Order: 2014-3-14 

Served: March 28, 2014 

UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

 Issued by the Department of Transportation 

on the 28th of March, 2014 

Essential Air Service at 

SIOUX CITY, IOWA 

WATERLOO, IOWA 

Under 49 U.S.C. 41731 et seq. 

DOCKET DOT-OST-2011-0131 

DOCKET DOT-OST-2011-0132 

ORDER SELECTING CARRIER 

By this Order, the Department is selecting American Airlines (American) to provide Essential 

Air Service (EAS) at Sioux City and Waterloo, Iowa, for annual subsidies of $611,334 and 

$945,546, respectively.1

Background 

By Order 2011-12-2, December 8, 2011, the Department selected American Eagle Airlines, a 

regional affiliate of American Airlines, to provide 13 nonstop round trips per week to each 

community, Sioux City and Waterloo, from Chicago O’Hare International Airport (ORD). We 

made the rate effective for a two-year period beginning when it inaugurated EAS at both 

communities through the end of the 24th month thereafter. The carrier inaugurated service at 

both communities on April 3, 2012, thus making the expiration date April 30, 2014. American 

Eagle was selected to provide service at Sioux City with 50-seat aircraft and 44-seat aircraft at 

Waterloo, with annual subsidy rates of $1,512,799 and $1,541,824, respectively. 

As the end of the contracts were approaching, by Order 2013-11-3, November 1, 2013, the 

Department requested proposals for EAS at the two communities for a new term. The Order 

requested proposals consistent with the historical service pattern of 13 nonstop round trips per 

week to Chicago. The Order indicated that carriers could also submit proposals with different 

 

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.
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aircraft types to different hubs that would accommodate historical traffic levels. All proposals 

were to be submitted by December 2, 2013. American submitted proposals at both communities 

and United Airlines, Inc. (United) at only Sioux City. 

Proposals of American at Sioux City and Waterloo 

American proposes to continue to operate thirteen (13) nonstop round trips per week from Sioux 

City to Chicago with regional jets for $611,334 annual subsidy and thirteen (13) nonstop round 

trips per week from Waterloo to Chicago with regional jets for $945,546 annual subsidy. 

At each community American requested the flexibility to use either 50-seat CRJ-200 or 44-seat 

Embraer Regional Jets for the same level of subsidy, and indicated that the actual service 

provider would be a code-share partner of American. The carrier stated that both provisions 

would increase American’s flexibility in providing the service as well as the reliability of that 

service. Also, both of American’s proposals are explicitly predicated on a continuation of a 

waiver, initially granted by Order 2011-12-2, December 8, 2011, to 49 U.S.C § 41734, which 

requires an air carrier to provide 90 days’ notice before ending service at an EAS community and 

requires the Department to hold-in the incumbent carrier for successive 30-day periods until a 

new carrier begins service. American is requesting a waiver, but warrants that it would provide 

120-days' notice, after which time it would be free to terminate service. 

Proposal of United at Sioux City 

United proposes to operate thirteen (13) nonstop round trips per week to Chicago with 50-seat 

regional jets for $1,410,678 annual subsidy. United also explicitly requests that the “Department 

and the Sioux City community waive the right to hold-in United Express service at SUX upon 

receipt of 120-days’ notice to terminate service.” The carrier indicates its service would be 

operated by any one of the number of the United Express partners carrying the UA code and 

providing regional feed. 

Community Comments 

On December 3, 2013, we requested comments from the communities by January 6, 2014. 

The Mayor of Waterloo strongly endorsed American. “We support American’s application to 

serve Waterloo and the broader Cedar Valley area. We look forward to a long relationship 

where American can grow their presence at the Waterloo Regional Airport, supporting economic 

growth from our region.” The Airport Manager looks “forward to the additional connectivity 

that will be generated by the [recent US Airways and American] combination. Since American 

started serving Waterloo in 2011, air fares have become more competitive with other regional 

airports and ridership has slowly improved. Proof of these improved results is the fact that 

American’s EAS subsidy proposals dropped by almost 40% [to $945,546] versus their 2011 

proposal [requesting $1,541,824]. We believe that this is indicative of good things ahead.” 

At Sioux City, the Airport Board of Trustees indicates that the service to Chicago O’Hare 

proposed by both carriers is critical. The Board also notes that both United and American have 

at different times contemplated subsidy-free service to an additional hub, either Denver or 

Dallas. “[W]e are very appreciative that two top tier carriers, United and American, both bid 

EAS service to ORD for our market, and that both have indicated a desire to explore other hubs 
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as well. Our general understanding is that the DOT would traditionally accept the lower bid for 

Chicago service proposed by American, and we are supportive of that outcome. ....We sincerely 

appreciate the interest and bids from American and United.” 

