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Recruitment/MRG

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What’s a Minimum Revenue Guarantee (MRG)?

To attract an airline to start service, we need to put together a competitive and complete recruitment package that entails the following:
  • Data demonstrating demand in the “catchment area,” which we have in the “Leakage and Retention Study.”
  • Community and regional support—especially the business community. This is in place and growing. See Letters of Support page.
  • A marketing plan to promote the new service: Travel Salem has prepared a two-year marketing plan, and it has been funded by the ROAR Grant. See Grants page.
  • And now, lastly, a Minimum Revenue Guarantee (MRG).
The MRG is a fund to backfill potential shortfalls in the airline's revenue during the first two years of operation.
If the actual passenger ticket revenue falls short of the target revenue minimum, then the fund reimburses the airline on a quarterly basis. The local funds are kept in a dedicated bank account with a fiduciary, Travel Salem. The grant money reimburses the City as needed. This is only for the start-up period of two years.

Here’s How It Works

The money for the $1.2 million MRG comes from two sources in our plan:
  • A Small Community Air Service Development (SCASD) Grant through the US Department of Transportation of $850,000.
  • Local private sector contributions. The participants deposited money into the dedicated fund only after Avelo committed to start new service. Our need was a minimum of $350,000 to match the SCASD Grant.
After every month of operations, if ticket revenue does not meet or exceed the pre-negotiated level, the MRG fund is tapped to compensate for the shortfall. This only happens during the two-year start-up period.
Only a portion of the local funds is used during the initial drawdown of the MRG funds. A ratio that includes primarily grant money and only a part of the local fund is used first, protecting most of the local fund.
  • If enough tickets are purchased, filling approximately 85% of seats, the MRG is never used, and the funds are given back to the donors after the 2 year period.
  • We only need to capture about 10% of existing ticket buyers in our area to fill the planes to 85%.
So, the risk of losing your contribution exists, but we anticipate and hope participants will get most, if not all, of their MRG contributions back after two years of service. Contributions less than $1,000 will be treated as donations eligible for a tax-dedection through the Fly Salem Foundation 501(c)3.
With MRG participants encouraging their organization, family, and friends to fly out of Salem, the fund creates organic word-of-mouth demand.
After the two-year initial period that began in October 2023, the remaining matching funds are released to participants/donors. Or if willing, we will likely have an opportunity to use those funds to secure a second MRG with another airline.

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