2. Mission and Vision
June 19, 2010 2
“To provide our community with safe, secure, high-quality,
and cost-effective airport facilities and services.”
“To be the first choice for air transportation services on
the Prairies.”
Safe & Secure High Quality Cost Effective
3. June 19, 2010 3
“To provide our community with safe, secure, high-quality,
and cost-effective airport facilities and services.”
“To be the first choice for air transportation services on
the Prairies.”
Safe & Secure High Quality Cost Effective
Regional / National Competitive Environment
Location & Cost Services
Connections &
Airlines
Who are our competitors, where are they and what is making them successful?
4. Industry Key Success Factors
June 19, 2010 4
Excellent
Customer
Service
Ability to
Attract New
Airline
Financially
Independent
Airport
Authority
Optimization
of
Resources
Prudent
Financial
Management
5. Internal Analysis of Our company for this initiative
June 19, 2010 5
• Good location along Trans-
Canada highway
• Good relation with City
• Strong record of financial
management
• Debt free
Weaknesses
Strengths
• Lack of in-house marketing dept.
• Under-utilization of land
• Customer complaint on ground
transportation
• Non-aeronautical split below
Regional average
PAA Region North American
56.1%
43.8% 52%
43.9%
56.2% 48.0%
Aeronautical Non-Aeronautical
Aeronautical Split Comparison
(StatsCan)
PAA
Regional
Avg
A/R Collections Period 11.00 40.25
Debt Ratio 0.03 0.15
Excess of revenue % 46.8% 39.6%
Revenue per Passenger 17.00 13.00
Expenses per Passenger 11.00 8.00
6. External Analysis for this initiative
June 19, 2010 6
• Growing local economy in
Prairieview
• Growing cargo demand +7%
worldwide end of 2010†
• Developments around airports
• Domestic air travelers +20% by 2015
Threats
Opportunities
• Uncertain global economy
• Instability of airline industry
• Competition from near-by airports
• Increased environmental
regulation
5%
6.90%
3.30%
4.70%
2009 2010 2011 2012 2013
Passenger Traffic
Cargo Traffic
Growth Projection in Canada
†International Air Transportation Association
7. Constraints and Resources Available
June 19, 2010 7
• Transport Canada ground lease
• Maximum investment of $5M and
external financing of $3.5M
• Minimum cash flows $3M for
next 5 years
• Ending operating fund balance of
$400K-$600K
• Return on investment of 6%
• Revenue split 85:15 by 2015, and
ultimately 50:50
Resources Available
Constraints/ Targets
• $3M line of credit
– Prime less 0.5%
• 30 to 40% from AIF
• 285 acres land available for
commercial development
8. Strategic Alternatives
June 19, 2010 8
Cargo and Courier Facility
• Small - 25,000 sq ft
• Large - 30,000 sq ft
Office Building and
Airport Office Park
• National Build’s Proposal
• Airport Office Park
Airport Hotel
• Rent Land to Hotel Chain
• PAA as Equity Stakeholder
9. • Strong impact on revenue diversification
• Mitigates against threats
• Fast growing sector
– +7% worldwide
– +4.6% Canadian exports
• Leverages prime location
• Contributes to development of
Prairieview
• Sufficient capital without AIF
Build a Cargo and Courier Facility
June 19, 2010 9
Pros
Diversify Revenues
High Demand
Benefits Prairieview
10. Build a Cargo and Courier Facility
June 19, 2010 10
Limited
Experience
Potential Risk
Cons
• Potential financial risk
• Incremental security risks
• Limited experience
• Three clients asking for below-
market lease rates
• Increased runway utilization
– Traffic with passenger planes
– Environmental impact
– More frequent runway repairs
11. Small Cargo & Courier Facility
June 19, 2010 11
• Strong push on revenue diversification
– 72% non-aeronautical
• Full capacity within 5 years
• Positive NPV ranging from $55K to
$805K
• Lower risk on capital outlay than the
larger building
• Only 23% capacity remaining after
three clients
• Smaller revenue streams than large
building
– $2.3M vs. $3.1M in first 5 years
• Negative NPV of ($434K) if only
three clients are obtained
Cons
Pros
12. Large Cargo & Courier Facility
June 19, 2010 12
