## Before the United States Department of Transportation January 18, 2012

Proposal to Provide Essential Air Service at MUSCLE SHOALS, ALABAMA GREENVILLE, MISSISSIPPI LAUREL/HATTIESBURG, MISSISSIPPI TUPELO, MISSISSIPPI Under 49 U.S.C. 41731 et seq. Docket DOT - OST - 2000 - 785 6 Docket DOT - OST - 2008 - 0209 Docket DOT - OST - 2001 - 10685 Docket DOT - OST - 2009 - 0305



# SeaPort Airlines, Inc. Proposal to Provide Essential Air Service By Order 2011 - 9 - 5 , the Department requested proposals for essential air service (EAS) at a total of 23 communities. Pursuant to that Order , SeaPort submi tted a proposal to provide subsidized essent ia l air service at the communities of Muscle Shoals, Alabama (MSL) ; and Greenville (GLH) , Laurel/Hattiesburg (PIB) , and Tupelo, Mississippi (TUP) on October 14, 2011. The communities rejected all proposals and by Order 2011 - 11 - 29 issued on November 23, 2011, the Department requested a second round of proposals. Pursuant to that Order , SeaPort respectfully submits this timely proposal to provide subsidized essentia l air service to the communities of Muscle Shoals, Alabama; and Greenville, Laurel/Hattiesburg, and Tupelo, Mississippi. 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 tsi eber@seaportair.comJanuary 18, 2012

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# SeaPort Airlines Overview SeaPort Airlines, Inc. is a FAA c ertified scheduled airline with nearly 30 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 pr ogram as well as on an uns ubsidized basis

. 1 Effective March 1, 201 2 , SeaPort’s approximately 185 professionals will operate an average of 80 daily departures to 20 cities in nine states. Our business model is focused on providing affordable and reliable a ir service to smaller communities , particularly ones that the mega - airline brands no longer have the operational or economic capability to effectively serve .

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

. 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 at or below those outlined i n 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 public, delay the start of service, or do not launch service that has been awarded by the Department.

1 Wings of Alaska is the premier airl ine serving Southeast Alaska p roviding scheduled passenger service, 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 Alaska, now comprised of a fleet of Cessn a 207 s and Grand Caravans.January 18, 2012

DOT OST - 2000 - 7856 DOT - OST - 2008 - 0209 DOT - OST - 2001 - 10685 DOT - OST - 2009 - 0305 Page | 3 Aircraft SeaPort Airlines is proposing to provide service at Muscle Shoals, Laurel/Hattiesburg, Greenville, and Tupelo utilizing Cessna Caravan turboprop aircraft. Currently being produc ed 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 , Cessna 402 , and Piper Chieftain

. Over 2,000 Caravans have been built logging a total of over 12.5 million flight hours

. SeaPort Airlines currently operates five Cessna Caravans, with additional units planned for delivery during the first half of 2012.

The Caravan has a spacious cabin that seats nine passengers and we believe this type of aircraft offers the “right size” capacity increment for each of the communities, enabling us to offer optimal frequency levels and reasonable fare s while simultaneously minimizing the required level of subsidy. While the Caravan is certified for single - pilot operation, SeaPort typically operates with both a Captain and First Officer. The large cargo pod on the belly of the aircraft facilitates carriage of baggage volumes and weights much greater than that which can be accommodate d on older piston - powered twins, and includes the ability to segregate passenger baggage for security purpose s . A Track Record of Building Community Partnerships SeaPort Airlines prides itself on developing partnerships with each community it serves. This includes participation in local eve nts, donation of tickets, regular community meetings, and advance notification of, and opportunity for input, related to schedule changes and fares. We believe this approach serves our own interests equally with those of the community by fostering long - ter m, stable relationships that result in increased ridership and, eventually, reduced subsidy requirements. We encourage the communities in this proposal to contact any of the EAS communities we serve for additional information.January 18, 2012

DOT OST - 2000 - 7856 DOT - OST - 2008 - 0209 DOT - OST - 2001 - 10685 DOT - OST - 2009 - 0305 Page | 4 Pricing Model SeaPort Airlines employs a pricing strategy of reasonable and attractive fares that factors in ticket prices at other airports in the region (i.e., likely leakage points), total itinerary costs including connecting flights on other airlines, costs of other modes of transportation, and the need to minimize subsidy level and taxpayer expenditures. The range of fares and forecasted average fare for each of the cities to each proposed hub is shown on the table below. All fares illustrated are one - way with var ying levels of required advance purchase and inventory control.



