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u.s.Deportmentof Transportation OfficeoftheSecretary ofTransportation Mr. Scott McGinnis CityManager PO Box 606 Houghton, MI 49931 DearMr. McGinnis: 1200 NewJersey Avenue, SE Washington, DC 20590
September 2, 2011

As you know, SkyWest Airlines, Inc., d/b/a United Express (SkyWest), provides subsidized air service under the essential air service (EAS) program at Hancock/Houghton. The Department's current contract with SkyWest at Hancock/Houghton calls for an annual subsidy of$1,404,714 with fourteen nonstop round trips per week to Chicago O'Hare with 50-seat CRJ-200 aircraft, and it expires December 31, 2011. In anticipation ofthe end of that contract, by Order 2011-8-10 the Department requested "best and final" proposals to serve Hancock/Houghton for a new, two-yearperiod, and we received timely-filed proposals from SkyWest, Sovereign Air, Inc., and Multi-Aero, Inc., d/b/a Air Choice One (AirChoice One). My purpose in writing is to inform you ofthe results ofeach carrier's service and subsidy proposal and request your comment before we submit a recommendation on the carrierselection issue to the Assistant Secretary for Aviation and International Affairs for decision. Copies ofeach carrier's full proposal may be accessed online through the Department's Dockets Management System at http://www.regulations.gov/by entering "DOT-OST 2009-0302" in the "enter Keyword or ID" field, so we will only summarize themhere. Sky West The carrierproposes to provide a total offourteen (14) nonstop round trips per week to Chicago O'Hare for $591,615 annual subsidy. All service would be with 50-seat CRJ-200 regional-jet aircraft. Sovereign Air The carrierproposes to operate nineteen (19) nonstop round trips per week to Chicago O'Harefor $1,321,266 annual subsidy. All service would be with 30-seat Domier 328 regional-jet aircraft. The carriernotes that it is "currently in the process of acquiring its scheduled service authority and anticipates being able to start its Essential Air Service byDecember 15, 2011." Please note that the average passenger fares shown in the carriers' proposals do not necessarily reflect the average local fares passengers would pay, but rather reflect the prorated portion ofthe total ticket price, e.g., the Hancock/Houghton- Chicagoportion of a Hancock/Houghton

- Chicago

- New York ticket that the carrier would realize. Also, the implicit average fare, as reflected in the carriers' subsidy calculations is net ofcertain- 2- charges such as federal transportation securityfees, excise and ticket taxes, and passenger facility charges. Ofcourse, carriers have the discretion to charge fares they deem appropriate, and the proposed passengerfares were developed for subsidyrate computation purposes only. Each carrier would have to realize passengerfares comparableto the averages shown in its proposal in order to achieve break-even orprofitable operations even with subsidy.

# Y()J.l should also note that any_schedl!l'esiiu'?.mitted bythe carriers are illustrative only, and the carrier selected may make schedule·clranges to reflect changing conditions, e.g., to better meet shifting connecting bank times at the hub. The Departmentexpects subsidized air carriers to maintain well-timed and well-spaced flights in order to ensure full compensation. We know this matter is important to you and we will act as quickly as possible upon receipt of your letter. In orderto expeditethe case, please submit your comments byemail to EAS@dot.gov and to Kevin.Adams@dot.gov, by October 3. Ifyou have any questions or do not wish to submitformal comments, please contact Kevin Adams at (202) 366-1047.

Enclosures Sincerely,

# ~~ Xa-"" Dennis 

### J. DeVany Chief, Essential Air Service Division Office ofAviation Analysis

cc: Airport Manager, SkyWest, and SovereignAir .,. 

# . 'SkyWest Airlines Houghton, Ml Essential AirService Bid 8/31/2011

Number of round-trips per week Aircraft type Passenger Revenue Passengers Average fare Revenue Block Time Trip block time (minutes) Total scheduled block time Total completed block time RPMS Passengers Stage length

ASMs Scheduled departures Competed departures Stage length Available Seats

Revenue Direct operating expenses Flight attendant RPM related Departure related ASM related Total expenses Operating income (loss) 5% profit margin Subtotal Marketing assistance Subsidy requirement SkyWest effective rates per unit Cost per trip Cost per passenger SkyWest cost per block hour Effective Subsidy rate per unit Subsidy pertrip Subsidy per passenger
Load factor '·

98%

98%

CRJ Blk Hr $ 2,066.24 Blk Hr $ 37.30 RPMs $ 0.003 Departures $ 412.56 ASMs $ 0.011 $ $

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2012-2013

Houghton, Ml

Chicago, ll 14 CRJ200
44,000 95.00 4,180,000
72 1,747 1,712
44,000

359 15,796,000
1,456 1,427

359 50 26,135,200
4,180,000 3,537,932

63,867 47,388 588,674 287,487 4,525,348 (345,348) 226,267 571,615 20,000 591,615
3,171

103 2,643

401

13
60% 

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# sty \Ve-r--\-HancockLHoughton Schedule Fit# Freq From TO Dpt-Arr 10 1234567 CMX ORD 6:30am-7:30am 11 1234567 ORD CMX 8:30am-9:30am 20 23456 CMX ORD 10:30am11:30am 21**.~. -~·**  23456 ORD

. 3.0 1234567 CMX 4 CMX**12:30pm;S:}Op~** <-.. •".**~-** ORD 5:30pm-6:30pm 

### ·• 31 1234567 ORD CMX 8:00pm-9:10pm30-Seat Dornier 328Jet Sovereign Air, Inc. 

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Annual Compensation Requirement for Essential Air Service for Hancock/Houghton
Aircraft**T~e**· Available Seats Per Dep_arture
· Passengers Pe·r Trip

Block Hours Departures Total Passengers Average Fare
Revenue Passenger Miles Available Seat Miles Passenger Revenue Other Rev. @ .6 of pax. Rev. %

Total Revenue Aircraft and Hull Insurance Fuel and Oil Flying Operations
Other Direct Costs Maintenance

Total Direct Costs Total Indirect Costs Total Operating Expenses Operating Loss Profit@ 5%

Completion Rate Load Factor 19 Round trips Per Week

$155 one way

Annual Compensation Requirement 30-seats 30 22.8 1,916 1,916 43,710

18,046,735 23,739,240 $6,775,050 $40,650 $6,815,700

$220,000 $2,038,624 $1,116,939

$572,245 $1,272,517 $5,220,325 $2,529,166 $7,749,491

$933,791 $387,475 $1,321,266
97% 68%