Order 2012-1-24

Served: January 26, 2012

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 26th of January, 2012

Essential Air Service at

EAU CLAIRE, WISCONSIN

HANCOCK/HOUGHTON, MICHIGAN

MUSKEGON, MICHIGAN

PADUCAH, KENTUCKY

Under 49 U.S.C. 41731 et seq. 

 DOCKET DOT-OST-2009-0306

 DOCKET DOT-OST-2009-0302

 DOCKET DOT-OST-2009-0301

 DOCKET DOT-OST-2009-0299

ORDER TENTATIVELY RE-SELECTING CARRIER

Summary

By this Order, the Department is tentatively re-selecting SkyWest Airlines, Inc. (SkyWest) to 

provide Essential Air Service (EAS) with subsidy rates as follows: Eau Claire, Wisconsin, 

$1,733,576; Hancock/Houghton, Michigan, $934,156; Muskegon, Michigan, $1,576,067; and 

Paducah, Kentucky, $1,710,775.1 

Background

By Order 2011-8-10, issued on August 8, 2011, in anticipation of the December 31, 2011, 

expiration of the current EAS contracts, the Department requested proposals by August 31, 2011, 

for these communities. We received timely filed proposals from Multi-Aero, Inc., d/b/a Air 

Choice One, for all of the communities except Hancock/Houghton; from Intrepid International 

Airlines for Muskegon only; and from SkyWest and Sovereign Air for all four communities. On 

September 2, 2011, we requested comments on the proposals from the communities by 

October 3, 2011. All of the communities except Muskegon endorsed SkyWest in the strongest 

terms. The community of Muskegon also endorsed SkyWest, but expressed disappointment that 

because SkyWest proposed to base its aircraft in Chicago, its proposal would not permit the 

Muskegon business community to meet the early morning connecting banks for outbound service 

from Chicago. 

 

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds.
- 2 -

On December 11, 2011, the EAS staff contacted SkyWest because it appeared that the expenses 

it forecast at three other EAS communities (Aberdeen, Bemidji, and Butte) were higher than 

those it had submitted on August 31 for these four communities.2 SkyWest concurred, but also 

indicated it had unintentionally understated its expenses when it submitted its bid at these four 

communities by relying on unit costs applicable to an earlier time period, and that it wished to 

revise those bids; SkyWest submitted revised proposals on December 15. After seeing these 

revisions, the EAS staff requested that SkyWest renegotiate the rates at all seven of the 

communities. 

On December 22, 2011, SkyWest agreed to decrease its subsidy request at these four 

communities from the revised proposal that it filed on December 15, 2011, though still 

substantially more than what it had initially proposed on August 31. The basis for the 

adjustments was lower projected fuel expenses. Also, the carrier revised its costing allocation, 

assigning less expense to its departure-related cost pools. The following table depicts the 

evolution in SkyWest’s requested subsidy levels.

Decision

We have reviewed the subsidy rates agreed to by SkyWest and the EAS staff and find them 

reasonable for the service proposed. The support expressed by every community for SkyWest, 

and the fact that none of the competing proposals met the minimum statutory requirements,3

favor the selection of SkyWest. Based on those facts, there was no reason to renegotiate with 

any of the carriers that had already submitted proposals other than SkyWest. 

Notwithstanding the above, we are making this selection tentative. Our procedures are designed 

such that carriers submitting proposals to provide long-term EAS service do not have certainty as 

to whether other carriers will submit proposals, which ensures the benefits of competitive 

 

2 See Order 2012-1-23. This order only addresses the subsidy issues at the four communities of Eau Claire, 

Hancock/Houghton, Muskegon, and Paducah.

3 Staff did not offer to renegotiate rates with the other applicants. Air Choice One proposed service with singleengine aircraft while neither Intrepid nor Sovereign has the requisite authority to operate their proposed services 

from either the Federal Aviation Administration or the Department. 

Hancock/

Requested Subsidy Eau Claire Houghton Muskegon Paducah Total

Original, August 31, 2011 $1,244,783 $591,615 $1,112,826 $1,245,426 $4,194,650

Revised, December 15, 2011 $1,792,363 $1,052,501 $1,595,642 $1,838,204 $6,278,710

Agreed, December 22, 2011 $1,733,576 $934,156 $1,576,067 $1,710,775 $5,954,574

Revised less Agreed $58,787 $118,345 $19,575 $127,429 $324,136
- 3 -

bidding to the program and communities.4 While SkyWest has negotiated in good faith with the

Department, it negotiated those rates and requested more subsidy support after being able to 

review all of the competing proposals. Under such circumstances,5 we will direct all parties to 

show cause by January 31, 2012, why we should not select SkyWest at the terms it has proposed

at these four communities, thus allowing competing proposals, comments, and objections. If we 

receive no objections or competing proposals by January 31, the selection of SkyWest will be 

final. If we receive competing proposals, we then anticipate conducting a typical carrierselection proceeding, including requests for community comments and a subsequent award based 

on the statutory criteria. 

