BEFORETHE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC EssentialAir Service at PRESQUE ISLE/HOULTON, MAINE PLATTSBURGH, NEWYORK ) ) ) Docket DOT-OST-2000-8012 ) Docket DOT-OST-2003-14783 )



# __________________________________ )

PROPOSAL OF PENINSULAAIRWAYS, INC. TO PROVIDE ESSENTIALAIR SERVICE AT PRESQUE ISLE, MAINE,AND PLATTSBURGH, NEWYORK
Correspondence with regard tothis documentshould be addressed to:

Scott Bloomquist, President PENINSULAAIRWAYS, INC. 6100 Boeing Avenue Anchorage, AK 99502 907-243-2485

March 11, 2014

\\DC·004721/000002 •5496900v8 Robert 

### E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555 Thirteenth Street, NW Washington, DC 20004 202 6374999/5659 robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com Counselfor Peninsula Airways, Inc. i :EssentialAirService at BEFORETHE DEPARTMENTOF TRANSPORTATION WASHINGTON, DC
) 

### ) PRESQUE ISLE/HOULTON, MAINE PLAITSBURGH, NEWYORK ) Docket DOT-OST-2000-8012 ) Docket DOT-OST-2003-14783 )

_________________ ) March 11, 2014
PROPOSAL OF PENINSULAAIRWAYS, INC. TO PROVIDE ESSENTIALAIR SERVICE AT PRESQUE ISLE, MAINE, AND PLATTSBURGH, NEWYORK Pursuant to DOT Order 2014-1-21 ("Order"), Peninsula Airways, Inc. ("PenAir") hereby submits its proposal to continue providing subsidized, year-round essential air service ("EAS") for two years between Presque Isle/Houlton ("PQI"), Maine, and Plattsburgh ("PBG"), New York, on the one hand, and Boston Logan International Airport, on the other hand. 1 In June 2012, PenAir established an East Coast operation based in Boston and,
as part of its East Coast system, began operating subsidized EAS between Boston and Plattsburgh/Presque Isle, as well as non-subsidized EAS between Boston and Bar Harbor during the High Season. PenAir has developed substantial knowledge and experience with the two communities operating these EAS flights during the past two years. Based on this experience, PenAir has crafted service and subsidy proposals to meet the service needs of the two communities and the operational needs of PenAir, with subsidy amounts necessaryto fairly compensate PenAirforthe EAS service.

The Department granted PenAir's requestfor a one-week extension to submit its EAS proposal.

\\DC·004721/000002. 5496900v8

### EAS Proposal of Peninsula Airways, Inc. Page 2 PenAir is offering two EAS options forthe Department's consideration:
Option 1- 

### This service and subsidy proposal is based on a schedule similarto the one PenAir currently operates at PQI and PBG. Option

### 2- This alternative service and subsidy proposal is based on the schedule Presque Isle has requested involving an early morning PQI departure and a late evening PQI arrival.

PenAir's proposal to provide EAS to Plattsburgh and Presque Isle is indivisible. PenAir will only accept an award for subsidized service covering both Plattsburgh and Presque Isle. In addition, if PenAir's proposal to provide subsidized EAS at both Presque Isle and Plattsburgh for a two-year period is granted, PenAir also intends to provide non-subsidized essential air service between Bar Harbor, Maine, and Boston during the High Season2 

### for the same two-year period (as described herein), complementing Cape Air's year-round subsidized EAS. In the absence of an award at both Presque Isle and Plattsburgh for another two-year period, however, PenAir could not committo continuing serviceto Bar Harbor. PenAir's EAS proposals readily satisfy the criteria set forth in the Statute and the Order, and would continue to offer substantial benefits for passengers and the local communities.

The High Season covers the period approximately a week before Memorial Day and approximately a week after Labor Day.

1\0C •004721/000002- 5496900v8

### EAS Proposal ofPeninsula Airways, Inc. Page3 I. PENAIR'S PRESQUE ISLE AND PLATTSBURGH PROPOSALS. Presque Isle. 

### PenAiroffers two seNice options for EAS to Presque Isle. Option 1: 

### Under this proposal, PenAir would provide 19 weekly nonstop roundtrips between PQI and Boston with the following pattern of seNice: 3 roundtrips per weekday; 2 roundtrips on Saturday; and 2 roundtrips on Sunday, on the same or very similar schedules to those currently being operated at PQI. The annual subsidy under Option 1for Presque Isle-Boston seNice would be$4.710.683. Option 2: 

### Under this proposal, PenAir would provide 19 weekly nonstop roundtrips between PQI and Boston with the following pattern of seNice: 3 roundtrips per weekday; 2 roundtrips on Saturday; and 2 roundtrips on Sunday. As requested by Presque lsle,3 

### this schedule would provide an early morning PQI departure and a late evening PQI arrival each day. The annual subsidy under Option 2 for Presque IsleBoston seNicewould be $5,180,456. Plattsburgh. 

