduct a route forecast (traffic and revenue)
 Understand the key elements of a “Business Case” for airlines
 Understand the need for Financial Incentives and a Stakeholder
Committee
What are the principal objectives of an ASD Program?

 Maintain existing flights

– Monitor current performance
– Stay in contact with the airlines and be ready to solve any
problems

 Promote growth by improving existing service

– More frequencies
– Larger aircraft
– Better schedule

 Attract new flights

– New markets
– New airlines
What Follows:

1. Financial Incentives
2. Organized Stakeholders
3. Quantitative Analysis
1. Creating an air service development strategy
2. Understand how airlines plan
3. Conduct a route forecast
4. Create effective Business Cases

4. Example of a recent route business case

Successful Air Service Development in today’s environment
requires three basic elements

Quantitative
Analysis

Financial Coordinated
Incentives Stakeholders

11
Risk sharing and commitment are sought by many airlines, by way
of Financial Incentives
 Other Stakeholders
 Financial incentives from the
airport can take many forms, – Discounts on hotel,
including: transportation and meals for
airline crew overnights
– Discounts on traditional
airport fees – Preferential rates for airline
vacation programs at hotels
– Creative solutions (e.g. and tourist attractions
rebates, fuel savings)
– Pre-purchase of airline tickets  Examples of airport discounts
by local businesses for future – Landing Fees
use – Security screening
– Revenue and profitability – Jet-bridge
guarantees
– Parking
 Broader sources can provide – Rental of check-in counters
– Funds for advertising and and office space
promotion – Passenger Fee
Successful Air Service Development in today’s environment
requires three basic elements

Quantitative
Analysis

Financial Coordinated
Incentives Stakeholders

13
Coordinated Stakeholders are key

 Airlines respond best to a unified group of stakeholders –

speaking with one voice
– They will be confused or annoyed by negotiating with
separate parties
 A unified stakeholder group should consist of (for example),
– Airport
– Local government tourism entity
– Hotel association
– Chambers of Commerce
 Same group at the other end of the route
Successful Air Service Development in today’s environment
requires three basic elements

Quantitative
Analysis

Financial Coordinated
Incentives Stakeholders

15
Quantitative Analysis in an Air
Service Development Program

16
Quantitative Analysis: How to develop new routes

Through a defined Development

Airport Marketing Plan
Strategy that is communicated
 Define commercial goals in line
through Business Cases for
with the airport’s mission each airline

Route Development
Strategy
 Identify and prioritize
objectives for new
routes/airlines
Business Case for Each
Airline

 Communicate the
business case with the
potential client
Defining an Air Service Development strategy involves a
diagnostic of the airport, establishing a strategy and creating an
implementation plan
Air Service Development Strategy Business Cases

1Diagnostic
2
Define
Strategy 3Implementation
Plan
Introduction to the Market

Demand Statistics
 Benchmarking  Identify  Define
Opportunities Communication
 Historical Plan
Proposed Itinerary
Evaluation  Estimate
Demand  Conferences and
 Airline Strategy Meetings
Traffic/Revenue
Projections
 Prioritize
 Support
Channels Incentives

The Business Cases are the key tool for executing

your Air Service Development Strategy
The diagnostic of the airport environment is an essential step in
identifying new opportunities for air service

Benchmarking
– Compare the service offering (destinations, airlines,
frequencies) of your airport vs. competitors in the same
region

Historical evaluation of traffic and service offering

– Understand where the growth is, what hasn’t worked,
where there is potential for growth, etc.

Airline Strategy
– Understand how airlines operate (Hub, point to point),
evolution of alliances, aircraft orders, etc.
 Example: Comparison of UIO’s international service vs. other
airports in the region
Weekly Seats by Airport (‘000s)
June 2014
350
Domestic

300 International

250

200 206

150 93
92
100
161 69
50 100 100 3 50
82 34
52 48
28 22
0
PTY LIM BOG SCL SJO CCS UIO GYE

UIO has a lower international service offering than its competitors

Source: OAG
 Example: identifying international destinations served by
competitor airports but not at UIO
Average Weekly Seats from Competing Airports
to Select Destinations
June 2014
6,000
Markets without service from UIO
5,000
North America
4,000 Latin America

