Order 2012

- 1

- 23 Served: January 26, 2012



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION



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

Issued by the Department of Transportation

on the 26 th of January, 2012

Essential Air Service at

ABERDEEN, SOUTH DAKOTA BEMIDJI, MINNESOTA BUTTE, MONTANA

Under 49 U.S.C. 41731 et seq

. DOCKET DOT

- OST

- 20 11

- 0137

DOCKET DOT

- OST

- 20 11

- 0134

DOCKET DOT

- OST

- 20 11

- 0136

ORDER SELECTING CARRIER Summary By this Order

, the Department is selecting SkyWest Airlines, Inc. (SkyWest) to provide E ssential

A ir S ervice (EAS) at the three above

- captioned communities as follows: Aberdeen, South Dakota, $1,198,222; Bemidji, Minnesota, $1,338,293; Butte, Montana, $672,230

. 1

Background On July 15, 2011, SkyWest filed notice to terminate its subsidy

- free service at Butte, Montana, and Mesaba Aviation, Inc. and Pinnacle Airlines, two wholly owned subsidiaries of Pinnacle Airlines Corporation, all three operating as Delta Connection (Delta), filed notice to terminate their subsidy

- free service at Aberdeen, South Dakota, and Bemidji, Minnesota. 2 By

Order 2011

- 9

- 5, issued on September 13, 2011, we prohibited those suspensions and requested proposals by October 12 , 2011 . By N otice

, we extended the deadline for proposals to
October 14 , 2011 . We r eceived a proposal from Gulfstream International Airlines at Butte,

Montana

, and from SkyWest for each of the three communities. On October 21 , 2011, we requested comments from the communit ies on the proposals. On November 21 , 2011, we received comments from each of the three communities, all endorsing the selection of SkyWest.

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds.

2 Delta filed notice at a number of other communities, but we are addressing those communities in other order s

.- 2

-

On December 11

, 2011, the EAS staff contacted SkyWest because it appeared that its expenses

at these three comm unities were out of line with those at another set of communities (Eau Claire, Wisconsin, Hancock/Houghton and Muskegon, Michigan, and Paducah , Kentucky ) where it had earlier submitted proposals

. 3

In brief, SkyWest subsequently agreed to substantial reductions in subsidy at Aberdeen

, Bemidji

, and Butte from what it had initially proposed on October 14, 2011

. The bas es for the adjustments were lower projected fuel expenses at all of the communities, an increase in

passenger s forecast at Bu tte, and reduced forecast flying t ime at Aberdeen, which drives most of

the foreca st expenses for operating the aircraft. Also, the carrier revised its costing , assigning less expense to its departure

- related cost pools

. 4 The following table depicts the evolution in SkyWest’s requested subsidy levels

.

Decision

We have reviewed the subsidy rates agreed to by SkyWest and the EAS staff and find them

reasonable for the service proposed

. T he support expressed by every community for SkyWest,

and t he fact that the one competing proposal did not meet the minimum statutory requirements

, 5

favor the selection of SkyWest. In addition, Gulfstream indicated it was not interested in renegotiating its bid at Butte, the only community where it proposed servi ce.

We will not request an additional round of subsidy bids at these three communities. 6 While SkyWest has been able to view the competing proposal at Butte and to recognize that there were no competing proposals at either Aberdeen or Bemidji

, the carrier has agreed to lower rates than

those that it initially proposed. Therefore, no party is ag g rieved by our selecting SkyWest at lower subsidy levels than originally proposed and we will make our selection of SkyWest at

these three communities final.

3 See Order 201 2

- 1

- 24

. 4 SkyWest also agre ed to consistently allocate indirect expenses, substantially reducing expenses at Aberdeen, Bemidji, and Butte.

5 S taff did not offer to renegotiate rates with Gulfstream, the only competitor, and that at only one community, Butte. Gulfstream’s proposal contemplated service to the small hub of Billings, that does not meet the requirement

that EAS be to a large

- or medium

- hub for communities within 400 miles of a large or medium hub.

6 All of the Department’s requests for proposals indicate that proposals must be submitted by a deadline, and that they will be held confidential until all of the proposals are made public. “ Interested carriers should prepare their proposals with every expectation that their initial proposals will also be their final and only proposals. W e retain the discretion to negotiate proposals with carriers when we deem it desirable. In such cases, of course, we will give all applicants the same opportunity. We also retain the discretion to reject outright all unreasonable or unrealistic proposals and solicit a new round of p roposals.” (See page five of Order 2011

- 9

- 5 and page two of Order 2011

- 8

- 10.) Subsidy Aberdeen Bemidji Butte Total
Original $1,525,683 $1,768,722 $803,093 $4,097,498

Agreed $1,198,222 $1,338,293 $672,230 $3,208,745

Difference $327,461 $430,429 $130,863 $888,753- 3

-

Carrier Fitness

49 U.S.C. 41737(b) requires that the Department find an air carrier fit, willing, and able to provide reliable service before the Department may subsidize it to provide EAS

. SkyWest is subject to the Department’s continuing fitness requir ements, and no information has come to our attention that would cause us to question the carrier ’ s fitness at this time. The Department has contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitne ss finding s

. The Department therefore concludes that the carrier

remain s fit to conduct the operations proposed here.

Certifications

Before t he Department can pay compensation, SkyWest must provide properly executed

certifications that it is in compliance with the regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations governing lobbying activities.

