### Order 2013

- 12

- 9 Served: December 19, 2013



### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION 

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

Issued by the Department of Transportation on the 19 th 

### of December, 2013

INTRA ALASKA BU SH MAIL RATES

Under 49 U.S. C. 41901 et seq. Docket OST

- 2003

- 14694

Bush Quarterly Fuel Adjustment

Summary By this O rder
, the Department is making its regular quarterly adjustments to the Intra

Alaska bush mail rates , Part 121
, Part 135, and Seaplane, to reflect the most recent quarterly fuel costs. The new rates are to be effective on the second Saturday after the issuance of this Order , and reflect fuel expenses for the quarter ended June 30 , 201 3

. Background Order 2013

- 7

- 25 , July 31, 2013, made f inal the conclusions of Order 2013

- 6

- 5 , June 6, 2013, along with the nonfuel

- linehaul and terminal rates therein. That Order also delegated to the Director, Office of Aviation Analysis the authority to determine the final rates contemplated in Order 2013

- 7

- 25, adjusted for the most recent quarterly fuel expenses.

Order 2013

- 7

- 26 , July 31, 2013, made the anticipated quarterly fuel adjustments to the Part 121, Part 135, and Seaplane rates, reflecting fuel expenses for the quarter ended March 31, 2013, the most recent fuel expenses available at the time. This Order is updating all three of those bush mail classes to reflect fuel expenses for the quarter ended June 30 , 201 3

. The Department has stated that we would continue quarterly fuel update s until further notice. Since the carriers’ traffic and financial data are reported 45 days after

### - 2

-

the end of each quarter, our intent and practice has been to make quarterly adjustments with a one

- quarter lag from the end of the reporting period until the beginning of the next quarter. 1 

### The table below shows both the current and new mail rates

.

As shown in the chart above, f or the Part 121 class, Line 1, Column F, there is a 0.72 % increase in the rate ; for the Part 135 class , Line 2, a 0.74% increase; and for the Seaplane, Line 3, a 1.54% decrease; and for the terminal no change. All of these changes are driven solely by changes in fuel . S ince the terminal is unaffected by fuel, there is no change in that class, which is included only for the sake of convenience.

Discussion As stated earlier, our goal is to have mail rates in place approximately one quarter after the end of the reporting period. This did not happen this quarter for any class . There are data issues with specific carriers in each of the three classes that have delayed our process.

In the Part 121 class , we have concerns with PenAir’s data. The calculation of PenAir’s Pa rt 121 expense requires the carrier to submit a special traffic report each quarter , which supplements the carrier’s T

- 100 Segment report. The T

- 100 report is not sufficiently detailed ; i t does not break out whether a particular segment operate d as mainli ne, Part 121, or Part 135. PenAir’s Saab 340B is unique because it does in fact operate as all three on different segments

. PenAir’s special report provides the necessary detail for us to calculate the Part 121 mail rate
, the only rate in this Order affe cted by PenAir’s data. However, as footnote two in Appendix A indicates, there is a difference between R evenue B lock H ours (Mainline, Part 121, and Part 135) as shown on PenAir’s Special R eport and the R evenue B lock H ours on its T

- 100 Segment Report. We have made PenAir aware of this problem and it is reviewing it . We expect the carrier to resolve the issue before the next quarterly fuel update.

We have relied on the Revenue Block Hours reported on PenAir’s T

- 100 Segment report

– row four in Append ix A

. Unlike its special report, PenAir filed the T

- 100 for a number of years before it began operating mainline service , so we believe the T

- 100 is more reliable

.

1 As discussed later, there has been more than a one

- quarter lag in this instance because of delay in receiving accurate, reliable carrier data.

