## Before the United States Department of Transportation

June 6 , 2012

Proposal to Provide Essential Air Service at

Victoria, Texas

Under 49 U.S.C. 41731 et seq. Docket OST

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# SeaPort Airlines, Inc. Proposal to Provide Essential Air Service at

Victoria, Texas

By Order 2012

- 3

- 14 , the Department requested proposals for Essential Air Service (EAS) at Victoria, Texas not later than April 25, 2012. By Memorandum date d April 25, 2012, the Department extend ed the due date for proposals until May 9, 2012.

SeaPort Airlines, Inc. submitted the only proposal. The Victoria community , however, refused to

waive its right to twin

- engine aircraft and the proposal was rejected. By Order 2012

- 5

- 16, the Department requested a second round of proposals be submitted no later than June 6, 2012.

Pursuant to that Order

, SeaPort Airlines, Inc. respectfully submits this proposal to provide subsidized

essent ia l air service to the community of Victoria, Texas.

This proposal is materially different from our earlier submission as it relates to service pattern options and aircraft type and, therefore, we urge the community and Department to review in detail and give it careful consideration.

After this proposal is docketed , SeaPort Airlines will contact the Airport Manager to schedule a meeting in Victoria to explain our proposal in detail and answer any questions of the community. In the interim and throughout the carrier selection process, questions regarding this proposal should be

directed to:

Timothy Sieber

Vice President

– Strategy & Corporate Development

SeaPort Airlines, Inc. 7505 NE Airport Way Portland, OR 97218 (971) 340

- 1716

tsieber @seaportair.comOST

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June 6, 2012 Page | 2 

# Description of Proposed Service

Company Overview

SeaPort Airlines , Inc. is a FAA certified scheduled airline with 30 years of experience in commercial

aviation and is built around providing efficient and reliable service to rural communities. This is in sharp contrast to the strategies of the global airline brands and their regional airline partners that no longer have the operational or economic capability, or in many cases even a strategic desire, to

serve small and mid

- size communities such as Victoria.

SeaPort’s approximately 1 80 professionals operate an average of 90 daily departures to 2 0 cities in eight states with a business that is focused on providing affordable and reliable service to small and

rural communities.

Presently, SeaPort delivers Essential Air Service to seven commu nities: Excursion Inlet, Alaska; Pendleton, Oregon; El Dorado, Hot Springs, and Harrison, Arkansas; Salina, Kansas ; and Jackson,

Tennessee

. 1 In each of these cases , after award of the EAS contract by US DOT , we have started

service on time, on budget, and with fares either at or below those outlined in our proposal. We

would note that this stands in stark contrast to so many other airlines that place bids with

unreasonable fares that are never r ealized by the traveling public, delay the start of service, or do

not launch service that has been awarded by the Department.

A Track Record of Building Community Partnerships

SeaPort Airlines prides itself on developing partnerships wi th each community it serves. This includes participation in local events, donation of tickets, and regular community meetings. We believe this approach serves our own interests equally with those of the community by fostering long

- term, stable relationships that result in increased ridership and, eventually, reduced subsidy requirements.

We would also note that in each of our EAS communities (except in Alaska), SeaPort Airlines represented the first time that service was offered with single

- en gine aircraft. While there was initial trepidation about aircraft size, the more frequent flights that the smaller aircraft can offer, combined with the affordable fares and highly

- personal service offered by SeaPort, has resulted in strong community suppo rt and renewal of all EAS contracts in the Lower 48 states. 2 We encourage the Victoria community to contact any of the EAS communities we presently serve for additional

information.

Additional evidence of our ability to develop a strong partnership and pr ovide the communities in this proposal with reliable, customer

- focused air service is demonstrated through community and customer comments that are provided later in this document.

1 A proposal to provide Essential Air Service at Kake, Alaska has been submitted and is awaiting the Department’s

decision on which car rier it will award the contract

.

2 SeaPort had previously provided EAS at Jonesboro, AR but elected not to pursue a second contract term in that

market due to weak traffic and market conditions that indicated a low chance the market could be revitalized.OST

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June 6, 2012 Page | 3 Aircraft

Unlike our earlier proposal, SeaPort is offering for consideration by the Victoria community the opt ion of different aircraft types. The two aircraft types offered are described below.

