BILLINGS LOGAN INTERNATIONAL AIRPORT (BIL)

AIR SERVICE FORUM

Presented by Trina Froehlich, Mead & Hunt, Inc. August 24, 2016

TOPICS INDUST RY T RENDS EXIST ING SERVIC E PRIORIT IZ ING OPPORT UNIT I E S AIRL INE INCENT IVE S QUEST IONS AND DISCUSSION

INDUSTRY TRENDS

Industry Trends

AIRLINE PROFIT AND LOSS $30

Airline net income (Billions)

$20

Cumulative profit since 1990

$10 $0 ($10) ($20) ($30) ($40) ($50)

AIRLINES CONSISTENTLY PROFITABLE SINCE 2010; ~$54 BILLION COMBINED NET INCOME 2010-2015 PROFIT DRIVERS INCLUDE CONSOLIDATION, CAPACITY RESTRAINT, INCREASE IN ANCILLARY REVENUE (E.G., BAG FEES) AND REDUCED FUEL COSTS PROFITS FOSTER GROWTH (E.G., ADDITIONAL CAPACITY, FLIGHTS, ETC.)VERSUS CONTRACTION IN MARKETS LIKE BIL Source: Diio Mi, Form 41 Net Income (All Airlines, Total System)

4

Industry Trends

U.S. DOMESTIC OLIGOPOLY 82% of the market is controlled by 4 airlines

Southwest 21%

Only 18% of the market is controlled by all other carriers Spirit 14%

United 16%

Frontier 10%

JetBlue 23%

Hawaiian 8%

Other 18%

Allegiant 7%

Delta 21% American 24%

Virgin 6%

Alaska 25% All Others 6%

Sun Country 1%

PRIMARY OPPORTUNITY FOR GROWTH AT BIL IS WITH THE LARGEST AIRLINES, SPECIFICALLY AMERICAN AIRLINES, DELTA AIR LINES AND UNITED AIRLINES

Source: Diio Mi Scheduled Seats for YE June 2016

5

Industry Trends

INDUSTRY CONSOLIDATION Control approximately 82% of U.S. Domestic Market through M&As Today American US Airways

American

American

Air Cal

Reno Air

US Airways

Allegheny

America West

Piedmont

Delta TWA

Ozark

Delta

Southwest Northwest

AirTran

ATA

ValuJet

ATA

Delta

Pan Am

Northwest

Western

National

Republic

United Southwest

Southwest

Muse Air

PSA

Other Notable Defunct Airlines

Morris Air

Continental

Continental

United

United

Pan Am Pacific

People Express Frontier

Florida Airlines (1982)

Eastern Airlines (1991)

Vanguard (2002)

Skybus (2008)

Braniff Airways (1982)

Midway Airlines (1991)

Independence Air (2005)

Aloha (2008)

Air Florida (1984)

Western Pacific (1998)

Hooters Air (2006)

CONSOLIDATION HAS LED TO FEWER OPPORTUNITIES FOR BIL TO PURSUE. 6

Industry Trends

$4.50

86%

$4.00

84%

$3.50

82%

$3.00

80%

$2.50

78%

$2.00

76%

$1.50

74%

$1.00

72%

$0.50

Fuel Price Per Gallon

$0.00 2005

2006

2007

2008

2009

2010

2011

70%

Load Factor 2012

2013

Load Factor

Jet A per Gallon

LOAD FACTORS HIGH WITH LOWER FUEL PRICES

68% 2014

PRICE SPIKE IN 2008 LED TO CAPACITY REDUCTIONS CAUSING LOAD FACTORS TO BIL CAPACITY DROPPED 10% FROM 2010 TO 2011 AND LOAD FACTOR INCREASED ACCORDINGLY

2015

2016

INCREASE –

CAPACITY REMAINS CONSTRAINED WITH DOMESTIC LOAD FACTORS AT ALL-TIME HIGH OF ~85% DECLINES IN FUEL DRIVING INCREASED PROFITS AND PRESSURE TO REDUCE FARES Source: Diio Mi T-100 rolling average LFs (LF = RPMs/ASMs) Source: US Energy Information Administration for Gulf Coast Jet Fuel Spot Price Per Gallon through April 2016

