Order 2011-11-18

Served: November 16, 2011

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 16th of November, 2011

INTRA-ALASKA MAINLINE

SERVICE MAIL RATES

Docket OST-2003-14695

(Docket OST-95-429)

FINAL MAINLINE MAIL AND QUARTERLY FUEL UPDATE

Background

By Order 2011-9-6, September 13, 2011, the Department directed the parties to show cause 

by October 3 why we should not make final the annual rates tentatively set forth in that 

order. The order noted that Lynden’s non-fuel linehaul cost per available ton mile (ATM) 

increased by 36 percent between YE March 31, 2010, and YE March 31, 2011. Also, it 

noted that there was a 41 percent decrease in airborne hours, but little or no corresponding 

decrease in non-fuel linehaul expenses, notwithstanding that the number of operating hours 

typically drives the level of non-fuel linehaul expenses.1 

We received an objection from the Postal Service on September 30. The Postal Service 

stated that it had no objection to the Department’s calculations or methodology, but was 

concerned with the increase in non-fuel unit costs reported by Lynden Air Cargo (LAC).

“LAC had a dramatic decrease in operating hours. However, LAC’s direct 

expenses – which are driven by operating hours – did not have a significant 

decrease [leading to LAC’s 36 percent increase in unit cost per ATM]. This leads 

the Postal Service to believe that adopting the proposed rates may, in effect, put 

the Postal Service in a position to supplement LAC’s workforce in other areas 

[unrelated to moving the mail].” 

LAC replied to the Postal Service’s comments on October 5. LAC notes that the 

Department’s calculation of LAC’s unit costs and the block hours used in that calculation 

were correct for both time periods. However, the calculation of nonfuel linehaul expenses 

was based on a 20 percent decrease in block hours, not the 41 percent decrease in airborne

hours cited in the body of Order 2011-9-6.2 Lynden also states that 

 

1 Non-fuel linehaul expense, Schedule P5.1, includes Flying operations, Maintenance, Depreciation or lease, 

and “Other.”

2 While airborne hours (time in the air) and block hours (airborne hours plus time the aircraft is moving on 

the ground) are closely linked, in this instance that connection was lost because Lynden incorrectly reported 

its airborne hours, though not its block hours. 
-2-

“The majority of the increase in LAC’s non-fuel linehaul costs is attributable to an 

increase of $2,819,517 in maintenance costs, of which $2,120,803 was directly 

related to required heavy maintenance checks which are performed at FAArequired intervals [and which the carrier directly expenses as opposed to averaging 

out]. The expenses of these required checks, which are directly related to safety of 

flight, are recorded in the period the check is performed and may not always be 

commensurate with the hours flown for the same period.”

Decision

Lynden maintains that its accounting system essentially operates on a cash basis rather than 

accrual and that it incurred disproportionately high heavy maintenance expenses during the 

year ended March 31, 2011. This appears to explain its 36 percent year-over-year increase 

in non-fuel linehaul expense per ATM. If those expenses had been averaged over time 

there would have been no dramatic increase. In fact, during years of less than average 

heavy-maintenance expenses, all other things being equal, Lynden would show decreases in 

costs per ATM, thus pushing the mail rate lower. While LAC reported that other direct 

expense items such as flight crew increased significantly between the two time periods, 

increases in maintenance expense were by far the biggest single component. A higher-thanaverage number of heavy maintenance checks happening to come due at the same time 

would thus explain this increase.

The Postal Service also raised the issue as to whether it is paying for operations by LAC 

that are not related to the carriage of mail. The rate-update methodology that the 

Department has employed for many years, and which has been agreed upon by all the 

parties, does not attempt to isolate the actual costs of moving the mail. Those calculations 

were done years ago in a very lengthy and expensive formal mail-rate proceeding 

conducted under the auspices of an Administrative Law Judge. Since then, the department 

has simply updated those rates, not based on the CPI but, rather, based on the carriers’ 

changes in unit costs. The implicit assumption is that as the unit costs of the carriers’ 

operations change, based on a whole host of factors, such as more fuel efficient aircraft, 

changes in aircraft size and speed, those changes apply equally to mail, passenger and 

freight costs, and we adjust the mail rates accordingly.

Order 2011-9-6 also noted that overall nonfuel linehaul expense for the mainline carriers 

increased by only 0.76 percent because LAC’s 36 percent increase was offset by a 

16 percent decrease in costs per ATM for Alaska Airlines and a 14 percent decrease for 

Tatonduk Outfitters. The class rate system focuses on overall operating expense, and based 

on this year’s very small increase appears to be working. Under the class rate system, 

competition among the carriers to restrain their expenses drives down the average for all of 

the carriers in the cost pool and works to ensure that Postal Service expenditures are kept to 

a minimum. In other words, while the Postal Service is concerned that some LAC expenses 

unrelated to carrying the mail are driving up that carrier’s expenses and therefore the mail 

rate, it rather appears to be the case that the efficiencies achieved by Alaska Airlines and 

Tatonduk for operations, only some of which are related to the carriage of mail, have kept

the increase in the non-fuel linehaul rate from the prior year to under one percent.

Other Matters

There were no objections to the terminal rates proposed by Order 2011-9-6, and we will 

therefore make those rates final. 
-3-

In addition, Order 2011-9-6 indicated that we would update the final rates tentatively set by 

that order for QE 6-30-11 fuel expenses when those data became available. Those data are 

now available, and we will make the appropriate updates, as shown in the appendices to this 

order.