3,000

2,000

1,000

0
SDQ YYZ SCL PUJ DFW EWR FLL LAX
5 5 5 5 6 4 4 3
# of Competing Airports with Flights to Destination

This type of analysis helps identify service gaps

Source: OAG
 Analysis: since 2000, there has been significant industry
consolidation in Latin America along with growth
Weekly Seats (‘000s), Intra-Latin America (International)
September 2000-2013
Intra-Regional Market Share
1000
Aerolineas Argentinas
900 Varig-GOL Airlines September 2000
Copa
800 Aeromexico 9%
Mexicana LAN
700 9%
TAM
600 Avianca TACA
14% Others
500 TACA/Lacsa 58%
Mexicana
Grupo Synergy 4%Avianca
400 6%
LAN
300 LATAM September 2013
Copa/AeroRepublica Aerolineas
200 5%
Others
Others 32%
100
GOL
5%
0
2000 2013 Avianca
15%
Copa
23%
LATAM
20%

With fewer airlines in the region, air service will be concentrated on a few hubs.
From an air service development perspective, there will be fewer airlines to work with.
Source: OAG
The diagnostic allows you to define a strategy, focusing on and
prioritizing objectives to increase air service

 Identify potential routes and airlines

– What existing routes merit additional service?
– What new routes do I want to promote?
– What airlines do I want to attract?
 Estimating Origin-Destination demand
– This is the key element of air service development that allows you to:
• Determine the volume of traffic in the market
• Understand the seasonality of traffic
• Identify the point of sale

 Establish priorities
– Prioritize opportunities in the short, medium, and long-term
– Understand the effort needed to achieve each objective
Lastly, the best method of implementing the strategy should be
determined – attending meetings and taking advantage of other
support channels
 Define how to contact the airlines of interest
– Conferences and/or direct meetings with airlines
– Begin with the regional office or directly with headquarters?
– Contacting the right people saves time: Planners
 Choose the conferences/frequency of attendance that best
fit your strategy
– Regional, global conferences
• Routes, Jumpstart, Tourism conferences for vacation markets
– How many times per year?
 Take advantage of external support channels
– What other stakeholders can support the effort to develop air service?
Airline Route Planning Process

25
In order to make logical and interesting route proposals to airlines,
it’s important to understand how airlines think

Traditional Airlines “Niche” Airlines

 More entrepreneurial
 Formal planning process
process
 Centralized planning process
 Value the input of their
 Various planning levels with regional representatives
different time horizons
 Fewer decision makers
 Expansion plan guided by
 Expect to share the risk
long-term strategy
(with the airport, tour
 Focused on profitability operators, etc.)
The planning process for a traditional airline is long…

Strategy

Fleet Planning
Product
Network Design Markets Finalize
Facilities Staff
Itinerary Structure Final Itinerary
Preliminary Itinerary Availability of staff/gates
Rates/Slots

5 Years 3 Years – 18 Months This Year

Horizon
While for “niche” airlines, the process is more streamlined

Strategy

Fleet Planning
Product
Prioritization of markets

You will probably

present to a
1-2 Year This Year decision-maker
Horizon
What do airlines consider when evaluating a new route?

Network Strategy
– Net new aircraft (orders minus
retirements)
– Hub(s) structure
– Strategy for short/long haul
– Strategy for Latin America
– Alliance strategy

Risks and Opportunities

Financial Position
– Liquidity
– Costs and revenue vs. competitors
How does an airline decide to deploy its fleet?
 If an airline doesn’t increase its active fleet, new service can
only be added if an existing service is cancelled
– It is difficult to create new international service
by increasing the fleet’s utilization
(i.e., the hours operated)

 New (net) aircraft can be used for:

– Increase frequencies on existing routes
• No route development costs
– Increase the aircraft size on an existing route
• No route development costs
– Open a new route/destination
• Requires investment in staff, offices, marketing, etc.
 Strong growth in air service is expected for Latin America

Active Fleet and Orders for Major Latin American Airlines

March 2014

300

Active
246
250
Orders

200
172

150
122
111
100 81 87 85
73 72
59
47 48
50
26 27

Source: ACAS
For airlines, route planning is a question of finding the best use of
limited resources

 For the airport, the question is whether there is or is not

demand
– Can a high load factor and good fare be achieved?