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-

For the Part 135 class , the data provided by Grant Aviation, Inc, as shown in Appendix B
, is wrong

. Row five of Appendix B shows that Grant reported significantly more Re venue B lock H ours on its T

- 100 report than Total Block Hours (revenue plus non

- revenue block hours ) on its Schedule F

- 2, which is not possible. In addition, as shown on row 13 of Appendix B, the fuel cost that Grant reports for its Navajo aircraft is double that of its other aircraft and for other Part 135 carriers. We will therefore exclude Grant’s data from the calculation of the Part 135 Rate. We have made Grant aware o f this problem and it is reviewing it . W e expect the carrier to resolve the issue before the next quarterly fuel update.

For the Seaplane rate, we have concerns with Island Air’s data. Row five of Appendix C shows that Island Air’s Total Block Hours exceed its Revenue Block Hours by a factor of 29.49%. This result indicates that almost a third of th at carrier’s flying is required for non

revenue purposes

– which would be a very significant drain on any carrier’s bottom line. However, t he volume of mail transported by Island Air ( 2.7 percent of total mail per

r ow 14 of Appendix C )
, makes it very difficult for Island Air’s results to have a significant effect on the Seaplane mail rate because class rate s are calculated on the basis of carrier unit cos ts weighted by amount of mail carried. We will therefore accept Island Air’s data for the calculation of the Seaplane Rate. We have made Island Air aware of th is problem and it is reviewing i t . We expect it to resolve the issue before the next quarterly fuel update.

Other Matters Related to Unreliable Data 2 

### We have included as an attachment to this Order a letter sent by the Office of Airline Information to the bush carriers. As the letter indicates, the carriers’ reporting of T

- 100 Market data has a direct effect on the volume of mail a carrier is tendered by the Postal Service, and that data has been very reliable and timely. However, the carrier’s reporting of its Schedule F

- 2 has been less so , as substantiated by the results above. As the letter indicates, the Department wants to encourage the carriers to focus on correctly reporting all of its data.

In brief, as soon as it becomes clear that a carrier’s financial or traffic data is unreliable, OAI will make the carrier aware of that determination. If the monthly deadline for releasing the T

- 100 Mar ket data to the Postal Service has been reached and the data for any of the carrier’s reports is unreliable, OAI will exclude the most recent month of unreliable data and only forward eleven months of data to the Postal Service. If the issue has not been resolved by the next monthly release data, OAI will then only forward ten months of data to the Postal Service, and so on. Gradually the incentive for the carrier to report reliable data increases as the delay in it meeting its regulatory obligation incre ases. When reliable data is ultimately submitted, the carrier will not retroactively recover the mail it would otherwise have received, but the missing months of data will be added to the next data release to the Postal Service going forward.

2 As discussed on page three of Order 2012

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- 35. “It is now almost two months after July 1, 2012, the date when rates based on data for the quarter ended March 31, 212, should have been issued. It is our policy to make all rates final, but that policy is predicated on our having reliable data. Having unreliable data from the carriers endangers the premise of having final rates in place, and, indeed, of the entire class rate system. ”

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ACCORDINGLY , 1. We fix, determine and publish the Part 121 rate to be $ 5.7476 per m ail revenue ton mile, to be effective on the second Saturday after the service date of this Order ;

2

. We fix, determine and publish the Part 135 rate to be $ 14.9341 per mail revenue ton mile to be effective on the second Saturday after the service date of this Order ;
3. We fix, determine and publish the Seaplane rate to be $3 2.5983 per mail revenue ton mile, to be effective on the second Saturday after the service date of this Order;

4 . The terminal rate will remain fixed at $ 850.03 per mail ton enplaned;

5 . This docket shall remain open until furt her Order of the Department; and

6 . We will serve this Order upon all parties on th e service list for th is Docket;

Persons entitled to petition the Department for review of this Order under the Department’s regulations, 14 CFR 385.30, must file such petitions within ten (10) days after the date of service of this Order . The filing of a petition for review shall not stay its effectiveness.

