TO: Mayor and City Council
THROUGH: Krishna Namburi, Interim City Manager
FROM: Brian D. Martin, PE, Public Works Director
SUBJECT:
title
Update on a Potential Minimum Revenue Guarantee to Recruit Commercial Air Service to Salem – Willamette Valley Airport.
Ward(s): Ward 2
Councilor(s): Nishioka
Neighborhood(s): SEMCA, SESNA
Result Area(s): Strong and Diverse Economy.
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SUMMARY:
summary
With the departure of Avelo Airlines on August 10, 2025, there are currently no commercial airlines operating out of Salem – Willamette Valley Airport. At its August 18, 2025, work session, Council requested an update on what a reasonable expectation would be from an airline on the size of an MRG needed to operate out of the Salem-Willamette Valley Airport.
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ISSUE:
Information Only.
RECOMMENDATION:
recommendation
Information Only.
body
FACTS AND FINDINGS:
Importance of Confidentiality
As staff and our aviation consultant explore interest from various airlines, the names of potential airlines will not be disclosed for market confidentiality reasons until such time that all involved parties are ready to move forward publicly with an agreement or service announcement.
Options for a Potentially Successful MRG
The City’s aviation consultant, Volaire Aviation Consulting, has been in frequent discussions with several airlines since Avelo announced its cessation of service from the western United States. Based on those discussions, a successful MRG proposal would apply to two different types of airline service: Ultra-Low-Cost carriers and Legacy (Hub/Spoke) carriers.
Ultra-Low-Cost Carriers
These are airlines that offer very low-cost base fares and customers pay for added choices, services, and amenities. These airlines fly distinct origin and destination routes based mostly on leisure and family travel demand, with less emphasis on business travel. These airlines may work from an origin base airport but do not necessarily offer connecting flights to multiple destinations. The frequency of flights is often only a few times per week to a specific market.
Indications are that an MRG of $500,000 per year, for three years, may bring an ultra-low-cost carrier to the negotiating table, but may not be enough to close the deal. This scenario would require annual commitments of funding spread evenly over three years, thereby reducing the funding amount needed the first year. If the amount per year were increased – then the possibility of success would be greater.
Discussions with several ultra-low-cost carriers indicate that an MRG of $3 million dollars in a lump sum availability, available for at least two years, is where an airline will likely agree to serve one destination city and possibly a second destination city from Salem. This scenario would require the entire $3 million to be available for use when an airline begins operations at Salem-Willamette Valley Airport. The higher the lump sum MRG amount the more destination cities the airline would be willing to serve – although not necessarily all at the time initial service begins. Likely destination cities include: Burbank, CA or other Los Angeles basin destinations, Las Vegas, NV, San Francisco Bay area destination cities, Phoenix, AZ, or possibly San Diego, CA. If an MRG were assembled in Fall 2025, a letter-of-intent could be issued and air service could begin in either Summer or Fall of 2026, depending upon aircraft and pilot availability.
Legacy (Hub/Spoke) Carriers
These are well-established airlines that offer frequent service to large regional, nationwide, or international markets through a system of hubs and spokes. These airlines typically charge a higher base fare, but are more inclusive of choices, services and amenities, and fly more frequently with daily flights or multiple flights per day out of a market.
Discussions with several legacy carriers have indicated that an opening threshold for negotiations would be a $5 million or larger, lump sum MRG over two or more years of availability to bring them to the negotiating table. This scenario would require the entire $5 million to be available for use when an airline begins operations at Salem-Willamette Valley Airport. Due to the higher frequency of flights and total seats to sell, there is inherently more risk and, therefore, a larger MRG offering is desired. Destination cities with a legacy carrier would depend upon how Salem would fit into their hub and spoke system. A commencement of service date would depend upon aircraft, pilot and gate availability.
Other Financial Incentives
In addition to an MRG, most airlines request additional financial incentives be part of the package. These may include: marketing, waiver of landing/parking fees for an initial time period, free use of terminal ticket counter/office space, fuel tax discounts, and/or free use of ground support equipment.
Timeline for an MRG Proposal
The sooner an MRG proposal can be presented to the airlines the more likely Salem would see resumption of commercial air service in 2026. However, if assembling a community-based MRG to the amounts mentioned is not possible, the City could pursue grant funding for a portion of an MRG through a Federal Small Community Air Service Development (SCASD) grant. Applications will be due in Fall 2025, with grant awards announced in late winter/early spring 2026. A local match component is required for a SCASD grant, so efforts to assemble local MRG funding would need to continue. SCASD grants are highly competitive and there is no guarantee that Salem would receive an award. If awarded, Salem could then engage interested airlines and look toward resumption of commercial air service in late 2026 or early 2027. This is the type of grant that was used to secure Avelo Airlines in 2023.
Retention of Transportation Security Administration (TSA) Equipment
The TSA has indicated that the airport has until mid-November 2025 to resume commercial air service or have at least a letter of intent from an airline to do so, or the agency may remove the passenger and baggage screening equipment for use elsewhere. Replacing the removed equipment to resume airline service could take several months to a year depending upon the demand for the equipment at that time; however, the equipment cost would be a TSA expense, assuming the new equipment is compatible with existing airport infrastructure.
BACKGROUND:
The August 10, 2025 City Council work session staff report, which includes additional information concerning the airport is available here: CITY OF SALEM - File #: 25-302.
The City of Salem signed a 10-year operating agreement with Avelo Airlines in September 2023. Avelo Airlines began commercial passenger service at Salem-Willamette Valley Airport on October 5, 2023, with twice-weekly flights to and from Burbank, California and Las Vegas, Nevada. After 22 months of operation, Avelo ceased operating flights from the airport on August 10, 2025, leaving Salem without a commercial air carrier.
As an incentive to attract and sustain airline operations during its first two years of service at Salem, a Minimum revenue Guarantee (MRG) fund of $1.2 million was established using an $850,000 Federal Small Community Air Service Development (SCASD) grant and $350,000 in local business community contributions. The City of Salem administered the MRG, receiving invoices, making payments and receiving reimbursements from the Federal government and Travel Salem. No Airport or City General Funds were paid to Avelo Airlines to operate commercial air service. The MRG contract with Avelo expires in October 2025. As of August 31, 2025, $854,643 (71%) of the original MRG was spent, with $345,357 remaining unspent.
City staff are awaiting to see if a final invoice for August flights is submitted by Avelo. If no invoices are received then $244,656 of the remaining MRG funds will be returned to the Federal government and $100,701 will be returned to local contributors, where they can keep their prorated rebates or pay the funds forward to help with a new MRG.
Mark Becktel, AICP
Assist. Public Works Director - Operations
Attachments:
None.