 For the airline, traffic and profitability are just the

beginning
– Do we have the right aircraft?
– Does the route fit within our network strategy?
• Independent
• Our alliance
– Is the risk – reward trade-off acceptable?
– How does this opportunity compare with others?
What chance does an airport have in influencing the decision-
making process of an airline?

The Goals of the …are opportunities for the

airline… airport

 Minimize risks associated with  Reduce or share the risk

opening a new route – Reduce airport costs
– Marketing assistance
 Make the best use of limited
resources – Economic incentives for the route
– Aircraft and staff  Demonstrate a commitment to
– Planning analysts (important: the client’s needs
airlines cannot assess all
– Efficient operations
opportunities)
– Modern and well-maintained
 Identify and analyze hundreds of infrastructure
new route opportunities
 Identify opportunities through a
– Participation in route development
logical, quantitative, and
conferences demonstrates that
airlines seek help in this process convincing Business Case
Conducting a Route Forecast

34
Overview of the route forecasting process

 Identify potential markets

 Choose the aircraft type for the airline/market
 Collect data on existing demand and service offered
 Define assumptions for the forecast
– Suggested itinerary
– Growth rate of traffic
– Average fare
– Market share
Considerations when choosing the proposed aircraft

Key Factors
 Aircraft range

 Size corresponds to level of demand

 Aircraft used by the airline in similar

markets

 Orders and delivery schedule

 Operating restrictions
– Runway length
– Height above sea level, temperature
– Noise restrictions
There are a variety of current and future widebody aircraft
that should be analyzed
Widebody Maximum Range vs. Average Seat Capacity
550 Next Generation Widebody Aircraft

A380-800
500

747-8
450
Average Seat Capacity

A340-300
747-400ER
747-400
400 777-300ER
A340-600
777-300
A330-200
350 767-300ER A350-1000
787-10X
777-200 330
A350-900
300 A330-300 787-9
777-200ER
A350-800
250

787-8
200
5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500 9,000
Maximum Range, Nautical Miles

Source: Boeing, Airbus

Identify local and connecting markets (on the same airline or
multiple airlines) what will feed the proposed route

Possible Passenger
Flows
 Local Types of
Connections
 Connecting
 Online
 Interline
 With Code Share partners
 Example of local and connecting passenger distribution on flights
from UIO

Continental IAH-UIO

Local 15%

Others 1%

Connection Delta ATL-UIO

at IAH 84%

Local
11%
Connection
at ATL
88% Others
1%

Source: US DOT, O&D Survey 2009

Estimate the size of the Origin – Destination market: the essential
ingredient for making a successful Business Case

Sources of Origin – Destination Traffic Data

 PaxIS
– Captures tickets purchased through all travel agencies that participate in
IATA’s BSP and includes:
• Origin and Destination airports, Connecting airports
• Airline that markets and operates each segment, Point of sale
• Month of trip, Fare class
– PaxIS supplier, IATA, estimates full market size
 Market Information Data Tapes (“MIDT”)
– Captures reservation data from the primary GDS systems (Amadeus,
Sabre, Worldspan y Galileo). The level of detail is similar to what is
provided by PaxIS
However, neither MIDT nor PaxIS capture direct sales…
MIDT/PaxIS data should also be calibrated to estimate direct sales

Example: Total O&D Demand

 MIDT and PaxIS only capture sales
100%
made through GDS/travel agencies
35% Direct – They do not capture direct sales made
80%
Sales through airlines (website, reservation
center, sales office, etc)
60%
 The penetration of MIDT and PaxIS
40% depends on the market and airline
65% MIDT o
– It is estimated that MIDT and PaxIS
PaxIS
20% capture 65% of international sales
to/from the United States
0%

