May 7, 2012
Mr. Dennis DeVany Chief, Essential Air Service Division Office ofAviation Analysis Department ofTransportation 1200 NewJersey Avenue SE, Washington, D.C. 20590

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# Mississippi

Melvin Mack Mayor

Reference; DOT-OST-2008-0209, 2001-10685, 2009-0305, 2000-7856 Greenville, MS, Laurel/Hattiesburg, MS, Tupelo, MS, and Muscle Shoals, AL, EAS Dear Mr. DeVany:
This letter is thejoint response ofthe Cities ofGreenville, MS, Laurel/Hattiesburg, MS, Tupelo, MS and Muscle Shoals/Florence/Sheffield, AL, to the Department's request for community comments in the matter ofthe Cities Essential Air Service and air carrier EAS bids received on April10, 2012. The Cities wish to begin their comments bythanking the Department for its patience in allowing EAS biddingto extend tofour rounds. Given the extra time,the Cities were finally able, in the fourth round, to recruit an adequate replacement carrier, equipmentand route proposal. The Cities spent agreat deal of time, workand money on recruiting adequate replacement air service and this work has finally been rewarded. Our Endorsement: The Cities unanimouslyand without reservation endorse Silver Airways as our replacement carrier. Silver proposes to operate service from all four cities to Atlanta, the largest airline hub in the world, using 34-seat SF-340 turboprop aircraft that have been a mainstay of small community air service for manyyears. Silver also has a complete set ofTicket and Bag Agreements with all majorairlines and extensive and successful experience in EAS service (13 current EAS contracts). Finally, Silver is, atthis writing, close to signing an enhanced interline agreement with Delta Air Lines. Delta is the largest carrier at Atlanta and the dominant airline brand across Mississippi and Alabama. The enhanced interline agreementwill be similar to the one between Delta and Great Lakes Airlines. That agreement is facilitating a smooth transition between Delta and Great Lakes at nine EAS cities in the upper Midwest. The agreement includes display ofthe replacement carrier's flights on Delta.com and avariety ofother business partnership elements.

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Specifically, the Cities endorse Silver Airways Option 

### 1, providing for 

### 24 weekly nonstopflights between Atlanta and Hattiesburg and between Atlanta and Muscle Shoals, plus 

### 36 weeklyflights on a paired routing between Greenville, Tupelo and Atlanta. The total annual subsidy requirement forthis proposal is $12,613,827. Silver has associated Option 1 with an EAS proposal forservice from Atlanta to Greenbrier/White Sulphur Springs (Docket DOT-OST-2003-15553). While peripheral to the combined service patterns ofthe Cities, to the extentthis additional route is necessary for Silver Airways to economically perform its proposed services atthe Cities, the Cities fully support and endorse SilverAirways service at Greenbrier. Other Bids: Multi-Aero, Inc., dba AirChoiceOne, submitted a six option bid to provide EAS service atthe Cities. While the Cities appreciate the interestofAirChoiceOne in providing EAS service at ourairports, we reject all carrier bids as inadequate on multiple counts. General Comments Regarding AirChoiceOne and Its EAS Bids:**~** None ofthe carrier bids break out atrafficforecastfor each city, rather each offersa projection of total passengers forthe total (two-city orfour-city) operation. This makes it impossible for each individual City to understand the carrier's anticipated traffic and load factor by city.**~** Aircraft seating capacity on several bids is unclear. We assume the Caravan bid (option 2) to be with a nine passenger aircraft. There is no clarification as to aircraftsize on the Navajo bids, although the ASM totals forone ofthose bids are 77.77% ofthe Caravan bid forthe same routings, thus we assume the Navajo is aseven passenger aircraft (7 divided by 9 is 77.77%). );> The bids involving aJetstream aircraft do not clarify ifaJ31 orJ32 type is envisioned. There is a huge difference in payload and reliability (and lease orownership costs) between the two variations.**~** The carrier's Jetstream bids, regardless ofvariation, assume the carrier will gain a Part 121 air carrier operating certificate {18 passenger capacity) within 12 months of initial operations undera Part 135 certificate (8 passenger capacity). It is our understandingthat gaining a Part 121 certification is a significant undertaking, requiring significant capital and investment in personnel and equipment in orderto demonstrate to the FAA the abilityto operate underthe heightened standards of Part 121.**~** The carrier states in its "Market Growth Strategy- Connectivity" statement (page 3 ofits bid document) that it is working to secure interline ticket and bag (lET) agreements with major airlines,EAS Service (Cont'd) Page 3

