PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL

AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

FRESH AIR

TEACHER’S PACKAGE

Review Copy
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 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

FRESH AIR

TEACHING NOTES

Fresh Air involves a negotiation between an upstart airline and a city it is considering for
its headquarters. The goal of the negotiation is to agree on an incentive package and
airport facilities.

OVERVIEW

Fresh Air, a new low-cost airline, is looking for a headquarters city. It is

negotiating with the city of Boston, its top choice for a headquarters location. Fresh Air
plans to build on the brand reputation of its parent airline, which stands for innovation
and fun, unparalleled customer service, and satisfied and empowered employees. It
believes that a unique corporate culture and happy customers will allow it to charge lower
prices, to fill its planes, and to run profitable operations. Throughout the negotiation,
many of Fresh Air’s interests stem from this culture and brand focus. From a monetary
perspective, though, Boston’s incentive package offer must be on a par with the incentive
proposals Fresh Air has already received from other cities.

Boston seeks to reinvent itself as a center of American business after years of

business decline. The opening of a low-cost carrier would be an important part of this
effort. However, in these tight fiscal times, Boston is limited financially. It needs to save
money for an important national event coming to the city soon; furthermore, it cannot
shortchange its employees and city groups for fear of backlash. Boston also is reluctant
to set a bad precedent; if it commits to a substantial incentive package for Fresh Air,
future companies considering a move to Boston will expect the same. Boston must also
consider how it is viewed politically, in the eyes of its constituents and of other airlines at
Logan Airport.

This case was written by Candace Modlin with the help and under the supervision of Robert Bordone, Thaddeus R. Beal Lecturer on
Law at Harvard Law School. Copies are available online at www.pon.org, telephone: 800.258.4406, fax: 617.495.1684. This case my
not be reproduced or translated in whole or in part by any means without the written permission of the Director of Curriculum
Development, Program on Negotiation, 513 Pound Hall, Harvard Law School, Cambridge, MA 02138. Please help to preserve the
usefulness of this case by keeping it confidential. Copyright © 2004, 2006, 2010 by Candace Modlin. Distributed with permission.
(Rev. 4/10)
FRESH AIR: TEACHING NOTE

MECHANICS

Time Required: 2 hours -- preparation

2-4 hours -- negotiation
1.5 hours -- debriefing

Group Size: 1-2 persons on each side

Materials: General Instructions

Confidential Instructions for Fresh Air
Confidential Instructions for Boston

LEARNING OBJECTIVES 1

• Establishing a process for effective negotiation when balancing multiple issues,

some of which are directly related to each other.

• Developing and using objective criteria.

• Distributing value.

• Inventing creative options for mutual gain by exploring the interests of the other
party.

• Exploring the tension between distributing and creating value, generally and as
regards to sharing information.

• Identifying and deeply understanding interests and evaluating how well a value-
creating solution meets these interests.

• Separating the people from the problem; balancing the substance of the
negotiation with the development of a workable long-term relationship.

• Preparing for a factually complex, multi-issue negotiation: identifying issues;

exploring and anticipating interests; brainstorming creative options; thinking
about process.

1
These lessons stem from concepts discussed in Roger Fisher and William Ury, Getting to Yes (1991) and
Robert H. Mnookin, Beyond Winning (2000).

Copyright © 2004, 2006, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 2
FRESH AIR: TEACHING NOTE

CLASS PLAN

TOPIC SUGGESTED TIME

Introductory Remarks 5 minutes

Debriefing Student Agreements 10 minutes

Preparation 7 minutes

Handling Multiple Issues 15 minutes

Using Criteria 7 minutes

Sharing Information 7 minutes

Distributing Value 7 minutes

Creating Value 20 minutes

Building and Preserving the Relationship 10 minutes

Summary and Conclusion 5 minutes

INTRODUCTORY REMARKS

When introducing this case, it will be important to place it in the appropriate

context for your specific curriculum, since there are many issues for potential discussion.
Also, since other negotiations have likely had fewer elements, it may be helpful to take a
quick poll of the students’ reactions to tackling a more complex, multi-faceted
negotiation.

Students may also find the following information interesting regarding the genesis
of the case: In 2003, Virgin Atlantic Airlines announced plans to spin off a low-cost
carrier in the United States. The airline entered discussions with several cities for its
headquarters and selected three finalists: Boston, San Francisco, and the Washington, DC
area. Virgin Atlantic visited the Boston World Trade Center complex and downtown
buildings, but was most interested in a spot in the Marine Industrial Park. Boston
officials offered the airline lowered rental rates in the Marine Industrial Park, a $3000 tax
credit for every employee who lives in the area, and $1.5MM for employee training. The
airline was especially interested in Boston for its young workforce and the opportunity to
partner with the numerous area colleges. In fact, the airline specifically communicated a
desire to hire those with singing or dancing talent to work as ticket agents! As of April,
2004, Virgin Atlantic had not made a final selection.

Copyright © 2004, 2006, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 3
FRESH AIR: TEACHING NOTE

CASE ANALYSIS

PREPARATION

This exercise makes clear the importance of preparation. There are so many issues to
negotiate and so many interests to advance that without adequate preparation, students
may agree to a provision which is unacceptable to their client, may not understand the
client’s interests enough to explore value creation, or may be exploited by the other side.

• Ask students how they organized their thoughts during preparation. Did they use
a checklist, a table, notes, or did they merely highlight the materials?
• Did they prepare a method of calculating package totals expeditiously during the
negotiation, i.e., with a spreadsheet or by noting the cost of the different elements?
• How did they perceive the other side’s interests before negotiation? Did they
generate solutions before the negotiation began to help meet these interests?
• What did they assume about the ZOPA of the major issues (i.e., total package
amount, headquarters building, number of gates, etc)? For example, Boston was
really interested in getting Fresh Air to locate there and had a poor BATNA with
the tabletop company – did this shape its perception of the ZOPA?

HANDLING MULTIPLE ISSUES

One of the notable points of this exercise is the numerous sub-issues that must be decided.
Students may not know how to balance and juggle the interrelated elements of the
incentive package adding up to the total package amount. They also may not know how
to move from one issue to the next – should they commit or wait to commit until all
elements have been negotiated? Furthermore, they may focus so much on one issue that
they are unable to reach agreement on all the issues. This element offers a natural
occasion to discuss process.

• Did students decide upon a process for coming to agreement on the different
issues? If so, what was the overall plan and approach?
• Did they feel that it helped them reach agreement, either in improved substance,
efficiency or relationship?
• If they did not agree upon a process at the beginning, was coming to an agreement
more difficult? (Not coming to agreement at all or a breakdown in the
relationship may be signs of difficulty.)
• How did students come to agreement on a total incentive package?
• How did they discuss the multiple inputs of the total incentive package while still
keeping an eye on the overall package total?
• Did they trade off elements against one another (i.e., accept fewer gates initially
for more gates later on)?

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FRESH AIR: TEACHING NOTE

• Did they commit to an incentive package before negotiating the airport facilities
or did they keep these issues on the table until the negotiation was complete, since
all of the elements are somewhat related?

USING CRITERIA

At several points in the negotiation, students have the opportunity to use criteria for
“principled negotiating.” 2 For example, Fresh Air may use the incentive package offers
it has received from other cities (or Table 3 in the General Instructions listing recent
packages accepted by other companies) to support its total package demands. Boston,
likewise, can use Table 3, but will likely interpret it differently. Both sides can also use
Table 4 in the General Instructions for discussing the appropriate number of gates.

• Determine to what extent students used the available criteria.

• As suggested in Getting to Yes, did students agree on the principles to use before
discussing specific terms?
• Did using the criteria help them to achieve suitable outcomes for their clients?
• If they themselves did not use criteria, but the negotiator(s) on the other side did,
was it a detriment to their interests?
• Would negotiating have been more contentious without using these support points?
• Where criteria was not available (i.e., Boston’s maximum tax abatements on the
various buildings), did students find it difficult to explain their constraints to the
opposite side or to come to agreement?

SHARING INFORMATION

Going into the negotiation, Fresh Air prefers the MIP building and Boston prefers
the BWTC. However, if the parties communicate their interests and use creativity rather
than mechanically stick to their positions, both parties can benefit from selecting the
BWTC building. First of all, Fresh Air can learn that the insurance company located in
the BWTC is actually an alternative satellite office; the site is experimenting with
different office structures, so this one is very casual and probably poses no danger to their
desired office environment. Second, Fresh Air can learn that the landlord has worked
with other tenants to modify the existing traditional cubicle office structure and has
offered discounts to them in doing the work. Third, a little creativity can help Fresh Air
find other ways to meet the need for flight simulator space. Finally, while Fresh Air must
receive a larger incentive package to locate at the BWTC since it is more expensive,
Boston is able to pay out a larger incentive (even larger than the additional costs). Thus,
there is surplus available for the parties if agreeing upon MIP.

Explore whether parties actually shared their interests here. Boston may have
been hesitant to show too much interest in the property, for fear of Fresh Air exploiting

2
A term discussed in Getting to Yes.

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FRESH AIR: TEACHING NOTE

this preference. Fresh Air may also be hesitant to appear amenable to locating there,
since they have been instructed to try not to agree to the building.

