HOW DO WE MAKE THE TERRACE-KITIMAT AIRPORT
FINANCIALLY VIABLE IN THE LONG TERM?

by

Carman Hendry

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE DEGREE OF
MASTERS OF BUSINESS ADMINISTRATION

THE UNIVERSITY OF NORTHERN BRITISH COLUMBIA
APRIL 2010

© Carman Hendry 2010

UNIVERSITY of NORTHERN
BRITISH COLUMBIA
LIBRARY
Prince George, B.C.

Acknowledgements
Terrace-Kitimat Airport Society Directors
Project Supervisors Dr. Richard Tallman, Dr. Robert Ellis

2

Introduction
In 2010, Carman Hendry became the third Airport Manager since the transfer of the
Terrace-Kitimat Airport from the Federal Government to local control. He had 20 years of
airfield operational experience at five different airports in British Columbia and was looking
forward to returning to Terrace after a 3-year appointment at the Abbotsford Airport as the
Manager of Operations. Carman had worked at the Terrace-Kitimat Airport in the past as
Supervisor of Operations and had built relationships with the staff and directors of the board.
These relationships would prove to work in his favor, as he would need to utilize them to manage
the current airport deficit of $1.3m. When the airport was transferred 11 years ago, it was given
$1m, by Transport Canada, to help set up operations and give the airport a head start in creating
its own capital fund for some much-needed infrastructure improvements. The previous two
airport managers had used the money to install an Instrument Landing System to reduce the
weather-related missed approaches by aircraft, to extend the runway from 6,000 feet to 7,500
feet in hopes of attracting larger aircraft, to expand the Air Terminal Building to accommodate
the new security offices, and to rebuild the groundside parking facilities and Air Terminal
Entrance road.
The Terrace-Kitimat airport was built by the Canadian Department ofNational Defence in
1943 as part of a defense network to defend the coast from hostile invasion, and as part of the
airport system used to ferry American aircraft to Alaska (McGrath, 1991). The airport was
transferred to the Department of Transport in 1946. In 1997, it was transferred to the TerraceKitimat Airport Society, an independent, non-governmental, not-for-profit Corporation formed
under the British Columbia Society Act. The Society has no shareholders and therefore no
3

shareholder benefits. All profit was used to improve the airport. The Society has four members:
The Terrace & District Chamber of Commerce, the Kitimat Chamber of Commerce, the
Regional District ofKitimat- Stikine, and the City of Terrace. Each member of the society
chooses one director; then these four together choose 3 directors-at-large. The directors all serve
a maximum of 3 consecutive 2-year terms. These 7 directors are usually selected due to their
influence in the communities as well as any skills they have that are relevant to the airport. Two
of the current directors are retired businessmen from the city of Kitimat. One of these directors
was chosen to advise on labour issues, while the other was chosen for his leadership skills and
was named chair of the board. Two of the directors are accountants, and one of the two will be
finishing the last year of his term 3 months from now. The latter two directors both assist and
advise on financial matters. One director is the manager of a local equipment-sales-and-repair
company; he advises on equipment purchases. One director is the operations manager of the
highway maintenance company and advises in operational issues. The last director is an
academic who advises on fund-proposal writing and management oversight. These directors hire
an airport manager to lead the airport through its day-to-day operations and into the future while
steering it through the regulatory bureaucracy of the federal government.
The Terrace-Kitimat airport has two paved runways; the main runway, named 15/33, is
7,500 feet long. The secondary, cross-wind runway, named 03/21 , is 5,373 feet. Both are 150
feet wide. Runway 15/33 was rehabilitated with an overlay of asphalt in 2001. An Instrument
Landing System was installed to improve the reliability of the airport in 2001 at a cost of$1.5
million. This cost was shared between the Airport and N av Canada, the organization that is
responsible for the installation and maintenance of all aircraft navigational aids in Canada. This
instrument landing system brought the missed-flight average from 220 per year to under 18 per
4

year. The reliability of the airport was now at 99.7% successful landings; however, the airport
continued to suffer from the previous history, a reputation that was difficult to escape when
many flight school's curriculum mention the airport by name and old reputation. The increased
reliability drew interest from low-cost carrier Westjet Airlines; Westjet representatives suggested
that if Terrace had a 7,500-foot runway, they would consider initiating service. In 2005, runway
15/33 was extended to 7,500 feet, and the cost of $2.9 million was shared between the province
of BC and the airport. To date, the extended runway has resulted in no increased traffic for the
airport.
The crisis of 9/11 made it necessary for security to introduce new regulations. This
resulted in a requirement for major expansion of the air terminal building. The funding for the
security renovations came from the Federal government. Any extra renovations were the
responsibility of the airport. This gave the airport an opportunity to enhance the profile of the
terminal building to the community. The expansion included the redesign of the groundside, or
terminal, access roads and parking lot. The total cost to the airport was $500,000. The
renovations and additional paving were completed in the spring of 2008. A customer-satisfaction
survey of the airports in British Columbia was performed by Intervistas (a marketing group out
of Vancouver, BC), and Terrace was ranked number 1 out of 15 airports with only a few
unsatisfactory items (lack of taxi cabs, hourly pay parking and no gift store). A portable gift
kiosk has since been purchased and is operated by the restaurant operator. The taxi cabs are
owned by one local company that is not really interested in improving its image at the airport.
The hourly parking remains a sore point.

5

Since the transfer, the airport has invested over $13,000,000 in infrastructure
improvements, from new plow trucks and snow removal equipment to runway re-paving. The
Federal government funded $7,408,080 through the Airports Capital Assistance Program
(ACAP), while the remainder was financed through the cash flow of the airport over time and a
$1,500,000 credit line (see Appendix A). The airport chose to run the airport day-to-day
operations as well as finance capital improvements through a line of credit; it was believed there
was more flexibility for operations this way than there would be if the improvements were tied to
fixed-term loans. Today the airport is carrying a debt of $1,085,000. Hendry would like to pay
this off and build up a surplus for future improvements. See Appendix B for Governmentfunded capital expenditures.
In 2009, 108,000 passengers used the airport. There were 14,002 aircraft take-offs and

landings in 2009. Air transport is provided to the area by Air Canada Jazz, Central Mountain Air
and Hawk Air. Flight-movement records also indicate substantial helicopter traffic in the area,
largely involved in resource-based activity. As a provider of vital transportation services, the
Northwest Regional Airport ofTerrace-Kitimat contributes over $46 million to the local
economy annually. Activities at the airport sustain the equivalent of 246 full-time jobs.
The vision of the airport is to "Provide a safe, reliable aviation facility for the use of all

stake holders. This facility will be self supporting, will foster growth of the communities it
serves and improve the overall economic value of the area".

Staffing
Coming out of retirement, Laurie Brown became the second airport manager for Terrace
in May of 2003. Brown has a Bachelor's Degree in civil engineering and a Master's in
6

Transportation from the University ofNew Brunswick. He had worked for Transport Canada for
30 years, the last 10 of which were as the Airport Manager of the Victoria Airport, before
retiring in 2002. Brown was very active in the aviation industry. He was a member of the
Canadian Airport Council and a director on the BC Aviation Council and the International
Association of Airport Executives; as well, he taught 3 courses per year on Airport Operations
and Air Terminal Design at the BCIT aviation campus.
In March of 2008, Brown implemented a succession plan for two major positions at the
airport: his own and that of the current Supervisor of Operations, Lane Mitchell. Brown hired
Carman Hendry for the position of airport manager and Dave Kumpolt for the position of
Supervisor of Operations. Brown had convinced the board of directors that an overlap of a year
and a half for the manager' s position and 6 months for the Supervisor position would be worth
the expense.
Mitchell, the outgoing Supervisor of Operations, was a long-time employee of the airport.
In fact, as a child, his family lived on the airport grounds, where his dad was the mechanic. He
started part-time work at the airport as soon as he could drive and eventually became a full-time
employee. Mitchell qualified for full retirement at the age of 54 and was looking forward to it.
Mitchell ' s replacement, Dave Kumpolt, had many years ' experience as a supervisor,
working at the local Ford dealership as the manager of the fast-lane service department. He also
had a keen business sense developed due to his ownership of a number of successful small
businesses ranging from hotels to a tire shop. Kumpolt came to the airport in 1998 as a part-time
equipment operator and had learned the operations from the ground up . Working at the airport

7

was exciting and brought new challenges every day, Kumpolt said this is what kept him
interested in airport work.
Kumpolt has recently completed his first complete winter as supervisor without incident.
The weather co-operated, and with his brand of supervising, his crew used less than 50% ofthe
Urea for runway de-icing, less fuel and less wear and tear on the equipment. A perfect year to
build his confidence, as Supervisor Operations and Maintenance.
All of the staff, except for the airport manager, are members of the Canadian Union of
Public Employees. Please refer to Figure 1 for an organizational chart. The relationship between
management and the union is extremely good, as both sides work towards the betterment of the
airport and the community. The staff participates in the creation of each annual budget, and their
ideas are considered with respect, as they are the front line of the organization. The staff has a
very fair collective agreement; as a result, the manager gets commitment from everyone. The
labour-relations atmosphere is excellent. There are two part-time administrative clerks, one
Supervisor, one mechanic, one electrician and one electrician ' s apprentice, two equipment
operators and four part-time seasonal equipment operators. The annual budget for salaries in
2009 was $832,530.

8

Figure 1
Northwest Regional Airport Terrace-Kitimat
Organizational Chart as of April 2010

Airport Manager

Administration
Specialist

I

Assistant
Administration
Specialist

Operations
Maintenance
Security
Supervisor

I

Airport Ops Specialist
Buildings/Support
Electrician

I

I

I

Airport Ops
Specialist
Surfaces/Support

Airport Ops Specialist
Mobile Equipment
Mechanic

I

Apprentice

A.O.S

Electrician

Part time

r--

Part time

A.O.S

A.O.S
Part time

A.O.S

:---

9

Part time

I

Airport Ops Specialist
Mobile Equipment
Mechanic

Market Research
Despite the current period of weak economic growth, the Northwest Regional Airport
Terrace-Kitimat can capitalize on the many significant opportunities in the travel industry that
appeal to the outdoor enthusiast. Summer brings fisherman and hikers for wilderness adventures,
while winter brings helicopters and back-country skiing.
Terrace, being a resource-based economy, suffers through the cyclical ups and downs of
the economy. Over the course of the last 5 years, Terrace has experienced a steady downturn in
the economy with the closure of its two saw mills, the closure of the pulp mill in Kitimat, and the
postponement of a major upgrade to the Alcan Smelter operation in Kitimat. The disposable
income for the region has been in a steady decline.

Regional Transportation Network
The Terrace-Kitimat area is currently accessible by road, rail, sea and air. The main road
access is provided by the Trans-Canada Yellowhead Highway, which extends from Winnipeg,
MB to Prince Rupert, BC. There are additional extensions to the Queen Charlotte Islands and
from Tete Jaune Cache down to the Coquihalla #5 Highway, which connects to Vancouver via
the Trans-Canada #1 Highway. The Yellowhead highway also intersects with Highway 37,
which provides a gateway to the Yukon and Alaska.

10

Greyhound Canada offers bus service to the area. Greyhound bus lines have two
scheduled routes that run between Vancouver and Prince Rupert daily. The trip is approximately
23.5 hours long, with stops in Prince George and TeiTace (Employee, 2010).
The Canadian National Railway (CN) provides rail access. CN has freight service with a
transport time of 105 hours from MAHER Terminal in Prince Rupert to Memphis, Tennessee
(Whiteley, 2007). An additional line runs between Terrace and Kitimat. This line runs more or
less parallel to Highway #3 7. Via Rail also runs a passenger service connecting communities in
between Prince Rupert and Jasper.
Kitimat boasts a private international port and one of the deepest natural harbors in North
America. The port has 16 km of usable waterfront and is able to handle vessels up to 325,000
tons deadweight. The shipping terminals are privately owned and operated, and the channel
depth is 100 to 300 fathoms (190 to 570 m) (Invest Canada, Invest Kitimat, 2010).
Prince Rupert has the 3rd deepest natural port in the world capable of hosting the newest
supertankers (Inc. , 2007). Prince Rupert hosts the BC Ferries port that has connections between
Prince Rupert, the Queen Charlotte Islands, Vancouver Island, and a number of stops in between.
Prince Rupert also hosts a base for the United States Ferries that connect Seattle with stops in
Alaska.