### PenAir proposes to operate 12 weekly nonstop roundtrips between PBG and Boston with the following pattern of seNice: 2 roundtrips per weekday; 1 roundtrip on Saturday; and 1 roundtrip on Sunday, on the same or very similar schedules to those currently being operated at PBG. The annual subsidy for Plattsburgh-Boston seNice would be$2.714,074.

3 Letterfrom S. Wardwell, Northern Maine Regional Airport, to K. Schlemmer, USDOT, March 1, 2014.

I \DC •0047211000002 • 5496900v8EAS Proposal of PeninsulaAirways, Inc. Page4 The combined annual subsidy for EAS to Plattsburgh and Presque Isle under Option 1totals$ 7,424,757 and underOption 2totals$ 7,894,530. PenAir would operate these services year-round using a pressurized, multiengine Saab 340 aircraft with 30-33 passenger seats.4 This service would provide about 90 passenger seats each way Monday-Friday for Presque Isle and 60-66 such seats per weekday for Plattsburgh. The Saab 340 has a two-person cockpit crew, a flight attendant providing on-board drink/snack services, and a lavatory. The chart belowsummarizes PenAir's subsidized EAS proposals for Presque Isle and Plattsburgh. Hub Frequencies/ AircraftI OPTION 1 OPTION 2 Schedule Pax Capacity Subsidy Subsidy Request Request Presque Isle Boston 19 weekly, Year-Round: Saab 340 $4,710,683 $5,180,456 3x per peryear peryear weekday 30-33 pax 2x on Saturday 2x on Sunday Plattsburgh Boston 12 weekly, Year-Round: Saab 340 $2,714,074 $2,714,074 2x per per year peryear weekday 30-33 pax 1 x on Saturday 1xon Sunday TOTAL $7,424,757 $7,894,530 ANNUAL SUBSIDY peryear peryear
TOTAL SUBSIDYFOR $ 14,849,514 $ 15,789,060

TWO-YEAR PERIOD

PenAir is moving to commonality among its Saab 340 aircraft, thereby making its passenger aircraft interchangeable. One result ofthis fleet commonality initiative is that each Saab 340 will carry 30-33 passengers. This change will not affectthe service proposal because, regardless ofthe seat capacity on the Saab aircraft serving Presque Isle, three daily weekday flights would be needed to meet the requirement for 67 seats per day each way. DOT Order2014-1-21, at3.

\\DC·004721/000002 • 5496900v8

### EAS Proposal of Peninsula Airways, Inc. Page 5 The proposed annual EAS subsidies for Presque Isle (under Option 1) and Plattsburgh are modestly higher than the current subsidies for these routes by about $810,000 and $240,000, respectively. Notably, the increased subsidies are not due to increases in expenses, but are principally driven bythe substantial decline in passenger traffic and passenger revenues in recent years: from 28,795 passengers (YE 30 2010) to 21,800 (YE 3Q 2013) at Presque Isle and from 17,091 (YE 30 2010) to 14,748 (YE 30 2013) at Plattsburgh. DOT Order 2014-1-21. Indeed, under Option 1, PenAir's projected total operating expensesfor PQI are about $300,000 lowerthan the expenses on which the previous EAS subsidy amount for 2012 was based. For Plattsburgh, expenses are only slightly (about $120,000) higher than the 2012 EAS projection. Notably, the unit costs used in calculating PenAir's subsidy request are firmly based on PenAir's actual expense data, as reported to the Department, for the YE September 2013. The proposed subsidy for Presque Isle EAS under Option 2 is somewhat higher than under Option 1. In orderto provide the EAS schedule requested by Presque Isle involving an early morning PQI departure and a late evening PQI arrival and to meetthe FAA's new flight, duty, and rest time regulations under 14 C.F.R. Part 117 (and to accommodate training, sick leave, etc.), the Option 2 schedule would require PenAir to double-crew these PQI flights. That is, Option 1 can be operated daily, with one crew and one crew overnight; Option 2 will require two crews daily and two crew overnights. In addition to paying for an additional crew complement to handle the schedule, PenAir would have the added cost for overnight accommodations for the additional crew at PQI.