ACCORDINGLY,

1. We finalize the rates tentatively set by Order 2011-9-6, updated for fuel expenses for the 

quarter ended June 30, 2011, set forth in Appendix A of this order, effective the second 

Saturday after the service date of this order;

2. This docket shall remain open until further order of the Department; and

3. We will serve this order upon all parties on the Service List for this Docket.

By: 

Susan L. Kurland

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at

http://www.regulations.gov
Appendix A

INTRA-ALASKA MAINLINE CLASS SERVICE MAIL RATES

(1) (2) (3) (4) (5)

Base Year Adjustment Change from

Rates 1/ Factors 2/ Final Rates 3/ Current Rate 4/ Current Rate 5/

Linehaul Charge per Billing Ton-Mile

Priority $1.1969 195.76% $3.5400 $3.4674 2.09%

Non-priority $0.7246 195.76% $2.1431 $2.0992 2.09%

Terminal Charge per Pound Originated

Priority $0.1697 103.68% $.3456 $.3617 -4.45%

Non-priority $0.1458 103.68% $.2970 $.3108 -4.44%

1/ Per Order 82-11-23.

2/ See Appendix B of this order. Unlike the linehaul charge, the terminal charge will not change from quarter to 

quarter with the quarterly fuel updates.

3/ Column (1) increased by Column (2).

4/ Per Order 2011-6-21.

5/ Any differences between priority and nonpriority elements are due to rounding.
Appendix B

INTRA-ALASKA MAINLINE CLASS SERVICE MAIL RATES COST ADJUSTMENT FACTORS

Base Year

Ended Current New

9/30/80 Costs Costs

Unit Cost per Available Ton-Mile

 Fuel $0.49645 2/ $0.53144 3/

 Nonfuel $0.65004 2/ $0.65004 2/

 Total $0.399469 1/ $1.14649 $1.18148

Percentage Change from Base Year 187.00% 2/ 195.76% 4/

Unit Cost per Ton Enplaned $191.54 1/ $390.13 2/ $390.13 2/

Percentage Change from Base Year 103.68% 2/ 103.68% 2/

1/ Order 82-11-23, updated most recently in Order 97-12-24.

2/ Appendix B of Order 2011-9-6.

3/ Appendix C of this order.

4/ ($1.18148/$0.399469)-1.
Appendix C

 Operating Expenses, Alaska Airlines, Northern Air Cargo, Lynden Air Cargo, and Tatonduk Outfitters, Ltd.

Intra-Alaska Class Service Mail Rates--Quarter Ended June 30, 2011

Lynden Northern Tatonduk

Alaska Air Cargo Air Cargo Outfitters, Ltd.

Row (AS) (LAC) NAC (TOL)

1 Skd. P.12, Skd. Intra-AK Cost $16,225,932 $967,693 $4,001,003 $2,995,238

2 Skd. P12, Skd. Intra-AK Gallons 4,909,747 276,513 1,187,365 696,958

3 Cost per Gallon 1/ $3.30 $3.50 $3.37 $4.30

4 Intra-Alaska Skd. Hours, All A/C 6,837 390 1,395 2,230

5 Burn per Hour 718 709 851 313

Lynden Northern

Alaska Air Cargo Air Cargo Tatonduk Outfitters Ltd. Peninsula Airways

(AS) (LAC) NAC (TOL) (TOL) (KS) (KS)

#617 #556 #620 #218 #461 456 2/ 459 2/

Total B-737-400 Hercules 737-200 DC-6 Brasilia Saab 340 Saab 340

6 Fuel $7,669,769 $3,494,159 $164,794 $3,620,770 $390,046

7 Intra-AK Skd. Blk. Hrs. 10,933 6,267 390 1,395 1,300 225 1,356 0

8 Total Block Hours 32,886 20,149 2,096 1,693 1,788 263 6,228 669

9 Intra-AK Fuel Expense $23,287,310 $14,849,030 $967,785 $4,000,679 $2,540,496 $140,983 $788,337 $0

10 Intra-AK Skd. ATMs 2/ 48,322,725 33,349,215 2,551,066 7,102,979 3,936,312 200,786 1,182,367 0

11 Unit Cost/ATM, Fuel $0.481912 $0.445259 $0.379365 $0.563240 $0.645400 $0.702156 $0.666745 $0.000000

12 Intra-AK Mail RTMs 2/ 5,121,354 1,096,588 918,921 1,532,563 1,407,288 82,659 83,335 0

13 RTM Percent of Total 100.00% 21.41% 17.94% 29.92% 27.48% 1.61% 1.63% 0.00%

14 Wtd. Cost/ATM, Fuel $0.53144 $0.09533 $0.06806 $0.16852 $0.17736 $0.01130 $0.01087 $0.00000

1/ Fuel costs for Alaska Airlines, Lynden and Northern Air Cargo are calculated by first determining the intra-Alaska cost for per gallon for 

those carriers from Schedule P12, secondly determining the fuel burn per block hour. While we show that calculation for Tatonduk, 

we do not use that reuslts. Instead, we continue to determine Tatonduk's costs the old way because its DC-6 aircraft burns expensive 

Avgas while its turboprop Brasilia burns less expensive Jet A, and 'Schedule P12 does not break down intra-Alaska expenses into 

those two cargeories. PenAir does not report schedule P12, and so we have relied on Schedule F-2 'for expenses and a special report 

filed by the carrier that separates its traffic between Part 121, Part 135, and mainline service.

2/ For PenAir, rows 7, 10, and 11 reflect its intra-Alaska scheduled block hours, ATMs, and Mail RTMs for the mainline portion of 

of PenAir's fleet, 'i.e., those operations who average payload per departure is 7,500 lbs. or more.