including Delta. The carrier offers no firm commitments ortimeline from any networkcarrierto enter into an lET. This is ofgreat concern to the Cities in that an lET is essential for any Delta replacement service to have a chance to generate**t~affic.** Without appropriate lETs all the AirChoiceOne options amountto aircraft (ofthree differenttypes) flying around empty because they lack the fundamental mechanisms ofconnectivity to Delta orany otherairline at Memphisor Atlanta (Option 5).**~** The Departmentapparently shares ourconcerns about the carrier's lack of lET. In Order 2011-12- 17 the Department awarded AirChoiceOne a new EAS term at Burlington and Decatur, butfor only one year (the carrier bid two years orfour years), with a proviso thatthe carrier must "fully implement an electronic ticketing and baggage agreementwith a majorairline with a hub operation at Chicago O'Hare and/orSt. louis by January 31, 2013." The Department also recently rejected aAirChoiceOne Navajo bid atAlpena, Michigan, with a lack of lET apparently a consideration in that decision.**~** The carrier's {Iestimated flight operations" schedule examples in each Option cause us concern. Delta is the dominantcarrierat Memphis and the carrier operates three distinct banks offlights during the day. The representative schedules ofthe carrier do notappearto match up with these Delta banks in any consistent way. Given thatthe carrier is bidding fourtrips to Memphisfrom each city and there are onlythree Delta banks to connect to it is essential that considerable attention be paid tothe detail ofschedule timing. There appears to be little attention to this detail in the carrier's representative schedules.**~** Building on that concern, a review ofTlOO block time data forthe Delta Connection Mesaba SF340 services between each city and Memphis during 2010 (different periods inthe case ofMuscle Shoals) indicates actual block times for thatfast turbopropthat are significantly greaterthan what the AirChoiceOne appears to expectto accomplish with much slower Caravan, Navajo and Jetstream aircraft. For some reason AirChoiceOne believes its relatively slow Caravan, Navajo and Jetstream aircraft will fly the Greenville, Muscle Shoals and Tupelo routes in significantly less time than the much faster Mesaba SF340s aircraft did. At Hattiesburg the carrier appears to believe its much slower aircraft will cover 250 miles to Memphis in justa slightly longer block time. This notonly suggests a lack ofattention to detail in preparing the bids, italso calls into question the carrier's cost estimates since many costs are based on block hours and the carrier appears to have underestimated the block hours actually needed to operate itsvarious proposals.EAS Service (Cont'd) Page 4

BlOCKTIME COMPARISION: MEMPHIS & ATLANTA ROUTES
BlkTime ACO lid BlockTimes Route Distance Period XJ SF340 Caravan Navajo lletstream MEM/

GLH 122 2010 :52 :45 :45 :45 P19 250 2010 1:22 1:40 1:40 1:30 TUP 89 2010 :45 :30 :30 :30 MSl 134 2008-2009 1:03 :40 :40 :40 ATI.[