7

Industry Trends

AIRFARES DECREASING IN RECENT QUARTERS $195 $185 $175 $165 $155 $145 $135 $125

Average Domestic One-Way Fare

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2009

2010

2011

2012

2013

2014

2015

2016

AIRFARES UP 24% SINCE YE 4Q 2009 DUE TO ELIMINATION OF UNPROFITABLE ROUTES AND STRICT ADHERENCE TO CAPACITY CONTROL AND INDUSTRY CONSOLIDATION 2015/2016 DROP IN AIRFARES ATTRIBUTABLE TO LOWER FUEL PRICES ›

FROM YE 4Q 2014 TO YE 4Q 2015, FARES DROPPED 3%; MEDIUM/LARGE HUB AIRPORTS DROPPED 4% WHILE

›

LARGEST FARE REDUCTIONS IN LARGER MARKETS WHERE AIRLINES MUST COMPETE WITH LOW-COST AND ULTRA-LOW COST CARRIERS

NON-HUB/SMALL-HUB AIRPORTS ACTUALLY INCREASED 1%

Source: Diio Mi

8

Industry Trends

FREQUENCY & CAPACITY CHANGES DOMESTIC DEPARTURES DOWN ~5% SINCE JULY 2011, WHILE SEATS ARE UP ~7% AS INDUSTRY SHIFTS TO LARGER

GAUGE AIRCRAFT WHICH HELPS OFFSET THE DROP IN FLIGHT DEPARTURES LCC/ULCCS ARE EXPERIENCING MOST GROWTH BUT TYPICALLY DON’T OPERATE IN SMALLER MARKETS AIRLINES GREW INTERNATIONAL SEATS FASTER THAN DOMESTIC SEATS OVER THE PAST 5 YEARS EXCLUDING EAS, BIL FLIGHTS

DECREASED 20% WHILE SEATS DECREASED 2% - AVERAGE AIRCRAFT SIZE INCREASED FROM 79 SEATS TO 96 SEATS

JUL 2016 VS JUL 2011 CARRIER FLIGHTS SEATS Domestic Schedule Comparison American Airlines (2.9%) 4.0% Delta Air Lines (8.8%) 6.6% Southwest Airlines (8.4%) 1.0% United Airlines (19.6%) (6.3%) Alaska Airlines 31.0% 38.4% JetBlue Airways 27.5% 28.5% Spirit Airlines 138.6% 167.8% Frontier Airlines (42.3%) (7.4%) Allegiant Air 82.5% 105.1% Total All Domestic (5.4%) 7.1% International Schedule Comparison Total All International 18.7% 28.0%

Source: Diio Mi Schedule (July 2016 versus July 2011); Ranked by July 2016 seats

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Industry Trends

FLEET CHANGES IN THE PAST 5 YEARS, TYPE OF AIRCRAFT (E.G. TURBOPROP, REGIONAL JET, ETC.) HAS CHANGED SIGNIFICANTLY ›

›

›

›

DEPARTURES

AIRCRAFT TYPE

JUL '16

JUL '11

CHANGE

Turboprop (< 30)

47,149

65,287

(28%)

TURBOPROP AIRCRAFT-OPERATED FLIGHTS ARE DOWN 39%

Turboprop (30-50)

19,610

43,099

(55%)

Turboprop (50+)

12,324

21,828

(44%)

REGIONAL JET-OPERATED FLIGHTS ARE DOWN 21%

Regional jet (30-50)

117,572

191,163

(38%)

Regional jet (51-70)

40,473

37,423

8%

Regional jet (71-100)

38,286

20,934

83%

-

LARGEST DECREASE IN THE 30-50 SEAT RANGE

-

LARGEST INCREASE IN THE 71-100 SEAT RANGE

Narrow-body (70-125)

79,037

100,013

(21%)