Competitive Environment
There is competition to provide local air service from the airports at Prince Rupert and
Smithers. Prince Rupert is located 145 km west of Terrace. Its airport is owned and operated by
the city of Prince Rupert. It has a 6000-ft runway with an Instrument Landing System and a 16-

11

hour-a-day Remote Aerodrome Advisory Service (RAAS) for aircraft, provided from Terrace by
Nav Canada. The Airport is located on Digby Island, a 30-minute ferry ride across the harbor
from the city of Prince Rupert. Groundside facilities are negligible, and there has been no
groundside development to date. The weather conditions, combined with difficult terrain, limit
the airport-expansion capabilities at Prince Rupert Airport. At present, there are five full-time
maintenance employees, one staff janitor, and one full-time and one-part time office clerk, as
well as a full-time Airport Manager. The Prince Rupert Airport presently accommodates Air
Canada Jazz and Hawkair, with a total of 58,000 passengers a year.
Smithers is located 212 km east ofTerrace. The Smithers Airport is owned and operated
by the town of Smithers. It has a 7500-foot runway with no precision Instrument Landing System
and a 16-hour Flight Service Station. Groundside facilities include a network of roads and
utilities supporting tenant business operations. At present, there are three full-time maintenance
employees, one administrative employee, and one part-time airport manager. Smithers and area
are serviced by Air Canada and Hawkair, which offer 2 flights each daily to and from
Vancouver. Central Mountain Air offers one flight daily to Prince George via Terrace, and
Highland Helicopters and Northern Thunderbird Air provide charter services. Smithers presently
accommodates 65,000 passengers a year. Smithers has in the past enjoyed being the muster point
for the mining industry. Smithers is the home base of Central Mountain Air, the holder of the
contract for moving the staff in and out of a number the mine sites.
Prince George is located 600 km east of the Terrace-Kitimat Airport and has the low-cost
Westjet service and seasonal, direct sun destinations throughout the winter. The more frugal

12

residents of the Northwest will drive the 600 km to Prince George for low cost air travel and on
their return stop for the shopping that Prince George offers.

Market Description

The Traveler
In 2009, the Northwest Regional Airport accounted for approximately 46% of the
regional aircraft movements, with Prince Rupert at 19% and Smithers at 35%. This illustrates
Terrace's position as the central hub for the Northwest. (Nav Canada, 2010)
The passengers that presently utilize the Terrace-Kitimat airport can be categorized into
four groups: business and corporate travelers (35%), outgoing local vacationers, (30%),
incoming vacationers indulging in activities such as heli-skiing and fishing (20%), and people
traveling for the sake of medical services (15% ).
The Terrace-Kitimat airport is situated in the North Coastal region of the province of
British Columbia. Areas with the most significant populations (e.g. , Prince Rupert, Smithers,
and Kitimat) are strategically located to feed into airline service located out of Terrace.
Generally, airlines can draw from towns and cities located within a three-hour drive of the
airport, as long as the cost structure is appealing to passengers. Kitimat is located 45 km from
Terrace. The communities ofPrince Rupert and Smithers are located, respectively, 150 and 200
km from Terrace. The airport becomes more appealing if the fares are reasonable and passengers

can also access faster air service (i.e. , jet service). Although the airport is currently well served
by its carriers, the extension of the runway may attract new entrants to the regional market. The

13

strategic location of Terrace, and the anticipated positive business climate and regional
population growth, will stimulate the catchment area.
With regards to a given catchment area, it is important to consider the distance between
the airport providing a particular service and the potential market. The extension of the existing
runway could attract a new low-cost carrier into the regional market. In consideration of low
airfares that would be offered by this new carrier, a passenger must weigh a number of variables:
distance, potential weather conditions, value of travel time (business travel vs. leisure travel), air
travel time, etc. It has been shown at other airports that, depending on the airfare, air travelers
will drive up to three hours to benefit from lower airfares. People already leave the northwest
region to drive to Prince George (6 hours from Terrace) to benefit from lower-cost airline
services offered by Westjet.

Cargo
At the present time, there are no major cargo operations at the Terrace-Kitimat airport;
however, 10 years ago, Canadian Airlines operated a cargo facility. Following the takeover of
Canadian Airlines by Air Canada, the cargo facility was sold to the Airport, and it became home
to a car-wash facility for one of the car rental companies, through a month-to-month rental
agreement. As of late, the airport has been approached by Maher Terminals in Prince Rupert,
who have been enquiring about the possibility of beginning an adhoc cargo delivery for
containers. Occasionally, a shipper from China will contact Maher and ask that a particular
container be put on a rushed delivery basis due to a shortage of that particular shipment at the
manufacturer. The shipper will request that the container be directed to airfreight instead of the

14

normal cross-country train. Unfortunately, there is no infrastructure to make that happen as of
yet. With the Prince Rupert Airport located on an island, the transportation time to get it to the
airport from the terminus is approximately 3 hours, depending on tide and local weather
conditions for barge service. The Terrace-Kitimat airport is 2 hours from the terminus, regardless
of the tide and weather conditions. Reliability would be a key issue in procuring this service.
There are twelve mines in the area, seven of which are proposed and awaiting
environmental approval to proceed. If the economic outlook of the region is accurate, the
completion of a new electrical transmission line from Kitimat to Alaska will bring an infusion of
investment dollars to the local mining industry. With a supply of reliable electric power, many
mines in the area would be developed. The geographic position of Terrace makes it an important
link in the supply chain for parts being shipped in and product being shipped out. This would
drive a requirement for a freight-forwarding facility.

Long-Term Opportunities
Land Leases
Terrace-Kitimat airport has one asset in plenty, and that is land. In cooperation with the
city of Terrace, the Terrace-Kitimat airport has been successful at increasing its property holding
by 474 hectares through a free Crown land grant. The grant was originally sought to secure the
properties within the approaches to the end of each runway. Because it was desirable to control
what was built in the approach areas, thus possibly affecting aircraft, it was deemed prudent that
the airport own the property. In order to acquire those lands, the airport had to sign an agreement
with the province for a number of restrictions the land use, all of which were related to aviation
use. If there had been a customer who proposed to use the property for other than an aviation-

15

related use, the property would then have had to be re-evaluated against market value and sold,
with the proceeds going to the province.

Trans-Border I International
Route development into United States tourist destinations is difficult and, so far, has not
been successful. The main stumbling block is that the Canada Border Services Agency (CBSA)
does not have an office in Terrace. There are international shipments via the marine ports of
Kitimat and Prince Rupert; however, getting the customs agents to travel to Terrace to clear an
incoming aircraft has become impossible since the 9/11 crisis. The CBSA has stated that due to
budgetary and staffing constraints, representatives will not travel from their main office in Prince
Rupert to Terrace to service an aircraft; however, they will travel to Kitimat to clear a ship.
Hendry has begun lobbying through the Chambers of Commerce in Kitimat and Terrace as well
as the Union of British Columbia Municipalities to put pressure on the federal government to
supply this service to all regional airports, including Terrace. Hendry has engaged the Airport
Association of British Columbia and the Canadian Airport Council to lobby all of the Chambers
of commerce and municipalities across Canada to put this on their agendas for discussion.

tocal Businesses
For tenants leasing land, the Terrace-Kitimat airport presently has 2 helicopter companies
that seem to be holding their own in the existing depressed market, Quantum Helicopters and
Canadian Helicopters. Quantum has the largest land lease and is the largest employer of the two.
Hawkair is a small regional airline that just celebrated its 1Oth year in service. Hawkair is
the largest employer in Terrace, with 99 employees, including pilots, flight attendants,
reservation clerks, and maintenance staff. Hawkair competes directly with Air Canada Jazz for
16

the commercial passenger traffic and holds a significant 35% market share, with Jazz and Central
Mountain Air sharing the remainder.
The Provincial Forestry Department has a fire base located at the Terrace-Kitimat airport.
Besides being a very dependable financial tenant for the airport, the base provides 3 full-time
jobs and approximately 20 seasonal jobs in the community.
Executive Flight Center (EFC) operates a Fixed Base Operator (FBO) on site; it caters to
private and corporate aircraft. EFC also supplies the airport fueling service. The airport has an
agreement with EFC to operate a fuel service for $18,000 per year. Most other airports have their
agreements based on a fee per liter of fuel sold; however, since a large portion of the fuel EFC
sells is to offsite Helicopter companies, the airport and EFC have come to this agreement to
encourage EFC to maintain its location at the airport. EFC employs 2 full-time and 1 part-time
employees.
A Market Survey of the leased lands was performed in October of2009; it revealed that
the airport-leased lands were priced below market value by 35%. The comparators considered
were the commercial properties in both Terrace and Kitimat, as well as the existing land leases at
Smithers, Prince George, Quesnel, and Williams Lake Airports. Prince Rupert Airport was not
considered due to the fact it has no land to lease.

BUSINESS STRATEGY
As Frank Hamilton, the first Chairman of the Board of Directors stated at the transfer of
ownership in 1998 "Our business strategy is to work with and support the local industries and
businesses to ensure a safe and reliable portal to the northwest. The community comes first
17

because, without the community, there would be no need for an airport. " We will be ready and
able to supply the services required by any aviation business that chooses to locate in Terrace,
and we will support those that are already here.

Customer Incentives
Some airports have incentives for airlines in the way of cost cuts for the first 12 months
that they operate a new route. At the present time, Terrace does not offer any incentives for
airlines to relocate or expand here into the Terrace market.

Advertising and Promotion
The airport advertising and promotions revolve around several strategies. First of all, it
provides a Website that offers up-to-the-minute schedule changes, traveler trip-planning advice,
and information on community news stories; it also takes out advertisements in major mining
magazines, and it is working in cooperation with the Terrace and Kitimat Economic
Development offices. The airport pursues public relations through the Terrace Drag Race
Association, which holds 5 events a year, and the annual Music and Friends Festival, which runs
for 3 days in the summer.

Financial Overview
The airport is fully self-sufficient and does not receive any funds from the local tax base. Its
revenue is derived from three areas, defined as:
•

Groundside- the area in which the public can access tenants and other related facilities .

18

•

Terminal- the area associated with the movement of the traveling public; this area includes
both long- and short-term public parking, space rental inside the terminal building, and
concessions from the rental-car agents and restaurant facility.

•

Airside- the area inside the fence, restricted from public access and used by aircraft for the
purposes of parking, taxiing, landing, and taking off. Those areas on tenant leases that have
direct access to these facilities are also included.
There is some Federal funding available through the Airport Capital Assistance Program

(ACAP). This program has an annual funding level of $35,000,000 and is intended to assist 128
small and regional airports in funding infrastructure related to essential services such as runway
asphalt, snow removal, and emergency services equipment. This program is severely
oversubscribed by the 128 airports and therefore very much underfunded. With the average
runway overlay costing $2.5 million and the average snow-plow truck $500,000, the $35 million
cap does not go far, especially as all 128 airports want a share.

Revenue
Air transport is provided to the area by Air Canada Jazz, Central Mountain Air, and
Hawkair. Flight-movement records also indicate substantial helicopter traffic, largely involved
in resource-based activities, in the area.

Airside
For arriving passenger aircraft, there are two methods of collecting revenue. If a given
aircraft is a scheduled one and its airline is participating in our per-passenger fee, the aircraft is
not charged terminal or landing fees but is billed $12 per passenger. Those airlines that choose
not to participate in the per-passenger fee pay both a landing and a terminal fee (see Appendix C
for rates).
19

Passenger fees make up the majority of the revenue at 66% (see Appendix D: Revenue I
Expense Breakdown). The fee of $12 per passenger is charged for every passenger boarding and
deplaning. These fees are set by the Airport Society and are collected by the airlines on behalf of
the airport. An increase in these fees from $11 per passenger was executed in 2009. Hawkair
normally uses a De Havilland Dash 8-100 with 37 seats, while Air Canada usually employees a
De Havilland Dash 8-300 with 50 seats, and Central Mountain Air (CMA) provides Beech 1900
service with 19 seats. There are 6 scheduled flights in and out each day, including 5 round trips
to Vancouver (2 Hawkair and 3 Air Canada) and 1 round trip to Prince George with CMA.
The remainder of the Airside revenue comes from Government of BC medivacs,
corporate jet traffic, fuel concession, and snow removal for Nav Canada.

Groundside
Revenue from groundside activities is mainly from tenant land leases. The tenants are
Executive Flight Center (aircraft fuel supplier), Quantum Helicopters, TK Air Charters,
Canadian Helicopters, Hawkair, Terrace Hangers Association, and British Columbia Forest
Services. The lease rates are determined through a market review process that is completed every
5 years. As a result of this review, leases are adjusted up or down. The overall value is minimal,
and growth in this area would be beneficial.