The calibration process requires complimentary statistics (see annex)

and varies according to the market and the information available
After calculating the actual Origin – Destination traffic, the
demand stimulation generated by the new service must be
estimated
 New nonstop flights typically stimulate traffic demand
– Stimulus is the result of easier market access and greater marketing of
the destination (airlines, tour operators, etc.)
– New service attracts new passengers, just as it allows existing
passengers to travel more frequently (above all in the business
segment)

 A market’s first nonstop flight can stimulate demand

between 100% and 300%
 In addition to demand in the local market, it is common to
see lesser stimulation in connecting markets, especially
when the airline serving the new route has a strong presence
in the connecting markets
 For example, KLM’s entrance in the Amsterdam- Panama City
market stimulated traffic

Amsterdam – Panama City Traffic

Monthly
Passengers
1,400 1,150 1,030
Other routings
Pax/Month Pax/Month
AMS-PTY nonstop (+192%)
1,200 (+161%)
6-month average

1,000

800 395
Pax/Month
600

400

200

0
D 7

D 8

D 9
Ju 7

Ju 8

Ju 9
Fe 7

Fe 8

Fe 9
7

9
A 7

08

A 8

09

A 9

10
-0

-0

-0
-0

-0

-0
-0

-0

-0
-0

-0

-0
0

0
n-

b-

n-

b-

n-

b-
ct

ct

ct
pr

pr

pr
ug

ug

ug
ec

ec

ec
O

O
A

Source: MIDT, April 2007 – March 2010

Estimating average fares by origin – destination market

 Both PaxIS and MIDT have information on average fares

by market
– However, both sources tend to over estimate the fare as more price
– sensitive passengers tend to to use direct sales channels

 Average fares by airline and market can also be found on

the internet
– Travel agencies such as Expedia, Travelocity, Orbitz, etc.
– Search engines such as Sidestep, Kayak, etc.
– Airline websites

 In order to estimate the average fare on the proposed

route, it is recommended to use the best information
possible for markets with a similar profile as a point of
reference
Choosing the schedule – Key Factors

 It is an airline that connects passengers through a hub?

– If so, the schedule should fit into a connecting bank in order to maximize
traffic

 Does the airline have alliance partners at the airport?

– If so, “online alliance” connections should be considered

 What are the schedules in similar markets?

– Overnight?
– Morning arrival/departure? Evening? Etc.

 How many weekly frequencies?

– The maximum possible should be proposed according to demand, but
also consistent with similar markets operated by the airline

 Seasonal or year-round service?

– Depends on the seasonality of traffic and the type of market (business,
leisure, VFR, etc)
 For example, in the case of a proposal for Copa, any new route
should fit into a connecting bank
Operations by hour at PTY

10

Bank1 Bank2 Bank3 Bank4

5
Arrivals
to PTY

-5
Departures
from PTY

-10
7:00

8:00

9:00

10:00

11:00

12:00

13:00

14:00

15:00

16:00

17:00

18:00

19:00

20:00

21:00

22:00
Source: OAG Schedules
All of this information is needed for the essential analysis of the
Business Case: the forecast of market share, passenger traffic, and
revenue on the proposed route
 ICF SH&E uses NETWORKS, a proprietary tool that models route schedules
to estimate the market share of each airline
– Currently used by British Airways, Copa Airlines, Virgin Atlantic, oneworld
 NETWORKS is “QSI” (Quality of Service Index) model, an industry-accepted
methodology for calculating carrier share
 NETWORKS quantifies the market share of each segment (the “QSI”),
taking into account:
– Type of service (Online, Interline, Etc.)
– Frequency
– Number of stops and connections
– Total travel time (between origin and destination)
– Type of aircraft (size, jet vs. turboprop)
– Etc.
What is a “local” passenger?

 “Local” passengers begin their journey at the flight’s departure airport

and end their journey at the flight’s arrival airport (and vice versa)
– Local passengers do not make connections or change planes

Example: Houston – Quito

IAH UIO
What is a connecting passenger?