USE OF LARGER NARROW-BODY JETS ARE UP 17% MOST GROWTH IN THE NEW LARGER NARROW-BODY CATEGORY

Narrow-body (126-160)

259,311

257,914

1%

Narrow-body (> 160)

151,921

59,838

154%

All Turboprops

79,083

130,214

(39%)

AT BIL, EXCLUDING EAS, ALL SIZE REGIONAL JETS AND TURBOPROPS DECLINING WITH GROWTH IN NARROWBODY JETS

All Regional Jets

196,331

249,520

(21%)

All Narrow-body Jets

490,269

417,765

17%

Source: Diio Mi

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Industry Trends

PILOT SHORTAGE FALLOUT FROM THE FAR PART 117 CHANGES AS A RESULT OF THE COLGAN ACCIDENT IN 2009 ›

PILOT FATIGUE DETERMINED TO BE CONTRIBUTING FACTOR IN THE CRASH

›

ADJUSTED PILOT REQUIREMENTS FOR PART 121 CARRIERS AND MINIMUM CREW REST REQUIREMENTS EFFECTIVE AUG 2014

›

WILL LIKELY CONTINUE TO BE A PROBLEM FOR 3-5 YEARS INTO THE FUTURE

HAS SPED THE RETIREMENTS OF 50-SEAT REGIONAL JETS AND GROWTH IN SMALLER MAINLINE AIRCRAFT IMPACTING SOME REGIONAL AIRLINES SIGNIFICANTLY MORE THAN OTHERS

WILL CONTINUE TO IMPACT BIL ›

AIRCRAFT OPERATED BY REGIONAL AIRLINES, LIKE SKYWEST AND CAPE AIR, IMPACTED THE MOST

›

BIL SERVICE BEEN IMPACTED WITH REDUCED FREQUENCY IN SOME MONTHS 11

EXISTING SERVICE

Existing Service

EXISTING AIR SERVICE Airline

9K

AS DL

G4 UA Total

Dest. GDV GGW HVR OLF SDY PDX SEA MSP SEA SLC AZA LAS LAX DEN ORD

Aug 2016 – Weekly Flights Seats 14 126 14 126 13 117 14 126 28 252 7 532 21 1,596 21 2,908 7 532 27 2,211 2 332 2 332 2 312 28 2,666 7 350 207 12,518

AUGUST IS PEAK MONTH FOR FLIGHTS WHILE JULY WAS PEAK MONTH FOR S EATS AUGUST 2016 FLIGHTS UP 3% WITH SEATS UP 2% OVER 2015 BZN HAS ONE ADDITIONAL AIRLINE (FRONTIER AIRLINES) AND SEASONAL SERVICE BY DELTA AIR LINES AND UNITED AIRLINES NOT AVAILABLE AT BIL

Source: Diio Mi as of 8/4/16

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Existing Service

ONE-STOP CONNECTIONS TO THE WORLD

ON 29 DAILY DEPARTURES, BIL CREATES 366

CONNECTIONS

TO THE US AND BEYOND 171 UNIQUE DOMESTIC CONNECTIONS

15 UNIQUE INTERNATIONAL CONNECTIONS

Where do you want to go?

Source: Diio Mi schedule snapshot for Thursday, August 4, 2016; Note: Cnx. based on low circuity and online cnx. between 30-240 mins.