Terminal
Fifty-four percent of the revenue from the terminal activities is derived equally from the
parking-lot fees and the car-rental agencies. A decrease in this revenue has been seen in the past
two years. As a result, fees for parking have been raised from $4 to $6 per day. Another increase
is being contemplated for 2011.
20

Advertising space in the terminal building makes up a considerable amount of revenue,
bringing in $24,000 a year. These rates have not changed since 2005 , and all available rental
spaces are occupied.
The boardroom has been fitted with the latest technology in presentation equipment, such
as a sound system, a video projector, and customized lighting; the furniture can be used to
reconfigure the room into a classroom. The boardroom has become a very good source of
revenue, fetching $65 a day, and is in use approximately 100 days a year.
The remainder of the revenue in the terminal is made up of office and counter-space
rental to the airlines.

Expenses
Airside
Due to snow and ice control, airside facilities represent the highest expense. Terrace is
located 60 kilometers from the Pacific Ocean and therefore has relatively mild winters.
Unfortunately, the mild winter temperatures result in a lot of snow, and the temperature often
hovers around 0 degrees Celsius. The airport consequently contends with a lot of ice. The
preferred method of dealing with ice on the runways is to apply a chemical called Urea, the cost
of which fluctuates with the cost of oil, as it has a petroleum base. For example, in 2008, the
airport paid $849 per ton and used 220 tons for ice control, whereas in the 2009 season it paid
$560 a ton and used under 120 tons. Urea is the airport's second-highest consumable cost. The
third-largest cost, during winter operations, is of the bristles used on our high-speed sweepers.
These machines are pulled behind the plow trucks and sweep away the snow and slush that is left
behind by the plows. The purpose is to get as close to dry pavement as possible. Each broom
21

core holds $2,700 worth ofwire bristles and operates for about 70 hours before needing to be
replaced. Each year, depending on the conditions, the airport will go through approximately 9
broom cores. Labour is, by far, the highest cost for the operations. The majority of these costs
occur in the winter due to overtime and extra staff to ensure the airport's reliability. The airport
has created 4 permanent seasonal positions that have a guaranteed 5 - 6 months of work. They
have had to do so to ensure that trained, reliable winter staff are available, year after year.
Airport management tried training a number of casuals and using them on an on-call basis. This
worked well until one of the on-call staff was lost to full-time work.
Runway maintenance is relatively minor during summer months, except for repainting of
the lines and some crack sealing. The average runway requires a new overlay of asphalt every 10
to 15 years. The last time Terrace's main runway was done was in 2001 at a cost of$2.3 million.
The secondary runway 03-21 has not received an overlay in the last 25 years because Transport
Canada does not feel that Terrace requires a secondary runway. While airport management
disagrees, without the cooperation and funding of Transport Canada, the Terrace Airport cannot
afford to do this on its own. The secondary runway is, at the present time, only used when there
is maintenance work being done on the main runway, or the odd time when the wind is favoring
it. The secondary runway is also used for the Terrace Drag Race Association. It holds 5
weekend-long events a year and pays a fee of$500 per event. It is the goal ofthe airport to
support this event for the community rather than as a revenue-generating activity. The proceeds
cover the maintenance costs for the area the drag race club uses.

22

Groundside
There has not been a lot of investment into the groundside facilities. The sewage and
water systems have had continued upgrading and are operating at about 30% of their capacity.
There is ample room for expansion of these facilities. However, the road and parking network
requires some attention. There has been little investment in the long-term parking and road
system for the past 20 years, and the surfaces are showing their age. The tenants of the airport
that lease lands along Bristol Road have complained for years about the lack of attention the
roads have gotten for the amount of taxes they have paid. The taxes are collected by the airport
on behalf of the city of Terrace; however, tax revenue directly benefits the city of Terrace, not
the airport itself. As the Airport Society owns the airport and lands, it must support the
maintenance of the facilities without public funding.

Air Terminal
The Air Terminal is in exceptional condition for its age. The airport took advantage of
the major renovations to the security area, funded by Transport Canada, to piggyback some
needed modifications of its own, including the installation of an air-conditioning system, new
flooring, and the conversion of the old security room into a boardroom.
A high-speed Internet service to the airport and its tenants is also provided by the airport
for a fee of $100 per month. Due to the location of the airport in relation to the city of Terrace,
the airport had to purchase a satellite system to gain high-speed Internet service, at a cost of
$10,000 with an ongoing $1,000 monthly fee. The airport sells this service to 6 tenants. The
airport also provides a free wireless service to the traveling public in support of customer service.

23

Utilities are a major cost for the terminal facility at an average of$127,000 per year
(including natural gas and electricity).

Financing Requirements
Long-Term Parking Lot Expansion
The long-term parking is in real need of an overlay or rebuild . The facility is 50 years
old, and the asphalt surface is broken in so many directions that repair through crack sealing
would be ineffective and wasteful. The costs for this project range from between $750,000 and
$1,000,000 at the present time, and the airport is not able to fund this type of expenditure. The
long-term lot brings in revenues of $100,000 per year.

Reservoir Expansion and Water System
The reservoir holds 365,000 gallons. According to the City of Terrace Fire Department
and AON Insurance, this is not adequate to successfully fight a structural fire, should the airport
be unfortunate enough to experience one. Thus, the insurance costs are at a premium for airport
tenants. A partnership with the city of Terrace has been investigated, whereby the construction of
a new water reservoir on airport property to service both the Airport and the outer edges of the
city boundaries has been discussed the project has yet to be initiated.

Groundside Service Road Construction
The service roads are in better condition than the long-term parking lot, as they were
overlaid 30 years ago and are maintained annually. Some small sections have had to be
completely rebuilt, but no major problems have surfaced as of yet. There is a plan, and drawings
prepared, to rebuild the groundside road system completely. The cost of the rebuilding will be
24

$1.5m; however, the airport is not in a position to fund this. Without some work done to the road
infrastructure, it will be difficult to attract property lease contracts.

Groundside Buildings
The maintenance building was constructed in 1991 and fitted with the latest technology
for equipment repair. It houses the operations and maintenance department as well as the
emergency coordination center. There are 7 bays for parking of equipment, 2 of which are drivethrough bays for the truck-sweeper combinations. Throughout the winter season, all equipment is
kept inside to ensure reliability of operation.
There are two cold-storage buildings that were built in 1950. One building (the blower
bay) has been re-sided and roofed. It houses the summer equipment (tractors, mower, tar kettle)
throughout the winter. This building is capable of lasting another 20 years with proper
maintenance.
The second cold-storage building used to be the maintenance garage before the new
garage was built in 1991. It has been rented out, since the transfer in 1998 to 2010.The tenant got
fed up with the state of the economy and decided to close up shop and move south. This building
requires approximately $80,000 worth of repairs, which include minor structural repairs, new
siding, and a new roof. The airport used to rent it out for $1,000 per month but is expected to get
$1,500 monthly from the next tenant.
The Air Terminal Building was originally constructed in 1961 and has since been
expanded three times. The heating system was just refurbished in 2008, complete with digital
control for all areas. This building is in great shape and should be able to go another 10 years
before any major repairs are needed.

25

Extension of Services (Water and Sewage)
The water system was rebuilt in 2003 with a new pump, and the reservoir was drained
and cleaned. The system is more than capable of keeping up to the domestic demand and is
presently operating at 30% of its capacity.
The sewage system is a septic field, which was rebuilt in 1989 and is fully capable of
servicing the present loads. The septic field is presently operating on only 1 of 3 fields that are
available.

Airside infrastructure
The main runway 15/33 was resurfaced in 2001 , and the length was extended from 6,000
feet to 7,500 feet in 2005. Resurfacing will not be required for another eight years. The
secondary runway is in poor shape and may have to be abandoned this year due to the fact that
fluctuations in the runway are beginning to exceed acceptable tolerance.

Heavy Equipment Replacement
A 10-year heavy equipment replacement plan has been established and can be found in
Appendix E. The budget for each of the years is directly tied into the main budget figure in
appendix A. The budget numbers are estimates based on experience and best guesses from the
staff; the figures are without any funding assistance to show where the airport would be if
funding were not approved. It does not make sense to show funding when there is a possibility it
could be denied. Therefore, any funding for equipment replacement will be bonus revenue.

26

Aprons and Taxi Ways
In 2004, the apron underwent an expansion of 10 meters to the south, bringing the size of
apron space from 18,900 square meters to 21,900 square meters. It is now capable of servicing
one 737 jet on each of the three parking areas while having another 737 aircraft taxi behind each
one. The taxi ways had a resurfacing of asphalt, new lighting, and drainage system rehabilitation
in 2004.

Options
Some of the options Hendry is looking at instituting are as follows:
He would like to increase passenger fees from $12 per passenger to $15 per passenger.
This would increase the revenue from this source by $300,000 a year; however, an increase in
fees is a political hot potato that could backfire if the airlines decide to use it against the airport
and raise their ticket prices. Hendry is considering removing the fees for the short-term parking
lot at the same time, concluding that this would buy him some community support due to the fact
that when people come to the airport to drop someone off, they hate to pay for the one or two
hours of parking they use. The income from the short-term lot is $28,000 per year; nonetheless, it
costs $18,000 per year in policing and collection on parking fines for those who refuse to pay.
An increase in the rate for vehicle long term parking fees, from $6 per day to $8, would

raise approximately $50,000 a year.
Hendry is pursuing the designation of"Trans-shipment" for the Terrace-Kitimat airport.
This designation would allow goods shipped via container to Prince Rupert to be trucked to
Terrace and loaded onto a waiting aircraft that would take the shipment to its fmallocation.
27

Many times, there is a requirement for containers to be moved faster than rail to their final
destinations, as in a Just In Time inventory system. There is no cost, and the airport would only
gain from the landing fees. However, it would give the airport and the communities a higher
profile and possibly spawn other ideas for industry. This may require some political support, and
the directors would need to become involved in this issue.
Runway 03/21 is an old runway that is not lit and has had very little maintenance over the
years. It is used very little by aircraft for take-offs and landings. Transport Canada will not fund
any work that is required on that runway; however, the expenses to keep it open to aircraft cost
the airport $8,000 annually. The main user of the runway is the Terrace Drag Race Club, which
makes use of the strip 5 weekends, thus providing the airport with $2,500 in rent.

The Question
As Hendry sits in his office and thinks about the different options that exist, he considers"
"What can be done to make the Terrace-Kitimat Airport financially viable for the long term?"
"Does the airport need to clear off the debt?" "Should the airport form some sort of coalition
with neighboring airports?" " What should be the priorities of the airport for increasing revenue?"

"Should the airport play a more visible role with the community and how would this help?"
"What strategy should he follow to keep the airport viable?"

