Before the United States Department of Transportation
October 3 , 2012

Proposal to Provide Essential Air Service at

PENDLETON, OREGON

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

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## Proposal of SeaPort Airlines, Inc. to Provide
Essential Air Service at Pendleton, Oregon

By Order 2012

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- 1 3 , the Department requested proposals from carriers interested in providing
Essential Air Service (EAS) at Pendleton, Oregon no later than September 1 9 , 2012

. By

Memorandum and a t the request of SeaPort Airlines

, In c

., the Department extended the deadline for submission of proposals to October 3 , 2012.

Pursuant to that Order, SeaPort Airlines, Inc. respectfully submits this timely proposal to provide

subsidized EAS at Pendleton, Oregon for a first year subsidy rate of $1, 834,708 and a second year subsidy rate of $1, 926,444 . SeaPort is offering the Depart ment and the community the option of contracting a four

- year term with an annual subsidy rate equal to the second year rate in this proposal.

Shortly after this proposal is docketed , SeaPort Airlines will contact the Airport Manager at Eastern Oregon Regi onal Airport to schedule a presentation to the community that explain s our proposal in detail and to answer any questions. In the interim and t hroughout the carrier selection process, questions regarding this proposal should be directed to:

Timothy Sieber

Vice President

– Commercial SeaPort Airlines, Inc. 7505 NE Airport Way Portland, OR 97218 (971) 340

- 1716 tsieber@seaportair.comPendleton, Oregon : DOT

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October 3 , 2012 Page | 2 

# Introduction

Company Overview

SeaPort Airlines , Inc. is a FAA certified scheduled airline with 30 years of experience in

commercial aviation

. The company is headquartered in Portland, Oregon and has additional operational bases in Memphis, Tennessee and Juneau, Alaska

. Our approximately 180 professionals operate a fleet of 14 aircraft on an average of 90 daily departures to 2 0 cities in

nine states. 1

SeaPort’s business strategy is focused on providing efficient and reliable service to small and

rural communities , and stands in contrast to global airlines and their regional partners who no longer have a strategic desire

, or the economic cap ability

, to serve such communities. To serve these communities, SeaPort operates aircraft with operating costs and passenger capacity that are aligned with a market’s true demand . This allows us to offer greater frequencies and choice of departure times than would not be possible using larger aircraft, and to set fares at a level

that are attractiv e to potential customers but do not unduly shift the true cost of air travel from

the customer to the EAS program. This is enveloped in attentive and personal service that, in many of our markets, has become commonly referred to as “The SeaPort Experience.”

SeaPort’s service to Pendleton over the last four year s illustrates the effectiveness of this strategy and, as outlined in this proposal, it is our hope to continue building on this success for another EAS contract period.

In addition to Pendleton, SeaPort employs this strategy at the following EAS communities: Athens, GA; Jackson, Tennessee El Dorado, Hot Springs, and Harrison, Arkansas; and Salina,

Kansas

. The success of this strategy is evident in the fact that at every one of our Lower 48
EAS communities, SeaPort has be en reselected for a n addit ional contract period (s)

. In addition

to our re selection at Pendleton during the last contract renewal , earlier this year SeaPort was

reselected at Salina for a four

- year contract (rather than the standard two

- year contract) based on overwhelmingly positiv e support from th at community

.



### A Solid Track Record of Responsive, Reliable Air Service at Pendleton

SeaPort Airlines prides itself on de veloping partnerships with each community it serves as part of the EAS program . This includes participation in local events, serving on community boards, donation of tickets, on

- going communication with airport managers

, and regular community meetings. We believe this approach serves our own interests equally with those of our EAS

c ommunit ies by fostering long

- term, stable relationships that result in increased ridership

.

A small sample of how SeaPort has developed our relationship with the Pendleton community since first launching service at Eastern Oregon Regional Airport in early 2009 includes:

 Providing complimentary parking for City of Pendleton staff car at SeaPort Airlines’ corporate office (located on Portland International Airport).

1 Includ es Athens, GA scheduled to begin November 1, 2012.Pendleton, Oregon : DOT

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October 3 , 2012 Page | 3  Adjustment to flight schedules at the request of the community. For example, earlier this year SeaPort moved earlier the morning departure from Portland to allow the state’s child psychologist to schedule more appointments during his weekly trip to Pendleton.

