Bookings remain sluggish for Salem’s new airport partner
City is on the hook for looming minimum revenue requirements
(Editor’s Note - 8/2: I saw someone point out that Avelo’s online booking system allows you to either select a specific seat (for an added fee) or to not choose your seat. Each flight shows certain seats as “unavailable,” but simply subtracting the number of unavailable seats from the total number of seats might not give you number of total seats actually booked. But that is absolutely the method I used in this article to calculate unbooked seats. So I could be wrong.
It would be best to use the data below as a directional indicator - early flights appear to show some booking activity, but after the first week or two that activity clearly declines.
I would issue a correction (for what that’s worth), but I’m not actually sure one is needed. So…a note seemed appropriate?)
In the 2 weeks since we first reported, Avelo Airlines has made minimal progress in filling seats for its first month of service at Salem Municipal Airport.
Avelo’s first flight - an October 5th trip to Las Vegas - was 75% full as of July 18th. Two weeks later, they’ve attracted just a few more ticket holders and sit 78% full.
Two weeks ago, Avelo’s inaugural Salem-to-Burbank, California, scheduled for October 6, was just 11% booked. Since then, the startup airline’s partnership with Salem has attracted just 4 more passengers for that flight - nudging it to about 13% booked.
The second flight for each route shows even slower growth in terms of bookings added over the past two weeks.
Avelo’s 2nd flight to Vegas from Salem (October 8, 2023) showed 25 bookings (or just 12% of the plane’s 201 seat capacity) two weeks ago. Since then, only 5 more passengers have bought tickets, leaving the flight 15% full.
We didn’t collect data two weeks ago for the 2nd flight from Salem to Burbank, scheduled for October 9, but currently Avelo is showing just 11 seats sold (or 5% of capacity) for that flight.
Empty seats might put Salem on the hook after guaranteeing revenue minimums for Avelo
The agreement between Salem and Avelo Airlines is essentially built on an “if you build it, they will come” level of hope & aspiration.
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But in a very real way, Salem is contractually obligated to make sure Avelo experiences a “revenue-neutral” outcome on flights originating from the municipal airport to either Las Vegas or Burbank.
Here’s what that looks like in legalese:
“The Revenue Guarantee Agreement obligates the City to unconditionally guaranty that the Airline will receive certain minimum revenue for operating flights from Salem. In the event the Airline fails to realize the defined minimum revenue, it will invoice the City on a monthly basis for the shortfall. The City will utilize its federal grant funds and local matching funds to support the Airline and ensure that it is at least revenue-neutral for each flight operated to and from Salem up to a total amount of $1,200,000, including $50,000 for marketing.”
So what does a “revenue-neutral” flight mean? From the Revenue Guarantee Agreement with the then-redacted Avelo Airlines:**
Revenue, in this case, is defined as ticket sales, surcharges and cargo fees. According to the Revenue Guarantee Agreement, there’s something called the Flight Profitability System that Avelo will use to measure revenue per flight that originates from Salem.
Considering Flight Profitability Systems are typically high-priced software suites, we’re going to do some back-of-napkin math to see how “on” the hook Salem currently sits, based on sluggish booking numbers to date.
Flights originating from Salem to Burbank need to generate $25,667 of revenue per round trip. Avelo Airlines planes list 201 seats per flight. That’s about $128 in revenue per seat in order to avoid triggering the Financial Performance Guaranty portion of the agreement.
The October 6 inaugural flight from Salem to Burbank currently shows just 26 seats booked and 175 seats empty. If each seat needs to produce on average $128 in revenue for Avelo - that’s a $22,400 shortfall that Salem would need to make good on, per the Revenue Guarantee Agreement.
Avelo’s next flight to Burbank (Oct. 9) originating in Salem shows just 11 seats booked, with 190 seats open and representing $24,320 in payment from Salem to make Avelo’s flight a revenue-neutral experience for the company.
Flights originating from Salem to Las Vegas appear to be more popular with the local market, but still not likely a revenue positive experience for Avelo. Of the 201 seats available on the inaugural October 5 flight, 41 are still empty. If each flight needs to produce $23,833 in revenue, that’s $119 average per seat revenue. That would put the City of Salem on the hook for around $4,800 to make the flight revenue-neutral for Avelo.
That’s not bad, but that’s also the single busiest flight Avelo has booked in Salem so far. The next flight to Las Vegas from Salem, on October 9, has 171 empty seats - or a potential shortfall of more than $20k the city would have to kick to Avelo to make the flight revenue neutral.
The good news? Contractually, there is a cap on the Minimum Revenue Guarantee (MRG) so the max Salem would pay to Avelo is $1.15 million over the course of the max term of the contract (10 years).
Funding for MRG payments would come from two pools of money:
$850,000 in federal grant funding from the Small Community Air Service Development Program
$350,000 from Travel Salem pursuant to a “matching funds agreement.” Travel Salem’s commitment includes an additional $50k for marketing.
At the current rate, if Avelo flights from Salem to either Burbank or Las Vegas remain lightly booked - that MRG pool could be exhausted in less than 6 months.
**Two important caveats: 1. This data is from an agreement that predates Avelo being publicly announced as the airline Salem was partnering with. The numbers used in their Financial Performance Guaranty table may have changed since first proposed. 2. It appears that Avelo would bill Salem monthly for any amount due for revenue neutrality and as long as aggregate revenue per billing period exceed revenue minimums, Salem wouldn’t owe anything. The “per-flight” calculations in this article are for purposes of demonstrating how these revenue minimums might add up each month, or billing period.
Marketing efforts to promote commercial flight service in Salem have been…hard to find.
Despite that $50k in dedicated budget, with around 2 months until the inaugural week of flights little of that seemingly critical marketing efforts seems to be underway.
Avelo Airlines is running 5 ads across Facebook and Instagram promoting the new service to and from Salem.
Neither the City of Salem or Travel Salem appear to be running any similar advertisements on Facebook or Instagram.
There have been some sightings of billboards locally promoting the new commercial air service from Salem. Aside from media coverage, it’s actually pretty difficult to find examples of Avelo being promoted in & around Salem.
With two months until the inaugural Avelo Airlines flight takes off for Las Vegas, it’s safe to say Travel Salem and others are going to need to step up and do better (or, y’know…do anything at all).
What’s the rush? These things take time, right?
It’s true. New businesses take time to root and thrive. Especially businesses so heavily regulated operating within a complex municipal deal structure.
But Avelo is a venture-backed startup. And venture-backed startups need to move quickly to grow, and to cut losses. And Avelo has not been shy to pull service out of cities where there aren’t enough passengers to justify the expense of operating.
And when Avelo leaves a city, it usually happens about 3-6 months after they launch service in a particular location.
Hey! That’s about when Salem’s Minimum Revenue Guarantee funding would run out if current trends hold up. Weird, right?
Considering Salem elected officials have already sunk millions of public funds into updating the Salem Municipal Airport, let’s hope we’re not added to the list of cities where Avelo Airlines once experimented with regional commercial service.
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