Order 2010-3-23

Served: March 18, 2010

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 18th day of March, 2010

Essential Air Service at

EXCURSION INLET 

 AND

KAKE, ALASKA

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

DOCKET OST-2002-12014

 AND

DOCKET OST 2008-0217

ORDER DISMISSING PETITION

Summary

By this order the Department dismisses the petition of Air Excursions to reopen the selection of 

Alaska Juneau Aeronautics (AJA), d/b/a Wings of Alaska (Wings), to provide essential air 

service (EAS) at Excursion Inlet and Kake, Alaska. The contract expires by its own terms on 

August 31, 2010.1

Background

By Order2008-7-29 we requested proposals for Excursion Inlet and Kake, Alaska. Wings’

proposal noted the operational difficulty of serving Kake, where they had discontinued service 

several years before. 

“The weather along the route is frequently marginal VFR and far too many times during 

the five-plus years [of Wings’ prior] service, the Wings’ aircraft would make it 70% or 

90% of the way to Kake and be forced to turn back due to weather.” 

Wings noted that reliably projecting passenger revenue at Kake was difficult, and that traffic had 

recently been declining. 

 

1 Wings’ motion was filed in the dockets for Excursion Inlet and for Kake, but the issues it addresses only concern 

Kake.
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“[W]e expect the estimated mail and freight revenues in Appendix B 

[of Order 2008-7-29] will prove fairly accurate; however, we expect that passenger 

revenue will be less than the estimates provided in Appendix B. It is difficult to 

quantify the reduction; however, we believe passengers will be lost to the ferry, other 

means of transportation or simply not travel due to convenience; compounded further 

by macro-economic factors.” 2 

Wings proposal addressed which aircraft type it would use. 

“Wings proposes to provide Essential Air Service at Kake from the hub of Juneau 

utilizing nine-seat turbine-powered Cessna 208 Caravans. When weather and loads 

allow, Wings will substitute Cessna 206/207 aircraft on the route, thereby reducing 

the subsidy required by approximately 45% per departure.3 However, the annual 

subsidy ceiling is based on the Caravan aircraft and it is the Caravan aircraft that 

Wings intends to use on this route whenever weather or loads require it.”

By Order 2008-8-16, we selected Wings to provide EAS at Excursion Inlet and Kake, Alaska. 

The order noted that not all of Wings’ service at Kake would be with 9-seat Cessna Caravan 

aircraft, and explicitly recognized that Wings could substitute a Cessna 206 or 207 for the 9-seat 

Caravan and be paid on the basis of 5 seats (instead of 9) for each such flight completed. 

Footnote two of Appendix C-2, the appendix providing the technical details for paying the 

carrier, noted the following:

“Wings may substitute Cessna 206/207 aircraft [for the Cessna 208] and receive full 

compensation up to the weekly ceiling. For payout purposes, we will assign five seats 

to each such flight, up to the weekly ceiling.” 

Motion of Air Excursions

On February 2, 2010, Air Excursions, LLC (Air Ex), moved to reopen Wings’ selection at Kake. 

Air Ex moves to reopen the selection of carriers because Wings has failed to provide the 

service proposed in its bid, it has collected federal subsidy for service it did not provide, 

it does not have sufficient Caravan aircraft to provide the service proposed, and its 

degradation of service has failed to meet the needs of the market as evidenced by the 

significant decrease in the number of passengers (but not freight or mail) in the market. 

Air Ex requests that the Department solicit new Essential Air Service proposals in the 

markets which accurately reflect the level of service each carrier will provide, and the 

associated level of subsidy required.”

The carrier argued that Wings was shortchanging the government by substituting the smaller 

aircraft. 

 

2 LAB Flying Service, Inc, the incumbent at the time, had likewise indicated on July 11, 2009, that Kake had 

suffered declines in general economic activity and commercial fishing. 

3 Wings was referring to the Department policy that allows carriers to substitute smaller, less expensive aircraft than 

the one proposed, but to then be compensated at a lower rate per departure to reflect the lower cost of the flight. 
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“Because Wings’ indirect expenses are based on its direct expenses plus a consistent 

markup, it saves 40% or more for every hour it uses its C-207’s in place of the Caravan. 

Reducing 55% of AJA’s actual operations by 40% shows that Wings has collected 

$223,179 more than it should have for expenses by substituting aircraft....Finally, 

Wings’ current fare in the market is about $5.00 more before taxes than it proposed in 

its revenue forecast.”

