Order 2011-12-2

Served: December 8, 2011

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 8th of December, 2011

Essential Air Service at

SIOUX CITY, IOWA

WATERLOO, IOWA

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

 DOCKET DOT-OST-2011-0131

 DOCKET DOT-OST-2011-0132

ORDER SELECTING CARRIER

Summary

By this order, the Department is selecting American Eagle Airlines (Eagle), a wholly-owned 

subsidiary of American Airlines, to provide essential air service (EAS) at Sioux City, Iowa, for 

$1,512,799 annually, and at Waterloo, Iowa, for $1,541,824 annual subsidy. Both subsidy rates 

are for the two-year period beginning when Eagle inaugurates full EAS at both communities.1

Background

On July 15, 2011, Mesaba Aviation, Inc., and Pinnacle Airlines, subsidiaries of Pinnacle Airlines 

Corporation, d/b/a Delta Connection (Delta) filed 90-day notices of their intent to suspend their 

joint service at both Sioux City and Waterloo, Iowa, effective October 13.2 By Order 2011-9-5 

we prohibited Delta from terminating service and requested proposals for replacement service by 

October 12, later extended to October 14. We received timely-filed proposals from Eagle and 

 

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 total of twenty four (24) communities. This order addresses only these two communities. 

We note that Order 2011-11-30 selected Great Lakes at Fort Dodge and Mason City, Iowa; Iron Mountain, 

Michigan; Brainerd and Thief River Falls, Minnesota, and Watertown, South Dakota. By Order 2011-11-20 we resolicited proposals at Alpena, Michigan, and by Order 2011-11-29 we re-solicited proposals at Muscle Shoals, 

Alabama, and at Greenville, Hattiesburg, and Tupelo, Mississippi. We will address the other communities in 

subsequent orders. 
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from SkyWest Airlines, Inc. (SkyWest), a code-share partner of Delta Air Lines.3 By letters 

dated October 21 we requested comments from the communities by November 21. In response, 

we received comments from the Mayors of Sioux City and Waterloo and from the Waterloo 

airport. We also received a number of comments from concerned citizens of Sioux City.

Both of these communities are historically big traffic generators compared to the typical 

subsidized EAS community and have never required subsidy support until now, triggered by

Delta’s suspension notice and the absence of any proposals for subsidy-free service in response 

our request for proposals. At the time it filed notice, Delta provided Sioux City with three 

nonstop round trips per day with regional jets to Minneapolis, and Waterloo with three nonstop 

round trips per day to Minneapolis -- two with Saab 340 turboprops and one with a regional jet. 

Order 2011-9-5 requested the maximum level of service guaranteed by the EAS program, i.e., 

two round trips per day, 12-14 per week, if 34-seat or larger equipment is proposed. 

Sioux City, Iowa

Eagle

Eagle proposes 13 nonstop round trips per week to Chicago O’Hare (ORD) with 50-seat Embraer 

145 aircraft. It requests $1,512,799 annual subsidy for this service. Eagle’s proposal requested

that “DOT and Sioux City waive the right to hold-in American Eagle upon issuance of a 120-day 

notice to terminate service. Although we do not foresee this to be an issue and plan on serving

Sioux City for many years to come if selected, we cannot be constrained and kept in a market 

indefinitely, without the ability to adapt to a changing marketplace.”4 

SkyWest 

SkyWest proposes 14 nonstop round trips per week to Minneapolis (MSP) with 50-seat CRJ-200 

aircraft. It requests $1,279,682 annual subsidy for this service.

Waterloo, Iowa

Eagle

Eagle proposes 13 nonstop round trips per week to Chicago O’Hare (ORD) with 44-seat Embraer 

140 aircraft. It requests $1,541,824 annual subsidy for this service. Eagle’s proposal at 

Waterloo contains the same 120-day exit provision as in its Sioux City proposal.4

SkyWest 

SkyWest proposes 14 nonstop round trips per week to Minneapolis (MSP) with 50-seat CRJ-200 

aircraft. It requests $1,983,181 annual subsidy for this service.

 

3 SkyWest also provides a great deal of service under the United brand.

4 This provision exposes each community to the risk that it could be without service for some period of time. 

Nevertheless, each community fully supports the selection of American Eagle.
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Community Comments

Sioux City

Sioux City recommends that we select Eagle. It states that Chicago is the top destination5 for 

Sioux City – more so than Minneapolis. It notes that Eagle hopes to eventually attain subsidyfree service, while Delta’s service now requires subsidy-support. The community hopes that 

Eagle could at some point add service to Dallas, the community’s second most popular 

destination.6 Finally, the community states that 

“American will have a marketing presence in Sioux City and also has a plan to attract 

inbound customers to their Sioux City service. Delta has neither, and SkyWest has 

provided no concrete plan to address this deficiency. Although the American Eagle 

Airlines subsidy request is larger than that requested by SkyWest (Delta), we feel that 

their proposal provides the community with the best opportunity to achieve long-term 

viability without Essential Air Service subsidies in the future.”

The airport notes that it has long recognized Chicago as the primary destination for Sioux City

travelers, and has sought to add service to that hub even when it received subsidy-free service to 

Minneapolis. 

