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us . Deportmant of 

Ttansportotion 

Office of the Secretary 

of Transportation 

Steven D. Hatter 

Deputy Commissioner, Aviation 

4111 Aviation Avenue 

POBox 196900 

Anchorage, AK 99519-6900 

, \ •'•.: 14 

1 200 New Jersey Avenue, SE 

Washington, DC 20590 

March 2, 2011 

Dear Mr. Hatter: 

As you know, Peninsula Airways, Inc. (PenAir), provides subsidized air service under the essential 

air service (EAS) program at Akiitan, Alaska. By Order 2010-11-3 the Department requested "best 

and final" proposals to serve Akutan, and PeiiAir was the only carrier to apply. The Department's 

cuirent contract with the carrier calls for service with 9-seat Gmmman Goose aircraft at an annual 

subsidy of $654,964. Under the current contract, which expires April 30. Akutan was to receive 

eleven nonstop round trips per week year round. 

PenAir proposes to extend the current level of service, from May 1, 2011, through April 30, 2013, but 

requests S710,157 annual subsidy'. The calculations are attached. Please note that the average 

passenger fare reflected in Appendix A does not necessarily reflect the average local fare passengers 

would pay, but rather reflect the prorated portion of the total ticket price, e.g., the Akutan - Dutch 

Harbor portion of an Akutan-Dutch Harbor-Anchorage ticket that the carrier would realize. Also, the 

implicit average fare, as reflected in that Appendix, is net of certain charges such as federal 

transportation security fees, excise and ticket taxes, and passenger facility charges. Of course, 

carriers have the discretion to charge fares they deem appropriate, and the passenger fares implicit in 

Appendix A were developed for subsidy rate calculations only. PenAir would have to realize 

passenger fares comparable to the average shown in its proposal in order to achieve break-even or 

profitable operations even with subsidy. 

My purpose in writing you at this time is to inforni you of the results of the carrier's service and 

subsidy proposal before we submit a recommendation on the carrier selection issue to the Assistant 

Secretary for Aviation and International Affairs for decision. Since there are no other options before 

the Department at this time, you need not respond to this letter. However, we wanted to give you the 

opportunity to submit any comments, on the record, if you wish. We know this matter is important to 

you and we will act as quickly as possible upon receipt of your letter. In order to expedite the case, 

please submit your comments by email to Kevin.Adams@dot.gov by March 17. If you have any 

questions or need additional time, please contact Kevin Adams at (202) 366-1047. 

Sincerely, 

^ 

Dennis J. DeVany 

Chief, Essential Air Service Division 

Office of Aviation Analysis 

The carrier initially requested $874,887 the first year and $918,631 the second year for this service. 
Appendix A 

PenAir, Revised Proposal at Akutan, Alaska, Docket 2000-7068 

Akutan. Alaska 

Time Period 

Aircraft Type: 

Departures 

Block Hours 

Passengers 

Mail Pounds 

Freight Pounds 

Passenger Revenue 

Mail Revenue 

Freight Revenue 

Total Revenue 

Flying Operations 

Fuel/Oil 

Insurance 

Maintenance 

Depreciation/Rent 

Total Directs 

TR as % of Revenue 

DR per Wtd. Departure 

CRnerWtd. Block Hour 

Total Indierecis 

Operating Expense 

Profit @ 5% 

Interest @ 2.3% 

Economic Cost 

May l,20ll,tl 

Grumman Goo 

1,144 1/ 

477 1/ 

3,000 

125,000 

46,600 

$369,000 

$124,875 

$23,766 

5517,641 

$303,582 

$143,625 

S82.360 

$378,189 

$26,675 

$934,431 

$46,782 

$134,978 

$28,075 

$209,835 

$1,144,266 

$57,213 

$26,318 

$1,227,798 

Annua) Subsidy $710,157 

1/ 

22 flighis/week * 52 weeks 

Bik. Min./FIighi 

Blk. Hrs. 

1,144 

25 

477