 Assistance in preparing Eastern Oregon Regional Airport’s successful Small Community Air Service Development (SCASD) earlier this year which resulted in the airport being awarded $50,000 in grant money that will be used towar d marketing and community awareness of its

local air service.

 Membership in the Pendleton Chamber of Commerce and Round

- Up City Development Corporation (R CDC), the primary economic development entity in the Pendleton region.

 Sponsorship of Tamastslikt Cultural Institute , supporting the opportunity for locals and visitors to experience the history, culture, and hospitality of the native peoples that have lived in the region for more than 10,000 years with exhibits, artwork and events all year

round.

 Active support for and promotion of Pendleton Round

- Up and Happy Canyon, one of the largest rodeos anywhere in the world and attracting 60 ,000

- 70,000 spectators during the second full week of September, through fare sales, additional flights and/or “extra sections.”

SeaPort first initiated service to Pendleton in January 2009 and our EAS contract was subsequently renewed in January 2011. As outlined in this proposal , SeaPort is well positioned and would be honored to continue serving the Pendleton community.Pendleton, Oregon : DOT

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October 3 , 2012 Page | 4 

# Summary of Proposal

SeaPort Airlines is proposing to continu e offering nonstop service between Pendleton and

Portland International Airport

, providing connectivity with America’s national trans portation system

, as well as business, medical, and government services in Portland. Specific elements of our proposal to provide EAS at Pendleton are as follows:



### Interline Connections & GDS

All SeaPort Airlines flights are currently displayed in the major global distribution systems, making flights available for sale via travel agents and all primary online travel portals and meta

searchers such as Orbitz, Travelocity, Expedia, Kayak, Hipmunk, and Cheap Oa ir.

Since 2009, SeaPort has maintained an interline ticketing agreement with US Airways . A new interline agreement, including e

- ticketing (IET) and thru baggage check

- in, with Alaska Airlines is anticipated to be effective no later than October 31, 2012

. 2 This agreement will facilitate single

- ticket travel on itineraries that include flights of both carriers , including the 32 destinations

that Alaska Airlines serves on a nonstop basis from PDX and as shown on the map below.



## Single

- Connection Destinations via PDX
SeaPort Airlines to Alaska Airlines

SOURCE: alaskaair.com September 29, 2012 for travel November 15, 2012

Th is new interline agreement will represent a sig ni fi cant enhancement to SeaPort’s existing service at Pendleton, particularly in the context of 49 U.S.C. § 41733 (C) which requires that during the carrier selection process

, among other factors, consideration be given to “ the interline

2 Testing of message switching between both carriers respective reservation system ’ s is completed with signing of the agreement anticipated within the next 30 days.Pendleton, Oregon : DOT

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October 3 , 2012 Page | 5 arrangements that the applicant has made with a larger carrier to allow passengers and cargo of the applicant at the hub airport to be transported by the larger carrier through one reservation, ticket, and baggage check

- in.”

SeaPort re cognizes the value to travelers of interline agreements and is working to secure additional agreements so that our customers may purchase single

- ticket itineraries between Eastern Oregon Regional Airport and even more destinations around the world. We anticipate reaching at least one more agreement by the end of 2012.

Southwest Airlines also maintains a significant presence at Portland International Airport, offering an average of 37 daily departures t o 13 nonstop destinations. Southwest does not enter
into interline agreements with any other airline , however our experience serving Pendleton over the past four years indicates that Southwest’s low

- fare model attract s a large number of transfer

passeng ers utilizing “end

- to

- end” ticketing. Other airlines serving Portland International Airport

are Air Canada, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, jetBlue Airways, Spirit Airlines, Virgin America, United Airlines, and US Airways.

One hurdle to the community fully realizing the benefits of SeaPort’s interline agreements is the Transportation Security Administration ’s refusal to reestablish passenger and baggage screening at Eastern Oregon Regional Airport . The TSA has also refused to authorize alternative screening programs as proposed by SeaPort, such as a private screening program similar to that permitted for Part 380 charter operations

. This has resulted in a need for flights operated with the PC

- 12, departing for and a rriving from Eastern Oregon Regional Airport

, to be remotely parked and passengers shuttled to the main terminal

. 3 It has also resulted in longer minimum connect times and an added layer of complexity related to baggage transfers. SeaPort

has worked on thi s issue for a number of months and, if reselected to provide EAS at Pendleton, is committed to pursuing a permanent solution that fully integrates the community with the national air transportation system.