28

Appendices

29

53 ,000
2,008,006

135,094

49 ,815

2,048,384

Other

0

0

50 ,000
18,000

47 ,931

16,000

Liabil ity Insurance

Tel~ones & Interne ~_

130,100

127,500

110,000

Utilities

Garbage Removal
5,040

38 ,750

5,000

40,000

42,000

35 ,000

114,275

Professional Services

-Consultant
- - - - - Services
----·--

0

5,200

42,900

132,100

127,000

10

105,000

3,700

18,400

Pagers

3,600

51 ,000

1,000

6,200

Janitor

3,800

910

1,000

Postage & Courier

Cell Phones

6,000

6,500

6,300

7,000

6,000

30 ,600

20,400

1' 100

0

9,000

2,100

Office Supplies

55 ,200

12

0

30

0

5,400

132,800

40 ,800

43 ,800

5,600

135,500

41 ,700

44,700

5,800

138,300

42 ,600

45,600

148,700

0
142,900

0
137,400

4,000

19,600

54,300

1,300

6,800

7,100

2,400

prime- .1%

32 ,700

21 ,900

1,400

0

9,000

2,319,025

57 ,000

194,500

402 ,600

166,200

67 ,900

1,430,825

12

3,900

19,200

53 ,200

1,200

6,600

6,900

2,300

32 ,000

21,400

$

119,235

2014 - 2015

Forecast

3,800

18,800

52 ,100

1,100

6,400

6,700

2,200

31 ,300

20 ,900

1,300

0
1,200

9,000

2,237,390

56,400

191 ,600

402 ,600

158,200

65 ,900

1,362 ,690

$

113,558

2013-2014

Forecast

9,000

2,148,200

54,100
2,062,900

186,000

394 ,700

150,600

63,900

1,297 ,800

12

180,500

386,900

143,400

62,000

1,236,000

$

108,150

103,000
12

2012-2013

2011-2012

$

Forecast

Forecast

2,000

Directors' Expenses
Dues , Licenses ,
Subscriptions

1,500

30 ,000

Loan Payments

20 ,000

25 ,000

30 ,000

1,000

1,000

Legal

Bank Charges & Interest

6,100

2,600

Bad Debts

Marketing

8,000

8,000

379,231

Accounting

EXPENSES

175,173

384,475

Lease & License

Parking

60 ,110
140,491

55 ,200

151 ,800

Rentals & Concessions

1,200,000

1,272 ,000

Passenger Fees
Landing & Other Aircraft
Fees

Contributions

12

$

12

$

REVENUE

Fee per Passenger

2010-2011

2009-201 0
100,000

h +; n P0404+t;£

106,000

""

Passengers

hmm'm

Proposed

Forecast
Forecast

$
12

6,000

141 ,100

43,500

46,600

154,700

0

4,100

20 ,000

55,400

1,400

7,000

7,300

2,500

33,400

22,400

1,500

9500

2,351,587

57,600

200,400

402 ,600

168,700

70,000

1,452,287

121 ,024

2015-2016

Appendix A Ten Year Forecast

$
12

6,200

144,000

44,400

47 ,600

160,900

0

4,200

20,400

56,600

1,500

7,200

7,500

2,600

34,100

22 ,900

1,600

2

9500

2,384,771

58 ,200

206 ,500

402 ,600

171 ,300

72 ,100

1,474,071

122,839

2016-2017

Forecast

$

6,400

146,900

45 ,300

48 ,600

167,400

0

4,300

20,900

57 ,800

1,600

7,400

7,700

2,700

34,800

23,400

1,700

3

9500

2,418,482

58 ,800

212 ,700

402 ,600

173,900

74 ,300

1,496,182

12

$

6,600

149,900

46,300

49,600

174,100

0

4,400

21,400

59 ,000

1,700

7,600

7,900

2,800

35,500

23,900

1,800

4

9500

2,473,125

59,400

219,100

422 ,800

176,600

76 ,600

1,518 ,625

12

$

12

6,800

152,900

47 ,300

50 ,600

181 ,100

0

4,500

21 ,900

60 ,200

1,800

7,800

8,100

2,900

36,300

24,400

1,900

5

10000

2,529,304

60,000

225,700

444,000

179,300

78 ,900

1,541,404

128,450

2019-2020

126,552

2018-2019

2017-2018
124,682

Forecast

Forecast

Forecast

1,921,650

0

157

2,290

3,600

Board Room Reno

Phone System Upgrade

21 ,000

0

6,500

Digital Secunty
Recording System
Condition
Sensor

0

0

0

0

3,000

0

Hazard Beacon
Repairs/Upgrade

Surge Protection

359,000

Small ProJects

99 ,500

3,200

540 ,980

Computer
Hardware/Software

Total

0

0

Financing

308 ,977

359,000

Government Assistance

99,500

90,634

1,972,266

14,600

88,000

55,100

0

232 ,003

89,112

84,950

336,000

1,478,566

79,804

860,262

1,500

36,700

Capital Reserve Fund

From Operating Reserve

CAPITAL FUNDING

Allocation to Capital
Reserve Fund

126,734

1,918,893

15,000

ELECTRICAL

NET INCOME FROM
OPERATIONS

14,300

80,000

EQUIPMENT

53,235

40,000

BUILDINGS

319,750

1,446,658

314,000

1,472,650

79,804

79,804

1,440
837,238

1,200

832 ,530

35 ,976

40,000

SURFACE

ADMIN. & OVERHEAD

Property Tax

Total Payroll Expense

oto o~ er

Travel/Training

2,300,000

1,721,250

0

578,750

120,776

2,027,424

14,900

91,100

57,100

347,800

1,516,524

79 ,804

883 ,920

1,600

37 ,500

200,000

0

0

200,000

153,359

2,084,031

15,200

94,300

59,100

360,000

1,555,431

79,804

908,227

1,700

38,300

31

25,000

0

0

25 ,000

176,516

2,142,509

15,600

97,700

61,200

372,600

1,595,409

79 ,805

933 ,204

1,800

39,100

200,000

0

0

200,000

148,413

2,203,174

16,000

101,200

63,400

385,700

1,636,874

79 ,806

958,867

1,900

39,900

0

0

0

0

119,727

2,265,045

16,400

104,800

65,700

399,200

1,678,945

79,807

985 ,236

2,000

40,700

200 ,000

0

0

200 ,000

89,742

2,328,741

16,800

108,500

68,000

413,200

1,722,241

79,808

1,012 ,330

2,100

41,600

765,000

0

0

765 ,000

78,843

2,394,282

17,200

112,300

70,400

427,700

1,766,682

79,809

1,040 ,169

2,200

42,500

200 ,000

0

0

200,000

67,016

2,462,288

17,600

116,300

72,900

442,700

1,812,788

79,810

1,068,773

2,300

43,400

2,000

Taxi Alpha Mill and Fill

-105,269

-960 ,000

540 ,000

TOTAL

Net Cash Flow for the
Year

Balance of Credit
Owing

Operating Reserve

-10,388

99 ,500

16,000

3,500

327,502

-1 ,172,498

-268,366

359 ,000

245 ,000

100,000

14,000

-130,471

-1 ,630,471

-457,974

2,300 ,000

300 ,000

2,000 ,000

200,000

-177 ,113

-1 ,677,113

-46,641

200,000

Assume a 5% decrease in traffic with no increase in fees

25,000

151,516

25,000

32

0

-25,597

-1 ,525,597

It is assumed that no government assistance is available for this forecast period except for electrical

Assume a 3% increase in traffic for 2011 and 2012 ,then 5% through to 2015 and level off

595,868

-904,132

Operating reserve is the $1.5m line of credit

Notes:

Capital Reserve

387 ,733

540 ,980

10 yr. Equipment
Replacement Plan

Remove Underground
Fuel Tank
0

10,000

Miscellaneous Small
Projects

Runway Overlay

25 ,000

ACAP ELETRIAL

500

Concrete Pad under
Ticket Machine
5,000

4,000

Seeding West Side
Glide Path

Old Maintenance
Garage Rehab

19,000

Land Title Survey

6,000

9,000

Pave Shell Tank Area

5,500

0

0

Apron Mill and Fill

2,500

105,000

Axe Approach
Areas
Groundside Sand - 1
Year

Free Cro,Nn Grant Lands
Acqu1sition

0

-77,184

-1 ,577 ,184

-51,587

200 ,000

$ 200,000.00

$

0

42,543

-1,457,457

119,727

0

-

0

-67 ,715

-1 ,567 ,715

-110,258

200 ,000

$ 200,000.00

0

-753,872

-2 ,253 ,872

-686,157

765,000

$ 265 ,000.00

500 ,000

0

-886,856

-2 ,386,856

-132,984

200,000

$ 200,000.00

Government assistance is funding from the ACAP

Some line objects have increased on a yearly basis from 1.5% to 3%

Assume 1.5% per year increase in passengers starting 2016

Assume government funding assistance of 75% for runway overlay

Assume no ACAP funding assistance after 2011

33

Appendix B
Airports Capital Assistance Program - Projects Approved

News Release Date

Project

Funding

Apr 05,2000

$163,000.00

Replacement runway sweeper

Jul04,2000
Sep 14, 2000

$164,300.00
$570,500.00

Apr 10, 2001
Mar 05,2002

$2,331,000.00
$1,925,000.00

Apr 24,2003

$756,200.00

Rwy33 ODALS
Heavy airside mobile
equipment - self-propelled
snow blower $405,600 and
replacement runway sweeper
(originally hydrostatic and
changed to mechanical)
$164,900
Runway 15/33 overlay
Apron rehabilitation and
reconfiguration
Pavement rehabilitation Taxiway A

Apr 07,2005

$908,069.00

Mar 27,2006

$232,628.00

Feb 06,2009

$357,383.00

Total Funded since transfer

$7,408,080.00

Snowplow truck ($232,628),
dry/liquid spreader ($92,340),
electrical distribution upgrade
($583,101). Overall TEC =
$955,863 w/ Society share=
$47,794 (5% Society cost
share & 95% ACAP cost
share)
Purchase snowplow truck I
TEC = $244,872 w/ 95%
ACAP cost share and Society
= $12,244 (5% cost share)
Purchase self-propelled snow
blower

34

Appendix C
SCHEDULE OF AIRCRAFT FEES

Minimum Jet/Turbo-prop
Weight
<21,000 kg
21,001 kg- 45 ,000 kg
>45,000 kg

SEATS
0-9
10-15
16-25
26-45
46-60
61-89
90-125
126-150

WEIGHT in (kg)
<2,000
2,001-5,000
5,001 - 10,000
10,001-30,000
30,001 - 60,000
60,001- 100,000

LANDING FEES

$11.50
$per 1000 kg
$5.25
$6.61
$7.87

GENERAL TERMINAL FEES
DOMESTIC CHARGES
$12.00
$23.99
$36.95
$64.78
$95.52
$148.12
$203.76
$240.80
AIRCRAFT PARKING
DAILY
MONTHLY
$7.00
$50.00
$7.00
$50.00
$15.00
$225.00
$20.00
$400.00
$35.00
$650.00
$1,000.00
$50.00

35

ANNUAL
$350.00
$400.00

Appendix D
Revenue I Expense Breakdown

Groundside
Revenue
Passenger
Fee
Land
Car Rental
Car Parking
%of Total
Expenses
Payroll
Surfaces
%of Total
Net
Revenue

$

$

193,112

9%
433,804

23%

Airside

$

1,359,700

$
$

1,272,000
76,943

$
$
$

66%
1,120,605
832,530
314,000
58%

36

Terminal

$

$

495,572

136,000
135,094
24%
368,131

Total

$

2,048,384
62%
4%
7%
7%

$

1,922,540
43%
16%

$

125,844

19%

1982-lntl.
1982-lntl.

Sand Truck (#1 06)

1997
1994Case

Sweeper#1 (#515)Vohl

Sweeper #3 (#709) Sweepster

1985

Soft Surface Snow Blower (#126)

Tractor (#168)

Other Projects

Special Purpose Equipment*

Airport Manager (#20)
Sand truck/Summer Student
Work(#61)

Electrician Van 1ton (#28)

Primary Operations 4x4 3/4 ton (#60)
Secondary Operations 4x4 3/4 ton
(#62)

total

2001-1/2
ton
2006-3/4
ton
1993 -1
ton
2002Honda
1994-3/4
ton

1983

Hard Surface Snow Blower (#124)

New Large Tractor and Mower Deck

2006
2000

John Deere
Chemical spreader (Epoke)

Loader(# 164)

2000
2000

Sweeper #2 (#517) Vohl

2006-lntl.
1995W.Star

2007-lntl.

Current
Year/Mo
del

Plow Truck #1 Sing . Axl. 4X4 Fit.
Dk.(#87)
Plow Truck #2 Sing. Axl. 4X4 Fit.
Dk.L#82l
Plow Truck #3 Sing . Axl. 4X4 w
Dump(#88)
De/Anti-Icing Tandem Dump Truck
(#80)

Application (Current Vehicle)

$196 ,000

$16 ,000

$180 ,000

2010-2011

$245,000

$45,000

$200 ,000

20112012

$300,000

$300,000

20122013

$

37

$200 ,000

-

$200,000

2013-2014

$25,000

$

$25.000

20142015

$200,000

$

$200,000

2015-2016

$

$

20162017

-

-

$

$

20172018

-

-

$265,000

$

$50,000

$215,000

2018-2019

-

$200 ,000

$

$200 ,000

20192020

$

20202021

-

$

-

Replacing sweeper 709 (sweepster) with a new sweeper, possibly a larger
48" sweeper
Replace Airport Manager vehicle
every 6-7 years
*Special Purpose Equipment:
Runway Painting Machine
$15,000
Sidewalk Sander for ATB
$ 1,000
$16 ,000

38

Other
projects
electrical
upgrade
300000

·ences
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of Contingencies and Crisis Management, 154 - 163.

sle, J. (2007). Case study research. Case study research, design and methods. Retrieved April4, 2010 from
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lkow, N. (2007). Persuasion with case studies. Academy ofManagement Journal, 20-24.
R. E. (1951) . Airport development, management, and op erations in Canada. Scarborough: Prentice-Hall Canada
T. A. (1986). Airport planning & management (2 11d ed.). New York, NY: McGraw-Hill.
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s, D. (2003). Lack of vision imperils U.S. aviation. Front Line, 14.

