Order 2011

- 2

- 1 Served: February 1, 2011



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION


### OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 1 st of February, 2011

Essential Air Service at

CORDOVA, GUSTAVUS, PETERSBURG, WRANGELL, AND YAKUTAT
, ALASKA

Under 49 U.S.C. 41731 et seq

. DOCKET OST

- 1998

- 4899

ORDER SELECTING CARRIER Summary By this order, the Department is re

- selecting Alaska Airlines, Inc., to provide essential air service (EAS) at Cordova, Gustavus, and Yakutat, for an annual subsidy rate of $ 4,486,951 and at Petersburg and Wrangell at an annual subsidy rate of $ 3,415,987

, from May 1, 2011 th rough April 30, 201 3

. 1

Background By Order 200 9

- 2

- 3, February 9 , 200 9 , the Department re

- selected Alaska Airlines, Inc, (Alaska)

to provide subsidized EAS at Cordova, Gustavus, Petersburg, Wrangell, and Yakutat, Alaska, through April 3 0

, 2011. Under that order, Alaska provides service to Petersburg and Wrangell

over a June au

- Petersburg

- Wrangell

- Ketchikan routing for an annual subsidy of $1,347,195; and to Cordova and Yakutat over an Anchorage

- Cordova

- Yakutat

- Juneau routing, and nonstop turnaround service between Gustavus and Juneau for a total annual subsidy of $5,793,201. All of

the communities receive service with B

- 737 equipment year round except Gustavus, which receives subsidized service for only a 13

- week summer period. 2

As the end of the current contract on April 30 was approaching, we issued Order 2010

- 11

- 26

reques ting EAS proposals for a new contract period beginning May 1

.

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

2 During the remainder of the year, Gustavus’s EAS is provided on a subsidy

- free basis with small aircraft.- 2

-

Proposal of Alaska Airlines Only Alaska Airlines submitted a proposal, and it submitted only one option. The carrier proposes to continue to provide the same level of service described above, a nd requests $ 4,846,951 annual subsidy at Cordova, Gustavus, and Yakutat, and $ 3,415,987 at Petersburg and Wrangell

.

Communit y Comments Although t here w ere no options from which the communit ies could choose, we afforded them an opportunity to submit any comments on the record. We received a great number of comments from the five communities, too numerous to list, all supporting the reselection of Alaska Airlines.

We also received comments from the Cities of Cordova and Wrangell, and the State of Alaska.

The City of Cordova noted that Alaska Airlines’ daily jet service was its “transportation lifeline,” and that commercial fishing, its main industry, was “dependent upon regularly scheduled jet

servi ce for getting fresh products to market.” The City of Wrangell noted that Alaska Airlines’

737

- 400 combi aircraft “provides freight, mail, and cargo capacity that a non

- jet carrier simply cannot provide.” In addition, that aircraft has Required N avigatio n P erformance Tech n ology which enables more reliable access to the airport during inclement weather. ” The State of Alaska indicates that the “communities of Cordova, Gustavus, Petersburg, Wrangell, and Yakutat depend on [Alaska Airlines’] scheduled airfre ight, passenger, and mail service for basic necessities, routine medical and health services, and economic welfare.”

Decision

We have decided to reselect Alaska Airlines . It proposes to continue the current service level but requests an increase in subsidy. Alaska Airlines is the only carrier to submit a proposal, and it submitted only one option. We have reviewed that proposal and the level of subsidy appears

reasonab le. The carrier’s proposal is based on its results for the base year

– the year ended September 30, 20 10 , the most recent period available. Compared to the rates set in

Order 200 9

- 2

- 3 , t he biggest changes are for a decrease in revenue of $480,818, 3 and by a $650,114 increase in direct expenses. Of the increase in direct expenses, $246,455 is from the carrier projecting increased fuel expenses to $90 per barrel of oil from that experienced in the base year.