# SeaPort Airlines Fares Pricing Range & Average EAS Community Memphis Nashville New Orleans Muscle Shoals, AL (MSL) Fares from $ 39 - $ 89 ; average of $5 7 .50 Fares from $ 2 9 -

$ 69 ; average of $49.50 N/A Greenville, MS (GLH) Fares from $ 29 - $ 79 ; average of $ 45.25 Fares from $49 -

$1 0 9; average of $65.50 Fares from $ 59 -

$1 2 9; average of $ 79.95 Laurel/Hattiesburg, MS (PIB) N/A Fares from $ 4 9 - $ 10 9; average of $67.20 Fares from $ 2 9 -

$59 ; average of $37.70 Tupelo, MS (TUP) Fares from $ 2 9 - $69 ; average of $38.10 Fares from $ 39 -

$ 7 9 ; average of $55.90 Fares from $59 -

$1 2 9; average of $71.15 NOTE: Listed fares include taxes and fees

. We believe the fares illustrated represent a responsible approach to pricing in EAS communities and which is consistent with the overall objectives of the EAS program. SeaPort Airlines does not engage in “baiting” communities with low fares that are not sustainable . Rather, we focus on balancing the need to maintain low lev els of subsidy with the goal of maximizing the number of passengers using local air service. Other approaches to pricing used by some carriers shift the true cost of air transportation from the consumer 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 smaller communities. Equally as important, the resultant higher levels of subsidy required by offering unreasonably low fare s can increase the risk of a community exceeding the $200 per passenger subsidy limitation.January 18, 2012

DOT OST - 2000 - 7856 DOT - OST - 2008 - 0209 DOT - OST - 2001 - 10685 DOT - OST - 2009 - 0305 Page | 5 Global Distribution & Interline Connectivity SeaPort has a presence in all five major global distribution systems . This enables our flights to be available on all major onlin e travel agencies and meta - searchers including Orbitz, Travelocity, Expedia, Kayak , Hipmunk, and CheapoAir

. SeaPort currently has an interline ticketing agreement with US Airways and is working toward securing agreements with other carriers to allow sing le - ticket itineraries from each of the communities in this proposal to destinations around the world. 2 Among the carriers we are pursuing interline agreements with are Delta Air Lines, United Airlines, Alaska Airlines, and Frontier Airlines. We have found some major carri ers more receptive to interlining that provides rural communities with much needed connectivity than others, but nonetheless these agreements remain among the high est priorit ies for SeaPort management. Marketing & Public Relations Strategy SeaPort will implement a comprehensive marketing and public relations strategy aimed at introducing our brand to the community and maximizing the number of passengers onboard. In addition to local advertising, these activities include:

 Local Eve nt 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 food dri ves , to presenting at business expos, to hosting “after hours” events at local Chamber of Commerce meetings. In addition, SeaPort often makes “in kind” donations of tickets for use by local charities, either for their 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 the four communities in this proposal.

 FlyerFlex Customer Rewards: SeaPort Airlines offers a customer loyalty program called “ FlyerFlex

.” This program provides customers with a variety of benefits including free flights , service charge waivers, and b onus points

. E nhancements to the FlyerFlex program are planned during 2012 that will include a wider choice of travel rewards and additional customer benefits.

2 US Airways serves all of the three hubs

– Memphis, Nashville, and New Orleans

– that are being offered to the communities in this proposal as access points to the national air transportation system

.January 18, 2012

DOT OST - 2000 - 7856 DOT - OST - 2008 - 0209 DOT - OST - 2001 - 10685 DOT - OST - 2009 - 0305 Page | 6  Value Accounts: SeaPort offers a Corporate Value Account in every community served. This program encourages businesses to make a long - term investment in local air service by offering a variety of benefits such as change fee waivers and savings of 5% to 15% off published fares

. It is important to note that unlike the corporate travel programs of major airlines that are not designed to serve small businesses in rural communities, SeaPort’s program can provide savings to a company of virtually any size and can be used by any employ ee of a company. In the following proposals, SeaPort Airlines has allocated specific dollar amounts for marketing and sales activity appropriate to each community and service pattern. These budgets factor in that SeaPort will be a new brand in these comm unities and the resultant need to engage in aggressive sales and marketing activities to ensure continued use of the local airport