 A connecting passenger begins their journey at a point before flight’s

origin and/or ends their journey at a point beyond the flight’s
destination
– These passengers make one or more connections

Example: Houston – Quito

NRT

IAH UIO

ORD
 QSI example: SCL – NYC market
Option Time Frequency Stops Cxns
LA nonstop 10:50 5x weekly 0 0
MIA LA via LIM 12:30 Daily 1 0
AA/LA AA via MIA 13:40 Daily 1 1
AA DL via ATL 13:55 Daily 1 1

SCL LA

NYC
LA
LIM LA
QSI Share SCL-NYC
DL June 2010
DL Others
10%
DL
14%
ATL LA
41%
CM
6%

AA
29%
Source: SH&E NETWORKS based on OAG schedules June 2010
NetWorks quantifies each service in the market and allocates
traffic and revenue according to its market share
“QSI” is calculated
based on several
service perameters

Each carrier’s market Note: SICF uses the

share is based on its nomenclature “CSI”
QSI score to refer to “QSI”
The final result is a traffic and revenue forecast for the proposed
route
Frequency: 2x Weekly
Frequency and Aircraft
Aircraft: A319
Traffic and Revenue Forecast for the Route FLL – UIO

(Financials in USD) Per Flight Per Week (4 Flights)

Passengers % Total Revenue Passengers Revenue
Local Market
Local Passengers Miami - Quito 54 56% $11,678 217 $46,712
Connecting Markets
New York - Quito 29 30% $4,118 118 $16,473
Chicago - Quito 4 4% $520 15 $2,082
Connecting Pass. Quito - Washington 3 3% $483 13 $1,934
Boston - Quito 3 3% $377 11 $1,508
Orlando - Quito 2 2% $290 8 $1,161
Other 2 2% $129 7 $517
Total Connecting 43 44% $5,919 173 $23,675
Total Pax/Pax Revenue 98 $17,597 390 $70,386

Other Revenue Other Revenue ( @ 10% of pax) $1,760 $7,039

Total Flight Revenue $19,356 $77,425
Load Factor 68%
Load Factor and Fare Average Fare (excl. surcharges) $180

Revenue from passenger tickets is complemented by other sources (cargo,

onboard sales, etc), which is estimated based on each airline’s experience
Creating Effective Business Cases
Essential Elements
Example

53
The Business Case should answer the following questions:

 Why [your country]?

 Why [your airport]?

 What schedule should be operated?

 How much traffic and revenue will it generate?

 What impact will it have on my existing flights?

Your proposal should demonstrate that your market and airport

represent an excellent opportunity for the airline
Elements of an effective Business Case

 Information promoting your  Route forecast

market – Schedule
– Economic, demographic, – Passengers (local and
tourist, etc strengths connecting)
– Elements that will help – Revenue
generate new traffic – Impact on other routes (if
applicable)
 Summary of existing service
– Existing service
 Support for the new route
– Traffic growth – Incentives
– Market size – Marketing assistance
– External support channels
 Fit with the airline’s
strategy  Airport information
– Comparison with other similar – Runway and terminal
markets operated by the airline specifications
– Costs
Creating Effective Business Cases
Essential Elements
Example

56
 Mexican Pacific Airport Group (GAP) Route Proposals

New York -Los Cabos

Prepared for:

Prepared by

October 2013
Mexican Pacific Airport Group (GAP) maintains and operates
12 airports in Northwestern and Central Mexico
GAP Airports served over 22.1 million people between September 2012 through August 2013; increasing 6% year over year

MXL
0.5
TIJ -4%
4.1 Passengers, Millions
10% Year over year % Change

HMO
1.3
2%  GAP is owned by a world-
class group of investors,
Airport Airport LMM including Spanish airport
Code 0.2 operator AENA
Guadalajara GDL LAP 7%
0.6  GAP shares are listed on
Tijuana TIJ 4% AGU the NYSE and BMV
Puerto Vallarta PVR
GDL 0.4
Los Cabos SJD
SJD 7.8
12%
3.3 6%
Hermosillo HMO 13% BJX
1.0
Leon BJX PVR 5%
La Paz LAP 2.7
3%
Mexicali MXL MLM
Morelia MLM
ZLO 0.4
0.2 2%
Aguascalientes AGU 19%
Los Mochis LMM