• Larger revenue stream than small
building
• At full capacity, NPV range from $1M-
$1.8M
• 70% probability of securing a fourth
cargo company
• Higher capacity than smaller building
• Revenue stream only 62% non-
aeronautical
– Lower impact vs. small building
• Larger excess capacity could draw
down market rates
• Significant loss if only the three known
clients are secured
– ($1.3M) NPV
• Risk-adjusted NPV of best case
scenario not within risk tolerance
Cons
Pros
13. Office Building and Airport Office Park
June 19, 2010 13
• Diversify revenue streams with
minimal risk
• Prairieview’s growing economy
• Job creation for the community
• Attract new airlines
• Increase in business travelers
and airport’s† revenue
• Utilize idle land
Pros
Diversify Revenues
Prairieview Benefit
# of Travelers
14. Office Building and Airport Office Park
June 19, 2010 14
Limited
Experience
Potential
Lobbying
Cons
• Approval required from TC
• Possible opposition from
Prairieview
• Lobbying against PAA’s
developments (monopoly and
NPO status)
• Away from PAA’s primary
function
15. Accept National Build’s Proposal
June 19, 2010 15
• All risk transferred to developer
(Board’s requirement)
• NPV of $1M in 5years and
$3.8M in 20 years
• 80% of building already
occupied
• Revenue split closer to target
• 90% occupancy constraint
• First 13 months - no revenue
• Short deadline to decide
• Revenue split not achieved in
the short term
Cons
Pros
16. Promote an Airport Office Park
June 19, 2010 16
• Interested developers
• Capitalize on the opportunities:
– Low lease rate
– Available land
– Low construction costs
• Minimal investment
• Payback period of 3 years
• Over $1M NPV in 20 years
• Limited time ownership
• Aggressive marketing and
communication plans
• High lease rates suggested by
the appraiser
Cons
Pros
17. Airport Hotel
June 19, 2010 17
• Competitive advantage against
surrounding airports
• High demand
• Job creation for Community
• Additional non-aeronautical
revenue
• Attracts brand loyal customers to
the airport
Pros
Competitive
Advantage
Job Creation
Diversified
Revenues
18. Airport Hotel
June 19, 2010 18
Tight Deadline
Opt-Out Risk
Cons
• No experience in hotel industry
• Opt-out risk
• Board’s preference is to limit
additional investment risk
• Demand directly affected by
economic conditions
• Tight deadline on PAA to accept
proposal
Lack of
Experience
19. Rent Land to Hotel Chain
June 19, 2010 19
• No initial investment required
from PAA
• Constant revenue stream
– Not affected by occupancy
levels
• Lease rates well below market,
fixed for 40 years
• Low NPV of $150K over 40
years in the best case scenario
• $500K risk of developer
abandoning project
Cons
Pros
20. PAA as Equity Stakeholder
June 19, 2010 20
• Own 20% of the hotel shares
• Premium rate charged for
rooms
• 40-year NPV up to $1.9M in
best case scenario
• Risk of abandonment in the first
six months drops to 15%
• PAA required to invest $3.5M
• Against Board preference to
limit risk investments
• No control over investment or
operations
• PAA responsible for disposal
and cleanup costs (potential
loss of up to $4M)
Cons
Pros
21. Recommendation
June 19, 2010 21
Situational
Analysis
Strategic
Alternatives
Recommendation
Implementation
Plan
Conclusion
23. Recommendation
June 19, 2010 23
Cargo & Courier
Facility
(25,000 sq ft)
Accept National
Build Proposal
Promote Airport
Office Park
Financial Benefit and Targets
• 85:15 revenue diversification achieved
• >$3M annual cash flows until 2014
• Incremental funds for future
development ... 50:50
Resourcing
• $3.8M unrestricted capital fund
• No AIF increase required
• No long-term debt incurred
• Adequate land available
24. Recommendation: Cargo & Courier Facility
June 19, 2010 24
Cargo & Courier
Facility
(25,000 sq ft)
Accept National
Build Proposal
Promote Airport
Office Park
• Increased competitive advantage
• Capitalizing on growth of cargo
demand
• Mitigation against instability of
passenger-based airline industry
• New diversified revenue stream ...