Cessna 208B Grand Caravan



### Currently being produced in the USA, the “ Caravan ” was originally designed in the 1980’s to replace an aging fleet of piston

- powered aircraft, such as the De Havilland Otter and Piper

Chieftain

. Over 2,000 Caravans have been built logging a total of over 12.5 million flight hours.

The Caravan seats nine passengers and we believe this aircraft offers the “right size” capacity increment for each of the communities in this proposal, enabling us to offer optimal frequency

levels and reasonable fare s while simultaneously minimizing the required level of subsi dy. While

the Caravan is certified for single

- pilot operation SeaPort typically operates with both a Captain

and First Officer.

The large cargo pod on the Caravan allows for more baggage than can be accommodate d on older piston twins (i.e., Piper Navajo and Cessna 402) and allows us to segregate passenger baggage for security purposes. 3



### SeaPort Airlines recognizes that the community rejected our earlier proposal on the basis of it being operated with a single

- engine aircraft. We believe, however, that in addition to being the right

- sized increment of capacity that can offer attractive frequency levels, the Cessna Caravan offers travelers safe and reliable air transportation. We believe this for the following reasons, all

of which we demonstrate on a daily basis operating an average of 90 daily departures in eight

states:

 The argument that single

- engine aircraft are less safe than multi

- engines is based on the presumption of engine failure

. Failure of modern turbine engines is extremely rare and it is

even more ra r e that engine failure is the primary c ause of an accident or incident.

3 The cargo pod on the Cessna Caravan has a maximum capacity of 111 cubic feet and 1,090 pounds. In compari son, the Piper Chieftain has a maximum capacity of 65 cubic feet and 700 pounds in its nose compartment and two wing lockers.OST

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June 6, 2012 Page | 4 

###  Multi

- engine aircraf t experience asymmetric thrust and a rapid loss of climb performance of up to 80% . In contrast, s ingle

- engine aircraft don’t experience asymmetric thrust, and they typically have higher glide ratio s and can land at slower speeds.

 As reliability has improv ed over the last 75 years, airlines have specified fewer engines on new aircraft designs

– “more is better” no longer applie s.

 Newer, modern technology single

- engine aircraft provide a better customer experience than

older twins

.

Piper Chieftain



### As noted above, the Victoria community rejected SeaPort’s earlier proposal on the basis that 49 U.S.C. 41732(b)(5) entitles communities to EAS serv ice with twin

- engine aircraft. EAS

communities can waive their right to twin

- engine aircraft, however Victori a declined to do so following the earlier round of proposals. Notwithstanding our belief that the Caravan represents the best platform for frequent, economical and reliable air service at Victoria, option #2 in this proposal is based on the assumption of service with twin

- engine Piper Chieftain.

Over 1,800 Chieftains were built between 1972 and 1984 by Piper Aircraft. Analysis of Chieftains offered for sale indicate that if one of the options in this proposal that include this aircraft are selected by th e community we will not have any difficulty finding a suitable aircraft to

service Victoria.

The Chieftain is a stretched version of the Piper Navajo that operates with a single

- pilot and 9 passengers. The aircraft has two Lycoming piston engines and baggage storage in a nose compartment and wing lockers. 4 

### The aircraft offers adequate range with a full load of passengers to operate the servic e presented in option #2 , and has a typical cruise speed of 175

knots.

Frequency v. Aircraft Capacity

Both of the aircraft in SeaPort’s proposals contemplate aircraft smaller than the 34

- passenger Saab

340 ’s presently operated by Colgan Airways. The smaller number of seats per departure, however,

are offset by higher frequencies than economically possible with lar ger aircraft . We believe this will

contribute to positive enplanement growth at Victoria Regional Airport.