While this example demonstrates how sharing interests and concerns can mutually
benefit each party, ask the students whether they think this will always be the case. This
may be a good place to analyze the tension between sharing enough information to create
joint gains but not so much as to be exploited. An example of this tension arises as
Boston tries to explore how to split the training and transportation subsidies. If Fresh Air
seems neutral between transportation and training, the city would prefer to give
transportation subsidies. But if Fresh Air seems to prefer training, the city would rather
give subsidies in training than give more total subsidies. Boston has the difficult task of
learning Fresh Air’s preferences. Even though Fresh Air prefers training, it might not
share this information honestly if it senses that it will lose out on potential transportation
dollars. Sharing too much information here could adversely affect the interests of either
one of the parties.

DISTRIBUTING VALUE
This exercise can be used to demonstrate many of the elements of distributive bargaining,
any of which you can discuss with the students, depending on this case’s location in your
curriculum. Some of these may include anchoring, information asymmetries, and
shaping perceptions of the ZOPA.

CREATING VALUE
This exercise allows for value creation which will maximize gains for both parties. Most
of the exercise can be negotiated in a purely distributive manner, but can be improved by
integrative bargaining due to, among other things, differences in resources available,
relationships held, and differences in forecasts. Value creation will likely run the gamut
from pure economic ideas, such as offering more subsidies in transportation than in
abatements (since Boston receives a transportation discount), to highly creative solutions,
such as featuring Boston in Fresh Air advertisements. At least one issue in the
negotiation, the initial location of the gates, cannot be solved without creative options.

Copyright © 2004, 2006, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 6
FRESH AIR: TEACHING NOTE

• Explore with each side what their non-monetary interests are and how their
negotiated agreements meet these interests. Interests may include the following:

Boston Interests Fresh Air Interests

Keeping costs to a minimum Package on par with packages offered by
other cities
Bringing high-profile companies to Boston Locating in Boston
Not setting bad precedent Building a brand/successful airline
Making Boston beautiful for upcoming Satisfied customers
convention
Not angering city officials Happy and empowered employees
Keeping Downtown offices full Open, non-hierarchical work environment
Making BWTC building more full Transportation to HQ and from HQ to
airport
Preference for transportation over training Keeping high levels of training
Employment of city residents Enough gates to allow for growth
Not angering other airlines at Logan Making customers’ waits at airport as
pleasant as possible
Not angering FlyTron

• Evaluate several of the value-creating solutions to determine whether and how

they actually meet the client’s interests. Some creative solutions may protect
interests better than others – for example, Fresh Air protects its interests by
locating in a refurbished Terminal D, but can protect its interests even more by
locating in Terminal E, a busier terminal.
• Explore how the specific creative provisions are value-creating, rather than zero-
sum.
• Discuss specifically how each party responded to the issue of the initial location
of the gates – did they believe the other side when they communicated their
constraints, which seemed to make an agreement impossible?
• If so or if not, was this based on previous building up or breaking down of the
relationship from earlier in the negotiation?
• Did they brainstorm various options for getting past the seeming roadblock? If so,
how did they decide which one would better meet the interests of their client?
• Finally, inquire whether any creative solutions incurred costs, and if so, whether
they considered these in the total incentive package amounts. Even creative
solutions incur costs, which can be easily forgotten in the midst of creative
thinking. This reality is an important one to recognize.

BUILDING AND PRESERVING THE RELATIONSHIP

Students may want to bargain hard now, which may be beneficial in the short-term, but
may complicate business between the parties in the future.

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FRESH AIR: TEACHING NOTE

• Ask students what sort of position their client would be in if they are too tough
now, and if their client needs to negotiate on new issues later or wants a contract
modification.
• Ask students whether they took these considerations into account in negotiating
the agreement.
• Was there a time when they would have behaved in a different way had they not
been trying to preserve the relationship?
• If they admit not preserving the relationship adequately, how might they do it
differently the next time?
• In asking these questions, generally explore the hallmarks of a positive
negotiating relationship and how one might go about building one.

Copyright © 2004, 2006, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 8
FRESH AIR: TEACHING NOTE

FRESH AIR INSTRUCTIONS SUMMARY

ISSUE BOSTON FRESH AIR
Aspiration Reservation Aspiration Reservation
Headquarters
Building tax
abatements
Downtown $5MM No
MIP $1.4MM $3.6MM $2.8MM
BWTC $0 $4.25MM $3.8MM
Transportation Preferred to
training; first
$2.5MM after
property tax
abatements should
be spent on
transportation,
unless results in
more overall
spending
Training Preferred to tax Preferred to $2MM
abatements transportation
Number of 1 3 4 2 (some time
initial gates without
turnaround
requirements)
Number of 6 (must meet 7 4
future gates turnaround
requirements)
Location of D E (if can make C E or D (if
initial gates FlyTron happy) improvements
made)
Location of C C
future gates
Future gate As far down the Starting at 14 Closest to Starting at 24
numbers terminal as security
possible (higher checkpoint as
gate numbers) possible
Total Incentive
Package
Amount
BWTC $9.5MM $8MM
MIP $6MM $8MM $9MM $7MM

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FRESH AIR: TEACHING NOTE

POTENTIAL VALUE-CREATING OPTIONS

Headquarters Building
• Rename the BWTC or change the mailing address to exclude the words “World
Trade Center.”
• Boston to pay for or to negotiate with landlord to pay for renovation of BWTC.
• Since there is no room at the BWTC for training facilities, include a shuttle stop at
the MIP.

Transportation Between Headquarters and Airport

• Earn revenue by charging fares to non-Fresh Air employees who want to use
BWTC-MIP-Airport shuttle.
• New public bus route starting at South Station and stopping at MIP and at
residential areas near the airport before arriving at Logan Airport.

Training
• Internship and cooperative programs for local college students.
• Job fair sponsored by Fresh Air.
• Scholarship fund at local colleges.
• Fresh Air agrees to hire some employees from disadvantaged groups.

Initial Gate Location

• Renovate Terminal D for Fresh Air.
• Open a restaurant in Terminal D to recoup some costs from renovation.
• Renovate Terminal D for FlyTron (Fresh Air goes to Terminal E).

Future Number of Gates

• Contingent upon number of turnarounds Fresh Air conducting at that time

Future Gate Location (Gate Numbers)

• Clustering gates on one side of terminal to create strong Fresh Air atmosphere.
• Fresh Air to lease open retail space for musical performances, selling branded
merchandise, restaurant, bar, or VIP lounge.
• Dedicated security check-in line for higher-numbered gates during busy times.
• Fresh Air information booth in Terminal C.
• Installation of moving sidewalk.

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FRESH AIR: TEACHING NOTE

Other / General
• Discount to city/state employees on Fresh Air tickets.
• Fresh Air commits to involvement in the community and volunteerism.
• General Cross-Promotion:
o Publicity for Fresh Air
ƒ Sponsorship of Boston Marathon.
ƒ Official ribbon-cutting ceremony for the headquarters.
ƒ Welcoming Fresh Air to the city with signs in prominent places.
o Publicity for Boston
ƒ Boston–related promotions in Fresh Air’s advertising, on its planes,
or in in-flight magazine.
ƒ Boston links on Fresh Air website,
ƒ Pilots to announce good things about Boston as land in the city.
ƒ Subway maps on ticket jackets.
• Damage payments in case Terminal C not open by Year 3.

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FRESH AIR: TEACHING NOTE

POSSIBLE CRITERIA FOR DISTRIBUTION

Total Incentive Package Amount

• See chart on page 7 of General Instructions
o Industry
o Company size
o Location, size, and characteristics of city
o Expected annual revenue
o Expected number of employees
• Fresh Air has received $8MM from Washington, DC and San Francisco

Headquarters Building
• Denver gave Copy-R-Us a $10MM abatement recently.
• Dallas gave Kinko’s a $4MM abatement recently.
• A $2.8MM abatement on MIP makes it the same price as the building in San
Francisco.

Number of Initial and Future Gates

• See chart on page 12 of General Instructions
o Low-cost versus network carrier
o Age of airline
o More current versus historical calculations.
• Washington, DC and San Francisco have each promised three gates.

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 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

FRESH AIR

General Instructions

Express Airlines is a large airline in the United States, flying over 1,400 flights per day to
110 destinations in 25 countries. It has hubs throughout the United States in Los
Angeles, Chicago, Dallas, and New York City. Financials for the airline industry have
been shaky lately, and Express is no exception. A weak American economy has
decreased the demand for leisure travel, and the advent of travel substitutes, such as
videoconferences and webcasting, have decreased demand for business travel. The
horrific events of September 11, 2001 have exacerbated and accelerated these effects due
to safety concerns and increased inconvenience of air travel. The security fees imposed
after these events also increased the cost of travel for passengers and decreased Express’s
ability to raise passenger fares. Many airlines experiencing difficulty have declared
bankruptcy, so Express must also now compete with airlines reorganizing under Chapter
11 of the Bankruptcy Code.

Another factor depressing sales and profits has been the development of low-cost carriers
(LCCs), which has increased competition in markets historically dominated by the large
network carriers. In Year -2, the percentage of domestic air travel served by LCCs was

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27.8%, up from only 9.3% five years before. These LCCs have been highly successful.
In fact, the only airlines to post a profit in Year -2 were the two largest LCCs, NorthEast
and PlaneRed.