72% non-aeronautical
• Strongest push towards 85:15 target
• Excess of revenues over expenses
throughout 20 year life
• Positive NPV across worst-base-best
forecasts
25. Recommendation: National Build
June 19, 2010 25
Cargo & Courier
Facility
(25,000 sq ft)
Accept National
Build Proposal
Promote Airport
Office Park
• Low risk alternative fitting Board
preferences
• No initial investment required
• Leverages unused land
• 2 Major tenants already identified
• Revenue stream 100% non-aero
• Closes remaining gap on 85:15 target
• 20 year NPV of $3.8M
• Strongest push towards cash flow
target
• PAA gains ownership of building at
end of lease
26. Recommendation: Airport Office Park
June 19, 2010 26
Cargo & Courier
Facility
(25,000 sq ft)
Accept National
Build Proposal
Promote Airport
Office Park
• Additional engine of growth for PAA
and Prairieview
• Leverages opportunity to lease land
• Sets the stage for future revenue
diversification
• Success proven by other airports
• Low risk
• Increased PIA business travellers
• Minimal investment ... Quick payback
• Revenue stream 100% non-aero
• 20 year NPV of $1M
27. Financial Forecast
June 19, 2010 27
$18 M
$20 M
$21 M
$22 M
$22 M
$23 M $23 M
2009 A
89:11
2010 F
89:11
2011 F
85:15
2012 F
84:16
2013 F
84:16
2014 F
84:16
2015 F
84:16
Revenue
• Strong revenue growth
• Targeted 85:15 achieved in 2011
• Savings indicator >90%
• AIF sufficient for ATB expansion
with limited long-term debt
• Unrestricted cash for future
development alternatives
2009 A
$7M
2010 F
$8M
2011 F
$13M
2012 F
$17M
2013 F
$23M
2014 F
$28M
2015 F
$23M
CashBalances
AIF Restricted Unrestricted
28. Projected Revenue Split: 2008 – 2026
June 19, 2010 28
$0 M
$10 M
$20 M
$30 M
$40 M
$50 M
$60 M
$70 M
2008
A
2009
A
2010
F
2011
F
2012
F
2013
F
2014
F
2015
F
2016
F
2017
F
2018
F
2019
F
2020
F
2021
F
2022
F
2023
F
2024
F
2025
F
2026
F
2027
F
2028
F
2029
F
2030
F
2031
F
2032
F
2033
F
2034
F
2035
F
2036
F
2037
F
2038
F
2039
F
2040
F
2041
F
2042
F
2043
F
2044
F
AeronauticalRevenue Non-AeronauticalRevenue
2010
Implementation
of Development
Alternatives
$20M 89:11
2016
Major ATB
Expansion
$23M 83:17
2044
Achieve Long-
Term Revenue
Diversification
Target
$61M 50:50
2011
Achieve 85:15
Revenue Split
$21M
2018
Next Ground
Lease Rent Tier
$25M 80:20
Long-Term Revenue Diversification
• Restaurants / Shopping Mall
• Aircraft Maintenance
• Duty-Free Shop
• Concessionaires / Airport Lounge
• Hotel and Golf Course
29. Implementation Plan - Operational Issues
June 19, 2010 29
• Website
• ATB Advertising
• New Routes
• Compensation
• Performance Evaluation
• Cross-training
•Balanced
Scorecard
Strengthen
Organizational
Structure
Create HR
Manager
Position
Establish
Performance
Measurement
System
Implement
Marketing
Department
30. Implementation Plan - Operational Issues
June 19, 2010 30
Ground Transportation
• Offer shuttle and limousine services
• Cancel agreement with taxi company
Concessionaire Services
• Build larger area for F&B services
• Obtain license from coffee bar
New International Flight
• Pursue new flight to Salt Lake City
• Offer incentive in year 1
Enhance Offering to Airport Users
Cost: $0
Incr. CF: $55K/yr
Cost: $515K
Incr. CF:$80K/yr
Incr. CF: $712K/yr
Incr. AIF: $920K/yr
31. Implementation Plan - Operational Issues
June 19, 2010 31
Firefighter
Training
Noise
Environmen
t
Safety and
Security
Compliance and Sustainability
• ScSM implementation
• Employee training
• Review of procedures
• New PBS line
• Cargo security
• Keep up-to-date
• Communication
32. Implementation Plan - Operational Issues
June 19, 2010 32
Change Management & Communication
• Organize Company Meeting
• Communicate New Strategy & Strategy Map
• Engage Employees in Change Process
• Provide Regular Updates
33. Conclusion
June 19, 2010 33
Diversify into
Business &
Commercial Activities
Optimize Resources
(People, Land, Funds)
Strengthen
Organizational
Structure
Improve Customer
Airport Experience
Comply with
Regulations
Mitigate
Risks in
Current
Environment
Balance
Ecological,
Economic &
Social Goals
Long-term
Success in
Serving the
Needs of the
Community
First-Class
Canadian
Airport
Good afternoon everyone!