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Existing Service

BENCHMARKING BIL WITH REGIONAL AIRPORTS 7.00

Seats per capita

Seats per Capita

6.00 5.00 4.00 3.00 2.00 1.00 0.00

Average Seats per Capita = 2.84 1.99 1.28

2.05 1.55

3.86 2.78

6.34

5.81

Flights per 100 people

4.40

4.17 3.24

3.16

5.97

2.00 1.67

2.39

2.85

2.88

2.88

3.08

3.41

3.55

BIL’S SEAT PER CAPITA IS ABOVE THE REGIONAL COMPARE MARKET AVERAGE AND ABOVE ALL OTHER MARKETS EXCEPT SPOKANE, MISSOULA AND BOZEMAN (2.8 WITHOUT EAS) ANNUALIZED, BIL PRODUCED MORE FLIGHTS PER 100 PEOPLE THAN COMPARE MARKETS EXCEPT BOZEMAN (3.2 WITHOUT EAS) BIL SERVES MORE NONSTOP DESTINATIONS THAN COMPARE MARKETS EXCEPT BOISE; SIMILAR TO KALISPELL, BELLINGHAM AND PASCO WHEN EAS MARKETS ARE REMOVED Source: Diio Mi – YE 1Q 2016 T-100 flown seats (non-directional averaged, one-way); Woods & Poole Economics, Inc. 2015 MSA Population; *Note: HLN, FCA and BZN are using Micro Statistical Area Population

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Existing Service

BIL TRAFFIC/CAPACITY TRENDS Passengers

Load Factor

600,000

90

550,000

83

500,000

75

450,000

68

400,000

60

350,000

53

300,000

45

2010

2011

2012

2013 Year Ended

2014

2015

2016

Load factor %

Capacity/passengers

Capacity

CAPACITY AND PASSENGER TRENDS ARE POSITIVE WITH CONSISTENT LOAD FACTORS DECLINE FROM 2013 TO 2014 DUE TO FRONTIER’S EXIT – CAPACITY HAS REBOUNDED WITH ADDITIONAL SEATS IN NEARLY EVERY OTHER HUB MARKET (F9 CUT BZN CAPACITY BY 65% FROM YE MAR 2013 TO YE MAR 2016) Source: Diio Mi T-100 Seats/Onboards 12-month non-directional, one-way rolling average

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Existing Service

FARE COMPARISONS U.S. Avg Fare

BIL Avg Fare

BZN Avg Fare

Average One-Way Domestic Fare

$245 $225 $205 $185 $165 $145 $125

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010

2011

2012

2013

2014

2015

2016

Year Ended

BIL FARES TRENDING UP OVER LAST 5 YEARS BUT DOWN 2% FOR YE 1Q 2016 BIL FARES CONSISTENTLY BELOW THE AVERAGE ONE-WAY FARE AT BUT HIGHER THAN US AVERAGE

BZN Source: Diio Mi

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Existing Service

AIRPORT USE Rank

GTF MSO Other 1% 3% BZN 2% 4%

1 2 3 4 5

BIL 90%

1 2 3 4 5 1 2 3 4 5

FEW TRAVELERS USE ALTERNATE AIRPORTS

Origin Airport

YE 3Q 2014 Pax PDEW Domestic BIL 779,812 1,068 BZN 34,047 47 GTF 13,815 19 MSO 8,493 12 Other 26,581 36 Subtotal 862,748 1,182 International BIL 33,030 45 BZN 1,210 2 GTF 377 1 MSO 277 0 Other 664 1 Subtotal 35,558 49 Domestic and International BIL 812,842 1,113 BZN 35,257 48 GTF 14,192 19 MSO 8,770 12 Other 27,245 37 Total 898,306 1,231

% 90% 4% 2% 1% 3% 100% 93% 3% 1% 1% 2% 100% 90% 4% 2% 1% 3% 100%

90% RETENTION IN A MARKET THE SIZE OF BIL IS NOT TYPICAL, USUALLY MUCH LOWER

ONLY 4% OF BIL TRAVELERS DIVERT TO BZN AND 3% OF BZN TRAVELERS DIVERT TO BIL

Source: BIL True Market Estimate YE 3Q 2014 Note: PDEW = passengers daily each way

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PRIORITIZING OPPORTUNITIES

Prioritizing Opportunities

POINT-TO-POINT SERVICE BUSINESS DESTINATIONS ›

ONLY MAJOR METRO AREAS HAVE SUFFICIENT PASSENGERS TO SUPPORT POINT-TO-POINT SERVICE TO BUSINESS MARKETS

›

MANY COMMUNITIES WANT SERVICE TO MAJOR BUSINESS CENTERS BUT CAN’T SUPPORT IT – NEED

CONNECTIONS

LEISURE DESTINATIONS ›

ALLEGIANT PROVIDES AZA/LAS/LAX (SEASONAL)