The Victoria community acknowledged the benefits of greater frequency levels in an email to the Department during the EAS carrier selection process in 2010:

“I must add that during these meetings, it became clear that the two flights per day covered under the EAS program provides insufficient service to our traveling public. Although I fully understand that it is not the program's intent to provide ideal service, adding a third flight would very likely result (in time) in not needing the subsidy at all. Our air service development studies all indicate that our enplanements are directly related to the frequency of flights offered to VCT. Increasing th e frequency will

4 See footnote 3.OST

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June 6, 2012 Page | 5 undoubtedly reduce the need for the subsidy over time, as o ur travelers habits are changed .” 5

SeaPort’s previous proposal to provide EAS at Victoria included 12 weekly roundtrips to Dallas (Love Field) and 12 weekly roundtrips to Houston (George Bush Intercontinental Airport). In this proposal, we are continuing to offer the option of service to Houston but have rep laced Dallas with additional frequencies to Houston for a total of 2 4 weekly roundtrips. This addresses the concerns about frequency that the community has voiced in the past.

Pricing Model

SeaPort Airlines employs a simpl ified pricing strategy of all fares being one

- way with varying levels of advance purchase and capacity controls. 6 This strategy is intended to offer a n attractive price point while also minimizing required subsidy levels

.

It is noted that high fares have been an ongoing subject of fr ustration in the Victoria community and has resulted in a high percentage of potential VCT travelers opting to drive to other airports. The projected average fare between Victoria and Houston is shown on the table below and are

measurabl y lower than those offered by Colgan Air. Moreover, we believe that the sum of two local fares (i.e., SeaPort fare plus that of the connecting airline to point beyond the hub) will offer savings compared to fares published in the Victoria market for sale on the Colgan operated flights.



## SeaPort Airlines Illustrative Fares Pricing Range & Average

EAS Community Houston

Victoria, Texas (VCT) Victoria Regional Airport Fares ranging from $35

- $85; average of $ 62

NOTE: Listed fares include Federal Excise Tax and segments fees, PFCs, or security

SeaPort Airlines believe s that our fare structure represent s a responsible approach to pricing in EAS

communities and is consistent with the overall objectives of the prog ram. W hile we offer affordable fares that can be combined with fares from the connecting hub for an overall reasonable trip cost, we

do not believe that pricing strategies that shift the true cost of air transportation from the c onsumer to the Department a re consistent with the intent of the essential air service program . Equally important, the higher levels of subsidy required as a result of exceptionally low fare s increase s the risk that a community may exceed the statutory subsidy limit of $200 per passenger thereby endangering continued eligibility in the EAS program

.

Interline Connectivity & GDS Display

SeaPort has a n interline ticketing agreement with US Airways and is working to secure agreements

with other carriers so that customers will b e able to purchase single ticket itineraries between

Victoria and other communities around the world.

5 Email from Jason Milewski (Victoria Regional Airport) to Michael Martin (US DOT) on April 4, 2011 and pub lishe d in

Docket OST

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6 From time to time SeaPort will offer fares outside of this basic model, however these are typically promotional fares with additional savings to passengers.OST

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June 6, 2012 Page | 6 To allow for interline agreements, SeaPort migrated to the Radixx reservation system on March 7,

2012 . Radixx offer s us the ability to enter into and execute unilaterial and bilaterial interline e

ticketing (IET) agreements, including inter airline thru check

- in (IATCI) that facilitates baggage check

to the customer’s final destination

, and (dependent on agreement terms with specific carriers)

issuance of boarding passes for connecting flights upon check

- in with SeaPort.

With this new system now functional , SeaPort anticipates announcing one, possibly two, interline agreements in the next 60 days and has initiated discussions with carriers that can be most

beneficial to customers in our markets

. United Airlines

, which has a large hub at Houston’s George

Bush Intercontinental Airport, is included in this group of carriers.

In addition to interline agreements, SeaPort Airlines is presently displayed in the major global distribution systems. This enables our flights to be available on all major online travel agencies and

meta

- searchers including Orbitz, Travelocity, Expedia, Kayak, Hipmunk, and CheapoAir.

Marketing & Public Relations Strategy

If selected to serve Victoria, SeaPort will implement a comprehensive marketing and public relations strategy aimed at introducing our brand to the community and maximizing the number of passengers onboard. In addition to local advertising, these activitie s include:

 Local Event Marketing: Recognizing that visible participation in local events has been successful for both legacy and low

- cost airlines, SeaPort has implemented a similar strategy in all of its communities. These have ranged from SeaPort Airlin es community Easter egg hunts, to presenting at business expos, to hosting “after hours” events at local Chamber of Commerce meetings. In addition, SeaPort often makes “in kind” donations of tickets for use by local charities, either for their own business needs or as a fundraising tool (i.e., raffles, silent auctions, etc.).