Because Order 2011-8-10 already requested proposals, we will incorporate by reference that

order and only modify it by providing parties until January 31 to submit their objections or their 

competing “best and final” proposals. If carriers or communities have any questions, they may 

contact the staff at any time, by phone or email, as shown in the ordering paragraphs. 

Carrier Fitness

49 U.S.C. 41737(b) requires that the Department find an air carrier fit, willing, and able to 

provide reliable service before the Department may subsidize it to provide EAS. SkyWest is 

subject to the Department’s continuing fitness requirements, and no information has come to our 

attention that would cause us to question the carrier’s fitness at this time. The Department has 

contacted the Federal Aviation Administration, and it has raised no concerns that would 

negatively affect our fitness findings. The Department therefore concludes that the carrier 

remains fit to conduct the operations proposed here.

Certifications

Before the Department can pay compensation, SkyWest must provide properly executed 

certifications that it is in compliance with the regulations regarding drug-free workplaces and 

nondiscrimination, as well as the regulations governing lobbying activities.

This Order is issued under authority delegated in 49 CFR 1.56a(f).

 

4 All of the Department’s requests for proposals indicate that proposals must be submitted by a deadline, and that they 

will be held confidential until all of the proposals are made public. “Interested carriers should prepare their proposals 

with every expectation that their initial proposals will also be their final and only proposals. We retain the discretion to 

negotiate proposals with carriers when we deem it desirable. In such cases, of course, we will give all applicants the 

same opportunity. We also retain the discretion to reject outright all unreasonable or unrealistic proposals and solicit a 

new round of proposals.” (See page two of Order 2011-8-10.) 

5 We have taken a similar approach in the past. See, for example, Order 2011-10-24, page five, which addressed a 

similar situation regarding EAS in western Kansas. “In this case, we are tentatively selecting a combination of 

options that were not submitted originally, ..... Therefore, to be procedurally fair to all the parties, we will issue this 

order on a show-cause basis and allow all interested parties... ten days from the service date of this order to show 

cause why we should not make this tentative decision final.”
- 4 -

ACCORDINGLY,

1. We direct all interested persons parties to show cause by January 31, 2012, why we should 

not select SkyWest Airlines, Inc., to provide Essential Air Service at Eau Claire, Wisconsin; 

Hancock/Houghton and Muskegon, Michigan; and Paducah, Kentucky; as described in 

Appendix C. Vague or unsupported objections that do not include all proposed adjustments and 

backup data will not be accepted;

2. If no objection is filed within the designated time, or if no timely-filed objection raises 

material issues of fact, we hereby delegate authority to the Director, Office of Aviation Analysis,

to make this Order final;

3. We direct SkyWest Airlines, Inc., to retain all books, records, and other source and summary 

documentation to support claims for payment, and to preserve and maintain such documentation 

in a manner that readily permits its audit and examination by representatives of the Department. 

Such documentation shall be retained for seven years from the service date of this Order or until 

the Department indicates that the records may be destroyed, whichever comes first. Copies of 

flight logs for aircraft sold or disposed of must be retained. The carrier may forfeit its 

compensation for any claim that is not supported under the terms of this Order;

4. We find that SkyWest Airlines, Inc., continues to be fit, willing and able to operate as a 

certificated carrier and capable of providing reliable essential air service at these communities;

5. These dockets will remain open until further Order of the Department; and

6. We will serve copies of this Order on the Mayors and Airport Managers of Eau Claire, 

Wisconsin, Hancock and Houghton, Michigan; Muskegon, Michigan; and Paducah, Kentucky, 

Sovereign Air, Inc., Intrepid International Airlines, Multi-Aero, Inc., d/b/a Air Choice One, and 

SkyWest Airlines, Inc., and on the carriers on our service list.