\\DC- 00472i/000002- 5496900v8

### EAS Proposal of Peninsula Airways, Inc. Page 6 On the other hand, the subsidies for Presque Isle and Plattsburgh are mitigated when the Department takes into account the subsidy-free Bar Harbor service that PenAirwould offer as part ofits package (described further below).

II. PENAIR'S SUBSTANTIAL EXPERIENCE IN SAFELY AND RELIABLY SERVING SMALL COMMUNITIES WITH ITS SAAB 340 AIRCRAFT AND ITS CODESHARE AND INTERLINE RELATIONSHIPS WITH OTHER AIRLINES WILL CONTINUE TO PROVIDE SUBSTANTIAL BENEFITS FOR PASSENGERS ON THESE ROUTES. 

### In selecting a carrier to provide subsidized essential air service, the Department considers several factors: (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; (4) community views ofactual and potential users ofthe air ser\tice, and (5) whether the carrier has included in its proposal a plan to market its service to the community, see 49 U.S.C. 

### § 41733(c)(1), as well as the relative subsidy requirements. See DOT Order 2014-1-21, at 2 n.4. PenAir's EAS proposal offers the Department, the communities, and the travelling public substantial benefits. Service ReliabilityandExperience. 

### PenAir has been operating air service in the challenging weather environment in Alaska for more than half a century. In 2013, PenAir flew approximately 216,400 passengers ·and nearly 96 million revenue passenger miles. For YE September 2013, PenAir had more than 48,000 enplanements on its "East Coast" network, ofwhich 21,800 were for Presque Isle and 14,748 were for Plattsburgh. PenAir is a family-owned carrier, has approximately 470 employees, and operates an aii-Saab 340 fleet. As the Department knows, PenAirwas the very first recipient ofan EAS subsidywhen the program began decades ago. It has

1\DC- 004721/000002-5496900v8

### EAS Proposal of Peninsula Airways, Inc. Page 7 provided subsidized EAS to small communities in Alaska and currently provides such serviceto Presque Isle and Plattsburgh. Safety is PenAir's highest priority. It was the first Part 135 U.S. air carrier to become a Part 121 air carrier. The FAA has also awarded the Diamond Certificate of Excellence to PenAir for 12 years. PenAir's management, crews, mechanics, dispatchers, and Saab 340 aircraft have relative!y unparalleled experience in safely and reliably operating from small, remote, single-runway airports and major hubs, over water, and in all types ofweather, including harsh winterweather. This experience is of substantial value to PenAir, these EAS communities, and passengers on these routes. Indeed, despite the sometimes challenging weather environment in the Northeast, PenAir had a 97% completion rate for its Plattsburgh and Presque Isle services in 2013. The Saab 340. 

### As noted above, PenAir proposes operating Saab 340 aircraft on these EAS routes. It is an aircraftwith which PenAir has more than 15 years ofoperational experience in the harshAlaskan weather. The Saab 340 is well-suited for these routes. It is a dependable, multi-engine aircraftwith seats for 30-33 passengers in
a comfortable 2-by-1 seating configuration. It has a cargo capacity of 2,500 lbs. and cruises at approximately 265 knots. In addition, the Saab 340 aircraft has significant passenger amenities: lavatory facilities, a pressurized cabin, and a flight attendant. It also has atwo-pilot cockpit crew. Relationships with OtherCarriers. Codeshare: 

### PenAir has a longstanding relationship with Alaska Airlines, including codesharing. Alaska Airlines places its designator code on PenAir's flights between Boston and Presque Isle/Plattsburgh, and, as such, these flights have high

\\DC·00472!1000002 • 5496900vSEAS Proposal ofPeninsula Airways, Inc. Page 8 visibility not only on PenAir's and Alaska Airlines' websites, but also on third-partytravel distribution systems such as Orbitz. Travelers on PenAir's Plattsburgh and Presque Isle flights can also earn and redeem frequent flyer miles as part ofthe Alaska Airlines frequent flyer program. Frequent flyer miles earned on PenAir's flights can be redeemed for free travel or upgrades on flights offered not only by Alaska Airlines but also by some of its partners, Air France, American Airlines, British Airways, Cathay Pacific, Delta Air Lines, KLM Airlines, Korean Air Lines, LAN, PenAir, Fiji Airways, Aero Mexico, and Emirates. Interline: PenAir has Electronic Interline Ticket and Baggage agreements with Alaska Airlines, Delta Air Lines (and its regional carriers), US Airways (and its regional carriers), and United Air Lines (and its regional carriers). These relationships allow for single check-in, single-ticket air travel, making it easier for passengers traveling from/to these EAS pointsto/from destinations beyond Boston. Marketing. PenAir will continue its local marketing efforts, in conjunction with the local communities, as part of its ongoing initiative to raise awareness and brand recognition about its services.