40

Teaching Notes
HOW DO WE MAKE THE TERRACE-KITIMAT AIRPORT FINANCIALLY VIABLE FOR
THE LONG TERM?

Case Synopsis
This case study is based on research conducted at the Terrace-Kitimat airport. It provides
information pertaining to the revenue stream and expenses (financial statements are attached) . It
describes the financial position that the airport has arrived at 10 years after privatization. Funds
that were given to the airport as part of the transfer negotiations with the Terrace-Kitimat Airport
Society have long since been utilized; therefore, the airport has elected to finance capital projects
through a $1.5m line of credit rather than long-term financing. This has resulted in a $1m deficit.
The reliability of the airport has been improved with the installation of an instrument landing
system, which has made it the most reliable airport facility in the Northwest. The airport has
invested a significant sum of monies ($13 million in total) in improving the infrastructure with
the purchase of equipment, renovation of the terminal building, and runway overlay and
extension, as well as a major upgrade to the short-term parking lot. There are three main areas
from which the airport obtains revenue and, conversely, where expenses are incurred:
•

Groundside- the area in which the public can access tenants and other related facilities .

•

Terminal- the area associated with the movement of the traveling public; this area includes
both long- and short-term public parking, space rental inside the terminal building and
concessions from the rental-car agents and restaurant facility.

•

Airside - the area inside the fence, restricted from public access and used by aircraft for the
purposes of parking, taxiing, landing and taking off. Those areas on tenant leases that have
direct access to these facilities are also included.

This case study details the financial requirements for the day-to-day operation of the TerraceKitimat Airport, as well as its future capital expenditures and present revenue sources. The
Terrace-Kitimat airport is owned and operated by the Terrace-Kitimat Airport Society, which is
an independent, non-governmental, not-for-profit Corporation formed under the British
Columbia Society Act. The Society has no shareholders and therefore no shareholder benefits.
Any profit is used to improve the airport, and no financial assistance from any of the
municipalities or regional districts is provided. The case study calls for an examination of the
financial statement, the competitive environment, and the strategic direction of the airport.

Learning Objectives
This case was created for the first-year MBA and Airport Operations student. It will
build on student learning from previous strategic cases studies. The students will learn to
understand the complexities of managing a regional airport in a small resource-based
community. The student will apply theories of strategic analysis to a not-for-profit society.

Teaching approach
1. Pre-reading assignment - Essentials of Strategic Management, Fourth Edition,
chapter 6. This chapter explains the Stability Strategies.
2. Assign a 500-word analysis in which the class must identify the issues and make
recommendations.
3. A classroom discussion following the assignment to review the issues in the case,
such as:

•

The sensitivity of the politics in the communities of Terrace, Kitimat,

Prince Rupert and Smithers. How the relationship between the airports and the
communities grows and expands. At present, there is a cooperative
arrangement between airports whereby advice and skills are traded freely
between them. Yes, there is a friendly amount of competition, but it would not
take much to create friction between the communities in this economic
climate, when everyone is competing for investment dollars and jobs.
•

The costs of infrastructure: how the communities were unprepared, when

they first took over the airports from the federal government, for the costs
involved in maintenance and/or upgrading. These items were overlooked
because, at the time, the federal government stated that if no one accepted the
airports, they would be closed, which put a few communities into a panic.
Nonetheless, there are roads to be upgraded, as well as water systems, sanitary
systems, and mobile equipment to replace, and buildings get old. Without
continual capital investment, the facilities would deteriorate beyond
possibility of economic repair. The airport capital assistance program (ACAP)
was established by the government to assist in funding projects, according to
priority, for small airports. This fund has $35m each year to be shared among
128 small regional airports.
•

The importance of diversification for even an organization as small as an

airport, to maintain financial stability, requires several independent revenue
sources. Airports are like any other organization; they must diversify. At the
present time, the land tenants (the groundside portion of the operation) are

being subsidized by the airside part of the operation. If there is a major blow
to air travel, as we have seen in the recent past, the airport would not be able
to survive a hard winter without going deeper in debt. It is important that the
airport not depend solely on the airlines to cover all the costs.
•

The restrictions encountered by not having the Canadian Border Services
Agency (CBSA) on-site. Without this service, cross-border and seasonal
travel to sun destinations such as Mexico and Hawaii is restricted to the larger
airports. This would not be a large revenue source for the Terrace-Kitimat
Airport. In fact, the airport would be lucky to break even. This would be a
loss-leader, to supply the service to the community in an attempt to attract
passenger traffic from other catchment areas that would normally patronize
Prince Rupert and Smithers airports. This is a battle faced by many small
regional airpm1s. Hendry is seeking assistance through the Canadian Airport
Council and local political organizations.

•

The long-term opportunities available to the Terrace-Kitimat Airport are
tied directly to the communities and the economic future of the region. This
part of the province has been hit hard by the closure of the two saw mills in
Terrace, the closure of Eurocan pulp and paper mill in Kitimat, and the
downsizing of the Alcan smelter, all within the past 5 years. The city of
Terrace has become a resource center for government, as well as retail, for the
area. Prince Rupert seems to be making some headway with its transportation
industry. It has Maher Terminals for container shipping, Ridley Island coal,
and the Canadian Grain Terminals. Terrace is counting heavily on the

development of the Highway 37 electrification project to open up the mining
industry. Whether or not that will have a positive effect on the TerraceKitimat Airport remains to be seen.
•

The competitive environment that affects the airports despite the fact they
are considered, by many, to be a monopoly. Airports are in close contact and
share ideas on lease rates, passenger fees, parking fees, regulatory affairs.

Suggested Assignment Questions
•

Put yourself in Hendry' s shoes. The major runway asphalt needs to be overlaid in 10
years; explain how you would go about ensuring the airport has the 15% share it requires
after subscribing to the airport capital assistance plan?

•

If you had the ability to increase fees, which fees would you increase, for how long and
by how much?

•

Through a SWOT analysis, identify and explain the Strengths, Weaknesses,
Opportunities and Threats.

•

The board of directors is unhappy with the direction the revenue is taking.

•

Perform a Porter' s Five Forces analysis to show the strategic position and competitive
advantage of the Terrace-Kitimat airport.

Analysis
This analysis will provide information that will help make informed recommendations for
a strategic direction that the airport may take to improve its financial position for future success.
Perform SWOT and Porter's Five Forces analyses to assess the airport' s existing position,
financially and strategically.

SWOT
Strengths

•

Location: it is in the center of the region between Smithers and Prince Rupert, and it
potentially draws passengers and business from all three areas, if a low-cost carrier such
as Westjet can be convinced to initiate service

•

7,500 foot runway with instrument landing system: an airport with a runway this long can
accommodate aircraft as big as a Boeing 757, whereas Prince Rupert cannot. The
Terrace-Kitimat Airport would be able to handle cargo-type aircraft sooner.

•

The transport time of a container from the terminal at Prince Rupert to Terrace-Kitimat
Airport is shorter than that to the Prince Rupert airport: when time is of the essence, the
Terrace-Kitimat Airport would be quicker.

•

A large amount of land is available for development: an abundance of airside-accessible
lots are available for development to accommodate any kind of tenant. The Prince Rupert
Airport has no land available for development. At the time of transfer from the Federal
government, it had requested only a small footprint of land. Smithers has plenty of land;
however, it has neither the runway length nor the landing system that Terrace-Kitimat
has.

•

Good relationship with employees: Employees and management work well together, and
both have the airport's best interests at heart.

•

Reliable equipment and infrastructure: neither the Smithers nor the Prince Rupert
Airports have invested as much in their infrastructure as the Terrace-Kitimat Airport.

Prince Rupert, in particular, has not invested any money in its facilities and is, as a result,
in poor condition to handle the traffic it has.
•

A knowledgeable and cooperative board of directors: The directors work closely with the
communities they represent and all are very much respected in their fields. The directors
are proud of the airport and the employees that operate it.

•

Buildings for rent: cold storage or for use as freight forward facility, both airside access
(7,500 square feet) and non-airside access (4,500 square feet).

Weaknesses
•

The deficit it carries restricts the amount of capital investment that might attract more
carriers: there are some capital investments that should be done, such as upgrading and
extending the groundside access road and resurfacing the long-term parking lot. These
investments will have to be planned carefully so as not to put the airport in a more
precarious financial position.

•

No customs service: with no customs service, there will be no chance of bringing in sun
destination charters. The airport has requested service and has offered to pay all expenses
incurred, but still the Customs Service refuses to work with the airport. This service
would raise the profile of the airport considerably.

•

History of unreliability: before 2001, the average winter saw 21 0 of its winter flights
cancelled due to poor weather. Now, with the instrument landing system added, the
average winter has 18 cancelled flights; however, the reputation is lingering and affects
the perception of future customers.

Opportunities
•

Trans-shipment designation: if this designation can be obtained, the airport could become
a major player in the supply chain of Maher Terminals

•

Low-cost carriers: these carriers supply no-frills travel at rock-bottom prices; however,
they use large aircraft so that they can make up profit through volume.

•

Land development: there is an abundance of undeveloped land at the airport. The
advantage is that it is all flat (located on a plateau), which makes it very attractive.

•

Establishing a freight-forwarding tenant: this is a small but significant part of the future
of the airport that would definitely work in our favour in acquiring customs service.

•

Economic recovery revitalization of the mining industry: there is a push for the
electrification of the Highway 37 Corridor to supply cheap electricity to the northern
mining area. Funding is in place for the project, and it is awaiting environmental
approval. This project will definitely be a kick-start to the mining industry for the
northwest.

Threats
•

Maher terminals being forced politically to use Prince Rupert Airport: there is always the
threat that no matter how attractive it is to use the Terrace-Kitimat airport, the local
community of Prince Rupert and their politicians will want the work to go to their own
airport, no matter what the cost.

•

Continued economic downturn: it is always possible the electrification of the Highway 37
Corridor could be cancelled, and the north will continue on in its economic slump.

•

Hard winters eat up the revenue through cost of runway maintenance: the weather has a
direct effect on the cost of runway maintenance in the winter. A dry winter that is very
cold has less ice to contend with. A wet winter that is very cold will use up the entire
profit for the year on chemicals to fight the ice on the runway. The cost of fuel is also a
large factor, as the equipment uses it, and the runway de-icer is a derivative of fuel.

PORTER'S FIVE FORCES
Threat of Substitute Products - Threat is Medium

One threat is the fact that helicopter companies do not have to locate at an airport, and in
Terrace, there are two companies (Lakelse Air and White River Helicopters) that do not operate
out of the airport. These companies, at the time they were founded, chose to locate outside the
airport, due in part to a fee that Transport Canada charged for each take off and landing of an
aircraft. Helicopters do a lot of take off and landings, so the cost of locating at the airport was
prohibitive. The airport has since eliminated this fee as part of long-term lease negotiations.
During the last round of lease negotiations, Quantum Helicopters, a long-time tenant of
the airport, mentioned the possibility ofbeing based at an off-airport site. The company's
reasoning was that the leases the airport was offering for land were unfair. Leases available for
airport lands state that the length of term available is based on the investment made by the tenant.
Once this lease has expired, the improvements made to the leased area vest to the airport unless
the tenant can negotiate a new lease. The Terrace-Kitimat Airport has adopted the common
practice of requiring the tenant to invest a certain amount of money in their leasehold in order to
ensure a certain length of lease renewal. If this investment were not made, the lease would end,

and the assets would vest to the airport. Quantum did attempt negotiations; however, the Airport
Society held fast to the existing lease structure. Quantum decided to remain at the airport, invest
more capital into the property, and sign a long-term lease of 20 years.
Another threat is the Prince Rupert Airport. It is possible it could overcome the logistical
problem it has regarding getting containers to the airport from Maher Terminals more quickly
than trucking them to Terrace, or the political atmosphere could be such that Maher Terminals is
forced to use the Prince Rupert Airport regardless of the time constraints. This threat is medium.
Another threat is a result of the Terrace-Kitimat Airport' s reputation of cancelled flights.
Smithers Airport is a direct threat to the mining traffic for the region. During better economic
periods when the mining industry was productive, companies were afraid to use the TerraceKitimat Airport because of its unreliability. Now, with the installation ofthe instrument landing
system and the extended runway, Terrace-Kitimat Airport is far more reliable than Smithers.
However the reputation is difficult to overcome.
One last threat is the possibility of either Prince Rupert or Smithers acquiring a low-cost
carrier. This would cause many travelers to pursue the more cost-effective alternative.