By:

Susan L. Kurland

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at

http://www.regulations.gov
Appendix A-1

Nonstop Great Circle Miles to Chicago (ORD)

EAU to Chicago 268

Hancock/Houghton (CMX) to Chicago 359

Muskegon (MKG) to Chicago 118

Paducah (PAH) to Chicago 343
Appendix B

Agreement per Discussion Concluded December 21, 2011

Hancock/

Community Eau Claire Hougton Muskegon Paducah

Hub ORD ORD ORD ORD

Docket 2009-0306 2009-0302 2009-0301 2009-0299

Distance 268 359 118 343

RPM's 9,380,000 15,796,000 2,950,000 12,005,000

Seats 50 50 50 50

ASM 19,121,800 25,614,650 8,419,300 24,473,050

Revenue Psgrs. 35,000 44,000 25,000 35,000

Average Fare $98.0 $102.0 $89.0 $115.0

Departures @ 98% 1/ 1,427 1,427 1,427 1,427

Block Time, Minutes 68 72 46 78

Block Hours 1,617 1,712 1,094 1,855

Passenger Revenue $3,430,000 $4,488,000 $2,225,000 $4,025,000

Total Directs $3,694,134 $3,858,009 $2,518,180 $4,180,261

Total Indirects $1,223,557 $1,305,949 $1,101,884 $1,282,382

Operating Expense $4,917,691 $5,163,958 $3,620,064 $5,462,643

Margin @5% $245,885 $258,198 $181,003 $273,132

Economic Costs $5,163,576 $5,422,156 $3,801,067 $5,735,775

Agreed Subsidy $1,733,576 $934,156 $1,576,067 $1,710,775

1/ 14 one-way flights x 2 directions x 52 weeks x 98% completion = 1,427
Appendix C

SkyWest Aviation, Inc., d/b/a United Express, Essential Air Service to be Provided to 

Eau Claire, Wisconsin; Hancock/Houghton, Michigan; Muskegon, Michigan; and Paducah, Kentucky

Dockets DOT-OST 2009-0299, 2009-0301, 2009-0302, and 2009-0306

Effective Period: January 1, 2012, through December 31, 2013

Scheduled Service: 14 nonstop round trips per week to Chicago O’Hare

Aircraft: 50-Seat CRJ-200 Regional Jet

Eau Claire Hancock Muskegon Paducah

Annual Subsidy $1,733,576 $934,156 $1,576,067 $1,710,775

Annual Flights 1 1,427 1,427 1,427 1,427

Rate per Flight:2 $1,215 $655 $1,104 $1,199

Weekly Ceiling3 $34,020 $18,340 $30,912 $33,572

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms 

and stipulations of the rate Order, including the service plans outlined in the Order and any other significant elements of the required 

service, without prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a 

completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain weather 

cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its 

flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in question. 

If the carrier contemplates any such changes beyond the scope of the Order during the applicable period of this rate, it must first notify 

the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. 

Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The 

carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In 

determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent 

to which the goals of the program are met and the extent of access to the national air transportation system provided to the community.

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service 

requirements at a specific location provided for under this Order, then, at the end of the period for which the Department does make 

payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific location 

without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are 

mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment.

Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be 

amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the 

foregoing paragraph.

Funds are not currently available for performance under this Order beyond September 30, 2012. The Government’s obligation 

for performance under this Order beyond September 30, 2012, is subject to the availability of appropriated funds from which 

payment for services can be made. No legal liability on the part of the Government for any payment may arise for performance

under this Order beyond September 30, 2012, until funds are made available to the Department for performance. If funds are not 

made available for performance beyond September 30, 2012, the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of service provided under this Order.

 

1 14 one-way flights x 2 directions x 52 weeks x 98 percent completion = 1,427. 

2 Annual subsidy ÷ annual flights.

3 Rate per flight x flights 28 flights per week.
Appendix D-1

Historical Traffic, T-100 Market Report, On-Flight O &D

Eau Claire, Wisconsin (EAU) Hancock/Hougton, MI (CMX)