Carrier Transition

W e expect SkyWest and Pinnacle to work together to make a smooth transition at Aberdeen and Bemidji. 7 In that regard, before Pinnacle suspends its service a t Aberdeen or Bemidji , we expect it to notify any passengers holding reservations for travel after the suspension date, to assist those passengers in making alternate air transportation arran gements, or to provide a refund of the ticket price, without pena lty, if requested.

This Order is issued under authority delegated in 49 CFR 1.56a(f).

ACCORDINGLY,

1 . We select SkyWest Airlines, Inc., to provide Essential Air Service at Aberdeen, South Dakota, Bemidji, Minnesota, and Butte, Montana, as described in Appendix C;

2 . We direct SkyWest Airlines, Inc.

, to retain all books, records, and other source and s ummary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven years from the service date of this Order or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The carrier may forfeit its compensation for any claim tha t is not supported under the terms of this Order ;

3 . We find that SkyWest Airlines, Inc., continue s to be fit, willing and able to operate as a certificated carrier and capable of providing reliable essential air service at these communities ;

4 . Th ese docket s will remain open until further Order of the Department; and

7 At the other five communities ther e w i l l be no service transition because SkyWest is the incumbent carrier

.- 4

-

5 . We will serve copies of this Order on the Mayors and Airport Managers of Aberdeen, South Dakota, Bemidji, Minnesota, and Butte, Montana

, Gulfstream International Airlines, Inc., and SkyWest A irlines, Inc.

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.govAppendix A

- 1

Nonstop, Great Circle Miles Aberdeen (ABR) to Minneapolis (MSP) 257 Bemidji (BJI) to Minneapolis (MSP) 199 Aberdeen to Sioux Falls (FSD) 153 Aberdeen to Fargo (FAR) 128 Bemidji to Grand Forks (GFK) 109 Bemidji to Fargo (FAR) 97Appendix A

- 2

Nonstop Great Circle Miles from Butte (BTM) Helena (HLN) 51 Missoula (MSO) 101 Billings (BIL) 191 Denver (DEN) 578 Salt Lake City (SLC) 358Appendix B

Agreement per Discussion Concluded December 21, 2011

Community Aberdeen Bemidji Butte

Hub MSP MSP SLC

Docket 2011-0137 2011-0134 2011-0136

Distance 257 199 358

RPM's 11,565,000 8,457,500 16,468,000

Seats 50 50 50

ASM 18,336,950 14,198,650 25,543,300
Revenue Psgrs. 45,000 42,500 46,000
Average Fare $102.5 $87.5 $107.0
Departures @ 98% 1/ 1,427 1,427 1,427

Block Time, Minutes 71 60 75

Block Hours 1,689 1,427 1,784

Passenger Revenue $4,612,500 $3,718,750 $4,922,000

Total Directs $4,310,328 $3,641,704 $4,020,262

Total Indirects $1,223,693 $1,174,527 $1,307,576

Operating Expense $5,534,021 $4,816,231 $5,327,838
Margin @5% $276,701 $240,812 $266,392

Economic Costs $5,810,722 $5,057,043 $5,594,230

Agreed Subsidy $1,198,222 $1,338,293 $672,230

1/ 14 one-way flights x 2 directions x 52 weeks x 98% completion = 1,42Appendix C

SkyWest Aviation, Inc., d/b/a Delta Connection, Inc., Essential Air Service to be Provided to Aberdeen, South Dakota, Bemidji, Minnesota, and Butte, Montana,
Dockets 2011

- 0137, 2011

- 0134, 2011

- 0136

Scheduled Service: 14 nonstop round trips per week

Aircraft: 50

- Seat CRJ

- 200 Regional Jet

Aberdeen Bemidji Butte

Hub MSP MSP SLC Annual Subsidy $1,198,222 $1,338,293 $672,230
Annual Flights 1 1,427 1,427 1,427
Rate per Flight 2 $840 $938 $471
Weekly Ceiling 3 $2 3,520 $ 26,264 $ 13,188

Effective:

From : Svc. Start Svc. Start 10/13/11 Through : 2/28/14 2/28/14 12/31/13

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance wi th the terms and stipulations of the rate Order , including the service plans outlined in the Order and any other significant elemen ts of the required service, without prior approval. The carrier understands that an aircraft take

- off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has not b een completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full conformance with the Order for a significant period, it may jeop ardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the Order during the applicable period of this rate, it must first notify the Office of Aviation Analysis in writing and receive w ritten approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program ar e met and the extent of access to the national air transportation system provided to the community.

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific lo cation provided for under this Order , then, at the end of the period for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the carrier may cease to provide service to that spec ific location without regar d to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of pa yment.

Subs idy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert th e foregoing paragraph.

Funds are not currently available for performance under this Order beyond September 30, 2012 . The Government’s obligation for performance under this Order beyond September 30, 2012 , is subject to the availability of appropriated funds from wh ich payment for services can be made. No legal liability on the part of the Government for any payment may arise for performance

under this Order beyond September 30, 2012 , until funds are made available to the Department for performance. If funds are no t made available for performance beyond September 30, 2012 , the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 60 days of the last day of service provided under this Order

1 14 one

- way flights x 2 directions x 52 weeks x 98 percent completion = 1,427.

2 Annual subsidy ÷ annual flights.

3 Rate per flight x 28 flights per week.