What’s a Minimum Revenue Guarantee (MRG)?
To attract airline to start service, we need to put together a competitive and complete recruitment package.
- 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 2-year marketing plan, and it has been funded by the ROAR Grant. See Grants page.
- And now lastly, a Minimum Revenue Guarantee (MRG).
The Minimum Revenue Guarantee (MRG) is a fund to back-fill 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 2 years.
Here’s how it works:
The money for the $1.5 million target comes from two sources in our plan:
- A SCASD (Small Community Air Service Development) Grant through the US Department of Transportation of $800,000.
- Local private sector pledges. The pledgers will deposit money into the dedicated fund only after an airline commits to starting new service. Our goal is a minimum of $700,000 up to $1 million.
After each 3 months of operations, if ticket revenue does not meet or exceed the pre-negotiated level, the Minimum Revenue Guarantee (MRG) fund is tapped to make up the shortfall. This only happens quarterly during the 2-year start-up period.
Only a portion of the local funds are used during initial draw down of the MRG funds. A ratio that includes mostly grant money and only a part of the local fund is used first, protecting the majority 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.
- 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 the odds are very low. We anticipate participants will get most if not all their MRG contribution back after 2 years of service.
With MRG participants encouraging their organization, family, and friends to fly out of Salem, the fund creates organic word-of-mouth demand.