›

ULTRA-LOW COST CARRIERS CAN GENERATE SIGNIFICANT NEW DEMAND

›

FREQUENTLY LESS THAN DAILY SERVICE

›

PROXIMITY TO OTHER AIRPORTS WITH SIMILAR SERVICE

›

LIMITED USE FOR THE BUSINESS COMMUNITY

20

Prioritizing Opportunities

DETERMINING HUB SERVICE PASSENGER POTENTIAL ›

LOCAL MARKET SIZE

›

HOW MANY PASSENGERS CAN FLOW OVER THE HUB

TYPE OF AIRCRAFT SERVING THE HUB ›

DOES THE AIRCRAFT FIT YOUR MARKET SIZE

›

AIRCRAFT RANGE (EX. BIL-DFW 1,080 MILES)

AIRLINE HUB GROWTH/SHRINKAGE AIRLINE STRATEGY ›

WILL NEW SERVICE OVERFLY AN EXISTING HUB ON THE SAME AIRLINE

›

WILL THEY PULL TRAFFIC OFF EXISTING SERVICE

21

Prioritizing Opportunities

POTENTIAL NONSTOP MARKETS SEA

PDX

MSP

BOS DTW

MKE SFO

RNO

ORD

SLC

SJC

DAY

MDW MCI

EWR JFK PIT

CMH

DEN COS

CLE

LAS LAX

AZA

MEM

PHX

BNA

LGA

IAD

CVG

STL

BWI

PHL

CLT

RDU

ATL DFW DAL IAH

HOU

Current hub MCO SFB FLL MIA

Former hub Point-to-point market

BIL MARKET SIZE/DEMAND, DISTANCE TO THE HUB AND AIRLINE STRATEGY ARE ALL FACTORS IN DETERMINING TOP OPPORTUNITIES DFW OFFERS EXCELLENT NEW EASTBOUND AND INTERNATIONAL CONNECTING OPPORTUNITIES FOR BIL TRAVELERS 22

Prioritizing Opportunities

TOP TRUE MARKETS Rank 1 2 3 4 5 6 7 8 9 10 11

12 13 14 15 16 17 18 19 20

Airport Denver, CO Seattle, WA Las Vegas, NV Phoenix, AZ (AZA) Portland, OR Los Angeles, CA Minneapolis, MN Phoenix, AZ (PHX) Salt Lake City, UT Sidney, MT San Francisco, CA

Reported Pax 56,915 53,407 55,752 35,596 32,183 26,305 23,606 18,420 16,503 18,013 14,901

Retention % 87% 89% 95% 100% 95% 94% 93% 96% 87% 100% 88%

Houston, TX (IAH) Atlanta, GA Orlando, FL (MCO) Chicago, IL (ORD) Anchorage, AK New York, NY (LGA) Orange County, CA Washington, DC (DCA) Total

13,929 12,236 11,646 11,454 9,825 9,067 10,829 6,303 812,842

88% 92% 93% 94% 85% 79% 99% 60% 90%

Dallas, TX (DFW)

13,160

79%

NOTE: DIVERSION = TRAVELERS USING AN ALTERNATE AIRPORT OTHER THAN BIL

True Market 65,622 59,718 56,893 35,596 33,974 27,518 25,254 19,202 18,873 18,013 16,889

Diversion 8,707 6,311 1,141 0 1,791 1,214 1,648 781 2,370 0 1,989

15,865 13,288 12,558 12,191 11,506 11,458 10,929 10,528 898,306

1,936 1,053 911 736 1,682 2,391 100 4,224 85,464

16,604

EXCEPT FOR PHX AND SFO, DFW IS THE LARGEST MARKET WITHOUT NONSTOP SERVICE DFW OFFERS BETTER DIRECTIONAL CONNECTING OPPORTUNITIES THAN EITHER PHX OR SFO ›

