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Office Of the Secretary ,. ,, r- r-> i r^ 

of Transportation i' •• ' " o <:-' l- DM 

Mr. Marc Luiken November 5, 2010 

Deputy Commissioner of Aviation 

Statewide Aviation 

Department of Transportation 

and Public Facilities 

4111 Aviation Avenue 

P.O. Box 196900 

Anchorage, AK 99519-6900 

Dear Commissioner Luiken: 

As you know, Alaska Seaplane Service, LLC, provides subsidized air service under the essential 

air service (EAS) program at Angoon and Tenakee. Our current contract with the carrier. 

Order 2008-12-27, calls for a combined annual subsidy of $163,107, for service to Juneau with 

DeHavilland Beaver aircraft, with the rates set to expire January 31, 2011. At Angoon, the 

contract calls for ten nonstop round trips per week in the 18-week peak and five nonstop round 

trips per week in the 34-week off-peak for $101,359 annually. At Tenakee, the contract calls for 

seven nonstop round trips per week in the peak and three nonstop round trips per week in the offpeak for $63,748 annually. 

In anticipation of the end of that contract, by Order 2010-9-16 the Department requested "best 

and final" proposals to serve Angoon and Tenakee. We received a timely-filed proposal from 

only one carrier, Alaska Seaplane, and it initially requested an average of $333,485 per year for 

the same level of service it currently provides and as described above. The carrier also requested 

a four-year contract, i.e., rates would extend from February 1, 2011, to January 31, 2015. We 

reviewed the carrier's proposal, and, after discussions with the carrier, it agreed to reduce its 

subsidy request to $281,310 per year. 

My purpose in writing is to inform 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 if you wish. Copies of the carrier's full proposal may be 

accessed online through the Department's Dockets Management System at 

hltp://www.regulations.gov/ by entering "DOT-OST 1997-3134" in the "enter Keyword or ID" 

field, so we will only summarize it here. 

Proposed Service: 

Alaska Seaplane's agreement is attached as Appendix A. At Angoon, the carrier has agreed to 

an annual subsidy of $145,734 to provide ten nonstop round trips per week in the 18-week peak 
- 2 -

and five nonstop round trips per week in the 34-week off-peak. At Tenakee, the carrier has 

agreed to an annual subsidy of $135,576 to provide seven nonstop round trips per week in the 

18-week peak and three nonstop round trips per week in the 34-week off-peak. The agreement 

expires January 31, 2015, and all of the service is to Juneau with single-engine DeHavilland 

Beaver aircraft. Of course, the only difference between the soon-to-expire contract, the carrier's 

initial proposal, and what it ultimately agreed to is the level of subsidy: the current contract is for 

$163, 107 per year, the carrier initially proposed an annual subsidy of $333,485, and it has 

agreed to a rate of $281,310 per year. 

Please note that the average passenger fares shown in Appendix A do not necessarily reflect the 

average local fare passengers would pay, but, rather the prorated portion of the total ticket price, 

e.g., the Tenakee - Juneau portion of a Tenakee - Juneau - Anchorage ticket that the carrier 

would realize. Also, the passenger fare of $106.25 for each community in its proposal and in 

Appendix A is net of certain charges such as federal transportation security fees, excise or ticket 

taxes, and passenger facility charges. Of course, carriers have the discretion to charge fares they 

deem appropriate, and the passenger fares presented have been developed for subsidy rate 

computation purposes only. Based on the cost elements incorporated in the carrier's 

computation summaries, a carrier 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. 

Alaska Seaplane's schedule would continue as before in terms of frequency and routing, and the 

carrier may make schedule changes to reflect changing conditions, e.g., to better meet shifting 

connecting bank times at the hub. The Department expects subsidized air carriers to maintain 

well-timed and well-spaced flights in order to ensure full compensation. 

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 EAS@dot.gov and 

Kevin.Adams@dot.gov by November 19. If you have any questions or do not wish to submit formal 

comments, please contact Kevin Adams at (202) 366-1047. 

Sincerely, 

-^^~^ Dennis J. DeVany 

Chief, Essential Air Service Division 

Office of Aviation Analysis 

cc: Alaska Seaplane 
Appendix A 

Annual Subsidy Need at Angoon and Tenakee, Alaska 

Docket 2006-25542 

Aircraft Type 

Block Hours 1/ 

Departures 1/ 

Passenger 2/ 

Freight 

Mail 

Total Revenue 

Cost @ $785.15/hr. 

Annual Subsidy 

Angoon 

DHC-2 

513 

700 

$178,083 

$27,743 

$51,222 

$257,048 

$402,782 

$145,734 

Tenakee 

DHC-2 

304 

456 

$60,634 

$15,136 

$27,340 

$103,110 

$238,686 

$135,576 

Total 

DHC-2 

817 

1,156 

$238,717 

$42,879 

$78,562 

$360,158 

$641,468 

$281,310 

1/ 

Peak 18 weeks x 20 flights in each direction x 44 min/60 : 

Off-Peak 34 weeks x 10 flights in each direction x 44 min/60 • 

Peak 18 weeks x 14 flights in each direction x 40 min/60 = 

Off-Peak 34 weeks x 6 flights in each direction x 40 min/60 = 

BIk. Hrs. 

264 

249 

513 

168 

136 

304 

Flights 

360 

340 

700 

252 

204 

455 

2/ Based on $106.25 average passenger fare.