By:

TODD M. HOMAN Director, Office of Aviation Analysis

(SEAL) An electronic version of this document is available on the World Wide Web at http://www.regulations.govU.S. Department of Transportation Research and Innovative Technology Administration

Ms. Joy Journeay AACA Executive Director Alaska Air Carriers Association 2301 Merrill Field, Drive A-3 Anchorage, AK 99501

Dear Ms. Journeay: - :

. .**~** ;

1200 New Jersey. S. E Washington. D.C. 20590

December 5, 2013

The Office of Airline Information (OAI) has received several inquiries regarding our August 6 letter about improving both the timeliness and reliability of the carriers' financial reporting, specifically Schedules F-1 and F-2. The challenge oflate or inaccurate F-1 and F-2 filings affects all carriers through delayed or inaccurate mail rates, and also creates a burden for OAI staff that must then follow up on these late or inaccurate filings. Our goal is to encourage the carriers to give the same priority to reporting the critical financial reports that they have displayed in filing their T -1 00 Market reports.

To clarify our earlier letter, I am providing the following concrete example of its implementation:

Consistent with 14 CFR 298.60, the bush carriers' financial schedules for the quarter ending December 31,2013, are due on or before February 10, 2014; 1 while the traffic reports for the month of December are due on or before January 30,2014. If a particular carrier's financial and traffic reports are submitted on a timely basis, and if all of the data are determined by edit checks

to be error free, OAI will continue its current practice and forward the T -100 Market data, used for determining mail tender, to the Postal Service on the scheduled release date: March 18, 2014?

1 On February 3, 2014 as under current practice, the Office of Airline Information (OAI) will email a reminder to the carriers about the approaching deadline. In that email OAI would reiterate the thrust of this letter- that all of the data must be timely and free of any edit checks for OAI to forward to the Postal Service that data without caveat 2 The 3'd Tuesday of the 3'd month following the end of the period.However, if any carrier does not file "error free" financial and traffic data by those respective due dates, OAI will only forward T-100 Market data for the 11 months through November 30, 2013; i.e., excluding traffic for the month of December. OAI will so notify the Postal Service. 3 Thus, any carrier submitting any required data on a delayed basis or of poor quality would lose credit with the Postal Service for approximately one-twelfth of its annual totals of passengers and freight. While there might be no significant cost to the carrier after only one month, the risk would grow with each passing month; if all problems have not been resolved by the next scheduled release date, only ten months of data will be forwarded to the Postal Service.

Carriers should recognize that the result of submitting unreliable financial or traffic data is equivalent to not submitting that data at all. Rather than creating an overly harsh reporting regime, we believe that with the advent of the 298C web-based reporting, the carriers can now themselves apply some of the edit checks before submitting the 298C data to OAI, thereby simplifying and speeding the process considerably. OAI will still subject the data to additional internal edit checks and will endeavor to quickly advise the carrier when edit checks produce errors or warnings- hopefully well before the regulatory deadline. Given this new business model, carriers are strongly encouraged to submit their data early to allow adequate time for OAI to process the data, and to give the carrier ample opportunity to reconcile any problematic data before the due date.

In brief, while late or inaccurate reports typically involve only a few carriers, but have an adverse impact on the entire industry. These straightforward incentives will encourage compliant reporting, but the alternative of taking enforcement action will remain.

As we indicated in our earlier letter, we are available to discuss these matters with you, the carriers, or the Postal Service, by phone, either individually or by conference call.

# ~in~.e ly' 

# rr\. \

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# ~ \ \

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# u.**(~}U ~\~**  wmiam cbadwick,n Director, Office of Airltrfe1nformation

CC: Kevin Schlemmer, DOT/OST, Kevin Adams, DOT/OST Kevin Hartner, United States Postal Service Paul Hendrickson, The Postal Service Carriers Workgroup (PAWS) Jennifer Rodes, DOT/BTS/OAI, Marianne Seguin, DOT/BTS/OAI

3 Of course, OAI cannot forward to the Postal Service data it does not have, or data that was not submitted on a timely basis. OAI will inform carriers if and when problems are found with the data.