Threat of New-Entry Competitors- This Threat is Low

There is no threat of new entrants in the area. The cost of the infrastructure and the
unavailability of land create a very high barrier to new entrants. The existing competitors,
however, are Prince Rupert, Smithers and Prince George Airports.

Prince Rupert Airport is 140 kilometres away from Terrace and accessible only by ferry.
People who travel out of Prince Rupert do so now only out of necessity. Large low-cost carriers
see the ferry access as a major barrier.

Smithers Airport is 212 kilometres away from Terrace. The distance alone is a deterrent
for residents of Terrace. Smithers has no instrument landing and therefore is not a destination for
any large low-cost carriers.
Prince George Airport is also a minimal threat; however, it is more of a threat than either
Smithers or Prince Rupert. Prince George has low-cost carrier Westjet, which does draw
travelers from all over the northwest.

Rivalry - Threat is Medium
Prince Rupert Airport, located on the coast ofNorthem British Columbia, home of Maher
Terminals, Ridley Island Coal, and the Canadian Grain terminal, is the main rivalry for TerraceKitimat. As all three of those industries require Customs and Border services, there is an office
located in the city of Prince Rupert. Terrace-Kitimat would like to be able to offer a customs
service; however, there is a need to convince the Federal Government to supply it. Users of the
service would be willing to pay the costs, but to date, the service has been difficult to attain.
The rivalry with the Prince George airport is low; however, with the acquisition of the
designation of Trans-shipment, this rivalry could increase.
Bargaining Power of Customers - Threat is Medium
The customers of the Terrace-Kitimat airport are the Air Carriers and tenants. This power
is medium. The Airport is a monopoly; however, the airlines are fighting the battle of
competition themselves, and every dollar counts for them. If the cost of utilizing the TerraceKitimat airport becomes too great, it is possible they could pull or reduce service in favour of
another airport.

The tenants are made up of both fixed-wing aircraft (airplanes) that require an airport to
operate and rotary-wing aircraft (helicopters) that do not require airport infrastructure. In order
for the airport to retain the helicopter companies, there must be a benefit for them, either in cost
or operational efficiency. Currently, the airport offers very competitive land-lease rates in order
to keep the tenants.

Bargaining Power of Suppliers- Low
Suppliers have no bargaining power in this industry. The consumables that the airport
uses are available from many different suppliers.

Discussion
The Infrastructure
Runways, taxiways, aprons, and snow-removal equipment have been kept up to date, as per
industry and Transport Canada standards. Appendix D shows how much equipment the airport
has purchased utilizing the ACAP funding. The 10-year equipment replacement plan of the case
study (Appendix E) shows the life cycle of each piece of equipment and the anticipated year of
replacement. The budgeting reflects no government funding for equipment replacement. All
ACAP funding requires application, so there is always that possibility of funding being declined,
if the application is approved, then it is a bonus to the airport.
The maintenance building was constructed in 1991 and was fitted with the latest
technology for equipment repair. It houses the operations and maintenance department as well as
the emergency coordination center. There are 7 bays for parking of equipment, 2 of which are

drive-through bays for the truck-sweeper combinations. Throughout the winter season, all
equipment is kept inside to ensure reliability of operation.
There are two cold-storage buildings that were built in 1950. One building (the blower
bay) has been re-sided and roofed. It houses the summer equipment (tractors, mower, tar kettle)
throughout the winter. This building is capable of lasting another 20 years with proper
maintenance.
The second cold-storage building used to be the maintenance garage. It has been rented
out, since transfer 1998, to 2010. The tenant got fed up with the state ofthe economy and
decided to close up shop and move south. This building requires approximately $80,000 worth of
repairs which would include minor structural repairs, new siding, and a new roof. The airport
used to it out for $1 ,000 per month but is expected to get $1,500 monthly from the next tenant.
The Air Terminal Building was originally constructed in 1961 and has since been
expanded three times. The heating system was just refurbished in 2008, complete with a digital
control for all areas. This building is in great shape and should be able to go another 10 years
before any major repairs are needed.
The water system has just gone through a major control system upgrade, which has
resulted in a well utilization level of 30% its previous usage and consequently, ideally, a longer
life for the well pumps and domestic distribution system. The sewage system has been
completely rebuilt. It is a septic field, and at present, it is being used at only 30% of its capacity.
There is plenty of room for increased demand on both the water and sewage services.

Staffing
In 2008, Laurie Brown implemented a succession plan that would see the holders of the
main positions replaced with trained, competent people. Not many organizations would invest in

staffing to this extent. In fact, during conferences, when people would see Carman Hendry and
Brown there together and Brown would explain what they were doing with mentoring, they
would be impressed, commenting on what a great idea it was and saying they wished their
boards of directors would be as flexible. Yes, there is a lot invested in this methodology, but it
does pay off. For example, Dave Kumpolt has just completed his first full winter in his new role,
and there have been no problems. Furthermore, the airport has saved money as a result of him
coming up with some new cost-saving ideas. As for the mentoring for the Airport Manager
Position, Hendry took over the position formally on December 1, 2009, and Brown has stayed on
in a mentoring position to assist while Hendry finishes his MBA.
The union-management relationship is very good. Hendry's relationship with the
employees is based on trust and the knowledge that everyone works towards the betterment of
the company. They all expect to be here until they retire, and they will make sure the airport
stays open and reliable. The management includes the staff in the budgetary processes, so the
employees know when the airport is doing well, as well as when the belt needs to be tightened.
This is done collaboratively between the staff and management.

Market
In 2009, the Terrace-Kitimat Airport accounted for approximately 46% of the regional
aircraft movements, with Prince Rupert at 19% and Smithers at 35%. This illustrates Terrace's
position as the central hub for the Northwest. (Nav Canada, 2010)
The cities of Terrace and Kitimat, being a resource-based economy, suffer through the
cyclical ups and downs of the resource industry. Over the course of the last 5 years, the region
has experienced a steady downturn in the economy with the closure of two saw mills in Terrace,

and the closure of the pulp mill in Kitimat, and the postponement of a major upgrade to the
Alcan Smelter operation in Kitimat. The disposable income for the region has been in a steady
decline.
The Terrace-Kitimat Airport offers three different service-oriented markets: Airside,
Groundside, and Terminal (retail). Keep in mind Transport Canada mandates that the airport be
ready for any aircraft that flies during published operational hours.
Airside

"Airs ide" constitutes the area used for the operation of aircraft-including the runways,
taxiways, and aprons-as well as access to these areas for tenant leases. The airport receives
income from airlines, chatter and corporate aircraft, government medevacs, and helicopter
movements. The 24-hour Nav Canada Flight Service Station keeps track of all aircraft
movements (takeoffs and landings) for the airport and sends a list to the airport at the beginning
of each month for billing. Airside is responsible for 66% of total revenue and 58% of total
expenses (see Appendix D). Service fees are billed out.
Airlines must pay a fee of $12 per passenger for enplaning and deplaning. This fee takes
the place of the landing and general terminal fee that is charged to all other aircraft. Airlines do
pay extra for a delayed flight, but only what it costs the airport to ensure a safe runway (snow
clearing) and a parking fee if the craft is left overnight on the apron.
All other aircraft are charged a landing fee that is calculated according to their weight
(see Appendix A), a parking fee if they stay overnight (also based on their weight), and a general
terminal fee for use of the terminal building. This fee is automatically charged to every aircraft
that lands.

Each tenant with access to airside pays a premium for this access and a higher premium
dependant on the tenant's location relative to the main apron beside the terminal building. The
contractor that takes care of the ground services (airline baggage and de-icing) does rent a small
area to store his equipment.
Nav Canada, once called Air Navigation Services, owns all of the navigational equipment
in Canada. As part of its transfer from the Federal government, it was given free rent in
perpetuity for the facilities located at the airport at the time of the transfer. In exchange, the
airport was given control over maintenance issues, renovation projects, and year-round outside
maintenance. This meant that the airport was responsible for setting the schedule for
maintenance on all aspects of the Nav Canada buildings and would bill the costs directly back to
Nav Canada. Similarly, the airport was responsible for the summer and winter maintenance of
the properties (Instrument Landing System) in which Nav Canada operated (some of which were
very large), and the airport would perform maintenance such as snow removal and grass cutting
and charge Nav Canada. Nav Canada was not allowed to hire outside contractors unless the
airport agreed, so this is how the airport went about receiving its rental income from Nav
Canada.
Analysis of Airside

Expenses for airside are the highest of the budgetary items. They include the
maintenance and repairs to the mobile equipment, the asphalt surfaces, and the infield areas. In
the summer, the infield has to be mowed, the asphalt surfaces need to be crack sealed to prevent
accelerated water damage, painted lines have to be redone, and any repairs from the previous
winter have to be dealt with. In the winter, the snow and ice control consumes approximately
40% ofthe budget alone. Anti and de-icing materials, because they are a by-product of fossil

fuel, are very costly, and price is directly tied to the fossil-fuel market. Equipment repairs and
parts, as well as the de-icing materials, are all directly correlated to the weather. The more
precipitation the airport gets in the winter, the more the equipment is used, and the more it will
require maintenance. There is not a lot of flexibility in this area due to these uncontrollable
variables.

Options for airport airside
One possibility is that the airport could create a reward program for the maintenance staff
to encourage them to think outside the box and come up with new, better ideas to work smarter,
not harder. The reward would be directly tied to the realized savings of any project that could be
implemented.
The airport could restrict the airlines to certain hours, thus shortening the work day and
reducing the staff required for the running of the airport. This is not a realistic plan because
Transport Canada, as the regulator, states that the airport must consult and work with the airlines
to ensure they have access when they need it. Split shifts for employees are possible; however,
getting the employees to agree to this would be very difficult. It would not go over well and
would, most likely, degrade the relationship between union and management.
The airport could increase the rates for landing and general terminal fees, as well as
increasing the per-passenger fees, instituting a fuel surcharge on each liter sold by the fuelling
agent, and/or increasing lease rates to all tenants with airside access. These are all possibilities.
Increasing the passenger fees to $20 per passenger would allow the airport to be in the black
within 4 years; it would also allow the creation of an operating reserve.
The airport could offer incentives for new route development, one such as-incentive
would befor all airport expenses directly related to new routes-reimbursement at 50% for the

first year, to encourage new airlines or existing ones to expand. This would include low-cost
carriers and charter services.
The airport could also secure the trans-shipment designation to allow access to foreign
markets so that new airlines could utilize the airport as a stopover or fuelling station. This is
doable and is being worked on now, but the CBSA may be a stumbling block.
The CBSA should be encouraged to supply services to the airport even if it is on a costrecovery basis. This would allow the airport to improve its profile to airlines and the
communities it serves. The airport should continue to lobby by every means available. For
instance, it should cultivate its relationship with the Mayor, the MLA, the chamber of commerce
of Terrace and Kitimat, and the union of British Columbia Municipalities. It should also make
direct contact utilizing the skills of the directors of the board.

Groundside
Groundside constitutes the portion of the airport accessible to the public, such as all
access roads, tenant leases, frontages , and services for tenants . This area supports the main
infrastructure of the airport. Therefore, when there is a problem, it is very costly to repair;
however, these services are expected to be in place as part of the airport. Taxes are usually
responsible for the maintenance of these items. Yet the airport does not receive the taxes that are
paid. The taxes get paid to the city, and the airport receives none of this income, nor does the
airport receive any other benefit from the taxes. In essence, there is only one revenue source
from groundside, and that is tenant leases. In 2009, a market survey was performed by the airport
to establish its position in the leased property market. The survey took into account other airports
similar in size to Terrace-Kitimat; it also considered the local property-management services in
the two communities of Terrace and Kitimat. The survey showed that the lease rates the airport

was implementing were 35% below market value. The rates at the airport had not been adjusted
since 2000. A plan has since been established to catch up with the market. and it is being
implemented on all renewed leases. At the present time, the leases do not come due for review at
the same time. This will also be changed to a common review date for all leases, thus reducing
workload and concentrating the work into a short period, resulting in a more stable rate structure.
Groundside is responsible for 9% of total revenue and 23% of total expenses.
Options for airport groundside
The airport could negotiate a compromise from the city, securing a share of the tax
revenue in order to support the infrastructure of the airport. It is in the best interest of the city to
have reliable services at the airport.
Leases could be increased to market rate. This is being done now; however, an annual
increase, with a five-year review, would go a long way towards ensuring that the airport does not
fall behind the market rates again.
The airport could openly advertise the availability of land to develop. It could also work
with the city's economic-development department to get more aviation-related tenants by
offering incentives to relocate, such as tax breaks and land-lease rates.
The continual mowing of certain areas takes time and bums fuel. An agriculture lease for
growing hay would put the maintenance into someone else's hands and create a revenue stream.
Air Terminal
The air terminal consists of the areas accessible to the public and associated with air
traveler, including areas such as the short- and long-term parking lots, the restaurant, retail
kiosks, rental car concessions, airline counters, and the security room. This area is responsible
for 24% ofthe total revenue and 19% of the expenses.