While we recognize the significant community support for Alaska Airlines, w e are concerned that the subsidy level for these communities has increased by more than $ 1 million annually. We encourage the communit ies and Alaska Airlines to work together to maximize use of the service

awarded under this Order , and to reduce the subsidy support required for this service in the next selection cycle.

Carrier Fitness

49 U.S.C. 41737(b) requires that DOT find an air carr ier fit, willing, and able to provide reliable service before DOT may subsidize it to provide essential air service. Alaska Airlines, Inc., is subject to the Department’s continuing fitness requirements, and no information has come to our

3 Passenger revenue is down b y $854 thousand, but that decrease is offset by increases in freight and mail revenue.- 3

-

attention that w ould cause us to question the carrier ’ s fitness at this time. DOT has contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness finding s . DOT therefore concludes that the carrier remain s fit to conduct the operations proposed here.

This order is issued under authority delegated by the Assistant Secretary for Aviation and International Affairs in 49 CFR 1.56a(f).

ACCORDINGLY,

1. We select Alaska Airlines, Inc., to provide essential air service at Cordova, Gustavus, Petersburg, Wrangell, and Yakutat

, Alaska , as described in Appendix C;

2 . We direct Alaska Airlines to retain all books, records, and other source and summary documentation to support claims for paym ent, 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 or until the Department indicates that the

records m ay 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;

3 . We find that Alaska Airlines continue s to be fit, willing and able to operate as a certificated

carrier and capable of providing reliable essential air service at Cordova, Gustavus, Petersburg, Wrangell, and Yakutat

, Alaska ;

4 . Th is docket will remain open until further order of the Department; and

5 . We will serve copies of this order on the State of Alaska, the Mayor s and Airport Manager s of Cordova, Gustavus, Petersburg, Wrangell, and Yakutat

, and on Alaska A irlines , Inc.

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.govAppendix A

Anchorage to Cordova 160 Nonstop, Great Circle Miles, North to South

Cordova to Yakutat 213

Yakutat to Juneau 199

Gustavus to Juneau 41 Juneau to Petersburg 1 23 Petersburg to Wrangell 31 Wrangell to Ketchikan 82

Ketchikan to Seattle 680Appendix B

Alaska Airlines, Inc., Annual Subsidy Need at Cordova, Gustavus, and Yakutat,
and at Petersburg and Wrangell, Alaska, Docket 4899

Cordova, Yakutat Petersburg &

& Gustavus Wrangell Total
AS Passengers 49,645 55,639 105,284

Passenger $5,750,006 $6,232,404 $11,982,410

Mail $404,374 $394,281 $798,655
Freight $1,655,264 $959,182 $2,614,446
Baggage $139,748 $74,468 $214,216
Tpt. Related, Other $913,023 $1,248,577 $2,161,600

Total Revenue $8,862,415 $8,908,912 $17,771,327

Flying Operations $5,760,774 $3,927,701 $9,688,475

Maintenance $1,648,318 $1,128,854 $2,777,172
Depreciation $411,539 $279,474 $691,013

Total Directs $7,820,631 $5,336,029 $13,156,660

Ground Maintenance $4,058 $2,819 $6,877
Flight Attendant $548,821 $377,453 $926,274

Other Pax. Svc. $12,033 $14,401 $26,434

A/C & Tff. Svc. $2,477,882 $3,336,825 $5,814,707

Promotion & Sales $404,008 $412,338 $816,346

G&A $556,194 $807,963 $1,364,157
Ground Depr. $665,454 $629,626 $1,295,080
Tpt. Related $567,458 $820,545 $1,388,003

Total Indirects $5,235,908 $6,401,970 $11,637,878

Total Operating $13,056,539 $11,737,999 $24,794,538

Return @ 5% $652,827 $586,900 $1,239,727

Economic Costs $13,709,366 $12,324,899 $26,034,265

Annual Subsidy $4,846,951 $3,415,987 $8,262,938

Subsidy/Passenger $98 $61 $78Appendix C

- 1

Alaska Airlines, Inc., Essential Air Service to be Provided to Cordova, Gustavus, and Yakutat, Alaska, Docket OST