### Fare Structure & Proposed Fares

Throughout its route system, SeaPort Airli nes offers a range of fares all of which are priced on a

one

- way basis. The highest price point (branded as “FullFlex”) provides a customer with total flexibility to change travel plans without incurring any change fee or, if d es ired, receive a total
refund. The lowest price point (branded as “NoFlex”) is best suited for customers who are certain about their travel plans

, requires an advance purchase of 21

- days, is non

- refundable, and does not permit any changes from the original booked itinerary. In between is a range of fares (“Flex4Free” and “Flex4Fee”) that provides a choice of price

- points based largely on how certain a customer is that their travel plans will not change. Except for the two highest price points, fares are also subject to capacity controls meaning that the farther in advance a reservation is made, the more likely a customer is to get a lower fare.

The table on the next page summarizes the range of proposed ticket prices in the Pendleton

market for the next EAS contract period , along with the rules and restrictions applicable to each price point. The price points are similar to those that SeaPort presently offers at Eastern Oregon Regional Airport.

3 This is not specific to SeaPort Airlines or P endleton, but rather reflects TSA policy toward reestablishment of screening in markets served with small aircraft and currently impacts a number of EAS served cities.Pendleton, Oregon : DOT

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## SeaPort Airlines Illustrative Fares Pendleton, Oregon

NOTE: Listed price points include Federal Excise Tax and applicable fees.

Dur ing the first year of the next contract term , SeaPort Airlines projects an average fare of $ 102.63 . Net of taxes and fees, per passenger revenue and the basis for calculation of subsidy requirements, is projected to be $ 92.12 to/from Portland. 4



### Aircraft Type

During the next EAS term, SeaPort is proposing to serve Eas tern Oregon Regional Airport using the modern and efficient Cessna Caravan turboprop. P roduced in the USA, the “Caravan” was originally designed in the 1980’s to replace an aging fleet of piston

- powered aircraft, such as the De Havilland Otter and Piper Chieftain. To date, over 2,000 Caravans have been built which have logged a total of over 12.5 million flight hours.

During the previous two EAS contract terms , SeaPort has served Pendleton with the Pilatus PC

12. While an excellent aircraft, the PC

- 12 is a remnant of the company’s earlier operating strategy that included private terminals

, avoidance of TSA screening, and primarily targeted the

“commuter briefcase passengers .” As the company’s strategy has shifted to its current focus o n servi ng small and rural communities ( including TSA

- screening , interline connections, and main terminal operations ), the typical mission profile and economic acceptability of specific aircraft

economics also evolved. This has resulted in the Cessna Caravan emerging as the ideal aircraft

4 The 9/11 security charge will only be collected from passengers when depart ures from Portland International Airport are relocated to the main passenger terminal.

Summary of Fare Rules FullFlex Free2Flex NoFlex Advance Purchase - No. of Days 0 3 3 7 14 21

Refundable Yes No No No No No Change Fee $0 $0 $50 $50 $50 No Chg

Fare Code YR B3F M3L H7L Q14L L21X FlyerFlex Loyalty Program Credit 200% 150% 100% 100% 100% 0%
Pendleton, OR to: FullFlex Free2Flex NoFlex
Portland, OR $165 $135 $115 $95 $80 $70 Flex4Fee

Flex4FeePendleton, Oregon : DOT

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October 3 , 2012 Page | 7 for a majority o f our routes, including PDX

- PDT , based on o perating economics, reliabilit y, passenger comfort, and baggage capa city

.