The expenses for this area come from removal of snow from roads and parking lots.
Because of the complexity of the areas, it takes just as long to clear groundside as it does to clear
the runway. Sand is used to fight the ice and assist the public in maneuvering around the site.
Crack sealing of the long-term parking lot is extensive due to its age; however, the short-term lot
is 3 years old and requires no crack sealing as of yet. There is a plan for upgrading the long-term
parking area, but it has been shelved until the economy picks up or funding can be arranged.
The terminal building is vintage 1961 and has had three major renovations over the years,
with the latest one being the addition of a security-hold room in response to the 9/ 11 terrorist
attack. This renovation was partially funded by the federal government, and the airport took
advantage of having the use of an architect and the mobilization of contractors to do extra
renovations such as the addition of air conditioning to the terminal, the expansion of the arrival
baggage system, and new flooring throughout; as well, the board room was relocated and its size
increased. The majority of the maintenance involves minor activities such as repairing the
plumbing, adjusting doors, and fixing lights. The heating system is boiler heat, and a major refit,
which included the installation of a digital control system, was completed in 2008. Nav Canada's
Flight Service Station is located on the top floor of the terminal building. The maintenance that is
performed in that area is all billed back to Nav Canada at airport cost plus 10%. All in all, the
entire terminal building itself is in great shape and should be able to go another 10 years before
any major expenses will be incurred.
Revenues are generated from long-term parking. The rates there have just been increased
from $4 per day to $6 per day, a total increase of 50%. Long-term parking is expected to produce
$177,000 this fiscal year. Rental-car concessions are responsible for 7% of the total revenue and
are directly correlated to passenger volume. The car rentals are given preferential treatment for

parking facilities and location in the arrivals area of the terminal building. There are three
companies that vie for market share: National, Hertz, and Budget. A bid process is done on a
regular basis to allow for change of competitors; however, these three seem to come out on top
each time. The restaurant is more of a customer service, and though it does not significantly
contribute financially, it is convenient for passengers and provides 4 full-time jobs in the
community. The board room has been developed into and is marketed as a meeting room. It has
been equipped with state-of-the-art audio/visual equipment, a speaker phone for conference calls,
high-back leather office chairs, a chetTy-wood board table, and both hardwire and wireless
Internet. It provides a small amount of revenue and is continuing to grow in popularity.
Executives can go to the airport website and book the meeting room online with a confirmation
within hours. When an executive is in town and needs to have a meeting just before a flight, he
can hold it at the airport and not have to rush off early to catch his flight. Rio Tinto Alcan utilizes
this room often. Leasing space is the final method whereby the airport collects revenue from the
terminal. There are three major tenants: Air Canada Jazz, Hawkair, and Central Mountain Air.
These lease contracts are also under review and will be likely increased at the next renewal date.
Options for the Terminal
Long-term parking rates could be increased another 33% to $8, allowing the airport to get
back into the black sooner. Parking is automatically the worst experience for the traveling public,
and since it has been said that the passengers are going to complain no matter what is charged,
parking should be made worth the airport' s while. (Brown, 2009)
Parking fees for cabs, fishing lodges, ski lodges, and couriers could be increased from
$75 per year to $125 per year.

Car-rental tenants could have their office space increased, or a fourth rental agent could
be added (the airport could offer the choice to the existing companies, it knows what the
customers will probably decide but wants to avoid the complaints that a lack of choice would
cause. The airport feels that the existing tenants would rather increase their cost of operating
than have a low-cost supplier enter the market. Fewer complaints would result if the teanants
were persuaded to agree to the decision beforehand.
There is not much that can be done with the restaurant. The concessionaire has requested
more equipment; however, the restaurant would not be serving more customers, just the same
number of customers faster. If the restaurant cannot carry the cost of the new equipment, then it
should not be provided. A retail kiosk has been added since the survey, but it is operated by the
same concessionaire as the restaurant and does not seem to be doing well. The lease for the retail
kiosk should be offered to the public and include requirements that the kiosk be open during
flight times and offer magazines, souvenirs, and trinkets.
A review of leased areas compared to market value should be done for 2010, and rates
should be adjusted accordingly. If the land leases were 35% behind market value, the terminal
leases will most likely be behind as well.
Pay-per-use Internet could add some value to the revenue mix. At the present time it is
being offered as a customer service for the passengers ' convenience.

Competitive Environment

Competition consists of ground, air and sea. Ground competition is with Via Rail, which
offers twice-weekly service to Prince Rupert and all points East such as Prince George,
Edmonton, Calgary, and beyond. The limitation that rail faces is not only the frequency but the

travel time. It is a 12-hour trip to Prince George, and to get to Vancouver, it is another 20 hours
through Calgary.
Greyhound bus lines also offer a twice daily service to Prince Rupert and Prince George.
Again, its disadvantage is time to travel, 10 hours to Prince George and 20 hours to Vancouver.
Travel by personal car is 6 hours to Prince George and another 8 to Vancouver.
BC Ferries, although it may be romantic, is a 12-hour trip from Prince Rupert to the
northern tip of Vancouver Island alone.
For air-travel competition, there are three main competitors: Prince Rupert, Smithers, and
Prince George Airports.
Airport
Prince Rupert -located 145
km west of Terrace

Pros
6,000 foot runway capable of
landing a Boeing 73 7 aircraft
Instrument landing system
Access to customs

Smithers - located 200 kms
east of Terrace

Ocean dock located in town
Industry (Ridley Island coal,
grain, and Maher Terminals)
Alaskan Ferry base
BC Ferry base
Fishing industry, both
commercial and recreational
7,500 foot runway
Home base for Central
Mountain air, the main air
transporter for the mining
industry
Home of Hudson Bay
Mountain Ski resort
2 hours closer to Prince
George than Terrace
Staffed 16-hour flight service

Cons
No aviation gas service
Remote airport access via
ferry or boat only
Physical plant aging and
unreliable
Remote flight service
58,000 passengers a year
No low-cost carrier
No car parking

No instrument landing system
Aging infrastructure (terminal
building, water and sewage
system)
65,000 passengers per year
No low-cost carrier
No customs service

Prince George - located 600
kms east of Terrace

Terrace-Kitimat

station
Mining industry
Car parking 100 spaces
Low-cost catTier (Westjet)
Shopping centers
Hunting, fishing, skiing
11,450-foot runway
Trans-shipment designation
Customs facility with bonded
area
300,000 passengers per year
16-hour air traffic control
tower
Instrument landing system
New air terminal building
Relatively new field
equipment for snow removal
Industry
108,000 passengers per year
Relatively new infrastructure,
buildings, and snow-removal
equipment
Car-parking facilities (300
spaces)
Central to the northwest
region between Smithers and
Prince Rupert
Home of 24-hour flight
service station for region:
serves Sandspit and Prince
Rupert as well as Terrace
Developable land 774 ha
Union-management
relationship
Three scheduled air carriers

Expensive parking fees
6-hour drive from Terrace

No customs service
No low cost carrier

Lingering bad reputation
66% of revenue from airside
activities: there is a need to
diversify product offering
$1,085,000 in debt

The Terrace-Kitimat airport's major competition would be Prince George first and Prince Rupert
second. The main advantages they have are customs service and industry. Smithers is
competitive but is hampered by the aging infrastructure and limited instrument approaches.
Financial overview

For the 2010-2011 fiscal year, which will be Hendry's first budget year, the Airport's
financial statement, in brief, is shown below. The only thing that is controllable on this budget
would be the capital expenditures, and this budget is trimmed to include only those projects that
are required for maintenance or that will result in an increase in the revenue stream.
Forecasted passengers will be 100,000 down from 106,000 in 2009, due to the closure of the
Eurocan Pulp Mill in Kitimat. The exact impact is unknown at this time.
Line of Credit- the airport has chosen to operate the airport on a line of credit and fund

it from the cash flow instead of taking out long-term loans for capital projects. The airport feels
that a line of credit is easier and more flexible. The TD Bank is on side with this arrangement
and has agreed to a prime -1% interest rate, reviewed annually.
Finances at the end of the fiscal year 2010-2011 with fees unchanged:
Revenue
Expenses
Net income from Operations
Capital expenditures small projects
Balance owing to the line of credit

$2,008,006
$1,918,893
$89,112
$99,500
$904,132

In the following years, with no changes made to the 10-year capital plan or the fee structure, the

balance owing on the line of credit will continue to grow.
Line of credit at end of fiscal year ending
2012
2013
2014

$1,172,498
$1,630,471
$1,677,113

2115
2016
2017
2018
2019
2020

$1 ,525,597
$1 ,577,184
$1 ,457,457
$1 ,567,715
$2,253,872
$2,386,856

In the table above, showing the line-of-credit balance, the 10-year equipment-replacement plan is
the major driver of the increasing debt. Tills does not include any projects for buildings or other
infrastructure improvements. It is imperative that the airport find new long-term sources of
revenue, which will, most likely, include increasing fees.
Options

As the cost of operations increases with collective agreements, fuel prices for equipment
and runway de-icer, metal prices for broom bristles, utilities, and so on, the airport needs to
increase its revenue to keep up. It is important that the airport find new ways to increase revenue.
Some ideas are:
•

The existing rates for advertising were last adjusted in 2008. These could be adjusted upwards.
The methodology for figuring out what to charge was based on larger airports, taking into
consideration their fees and their numbers of passengers and prorating our rates accordingly.

•

The airport can adjust rates for passenger fees up, from $12 to a number that would be able to
cover the shortfall. This is a little on the edge and should be thought out carefully. Airlines will
question why, and for how long. Then they will put in an increase on the ticket of their own,
attempting to conceal it by blaming the airport fee increase.

•

Leases need to be reviewed and brought to market value. To eliminate the possibility of falling
behind, the airport should implement an annual increase tied to a third-party-generated number
such as the cost of living.

•

The city should either return a portion of the taxes collected for infrastructure maintenance and
capital improvement or consider performing that work itself. The airport would much rather
coordinate the work as required than depend on someone else's schedule, which may not fit into
the airport's plan.

•

A reduction in staffing could take place. The end of the succession plan will see one mechanic
leaving and Brown leaving as well, and salaries will realize a saving of$140,000.

Some ideas that other airports have come up with are:
······---····-··-·-·-·- · - - · - - · - - - - · · · - · - · · - · · · · · - · - - · - - - - · - · - · - - -

•

Aircraft hangars for small aircraft, with groundside access and homes on top for those who are
real airplane buffs. The tenants could live at the airport with their planes below their homes and
with airside access so they could just jump in their planes and go for after-dinner rides.

•

Establish a cargo facility. A plan should be in place so that when the economy turns around, the
request for proposals will have a head start.

•

Through the use of an incentive plan, develop new routes with existing or new airlines. A lowcost carrier would go a long way towards improving revenues.

•

Develop trans-border service. This would be a cost recovery and not a revenue source. This
service would help put the airport on the map and entice passengers from surrounding
communities.

•

Continue to increase reliability through the use of new technologies such as the Global
Positioning System (GPS) landing system.