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Express has fared better than other airlines in the past few years, due in part to its unique
brand and culture. In fact, even when most airlines posted significantly negative net
profits, Express almost cleared one. But never to be complacent, Express management
believes that the LCC business model could take the company to the next level in
customer service and profitability. Management also believes that the company’s brand
and culture will mesh well with the enterprising and unorthodox attitude displayed by
other successful LCCs. After several years of internal debate about issues such as the
long-term viability of LCCs and the cannibalization 1 effect on Express, the airline has
decided to spin off an LCC named Fresh Air.

1
This term refers to the situation where a new business is successful when viewed on its own but is
actually eating away sales from the original or core business.

This case was written by Candace Modlin with the help and under the supervision of Robert Bordone, Thaddeus R. Beal Lecturer on
Law at Harvard Law School. Copies are available online at www.pon.org, Telephone: 800-258-4406, 781.239.1111, Fax:
781.239.1546. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138.
Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 2004, 2006, 2008, 2010 by Candace
Modlin. Distributed with permission. (Rev. 4/10)
FRESH AIR: GENERAL INSTRUCTIONS

Fresh Air will employ approximately 1,000 employees initially. Like other LCCs, it
plans to operate only narrow-bodied planes. The financial estimates for the company,
reviewed by the prestigious Dunlap Accounting firm, look quite strong and project fast
growth. See Table 1.

TABLE 1

Year 0 Year 1 Year 2

(‘000s) (4 Qtr. only)
Conservative
Estimates
Operating $20,000 $280,000 $590,000
Revenue
Operating $25,000 $250,000 $470,000
Expenses
Aggressive
Estimates
Operating $30,000 $360,000 $670,000
Revenue
Operating $27,000 $310,000 $510,000
Expenses

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Headquarters Selection

One of the first items of business for Fresh Air is the selection of a corporate
headquarters. The Express headquarters is located in New York City. However, Fresh

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Air will operate separately from its parent company for both cost savings and legal
purposes. Fresh Air will distinguish itself from the Express brand, not wanting the
airlines to be viewed synonymously. Therefore, it would prefer its headquarters to be in
another city.

Express appointed a Headquarters Selection Committee six months ago. This committee
explored over 50 American cities, narrowing it to six cities just over three months ago,
based on an analysis of economic conditions, public transportation, the local airport, area
growth rate, labor force characteristics, wage issues, and real estate costs and availability.
The committee then met with city and state officials from these six locations to explain
its business proposition and the benefits it could bring to the cities. It also toured the
areas, spoke to leaders of companies already headquartered there, and began discussions
with airport authorities and the airport owners to discuss availability and cost of airport
space. Cities and states then responded with incentive package offers. Two weeks ago,
Fresh Air announced three finalists for its headquarters: Boston, Washington, DC, and
San Francisco.

Copyright © 2004, 2006, 2008, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 2
FRESH AIR: GENERAL INSTRUCTIONS

Fresh Air finds Boston appealing for several reasons, including its young and well-
educated population. The airline plans to hire predominantly from this group, enabling it
to save on labor costs as well as to find smart employees interested in responsibility and
willing to challenge the status quo. Boston’s proximity to New York is also important
since Express is headquartered there, along with numerous potential business partners.
Furthermore, Boston has less LCC competition than is found in the other cities.

Boston is also extremely interested in attracting Fresh Air. The depressed economy over
the past few years has taken its toll on state and local government budgets.
Massachusetts tax revenues have plummeted. See Chart 1. In addition, two landmark
Boston-headquartered institutions, FleetBoston Financial and John Hancock Financial
Services, were recently purchased by larger corporations located elsewhere. The Mayor
of Boston has declared that if Fresh Air chooses Boston, “it will send a message that the
city is a great place for businesses to be located.”

CHART 1

Massachusetts Tax Revenues

30

20
% change from one year ago

10

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Fresh Air must now make its final decision about the best location for its headquarters.
The cities must also make final decisions about how extensive an incentive package they
can provide given other conflicting goals and limited funds. Fresh Air has already met
with DC and San Francisco to discuss building options, incentive packages, and airport
space. The airline has now contacted Boston to schedule a negotiation session to arrive at
a final package of city incentives and airport offerings. You are a member of one of these
teams of negotiators. The Fresh Air team consists of two attorneys from Express who
have recently moved over to Fresh Air. The Boston team throughout the process has
consisted of representatives from the mayor’s office, the Commonwealth of

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FRESH AIR: GENERAL INSTRUCTIONS

Massachusetts, local economic development officials, and Logan Airport. These entities
have elected to send two independent attorneys to represent all of their interests.

The Express and Fresh Air Brands

Express prides itself as a brand standing for quality, innovation, and fun. It views its
brand as one of the reasons it has withstood recent airline troubles better than many of its
competitors. Customer service is at the forefront of this brand. Front-line employees are
challenged to provide the best service they can without the limitations of bureaucratic
rules or procedures. All employees are challenged to innovate in order to improve the
passengers’ experience. Express wants people to love to fly with them so that they keep
returning and recommending them to their friends and family. Not only does this
mindset differentiate Express in the minds of its customers (in a recent survey, more than
90% of Express passengers agreed that Express was rightly defined as quality,
innovation, and fun), but also with its employee base. Express has an average annual
employee turnover rate of only 6%, 30% less than the industry average. While Fresh Air
will differentiate itself from Express as regards the specific value proposition, it believes
that Express’s basic brand points and customer service should transfer easily to Fresh Air.

How Do the Low-cost Carriers Make It Work?

The low-cost paradigm works predominantly because of low operating costs. Most LCCs
operate using point-to-point routes rather than the traditional hub-and-spokes model. A

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point-to-point system provides service directly between two points rather than over a hub,
while the hub structure provides transportation from a local airport to a central hub that
then provides transportation to many cities. Hub airports are more likely to be congested,
which can cause costly delays. LCCs also use more secondary airports near, but not

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located directly in, major cities. This enables the LCCs to achieve faster turnaround times
(thereby needing fewer planes in their fleets) and to pay less for airport facilities. The
hub system also requires more gates and personnel than the point-to-point system, since
flights at a hub usually arrive within 20 to 30 minutes of each other in order to provide
connections. This system creates high demand for gates and personnel for only short
periods of time, but the airlines have to pay the costs for longer amounts of time. In
addition, the planes must sit on the ground longer to provide buffer time for passengers
rushing from one flight to the next, resulting in lower equipment utilization. For
example, an LCC may turn around a plane in 20 minutes from the time it arrives at the
gate until it leaves, whereas a larger airline may average 40 minutes.

Furthermore, LCCs often have labor costs up to 30-40% lower than the network airlines.
Fortune reported that the average wage at one LCC was $44,305 compared to $45,801
and $54,380 at two network carriers. LCCs are still highly regarded employers due to an
often friendly and family-focused culture which provides responsibility and rewards
entrepreneurship. These airlines also save labor costs by flying only one type of aircraft,
which lowers maintenance and training costs.

Copyright © 2004, 2006, 2008, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 4
FRESH AIR: GENERAL INSTRUCTIONS

Obviously, the LCCs also save money by giving fewer perks to customers. LCCs do not
serve meals on flights, and they offer a single class of service, with no expensive and
complex loyalty programs.

See Table 2 demonstrating the lower operating costs for LCCs, but the fairly similar
operating revenue.

TABLE 2

Airline Operating cost per Operating revenue per

(* = LCC) available seat mile (cents) available seat mile (cents)
AmeriFly 9.58 9.78
Atlantic Coast 11.41 9.22
FlyAway 10.14 9.39
Northeast* 7.54 8.51
PlaneRed* 6.81 8.26
Southeast 12.00 9.80
Up We Go 9.78 9.17

Location Incentives

As is the case here, states and cities often compete with each other for the relocation,
expansion or opening of corporations. These subsidies run the gamut in size. Some are
quite large -- for example, Michigan paid General Motors a whopping $107 million to

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build new engines in Flint, MI. Table 3 shows several packages recently offered by cities
and accepted by companies throughout the country.

TABLE 3

Company
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Industry City Total Incentive Company’s Company’s #
package(MM) revenue per of employees
year (MM) in city
Write Rite Paper Cleveland, $4.2 $200 1100
manufacturing OH
Purrfect Pet supply start- Providence, $6.6 $400 700
Products up RI
Relay Music Los $10.2 $200 400
Records entertainment Angeles, CA
company
Stuffy Financial New York $13.8 $900 1800
Financial Services start-up City
FlyAway Large airline Dallas, TX $28.0 $1,000 2000

Traditional incentives often include tax credits, infrastructure improvements, and work
force development. Some states, such as Pennsylvania and Michigan, even feature

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geographic zones free of corporate state tax for a certain period of time. More and more,
though, cities are crafting creative solutions to meet a company’s needs. For example,
when Boeing moved from Seattle to Chicago in Year -3, Chicago’s package included
cash grants to reimburse moving expenses and to pay for retirement of the lease of an
existing tenant in the building Boeing desired. The city also promised Boeing a heliport
downtown to shuttle executives in and out of the city.

Cities rationalize incentives on a variety of bases, including bringing new jobs to the area,
increasing tax revenues for both local and state governments, and the multiplier effect of
the business activity on the local economy. For example, an Arthur Andersen study
estimated that Boeing could have an area economic impact of $4.5 billion over the next
20 years, with each headquarters job creating five more high-end jobs.

In discussions between Fresh Air and Boston so far, property tax abatements,
transportation infrastructure, and employee training have been the major incentives
considered.