MSL 198 2009-2010 1:18 1:00 Source: lO**~tthnelperOOTnOO,** ACObtodltlmesp-trbkJ d'ocom•nt )- AirChoiceOne currentlyoffers service at Burlington, Iowa, Decatur, Illinois and Jonesboro, Arkansas, all with EAS subsidy. All three markets are served with Caravan equipment while the carrier appears to have one Navajo on its Part 135 certificate. Current EAS service at Burlington and Decatur is subjectto the Department's concerns (noted above) aboutthe carrier's lack of lET agreements, with adeadline forsome sort ofcarrier progress on gaining lET agreements byJanuary 2013. Furthermore, the carrierfaces anotherchallenge in retaining its current subsidy atJonesboro in thatthe service must show progress in generating traffic sufficient to keep subsidies under$200 per passenger. Based on thetraffic history ofJonesboro and the carrier's subsidy amount,this appears nearly impossible. Thus the carrier's entire existing route system appears to be subject to re-bid or subsidy termination by early 2013, only eight months from now. )- The carrier's limited fleet ofthree Caravans and one Navajo is in striking contrast to the fleet size needed to operate proposed services at all four ofthe Cities. We estimate, given the age and mechanical nature ofthe Navajo and Jetstream aircrafttypes, thatthe carrier would have to acquire and provision for parts and maintenance forsix aircraft (four lines offlying and two spares) in orderto reliably operate the four new markets. This also means that pilots and mechanics sufficientto staffthat numberof routes, flights and aircraft would have to be hired, trained and placed into line service. Given the carrier's small scope ofcurrent operations, which are almost exclusively with the Caravan, the abilityofthe carrierto promptly begin service and replace Delta with reliable service is open to question. Furthermore, we are tothen believe in carrier options 3, 4, 5 and 6thatthe carrierwill not only achieve all ofthat dramatic expansion in a prompt manner, but will follow it up with the rapid achieving ofa FAA Part 121 Operating Certificate. We also note that at this time there does not appearthat asingle Piper Navajo orJetstream is in scheduled air service anywhere in the lower48.EAS Service (Cont'd) Page 5

Comments on Each Specific AirChoiceOne Bid: Option 1 Inaccurate Block Times- As is detailed on the previous page, the carrier is assuming exceptional block time performance from its aircraft, achieving block times to and from Memphis that are measurably faster than those documented in DOTT100 data for Mesaba SF340s in recent years. On the Greenville route the carrier suggests itwill operate 7 minutes faster per flight than Mesaba did (56 minutes per day faster), atTupelo 15 minutes perflight faster (120 minutes perday faster), at Muscle Shoals 23 minutes faster (184 minutes perday faster). Even ifthe Navajo could perform the services atthe same block speeds the SF340 has historically demonstrated, and somehow only be 18 minutes sloweron the long 250 mile route from Hattiesburgto Memphis, this would mean about six block hours perdayadditional flying, 

### above and beyond whatthe carrier has projected in Option 

### 1. Six additional block hours perday is roughly 1,800additional block hours peryear added to the Option 1 cost structure. Atthe $988 per block hour in cost the carrier has projected for the Navajo in Option 1this equatesto some 

### $1,778,400 in added cost, which would 

### move the carrier's 5% profit of$415,562 to an annual loss ofover$1,300,000. Extremely Optimistic Load Factors- While the carrier has not detailed traffic and revenue by market in Option 1 it has projected 42,500 annual passengers or4.33 perflight on 9,811 annual segments. This equates to a 61.9% load factor on a 7 passenger Navajo.
A review ofactual AirChoiceOne load factors using 9 passenger Caravan aircraft on its existing mature Decatur and Burlington routes shows that in the firstyear ofservice on these routes (2010) the carrier achieved a 24.1% load factor with the best performing route achieving a38.2% load factor. Even in the second yearofservice only one ofthe routes achieves a load factor above 60% and that is a route to Chicago ORO.

ACO LOAD FACTORS 2010/2011 Load Factor Route 2010 2011 Period ORO BRL 38.2% n.'ZX 59.8% ORO DEC 20.1% 59.8% 41.2% STlBRL 25.4% 56.8% 42.5% STLDEC 14.4% 36.0% 25.8% System 24.1% 58.2% 42.5%EAS Service (Cont'd) Page 6

Memphis is not Chicago ORD. It is actually less a connecting hub than St. Louis for a carrier without a network code oreven lET since it lacksthe fare options and competition generated by large scale LCC operations. While Memphis does have a declining Delta hub 

### (150 dailydeparturesto

### 58 cities), 

### St. Louis has over

### 90 daily departures by SouthwestAirlines, its largest carrier, to 

### 31 cities. Memphis generatedjust over

### 3 million local O&D in 

### 2011 at an average domestic fare of

### $219. St. Louis generated over

### 9.5 million O&D at an average fare of

### $158.
The very high average fare paid at Memphis does not bode well for a sum oftwo locals pricing strategysuch as AirChoiceOne proposes to employ at Memphis. Thus, based on both the carrier's actual experience on its mature route system and the pricing environment at Memphis in comparison to St. louis, the carrier's forecast load factor of61.9% using Navajo aircraft at Memphis operating four round trip daily patterns into a three bank Delta hub is at best, wildly optimistic.
The carrier projected a Memphis system average fare of

