BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, DC

) ) ) ) 

# ----------------------------) Inthe matter of
ESSENTIALAIR SERVICETO KAKE AND EXCURSION INLET, AK Docket DOT-OST-2008-0217

RESPONSE OF KALININ AVIATION, LLC

TO THE BIDS OF WINGS OF ALASKA AND HARRIS AIR SERVICE

Communications with Respectto This DocumentShould BeAddressed to: Hank Myers MTC PO Box7142 Bellevue, WA 98008-1142 Kent Craford Kalinin Aviation, LLC 1873 Shell Simmons Drive Juneau, AK 99801 May 29,2014ALASKA SEAPLANES OFFERSTHE BESTSERVICE/SUBSIDY PACKAGE

As in the past, the 2014 EASbids for Kakeare a study in contrast between promises and performance. Since purchasing Air Excursions, the owners of Alaska Seaplanes ("Seaplanes") have delivered on their commitments to larger aircraft, instrument-capable (IFR)scheduled service, lower fares AND reduced subsidy need. The graph below shows passenger traffic trends in Kakesince LABFlying Service ceased operations. In its two years of providing Essential Air Service at Kake, Wings/SeaPort depressed passenger traffic by 25%. SinceAlaska Seaplanes replaced Wings/SeaPort, passenger traffic has increased nearly 40%.

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# I KAKE PASSENGERS

Wings of Alaska takes over EASin 2Q2008 Air Excursions/Alaska Seaplanes takes over EASin 3Q2010

At the same time, Seaplanes has reduced the subsidy need per passenger every year. Forthe 12 months ended August, 2010, the last full year of Wings/SeaPort service, 2,465 passengers were carried at an annual subsidy rate of $314,302, or $136.22 per passenger in 2013 dollars. Over the next three years after assuming service, Seaplanes reduced the subsidy per passenger to $85.53 in 2011, $72.97 in2012, and $43.29 in 2013 (in 2013 dollars). In three years, Seaplanes reduced the

subsidy need per passenger by 68% (see chart below), putting Kakeservice on more sustainable long-term trajectory. 

### SUBSIDY/PASSENGER 

## 2013 

## $

$140.00 $120.00 $100

.00 $80.00 $60.00 $40.00 $20.00 $0

.00 .2010 Wings

.2011 Air X

.2012 Air X 112013 Air X
2010 Wings 2011 Air X 2012 Air X 2013 Air X
Seaplanes has accomplished this remarkable performance by developing a plan for efficient community-oriented service, and methodically executing each step. In response to community opinion, Seaplanes increased its use of nine passenger aircraft, first with a multi-engine Piper Navajo, and then in in May, 2013 aturboprop Cessna"Supervan" Caravan. In its last year of EASservice at Kake, Wings/Seaport operated 61.3% of its service with nine passenger aircraft. In calendar year 2013, Seaplanes has used its nine passenger aircraft 78.1% of the time. Sincethe introduction of the Caravan to Seaplane's fleet, the percentage of nine seat aircraft has increased to 84.2%. Seaplanes has made quantum increases in the safety and reliability of its service
. Seaplanes has Instrument operations specifications (1IIFR" capability) for its Navajo and Caravan aircraft, and like virtually all certificated carriers in Alaska, Seaplanes usesCapstone flight following and collision avoidance equipment.Another safety improvement on Seaplanes' aircraft isfull deicing equipment

which allows Seaplanes to operate in known icing conditions. This system uses pneumatic leading edge boots on the wings and empennage. This isa particular advantage for school team charters which take place primarily in the winter months. Only Seaplanes can operate fuillFR scheduled service in known icing conditions, offering greater safety and reliability. Another commitment made, and kept, by Seaplanes was to develop a convenient, online reservations system with lower online fares. This system allows passengersto enjoy considerable fare savingsversus booking over the phone. Seaplanes also developed reservation system capability allowing traditional GDS travel agent bookings through its partnership with Hahn Air, and iscurrently working on further upgrades to allow online travel agency bookings. Ifwe compare the proposals of Harris Air and Wings/SeaPort to the current operations of Seaplanes, we seethat Seaplanes offers more operational benefits now than the other applicants currently provide or promise to provide. Benefit Harris Air ALASKA SEAPLANES Wings CAPSTONE 