Headquarters Building

The selection of an adequate headquarters building is central to a company making a

headquarters decision. In its visits to the Boston area, Fresh Air has negotiated with
office space owners for rental rates. While it visited numerous buildings, three attracted
its interest the most (see attached Map 1 for locations of buildings):

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1. Downtown building
This building is located in the heart of downtown Boston’s Financial District,
near the giants of Boston business like FleetBoston Financial, Putnam
Investments, Fidelity Investments, and numerous large, prestigious law firms.

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The area is conveniently located within walking distance from several MBTA
subway stops on the Red, Green, Orange, and Blue lines. It is also located
very close to top tourist destinations such as the Freedom Trail and Faneuil
Hall. The property is owned by a private management company. The
available space provides 58,000 square feet. It is located approximately 3.5
miles from Logan International Airport.

2. Boston Marine Industrial Park building (MIP)

This building is located in the Marine Industrial Park (“MIP”), the largest
industrial park in Massachusetts. It is approximately 2.5 miles from Logan
Airport. The building is a recently renovated warehouse, so it has an open,
loft-like feel. The renovation has not yet been completed, so the landlord has
agreed to give the tenant input into the end product. The park is on Boston’s
waterfront and is home to a wide variety of companies, including seafood
businesses, light industrial, and the headquarters for the international success
Buns Bakery and the popular Thomas Jefferson brewery. The building is

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FRESH AIR: GENERAL INSTRUCTIONS

owned by a private management company. The space that Fresh Air is

interested in provides 64,000 square feet.

3. Boston World Trade Center East building (BWTC)

This facility is located in the Seaport District on the Boston waterfront. It is
approximately 2.5 miles from Logan Airport. The building is part of a
recently expanded complex consisting of the Boston World Trade Center, the
Seaport Hotel, and the World Trade Center West office building. While the
building is a fairly long walk from the subway, a shuttle bus runs to and from
the Red Line South Station stop every 20 minutes. The major tenant in the
building, occupying 65% of its space is Dribble, Driscoll, and Duluth, the
insurance giant founded in Boston in 1894. The available space is 55,000
square feet and has a traditional layout with window offices and mostly
interior cubicles.

Employee Training

Employee training (also known as work force development) is a common element in

incentive packages. Incentives can vary from a city paying all or a portion of specific
training programs, to developing an on-site training facility. Fresh Air is very interested
in training since it plans on hiring younger employees that have limited work experience
or job-specific skills.

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Infrastructure Improvements

Often a city or state will pay for improvements to infrastructure, such as street, sidewalk,
or site upgrades. The buildings that Fresh Air is considering should not require

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improvements to roadways or thoroughfares. However, public transportation
improvement incentives are also common in urban settings. Fresh Air wants to make
sure that its employees have easy access to transportation for travel to work at the
headquarters building and for travel between the headquarters and Logan Airport.
Besides the regular demands of on-site airport visits, Fresh Air has also indicated that its
open business culture demands regular all-employee meetings and cross-fertilization of
ideas between different levels and job types.

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FRESH AIR: GENERAL INSTRUCTIONS

Logan Airport

Airport facilities are often a factor companies consider when choosing a headquarters
location. Companies want a location that is within easy driving distance of a major
airport from which they can travel to a multitude of destinations. But for an airline
making a headquarters decision, airport facilities are paramount. In fact, Fresh Air
refuses to locate its headquarters in a city where it cannot receive airport space.
Companies tend to build brand recognition and acceptance in headquarter cities faster and
stronger than in other cities; it would be inefficient to waste that brand recognition on a
city where travel on Fresh Air is not available. In addition, on-site visits to review front-
line employees, operations, and facilities are much cheaper from the headquarters
location; wasting this savings again is inefficient. Airlines may also want to run
operational or marketing tests that would be easiest to run in an airport down the street
from headquarters.

Space at airports is highly prized; new, upstart airlines often have a difficult time
acquiring gate space because of the entrenched interests and long-term leases of the older,
larger airlines. When PlaneRed entered New York City’s JFK Airport several years ago,
it negotiated with the New York Legislature to receive gates in exchange for serving
under-served and over-priced markets in upstate New York. Several months ago, Fresh
Air’s prospects for gate space at Logan Airport would have been gloomy, for there was
no space available. However, three major airlines, Southeast, Atlantic Coast, and
AmeriFly have recently entered into a code-sharing agreement whereby passengers can
redeem miles for itineraries that include combinations of any of the three airlines. In
order to receive approval from the antitrust division of the Justice Department, the

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airlines agreed to relinquish a number of gates at airports across the country, including
some at Logan. These gates were slated to go to airlines already with a presence at
Logan already, but Massachusetts Governor Meredith Neely stepped in to convince the
Massachusetts Legislature (the owners of Logan Airport) to cut a deal with Fresh Air.

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Fresh Air had to agree to pay an upfront specific fixed fee per gate, and can now
negotiate the number and location of the gates in tandem with their headquarters
negotiations, given the interaction between the headquarters and the airport. The number
and location of gates they will receive will be a topic at the negotiations before you.

Background on Airport Gates

The airport gates are the crux of an airline’s operations, giving the airline a location to
land, take off, and board its passengers. The number of gates an airport leases influences
how many departing and arriving flights an airline can have at a given airport in a given
day. For example, Dallas Love Field Airport sets a maximum of eight turnarounds per
gate per day. (A turnaround is the combination of an arrival into and a departure from a
given airport.) These turnaround numbers take into account the time a plane must sit at
the gate for each arrival and departure. Customer congestion in the terminal area and
customer check-in are also issues limiting the turnarounds per gate. Table 4 includes
information on turnarounds per gate per day at Logan Airport.

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FRESH AIR: GENERAL INSTRUCTIONS

TABLE 4

Year -10 Year -6 Year -1 Description of airline

Logan overall 4.0 3.9 4.2
average
FlyAway Airlines 3.0 2.8 2.5 Large, network carrier. Began flying in
average Year -30. 13 gates at Logan
Atlantic Coast 4.3 Large, network carrier. Began flying in
average Year -3. 14 gates at Logan.
PlaneRed average 3.2 4.0 4.1 Successful LCC. Began flying in Year -10.
4 gates at Logan.
NorthEast average 4.4 3.3 5.0 Successful LCC. Began flying in Year -15.
5 gates at Logan.

The location and characteristics of the gates are also important. Some may only be able
to handle narrow-bodied aircraft, while others may be large enough to handle all planes.
Convenience for customers is also an issue, which stems from many factors: terminal in
which the gates are located; proximity to security checkpoint; proximity to restrooms and
food and beverage facilities; proximity to public transportation, etc. But convenience for
the plane itself is also an issue: some gates may be located far away from the airport
infrastructure, such as fuel or de-icing stations, or may be situated where planes cannot
push back until other planes have left their own gates.

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Logan Airport has five terminals: A, B, C, D, and E. See Map 2. The airport is New
England’s largest, the nation’s 18th busiest, and the world’s 34th busiest based on
passenger volume. In Year -2, 18.7 million passengers arrived or departed from Logan
on over 325,000 aircraft.

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Terminal A is currently closed for construction and is slated for re-opening in Spring
Year 3. It will then function as the terminal for the large airline Fly Away Airlines.
(FlyAway is currently in Terminal C.) Upon re-opening, the terminal will have 22 gates.

Terminal B has 27 gates. It is home to nine airlines and features a variety of restaurants
and concessions areas before and after the security checkpoint. This terminal has not
been renovated recently.

Terminal C has 30 gates. It is home to 12 airlines and features a variety of restaurants

and concessions areas before and after the security checkpoint. Terminal C was fully
renovated approximately ten years ago.

Terminal D has three gates and is home to one LCC, FlyTron. This terminal was built in
1971 and has not been renovated. The terminal features a Krispy Kreme in the arrivals
area and a snack bar in the departures area (where the gates are located).

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FRESH AIR: GENERAL INSTRUCTIONS

Terminal E, the International terminal, has 11 gates. It is home to 14 international

airlines and the international flights of two domestic carriers. Terminal E just
experienced a major renovation and now includes a restaurant, bar and stores, windows
providing views of the Boston skyline, a seven-lane security checkpoint, and a two-level
roadway with separate departure and arrival areas. The gates that Southeast relinquished
because of the code-share agreement are located in Terminal E.

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FRESH AIR: GENERAL INSTRUCTIONS

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MAP 1

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MAP 2

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 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

FRESH AIR

Confidential Instructions for Fresh Air Negotiation Team

MEMORANDUM

To: Fresh Air Negotiation Team

From: Jeffrey Davis, President, Fresh Air Airlines
Date: March 2, Year 0
Re: Boston Negotiations

This memorandum will detail your goals for this week’s negotiations. You will negotiate
with attorneys representing the Boston team, a group comprised of representatives from
the city of Boston, the state of Massachusetts, Massport (operator of Logan Airport), and
various community economic development organizations. I trust that after reading this
document you will fully understand Fresh Air’s negotiating interests and the terms to
which we are willing to agree. You must be intuitive, imaginative, and intelligent to get

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the job done well. Best of luck!

Introduction

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We have narrowed our headquarters choices to three cities: Boston, San Francisco, and
Washington, D.C. All three cities have tentatively offered competitive incentive
packages and any of the three would meet our basic needs. For several reasons, we prefer
Boston and would like to settle there if you can negotiate a suitable package. First, our
brand meshes well with Boston. Like Express, Fresh Air will build its brand with young
people at the center, so Boston, with its many universities and young professionals, fits
perfectly. We also feel that the city fits our general culture well, especially compared to a
more conservative city like Washington, D.C. Like Boston, we like to work hard and we
like to play hard. Boston also has a lower saturation of low-cost carriers (“LCC”) than
the other cities we are considering, which should enable us to achieve greater market
share in the area. While incentives are important to some extent, at the end of the day,
we want to select the city that will work best for us in the long term.

