BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, DC

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)

)

)

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In the matter of

ESSENTIAL AIR SERVICE TO

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 Respect to This DocumentShould BeAddressed to:

Hank Myers

MTC

PO Box 7142

Bellevue, WA 98008-1142

Kent Craford

Kalinin Aviation, LLC

1873 Shell Simmons Drive

Juneau, AK 99801

May 29,2014
ALASKA SEAPLANES OFFERS THE BEST SERVICE/SUBSIDY PACKAGE

As in the past, the 2014 EASbids for Kake are 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 Kake since LAB Flying Service

ceased operations. In its two years of providing Essential Air Service at Kake,

Wings/SeaPort depressed passenger traffic by 25%. Since Alaska Seaplanes

replaced Wings/SeaPort, passenger traffic has increased nearly 40%.

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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. For the 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 in
2012, and $43.29 in 2013 (in 2013 dollars). In three years, Seaplanes reduced the

subsidy need per passenger by 68% (see chart below), putting Kake service 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 a turboprop 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. Since the 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 uses Capstone flight following and collision avoidance equipment.
Another safety improvement on Seaplanes' aircraft is full deicing equipment

which allows Seaplanes to operate in known icing conditions. This system uses

pneumatic leading edge boots on the wings and empennage. This is a 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

passengers to enjoy considerable fare savings versus booking over the phone.

Seaplanes also developed reservation system capability allowing traditional GDS

travel agent bookings through its partnership with Hahn Air, and is currently

working on further upgrades to allow online travel agency bookings.

If we compare the proposals of Harris Air and Wings/SeaPort to the current

operations of Seaplanes, we see that 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 Ice Capability 0 X 0

Online Reservation X X X

Online Payment a X X

Own Aircraft X X 0

DOT Certificate 0 X X

Medallion Safety X X X

TOTAL BENEFITS 6 10 7
ANALYSIS OF COMPETING BIDS

Wings/SeaPort filed a timely competitive bid. But Wing's service cannot match

Alaska Seaplanes, and yet still requires a significantly 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 14 times weekly as required at

Kake.

WINGS/SEAPORT

For the 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 is the Wings/Seaport subsidy need so high? Because it has depressed 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. See attached news article.

This is the pattern of Wings/SeaPort bids since it was removed as the EAScarrier

at Kake in 2010. The chart below compares the average passenger fares

proposed by Wings 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, a famous biker bar in Anchorage, has a slogan which applies

here, "We cheat the other guy and pass the savings on to you." In this case, the

other guy is the federal treasury. The net fare actually charged by Wings/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 a contrast 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 is served under the Essential Air Service Program, but

is now scheduled to lose EASeligibility due to lackluster passenger loads. Athens

is served by SeaPort.

The Athens Banner-Herald writes, "In signing the EAScontract in 2012, SeaPort

officials indicated that they would engage in a wide-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 aggressive
marketing of the Athens-Ben EppsAirport service, and had addressed those

concerns with the airline." (Beggerly is the Athens Airport Manager).

Alaska Seaplanes, on the other hand, is an 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" is working 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 is even marginally better than Seaplanes. However, Seaplanes will

soon have equal capability. Regardless, ten such sales gimmicks could not

overcome the basic safety 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 is the only bidder with a track 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 a time

when federal support for EASis waning.

Harris Air lacks any federal operating or economic authority and is not fit.

Seaplanes is the 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 less and less dependence

on subsidy, best positioning Kake service for long-term sustainability.

Seaplanes requests that it be awarded a term of four years on this contract. As it

has shown 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