### X X X Turbine Aircraft 0 

### X X Multi-Engine 

### X X 0 IFRcapability 

### X X X Known IceCapability 0 

### X 0 Online Reservation 

### X X X Online Payment 

## a X X Own Aircraft 

### X X 0 DOTCertificate 0 

### X X Medallion Safety 

### X X X TOTALBENEFITS 

### 6 10 7ANALYSIS OF COMPETING BIDS

Wings/SeaPort filed atimely competitive bid. But Wing's service cannot match Alaska Seaplanes, and yet still requires asignificantly higher subsidy need. Harris Air, while offering a competitive proposal, is not qualified to hold EASat Kake.
HARRIS AIR Harris Air lacks a USDoTcertificate of public convenience and necessity and cannot therefore operate Essential Air Service 14times weekly as required at Kake.
WINGS/SEAPORT Forthe third time in three competitive bids, Wings/SeaPort has proposed a subsidy need nearly twice that of Seaplanes ($368,623 vs $205,232). Wings/SeaPort estimates federal subsidy per passenger of $143.16 (Wings/SeaPort bid, page 12) compared to $56.20 for Seaplanes. Furthermore, Seaplanes proposes to reduce the subsidy need and subsidy per passenger in each of the three succeeding years. Why isthe Wings/Seaport subsidy need so high? Because it hasdepressed the passenger fares and other commercial revenue by proposing unrealistic fares. This is irresponsibly short-sighted, and may ultimately endanger the sustainability of air service. Seeattached news article. This isthe pattern of Wings/SeaPort bids since it was removed asthe EAScarrier at Kake in 2010. The chart below compares the average passenger fares proposed byWings since its original 2008 bid in 2014 dollars.

### WINGS PROPOSED KAKE E.A.S. FARES IN 2014 

## $ $160.00 $140.00 $120.00 $100
.00 $80.00 $60.00 $40
.00 $20.00 $- 

### .... 

# -

$148:03 $146
.1~ ~9-,67 

# ...• $108
.00

___ 2014 $

2008 2010 2012 2014
Chilkoot Charlie's, afamous biker bar in Anchorage, hasa slogan which applies here, "We cheat the other guy and passthe savings on to you." In this case,the other guy isthe federal treasury. The net fare actually charged byWings/SeaPort in 2008 ($134.88) is$148.03 today, which is $5.03 higher than what Seaplanes currently charges. The proposals of Alaska Seaplanes and Wings/SeaPort are again acontrast in promises versus performance when it comes to marketing. Wings/SeaPort touts a number of marketing benefits it will bring to Kake. But a recent news report casts doubt on whether the company lives up to its marketing promises. Athens, Georgia isserved under the Essential Air Service Program, but is now scheduled to lose EASeligibility due to lackluster passenger loads. Athens isserved by SeaPort. The Athens Banner-Herald writes, "In signing the EAScontract in 2012, SeaPort officials indicated that they would engage in awide-ranging marketing effort to ensure the average daily passenger count would meet the subsidy's requirement, but Beggerly said airport officials had seen little evidence of any aggressivemarketing of the Athens-Ben EppsAirport service, and had addressed those

concerns with the airline." (Beggerly isthe Athens Airport Manager). Alaska Seaplanes, on the other hand, isan aggressive marketer and one of the largest advertisers in the Juneau media market. Further, Alaska Seaplanes spent two years working with the communities of Angoon, Tenakee, Pelican, Elfin Cove, and eventually Kake,to secure a USDoTSmall Community Air Service Development Grant (SCASD),in order to leverage greater awareness of air service to the five communities. The five-community "Consortium" isworking on a marketing program that includes its own brand identity, local and national advertising, and a new web portal for destination tourism. Alaska Seaplanes has invested tens of thousands of dollars in matching funds to this effort. Wings' modest ticket distribution advantages are the only component of its proposal that iseven marginally better than Seaplanes. However, Seaplanes will soon have equal capability. Regardless, ten such salesgimmicks could not overcome the basicsafety and reliability benefits of Seaplanes' two types of IFR aircraft and known icing conditions authority. Performance, rather than puffery, are the measure of credibility. All the color graphics in the world cannot overcome the basic inadequacy of the Wings/SeaPort service proposal, or its record of actual service at Kake. SUMMARY Seaplanes isthe only bidder with atrack record of improving service, upgrading safety and reliability of its aircraft, rebuilding commercial traffic and reducing subsidy need. Whether at Kake, or any of the other five EASmarkets its serves, Seaplanes provides reliable, reasonably priced air service with superior customer service.Wings/Seaport, on the other hand, proposes a subsidy need per passenger that is

$86.96 higher than Seaplanes, representing an irresponsible regression to unsustainable air service highly dependent on government support at atime when federal support for EASiswaning. Harris Air lacksany federal operating or economic authority and is not fit. Seaplanes isthe logical choice to provide EASat Kake, and Excursion Inlet. It has made commitments and fulfilled them. Its aircraft, marketing and customer service are unparalleled. And, it's shown consistently lessand lessdependence on subsidy, best positioning Kakeservice for long-term sustainability. Seaplanes requests that it be awarded aterm of four years on this contract. As it hasshown in other markets, the longer term leads to improved economic stability and service to the community. Respectfully submitted, Kalinin Aviation, LLC

Hank Myers, its authorized representative May 29,2014