This case was written by Candace Modlin with the help and under the supervision of Robert Bordone, Thaddeus R. Beal Lecturer on
Law at Harvard Law School. Copies are available online at www.pon.org, Telephone: 800-258-4406, 781.239.1111, Fax:
781.239.1546. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138.
Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 2004, 2006, 2008, 2010 by Candace
Modlin. Distributed with permission. (Rev. 4/10)
FRESH AIR: FRESH AIR NEGOTIATION TEAM

You should try to achieve a package of incentives worth $9.0MM, including property tax
abatements, training, infrastructure, and other incentives to which you may agree. This
amount would render Boston’s package stronger than the packages we received from
Washington and San Francisco, both estimated at only $8.0MM after adjusting for real
estate prices. Ideally, receiving more from Boston than the other cities would enable us
to demonstrate to our investors on a purely financial basis that we selected the best
headquarters city. However, since we prefer Boston to these other cities for qualitative
and long-term business reasons, we will accept a package worth only $7.0MM, but
absolutely no less. While we realize that all cities have been hit hard financially over the
past few years, it is important to us that our headquarters city demonstrates excitement
and respect for our business and our culture, which to some extent must be measured by
dollars.

If Boston will not agree to even $7.0MM, we will choose San Francisco, which, as noted
above, has offered us a package worth approximately $8MM. While this is an acceptable
incentive amount, the city is not ideal since it is far from Express headquarters and is
oversaturated with LCC activity. Also, when Express negotiated for additional space at
the San Francisco Airport several years ago, the officials were very difficult and
inflexible. Even though they have been amicable with us during our negotiations for
Fresh Air, the relations between us are still rocky. Since the airport where our
headquarters is located will be one of our focus airports, we would prefer not to work
regularly with these officials. But we still prefer San Francisco to D.C., given its more
offbeat and relaxed culture.

Throughout your negotiations, I urge you to always keep in mind our corporate brand and

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culture. Like our parent company, Fresh Air will strive to provide a high-quality and
continuously improving travel experience for our passengers through employee
empowerment and innovation. For example, some of our specific plans include discounts
for purchasing tickets via the Internet, and musical performances in the terminals. We

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can build this strong brand identity only by spreading the word about our company and
backing it up by providing superior service to our passengers.

Headquarters Building

Introduction

We have already negotiated lease prices with the landlords who own the buildings.
However, the Boston team is still involved in negotiations with these properties because
we have requested property tax abatements. Although we are planning to lease the
building space, the abatements will be passed on to us from the landlord, giving us real,
“out of pocket” savings. (Such a practice is not entirely uncommon; when Copy-R-Us
moved to Denver recently, the city gave the company a tax abatement on real property
worth $10MM, even though they are leasing their office space.) You will be negotiating
present value dollar amounts of abatements.

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FRESH AIR: FRESH AIR NEGOTIATION TEAM

We have not received tax abatements from San Francisco or Washington. However, the
office space we are considering in these cities is significantly less expensive than that in
Boston both because the market price for office space is less and because we have
received some incredible reductions in fair market value from the landlords. So we need
some property tax abatements from Boston to narrow the price differential to zero or at
least to a reasonable level.

Downtown

While we have visited one of Boston’s downtown facilities several times, we do not want
to locate there. Our entrepreneurial and innovative culture will not be served by locating
in one of the cookie-cutter downtown buildings. Regardless of the buildings themselves,
we do not want our employees to be surrounded by the uninspired atmosphere that
plagues most of corporate America. If Boston will not agree to our requests for the other
two buildings and this one is the only option, we will not locate our headquarters in
Boston.

Boston Marine Industrial Park (MIP)

This building is perfect for us. It is a renovated warehouse with high ceilings and a
nontraditional feel about it. Furthermore, the owner has not completed the renovation yet
and has agreed to give us input in the design of the office space. We can achieve an
office structure with open spaces and fewer doors, creating open communication and less
of a sense of hierarchy. We can also decorate the building in a manner that will energize
our employees, rather than strip them of their individuality and creativity.

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Another reason we prefer this building is that there is plenty of space nearby for the flight
simulators we require to train all of our pilots. (We will need space to house several
flight simulators and 10 computer-based programs.) If we locate at the MIP, the training

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facilities would be within walking distance so that time (and money) would not be wasted
moving from building to building.

The main problem with the MIP is that it does not have transportation to and from the
subway. It is paramount that our employees have easy access to the headquarters
building. Many of them, especially recent graduates with limited funds, will not have a
car. We would like the city to pay for this transportation expense. It only makes sense,
since there are numerous other companies in the industrial park that could also benefit
from the service. Furthermore, it is poor planning on the city’s part to build an office
park that lacks access to public transportation; it does not seem fair to burden us with
such an expense. If Boston is not willing to cover the costs of the shuttle service, perhaps
you could negotiate a deal whereby we only pay an equitable portion of the total cost.

Since we like this building so much, we are willing to choose Boston as our headquarters
if we receive a tax abatement of only $2.8MM. This would equate the price of the
building to the space we are considering in San Francisco. However, if you can achieve
even more, that would be outstanding. The building in San Francisco is in an upscale

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FRESH AIR: FRESH AIR NEGOTIATION TEAM

area of the city, near restaurants, shopping malls, and private homes, rather than in an
industrial park. Therefore, it only seems fair to pay less for the Boston building by
receiving a greater than $2.8MM abatement. However, if $2.8MM is all you are able to
achieve, we like Boston and the building enough that we would still locate at the MIP.

Boston World Trade Center East (BWTC)

While this building is not ideal, it is one that we will accept with a favorable enough
incentive. The building is part of a new complex at the Boston Waterfront, consisting of
two office buildings completed within the last several years, a major hotel, and
Commonwealth Pier. Our biggest problem with the building is that it is structured in
traditional closed offices and tight cubicles. We would prefer a more open and
inspirational environment for our employees. Proving our point about the uninspired
office space is the fact that Dribble, Driscoll, and Duluth, the blue-chip insurance giant,
has a satellite office occupying more than 60% of the building. We do not want to taint
our relaxed and innovative office environment with stodgy, suit-garbed insurance
employees.

Furthermore, as an airline, we would prefer not to go into a building named the “World
Trade Center,” given the horrific events of September 11, 2001. This concern is not a
deal breaker, but simply another reason we are not more excited about this building.
Another concern is that this area of the city is denser than the MIP area, so there is no
space available for the flight training facilities that our pilots need for learning and
practicing.

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One benefit to this building, however, is the fact that shuttle buses already operate back
and forth to the South Station MBTA subway. Our employees would therefore have an
easy commute to work.

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The landlord has offered us an outstanding deal. You should communicate to Boston that
we realize we have received special consideration from the landlord and appreciate that.
However, despite the discounts, this building is still more expensive than the MIP
building. You will need to negotiate an abatement of at least $3.8MM to agree to locate
at the World Trade Center. Furthermore, if you decide to locate there, the total incentive
we require from the city will be $8.0MM, NOT the $7.0MM that is otherwise our bottom
line. This accounts for the added expense we would incur for locating at the BWTC.

Transportation

Transportation to and from the headquarters building and the airport will be crucial.
Regular communications and interaction among employees of all different levels is
paramount to their job satisfaction and, indirectly, through friendly employees and
innovation, to the satisfaction of our passengers. We do not want to create a culture
where different types of employees come together just for annual “town hall” meetings,
but one in which employees come together informally, in the snack bar, in the games

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lounge, and for regular cross-fertilization meetings. Having a distinct line between
“headquarter employees” and “airport employees” is unacceptable. We must have
regular and easy transportation between the headquarters building and the airport.

Based on estimates received from Boston, shuttle service between a headquarters

building and the airport will cost $4.3MM for 15 years of service (present value dollars).
Obviously, we would like to receive whatever amount of funding the city is willing to
offer for transportation. But, if possible, you should focus more during the negotiations
on training incentives. (See below.)

Training

Based upon my experience at Express, I believe that well-trained employees can make
the difference between success and failure in the airline industry. However, other Fresh
Air executives have recently argued for a decrease in our training budget in favor of other
budgetary items. If everyone agrees on this issue, I, as the newly selected president will
have no choice but to submit. There are many issues that are up for debate right now, and
I cannot stand firm on this issue when others are arguably more important. But, if you can
negotiate with Boston to cover some of our training costs, the Fresh Air training budget
will be smaller and therefore less likely to be decreased. We would still be able to offer
our desired high levels of training.

Despite our current disagreement about an exact training budget, Fresh Air and our parent
Express believe strongly in the value of training. We plan to hire many young employees,

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most directly from college, who have never held a permanent job, so we must train them
in general professional protocol, the airline industry, and their specific job responsibilities.
At the outset, we anticipate needing $5,000 to train each of our 1,000 initial employees,
totaling $5.0MM. You must try to get at least $2.0MM from the city, since this is how

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much we may be forced to decrease the training budget. Without this funding, we would
not be able to offer the highest level of training or an employee education reimbursement
program. Such a program allows employees to take courses for college credit at local
universities, for which their tuition is reimbursed. Express employee surveys have told
us that this benefit is highly valued; it shows that we respect them as people, not merely
as workers. The rest of the training budget will cover the following: $1.0MM for job-
specific training, mostly for front-line employees working directly with passengers;
$800,000 for analysis and strategy training for recent college graduates; $800,000 for
customer service training; and $400,000 for basic professional, computer, and telephonic
skills.