. Access to Multiple Hubs For each community, SeaPort Airl ines is offering multiple proposal options for consideration that i nclude s service to New Orleans, Nashville and /or Memphis. The option of multiple access points results in greater choice for consumers and will assist each community in this proposal to maximize the level of traffic retention at their local airport. This is based on our experience in Arkansas communities, where the addition of Dallas and/or Kansas City to existing Memphis service resulted in significant traffic growth. We strongly believe similar results will be achieved in the communities in this proposa l. The connecting opportunities afforded by each airport are discussed o n the following pages:January 18, 2012

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# Nonstop Destinations from Memphis International Airport January 2012

SOURCE: OAG Memphis International Airport is a major connecting hub for Delta Air Lines, offering one - stop connecting service to virtually every metropolitan area in the United States, service to Amsterdam which functions as a major European hub, and Toronto. In addit ion to Delta, virtually every major airline brand serves Memphis. Delta’s flight schedule at MEM is structured into three distinctive connecting banks and, if selected to provide service in these communities, SeaPort is committed to providing each communi ty with flights that are well timed for connections.January 18, 2012

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# Nonstop Destinations from Louis Armstrong Ne w Orleans International Airport

January 2012

SOURCE: OAG New Orleans is a major commercial center for the Southern United States, including the financial, medical, educational, legal, energy, and government sectors. Tourism, of course, is a major component of the New Orleans economy and if awarded the EAS contract in these markets, SeaPort would endeavor to offer weekend packages to these communit ies’ residents. Louis Armstrong New Orleans International Airport offers consumers connecting opportunities to over 35 airports on a nonstop basis, as well as access to the network s of every major airline and each of the three major global alliances. Of p articular interest to the communities should be New Orleans’ competitive environment resulting from a large percentage of low fare carrier service

. jetBlue, Frontier, AirTran, and Southwest offer nearly half of the departing seats from MSY each day. 3 This results in the low - fare brands setting the ceiling on fares to and from New Orleans such that even when a passenger connects to a legacy brand carrier (i.e., Delta, American, United, etc.), they will realize the benefits of such price competition.

3 While SeaPort Airlines (a long with every other U.S. based airline) does not have an interline ticketing and baggage agreement with Southwest Airlines, Internet sav v y consumers figured out long ago how to build “end to end” connecting itineraries with this carrier , as well as other s. 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).January 18, 2012

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# Nonstop Destinations from Nashville International Airport January 2012

Nashville offers access to legacy carrier networks and low - fare airlines. During January 2012 , the carriers serving Nashville International Airport provide an average of 169 daily departures to 47 nonstop destinations in the United States and Canada. Southwest is the dominate carrier at Nashville, providing over 40% of the daily departing seats at BNA. Southwest’s service is complemented by Frontier Airlines, which provides service to its hubs at Milwaukee and Denver, with further onward connections. At each of the hub airport s , SeaPort Airlines proposes the following terminal arrangements:

 Nashville (BNA): SeaPort Airlines will operate from the main terminal with TSA screening and ground handling provided by American Eagle. 4

 New Orleans (MSY): SeaPort Airlines will operate from the main terminal with TSA screening

. The company has not determined whether we will employ our own staff or utilize a third - party ground hand ler. This decision will be made after the carrier selection process in these Dockets and the number of operations that we would have at MSY is known. We have maintained a dialogue with Louis Armstrong New Orleans International Airport and ground handling e ntities throughout, however, and will be ready to implement main terminal operations.

4 SeaPort will begin service to BNA from Jackson, TN on January 22, 2012.January 18, 2012

DOT OST - 2000 - 7856 DOT - OST - 2008 - 0209 DOT - OST - 2001 - 10685 DOT - OST - 2009 - 0305 Page | 10  Memphis (MEM): SeaPort Airlines continues to pursue an agreement on economically viable terms to sublease space or enter into a handling agreement at the main terminal of Memphis International Airport. Until such an agreement is reached, Memphis operations will be at our existing private terminal that offers convenience for quick trips to and from the Memphis metropolitan area with complimentary and quick shuttle service to the main terminal for passengers making connections at MEM