### Ill. IF SELECTED TO CONTINUE PROVIDING SUBSIDIZED EAS AT PRESQUE ISLE AND PLATTSBURGH FOR TWO MORE YEARS, PENAIR WOULD OFFER NON-SUBSIDIZED SERVICE TO BAR HARBOR DURING THE HIGH SEASON. Ifthe Department awards the subsidized EAS for Presque Isle and Plattsburgh to PenAir for another two-year term, PenAir intends to operate 14 weekly nonstop roundtrips between Bar Harbor and Boston, without subsidy, forthe High Season, using its 30-33 seat Saab 340 aircraft. PenAir's Bar Harbor service will continue to provide

\\DC- 004721/000002-5496900v8EAS Proposal of PeninsulaAirways, Inc. Page 9 important and beneficial larger aircraft, High Season service, complementing Cape Air's smaller-aircraft, subsidized EAS service. Indeed, more than 9,500 passengers traveled
on PenAir between Bar Harborand Boston during the High Season in 2013.



### IV. CONCLUSION. PenAir's proposals fulfill the statutory prerequisites for EAS and offer superior benefits to passengers and these EAS communities. Accordingly, PenAir urges the Department to select it to provide essential air service for another two years between Boston, on the one hand, and Presque Isle and Plattsburgh, on the other hand, at the subsidy levels presented herein.

\\DC·004721/000002.5496900v& Respectfullysubmitted,

Robert E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555 Thirteenth Street, NW Washington, DC 20004 +1 202 637 4999/5659 Counselto Peninsula Airways, Inc.

### CERTIFICATEOFSERVICE I hereby certify that a copy ofthe foregoing Proposal of Peninsula Airways, Inc., has been served this March 11, 2014, upon each ofthe following addressees: Dennis DeVaney, USDOT Dennis.DeVany@dot.gov Michael Martin, USDOT Michaei.F.Martin@dot.gov Essential Air Service Program EAS@dot.gov ScottWardwell Airport Director, Northern Maine Regional Airport swardwell@presqueisleme.us Chris Kreig Manager, Plattsburgh InternationalAirport kreigc@co.clinton.ny.us Garry Douglas North Country ChamberofCommerce, President

### &CEO gfdoug@hotmail.com Brad Madera Manager, Hancock County-Bar HarborAirport manager@bhbairport.com

\\DC- 004721/000002- 5496900v8PQI PBG OPTION 1
Annual Flights 1,917 Note 1 1,211 Fare $131 Note2 $84 BlockTime 1.6 Note3 1.2 Annual Block Hours 3067.2 1453.2 Passengers 23,306 Note4 15,515 REVENUE $ 3,053,086.00 $ 1,303,260.00 PerHour FlOps Crew $324.40 $ 994,999.66 Notes $ 471,416.06 Fuel $513.90 $ 1,576,234.08 NoteS $ 746,799.48 Maintenance $612.90 $ 1,879,886.88 Notes $ 890,666.28 Insurance $60.38 $ 185,197.54 Notes $ 87,744.22 NC Depr/Rental $240.16 $ 736,618.75 Notes $ 349,000.51 TOTAL DIRECT Expenses $ 5,372,936.93 $ 2,545,628.57 FIA!tendant per hour $65.40 $ 200,594.88 Notes $ 95,039.28 Traffic Related perpax $42.04 $ 979,784.24 Note 7 $ 652,250.60 Departure Related perdept $349.97 $ 670,892.49 Note6 $ 423,813.67 Capacity Related perdept $34.85 $ 66,807.45 Note6 $ 42,203.35 CostIncrease Estimates @6%of $ 103,049.05 $ 67,096.06 Traffic-, Departure-, andCapacity-Related,
TOTAL INDIRECT Expenses $ 2,021,128.11 $ 1,280,402.96 TOTALOPERATING Expenses $ 7,394,065.04 $ 3,826,031.53 Profit@5% $ 369,703.25 $ 191,301.S8 [(Total Direct+ Indirect)x .OS) ECONOMIC COST $ 7,763,768.29 $ 4,017,333.10 ANNUAL SUBSIDY $4,710,682.29 $2,714,073.10