 Social Media: Since 2010, SeaPort Airlines has managed a successful social media campaign that has allowed the Company to dynamically engage its customer base in a two

- way conversatio n through sites such as Facebook, Twitter, FourSquare & LinkedIn. We have found social media to be an excellent tool for generating passenger referrals and information sharing in our communities, and expect similar results in Victoria

.

 FlyerFlex Customer Rewards: During 2011, SeaPort launched a new and improved customer loyalty program called “ FlyerFlex .” This program provides customers with a variety of benefits including free flights, service charge waivers, and bonus points. During the summer of 2012,

SeaPort will be unveiling further enhancements to the FlyerFlex program including a wider range of travel award options and the ability for customers to check balances and redeem awards

online.

 Value Accounts: SeaPort offers Corporate Value Accou nt s that encourage businesses to make a long

- term investment in local air service by offering a variety of benefits

, such as waivers to change fees and savings of 5% to 15%. It is important to note that unlike the corporate travel programs of major airlines that are not designed to serve small businesses in rural communities, SeaPort’s program can provide savings to a company of virtually any size and can be used by any employee of a company.OST

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June 6, 2012 Page | 7 In service proposals herein , SeaPort Airlines has allocated $20,000 per year for marketing and sales activity in Victoria . Th is budget take s into consideration the lower costs of media in small markets

and the reality that most local traffic typically originates in the EAS communi ty rather than the hub

market. Our approach to marketing budgeting is based on the philosophy that reasonable advertising budgets can be effectively leveraged with “new media” such as social networking, blogs,
opt

- in email, etc. to engage with customers on a more personal level. Similar to our fare structure,

we believe this approach represents a fiscally responsible use of subsidy (and the refore taxpayer dollars) in the EAS program

.OST

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June 6, 2012 Page | 8 

# Community & Customer Feedback

While we have outlined above why we believe that SeaPort is well positioned to provide reliable and reasonably priced air transportation that can contribute to Victoria’s economic vitality and quality of

life in , the strongest proof resides in the accolades we receive. Below is just a small sample of the comments SeaPort has received from our customers and community partners:

Our Essential Air Service Community Partners

“South Arkansas Regional Airport and the entire South

- central Arkansas region suffered from the loss of air service previously provided by Mesa Airlines in the Spring of 2008. Unreliable service and a poor schedule were already negatively impacting enplan ements before Mesa pulled out, but at that point, the nearest option for air service of any kind was almost a two hour drive away. After sorting through applications from many different interested carriers, the El Dorado Airport Commission, along with El Dorado’s Mayor, chose SeaPort to restore air service to South Arkansas. This was the beginning of a great partnership between SeaPort and our local community.

“Working with SeaPort has been nothing but a pleasure from the bottom to the top of their

orga nization, and their commitment to excellence shines through the glowing comments that I hear from people who fly with them. In addition to hearing comments from others, I have flown SeaPort on several occasions, and have come away from the experience thin king ‘This is how all air service

should be.”

− Josh Zylks Airport Manager South Arkansas Regional Airport (Goodwin Field)

“Eastern Oregon Regional Airport at Pendleton had been struggling since schedule changes following 9/11 served by a carrier flying 37 seat aircraft. Low passenger count attributed to poor schedule, which then contributed to poorer passenger count. The car rier's solution was to bring in larger aircraft and fly to a different hub. The Airport and community balked at this suggestion and went in search of alternatives. The solution found through the EAS process was SeaPort Air flying a 9 passenger Pilatus. The passengers have welcomed the new service, much better schedule, and are elated with ‘no security check’ and stand by time. Passengers today will say, ‘I love the service’, ‘great customer service,’ and ‘I'm sure glad I finally tried it, cause I'll be back ’

“In our particular market, the 9 passenger aircraft is perfect, and SeaPort Air provides the schedule, the professionalism, and customer service we need and desire.”

