; --:. r>, ~ :~ ~T c:·:: 

BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

Essential Air Service at 

) 

) 

) 

' ; i'\ ~' ~ . 

' ::I 

ADAK, ALASKA ) Docket OST -2000-8556 

) 

_u_n_d~e~r~49~U~.S~._c_.§~4_17_3~1_e~t~.s~e~q~·--_________ ) 

PROPOSAL OF PENINSULA AIRWAYS, INC. 

TO PROVIDE ESSENTIAL AIR SERVICE 

AT ADAK, ALASKA 

Communications with respect to this document should be addressed to: 

Danny Seybert 

Scott Bloomquist 

PENINSULA AIRWAYS, INC. 

6100 Boeing Avenue 

Anchorage, Alaska 99502 

March 30, 2012 

Robert E. Cohn 

Patrick R. Rizzi 

Hogan Lovells US LLP 

555 13th Street, N.W. 

Washington, D.C. 20004 

(202) 637-4999/5659 

robert.cohn@hoganlovells.com 

patrick. rizzi@hoganlovells.com 

Counsel for 

PENINSULA AIRWAYS, INC. 
BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

Essential Air Service at 

) 

) 

) 

ADAK, ALASKA 

under 49 U.S.C. § 41731 et. seq. 

) Docket OST -2000-8556 

) 

) March 30, 2012 _________________________________ ) 

PROPOSAL OF PENINSULA AIRWAYS, INC. 

TO PROVIDE ESSENTIAL AIR SERVICE 

AT ADAK, ALASKA 

Pursuant to DOT Order 2012-2-8, Peninsula Airways, Inc. ("PenAir") 

hereby presents its proposal to provide subsidized essential air service ("EAS") 

at Adak, Alaska, for a two-year period beginning July 1, 2012. 1 

I. PenAir's Adak EAS Proposal. 

PenAir proposes to provide four weekly roundtrip flights between Adak 

and Anchorage using PenAir's combination Saab 340 aircraft on an AnchorageCold Bay-Adak-Anchorage routing. PenAir's proposal would require an annual 

subsidy of $3,440,096.69. See Exhibit and accompanying Notes. 

The benefits of PenAir's EAS proposal for Adak are compelling. PenAir's 

Saab 340 aircraft is appropriately sized for the Adak marketplace. PenAir's 

The Department twice extended the due date for submission of proposals, with the final due date being 

March 30, 2012. 

•IDC • 004721/000002 • 3368997 v2 
proposal will double the number of weekly frequencies Adak currently receives. 

Although Adak currently receives jet service from Alaska Airlines, PenAir's Saab 

340 has a long stage length capability and offers passengers the comfort and 

convenience of a stand-up cabin, leather seating, full lavatory, flight attendant 

service, and substantial cargo capacity. Indeed, the State of Alaska recently 

acknowledged: "However, the time has come for all of us to consider afresh 

what would be the most cost-effective and appropriate options [for Adak service], 

which may no longer include jet service." DOT Order 2012-2-8, at 2; Letter from 

State of Alaska to DOT, dated February 6, 2012. Accordingly, the Department 

has expressly "encourage[d] proposals with turboprop aircraft" for Adak this time 

around. DOT Order 2012-2-8, at 3. PenAir's Saab 340 proposal fits the bill. 

PenAir has had longstanding experience in providing essential air service 

to Adak. Prior to the Department's selection of Alaska Airlines, PenAir had for 

many years provided quality EAS service to Adak. Following the demise of 

Reeve Aleutian Airways in 2000, PenAir was the only airline with the 

demonstrated interest and resources to step in immediately to provide Adak with 

EASon an emergency basis and was selected to do so by DOT Order 2001-7-3. 

PenAir believes that its prior experience serving Adak (with a 99% 

schedule completion rate) and its higher frequency proposal (which would 

double the number of weekly flights currently provided to Adak) will best serve 

the public interest and the needs of the Adak market, providing more frequent 

delivery of goods, parts, equipment, and personnel in support of the island's 

industry. 

'\DC'- 0047211000002-3168997 v2 2 
PenAir's proposal also benefits from the fact that the federal government 

will not need to incur the costs and expenses associated with transporting three 

TSA agents to/from Anchorage or Cold Bay for each service as is currently done 

for Alaska Airlines' service at Adak. 

In sum, PenAir's Saab proposal will best serve the interests of both the 

Adak community and the Department by providing higher frequency, reliable 

EAS at a reasonable subsidy cost given the stage length and unique 

circumstances entailed in serving Adak. 

II. Carrier Selection Factors Favor PenAir. 

Under 49 U.S.C. § 41733(c)(1), the Department considers five factors in 

selecting a carrier to provide subsidized essential air service including: (1) 

service reliability; (2) contractual and marketing arrangements with a larger 

carrier at the hub; (3) interline arrangements with a larger carrier at the hub; (4) 

community views; and (5) each applicant's relative subsidy requirements. 

PenAir excels in each of these categories. PenAir is among the largest 

and most reliable commuter airlines in the state of Alaska and has had decades 

of experience in providing reliable subsidized essential air service to small 

Alaska communities (e.g., 99% completion factor at Adak). PenAir's subsidy 

proposals in this case represent highly cost-efficient essential air service 

appropriately sized to meet the needs of the communities on an economically 

efficient basis. In addition, PenAir has a marketing arrangement to/from PenAir's 

'.'DC- 004721/000002. 3368997 v2 3 
hub at Anchorage which offers seamless service for PenAir's passengers to the 

national air transportation system. 