- 98

- 4899

Effective Period : May 1, 20 11 , through April 30, 201 3

Scheduled Service : Cordova : 7 nonstop trips/week to Anchorage and 7 one

- stop (Yakutat) trips/week to Juneau;

Yakutat

Gustavus : 7 nonstop round trips per week to Juneau, 13

- week summer season only. : 7 nonstop trips/week to Juneau and 7 one

- stop (Cordova) trips/week to Anchorage

Aircraft : Boeing 737 or larger. Rate per flight:

Juneau or Anchorage 1 Weekly Compensation Ceiling 2

Cordova, $1, 6 02 $ 4 4,856 3
Yakutat, $1, 6 02 $ 4 4,856
Gustavus, $1, 6 02 $ 22, 428 4

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 r equired 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, o nly completed flights are considered eligible for subsidy. In addi tion, 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 s uch 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 r eceive 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; f lights 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 tr ansportation system provided to the community.

If the Department uni laterally, 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 i n the st ipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that specific location without regar d to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mut ually 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 a m ended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing p aragraph.

Funds are not currently available for performance under this order beyond March 3, 2011 . The Government’s obligation for performance under this order beyond March 3, 2011 , 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 ar ise for performance under this order beyond March 3, 2011 , until funds are made available to the Department for performance. If funds are not made available for performance beyond March 3, 2011 , 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 $ 4,846,951 annual compensation, divided by 3,0 26 annual flights at the eligible points and their hubs, calculated as follows: 52 weeks x 2 communities x 28 flights in each directions per community x .978 = 2,848; 13 weeks x 1 community x 14 flights in each direction x .978 = 178.

2 Calendar weeks that fall into separate calendar months will be treated as part of the later month for the pur pose of calculating both calendar weeks per month and the monthly compensation.

3 28 departures/arrivals per week between each point and Anchorage/Juneau x $1, 602

. 4 14 departures/arrivals per week at Juneau x $1, 602

.Appendix C

- 2

Alaska Airlines, Inc., Essential Air Service to be Provided to

Petersburg, and Wrangell, Alaska , Docket OST

- 98

- 4899

Effective Period : May 1, 20 11 , through April 30, 20 1 3

Scheduled Service : Petersburg : 7 nonstop trips/week to Juneau and 7 one

- stop (Wrangell) trips/week to Ketchikan; Wrangell : 7 nonstop trips/week to Ketchikan and 7 one

- stop (Peters burg) trips per week to Juneau;

Aircraft : Boeing 737 or larger.

Rate per flight:

Juneau or Ketchikan 1 Weekly Compensation Ceiling 2 Petersburg, $ 1,199 $ 33,572 3 Wrangell, $ 1,199 $ 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 t he required service, without prior approval. T he 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 cert ain 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 perio d in ques tion. 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 f ull 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 traf fic 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 tra nsportation 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 spec ific location without regard to any requirement for notice of such cessation. Th ose 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 pa yment.

Subsidy contract are subject to, and incorporate by refere nce, 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 th e foregoing paragraph.

Funds are not currently available for per formance under this order beyond March 3 , 201 1 . The Government’s obligation for performance under this order beyond March 3, 2011 , 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 March 3, 2011 , until funds are made available to the Department for performance. If funds are not made available for performance beyond March 3, 2011 , 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 $ 3,415,987 annual compensation, divided by 2 ,848 annual flights at the eligible points and their hubs, calculated as follows: 52 weeks x 2 communities 28 flights in each directions per community x .978 = 2,848.

2 Calendar weeks that fall into separate calendar month s will be treated as part of the later month for the purpose of calculating both calendar weeks per month and the monthly compensation.

3 28 departures/arrivals per week between each point and Juneau/Ketchikan x $ 1,199

.