− Larry Dalrymple Airport Manager Pendleton Regional AirportOST

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June 6, 2012 Page | 9 “I understand the importance of having dependable, reliable air service with an affordable cost. Not only will SeaPort Airlines meet these needs, but excel by providing great customer service, a high level of community involvement, and an eagerness to become a community par tner”.

− Luci Larson Former Mayor & Owner of

Action Travel Salina, KS

Our Customers

“Two hours before the flight I booked my ticket to Memphis from Hot Springs. Wow! What a surprise; it was simple, convenient, great price, and impeccable service. It far exceeded my expectations and I will be flying to Memphis on SeaPort Airlines instead of driving from now on. The

customer service was fabulous!”

− Ruth Ann Smith

Customer (flew from Hot Springs to Memphis)

“My husband and I recently had to make a fast trip to Dallas for the funeral of a dear friend. I was not interested in making that drive over a fast weekend. Then I remembered that SeaPort had recently started flights between Hot Springs and Dallas. I call ed SeaPort, Jim and Bob were so quick to get us booked, last minute so we could fly down and attend the funeral and visit with family and friends that we don't get to see very often.

Everyone was so friendly, helpful and professional. It was a dream trip , even to attend a funeral. The pilot going down was so kind. When he found out that my husband had been a ball turret gunner in WWII, he gave him a set of headphones so he could listen to the communication between the pilots

and the air traffic controller s. To say the least, my husband was impressed. It was such a blessing to have been taken care of in such a kind and professional manner, especially under the circumstances of our trip. Thank you, Jim, Bob, Chris, Doug, Rodney and Michael.”

− Catherine Marti n Customer (few from Hot Springs to Dallas)

“I have never had such a positive experience connected with any airline. I read about SeaPort Air last October when they opened the Mid

- South Route, but didn’t have the chance to fly until March. Usually the dr

ead of the process comes then you just grin and bear it; however, with SeaPort Air I could arrive 15 minutes early. The hassle free no TSA is wonderful and made me feel special. I have

flown twice in the last 2 months and the customer service from start to finish is outstanding. I will be a regular customer and have already recommended the airline to several associates. Thank you, SeaPort Air, for making me feel like a queen!”

− Catherine Martin

Customer (few from Memphis to Harrison)OST

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June 6, 2012 Page | 10 “For two decades I have been picking my mother up at the airport and for two decades I have been met with the defeated, hang

- dog look that the ordeal of air travel has given her. I guess it pretty much does it to all of us, but (as she is well into her 80's) I worry about th e toll it takes on her more and more lately.

“When I picked her up today from her SeaPort flight K52325 from Dallas and saw she was smiling, you could have knocked me over with a feather! She couldn't stop raving about how pleasant the flight was. Let me be clear. My mother is a tough

- as

- nails Mid

- western Yankee from the old school who has been around the world a couple of times since the late 1940's. She doesn't bestow idle praise and she seldom raves.

“I'm in the service industry myself and I know how o ften complaints come through. I just want to be sure to let you know how well everyone did on this flight. In the future, I will look to SeaPort first for my travel needs and will spread the good word to my friends.

“A smile and a kind word go a long way y'all. Thank you for getting this one so right.”

− Mark Davis Peterson

Customer (flew from Dallas to Memphis)OST

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June 6, 2012 Page | 11 

# Service Proposal s

Summary of Service Options

An I llustrative schedule pattern is illustrated below and reflects the marginal speed differences between the two aircraft types being offered. F inal schedules would be established in consultation with the community.

Note that the service proposal s include 2 4 weekly roundtrips and is compliant with the Departments

directive in Order 2012

- 3

- 14 requesting: “two round trips a day (12 a week) with 30

- seat or larger aircraft; or three round trips a day (18 a week) with 19

- seat aircraft and additional frequencies with

8/9 seat aircraft.” 7

Proposed Start Dates by Aircraft Type

It has been reported in the news media that Colgan Air intends to end service at Victoria on June 30

. Given the due date for this proposal, necessary time for the community to evaluate each proposal

and submit its com ments, followed by the Departme nt ’s own analysis, we have prepared this proposal with the assumption that on an accelerated basis in respon se to Colgan’s stated intent, the Department could issue a carrier selection Order for EAS at Victoria around June 30, 2012.