In conclusion, PenAir requests that the Department select it to be the 

subsidized essential air service carrier at Adak, Alaska, for a two-year period. 

\IDC- 00472!1000002 • 3308997 v2 

Respectfully submitted, 

Robert E. Cohn 

Patrick R. Rizzi 

Hogan Lovells US LLP 

555 13th Street, N.W. 

Washington, D.C. 20004 

(202) 637-4999/5659 

Counsel for 

PENINSULA AIRWAYS, INC. d/b/a PenAir 

4 
Notes to PenAir's EAS Subsidy Proposal 

Note 1: Total passenger data are adjusted from the YE October 2011 data 

for Adak attached to DOT Order 2012-2-8 to account for the reduction in TSA 

passengers that are carried on each Alaska Airlines flight for security screening 

at Adak. Given the size of PenAir's Saab aircraft, those TSA passengers are no 

longer required. 

Note 2: PenAir will require a refueling tech stop at Cold Bay (COB) on the 

Anchorage to Adak flight. There will be no local ANC-CDB traffic on PenAir's 

Adak service. If such local traffic were permitted, it would require an additional 

roundtrip service (for a total of 5 weekly) in order to meet the historical 

traffic/freight demands of Adak, with a corresponding increase in the required 

subsidy. 

Note 3: PenAir estimates average revenue per passenger of $393 for the 

ANC-ADK market. This amount equates to the average ANC-ADK revenue (net 

of taxes) that Alaska Airlines received for YE Q3 2011, using the U.S. DOT, 

Origin-Destination Passenger Survey, via Diio,LLC. 

Note 4: The price of fuel has increased substantially in the past two years. 

PenAir's fuel expense estimate is based on current fuel prices of $3.49 (ANC) 

and $5.69 (ADK, COB). 

Note 5: The "extra crew member" expense reflects the estimated pay, 

benefits, and training costs for an additional Captain on board PenAir's ANCCDB-ADK-ANC service. As a result of the projected 9.8-hour "no wind" block 

time for the Adak service, PenAir is required to augment the flight crew with an 

additional Captain in order to comply with the FAA's new, more restrictive, flight 

and duty regulations governing Part 121 flight crew members which limit 

unaugmented flight time periods to only 9 hours. See, 14 CFR Section 117.11 & 

Table A. 

Note 6: The "extra mx crew member" expense reflects the estimated pay, 

benefits, and training costs to carry a PenAir A&P mechanic on board PenAir's 

ANC-CDB-ADK-ANC service. Alaska Airlines currently carries an A&P 

mechanic on-board its Adak service. There are no trained A&P mechanics with 

maintenance expertise for the Saab aircraft located at Adak. If a PenAir Saab 

had a mechanical issue at Adak that needed a trained A&P to repair, it could be 

two or three days before another Saab might be available to serve the route and 

transport a PenAir mechanic to Adak for the repair. PenAir cannot risk such a 

major disruption of its system and aircraft scheduling. 

'.'DC- 004721/000002 • 33689Q7 v2 5 
Aircraft Saab 340 

ANC/CDB/ ADK/ ANC 

Passenger 

Distance 

Passengers 

Payload 

Weekly Round Trips 

Annual Flights 

Annual Departures 

Block Time 

Block Hours 

Passenger 

Anchorage-Adak 

Adak-Anchorage 

Freight 

Anchorage-Adak 

Adak-Anchorage 

Mail 

Anchorage-Adak 

Adak-Anchorage 

TOTAl. BEVENUE 

Flying Ops per hr 

Fuel & Oil per hr 

Insurance per hr 

Maintenance per hr 

Aircraft per hr 

Flight Attendant per hr 

Extra Crew Member 

Extra Mx Crew Member 

Adak Weather 

Startup Expenses 

Total Directs 

Departure Related @ $199.42 

Traffic Related @ 12.95% 

Capacity Related @ 12.27% 

Totallndirects 

TOTAL OPERATING EXPENSE 

$393/pax 

$393/pax 

$1.50/lb 

$0.75/lb 

$3.8767/lb 

$3.8767/lb 

$ 245.40 

$ 570.53 

$ 63.78 

$ 751.25 

$ 161.23 

$ 48.87 

$ 184.05 

$ 32.57 

$ 19.61 

1 

$ 199.42 

12.95% 

12.27% 

1192 

2983 

4500 

4 

416 

Passenger Aircraft Only- 4 Weekly 

624 incl. CDB Tech Stop 

9.8 

2038.4 

Revenue 

1,496 pax $ 587,928.00 

1,487 pax $ 584,391.00 

284,520 lb $ 426,780.00 

174,500 lb $ 130,875.00 

155,380 lb $ 602,361.65 

13,740 lb $ 53,265.86 

$ %;335,601.51 

Expenses 

per/blk/hr $ 500,223.36 

per/blk/hr $ 1,162,968.30 

per/blk/hr $ 130,009.15 

per/blk/hr $ 1,531,348.00 

per/blk/hr $ 328,651.23 

per/blk/hr $ 99,616.61 

per/blk/hr $ 375,167.52 

per/blk/hr $ 66,390.69 

per fit. $ 4,078.88 

$ 133,000.00 

$ 4,331,453.40 

Per Dep. $ 124,438.08 

per/blk/hr $ 560,923.21 

per/blk/hr $ 531,469.33 

$ 1,216,830.60 

$ 5,548,284.00 
Profit@ 5% 

ECONOMIC COSTS 

ANNUAL SUBSIDY 

$ 277,414.20 

$ 5,825,698.20 

I $ · 3,440,oss.691