Miscellaneous Incentives

Besides the issues noted here, if you and Boston have other ideas, then you should
certainly discuss them, but it would be best not to commit unless you are sure that they fit
closely with our goals and concerns. Alternatively, you could discuss them and note in

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FRESH AIR: FRESH AIR NEGOTIATION TEAM

your agreement that each side agrees to continue to discuss whether feasible. And if you
do commit, please make sure that you value these creative alternatives as much as they
cost Boston, since the alternatives may reduce other benefits we could receive.

Airport Gates

Initial Number of Gates

First, we know that we have been lucky to receive the Commonwealth of Massachusetts’s
support in acquiring gates at Logan Airport. So that we do not seem unappreciative, it
will be important throughout the negotiations to remember how many airlines we
bypassed in order to be in this negotiating position. On the other hand, negotiating for
gates at the same time as the headquarters gives us some power that we would not
otherwise have. Leveraging the headquarters selection for the airport issues may prove to
be helpful.

Our current business plan projects for six to 10 flights arriving to and departing from
Boston each day during our first three years (i.e., six to 10 total turnarounds). These
numbers have recently increased from earlier projections due to revisions of profitability
estimates of our planned routes. We need an adequate number of gates to support these
turnarounds. Too many turnarounds at one gate can lead to plane delays and passenger
congestion in the gate area, two outcomes to which we do not want to subject our
customers. We also want to have ample gates for growth if our routes are more popular
and profitable than we estimate. The six to 10 flights projection is a conservative figure
and could rise to 12 to15 if all goes well. Given the improving economy and the

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marketing and pricing experts that Fresh Air has hired, these higher numbers are
altogether reasonable. We do not want to be limited in our growth by the number of
gates we are allotted. Furthermore, the more gates we have, particularly in our
headquarters city, the more prominent our presence will be at the airport. Such a

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presence will be especially important in the first few years of our existence, as we build
our brand and sell our first precious tickets.

We will accept as few as two gates initially, which will enable us to handle our lower-end
estimate of six turnarounds at an adequate level. However, we would prefer four because
of delay, congestion, and growth potential, as noted above. San Francisco and
Washington have each promised us three gates.

We know that most, if not all, of Massport’s gate leases mandate that the airlines
relinquish one or more gates if their average turnarounds per gate do not reach the
airport’s average for two consecutive months. We do not have a problem with such
language in the mid to long term, but would like at least several years of not being judged
by this standard. After all, we need some time to work out our operations, learn about the
profitability of different routes, and solidify our business plan.

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Future Number of Gates

Boston has communicated to us that Terminal A, currently closed for renovations, will
reopen in Spring of Year 3. FlyAway, currently in Terminal C, will then move to
Terminal A, opening up 13 gates in Terminal C. We definitely expect a portion of these
empty gates.

We are projecting 15 to 20 arriving and departing flights in Year 3. However, since we

have not made one flight yet, these turnaround projections are not set in stone. We would
accept no fewer than four total gates since cramming 20 daily flights into fewer than four
gates would cause unacceptable delays and congestion. Even four gates would constrain
us more than we would like; we would prefer seven, since, as noted above, we would
then be able to serve our customers better and not be growth-constrained because of
operational deficiencies. San Francisco has agreed to give us four gates by Year 3;
Washington has agreed to give us five.

Standard industry practice between airlines and airports is a 10-year lease for airport
gates. We are fine with this.

Remember that the price structure for these gates has already been determined in earlier
negotiations, so that does not need to be a point of discussion.

Location of Gates

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In our previous talks with Boston, we have surmised that Massport would like to give us
a dedicated terminal at Terminal D. This solution does not seem adequate. First, we
would prefer more than three gates, so Terminal D would not suffice for that reason. But
just as importantly, Terminal D is the oldest facility in the airport and offers sub-par

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amenities for passengers. For food and beverage, it currently offers only a snack bar,
serving hot dogs, pizza, cookies, chips, etc. The restrooms (only one men’s room and
one women’s room) are outdated, without automatic water and flush sensors, and with
antiquated décor. We do not want our passengers to feel that they are flying a second-
class airline and we firmly believe that the inadequacies of Terminal D would make them
feel this way. We also want passengers from other airlines to see how well Fresh Air
treats its passengers, which will not occur if we are isolated in Terminal D. While we
have not been offered ideal terminal space by other cities, we have at least received space
in the middle of large terminals replete with concessions and modern restroom facilities.
Terminal D is simply out of the question for us with its current limitations. We like
Boston, but the airport package is too important for us to ignore – if we are forced into
Terminal D as it is today, I do not see how we can select Boston for our headquarters.
The short-term will be very important in the success or failure of our business – if we do
not make it at the beginning, we will simply not make it.

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Ideally, we would like our gates to be in Terminal C. Terminal C was renovated in the
last 10 years, has plenty of amenities both outside and inside the departures area, and,
with 30 gates, has plenty of passengers coming through.

Gates in Terminal E would be acceptable. This is where Southeast is located, so its

relinquished gates are here. (The exact number of gates to be given up has not yet been
published.) Terminal E has just been renovated, so it features lovely and modern
facilities. However, currently it services only international travel. As noted above, we do
not want our passengers to feel that they are traveling an out-of-the-loop airline and we
want other domestic passengers to see our happy customers. Terminal E does not meet
these interests. On the other hand, though, there is something exotic about international
travel and word-of-mouth travels even with international passengers, so this location
would be fine.

However, when spaces open up in Year 3, we would like to move to Terminal C, a

modern facility in the mainstream of domestic travel. For the benefit of our passengers,
we would like the gates closest to the security checkpoints. FlyAway currently leases
these gates, so they should be available after FlyAway moves to Terminal A. These gates
are more convenient for customers since they have less distance to walk. They also have
fewer delays because they feature greater space per gate. Tightly spaced gates can
sometimes create delays, since planes may have to wait to push back from gates until
planes at neighboring gates have pushed back. Customer service is of course paramount
and anything we can do to improve our customers’ experience, no matter how small it
seems, we would like to do. Getting these positions will be difficult, but it is worth a try.
After all, it is extremely difficult to receive gate space at all without waiting many years,

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and we have made it past that obstacle.

If these gates are not available, we prefer gates as close to the security checkpoints as
possible. Please do what you can to put us close to the security checkpoint and to these

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amenities. We would also like other airlines’ patrons to see how our passengers are
enjoying themselves, both because of our general customer treatment but also because of
the free performances we will offer. Therefore, being at the very end of the terminal is
not acceptable. We will consider having our gates at the end of the terminal if they start
at lower than Gate 24.

Miscellaneous

Our main goals are to build our brand by serving our customers and leaving them
wanting to fly again with Fresh Air. Any additional ways that you can gain the assistance
of Massport in this effort would render the negotiation even more successful.

On behalf of the management and investors of the newly incorporated Fresh Air Airlines,
thank you for the time and effort you will put into this very important project. Since we
prefer Boston to our other city choices for numerous reasons, the other executives of

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FRESH AIR: FRESH AIR NEGOTIATION TEAM

Fresh Air and I will be most disappointed if you cannot meet these goals in your
negotiations. Best of luck!

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 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

FRESH AIR

Confidential Instructions for City of Boston Negotiation Team

MEMORANDUM

To: Boston Negotiation Team

From: Sarah Seidmann, Office of the Mayor of the City of Boston, Boston Team
Date: March 2, Year 0
Re: Fresh Air Negotiations

This memorandum details your goals for this week’s negotiations with Fresh Air. I have
discussed these issues with all members of the team working to bring Fresh Air to Boston
and have negotiated internally with these parties where necessary to arrive at these
objectives. I trust that after reading this document you will fully understand Boston’s
negotiating interests and the terms to which we are willing to agree. You must be
intuitive, imaginative, and intelligent to get the job done well. Best of luck!

Introduction
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Boston experienced a boom in the second half of the 20th century, as financial services,
mutual funds, and health care increased in importance in the American economy. The
many universities of Boston also grew in popularity and stature, bringing in some of the
brightest minds in the country, many of whom decided to stay after graduation. Several
of these schools developed top-notch performing arts schools which contributed to a
regional cultural boom. Some of the fast-growing high-tech sector also settled in the
Boston area.

However, the economic decline of the last few years has hit Boston hard. In addition to
general economic factors felt across the country, Boston’s interests in the high-tech
industry experienced particularly steep decline. Office space development in the city
came to a halt. Furthermore, Boston saw the leadership of some of its homegrown
institutions move to other cities. Even though the institutions plan to keep operations in

This case was written by Candace Modlin with the help and under the supervision of Robert Bordone, Thaddeus R. Beal Lecturer on
Law at Harvard Law School. Copies are available online at www.pon.org, Telephone: 800-258-4406, 781.239.1111, Fax:
781.239.1546. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138.
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FRESH AIR: BOSTON NEGOTIATION TEAM

the city, having leadership elsewhere communicates that Boston is no longer at the center
of business deals, decisions, and innovation.