Origin Dest Total Origin Dest Total

2008 11 1,195 1,180 2,375 1,973 1,966 3,939

2008 12 1,221 1,287 2,508 1,855 1,812 3,667

2009 1 1,170 1,007 2,177 1,696 1,746 3,442

2009 2 1,101 901 2,002 1,811 1,787 3,598

2009 3 1,147 1,097 2,244 2,260 2,173 4,433

2009 4 1,030 1,061 2,091 2,107 2,290 4,397

2009 5 1,032 992 2,024 2,246 2,154 4,400

2009 6 1,295 1,176 2,471 1,931 2,268 4,199

2009 7 1,196 1,233 2,429 2,583 2,720 5,303

2009 8 1,090 1,066 2,156 2,825 2,811 5,636

2009 9 683 652 1,335 1,897 1,800 3,697

2009 10 683 549 1,232 1,901 1,778 3,679

YE 10/31/09 12,843 12,201 25,044 25,085 25,305 50,390

2009 11 534 542 1,076 1,746 1,730 3,476

2009 12 548 623 1,171 1,733 1,444 3,177

2010 1 841 703 1,544 1,433 1,477 2,910

2010 2 646 617 1,263 1,499 1,495 2,994

2010 3 1,136 1,075 2,211 1,736 1,444 3,180

2010 4 1,375 1,404 2,779 1,389 1,588 2,977

2010 5 1,384 1,467 2,851 1,356 1,374 2,730

2010 6 1,367 1,397 2,764 1,388 1,436 2,824

2010 7 1,683 1,778 3,461 1,980 2,224 4,204

2010 8 1,759 1,853 3,612 2,481 2,525 5,006

2010 9 1,688 1,656 3,344 1,759 1,684 3,443

2010 10 1,639 1,644 3,283 2,173 1,983 4,156

YE 10/31/10 14,600 14,759 29,359 20,673 20,404 41,077

2010 11 1,566 1,513 3,079 1,882 1,777 3,659

2010 12 1,427 1,536 2,963 2,048 1,805 3,853

2011 1 1,466 1,323 2,789 1,603 1,702 3,305

2011 2 1,039 1,052 2,091 1,577 1,476 3,053

2011 3 1,540 1,546 3,086 2,046 1,875 3,921

2011 4 1,323 1,352 2,675 1,697 1,859 3,556

2011 5 1,457 1,480 2,937 1,799 1,792 3,591

2011 6 1,546 1,430 2,976 1,126 1,700 2,826

2011 7 1,542 1,596 3,138 1,947 2,170 4,117

2011 8 1,468 1,439 2,907 2,041 2,465 4,506

2011 9 1,347 1,336 2,683 1,892 1,879 3,771

2011 10 1,463 1,498 2,961 2,127 1,942 4,069

YE 10/31/11 17,184 17,101 34,285 21,785 22,442 44,227
Appendix D-2

Historical Traffic, T-100 Market Report, On-Flight O &D

Muskegon, Michigan (MKG) Paducah, Kentucky (PAH)

Origin Dest Total Origin Dest Total

2008 11 1,402 1,449 2,851 1,602 1,690 3,292

2008 12 1,490 1,400 2,890 1,594 1,497 3,091

2009 1 1,277 1,132 2,409 1,184 1,132 2,316

2009 2 1,326 1,239 2,565 1,182 1,131 2,313

2009 3 1,277 1,253 2,530 1,422 1,434 2,856

2009 4 1,246 1,300 2,546 1,689 1,736 3,425

2009 5 1,224 1,266 2,490 1,760 1,728 3,488

2009 6 1,361 1,360 2,721 1,976 1,955 3,931

2009 7 1,735 1,780 3,515 2,007 1,975 3,982

2009 8 1,637 1,498 3,135 1,632 1,653 3,285

2009 9 1,180 1,079 2,259 1,462 1,431 2,893

2009 10 1,205 1,141 2,346 1,494 1,514 3,008

YE 10/31/09 16,360 15,897 32,257 19,004 18,876 37,880

2009 11 1,020 969 1,989 1,341 1,362 2,703

2009 12 997 1,051 2,048 1,368 1,345 2,713

2010 1 1,109 928 2,037 1,095 993 2,088

2010 2 867 806 1,673 1,093 1,073 2,166

2010 3 897 889 1,786 1,536 1,603 3,139

2010 4 1,121 1,265 2,386 1,830 1,778 3,608

2010 5 831 959 1,790 1,999 1,932 3,931

2010 6 865 925 1,790 1,770 1,674 3,444

2010 7 1,147 1,301 2,448 1,713 1,736 3,449

2010 8 1,273 1,141 2,414 1,607 1,594 3,201

2010 9 1,181 1,105 2,286 1,877 1,838 3,715

2010 10 1,161 1,117 2,278 1,788 1,814 3,602

YE 10/31/10 12,469 12,456 24,925 19,017 18,742 37,759

2010 11 981 996 1,977 1,667 1,667 3,334

2010 12 1,059 1,203 2,262 1,502 1,516 3,018

2011 1 872 640 1,512 1,309 1,260 2,569

2011 2 734 805 1,539 998 996 1,994

2011 3 991 925 1,916 1,186 1,225 2,411

2011 4 798 922 1,720 1,293 1,386 2,679

2011 5 840 915 1,755 1,732 1,740 3,472

2011 6 959 1,165 2,124 1,812 1,688 3,500

2011 7 1,476 1,508 2,984 1,538 1,642 3,180

2011 8 1,559 1,377 2,936 1,543 1,619 3,162

2011 9 1,143 1,052 2,195 1,630 1,607 3,237

2011 10 1,343 1,289 2,632 1,623 1,759 3,382

YE 10/31/11 12,755 12,797 25,552 17,833 18,105 35,938