Now that we’ve fully brought you up to speed on the need to make a strategic change, and also presented the pros and cons of each of the different options, I’m going to walk you the recommendation and outline why this course is the best one for your organization.
In evaluating the different options, we weighed each one against these six key categories. In order for your organization to be successful in achieving your goals and in fulfilling the greater vision, the new course has to score highly in each one of these areas.
And our recommendation does.
What’s even better is that you will achieve your targeted revenue diversification...four years early.
It will also meet the incremental annual cash flow target, which will allow you to save up significant funds that can be used for the major ATB expansion in 2016 or towards the future development opportunities to help the PAA achieve its long-term goal of a 50:50 revenue split.
In implementing this recommendation, the PAA already has the $3.8M in unrestricted capital, and you won’t need to raise AIF rates or dip into the restricted AIF fund...this will allow the PIA to retain its cost competitive advantage over neighbouring airports.
By investing the smaller cargo and courier facility the PAA will develop an increased competitive advantage by capitalizing on the growth of cargo demand.
The new revenue stream will be 72% non-aeronautical, and is the strongest push towards the 85:15 target.
This will generate an excess of revenues over expenses throughout the 20 year life of the investment, and shows minimal risk as there are positive returns over all sensitivity analyses.
By accepting the National Build proposal, the PAA will get a financial return that meets your low-risk preference.
This doesn’t require any initial investment and takes advantage of idle land that the PAA already has.
There are two major tenants for this building that are already identified, and the resulting revenue stream is 100% non-aeronautical and close the remaining gap on the 85:15 target.
This initiative has a very positive NPV, and has the strongest push towards the cash flow target of $3M each year.
And, this initiative is a natural fit with the last tier of the recommendation...to promote an airport office park.
This will meet the needs and preferences of many stakeholders by providing an additional engine of growth for both PAA and the Prairieview region.
This utilizes the idle land around the PIA and sets the stage for future revenue diversification, in alignment with the PAA’s long-term goal of achieving a 50:50 revenue split.
Other airports have already proven the success of office parks, and now the PIA will benefit from increased business travellers which are higher revenue generating travellers.
The minimal investment earns a quick payback, which contributes to the low risk, and this also generates a revenue stream that is 100% non-aeronautical.
By implementing this recommendation, the PAA will see very strong revenue growth and actually achieve its targeted 85:15 revenue split in 2011, which will be a huge milestone.
Additionally, the PAA will continue to have a high savings rate, and will hit the 90% threshold for the first time. This will allow the PAA to accumulate significant cash balances.
There will be sufficient cash in the restricted AIF fund to fund the major ATB expansion in 2016. The PAA will need to take on some long-term debt, but a modest amount that is lower than the regional average.
And the incremental unrestricted cash can either be used to help fund the ATB expansion, or be used for future development alternatives, as we discussed before.
Flipping over to the next slide, you will see a long-term revenue forecast for the next 35 years.
The bottom line represents the aeronautical revenue stream, and the top shows the non-aeronautical.
Over at the left, you will see the first five years of our projection, along with several milestones
Implementing these development alternatives in 2010
Hitting the 85:15 split in 2011
Crossing the $25M revenue threshold in 2018
By accumulating the extra cash, the PAA can reinvest it in other development options after the ATB expansion. By chipping away at the revenue split by 1-2% each year, you have a better chance at hitting 50:50 by 2044.
Some of these longer term alternatives include...
HR: help motivate employees
resolve inefficiencies
retain skill & knowledge
BSC: - Align better with strategic objectives
identify key indicators to measure success
Ground transportation:
Additional non-aeronautical revenue
provide community with reliable cost effective alternative
F&B services:
Improve customers experience
reduce complaints
make airport more competitive
New Flight:
Generate significant revenue and AIF
Offset loss of 2 domestic flights
Expand offering to international destinations