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Notes of Kevin Adams to the Meeting in Anchorage on December 1 and 'z.- ;o{J!~\ TfY) 1 ....___ 1 L .! 'r ', , · 

1. Review of Ratemaking: Kevin spoke extensively on how bush mail rates are calculated, 

using a historical order as a template. Worth noting, the first task is that DOT filter out 

those traffic segments of bush operators where seven or more scheduled mainline 

operations were operated in the last quarter of the annual period. (See Order 2011-6-14, 

Attachment A, Appendix E.) This is different from the proposal in #6 below, which 

proposed to also filter out the traffic and expenses of bush segments where USPS paid a 

mail class rate different from the class of aircraft actually operated by the carrier. 

2. USPS vs. DOT responsibilities: Under current statute USPS is the lead agency for 

administering the tender of mail, i.e., USPS determines which carriers get how much 

mail; DOT is the lead agency for determining the rates USPS pays for the carriage of that 

·mail. "Good fences make good neighbors." 

3. Mileage Taper: Peninsula Airways (PenAir) continued to oppose the mileage taper, and 

prefers that DOT simply end it. Failing that, the carrier urged DOT to carve out an 

exception for PenAir' s longest haul markets, such as Dutch Harbor to Anchorage, 

because it asserts its mail costs are higher in those markets. Kevin indicated that: 

1. PenAir could file notice at Dutch Harbor and be compensated for its losses under the 

EAS program; 2. Having DOT devise a special mail rate at, for example, Dutch Harbor, 

would invite other carriers to ask for "special treatment" on routes where they felt the 

mail rates were not remunerative, thereby adding to the complexity of mail rates. 

4. Creating Additional Class Rates: We discussed breaking out the three current bush class 

rates (Part 121, Part 135, and Seaplane) into four or more. The Department has authority 

to carve out additional class rates over and above the current four (one mainline class rate 

and three bush), as we have done so in the past. (See Order 2005-1-18, January 21, 

2005.) The meeting reached no consensus on developing additional class rates. 

5. One proposal for additional class rates was to divide the current single Part 135 rate into 

two separate classes, one for aircraft capable of being configured with 19 or more seats, 

the other class for the remainder of the Part 135 cost pool. Under this proposal, whether 

a carrier chose to place the maximum number of seats allowed by the FAA on its 19-seatcapable aircraft or, alternatively, zero seats (all-cargo service with a 19-seat capable 

aircraft), the costs and traffic of that aircraft would continue to be placed in the 19-seat 

Part 135 cost pool. There was no consensus supporting this proposal. 

6. Another proposal would increase bush mail rates, consistent with several recent pleadings 

in the docket, but increase the amount of mail tendered to mainline carriers. DOT would 

exclude the costs and traffic of any segment where a mail rate class is paid that is 

different from the aircraft class the bush carrier operates. (Under "equalization" a carrier 

may be paid a mail rate in a particular segment inconsistent with the class of aircraft a 

particular carrier actually operated. See discussion of this complicated issue in Order 
2011-10-3, especially footnotes seven and eight.) The bush carriers are happy with 

equalization, which allows them to receive "half a loaf rather than none." If they were 

not allowed to equalize, the bush carriers would receive no mail at all on some segments 

because all of it would be tendered to mainline operators. Kevin noted that DOT had no 

information as to what rates USPS pays in any particular city-pair market, and would 

need that information to effect this proposal. There was no consensus supporting this 

proposal. 

7. Essential Air Service (EAS): There are approximately 200 communities in Alaska, from 

the smallest villages up to and including Anchorage, all of which are eligible for subsidy 

support. Only about 50 of them are currently receiving subsidized air service pursuant to 

an EAS contract. Under EAS procedures, the last carrier serving a subsidy-free 

community eligible for EAS cannot leave until it files a 90-day notice. Within that 90-

day period the Department is required to issue an order either letting the carrier leave or, 

alternatively, simultaneously requiring the incumbent carrier to maintain air service and 

issuing a request for proposals (RFP). After initially confidential proposals are received 

and then made public, the community submits comments regarding which 

carrier/proposal it prefers, DOT selects a carrier based primarily on two separate and 

sometimes conflicting criteria: a community's stated preferences and the amount of 

subsidy the different proposals request. The contract is typically for a two-year period. 

Once a contract is issued, DOT honors that contract and continues to pay subsidy until 

the contract expires, even if a new carrier chooses to operate in that market (Note: if a 

carrier says it can provide EASon a subsidy-free basis before a contract is issued, DOT 

terminates the carrier-selection proceeding and relies on that subsidy-free service.) 

8. Variation on EAS: Warbelow's Air Ventures proposes to use EAS procedures as a 

template for tendering mail. The carrier selected in a particular market would receive all 

of the mail for the contract period, providing the service (frequency, schedule, aircraft 

type, intermediate stops) it had promised to do, but other carriers could continue to 

provide competitive passenger and freight service. While carriers could continue to 

compete for passengers and freight, consistent with deregulation, they would compete for 

mail tender on the basis of competitive bids. Warbelows anticipates that this proposal 

would drive up load factors thereby reducing mail rates, would improve aircraft 

schedules for the benefit of passengers, and give a bigger voice to USPS and the 

communities on the service they were to receive. The parties recognize that this proposal 

would require statutory changes, and there was no consensus supporting it. 

9. Postal Service Proposals: It should be noted that Postal Service staff remained largely 

silent on how it would revise the Alaska bypass mail system. 
In Attendance 

Alaska Airlines: Jeff Munro, Eric Howat 

Alaska Central Express, Steve Deaton 

Alaska DOT & PF, Steve Hatter 

Calista Corporation, Christine Klein 

Consultant, Ken Acton 

Era Alaska, Bob Hajducovich, Paul Henderson, Mike Hageland 

Everts Air, Susan Hoshaw 

FAA, Cathy Howell 

Grant Aviation, Bruce McGlasson 

Jansen Contracting, Jerry Rock 

Northern Air Cargo, Helen Swisher, Pat Page, Dave Squier 

Office of Senator Begich, Shawna Thoma 

PenAir, Danny Seybert, Scott Bloomquist, AI Orot 

Ryan Air, Wilfred Ryan, Jim Hjelm 

Servant Air, Wes Osowski 

USPS, Bob Lochmann, Joy Doby, Kevin Hoomer, 

Warbelows Air Ventures, Art Warbelow 

Wings/ Alaska Seaplane, Mike Steadman 

Wright Air Service, Bob Bursiel