While as leaders of Boston we believe the city much lot going for it -- the improvements
resulting from the Big Dig, the strong biotechnology industry, an amazing array of
universities -- the recent developments make us anxious. Therefore, we want to bring
new businesses to the city, showing the country and, most importantly, other companies
looking for a home, that Boston is a great place for business. We are in the process of
developing new incentive programs and a more streamlined process for attracting new
companies. As the negotiators, you must reach an agreement so that we can kick off this
effort by bringing in Fresh Air.

Cash is Scarce

Even though we really want Fresh Air, there is only so much we can afford right now to
bring them here. Fresh Air paints a strong financial picture of itself, and given the
relative success of Express and the recent success of LCCs in general, these projections
seem realistic. But we cannot afford to make a solid long-term investment if it strips us
of much-needed funds in the short-term. Such cash constraints could leave us unable to
pay basic city or state expenses and would also be politically unpopular among the
electorate, given the tough financial straits of so many of our citizens. Already the mayor
is only offering minimal pay and budget increases of 1.5% to important city
constituencies, such as the police and waste collection departments. (This negligible
increase amounts to a decrease in real pay.) And, with an important convention coming

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up in July, we must have ample funds available for aesthetic and structural improvements
to the city during the next few months. Furthermore, the mayor does not want to anger
city groups to the point where they would protest at the convention. She can think of
nothing worse, in today’s times of safety concerns, than television cameras broadcasting

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police picketing outside the convention.

We would like to contribute no more than $6.0MM in incentives to Fresh Air, including
property tax abatements, training, infrastructure, and any other incentives to which you
may agree. This will enable us to meet all of our cash needs noted above. But, we are
also forward-thinking enough not to limit ourselves and to potentially exclude a fast-
growing and eye-catching company from the city. So, if truly necessary, you may create
a package worth $8.0MM. While we would have to decrease some of our spending in
various city departments (such as only a 1% increase to the police department), a high
level of anger and unrest would probably not result. But nothing more will be acceptable.
There would be too much risk – 10 years ago, we gave the police department just a 0.5%
increase, and they staged a walk-out. Any such reaction would be unacceptable with the
upcoming convention.

If you do not reach agreement with Fresh Air, the mayor and governor will certainly be
disappointed – they believe that the company’s presence will pump money into the
community as well as raise the city’s visibility in the business community. They will also
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lose face since Fresh Air’s visits and negotiations have been highly-publicized both
locally and nationally.

The only other company that Boston is in discussions with currently is Tabletops, Inc., a
company that manufactures tables and desks. It is currently located in Mobile, AL, but
due to the declining labor market there, is looking for a new home. Tabletops plans to
bring 900 jobs, similar to Fresh Air’s 1,000. However, it is not projecting much growth
and, obviously, a table company is not as high-profile and potentially rejuvenating to a
business community as an airline.

Headquarters Building

Introduction

We would like to persuade Fresh Air to locate its headquarters in certain buildings rather
than others because of the politics and implications surrounding specific buildings and
areas. As noted earlier, Fresh Air has already negotiated rent prices with the owners of
the buildings. However, we are still involved in the negotiation process because of our
ability to offer real property tax abatements. Although Fresh Air is planning to lease the
building space, the abatements will be passed on to the tenant from the landlord, giving
Fresh Air real savings. (Such a practice is not entirely uncommon; when Kinko’s moved
to Dallas recently, the city gave the company a tax abatement on real property worth
$4MM, even though they leased their office space.) You will be negotiating for present
value dollar amounts of abatements.

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As noted earlier as regards the total incentive package, the Boston team has agreed that
we must place a ceiling on the property tax abatements offered. Unlike other cities that
have offered huge incentive packages including property tax abatements in the past, this

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technique is relatively new for Boston. We do not want to begin our new business
campaign by offering overly generous tax discounts, which could anger local residents.
While we can educate the electorate over time regarding the long-term benefit that such
companies can bring to the city, offering excessive direct tax abatements right now could
prove troublesome.

Downtown Building

With the slump in economic activity, the traditionally full downtown offices now have a
15% vacancy rate, compared with only 1% six years ago. Such prime space in the heart
of the city sitting vacant is an embarrassment for us and is a situation we would like to
ameliorate. In addition, the particular space Fresh Air is considering is left open from
mutual fund giant’s Crooked Guys, Inc.’s decision to close its Boston office. While
filling any space would generally look good for the city, filling this specific space would
be great publicity given the business capital that was lost when Crooked Guys left. Please
try as hard as you can to get Fresh Air in this building.
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The price that the landlord is offering on this building is a steal; we are lucky that the
landlord was willing to offer such a low rate. However, the price still might be more
expensive than rates that other cities are offering to the airline. (In fact, we have heard
rumors that some cities may be offering rent-free space for several years.) While we (and
the landlord) cannot go as far as to offer free rent (and would not want to set such a
precedent), we are willing to offer up to a $5MM tax abatement, if Fresh Air decides to
locate in this building.

We believe this building could meet Fresh Air’s interests, since the heart of the city is
very close to Logan. The building is also already close to public transportation, which
would make work travel easy for Fresh Air employees. Just as importantly, the building
is close to the Government Center MBTA subway stop, which provides direct access via
the Blue line to Logan Airport.

Boston Marine Industrial Park (MIP)

This is our last choice for Fresh Air’s headquarters location. We do not have a particular
problem with it, but given our interests in Downtown and the Boston World Trade Center,
we would like to use our incentive dollars to persuade Fresh Air to locate there. If Fresh
Air is adamant about locating in the MIP, then by all means let them locate here; we do
not want to lose the company because of building selection. But if you sense that they
are open to the other locations, then please do all you can to get them in one of the other
buildings.

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We would like to offer an abatement of no more than $1.4MM for this building. Besides
the fact that we do not particularly want them in this building, its price is less than the fair
market value of office space in San Francisco, so we do not feel that we must offer

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significant tax abatements. But if this is where they really want to go, we are willing to
offer the sizeable abatement of $3.6MM if it will bring them to Boston.

If Fresh Air insists on this building, they will likely want public transportation or some
sort of shuttle service between the South Station MBTA subway station and the office
building. We would be happy to help them pay for this, but the expenditures will count
towards the total incentive package spending. It might behoove Fresh Air to have us pay
for at least part of this service as opposed to paying for it on their own, since we receive a
20% discount from standard market rates. (Because we contract regularly with local
private bus companies to supplement our regular public bus lines we receive volume
discounts.) This shuttle service will cost approximately $4.3MM in present value dollars
over the next 15 years. (Note that this figure is a fair market value amount, not a
discounted one.) There are ten other major tenants in the industrial park that might also
benefit from such a service.

One advantage that Fresh Air will certainly find in such a building is its proximity to
potential space for flight simulators. Fresh Air has told us that they need a building to
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FRESH AIR: BOSTON NEGOTIATION TEAM

hold several flight simulators and 10 computer-based training stations. The industrial
park has several open, unrenovated buildings which could house such facilities at a low
cost.

Boston World Trade Center East (BWTC)

As noted above, we prefer this building to the MIP. The BWTC is part of a new complex
at the Boston Waterfront, consisting of two office buildings completed within the past
several years, a major hotel, Commonwealth Pier, and retail stores. While the opening of
the development was much-anticipated, it has not experienced the success we would have
hoped. Major tenants initially seemed interested, but then many selected space
downtown or outside the Boston area. This result has been extremely disappointing for
us, since we worked with developers for years to create an area plan, publicized the new
buildings, and spent upwards of $20MM on site and transportation improvements. In
addition, the city guaranteed certain lease amounts to the developers which have not been
met and for which the city is now financially responsible. The mayor’s office has
received much flak recently from the Boston Globe about the fledgling project.

Due to these general vacancy issues with the buildings and the fact that a tenant
(international bookseller Noble Narratives) recently broke a multi-year lease, the landlord
is offering a very favorable rate on this space. This rate makes the building only slightly
more expensive than the fair market value of similar buildings in the other finalist cities.
Therefore, you should explore the possibility of no incentive at all on this building. In
fact, we think this would be extremely fair. If Fresh Air will not locate in the Downtown

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building, we have a strong interest in having them locate at the BWTC rather than the
MIP. But we cannot offer too high an abatement for fear of angering our constituents and
setting a bad precedent. Thus, you may offer a tax abatement of up to $4.25MM. In
addition, if Fresh Air locates at the BWTC, we can increase the total maximum incentive

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package we can offer from $8.0MM to $9.5MM. This accounts for the financial
obligation to the developers that Fresh Air’s lease will fulfill for us.

We also like this building because shuttle buses are already operating back and forth to
the South Station MBTA subway.

You should assure Fresh Air that the management company of BWTC would be a superb
landlord. I remember reading an article about their negotiations with Dribble, Driscoll,
and Duluth (“Dribble”), the blue-chip insurance giant whose satellite office occupies
more than 60% of the building. When Dribble decided to expand its operations in Boston
and to use the BWTC building as an experimental work environment (i.e., unique cubicle
set-ups, large open spaces, casual dress), the landlord cut them a great deal on the
building improvements and assisted with the changes.