To this last point, the large cargo pod on the Caravan has a maximum capacity of 111 cubic feet and accommodates 1,090 pounds of baggage . This is substantially more, both in terms of weight and bulk than can be accommodated on the Pi latus PC

- 12 that it will replace , allowing a

40+% increase to our free baggage allowance from 35 pounds to 50 pounds. Equally important, the cargo pod allows f or segregation of passenger s and baggage needed to comply with TSA security regulations and will enable the Pendleton market to be better able to take advantage of the interline agreement with Alaska Airlines as described above

. 5



### Proposed Frequencies & Illustrative Schedule

In Order 2012

- 8

- 18, the Department states: “With specific respect to Pendleton, the Department expects proposals consisting of three nonstop round trips a day (21 a week) with 8

- or 9

- passenger aircraft or two daily round trips ( 12 a week) with larger aircraft to Portland, the hub that the community has historically preferred.” 6

The requested subsidy level in this proposal is for 21 weekly roundtrips as requested by the Department. The schedule pattern illustrated below is for 22 weekly roundtrips, including an additional roundtrip operated that would be operated on an unsubsidized basis. This represents a continuation of the frequency that SeaPort presently offers in the Pendleton market.

Please note the service pattern illust rated is one that SeaPort has developed over the past four years of providing service at Pendleton

, and has evolved with input from the community. This process of including the community in the schedule development will certainly continue if
SeaPort is sel ected for this EAS renewal

.

5 SeaPort has implemented an interim solution through the balance of the current EAS contract that is based on operations using the Pilatus PC

- 12, however this solution results in much higher operating costs, remote aircraft parking, and longer published minimum connect times which inhibits the ability of the Pendleton market to fully benefit

from the interline agreement with Alaska Airlines.

6 Order 2012

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- 13, p. 2 Depart Arrive Frequency Stops Depart Arrive Frequency Stops

6:00am 7:15am ExSatSun 0 7:45am 9:00am ExSatSun 0

6:45am 8:00am SatOnly 0 12:15pm 1:30pm ExSat 0

9:15am 10:30am ExSatSun 0 3:30pm 4:45pm ExSatSun 0

1:45pm 3:00pm ExSat 0 6:45pm 8:00pm ExSat 0

5:00pm 6:15pm ExSatSun 0 

## Illustrative Schedule Pattern

22 Weekly Roundtrips: Pendleton - Portland, OR SeaPort Airlines, Inc.

Aircraft Type: Cessna Caravan

Pendleton to Portland Portland to Pendleton 

### (21 Subsidized RTs + 1 Unsubsidized RT)Pendleton, Oregon : DOT

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October 3 , 2012 Page | 8 

### Marketing & Community Relations

In this proposal, SeaPort Airlines has allocated $ 15 ,000 per year for marketing and sales

. This

amou nt takes into consideration existing brand awareness that SeaPort Airlines enjoys in the

Pendleton market along with the recent award of SCASD grant dollars for marketing.

Provided below are specific marketing tactics that SeaPort Airlines has ut ilized in the Pendleton

market and/or intends to employ during the next EAS term :

 Hispanic Market Outreac h : With a growing presence in regions that have large Hispanic populations

, SeaPort Airlines intends to establish a Spanish

- speaking reservation call center during 2013 making our service more convenient and accessible to a larger percentage of

the overall market

. This will benefit a number of communities in the Eastern Oregon Regional Airport service area, such as Hermiston , Umatilla, and Weston hav e an increasing percentage of Spanish

- speaking residents. In mid

- 2013, SeaPort plans to unveil a Spanish

version of www.seaportairlines.com along with translation of targeted pieces of printed marketing collateral

. 7

 Local Event Marketing: SeaPort Airlines has utilized visible participation in local events as an effective tool for developing brand awareness in the Pendleton area, including community Easter egg hunts, presentations to and support of community business and cultural groups, membership in the Chamber of Com merce , etc . In addition, SeaPort often makes “in kind” donations of tickets for use by local charities, either for their own business needs or as a fundraising tool (i.e., raffles, silent auctions, etc.).

 Social Media Strategy : Since 2010, SeaPort Airline s has managed a successful social

media campaign that has allowed the company to dynamically engage customer s across the route system (including in Pendleton) in a two

- way conversation. This has included the use of popular Internet sites such as Facebook, Twitter, and LinkedIn , and we have found this strategy to be an excellent tool for generating passenger referrals and information sharing in

our communities . This approach underscores our overall philosophy that advertising budgets can be effectively leveraged with “new media” such as social networking, blogs, opt

- in email, etc. to engage customers on a truly personal level.

