te-t~~ ~ ~e-v-t' 

'OtTt- 0$-T- 'loo<{-~9) 

u.s. Deportment of 

Transportation 

Office of the Secretary 

of Transportation 

Mr. Scott McGinnis 

City Manager 

PO Box 606 

Houghton, MI 49931 

Dear Mr. McGinnis: 

1200 New Jersey 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 of the end of 

that contract, by Order 2011-8-10 the Department requested "best and final" proposals to 

serve Hancock/Houghton for a new, two-year period, and we received timely-filed 

proposals from SkyWest, Sovereign Air, Inc., and Multi-Aero, Inc., d/b/a Air Choice One 

(Air Choice One). 

My purpose in writing is to inform you of the results of each 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 of each 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 

them here. 

Sky West The carrier proposes to provide a total of fourteen (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 carrier proposes to operate nineteen ( 19) nonstop round trips per week 

to Chicago O'Hare for $1,321,266 annual subsidy. All service would be with 30-seat 

Domier 328 regional-jet aircraft. The carrier notes that it is "currently in the process of 

acquiring its scheduled service authority and anticipates being able to start its Essential Air 

Service by December 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 of the total ticket price, e.g., the Hancock/Houghton- Chicago portion 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 of certain 
- 2-

charges such as federal transportation security fees, excise and ticket taxes, and passenger 

facility charges. Of course, carriers have the discretion to charge fares they deem 

appropriate, and the proposed passenger fares were developed for subsidy rate computation 

purposes only. Each carrier would have to realize passenger fares comparable to the 

averages shown in its proposal in order to achieve break-even or profitable operations even 

with subsidy. 

# 

Y ()J.l should also note that any _schedl!l'es iiu'?.mitted by the 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 Department expects 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 order to expedite the case, please submit your comments by email to 

EAS@dot.gov and to Kevin.Adams@dot.gov, by October 3. If you have any questions or do 

not wish to submit formal comments, please contact Kevin Adams at (202) 366-1047. 

Enclosures 

Sincerely, 

Xa-"" Dennis 

~~ J. DeVany 

Chief, Essential Air Service Division 

Office of Aviation Analysis 

cc: Airport Manager, SkyWest, and Sovereign Air 

.,. . ' 
SkyWest Airlines 

Houghton, Ml Essential Air Service 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 per trip 

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% 

At( f e'"" Sl: Y jJ., 

\>4,~<?- \o.f'\ 

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-9:10pm 
30-Seat Dornier 328 Jet 

Sovereign Air, Inc. 

A ff e4-~:-< ~ \>~5 e do~] _ 

So ve-e :-e l-t A \c' 

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%