A potential problem that Fresh Air may have with this location is the lack of space for
flight training facilities. The BWTC area cannot accommodate such a facility due to its
building density.
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Transportation

Fresh Air has mentioned several times to us that their headquarters must be within
walking distance from or have adequate transportation to the airport. They see regular
communications and interaction between employees of all different levels as paramount
to the satisfaction of their employees and, indirectly, through friendly employees and
innovation, to the satisfaction of their passengers. Only the downtown location features
public transportation to the airport. None of the locations is within walking distance, all
being over 2.5 miles from the airport. Therefore, unless Fresh Air chooses the downtown
location, they will have to create transportation between headquarters and the airport.

We would be willing to contract with our regular bus contractors in order to meet this
need. Like the shuttle from the subway to the headquarters building, we estimate that this
would cost $4.3MM fair market value for 15 years of service (present value dollars). We
would like to contribute towards these shuttle services rather than other incentives for
several reasons: First, we receive a 20% discount from fair market value since we
contract with these bus companies regularly; thus, having us provide the services is an
efficient solution. (Keep in mind when calculating the total money expended that a
discount means that we do not have to pay the fair market value of what Fresh Air
receives.) Second, it is not likely that every company considering Boston would value
additional transportation services as much as Fresh Air, so we would be setting a less
problematic precedent. Third, last year, we signed a contract with a local bus company to
complement our own local bus service. We had anticipated a shortfall in buses and

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contracted with a bus company to pick up the slack. However, as it turned out, we have
not needed the extra bus service. We now have a contract for bus services that we do not
need and would like to be able to offer these services as an incentive to Fresh Air. (Even
though we already have this contract, any transportation subsidies must still count

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towards the overall incentive package amount.)

Given our preference for transportation incentives, we would like the first $2.5MM that
you agree to spend after property tax abatements to be spent on transportation. This
should be fairly easy to persuade Fresh Air to agree to, since with our discounts the deal
would be efficient, and we know that Fresh Air needs the transportation. But, obviously,
our overall goal is to minimize how much we must spend in total -- if you sense that this
guideline will cause us to spend more overall, then it would be prudent to ignore it.

Training

While we prefer transportation incentives to employee training, we prefer employee

training to property tax abatements. We receive discounts for employee training
(although not as high as for transportation), so the arrangement is more efficient.
Furthermore, employee training is more accepted by the public than tax abatements since
it injects money into the community by training the constituents themselves.
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You can agree to any amount of training up to the total incentive amount if necessary,
although please keep in mind our preference for transportation, if possible.

Miscellaneous Incentives

Besides the issues noted here, if you come up with other ideas, you should certainly
discuss them with Fresh Air. The mayor values imaginative thinking and would be even
more pleased with the agreement if it demonstrates creativity, since such solutions often
satisfy both parties. It would be best not to commit unless you are sure that solutions fit
closely with our goals and concerns. And if you do commit, be sure to distinguish
between those solutions that impose costs and those that do not, since even the most
creative ideas could still be expensive. Please make reasonable estimates about what
such solutions might cost and include these totals in the total package cost.

Airport Gates

Initial Number of Gates

The Commonwealth of Massachusetts believes that bringing Fresh Air to Boston should
be a top priority, which is why we have granted it the opportunity to move ahead of other
more established airlines. Therefore, we will give Fresh Air at least one gate. But we
absolutely cannot offer them more than three. Southeast will relinquish this number of

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gates soon pursuant to the Justice Department order. (This number has not previously
been released to the public and should not be released at this point in time. Please be
discreet in how you communicate our constraints to Fresh Air.) However, numerous
other airlines are also waiting for additional gates, so please try to get Fresh Air to agree

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to only one or two gates. That way, we will have the flexibility to offer additional gates
to other airlines, some of which have been waiting more than five years.

Fresh Air’s current projections estimate six to 10 turnarounds per day at Logan for the
first two years of its existence. This number is reasonable – we know that Northeast and
PlaneRed had similar turnarounds at their initial airports in the beginning.

Most of our leases for gate space include a provision mandating that the airlines
relinquish one or more gates if their average turnarounds per gate do not reach the airport
average for two consecutive months. (FlyAway is allowed to keep its gates at lower
levels only because it came to the airport before such clauses were included in leases.)
We have told Fresh Air about this clause and sense that they might dispute it since they
naturally may fear that they will have ups and downs. We are willing to compromise on
this issue if Fresh Air protests too strongly, but you might want to use this flexibility
strategically. Fresh Air knows that we have required this clause in every other contract,
so it would seem natural that we would require it with this one.

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Future Number of Gates

Terminal A, currently closed for renovation, should be completed in Year 3. Fly- Away
Airlines will then be leaving 13 of its gates in Terminal C and relocating to Terminal A.
We can offer Fresh Air additional gating at this point in time, but will be limited to
offering only six total gates. Of course, the fewer gates we have to give Fresh Air, the
better. Numerous other airlines have been on the waiting list for these Terminal C spaces
for several years. While we are somewhat flexible, we cannot be patently unfair to our
other airline constituents. And, even though we are willing to be flexible with meeting
the requirement of average number of turnarounds per day, we must insist that this
requirement be met by Year 3 in order to offer Fresh Air additional gates then. Other
airlines are already going to be angry with us for moving Fresh Air ahead in the waiting
line for gates. But if we give them additional gates even if they are under-utilized, the
backlash from other airlines could be significant -- the re-opening of Terminal A has been
much-anticipated for years.

Beyond offering these new gates in Year 3, you should not offer any more in future years.
In the next few years, Logan Airport will undergo significant changes and we cannot
know what the airline industry will look like given its great instability in the recent past.
While you are free to commit to a 10-year lease on the gates available now and the gates
available in several years, do not offer any additional gates beyond Year 3.

Also, remember that the price structure for these gates has already been determined
between the Commonwealth of Massachusetts and Fresh Air, so does not need to be a

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point of discussion.

Location of Gates

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We would like to offer Fresh Air a dedicated terminal in Terminal D, where low-cost
carrier (“LCC”) FlyTron is currently located. FlyTron has leased space at Logan for over
10 years. Their major point of differentiation is not service but price, although I am not
sure how well this strategy is working for them, since I read recently that they are
severely cash-strapped. For several years, FlyTron has asked to move from this terminal,
but we have not previously had space anywhere else. The gates that Southeast will
relinquish are in Terminal E, so we would like to move Flytron into Terminal E and
Fresh Air into Terminal D. Terminal D is our oldest facility. For food and beverage, it
currently offers a snack bar in the departure area, serving hot dogs, pizza, cookies, chips,
etc. If we unilaterally give the spaces in Terminal E to Fresh Air rather than FlyTron,
FlyTron would surely react negatively about the lack of respect shown by Massport,
Boston, and even Fresh Air. Not only would this generate a slew of negative publicity
about both the airport and Boston, but it could also impair our political capital for
bringing additional corporations to the city.

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With this FlyTron problem, it seems very unlikely that we will be able to offer Fresh Air
the space in Terminal E. Otherwise, though, Fresh Air would likely be thrilled with this
location since the terminal just underwent a major renovation. The modern amenities
should certainly satisfy their customers. While the rental prices for Terminal E are
normally greater than Terminal D, this will not be an issue before you, since prices have
already been negotiated.

We absolutely cannot offer Fresh Air space at any of the other terminals. Airlines
currently in these terminals will not want to move around to help out a new LCC and
their leases do not require such action.

This Terminal D versus Terminal E issue is only one for the short-term. After Terminal
A opens and we offer Fresh Air additional gates, they will have to leave either terminal,
since Terminal D only has three gates and Terminal E only has eight. At that point in
time, we will need to move them to Terminal C, where FlyAway will be leaving gates.
This terminal has been renovated fairly recently, so we hope that it will meet Fresh Air’s
expectations and needs.

The exact location of gates even within a specific terminal is extremely important to
Fresh Air. While there will be no choice of gates in the short-term in Terminal D or E,
all gates will be reassigned in Terminal C when FlyAway leaves. Therefore, the location
of gates after Year 3 is definitely an issue to negotiate.

FlyAway currently has the most sought-after gate positions in Terminal C, those closest
to the security checkpoint. Not only are these the most convenient for passengers, they

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have the most space allotted for each plane. These larger gates will hold full-body as
well as narrow-body planes. Tightly spaced gates can also sometimes create delays,
since planes may have to wait to push back from gates until planes at neighboring gates
have pushed back.

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These most advantageous gates will be assigned by seniority to other airlines at Terminal
C and Logan Airport. We absolutely cannot give these coveted gates 1-13 to Fresh Air.
However, the other gates should be fine for Fresh Air since, according to their plans, they
will only fly narrow-bodied planes. All gates will accommodate narrow-bodied planes.

If Fresh Air is concerned about proximity to the security checkpoint, you can offer them
gates along the middle of the terminal. There are 30 gates at Terminal C. If necessary,
you can offer gates beginning at Gate 14. Of course, doing so will necessitate pushing
other longer-standing airlines down the terminal, so the farther down the terminal you can
place Fresh Air (higher numbers are farther away), the better.

It is possible that Fresh Air will have additional airport requests, since they seem to have
exacting ideas as to how their passengers should be served in order to build their brand.
As with the incentive package, feel free to discuss these requests, but before you commit,
make sure that they fit closely with our goals and concerns. Again, if you do commit, be
sure to distinguish between those solutions that impose costs and those that do not or are
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self-supporting, since even small requests could be expensive. Also remember to make a
reasonable estimate of the costs of such solutions.

On behalf of the city of Boston, the Commonwealth of Massachusetts, and the authorities
of Massport, thank you for the time and effort you will put into this very important
project. Best of luck in your negotiations!

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