Note 1: PQI- 19flights/wk x 2 directionsx 52weeks x .97completion= 1,917; PBG- 12flights/wk x 2 directionsx52weeks x .97 completion= 1,211 Note 2: Average Fare rounded based on averagefareforyearendingJanuary2014 Note 3: Projected BlockTime basedon average blocktimeforfourquarters ending September2013 Note 4: Annual Passengers based onAnnual Totals forYE January2014 Note 5: The perhourrateswerecalculated asfollows: (Sum ofTotal Costs Reported for Each Categoryto USDOTfor EastCoast NetworkforQE 12/2012 +QE 03/2013 +QE 06/2013 + QE 09/2013) divided by Reported Block Hours Operated (5,556) Note6: The perdeparture rateswerecalculated as follows: (Sum ofTotal Costs Reportedfor Each Categoryto USDOTfor EastCoast NetworkforQE 12/2012 +QE 03/2013 +QE 06/2013 + QE 09/2013) divided by Reported Departures (4,111) Note 7: The per passenger rateswerecalculated as follows: (Sum ofTotal Costs Reportedfor Each Categoryto USDOTfor EastCoast Networkfor QE 12/2012 +QE 03/2013 +QE 06/2013 +QE 09/2013) divided by Reported Passengers for EastCoastYE 09/13 (48,159 pax)**~~~--~--** "b ""**""'~**...**-~~~~~~-**

PQI
Annual Flights 1,917 Note 1 Fare $131 Note2 Block Time 1.6 Note3 Annual Block Hours 3067.2 Passengers 23,306 Note4 REVENUE $ 3,053,086.00 PerHour FlOps Crew $324.40 $ 994,999.68 Notes Fuel $513.90 $ 1,576,234.08 Notes Maintenance $612.90 $ 1,879,666.66 Notes Insurance $60.36 $ 185,197.54 Notes A/C Depr/Rental $240.16 $ 736,616.75 Notes TOTAL DIRECT Expenses $ 5,372,936.93 FIAttendant per hour $65.40 $ 200,594.66 Notes Traffic Related perpax $42.04 $ 979,764.24 Note 7 Departure Related perdept $349.97 $ 670,892.49 Note6 Capacity Related perdept $34.85 $ 66,607.45 Note6 CostIncrease Estimates @6% of $ 103,049.05 Traffic-, Departure-, andCapacity-Related,
TOTAL INDIRECTExpenses $ 2,021,128.11 COSTS forAdditional Crews, $ 447,403.00 Note 8 andAccommodations for Early/Late PQI Flights TOTAL OPERATING Expenses $ 7,841,468.04 Profit@ 5% $ 392,073.40 [(Total Direct+ Indirect) x .05] ECONOMIC COST $ 8,233,541.44 ANNUAL SUBSIDY $ 5,180,455.44 PBG
1,211 $84

1.2 1453.2 15,515 $ 1,303,260.00 $ 471,418.08 $ 746,799.48 $ 890,666.26 $ 87,744.22 $ 349,000.51 $ 2,545,628.57 $ 95,039.26 $ 652,250.60 $ 423,813.67 $ 42,203.35 $ 67,096.06

$ 1,280,402.96

$ 3,826,031.53 $ 191,301.58 $ 4,017,333.10 $ 2,714,073.10 OPTION2

Note 1: PQI- 19flights/wkx 2 directionsx 52weeksx .97completion=1,917; PBG- 12flights/wk x 2directions x 52 weeks x .97 completion=1,211 Note2: Average Fare rounded based on averagefareforyearending January2014 Note 3: Projected BlockTime based on average blocktime forfourquartersending September2013 Note4: Annual Passengers based onAnnual Totals forYE January2014 Note 5; The perhour rateswere calculated asfollows: (Sum ofTotal Costs Reported for Each Categoryto USDOTfor EastCoast Networkfor QE 1212012 + QE 03/2013 + QE 06/2013 + QE 09/2013) divided by Reported Block Hours Operated (5,556) Note6: The perdeparture rateswerecalculated as follows: (Sum ofTotal Costs Reported for Each Categoryto USDOTfor East Coast NetworkforQE 12/2012 + QE 03/2013 +QE 06/2013 + QE 09/2013) divided by Reported Departures (4,111) Note 7: The per passenger rateswere calculated asfollows: (Sum ofTotal Costs Reported for Each Categoryto USDOTfor EastCoast Networkfor QE 12/2012 +QE 03/2013 + QE 06/2013 +QE 09/2013) divided by Reported Passengersfor EastCoastYE 09/13 (48,159 pax) Note 8: Thecostsfortheearly/late PQI flights includethe costs ofadditional crews, additional hotel accommodations, andtraining fortheadditional crews.