### $64.36 with 

### 42,500 O&Dgenerating

### $2.735 million in annual revenue. A more realistic load factor of

### 40% would generate 

### 27,471 annual O&D. Even given the carrier's high average fare assumption (into a high fare hub) this would reduce carrier revenue from 

### $2.735 million to 

### $1.768 million, a loss of nearlya million dollars in annual revenue. Ability to Scale Up Operations and Make a Profit- We have already notedthat,given the age and mechanical nature ofthe Piper Navajo, we believe the carrierwould need six to operate Option 

### 1. The carrier has one Navajo in operation. Acquiring five additional aircraft and outfitting same with spares plus the hiring ofrequisite pilot and mechanic staffwill require a large capital investment bythe carrier. At the same time we believe there is a clear underestimation ofcost ofoperation (dueto blocktime miscalculations) totaling nearly

### $1.8 million and a clear overestimation oftraffic and revenue totaling nearly 

### $1.0 million. Thus, on top ofa perhaps insurmountable capital expenditure in orderto achieve the scale needed to operate Option 

### 1, we believethat this small carrier will encountera

### $2.8 million dollargap between its bid cost and revenue assumptions and its financial reality in attemptingto begin Option 

### 1 service. Furthermore, like all carrier options, Option llacks lET. The carrier has no timeline for implementation and the Department itselfis concerned enough aboutthis to hold existing carrier EAS awards on a short leash to January 2013.EAS Service (Cont'd) Page 7

Option 1 should be rejected by the Department as unrealistic. Indeed, award ofOption 1 to the carrier would likely result in some combination ofafailure to start up, carrierfinancial difficulties during startup or carrier filing foradditional subsidy within ayear ofstartup. Option 2 Option 2 is rejected by the Cities due to the proposed use ofsingle engine aircraft. Option 3 and Option 4 Option 3 is a Memphis service bid for Greenville and Hattiesburg usingJetstream aircraft with an assumed year one of Part 135 operation with eight passenger seats and an assumed year two and beyond Part 121 operationwith 18 passenger seats. Option 4 is a Memphis service bid forTupelo and Muscle Shoals using Jetstream aircraft and the same Part 135 start and Part 121 evolution as in Option 3. Taken together, the two Options total $9.8 million in annual subsidy, only$700,000 less in subsidythan SilverAirways Option 2. Taken together,the combined Option 3/4 calls for an amazing 49,950 annual O&D duringyear one (eight passenger capacity) and a64% load factor. Once Part 121 is achieved annual passenger totals are forecast to growto an even more amazing 63,000 O&D. While we appreciate the carrier's faith in our markets, we are deeplyconcerned thatthe carrier's productwill not be embraced to that extent. Ourcomments on Option 1 regarding the practical passenger generating ability ofan airline that lacks lET and uses a sum oflocals pricing strategy at a high airfare hub like Memphis apply here even more so than they do in regard to Option 1. Ourcomments on Option 1 regarding the carrier's abilityto acquire sixJetstream aircraft, the necessary maintenance housing and spares, and the needed pilots and mechanics also stand in regard to Option 3/4, only more so. Furthermore, at least with the Navajo, the carrier has actual operating experience with the aircrafttype. The Jetstream would be totally newtothe carrier's operational team and would involve supporting a newturbine engine type with which the carrier has no experience. Ourcomments in Option 1 regarding inaccurate blocktimes also apply to Option 3/4. While the Jetstream is afaster aircraftthan a Caravan or Navajo, it is not as fast as aSF340, thus there is some significant errorin the carrier's estimate oftotal block hours needed to operate the proposed service pattern.EAS Service (Cont'd) Page 8