. 5 Frequency Levels In Order 2011 - 11 - 29, the Department specifically stated that: “For proposals with 8/9 - seat aircraft, we would expect proposals for four round trips a day (24 a week).” 6 In some cases, SeaPort is proposing service patterns that result in flight frequencies being shared among more than one community. In these cases, the proposed service pattern equates to 36 weekly round trips. While Order 2011 - 11 - 29 is silent on such service patterns, we note that Order 2011 - 9 - 5 stated: “We may subsidize additional frequencies if the affected community is served in conjunction with another community.” 7 Passenger Traffic Projections To develop projections of traffic and revenue for each community in th is proposal, as well as the resultant subsidy reques ts, SeaPort Airlines utilized the same Quality Service Index (QSI) forecasting methodology that was utilized to prepare our proposals submitted on October 14, 2011. As we pointed out in that proposal, this approach considers frequency levels, connecting o ptions, brand (i.e., independent v code - share), aircraft size, average fares, etc. Given that frequency levels are a weighted factor, the frequencies requested by the Department in Order 2011 - 11 - 29 resulted in traffic projections for the proposals herein that are lower than historical levels provided in Appendix B of that Order. This is illustrated on the table on the next page.

5 In anticipation of reaching an agreement to sub - lease space at MEM, SeaPort proposes to maintain TSA screening in each of the EAS communities and continue screening of all outbound passengers including those bound for Memphis. 6 Order 2011 - 11 - 29, p. 2 7 Order 2011 - 9 - 5, p. 6January 18, 2012

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# Market Level O&D Traffic Comparisons Recent Years v SeaPort Airlines Proposal

We raise this point because during communication with the EAS Division related to another Docket, SeaPort Airlines was advised t hat the Department’s calculation of whether a proposal meets statutory requirements is based on actua l passenger counts and not a carrier’s forecast. Notwithstanding that application of numbers, we believe the forecasts which we have developed represent a reasonable estimate of traffic that will be generated in each market and therefore provides the basis for the proposals contained herein which “simultaneously satisfy the community’s needs and minimize taxpayer expenditures.”January 18, 2012

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# Proposal: Greenville, Mississippi (GLH) SeaPort Airlines is offering the commun ity of Greenville, Mississippi three service options as illustrated by the maps and representative schedules below: 8 

# Greenville, Mississippi ( Mid - Delta Regional A i rport )

Map of Service Pattern Options

8 In all cases, the schedules provided in this proposal are intended to illustrate the type of schedule that SeaPort would prov ide. Actual schedules will be developed after consulting with each community.January 18, 2012

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## R epresentative Schedule for Service Pattern Options

Note that o ptions G - 1 and G - 3 are standalone proposals. Option G - 2 is a contingent proposal, in this case being contingent on SeaPort Airlines being awarded the EAS contract to serve Tupelo, MS and that community selecting option T - 3 (see proposal below). For purposes of calculating subsidy requirement in option G - 2 that includes one - stop service to Nashville via Tupelo:

 50% of the direct operating costs of flight segments between Greenville and Tupelo have been allocated to Greenville and 50% of the di rect operating costs have been allocated to Tupelo ;January 18, 2012

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 Zero traffic is forecast between Greenville and Tupelo

. It is also worth noting that option G - 2 has more th an 24 weekly round trips which results from two communities sharing frequencies.January 18, 2012

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# Proposal: Tupelo, MS (TUP) SeaPort Airlines is offering the co mmunity of Tupelo, Mississippi four service options as illustrated by the map and representative schedules below. 

# T upelo , Mississippi ( T upelo Regional A i rport )

Map of Service Pattern OptionsJanuary 18, 2012

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## R epresentative Schedule for Service Pattern Options

Options T - 1 and T - 2 are presented as standalone proposal s. Option T - 3 is contingent on SeaPort being awarded the EAS con tract at Greenville , MS and that community selecting option G - 2. Option T - 4 is contingent on SeaPort being awarded the EAS contract at Hattiesburg/ Laurel, MS and that community selecting option L - 2.January 18, 2012

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 50% of the direct operating costs of flight segments between the other community and Tupel o have been allocated to Tupelo with the remaining 50% allocated to the other EAS community.