Manzanillo ZLO

Source: GAP
58
 International markets to Mexico have seen steady
growth since the economic downturn of 2009
Passenger Traffic Trend Nationality of the Foreign Visitors to Mexico
Passengers Visitors 10 Top Countries
(‘000) Mexico International Market1 (‘000) % Growth
Jan-Jul 2013
4M (Y-O-Y Change)
35,000 2,000 60%
MX Ceases
Financial Ops Visitors ('000')
30,000 Crises 50%
% Growth
25,000 1,500
40%
20,000 30%
1,000
15,000 20%
10,000 CAGR YE Jul 09 – YE Jul 13: +4% 10%
500
5,000 0%
0 0 -10%
% Growth
YE Jul09 YE Jul10 YE Jul11 YE Jul12 YE Jul13

Y-o-Y +3% 0% +8% +7%

Change

The Mexico international market has The United States ranks first among foreign
shown positive growth over the past visitors to Mexico with 56% of the total
five years, rebounding to above 2009
From January 2013 to July 2013, the number
passenger levels
of foreign visitors to Mexico grew by 8%
compared to the same period of the
previous year

1/ Includes departures and arrivals, scheduled and charter flights

Source: Integral Migratory Operations System (SIOM), National Migration Institute, Mexican Civil Aviation Authority and ICF SH&E analysis
Mexican Pacific Airport Group (GAP) Route Proposals

Market Overview
of Los Cabos

Prepared by
In January 2014, Los Cabos will have non-stop services to/from 30 cities across
Canada, Mexico and United States

Los Cabos Destinations

Domestic 6
(Mexico)
International
United States 18
Canada 6

Total 30

Los Cabos has 263 weekly

departures scheduled for
January 2014, serving 30
destinations
GAP Airports

Source: OAG Advanced January 2014 61

Los Cabos recorded an overall growth rate of 13% year over year from September
2012 through August 2013 in total passengers

Lodging News in SJD

 Apple Leisure Group announced an investment of USD
$600 million in areas including Los Cabos
– The investment will include six new resorts with
approximately 2,800 rooms

– Top destinations will include Los Cabos, Puerto Vallarta,

and the Riviera Maya

– Current plans call for properties under the Sunscape,

Secrets, Now, and Breathless brands

 Hyatt is opening a 157-room Hyatt Ziva Los Cabos

during the fourth quarter 2013
– This all inclusive hotel will be focused on families

 The Secrets Puerto Los Cabos Golf & Spa Resort is

scheduled to open in December 2013
– Secrets Los Cabos will provide an ultimate adults only
luxury escape including elegant accommodations, world
class spa, and gourmet dining

Source: GAP 62
Los Cabos offers a range of infrastructure including all-inclusive
resorts, times shares and boutique hotels
Lodging in SJD
2012

Hotel Rooms (4 Star and Up) 22,368

Time Share Facilities 52

Time Share Units 8,747

During 2012, investment in infrastructure

reached one hundred million dollars mainly
to develop two new resorts that are
expected to be opened between 2013 and
2015, Secrets hotel (478 rooms) and the JW
Marriot (300 rooms)

Source: Mexican Tourism Ministry, Mexican Ministry of the Economy, Statcan, Government of Baja California Sur, RCI 63
Well-known international hotel chains, all inclusive resorts and
boutique hotels offer visitors to Los Cabos a wide variety of
accommodation options
Los Cabos Hotel Occupancy Rate

80% 69%
65% 62% 63%
57% 58%
60% 54%

40%

20%

0%
2006 2007 2008 2009 2010 2011 2012

Los Cabos is among the top three Mexican

destinations for leisure travelers offering over
20,000 rooms in hotels of 4 or more stars and
time share facilities
According to Expedia´s "Insider´s Select" One &
Only Palmilla was ranked as "the best hotel in
the world" out of 650 hotels

Source: Mexican Tourism Ministry. Preliminary 2012 numbers 64

Los Cabos has attractions for leisure travelers including a variety
of restaurants, night clubs, bars and recreational activities
 Los Cabos offers world class scuba diving,
snorkeling, fishing, boating and other water
sports
– The excellent beaches, weather and swimmable
waters increase aquatic activities