Air Ex’s petition also stated that Wings’ had padded its projected expenses by overestimating the 

amount of time required to fly the Juneau to Kake route, and was overcharging passengers by $5 

more than what it had proposed.

Answer of Wings (AJA)

Wings replied to Air Ex’s motion on February 17, as follows.

“AE’s [Air Ex] allegation that AJA [Wings] does not have the necessary Caravan’s to 

fulfill its contractual obligations to the Department to provide air service to Kake and 

Excursion Inlet, AK, is false. AJA currently leases 2 Caravans and 3 Cessna 207s and 

will continue to have the needed aircraft to meet its contractual obligations to the DOT.

“AE’s allegation that AJA has over-charged the Department by substituting aircraft is 

false. [Consistent with Order 2008-8-16] AJA bills the Department $307.54 for 

departures in a C-208 and $170.86 for departures in a C-207. This represents a 45% 

savings to the department which is more than the cost difference that AE claims of 40%. 

The reduction in subsidy is by departure, so it automatically accounts for the difference 

in indirect expense. AJA could have run the more expensive aircraft on the route and 

needlessly billed the department for empty seats. However, this seems fiscally 

irresponsible.

AE’s allegation that AJA has not flown all required flights to Kake and Excursion Inlet 

is false. AJA has completed every flight to these communities that were safe to do so. 

AJA has done so in the most efficient aircraft possible. In no case did we turn 

passenger traffic away to fly a smaller aircraft.”

Decision

Order 2008-8-16 allows for service with 5-seat Cessna 207 aircraft with automatic reduction in 

subsidy for each such flight. We have reviewed Wings’ monthly billings, and they show that the 

carrier has indeed billed for the smaller 5-seat aircraft. However, the order specifically allowed

those substitutions and Wings’ saving in expenses from using the smaller aircraft have been fully 

passed through for reduced subsidy. 

Air Ex also asserts that Wings overestimated its block times and has charged passengers higher 

fares than contemplated in its proposal.4

 

4 Unlike the substitution of smaller aircraft, any such overestimates that are built into its proposal are not subject to 

reduction in subsidy. We control for such possibilities by having our rates subject to competitive bid and also to 

review by Department staff for reasonableness. 

 However, because of weather and operational 

constraints, many flights departing for Kake cannot be completed due to weather problems that 

develop during the flight, such that the aircraft often has to turn back after incurring the expense 
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of that flying time. Estimates of those expenses can be included in a carrier’s EAS subsidy 

proposal as a legitimate cost of doing business, regardless of the fact that some flights will be 

completed exactly as scheduled.

Regarding the asserted overcharging of fares, the Department has had only minimal authority 

over fares since the airlines were deregulated some 30 years ago. Rather, those fares are 

estimates for determining subsidy need. In addition, $5 additional charge from what was 

proposed one and one-half years ago does not appear unreasonable.

Regardless of the subsidy-reductions provided for smaller aircraft, Air Ex asserts that Wings has 

violated its contract by egregiously substituting aircraft other than the one it proposed and the 

Department selected. As mentioned earlier, Wings’ proposal fully contemplated service with 

both the large and the small aircraft, stating explicitly, “When weather and loads allow, Wings 

will substitute Cessna 206/207 aircraft on the route...” If Wings were to provide no service 

whatsoever with Cessna 208 aircraft for extended periods of time, that would indeed be 

inconsistent with it proposal. However, Wings continues to provide some service with 

Cessna 208s, and we have received no complaints from the community regarding Wings’ 

service. Furthermore, because Wings’ contract expires on August 31, 2010, we will shortly draft 

and issue an order requesting proposals as a matter of course. At that time, Air Ex, Wings, and 

other carriers will be invited to submit proposals, and we will review them and select one based 

on our usual carrier-selection criteria. Based on the above, we find that there is no basis to 

reopen the existing selection of Wings.

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

ACCORDINGLY,

1. We deny the petition of Air Excursions, LLC, to reopen the selection of Alaska Juneau 

Aeronautics, Inc., d/b/a Wings of Alaska, and terminate the rate set by Order 2008-8-16 prior to 

August 31, 2010; 

2. These dockets will remain open until further order of the Department; and

3. We will serve copies of this order on the state of Alaska, Alaska Juneau Aeronautics, Inc., 

d/b/a Wings of Alaska, and Air Excursions, LLC. 

By:

Susan L. Kurland

Assistant Secretary for

Aviation and International Affairs