7 Order 2012

- 3

- 14, p.3OST

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June 6, 2012 Page | 12 Based on this assumption, the service options in this proposal have different start dates attributable to the different aircraft types. Specifically,

 Cessna Caravan: SeaPort currently operates six Cessna Caravans. As the operational

infrastructure for this type is already establish ed , if the c ommunity selects Option #1 we reasonably believe that service at Victoria could be initiated by August 1 , 2012

.

 Piper Ch i e ftain: SeaPort Airlines does not presently operate any Piper Chieftain s which will require add ing the type to our fleet and Operations Specifications

. Given this, if the community selects Option #2 we believe service could be initiated by September 1 5 , 2012 , excepting for unanticipated delays.

SeaPort Airlines has a proven record of initiating EAS flights as promised and we have never delayed a service start date or failed to initiate a market awarded by the Department. We are committed to maintaining this perfect record and, based on assum ption regarding timing of the Order selecting replacement service, will work diligently to initiate service at VCT on or before the dates set

forth above

. 8

Regardless of the actual date that DOT issues carrier selection Order, the end of Colgan Airways flights on June 30 makes it a certainty that Victoria is facing a period without scheduled air service

. 9
From our own experience restoring EAS in four Arkansas communities after a 15 month service

hiatus

, traffic will likely be slow to return to Victoria Regional Airport

. 10 We believe the l onger a service hiatus persists and the mo re accustomed the traffic base becomes to driving to access air
service, the greater the challenge in rebuilding traffic in an EAS communi ty. This has the potential to

result in subsidy levels that exceed the statutory limit of $200 per passenger, thereby endanger ing

continued eligibility i n the EAS program. We would strongly urge the Victoria community to consider

duration of the impending service hiatus when evaluating the various proposal options of SeaPort or any other carrier that may submit a proposal

.

8 If the Order is not issued June 30, 2012 (e.g., +/

- three

- days), SeaPort would w ill work with the Department and community to define an exact start date . The timeframe between the actual Order and start of service will be similar

to that reflected above based on the June 30 th assumption.

9 "We'r e going to go dark for a while. This c an go on almost indefinitely." Jason Milewski (Victoria Regional Airport)

q uoted in the May 29, 2012 issue of the Victoria Advocate

.

10 These fours communities are: El Dorado, Harrison, Hot Springs, and Jonesboro. In addition, in January SeaPort initiated service at Jackson, TN, replacing a carrier that had what could best be described as a “ contentious ” relationship with the community. E nplanements at Jackson had fallen below 50 passengers per month during the end of that carrier’s tenure. Notwithstanding the impact of the relationship between the community and previous EAS carrier, we believe that the impact of two periods of service hia tus (including one lasting 23 months) c ontinue to be

reflected in the traffic we have been able to generate . While it has been less than six months since we initiated
service, traffic is presently below the level needed to maintain Jackson’s eligibility in the EAS program.OST

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June 6, 2012 Page | 13 Two

- Year and Four

- Year Contract Term Options

Finally, the following service proposals specify the level of subsidy required on an annual basis and assuming a typical two year EAS contract with the Department

. 11 Notwithstanding the risk of inflation in coming years (particularly related to fuel costs ) that could possibly outstrip traffic growth and reasonable fare increases, SeaPort is offering the Department and the community the option to contract the proposed annual subsidy for a four year period at no increase in annual subsidy beyond that level specified for the two year term

.

We believe this provides the Victoria community with the assurance of stable air service for an extended period (a factor that may have increased relevancy given the impending service hiatus) and reduces the administrative burden on both the Department and ourselves.

Respectfully submitted,

Timothy Sieber

Vice President

– Strategy & Corporate Development SeaPort Airlines, Inc.

June 6 , 2012

11 The higher “Indirect Expenses” shown in Option #2 reflect with costs associated with an additional aircraft type on the SeaPort Airlines operating certificate. As Victoria would be the only market where we operate Piper Chieftains, all

of these costs have been included in the calculation of required annual subsidy levels.OST

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