Real Alternatives

Usually, the first item an organization will look at cutting is staff or salaries. Yes, the
airport could look at re-opening the collective agreement and forcing a roll-back in salaries;
however, this would create a rift between the management and staff that would take a very long
time to repair. The staffing levels are satisfactory, and the wage scales are fair.
If trans-shipment designation were to be granted, the airport would not see immediate
payback. It would take time to develop clientele. Maher would have to take a chance on one
shipment and, based on that result, determine if it were viable to use the Terrace-Kitimat airport.
If customs service could be secured, the region would definitely see an influx of private aircraft
traveling to and from Alaska. There would also be a market for sun destinations in the winter.
Developing the groundside lands and upgrading the road access for the existing tenants
will show these tenants that they are important and help diversify the revenue generation for the
airport. Through tax incentives, non-aviation-related business could be attracted to the available
lands around the airport. This could allow the airport to provide incentives for new route
development and create a more secure atmosphere for the tenants.
A low-cost carrier would definitely entice traffic away from Prince Rupert and Smithers
Airports. The Terrace-Kitimat Airport would become even more of a regional center than it is
now.
The Terrace-Kitimat airport is successful and has had some growth; however, the success
has always synchronized with the economy and will likely continue to do so. A pause-andproceed-with-caution strategy, in which a business emphasises "Stability over growth by
continuing its current activities without any significant change in direction" (Hunger &
Wheel en, 1941 ), will help it here. A pause strategy is, in effect, a timeout: an opportunity to rest
before continuing growth or retrenchment. This will enable the airport to consolidate its

resources, pay down some of its line of credit, and build up an operating reserve for the future.
This strategy could be followed for the short term (say 5 years), with the airport keeping a close
eye on the economy and the communities while being ready for expansion if it is required.
Solution

How can we make the Terrace-Kitimat airport financially viable for the long term? The
information given above suggests that at the present time, the airport is in a fairly stable position
so long as no major projects are taken on before a capital reserve can be established. The airport
will not be able to create a capital reserve plan unless it increases its revenue source. There are
not a lot of ways to do this without raising fees, which will cause some backlash from both the
traveling public and the airlines. Hendry suggests the following strategy:
•

Follow a stability strategy, a pause-and-proceed-with-caution (Hunger & Wheelen, 1941). The
airport is in a fair position with its infrastructure and could put off any capital purchases that
were not absolutely necessary (i.e., it could delay the equipment-replacement plan). The airport
should notify the airlines that due to increasing costs, there may be a need to increase the perpassenger fee by approximately $3 per passenger. In August, the airport should announce the
increase in fees to $15 per passenger and give the airlines until January to implement.

•

Adjust all leases to market value and incorporate an annual increase tied to the cost of living,
with a review every 5 years to ensure the airport does not fall behind again.

•

Continue with existing staffing levels less Brown and Mitchell

•

Complete a thorough review of all fees the airport charges and ensure they are all up to date and
cover the cost of providing the service.

•

Contact the City of Terrace and discuss the possibility of retaining any of the taxes it collects
from the tenants of the airport.

•

Pursue the trans-shipment designation

•

Create a plan for future development of a cargo facility

•

Issue an RFP for an agriculture lease to make use of the property that is not for development if a
contract for the growing of hay can be established. Then the airport would not have to maintain
that area.

•

Establish an incentive plan for all staff in order to encourage the continued search for new and
more efficient ways of doing work.

Appendix F shows a 10-year forecast that incorporates an increased passenger fee from $12 to
$15 .

_......... _........

I

99 ,500
0

232,003
308 ,977

Allocation to Capital Reserve Fund
CAPITAL FUNDING
From Operating Reserve
Capital Reserve Fund
Government assistance

89,112

126,734

127,000
42,000
38 ,750
127,500
5,040
35 ,976
1,440
837 ,238
79,804
1,446,658
319 ,750
53,235
84,950
14,300
1,918,893

6,300
6,000
910
50 ,000
18,000
3,600

NET INCOME FROM
OPERATIONS

l ..... _ ··············-·· ...........................................
Total Payroll Expense
Property tax
ADMIN. & OVERHEAD
SURFACE
BUILDINGS
EQUIPMENT
ELECTRICAL

.... P.. ~

Utilities
Garbage Removal
Travel/Training

7,000
6,000
1,000
47,931
16,000
3,800
10
105,000
35,000
114,275
110,000
5,000
40,000
1,200
832 ,530
79,804
1,472,650
314,000
40,000
80,000
15,000
1,921 ,650

8,000
6,100
1,000
20,000
30 ,000
0
2,000

8,000
2,600
1,000
25,000
30,000
0
1,500

12

1,200,000
60 ,110
140,491
379 ,231
175,173
53 ,000
2,008,006

Proposed
2010-2011
100,000

1,272,000
55,200
151 ,800
384 ,475
135,094
49,815
2,048,384

Forecast
2009-2010
106,000
12

-··rraiessiOnaTs·;;r;ic:es·-······-··-····-···--··

.... ~I
~ e ~.•l!..l t l ~ lt__ .......................................
Cell Phones
Pagers
Janitor
Consultant Services

Dues , Licenses, Subscriptions
Office Supplies
Postage & Courier
Liability Insurance

Loan Payments
Directors' Expenses

... ~n ~_ _~~ ~ ..1!..~~~e e

EXPENSES
Accounting
Bad debts
Legal
Marketing

Passengers
Fee per Passenger
REVENUE
Contributions
Passenger fees
Landing and other aircraft fees
Rentals and concessions
Lease & License
Parking
Other

Appendix F
10 Year Forecast

159,000
0
0

399 ,634

6,500
6,200
1,000
51,000
18,400
3,700
0
132,100
42,900
40 ,000
130,100
5,200
36 ,700
1,500
860 ,262
79 ,804
1,478,566
336,000
55,100
88,000
14,600
1,972,266

2,100

9,000
0
1,100
20 ,400
30 ,600

1,545,000
62,000
143,400
386 ,900
180,500
54 ,100
2,371,900

Forecast
2011-2012
103,000
15

173,750
0
1,126,250

445,226

6,700
6,400
1,100
52,100
18,800
3,800
0
137,400
43,800
40,800
132 ,800
5,400
37,500
1,600
883 ,920
79 ,804
1,516,524
347,800
57,100
91,100
14,900
2,027,424

2,200

9,000
0
1,200
20 ,900
31 ,300

1,622 ,250
63,900
150,600
394 ,700
186,000
55,200
2,472,650

Forecast
2012-2013
108,150
15

200,000
0

494,031

6,900
6,600
1,200
53,200
19,200
3,900
0
142,900
44,700
41 ,700
135 ,500
5,600
38,300
1,700
908,227
79 ,804
1,555,431
360,000
59,100
94,300
15,200
2,084,031

2,300

9,000
0
1,300
21,400
32,000

1,703,363
65 ,900
158,200
402 ,600
191,600
56,400
2,578,063

Forecast
2013-2014
113,558
15

180,000
0

250 ,000

534,222

7,100
6,800
1,300
54 ,300
19,600
4,000
0
148,700
45 ,600
42,600
138,300
5,800
39,100
1,800
933 ,204
79 ,805
1,595,409
372,600
61,200
97,700
15,600
2,142,509

9,000
0
1,400
21 ,900
32 ,700
prime-.1%
2,400

1,788 ,531
67,900
166,200
402 ,600
194,500
57,000
2,676,731

Forecast
2014-2015
119,235
15
15

0

250 ,000

250 ,000

0

488 ,244

7,500
7,200
1,500
56,600
20 ,400
4,200
0
160,900
47 ,600
44 ,400
144,000
6,200
40,700
2,000
985,236
79,807
1,678,945
399,200
65,700
104,800
16,400
2,265,045

7,300
7,000
1,400
55 ,400
20 ,000
4,100
0
154,700
46 ,600
43 ,500
141 ,100
6,000
39 ,900
1,900
958 ,867
79 ,806
1,636,874
385,700
63,400
101,200
16,000
2,203,174
511 ,485

2,600

15

0

250,000

250 ,000

0

458,500

7,900
7,600
1,700
59,000
21 ,400
4,400
0
174,100
49,600
46,300
149,900
6,600
42,500
2,200
1,040,169
79,809
1,766,682
427,700
70,400
112,300
17,200
2,394,282

7,700
7,400
1,600
57,800
20 ,900
4,300
0
167,400
48,600
45,300
146,900
6,400
41 ,600
2,100
1,012,330
79 ,808
1,722,241
413,200
68,000
108,500
16,800
2,328,741
463 ,787

2,800

9500
4
1,800
23,900
35,500

1,898,281
76,600
176,600
422 ,800
219 ,100
59,400
2,852,781

Forecast
2018-2019
126 ,552

2,700

9500
3
1,700
23,400
34 ,800

9500
2
1,600
22,900
34,100

15

1,870 ,228
74,300
173,900
402 ,600
212 ,700
58,800
2,792,528

15

Forecast
2017-2018
124,682

1,842 ,589
72 ,100
171 ,300
402 ,600
206 ,500
58 ,200
2,753,289

Forecast
2016-2017
122,839

2,500

9500
1
1,500
22,400
33 ,400

1,815 ,359
70,000
168,700
402 ,600
200 ,400
57 ,600
2,714,659

Forecast
2015-2016
121 ,024

15

0

250 ,000

452,367

8,100
7,800
1,800
60,200
21 ,900
4,500
0
181 ,100
50 ,600
47 ,300
152,900
6,800
43 ,400
2,300
1,068 ,773
79 ,810
1,812,788
442,700
72,900
116,300
17,600
2,462,288

2,900

10000
5
1,900
24 ,400
36,300

1,926 ,755
78 ,900
179,300
444 ,000
225 ,700
60 ,000
2,914,655

Forecast
2019-2020
128,450

3,200

0

re~ l

Net cash flow for the year

-61 ,269
1,438 ,731
250 ,000

180,000
180,000

Balance of Credit Owing
-730,999
-960 ,000
-971 ,633
-165,491
-459 ,522
Operating Reserve
769,001
540 ,000
1,040,478
528 ,367
1,334 ,509
Capital Reserve
Notes:
Operating reserve has $1.5m of line of credit
Assume a 3% increase in traffic for 2011 and 2012 then 5% through to 2015 and then level off
It is assumed that no government assistance is available for this forecast period except for electrical
Assume a 5% decrease in traffic with no increase in fees for 2009-2010 then an increase of $3.00 per passenger
assuming no ACAP funding assistance after 2011
assuming government funding assistance of 75% for runway overtay
assuming 1.5% per year increase in passengers starting 2016

271,476

240,634

-10 ,388

-105,269

200 ,000
200 ,000

180,000

104,222

0
1,300 ,000

45 ,000
159,000

16,000
99 ,500

3,500

1,300 ,000

387 ,733
540 ,980

0

100 ,000

14,000

200 ,000

294,031

10 yr. Equipment Replacement Plan
TOTAL

Remove Underground Fuel Tank

10,000

Miscellaneous Small Projects
Runway overtay
6,000

5,000
25 ,000

500

4,000

Old Maintenance Garage rehab
ACAP ELETRIAL

Concrete pad under ticket machine

Seeding West side Glide Path

19,000

5,500
9,000
2,000

0

ro

2,500

~

Ground side sand - 1 year
Apron Mill and Fill
Taxi Alpha mill and fill
Pave Shell Tank area
Land Title Survey

Hy<iro a>:e

0

105,000

Free Grcwn Grant Lands />,cqutSiticn

0
0
0

0

21 ,000
2,290
3,600

157

0

0

Surge, '-'rct<)ct:on Eq"iom<om-Light:ng
3o:o:rd Room Reno
~ or e SysWm Upgrade

Runway Co:ldii1on Ser1scr

6,500

l e

Digital Security R£cord :ng Systen1

~re ~ o t

3,000

r l

540 ,980
99 ,500
159,000
1,300,000
CAPITAUMAJOR MAINTENANCE PROJECT COSTS

Hazard Beacon Repairs!!Jpqr·ade

Comnuler

Financing
Total

216
1,500,216
500 ,000

61 ,485

$ 200 ,000.00
200 ,000

213 ,460
1,713 ,460
750 ,000

213,244

$25,000.00
25 ,000

27,247
1,527 ,247
1,000 ,000

-186 ,213

$ 400,000.00
400 ,000

-314,253
1,185,747
1,250,000

-341,500

$ 50,000 .00
550 ,000

500 ,000

-311 ,886
1,188,114
1,500 ,000

2,367

$ 200,000.00
200 ,000

References
Airport construction & development. (2005). Montego Bay Jamaica, Sangster International Airport.
Retrieved March 4, 2010 from http://www.mbjairport.com/English/Airport_Construction.aspx
Beynon, R., & Frank, D. (1997). Charting the course: Developing a business plan for Terrace

Kitimat Airport. Vancouver, BC: Horizon Pacific.
Brown, L. (2009 09 0 1). Airport Consultant. (C. Hendry, Interviewer)
Davies, D. M. (February 10, 2005). Case study analysis and case study method. Teaching and learning

unit faculty of economics and commerce. Melbourne, Australia: University of Melbourne.
Farhoomand, A. (2004). Writing teaching cases: a quick reference guide. Communications of the

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