A number of concerned citizens submitted comments, mostly favoring SkyWest. Delta employs 

a number of people at a call center in Sioux City, and there was concern about their employment 

if we selected American Eagle. There was also concern that O’Hare is subject to more delays 

and that the terminal is too large and confusing.

Waterloo

The City of Waterloo supports the selection of American Eagle, stating the following:

“There has been much discussion in our community among both business and 

community leaders and organizations to the pros and cons of the two carriers. At this 

time, we prefer that American Eagle be the provider of air service to Waterloo.” 

The Airport favors Eagle because “ORD is a more attractive nonstop destination than MSP, and 

there is potentially much more demand to ORD than MSP.” Also, American has recently shown 

increased interest in providing EAS service whereas Delta filed notice to suspend service at 24 

communities. American has developed a track record at developing EAS markets at Manhattan, 

Kansas, Grand Island, Nebraska, Watertown, New York, and Roswell, New Mexico. 

The Chamber of Commerce, while noting some support for Delta, supported the selection of 

American Eagle. 

 

5 Carrier reports filed with the Department indicate that very few passengers currently connect into Chicago from 

Sioux City. It appears the community’s study focuses on people from the Sioux City catchment area, and includes 

people that drive or otherwise go to Chicago or other communities.

6 Since we could not require such service were Eagle to provide it, we cannot give any weight to that possibility.
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Decision

At Waterloo, the carrier-selection issue is straightforward, Eagle requests $1,541,824 annual 

subsidy, while SkyWest requests $1,983,181 – or $441,357 more. When selecting a carrier, 

49 U.S.C. §41733(c)(1) directs us to consider four factors. (1) service reliability; (2) contractual 

and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a 

larger carrier at the hub; and (4) community views. In addition, The Consolidated 

Appropriations Act, 2008, Public Law 110-161, provides that when selecting a carrier to provide 

EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that 

we have considered since the inception of the program. Both SkyWest and American Eagle have 

superb track records in providing EAS. There are no material weaknesses in either carrier’s 

proposals. Both are proposing nonstop service with comparable aircraft into the hub of their 

code-share partner. Both have glowing support from communities where they provide 

subsidized service. However, at Waterloo, Eagle has the advantage of both community support 

and a lower subsidy-request. On that basis we will select Eagle.

At Sioux City, unlike at Waterloo, the level of subsidy requested by the carriers favors the 

selection of SkyWest, $1,279,682 annual subsidy vs. $1,512,799 -- or $233,117 more for Eagle. 

However, Sioux City provided very strong arguments in support of American Eagle, and in this 

case that support is decisional.7 

The community raises sound bases for selecting Eagle. While SkyWest would be replacing 

Mesaba/Pinnacle at Sioux City, the service SkyWest proposes is similar to Mesaba/Pinnacle’s 

service that it would be replacing, i.e., nonstop service to Minneapolis on a flight with the full 

support of the Delta code. Thus it appears unlikely that SkyWest’s replacement of 

Mesaba/Pinnacle would substantially stimulate Sioux City’s traffic above its historical levels. 

That is not the case for American Eagle. Eagle proposes to take Sioux City passengers to 

Chicago O’Hare. The community has indicated that Chicago is the primary destination of Sioux 

City travelers. With nonstop service to Chicago instead of only connecting service through 

Minneapolis, we anticipate that local passengers to Chicago will increase greatly. In that regard, 

we note that in the three communities where Eagle has replaced other EAS carriers in the recent 

past, traffic has burgeoned.8 In those markets Eagle replaced 19-seat operators going to a 

different hub. At Waterloo and Sioux City, unlike the other three communities, Eagle will not be 

replacing service with 19-seat aircraft, but it will be taking the two communities to a different 

hub, Chicago O’Hare. Not only is Chicago a larger population center than Minneapolis, there 

are significantly more nonstop departures and destinations from Chicago than from 

Minneapolis.9 Both Sioux City and Waterloo are historically large traffic generators and have 

 

7 We note that a number of concerned citizens recommended that we select SkyWest. However, consistent with the 

law, we must give greater weight to the views of elected officials at Sioux City. 49 U.S.C. §41733 (c) (1)(D) directs 

us to give “substantial weight to the views of the elected officials representing the users.” The Mayor of Sioux City 

has clearly endorsed Eagle, as has the airport board, and that is what we will rely on. 

8 In the three full months Eagle has served Grand Island, it has enplaned 5,567 passengers, vs. 2,025 in the 

comparable three-month period before it began service; in the seven full months Eagle has served Joplin, it enplaned 

19,238 passengers, vs. 2,328 in the comparable prior period; and in the most recent twelve full months since Eagle 

began service at Manhattan, it enplaned 50,546 passengers, vs. 8,202 in the comparable prior period.

9 SkyWest notes there are 450 departures by Delta from Minneapolis, Eagle notes that American operates a 

comparable number of departures from Chicago. However, in the second quarter of 2011, there were 106,380 
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never received subsidy-support. Sioux City is hopeful that with the right service, subsidy may be 

temporary, and we do so as well. We find that that likelihood is greater by selecting Eagle to 

serve Chicago O’Hare than to continue the same Delta Connection service to Minneapolis. 