From the general public, there was mixed support for both carriers. One party noted that 

American had provided good service and so was deserving of being re-selected. Another 

recommended United because of their good memories of United’s service 15 years ago, and 

because United currently has a bigger presence at Chicago than American. Several parties 

mentioned the desire for additional frequencies and service to an additional hub besides Chicago. 

Subsequent Developments 

American’s proposal projected an average block time of 1.25 hours at each community, 

notwithstanding that the nonstop distance between O’Hare and Waterloo is 234 miles while 

Sioux City is 436 miles distant.2 Also, our analysis of the proposal indicated projected unit costs 

per block hour for direct expenses of $3,391.63 at Sioux City and $2,527.14 at Waterloo, while 

one would expect such unit costs to be very similar for the same aircraft type. 

When Order 2013-11-3 requested proposals, it stated, as do all such Orders, that 

“Interested carriers should prepare their proposals with every expectation that their 

initial proposals will also be their final and only proposals. We retain the discretion to 

negotiate proposals with carriers when we deem it desirable. We also retain the 

discretion to reject outright all unreasonable or unrealistic proposals and, if necessary, 

solicit a new round of proposals. However, we anticipate that negotiation or rejection 

will remain only occasional exceptions to the rule.” 

Given the above, staff contacted American and, to be fair, United, to see if they wished to revise 

their proposals. United chose not to revise its proposal. American chose not to revise its bottom 

line, but it did explain the discrepancies highlighted above. The proposed block times and unit 

costs per block hour and block times were, in fact, incorrect. However, the carrier explained that 

while the block times shown on its proposals were wrong, the expenses and bottom line subsidy 

requests were not. While block hours drive direct expenses, American stated that its projected 

expenses were developed separately from the erroneous block times shown in its proposal. 

“We are standing behind our proposal for the EAS renewals at Waterloo and Sioux City, 

Iowa. Our price-out model uses actual American Eagle Finance data from last year’s 

performance in both cities and is not driven on any kind of block hour calculator for flight 

operational expenses. We did have a typo in block hours for both cities however this has 

since been reconciled using T100 data from FATS and AE Finance data from MIRS.” 

 

2 Block time includes flight time and also ground time or taxi time. Flight time is measured on a “wheels up to 

wheels down” basis. Direct expenses include pilot, fuel, maintenance, aircraft, and some insurance expenses – 

those expenses that can be directly assigned to an individual aircraft or aircraft type without any allocation. 
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Appendix B shows American’s revised proposal. In its revised proposal American’s block times 

are much closer to the numbers it files on the T-100 Segment Report.3 As a result, the revised 

unit costs per block hour are $2,783.22 at Sioux City and $2,803.04 at Waterloo, very close to 

each other, as we would expect, and the revised proposal appears reasonable. 

Decision 

At Waterloo the decision is straightforward: we have only one proposal from one carrier, the 

community favors the selection of that proposal, and the level of subsidy has decreased 

substantially. American’s request for subsidy has decreased from the current annual rate of 

$1,541,824, to $945,546, or $596,278 less subsidy, an almost 40 percent reduction. 

At Sioux City, we are confident that either carrier would provide excellent service. Both carriers 

requested a waiver from the termination-of-service provisions of the law. The civic officials did 

not endorse one carrier over the other. As the Airport Trustee indicated, the difference in 

requested subsidy is decisional here, and we will, therefore, reselect American. 

Because the only bids are from carriers requesting a waiver of the hold-in provisions of 

49 U.S.C. § 41734, and because both communities support American’s proposal, which which 

was contingent on a 120-day exit provision, we will accept American’s request to cease 

operating at either community on 120 days’ notice under our authority from 49 U.S.C. § 40109 

as being in the public interest. To not do so would risk having the communities lose service as 

no other carriers submitted proposals without the request for waiver. Under 49 U.S.C. 

40101(a)(11), “maintaining a complete and convenient system of continuous scheduled interstate 

air transportation for small communities and isolated areas with direct financial assistance from 

the United States Government when appropriate” must be considered as being in the public 

interest as the Department administers the EAS Program. 

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that the Department find an air carrier fit, willing, and 

able to provide reliable service before the Department may subsidize it to provide EAS. 

American is subject to the Department’s continuing fitness requirements, and no information has 

come to our attention that would cause us to question the carrier’s fitness at this time. EAS staff 

has contacted the Federal Aviation Administration, and it has raised no concerns that would 

negatively affect our fitness findings. We therefore conclude that American remains fit to 

conduct the operations proposed here. 

This Order is issued under authority delegated in 49 CFR Part 1.25a(b). 

ACCORDINGLY, 

1. We select American to provide EAS at Sioux City and Waterloo, Iowa, as described in 

Appendix C; 

 

3 The carrier increased its projected block times at Sioux City to 1.52 hours per departure from 1.25, and decreased 

its block times at Waterloo to 1.13 hours per departure from 1. 
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2. We direct American to retain all books, records, and other source and summary documentation 

to support claims for payment, and to preserve and maintain such documentation in a manner 

that readily permits its audit and examination by representatives of the Department. Such 

documentation shall be retained for seven years from the service date of the Order or until the 

Department indicates that the records may be destroyed, whichever comes first. Copies of flight 

logs for aircraft sold or disposed of must be retained. The carrier may forfeit its compensation 

for any claim that is not supported under the terms of this Order; 

3. We find that American continues to be fit, willing and able to operate as a certificated air 

carrier and capable of providing reliable EAS at Sioux City and Waterloo, Iowa; 

4. Under our authority in 49 U.S.C. § 40109, we will allow American to cease oeprations at 

either community on 120 days’ notice as it is in the communities’ interest under 49 U.S.C. § 

40101(a)(11). 

5. These dockets will remain open until further Order of the Department; and 

6. We will serve copies of this Order on the civic officials of Sioux City and Waterloo, Iowa, and 

on American Airlines and United Airlines. 

By: 

SUSAN L. KURLAND 

Assistant Secretary for 

Aviation and International Affairs 

(SEAL) 

An electronic version of this document is available at 

http://www.regulations.gov 
Appendix A 

Nonstop Great Circle Miles to Sioux City (SUX) 

OMA, Omaha, 80 

DSM, Des Moines 152 

ALO, Waterloo 204 

MSP, Minneapolis, 233 

ORD, Chicago, 436 

Nonstop Great Circle Miles to Waterloo (ALO) 

CID, Cedar Rapids 58 

DSM, Des Moines 96 

MSP, Minneapolis 166 

ORD, Chicago 234 
Appendix B-1

Proposal of American Airlines at Sioux City and Waterloow as Originally Submitted

Dockets 2011-131 and 2011-132

Sioux City Waterloo

Hub ORD ORD

Miles 436 234

Departures 1,325 1,325

Block Time 1.25 1.25

Block Hours 1,656 1,656

Passengers 52,044 40,019

Pax. Fare $114.62 $101.36

Total Revenue $6,410,350 $4,278,179

Flying Ops. $5,309,727 $3,948,849

Aircraft $306,804 $236,088

Directs 1/ $5,616,531 $4,184,937

Pax. Variable $698,340 $494,247

Other $372,447 $295,792

Indirects $1,070,787 $790,039

Operating Expense $6,687,318 $4,974,976

Profit @ 5% $334,366 $248,749

Economic Cost $7,021,684 $5,223,725

Subsidy $611,334 $945,546

1/ As discussed in the body of the Order, the block hours shown above 

produce a unit cost per block hour of $3,391.63 at Sioux City and 

$2,527.14 at Waterloo.
Appendix B-2

DOT Review of American's Clarified Proposals 1/

Dockets 2011-131 and 2011-132

Sioux City Waterloo

Hub ORD ORD

Aircraft Type 2/ 44-seat RJs 44-seat RJs

Miles 436 234

Departures 3/ 1,325 1,325

Block Time 1.52 1.13

Block Hours 4/ 2,018 1,493

Passengers 52,044 40,019

Pax. Fare $114.62 $101.36

Revenue $5,965,122 $4,056,213

Ancillary Revenue $445,228 7.46% 5/ $221,966 5.47% 5/

Total Revenue $6,410,350 $4,278,179

Flying Ops. $5,309,727 $2,631.18 6/ $3,948,849 $2,644.91 6/

Aircraft $306,804 $152.03 6/ $236,088 $158.13 6/

Directs $5,616,531 $2,783.22 $4,184,937 $2,803.04

Pax. Variable $698,340 11.71% 7/ $494,247 12.18% 7/

Other $372,447 5.90% 8/ $295,792 6.32% 8/

Indirects $1,070,787 $790,039

Operating Expense $6,687,318 $4,974,976

Profit @ 5% $334,366 $248,749

Economic Cost $7,021,684 $5,223,725

Subsidy $611,334 $945,546

1/ After discussions with American, the carrier corrected its block times and provided 

additional information from its original proposal. 