Combining a clear overestimation oftrafficand revenue with an underestimation ofoperating costs due to block time estimate errors with the huge financial commitment required by a small companyto acquire six Jetstreams and necessary spares and adequate operational staffand then operate them under Part 135, while in the same timeframe acquiring Part 121 certification strains credibility. Option 3 and Option 4, either alone or combined, should be rejected by the Department as unrealistic on multiple counts. The carrier needs to acquire a Part 121 certification and operate Jetstream aircraft before it boldly proposes to essentially double the size ofitsoperation while addingfour new markets, a new hub, a newaircrafttype and a Part 121 certification, all in a shorttimeframe. Option 5 Option 5 proposes Tupelo to Memphis service and Muscle Shoals toAtlanta service, all withJetstream aircraft in the Part 135year one, Part 121 thereafterscenario already addressed in comments on Option 3/4. The bid becomes confusing in that in year two and beyond (with Part 121) the bid becomes a dual hub bid with Tupelo having one stop service via Muscle Shoals to Atlanta and Muscle Shoals one stop service to Memphis via Tupelo. The bid document describes the service as 24 round trips perweek in year one and that is illustrated in the schedule and borne out in the year one statistics. However, the year two and beyond sheets describe an 18 round trip per week plan and have statistics for such a plan. The schedule plan foryear two and beyond shows a four round trip pattern atAtlanta and at Memphis plus the four dailytag flights linking Tupelo and Muscle Shoals. Thus the schedule plan foryear two and beyond ofOption Sdoes not match the projected operating statistics. The carrier's blocktime between Muscle Shoals and Atlanta is listed as one hourwhile Mesaba's faster SF340s recorded a78 minute block on the same route in recent years. This implies that everyJetstream operation will incur perhaps 20 additional block minutes. On an annual basis this is 800 additional block hours in yearone (eight seat operation and fourtrips perday) and 600 additional block hours in yeartwo and beyond (18 seat operation and three trips per day).
The carrier's block time between Tupelo and Memphis is listed as 30 minutes whereas the Mesaba SF340s required 45 minutes. This means 600 additional block hours in year one and perhaps 450 additional block hours 

### in year two and beyond, assuming the Jetstream can accomplish the operation with the same speed as the SF340.EAS Service (Cont'd) Page 9

The carrier assumes a 68.9% load factor in year one. Given the disparity between the illustrated schedule and the operational statistics plus the lack ofa breakdown oftraffic by market orcity pair it is impossible to estimate the carrier's load factor foryear two and beyond. For all the reasons previously noted related toJetstream bids Option 5 should be rejected by the Department. Beyond that, the year two forecast ofOption 5 does not match the illustrative schedule and it is not clearwhat exactly the carrier is proposing to operate in year two and beyond. One further note is thatthe carrier appears to assume access to Atlanta can be gained at reasonable cost for three orfourdaily Jetstream flights. Other carriers have advised the Cities that gaining reasonably priced access to Atlanta is difficult, if not impossible, especially ifthe scale ofoperation is onlythree orfour dailytrips. Option 6 Option 6 proposes Tupelo and Muscle Shoals service to Memphis with a Navajo the firstyear and a Jetstream in years two and beyond. As is the case with previous Options, block times appearto be significantly underestimated and traffic forecasts can be described as bold, given the high average fares at Memphis and the sum oftwo locals pricing strategy. Previous comments about lack of lET and the ability ofthe carriertoexpand, add a new aircraft type and transition to Part 121 apply here as well. Summary The Cities again wish to thank the Departmentforgranting us four rounds ofbidding. That extra time gave us the chance, working together, to successfully recruit an adequate replacement air service in the form of Silver Airways. We repeat ourendorsement ofthat carrier as our replacement. We recommend Silver Airways and Option 1for our replacement carrier and service. To the extentthat SilverAirways may require award ofthe Atlanta- Greenbrier EAS designation in orderto have the economic scope to provide the services ofOption 1 or Option 2 at ourcities, we endorse Silver for Greenbrier service as outlined in their proposals. We appreciate the interest ofAirChoiceOne in our markets howeverwe reject all AirChoiceOne bids as inadequate forthe numerous reasons listed in this letter.

### EAS Service (Cont'd} Page 10

We urge the Departmentto promptly select Silver Airways as our replacement carrierto allowthat carrier to begin the replacement process and to ensure a smooth transition during 

### 2012. Yours very truly,

# ~~ Melvin Mack, Mayor City of Laurel, MS MM:cbt