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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” and also with data we have from Avelo service passenger counts.
  • 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 is primarily the Marketing point of contact.
  • 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 a comes from several sources in our plan:
  • A Small Community Air Service Development (SCASD) Grant through the US Department of Transportation (if awarded).
  • Local private sector contributions. There are some funds left over from the Avelo MRG to use as matching funds for the grant.
  • The City of Salem, Marion County, Polk County, and the Salem Tourism Promotion Area have pledged 3-year funding bringing the total to $500,000 in each of the first three years.
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 to three-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 MRG period. (Note: One ULCC airline has indicated they will use all the MRG for price supports regardless of tickets sold)
  • The Catchment Area buys enough airline tickets to fill twenty 737s per day, so we only need to capture a small percentage of those travelers to be successful.
Contributions will be treated as donations eligible for a tax-deduction 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 initial 2-3 year MRG period, any remaining matching funds can be used to attract additional routes or carriers. Grant money is restricted to the purposes in the application.

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