 Los Cabos is the premier golf destination in

Mexico

 Los Cabos is one of the best deep-sea fishing

destinations in the world, and offers the largest
sport fishing fleet in Mexico

 Los Cabos also offers an amazing night life with

restaurants, night clubs and bars

 To take a break from water sports, visitors can

indulge is Los Cabos’ many amazing spas

Source: Mexican Tourism Ministry, Government of Baja California Sur 65

International Tourist hotel arrivals to Los Cabos dropped in 2009 and
2010, but have since started to recover with 2% growth between 2011
and 2012
Hotel International Tourist Arrivals to Los Cabos
Tourist 2007 - 2012
(‘000)

1,200
International
+2%
1,000 +12%

Los Cabos Hotel International

800
Tourist Arrivals

600 CAGR 2007-2012: +1.4%

Growth 2011-2012: +1.9%

400

200

0
2007 2008 2009 2010 2011 2012

Source: Mexico Tourism Ministry (SECTUR); ICF SH&E Analysis

The United States is the largest nationality of foreign visitors to
Los Cabos
Top Nationalities of Foreign Visitors to Top Destinations in Mexico visited
Los Cabos by US Visitors
YE Apr 2013 YE Apr 2013

United Kingdom Other Mexico Total

0.7% 3.0%
Canada Destination Visitors
Australia
14.2%
0.7%

Germany 1 Cancún 2,383,504

0.2% 2 Mexico City 890,632
3 Los Cabos 879,480
4 Puerto Vallarta 542,512
5 Guadalajara 515,520
Other 857,508

United States Total 6,069,156

81.2%

U.S. visitors to Los Cabos showed a growth of 8% from YE

April 2013 over YE April 2012

Source: Mexico Migration Institute (INM)

There are 86 weekly online services between New York and Los Cabos
which includes 4 nonstop frequencies
New York – Los Cabos
Current On-line Services/Frequencies (January 2014)

Airline Connection Point Total Online Connecting Weekly

Frequencies1
Dallas (DFW) 22
Los Angeles (LAX) 5
Houston (IAH) 12
San Francisco (SFO) 5
Nonstop 4
Denver (DEN) 1
Los Angeles (LAX) 1
Phoenix (PHX) 13

Charlotte (CLT) 1

Atlanta (ATL) 7

Salt Lake City (SLC) 6

Mexico City (MEX) 7

Mexico City (MEX) 2

Total 86

NOTE: 1\ Code-share fights are not considered in the connecting services. Includes only single connections. The online connecting frequencies reflect only the number of actual
entries into the respective final destination. The airline may offer multiple options to get to the connection.
Source: OAG 68
For the JFK-SJD schedule, GAP and ICF SH&E suggest suitable timings
for leisure passengers appropriate for the hotels’ check-in and check-
out jetBlue Schedule for Proposed New York-Los Cabos Nonstop Service
Daily Flight on an A320

Boston, Buffalo, Syracuse, Rochester, Burlington &

Others

Connections via JFK  GAP and ICF SH&E propose a

MCT: 105 min.
winter operation for this
A320 Aircraft A320
route
1234567 Frequencies 1234567

City

9:00 Depart New York-JFK Arrive 20:30

Distance (miles): 2,405

Average Hours per Flight: 5:15

12:15 Arrive San Jose Cabo Depart 13:15

Note: Local time

Source: ICF SH&E/GAP Analysis, OAG Schedules
jetBlue could achieve a 82% average load factor in the New
York- Los Cabos route with stimulation of 50%
jetBlue Schedule for Proposed New York-Los Cabos Nonstop Service
Daily Flight on an A320
Results by Week
2014 PAX PWEW. 2014 PAX PWEW. Forecast % Onboard Total Weekly
Market Code Stimulation % QSI1
O&D Psgrs 1&2 W/ Stim. Passengers Psgrs Sector Segment Revenue 3
Local Traffic
New York-JFK-San Jose Cabo NYC 900 0.5 1,350 56% 758 88% $547,493
Beyond New York-JFK
Boston BOS 168 0.0 168 32% 53 6% $39,796
Buffalo BUF 52 0.0 53 36% 19 2% $10,735
Syracuse SYR 22 0.0 22 52% 12 1% $7,826
Rochester ROC 16 0.0 16 53% 9 1% $5,675
Burlington BTV 9 0.0 9 73% 6 1% $4,573
1 Other 8 0.0 8 69% 5 1% $3,991
Subtotal 275 0.0 276 38% 104 12% $72,595