 100% of the revenue generated by passengers traveling to and from Tupelo on these shared routings have been allocated to the Tupelo market; and

 Zero traffic is forecast between Tupelo and the other EAS community. It is also worth noting that option s T - 3 and T - 4 ha ve more than 24 weekly round trips which, as discussed, results from the two communities sharing frequencies

.January 18, 2012

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# Proposal: Hattiesburg /Laurel , MS (PIB) SeaPort Airlines is offering the communities of Laurel and Hattiesburg, Mississippi two service options as illustrated by the representative schedules below:



# H attiesburg/Laurel , Mississippi ( H attiesbur g - Laurel Regional A i rport ) Map of Service Pattern OptionsJanuary 18, 2012

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## R epresentative Schedule for Service Pattern Options

Option L - 1 is contingent on SeaPort Airlines being awarded the contract to provide EAS service at Greenville, MS (any option presented) or awarded the EAS contract to provide service at Tupelo and that community selecting option T - 3 or T - 4

. In this case, the contingency is necessary to allow for aircraft to be rotate d back to our maintenance base in Memphis and is not due to shared frequencies. As a result 100% of the operating costs and revenues for option L - 1 are allocated to Hattiesburg/Laurel for purposes of calculating subsidy requirements. Option L - 2 is contingent on SeaPort Airlines being awarded the EAS contract to provide service at Tupelo and that community selecting option T - 4. For purposes of calculating su bsidy requirement on option L - 2 that includes one - stop service from Laurel/Hatti esburg to Nashville via Tupelo:

 50% of the direct operating costs of flight segments between Laurel/Hattiesburg and Tupelo have been allocated to Laurel/Hattiesburg for purposes of calculating subsidy require ments with the remaining 50% allocated to Tup elo ;

 100% of the revenue generated by passengers traveling between Laurel/Hattiesburg and and Nashville has been allocated to the Laurel/Hattiesburg market; and

 Zero traffic is forecast between Tupelo and Laurel/Hattiesburg.January 18, 2012

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# Proposal: Muscle Shoals, AL (MSL) SeaPort Airlines is offering the Muscle Shoals community three service options, providing access to the national air transportation system at Memphis and Nashville with various frequency levels. This is illustrated on the representative s chedules below.



# M uscle Shoals, Alabama (Northwest Alabama Regional Airport) Map of Service Pattern OptionsJanuary 18, 2012

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## R epresentative Schedule for Service Pattern Options

All options are presented as standalone proposals

.January 18, 2012

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# Proposal Recap SeaPort Airlines is providing the communities of Muscle Shoals, Alabama and Greenville, Tupelo, and Laurel/Hattiesburg, Mississippi a variety of air service options as summarized on the table below: 

# Summary of SeaPort Airlines ProposalsJanuary 18, 2012

DOT OST - 2000 - 7856 DOT - OST - 2008 - 0209 DOT - OST - 2001 - 10685 DOT - OST - 2009 - 0305 Page | 35 While SeaPort is providing each community with multiple options from which they can determine the one that best meets their air service requirements , we nonetheless suggest the following as our preferred options that will allow us to provide an optimal mix of (1) multiple hubs to access the air transportation system, (2) low per passenger subsidy requirements, and (3) operational efficiency:

• Greenvil le, MS: Option G - 1

• Hattiesburg/Laurel, MS: Option L - 2

• Muscle Shoals, AL: Option M - 2

• Tupelo, MS: Option T - 4 Except as otherwise noted herein, proposals for each community are on a standalone basis. There is no intent in our proposal that the four commun ities represent an “all or nothing” bid. Finally, the proposals herein are based on a two year term. Notwithstanding the risk of cost inflation in coming years (particularly related to fuel) that could possibly outstrip traffic growth and reasonable fare increases, SeaPort is offering the Department and communities the option to contract the proposed annual subsidy for a four year period at no increase in annual subsidy beyond that level specified for the second year of each option in this proposal. We believe this offer provides each community with the assurance of stable air service for an extended period and reduces the administrative burden on both the Department and ourselves. Our existing infrastructure at Memphis (including maintenance and crew bases) combined with additional aircraft scheduled for delivery during 2012 allows SeaPort to implement the proposed service in a timely manner and at a cost that minimizes taxpayer expenditure . We appreciate the op portunity to s ubmit this proposal and welcome any questions from the communities and/or the Department. Respectfully submitted, Timothy Sieber Vice President

– Strategy & Corporate Development SeaPort Airlines, Inc. January 18, 2012