DRAFT of 10 July 2015
It’s no secret that upscale tourism is to the people of the Vail Valley as the Nile is to Egypt, as the buffalo were to Indians, as toner cartridges are to printer makers.
Without tourists, jobs would vanish, property values plummet, bankruptcies climb. We know what that tastes like.
If pumping up local prosperity is one’s goal, the shortest path is that of more visitor dollars.
It is tough to bring many more visitors over the I-70 bottleneck.
At Eagle County Airport, touchdowns on the tarmac are running way behind pre-recession peaks. Last year, passenger traffic was down a punishing 28% from 20071.
Business necessity requires that small destinations like Eagle County offer to share some of the risk airlines must take to fly here.
The Eagle Air Alliance, ramrodded by Chris Romer, has been raising and spending $200,000 – $400,000 annually for this purpose . The Air Alliance is considering asking taxpayers to pop more money for the program.
Is this smart? An idealized, simplified picture of one subsidized flight looks like this:
First piece: the Eagle Air Alliance commits to risk $300,000, which seals the deal to bring one flight per week for the winter season to Eagle County Airport.
If it meets expectations, using highly generalized assumptions, that flight should bring in about $3.5 million of sales over the course of a winter, which conservatively could result in $1.8 million in additional wages and profits for local residents.
Like most analysis of human phenomenon, there are swampy spots in the numbers. The cost of enticing an airline to start a new flight here will vary depending on a number of factors. Negotiating skill is key here, and Vail Resorts’ Gabe Shalley is a seasoned pro.
Airplane occupancy rates will vary. Just how much is tough to say. The quality of marketing, the ski culture at the flight’s origin, broad economic conditions, and weather reports will all make a difference.
Second piece: Spending per visitor is a big, crucial question. Expect it to vary with time.
Of the money visitors spend with in Eagle County, local governments’ sales and lodging taxes will take 10% of sales revenue off the top. Naturally, they like to think that is the highest and best use of those funds.
The tourist spending that remains passes through businesses and non-profits that sell directly to tourists.
The Second and Third Spends
Those businesses receive money spent by our visitors, then spend it a second time, most of it quickly. Some of the “second spend” leaves the county immediately. It goes to pay suppliers from out-of-valley: food wholesalers, landlords, banks, insurance companies, state and federal taxes, etc…
A big piece of that second spend pays local wages and local suppliers. Then there is a third spend, also with leakage as money is spent out of the valley. This is the fabled multiplier of economic lore.
Precisely how much money is spent locally is soft ground. Yet of that initial $3.5 million of tourist spending, it is conservatively plausible that $1.8 million passes through local private sector hands on the second spend.
If the air travel subsidies were increased to $1.2 million annually, it could yield $11 million in additional sales in the valley. Think about it another way: $70 per household in additional tax could generate $600 in local income. If one adds a small multiplier, we’re looking at $800 in additional business.
That’s a return of 9 to 11 times the investment in the first year – a smashing home run in the investment world. At the moment, we are ignoring the fact that visitors pay half the sales tax in the County drops the per family cost to $35 annually. That doubles the rate return to residents, making the perhaps dubious assumption that the taxes visitors pay, do not chase some of them away.
The longer view looks even better. Historically, the airlines have been weaned off the subsidies after three or four years. Yet the flights keep coming after the subsidies end.
Certainly these numbers should be honed to a sharper edge: using more history, better multipliers, and with a more thorough understanding of the risks. Explicit targets and constant monitoring would legitimize the effort.
Nonetheless, increasing air travel subsidies could be wickedly effective in widening our local river of prosperity. It is certainly worthy of further scouting.
Next time: should taxpayers pick up the tab?
For Eagle County Regional Airport, Part III, click HERE.
For Eagle County Regional Airport, Part I, click HERE.
1 Calendar 2014 enplanements vs 2007,