 FlyerFlex Customer Rewards: SeaPort offers a customer loyalty program called

“ FlyerFlex .” This progr am provides customers with a variety of benefits including free flights, service charge waivers, and bonus points. SeaPort will be unveil ing major enhancements to

our FlyerFlex program the third quarter of 2012, including a wider range of travel award opti ons, ability for customers to check balances and redeem awards online , and access to security checkpoint express lanes for elite frequent flyers

. 8

 Value Accounts: SeaPort offers Corporate Value Accounts that encourage businesses to make a long

- term investment in local air service by offering a variety of benefits, such as waivers to change fees and savings of as much as 15% off published fares. Unlike

7 Earlier this year, an entirely new www.seaportairlines.com was unveiled that is easier to navigate and provides

customers with more detailed travel information.

8 As interline agreements are added, SeaPort hopes to also offer credit accrual in the mileage programs of major

airlines.Pendleton, Oregon : DOT

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October 3 , 2012 Page | 9 corporate trav el programs of major airlines that typically prevent small businesses from realizing meaningful benefits, companies of virtually any size (and any employee of those companies) can realize real savings and benefits from SeaPort’s Value Account program.

The City of Pendleton has been a l ong time Value Account customer, realizing savings that it could not likely achieve with the corporate travel programs of a larger airline.

Samples of SeaPort’s advertising and community engagement over the past four years of serving the Pendleton community are provided on the next page.Pendleton, Oregon : DOT

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October 3 , 2012 Page | 10Pendleton, Oregon : DOT

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October 3 , 2012 Page | 11 

# Subsidy Request s & Supporting Calculations

The following pag es contain the service proposal of SeaPort Airlines to provide essential air

servi ce at Pendleton, OR along with supporting calculations

.

This proposal is presented on the basis of annual subsidy requirement a for each year over a two year term. Notwithstanding the risk of rising costs in subsequent years (particularly related to fuel costs) that coul d possibly outstrip traffic growth and our ability to respond with reasonable fare increases, SeaPort is offering the Department and the community the option to contract at
the second year subsidy level for each year of the four

- year period. We believe this provides the Pendleton community with the assurance of stable air service for an extended period and reduces the administrative burden on both the Department and ourselves.

SeaPort Airlines, Inc. appreciates the opportunity to submit this proposal and welcome s any questions or comments from the communities and/or the Department.

Respectfully submitted on behalf of SeaPort Airlines, Inc.

Timothy Sieber

Vice President

– Commer c i al
October 3 , 2012Pendleton, Oregon : DOT

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October 3 , 2012 Page | 12 Year 1 Year 2 Operating Projections Average Sector Length (sm) 182 182 Scheduled Departures 2,184 2,184

Scheduled Block Hours 3,094.0 3,094.0

Projected Completion Factor 99.0% 99.0%

Projected Completed Departures 2,162 2,162 Projected Completed Block Hours 3,063.1 3,063.1

Passenger Projections Projected Passengers 11,556 11,787 Passengers per Departure 5.3 5.5

Projected Average Fare $92.12 $93.96

Revenue Passenger Miles (RPMs) 2,103,208 2,145,273 Available Seat Miles (ASMs) 3,541,618 3,541,618 Projected Load Factor 59.4% 60.6%

Financial Projections

Revenues Passenger Ticket Revenues $1,064,547 $1,107,555
Ancillary Revenues $21,291 $22,151

Total $1,085,838 $1,129,706

Expenses Flight Operations $262,990 $276,140
Aircraft Ownership/Lease $252,000 $252,000

Fuel & Oil $776,903 $815,749
Sales & Marketing $15,000 $15,000
Traffic Servicing $453,612 $476,293

Insurance $55,692 $58,477

Maintenance $712,414 $748,035

Sub-Total - Direct $2,528,611 $2,655,042

Indirect $252,861 $265,504
Total Expenses $2,781,472 $2,920,546

Projected Operating Profit/(Loss) ($1,695,635) ($1,780,416)

Subsidy Calculations Operating Loss $1,695,635 $1,780,416

Economic Return @ 5% $139,074 $146,027

Required Subsidy $1,834,708 $1,926,444

Subsidy per Departure $848.55 $890.98
Subsidy per Passenger $158.77 $163.44 Avg. Enplanements per Operational Day 18.5 18.9 

## Aircraft Option: Cessna Caravan 21 Weekly Roundtrips: Pendleton - Portland, OR SeaPort Airlines, Inc.