Grand Total 862 100% $620,087

Average On board passengers 123

Seats per Flight 150

Average Load Factor 82%

Average Fare 3 (without commissions and taxes) $360

Weekly Total Passenger Revenue $620,087

Other Revenue(@ 10% of Passenger Revenue) $62,009

Total Weekly Revenue $682,096

Notes:
/1 GAP and ICF SH&E further adjust PaxIS Plus data to insure accuracy on mark et sizes
/2 Based on IATA Traffic Forecast for the period YE May 2013-2014 using a growth rate of 6.0% between the U.S. and Mexico
/3 Air fare data sources do not include taxes and commissions
Source: ICF SH&E/GAP Analysis, OAG Schedules, ICF SH&E Networks 70
The NYC-SJD market represents a unique opportunity for
jetBlue to become a major player in the Los Cabos market
jetBlue Schedule for Proposed New York-Los Cabos Nonstop Service
Daily Flight on an A320

NYC-SJD share by carrier

Quality Service Index (QSI)

Other
Delta 12%
5%
American
Airlines
9% jetBlue
56%

United
18%

 GAP and ICF SH&E assumed a stimulation of 50% with the addition of a daily jetBlue flight from JFK to SJD
 When jetBlue entered the New York – Cancun market, the market was stimulated by approximately 50% despite already
existing nonstop service

Source: ICF SH&E Analysis using ICF SH&E NETWORKS and OAG Schedules 71
jetBlue’s new air service to Los Cabos will be well supported
by a strong route committee formed by major federal and
state entities that work closely with GAP
 Los Cabos new air service will be well supported by GAP and main entities in the
region that will bring resources for the new service:

– Los Cabos Tourism Fund Trust

– Los Cabos Hotels Association
– State Tourism Fund Trust
– Baja California Sur Tourism Ministry

72
jetBlue’s new air service will be supported by a strong advertising
campaign funded by the Los Cabos Local Government and
Mexico’s Federal Government
 The Baja State Fund Trust together with Mexico’s Federal Government
through the Ministry of Tourism and the Mexico Tourism Promotion
Council will join efforts to offer the following incentives to promote
jetBlue’s new service:

1. Advertising Campaign supported by Los Cabos and

Mexico Tourism Promotion Council

2. Familiarity trips of Los Cabos to jetBlue’s staff

3. Familiarity trips of media and tour operators
suggested by jetBlue

4. Public relations events together with the airline

73
Los Cabos International Airport Overview
 Los Cabos International Airport (SJD) is one of
the most successful airports in Latin America
– Traffic has grown almost 50% since year 2000

 Operations Schedule: SJD is equipped to

operate 24 hours a day

 Runways: The airport has one runway with a

length of 3,000 meters with a capacity of 25
ATMs per hour

 SJD has peak hours between 1400 – 1600 hours

 The new International Terminal (T-2) was
opened on November 1st 2012

 SJD is equipped with CUTE and CUSS systems

Source: GAP Airport

74
INTRODUCTION TO ICF SH&E

ICF SH&E uses NetWorks©, its proprietary and proven airline planning
tool, to evaluate new schedule scenarios, forecast traffic and
profitability, and develop new schedules
Network & Schedule Analysis
systems and services Relevant Capabilities
 Hub Connectivity Analyses
 Service Share (QSI), Passenger Share
[ ] and Gap Analyses
 Evaluation of Appropriate
Frequency/Aircraft Size Combinations
 What If and Impact of Competitive Actions and
Alternative Responses
 Forecasts Traffic, Revenue, Costs and
Profitability on an Individual Flight Level
 Alliance and Code-Share Impacts
 Used together with OASIS schedule
routing model

Networks is used by Network Planning Departments at the following airlines: