## Before the United States Department of Transportation

September 30 , 2011

Proposal to Provide Essential Air Service at

JACKSON, TENNESSEE

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

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# SeaPort Airlines, Inc. Proposal to Provide Essential Air Service at

Jackson, TN

By Order 2011

- 8

- 27 , the Department requested proposals for Essential Air Service at Jackson, Tennessee (McKellar

- Sipes Regional Airport)

.

Pursuant to that Order , SeaPort respectfully submits this timely proposal to provide subsidized

essent ia l air service to Jackson, Tennessee structured as a two

- year term but fully understanding that the community’s EAS status many be affected by recent amendments to t he EAS program and pending rulemaking which may impact the term of any new contract to provide service at McKellar

- Sipes Regional Airport.

Correspondence regarding this proposal should be directed to:

Timothy Sieber

Vice President

– Strategy & Corporate Development

SeaPort Airlines, Inc. 7505 NE Airport Way Portland, OR 97218 (971) 340

- 1716 tsieber@seaportair.comDOT OST

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September 30, 2011 Page | 2 

# SeaPort Airlines: Focused On Serving Small Communities

Company Overview

SeaPort Airlines , Inc. is a FAA certified scheduled airline with nearly 29 years of experience in commercial aviation. Our company’s foundation is built on efficient and reliable service to rural

communities. Both SeaPort Airlines

, and our sister brand Wings of Alaska

, currently operate

service under the Essential Air Service program as well as on an uns ubsidized basis

. 1

SeaPort’s approximately 200 professionals operate an average of 100 daily departures to 20

cities in nine states with a business that is focused on providing service to smaller communities. This is in sharp contrast to the strategies of the mega

- airline brands, which no longer have the operational or economic capability, or strategic desire, to serve rural America.

SeaPort delivers Essential Air Service to seven commu nities: Excursion Inlet, Alaska; Pendleton, Oregon; Jonesboro, El Dorado, Hot Springs, and Harrison, Arkansas; and Salina,

Kansas. In each of these cases , after award of the EAS contract by U

. S

. DOT , we have started by the date promised and with fares either at or below those outlined in our proposal. We would

note that this stands in contrast to some other airlines that place bids with unreasonable fares

that are never r ealized by the traveling publ ic, delay the start of service, or do not launch service

that has been awarded by the Department.

A Track Record of Rebuilding Enplanements After A Period of Service Dormancy

SeaPort Airlines understands the air service issues that the Jackson community has faced in
recent years:

 Big Sky Airlines ceased service in January 2008;

 Great Lakes Aviation was selected as the replacement carrier but did not begin service

which resul ted in Jackson bein g without service for the 20

- month period of January 2008 through August 2009; and

 Pacific Wings inaugurated service on August 31, 2009, but traffic has fail ed to rebuild to

historical levels. 2

The Arkansas communities of El Dorado, Jonesboro, Harrison, and Hot Springs experienced a period of sixteen (16) months without any air service, and suffered inferior servic e prior to the

hiatus. SeaPort initiated service in these markets on October 26, 2009 and since that time has worked diligently to rebuild local consumer confidence in their local airport.

1 Wings of Alaska is the premier airline serving Southeast Alaska. Providing scheduled passenger service, fast freight and charter service between Juneau and Skagway, Haines, Hoonah, Gustavus, and weekly flights to Excursion Inlet. Wings of Alaska grew in reputation and size, becoming one of the most successful regional air

carriers in Alask a, now comprised of a fleet of seven Cessna 207 s and Grand Caravans. Wings of Alaska presently
operates an average of 38 daily scheduled flights to six Southeast cities in Alaska

.

2 U

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. DOT Order 2011

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- 27DOT OST

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September 30, 2011 Page | 3 To illustrate this point, the graph below compares SeaPort’s monthly enplanements since we reestablished scheduled service at the four Arkansas communities during the fall of 2009 to enplanements at McKella r

- Sipes Regional Airport during the approximate same period

. 3

Since the current provider of air service inaugurated service at Jackson, monthly enplanements have tumbled by approximately 88%. During the same period in the Arkansas communities, SeaPort generated an overall increase in average passenger enplanements ranging from 188% at Harrison to nearly 870% in Hot Springs. 4

It is clear that SeaPort has experienced success in rebuilding traffic in the Arkansas communities and we reasonably believe similar success can be achieved at McKellar

- Sipes Regional Airport with the right combination of schedule, fares, destination, reliable service, and community partnership.

3 Note that Pacific Wings started service in Jackson on August 31, 2009, with the first complete month of service being September 2009. SeaPort Airlines started service in Arkansas during October 2009, with the first complete month being November 2009. The data illustrated begins with the first comp lete month of service for each carrier. Data for SeaPort Airlines ends in August 2011, the last complete month prior to the filing deadline of this Docket. Pacific Wings enplanements were sourced from T

- 100 market reports, with May 2011 being the most rec ent publicly

available data.

4 Note that SeaPort’s current service to Jonesboro faces the same challenges at Jackson with respect to continued EAS program eligibility.DOT OST

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September 30, 2011 Page | 4 A Track Record of Building Community Partnerships

With respect to community partnerships, SeaPort Airlin es prides itself on those which it has been able to develop in each market serve d . This includes participation in local events, donation of tickets, regular community meetings, and advance notification of and opportunity for input related to schedule chang es and fares.

We believe this approach serves our own interests equally with those of the communities served by fostering long

- term, stable relationships that result in increased ridership and, eventually, reduced subsidy requirements. SeaPort’s partnership approach is building recognition by those who watch the Essential Air Service program as evidenced by the following weblog entry from Skyland Centre for Essential Air Service: 5

We invite the Jackson community to contact any of our EAS partner communities for additional

information.

5 SkyLand Centre for Essential Air Services offers news, information, expert opinion a nd industry insights through www.SkyLandNews.com home page, where breaking news is posted as it comes in and a weekly news di gest, currently circulated to 5 ,0 00 essential air service professionals around the world

.DOT OST

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September 30, 2011 Page | 5 

# The SeaPort Airlines Experience

Below, we have summarized for the benefit of the Department and the community key elements of SeaPort’s operating model and service strategy that we intend to employ at Jackson, TN if selected to provide essential air service

.

Aircraft

SeaPort Airlines is proposing service at Jackson with 9

- passenger Cessna Caravan aircraft. 6
Currently manufactured in the USA, the Caravan was originally designed in the 1980’s to replace an aging fleet of piston

- powered aircraft, such as the De Havilland Otter and Cessna

402.



# SeaPort Airlines Cessna Caravan

The Caravan has a spacious cabin that is highlighted by a large aisle a nd generous windows for

all around excellent visibility. The large cargo pod on the belly of the aircraft facilitates carriage of baggage volumes and weights much greater than that which can be accommod ated on older piston

- powered twins.

6 Although certified for single

- pilot operation, SeaPort operates the Caravan with both a Captain and First Officer.DOT OST

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September 30, 2011 Page | 6 We be lieve the Cessna Caravan offers the “right size” capacity increment to rebuild passenger

traffic at MKL , enabling us to offer optimal frequency levels and reasonable fare s to the community , while at the same time minimizing the required level of subsidy by the Department.

Airport Terminals

SeaPort Airl ines is offering three proposal options for consideration by the community and Department that include service to Nashville and /or Memphis. 7 For service at each ai r port

, SeaPort proposes the following terminal arrangements:

 Nashville (BNA): SeaPort Airlines would operate from the main terminal with TSA

- screened operations. We have obtained the airport’s schedule of rates and charges and, unlike the current EAS provider at Jackson , have no indication that we would be “unable to procure

counte r or gate space at [Nashville International Airport] on reasonable terms.” 8

 Memphis (MEM): SeaPort would utilize its existing business terminal at Memphis International Airport, which offers convenience for quick trips to and from the Memphis metropolitan area. We provide a complimentary and quick shuttle service to and from the

main airline ter minal for passengers connecting to, or from, distant destinations. Passengers departing Jackson for Memphis would not need to go through TSA screening and those arriving from Memphis would be deplaned into a non

- sterile area at McKellar

- Sipes Regional Airp ort

.

Pricing Model

SeaPort Airlines does not engage in “baiting” communities with ridiculously low fares (e.g.

, every seat, every flight at $39) and inflated traffic projections that are nei ther attainable nor

sustainable. Such fares shift the true cost of air transportation to the Department and we believe

are inconsistent with the intent of the essential air service program to ensure reasonable access to the air transportation system for small er communities.

Instead , SeaPort Airli nes proposes to employ a pricing strategy of reasonable and attractive

fares that factor in ticket pr i ces at other airports in the region, total itinerary trip costs including connecting flights on other airlines, costs of other modes of transportation, and the need to minimize subsidy level and taxpayer expenditures. Specifically, projections in our service proposal options and subsidy requests are based on the assumption of one

- way fares from

Jackson as follows:

 Memphis : $29 to $69, with an average of $ 45.75 ; and

 Nashville: $49 to $1 1 9, with an average of $ 74.55

. 9

7 The Department and community should be aware that SeaPort Airlines completed a comprehensive forecast and economic analysis of pro viding service to St. Louis. We found no way, even with the exceptional economics of the

Cessna Caravan and SeaPort’s increasing efficiencies resulting from operational scale , to serve a route of this stage length with a reasonable passenger forecast with per passenger subsidy below the $200 statutory limit. That being said, if SeaPort is selected to service Jackson and the market is responsive, we will consider St. Louis service during the next proposal and selection cycle.

8 U

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. DOT Order 2011

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9 Inclusive of FET

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September 30, 2011 Page | 7 All fares on SeaPort Airlines are one

- way with varying levels of required advance purchase and capacity controls . We believe the fares outlined above represent a responsible approach to pricing in small communities such as Jackson that is consistent with the overall objectives of the

EAS program.

Consistent with our pricing model , SeaPort charges reasonable fees for ticket changes, pet travel, and unaccompanied minors. The se fee levels reflect SeaPort’s philosophy of building customer loyalty through quality service at reasonable prices r ather than opportunistically “nickel and diming” passengers at every possible turn.

Marketing & Public Relations Strategy

SeaPort will implement a comprehensive marketing and public relations strategy aimed at introducing our brand to the community a nd reducing the required level of subsidy to below $200 per passenger. These activities include:

 Local Event Marketing : Recognizing that visible participation in local events has been successful for both legacy and low

- cost airlines, SeaPort has implemented a similar strategy in all of its communities. These have ranged from SeaPort Airlines community egg hunts

, to presenting at business expos

, to hosting “after hours” events at local Chamber of Commerce meetings. In addition, SeaPort often makes “in kind” do nations of tickets for use by local charities, either for the ir own business needs or as a fundraising tool (i.e., raffles, silent auctions, etc.).

 Website : The majority of SeaPort’s pas sengers book through the Company’s websit e ( www.SeaPortAirlines.com )

.

 Social Media: Since 2010 , SeaPort Airlines has managed a successful social media campaign that has allowed the Company to dynamically engage its customer base in a two

way conversation through sites such as Facebook, Twitter, FourSquare & LinkedIn

. We

have found social media to be an excellent tool for generating passenger re ferrals and information sharing in our communities, and expect similar results in Jacks on

.

 FlyerFlex Customer Rewards: During 2011, SeaPort launched a new and improved customer loyalty program called “ FlyerFlex .” This program provides customers with a variety of benefits including free flights , service charge waivers, and b onus points

. SeaPort anticipates unveiling further enhancements of the FlyerFlex program during 2012 that will

include a wider choice of travel rewards.

 Value Accounts: SeaPort will offer its Corporate Value Account at Jackson , a program that encourages businesses to make a long

- term investment in local air service by offering a variety of benefits and savings of 5% to 15%. It is important to note that unlike corporate travel programs of major airlines that are not designed to serve small busin esses in rural communities, SeaPort’s Corporate Value Accounts can provide savings to a company of virtually any size and can be used by any employee of a company, not just specific employees named on a sales contract.DOT OST

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September 30, 2011 Page | 8



# Sample SeaPort Airlines AdvertisingDOT OST

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September 30, 2011 Page | 9 It is important to note that these are not simply concepts. SeaPort has implemented the above practices in each of the communities it serves and, as illustrated by the enplanement growth on the page 3 graph, they have been effective in rebuilding traffic in our Arkansas markets. We firmly believe these activities will be just as effective in rebuilding traffic at and consumer

confidence in McKellar

- Sipes Regional Airport.

Distribution & Interline Connectivity

S eaPort has invested heavily in improving our inventory distribution abilities. We are now in all five major global distribution systems and are available on all major online travel agencies and

meta

- searchers including Orbitz, Travelocity, Expedia, Kayak.c om, Hipmunk

, and CheapoAir

.

SeaPort currently has an interline ticketing agreement with US Airways and is working toward securing agreements with other carriers that will facilitate single ticket itineraries from Jackson

to destinations all around the world. 10

10 US Airways serves both Memphis and Nashville, the two hub options we are proposing for MKL.DOT OST

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September 30, 2011 Page | 10 

# Community & Customer Feedback

While SeaPort Airlines has outlined above why we believe our airline is well positioned to

ensure tha t reliable and reasonably priced air transportation continues to play a vital role in the economy and quality of life in Jackson , the strongest proof resides in the accolades we receive. Below is just a small sample of the comments SeaPort has received from our customers and community partners:

Our Essential Air Service Communities

“ Eastern Oregon Regional Airport at Pendleton had been struggling since schedule changes following 9/11 se rved by a carrier flying 37 seat aircraft. Low passenger count attributed to poor schedule, which then contribu ted to poorer passenger count. The carrier's solution was to bring in larger aircra ft and fly to a different hub. The Airport and community balk ed at this suggestion

and went in search of alternatives. The solution found through the EAS process was SeaPort Ai r flying a 9 passenger Pilatus

. The passengers have welcomed the new service, much better schedule, and are elated with „ no secu rity check‟ and stand by time. Passengers today will say,

„ I love the service ‟, „great customer service

, ‟ and „ I'm sure glad I finall y tried it, cause I'll be back‟

“ In our particular market, the 9 passenger aircraft is perfect, and SeaPort Air provides the schedule, the professionalism, and custo mer service we need and desire.”

− Larry Dalrymple Airport Manager Pendleton Regional Airport

“ I understand the importan ce of having dependable, reliable air service with an affordable cost. Not only will SeaPort Airlines meet these needs, but excel by providing great customer service, a high level of community involvement, and an eagerness to become a community partner”.

− Lu ci Larson Former Mayor & Owner of

Action Travel Salina, KS

“ South Arkansas Regional Airport and the entire South

- central Arkansas region suffered from the loss of air service previously provided by Mesa Airlines in the Spring of 2008. Unreliable service and a poor schedule were already negatively impacting enplane ments before Mesa pulled out, but at that point, the nearest option for air service of any kind was almost a two hour drive away. After sorting through applications from many different interested carriers, the El Dorado Airport Commission, along with El D orado‟s Mayor, chose SeaPort to restore air service to South Arkansas. This was the beginning of a great partnership between SeaPort and our local community.DOT OST

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September 30, 2011 Page | 11 “ Working with SeaPort has been nothing but a pleasure from the bottom to the top of their organization, and their commitment to excellence shines through the glowing comments that I hear from people who fly with them. In addition to hearing comments from others, I have flown SeaPort on several occasions, and have come away from the experience thinking „ This is how

all air service should be.‟

“ I think this sentiment is shown best through the commitment of the residents of South Arkansas who have increased ridership on SeaPort almost 50% on a year

- over

- year basis. I strongly support SeaPort Air

lines and look forward to working with them in the future. ”

− Josh Zylks Airport Manager South Arkansas Regional Airport (Goodwin Field)

Our Customers

“I have never had such a positive experience connected with any airline. I read about Seaport Air last October when they opened the Mid

- South Route, but didn‟t have the chance to fly until

March. Usually the dread of the process comes then you just grin an d bear it; however, with SeaPort Air I could arrive 15 minutes early. The hassle free no TSA is wonderful and made me feel special. I have flown twice in the last 2 months and the customer service from start to finish is outstanding. I will be a regular cu stomer and have already recommended the airline to several associates. Thank you, SeaPort Air, for making me feel like a queen!”

− Catherine Martin

Customer (few from Memphis to Harrison)

“As a recent flyer on SeaPort, I wanted to pass on the great experience I had. I was heading to Hot Springs, AR to help with fire and aviation management in the Arkansas Oklahoma Interagency Coordination Center. In Memphis, nobody at Delta knew where to direct me

. SATO, the government travel people, put in in touch with office, who com e right over and picked me

up. Both the man who picked me up in the van, and the woman who checked me in were very

nice. When we were ready to go, the flight crew Keith and Jeremy were very professional, but had a nice, eas

y attitude. Once in Hot Springs, we were too late to pick up my rental car, and I

wa s getting ready to call a cab. When they realized what was going on, they drove me to the

hotel!

If I could summarize my experience with SeaPort Airlines, it would be th at you exceeded my

expec tations in every way possible. Your staff was tremendous and reflect e xtremely well on your airline. With people like them, your airline will succeed and grow! Thanks for the service.

Clayton Camblin

Customer (flew from Memphis to Hot Springs)DOT OST

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September 30, 2011 Page | 12 “Two hours before the flight I booked my ticke t to Memphis from Hot Springs. Wow! What a surprise; it was simple, convenient, great price, and impeccable service. It far exceeded my expectations and I will be flying to Memphis on SeaPor t Airlines i nstead of driving from now on.

The customer service was fabulous!”

− Ruth Ann Smith

Customer (flew from Hot Springs to Memphis)

“I want to let you know that Alan, the owner, and I were stuck in the horrendous t raffic getting to the airport. Your people c alled to see where we were at. Called a few times to try and get us out of the jam

– which was impossible, we were too far from the Gateway and we already h ad been

on the road 1 1⁄2 hours. Did manage to break free taking 102 (I think) and called close to the Embassy to let them know we were just a minute away and they held the plane for us!! A mazing and kudos to your team!! I have been telling everyone of the stellar customer service and you will be our flight of choice going forward.”

− Joanne Bo sworth

Customer (flew from Portland to

Seattle )

“ For two decades I have been picking my mother up at the airport and for two decades I have been met with the defeated, hang

- dog look that the ordeal of air travel has given her. I guess it pretty much does it to all of us, but (as she is well into her 80's) I worry about the toll it takes on her more and more lately.

“ When I picked her up today from her SeaPort flight K52325 from Dallas and saw she was smiling, you could have knocked me over with a feather! She couldn't stop raving about how pleasant the flight was. Let me be clear. My mother is a tough

- as

- nails Mid

- western Y

ankee from the old school who has been around the world a couple of times since the late 1940's. She doesn't bestow idle praise and she seldom raves.

“ Since it was a 9

- seater plane that had to stop for a bathroom break, I can only conclude that it was the above average service she received from your staff. She, in fact, said as much. From

the ticket counter in Dallas to the ride she got to the main terminal in Memphis she was impressed. She even liked the way she was asked to turn off her mobile phone and the help she was given doing so (she's not a big techie).

“ I'm in the service industry myself and I know how often complaints come through. I just want to be sure to let you know how well everyone did on this flight. In the future, I will look to SeaPort first for my travel needs and will spread the good word to my friends.

“ A smile and a kind word go a long way y'all. Thank yo u for getting this one so right. ”

− Mark Davis Peterson

Customer (flew from Dallas

to Memphis

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September 30, 2011 Page | 13 

# Service Proposal

Service Pattern

SeaPort Airlines is offering t hree service options for consideration by the Jackson community

that are summarized on the map below.

Note that options #2 and #3 would provide the community with access to two different connecting hubs. We believe that this enhanced option of t wo connecting points will aid in facilitating faster restoration of consumer confidence in scheduled air service at McKellar

- Sipes Regional Airport . We have found this to be true in our Arkansas communities, where the addition of Dallas and/or Kansas City to our existing Memphis service has resulted in significant

recent t raffic growth (see graph on page 3 ), and firmly believe that similar results can be

achieved in Jackson

.

In the case of Memphis, access would be afforded to virtually every major airline in the United

States and MEM is a major hub for Delta Air Lines. Nas hville offer s similar access to legacy carriers, with the added benefit of access to low

- fare airlines such as Southwest and Frontier

. 11

11 While SeaPort Airlines (along with every other U.S. based airline) does not have an interline ticketing and baggage agreement with Southwes t Airlines, Internet sav v y consumers figured out long ago how to build “end to end”DOT OST

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September 30, 2011 Page | 14 Schedules

The following are illustrative schedules for each of the service options outlined above. Final

schedules would be developed after consultation with the community partner.

Flights to and from Memphis are aligned with the hours of Delta’s connecting banks at that airport.

connecting itineraries with this carrier , as well as others. This has been validated in a number of our other EAS markets that are linked with airports served by Southwest (as well as other low

- fare airlines).DOT OST

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September 30, 2011 Page | 15 Projected Passenger Traffic

In Order 2011

- 8

- 27 the Department state s that for the 12

- months ending September 30, 2010, a total of 5,252 passengers were enplaned and deplaned at McKellar

- Sipes Regional Airport.

Referring back to the graph on page 3, however, note traffic at MKL since September 2010 has

been in virtual fre e fall. To develop reasonable passenger and revenue projections, SeaPort

Airlines factored in both data provided by the Department and reviewed histor ical T

- 100 traffic

as far back as 2002

. 12

This data is provided on the graph below and, for illustrative purposes, compared to SeaPort’s

traffic forecast during the first year of service at Jackson for each service option. 13

SeaPort’s projected passenger levels are higher than the very recent traffic levels at Jackson while operated by the current provider of EAS

, however they are generally comparable to data reaching further back in time.

12 Note that our analysis of data we utilized calendar years whereas the Department’s cited 5,252 passengers were on fiscal year basis (ending September 30). While this results in a slight variation in actual numbers, it does not diminish the underlying analysis and conclusions.

13 Note that 2011 is year to date through May 2011. On an ann ualized basis, this would approximate 1,250

passengers.DOT OST

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September 30, 2011 Page | 16 We raise this point because during communication with the EAS Division related to another docket Seapor t Airlines was advised that the Department’s calculation of whether a proposal meets statutory requirements is based on actua l passenger counts during the recent period and not a specific carrier’s forecast. If we were to submit a bid using data for the r ecent period while Jackson has been served by Pacific Wings, the level of requested subsidy would be substantially higher and have exceeded the statutory cap of $200 per passenger.

We believe the earlier data

– particularly CY 2003 and CY 2004

– more acc urately reflects Jackson’s ability to generate passenger traffic if it is provided with reliable and reasonably priced air transportation by a carrier that works in partnership with the community.

Service Proposal Detail & Subsidy Request

Projected revenue and operating expenses that form the economic basis of this proposal are summarize d on the table s on the following pages. While the indicated period is for two years, we fully understand tha t the community’s EAS status ma y be affected by recent ame ndments to the EAS program and pending rulemaking thereby impacting the term of any new contract to provide service at McKellar

- Sipes Regional Airport.

For each option the requested level of subsidy declines during the second year as we are confident tha t, similar to our experience in Arkansas, consumer confidence in and enplanements at McKellar

- Sipes Regional Airport can be restored

. Equally as important, the requested annual subsidy levels for each option are compliant wit h the $200 per passenger limit

and below the total level of subsidy paid to the current carrier. 14

SeaPort Airlines , Inc. appreciates the opportunity to submit this proposal and welcomes any questions from the community or the Department.

Respectfully submitted,

Timothy Sieber

Vice President

– Strategy & Corporate Development SeaPort Airlines, Inc.

14 $1,225,628 annually as established in Order 2009

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