2/ American proposed 50-seat Jets, but requested the flexibility to operate 44-seat regional jets.

Because carriers can always substitute superior equipment, we will assign 44 seats.

3/ 13 trips per week x 2 directions x 52 weeks x 0.98 = 1,325

4/ Block time multiplied by departures. Difference from proposal due to rounding.

5/ Ancillary revenue as a percentage of passenger revenue. 

6/ Expenses divided by block hours, providing unit cost per block hour. 

7/ Expenses divided by passenger revenue. 

8/ Other Expense divided by above expenses.
Appendix C-1 

American Airlines, EAS to be Provided to Sioux City, Iowa, Docket 2011-0131 

Effective Period: May 1, 2014, through April 30, 2016 

Service: Thirteen (13) nonstop round trips per week to Chicago (ORD) 

Aircraft Type: Regional Jets, 44-50 seats 

Annual Subsidy: $611,334 

Annual Flights: 1,3251

Subsidy per Flight: $4612

Weekly Subsidy Ceiling: $11,9863

The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and 

stipulations of the rate order, including the service plans outlined in the order and any other significant elements of the required 

service, without prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a 

completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain 

weather cancellations, only completed flights are considered eligible for subsidy. 

In addition, if the carrier does not schedule or operate its flights in full conformance with the order for a significant period, it may 

jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the 

order during the applicable period of these rates, it must first notify the Office of Aviation Analysis in writing and receive written 

approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and 

select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; 

flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight 

should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of 

access to the national air transportation system provided to the community. 

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service 

requirements at a specific location provided for under this order, then, at the end of the period for which the Department does make 

payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific 

location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service 

that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of 

payment. 

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended 

from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing 

paragraph. 

Funds may not be available for performance under this Order beyond September 30, 2014. The Government’s obligation for 

performance under this Order beyond September 30, 2014, is subject to the availability of funds from which payment for services

can be made. No legal liability on the part of the Government for any payment may arise for performance under this Order beyond 

September 30, 2014, until funds are made available to the Department for performance. If sufficient funds are not made available for 

performance beyond September 30, 2014, the Department will provide notice in writing to the carrier. 

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which 

compensation is being claimed. For example, claims filed for service provided in July must be filed by October 31; August claims 

must be submitted by November 30, and so on. 

 

1 13 flights per week x two directions x 52 weeks x .98 completion = 1,325 flights. 

2 $611,334 ÷ 1,325 flights. 

3 $461 per flight x 26 flights per week.
Appendix C-2 

American Airlines, EAS to be Provided to Waterloo, Iowa, Docket 2011-0132 

Effective Period: May 1, 2014, through April 30, 2016 

Service: Thirteen (13) nonstop round trips per week to Chicago (ORD) 

Aircraft Type: Regional Jets, 44-50 seats 

Annual Subsidy: $945,546 

Annual Flights: 1,3251

Subsidy per Flight: $7142

Weekly Subsidy Ceiling: $18,5643

The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and 

stipulations of the rate order, including the service plans outlined in the order and any other significant elements of the required 

service, without prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a 

completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain 

weather cancellations, only completed flights are considered eligible for subsidy. 

In addition, if the carrier does not schedule or operate its flights in full conformance with the order for a significant period, it may 

jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the 

order during the applicable period of these rates, it must first notify the Office of Aviation Analysis in writing and receive written 

approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and 

select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; 

flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight 

should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of 

access to the national air transportation system provided to the community. 

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service 

requirements at a specific location provided for under this order, then, at the end of the period for which the Department does make 

payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific 

location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service 

that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of 

payment. 

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended 

from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing 

paragraph. 

Funds may not be available for performance under this Order beyond September 30, 2014. The Government’s obligation for 

performance under this Order beyond September 30, 2014, is subject to the availability of funds from which payment for services

can be made. No legal liability on the part of the Government for any payment may arise for performance under this Order beyond 

September 30, 2014, until funds are made available to the Department for performance. If sufficient funds are not made available for 

performance beyond September 30, 2014, the Department will provide notice in writing to the carrier. 

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which 

compensation is being claimed. For example, claims filed for service provided in July must be filed by October 31; August 

claims must be submitted by November 30, and so on.

 

1 13 flights per week x two directions x 52 weeks x .98 completion = 1,325 flights. 

2 $945,546 ÷ 1,325 flights. 

3 $714 per flight x 26 flights per week.