DFW = 6,511 FLIGHTS AND 790,950 SEATS WEEKLY

›

PHX = 3,673 FLIGHTS AND 498,631 SEATS WEEKLY

›

SFO = 4,409 FLIGHTS AND 691,353 SEATS WEEKLY

3,444

Source: BIL True Market Estimate YE 3Q 2014

23

AIRLINE INCENTIVES

Airline Incentives

INCENTIVES OVERVIEW MOST NEW SERVICE WILL REQUIRE INCENTIVES ›

COUNTER BARRIERS TO ENTRY

›

COMPETITION HAS INCREASED DUE TO FEWER AIRLINES AND HUBS

›

THE HIGHER THE PERCEIVED RISK THE HIGHER THE INCENTIVE PACKAGE, LIKELY INCLUDING A MINIMUM REVENUE GUARANTEE

INCENTIVES TYPICALLY INCLUDE MARKETING, FEE WAIVERS AND A REVENUE GUARANTEES ›

MARKETING AND FEE WAIVERS EXPECTED

›

REVENUE GUARANTEES STANDARD FOR SMALL-HUB AND NON-HUB MARKETS, LIKE BIL

Revenue guarantee = # 1 priority for most airlines

MUST BE ABLE TO DELIVER ON THE OFFER TO THE AIRLINE

25

Airline Incentives

TYPICAL ISSUES AND BARRIERS-TO-ENTRY FINANCIAL RISK - HIGHER OPERATING COSTS COMPETITION FROM LARGER/OTHER AIRPORTS – LOW-FARE SERVICE FREQUENT FLYER PROGRAMS EXISTING TRAVEL HABITS NAME AND/OR SERVICE AWARENESS

Promote longterm success Reduce market maturation period Influence airline decision

6-12 MONTH MARKET MATURATION PERIOD

26

Airline Incentives

DIFFERENT INCENTIVES/ DIFFERENT PURPOSES REVENUE GUARANTEE

FINANCIAL RISK

FEE ABATEMENT FACILITY UPGRADES GROUND SUPPORT EQUIPMENT MARKETING SUPPORT

SERVICE AWARENESS

AIRLINE TRAVEL BANK® (ATB)

EXISTING TRAVEL HABITS FREQUENT FLYER BASE

BIL INCENTIVE PROGRAM OFFERS A REVENUE GUARANTEE, FEE ABATEMENT AND MARKETING SUPPORT. 27

Airline Incentives

EXAMPLES OF INCENTIVE PROGRAMS Community Airline and destination

Roswell, NM AA – PHX

Redmond, OR AA-PHX

Bozeman, MT AA-DFW

# of trips (equipment)

1

1

1

Start date

March 2016

May 2016

May 2016

Revenue Guarantee

$1,200,000

$600,000

$1,300,000

Airline Travel Bank

-

-

-

Marketing funds

$250,000

$75,000

$305,000

Fee waivers

$30,585

$95,000

-

Total

$1,480,585

$770,000

$1,605,000

THROUGH THE SCASDP GRANT AND COMMUNITY PARTNERS, BIL HAS A VERY COMPETITIVE INCENTIVE PROGRAM (NEARLY $1.5 MILLION) TO OFFER AMERICAN AIRLINES FOR DFW SERVICE. SERVICE NOT GUARANTEED DUE TO SIGNIFICANT COMPETITION FROM OTHERCOMMUNITIES. Source: SCASDP Applications

28

Airline Incentives

COMMUNITY PARTNERSHIP AIR SERVICE DEVELOPMENT NEEDS COMMUNITY PARTNERS TO SUCCEED ›

AIRLINES MORE RECEPTIVE TO BUSINESS COMMUNITY

›

BUSINESS APPROACH TO AIR SERVICE DEVELOPMENT

›

COLLABORATION FOR MUTUAL ECONOMIC BENEFIT

›

COMMUNITY BENEFITS FROM IMPROVED GLOBAL ACCESS

›

POOL RESOURCES AND BUYING POWER

29