We note that Mesaba/Pinnacle has indicated to the staff that it has an acute shortage of aircraft to 

provide EAS at all of the communities it serves because the leases on its Saab 340 aircraft are 

expiring. By selecting American Eagle at these two communities, Mesaba/Pinnacle can continue 

the transition out of the 24 communities at which it filed 90-day notices to suspend service.

Carrier Transition

We expect Eagle and Delta to work together to make a smooth transition at these communities. In 

that regard, before Delta suspends its service we expect it to notify any passengers holding 

reservations for travel after the suspension date, to assist those passengers in making alternate air 

transportation arrangements, or to provide a refund of the ticket price, without penalty, if 

requested. In this regard, the EAS staff will be working with Delta to establish new hold-in 

subsidy rates as the current contracts become eligible for renegotiation.

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 Department may subsidize it to provide essential air service. 

American Eagle Airlines is subject to the Department’s continuing fitness requirements After 

American Airlines filed Chapter 11, the Department contacted the Federal Aviation 

Administration, and it has raised no concerns that would negatively affect our fitness findings. 

The Department therefore concludes that the carrier remains fit to conduct the operations 

proposed here.

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

ACCORDINGLY,

1. We select American Eagle Airlines to provide essential air service at Sioux City and 

Waterloo, Iowa;

2. We set the final rate of compensation for American Eagle Airlines for the provision of 

essential air service at Sioux City and Waterloo, Iowa, as described in Appendix C;

3. We direct American Eagle Airlines to retain all books, records, and other source and 

summary 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 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 that is not supported under the terms of this order;

 

departures from O’Hare and 10,341,206 seats; at Minneapolis there was half as much service, 50,334 departures and 

5,096,674 seats.
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4. We find that American Eagle Airlines continues to be fit, willing and able to operate as a 

certificated carrier and capable of providing reliable essential air service at the these 

communities;

5. We will continue to require Mesaba/Pinnacle Airlines to provide EAS at these communities 

until it is replaced by American Eagle;

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

7. We will serve copies of this order on the Mayors and Airport Managers of Sioux City and 

Waterloo, Iowa, Mesaba/Pinnacle Airlines, Delta Airlines, Inc., SkyWest Airlines, Inc., and 

American Eagle Airlines. 

By:

Susan 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

Nonstop Great Circle Miles

Sioux City (SUX) to Minneapolis (MSP) 233

Sioux City (SUX) to Chicago (ORD) 436

Waterloo (ALO) to Minneapolis (MSP) 166

Waterloo (ALO) to Chicago (ORD 234
Appendix B

Essential Air Service at Sioux City and Waterloo, Iowa, 

Dockets 2011-0131 and 2011-0132

Sioux City Waterloo

Weekly Frequency 13 13

Aircraft Type EMB-145 EMB-140

Number of Seats 50 44

Scheduled Departures 1/ 1,356 1,356

Completion Factor 98% 98%

Completed Departures 1,329 1,329

Block Hours 2,040 1,428

Passengers 51,324 43,212

Fare $115 $92

Total Revenue $5,902,239 $3,974,248

Flight Operations $2,591,440 $1,734,005

Fuel $2,515,273 $1,623,592

Total Directs $5,106,713 $3,357,597

Passenger Related $552,200 $434,075

Stations $1,140,457 $1,127,917

Other $262,571 $333,813

Total Indirects $1,955,228 $1,895,805

Total Operating $7,061,941 $5,253,402

Profit @ 5% $353,097 $262,670

Economic Cost $7,415,038 $5,516,072

Annual Subsidy $1,512,799 $1,541,824

1/ 13 flights/week x 2 directions x 52 weeks x 313/312 days = 1,356
Appendix C

American Eagle Airlines, Essential Air Service to be Provided to 

Sioux City and Waterloo, Iowa, Dockets 2011-0131 and 2011-0132

Effective Period: Start of Service until the end of the 24th month after Eagle start full EAS at both

communities

Scheduled Service: 13 nonstop round trips per week to Chicago O’Hare

Aircraft Type:

Sioux City, 50-Seat EMB-145

Waterloo: 44-Seat EMB-140

Sioux City Waterloo

Rate per Flight: $1,1381 $1,160

2

Weekly Ceiling: $29,5883 $30,1604

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms 

and stipulations of the rate order, including the service plans outlined in the order and any other significant elements 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 been 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 jeopardize 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 written 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 are 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 location 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 specific location 

without regard 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 payment.

Subsidy 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 the 

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 which 

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 not 

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 Annual compensation of $1,512,799, divided by 1,329 annual one-way flights, calculated as follows:

13 one-way flights per week x 2 directions x 52 weeks x .98 completion =1,329. 

2 Annual Compensation of $1,541,824 divided by 1,329 annual one-way flights,, calculated as follows:

13 one-way flights per week x 2 directions x 52 weeks x .98 completion = 1,329.

3 26 one-way flights per week times $1,138.

4 26 one-way flights per week times $1,160.