In the matterofthe BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. OFF OF THE SECRETARY -,II

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Intra-Alaska Bush Mail Rates ) ) ) ) ) ) ) ) Docket OST-2003-14694 ./ ORDER 2010-12-28 Comments on inclusion of PenAir Metros in the calculation for Bush 135 Rates

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Comments regarding reclassification ofPenAirSaab 340 and Metroliner data for calculation of Bush Mail Rates

Communications with respectto this document should be addressed to:
Bob Hajdukovich Era AlaskA 4700 Old InternationalAirport Road Anchorage, Alaska 99502 Office (907) 266-8310 Fax (907) 266-8401 Email bob@frontierflying.com January27, 2011

### POSITION
PenAir's submittal and DOT's subsequent acceptance ofa reclassification ofthe Saab 340 and Metro 111/23 aircraft is flawed and should not be used to calculate the Bush 135 rates. 

### BACKGROUND The DOT has historically excluded bush rate expenses in Appendix Eofits orders whereby Bush aircraft are operating over historically Mainline routes. The intentofthis appendix was appropriate at the time, but now must reflect the scenario at hand whereby PenAir Bush 135 aircraft are flying over routes served by Bush 121 aircraft. Relative to this appendix, Bush rates were inclusive ofboth 121 Bush and 135 Bush. The mail rate that is paid bythe postal service for certain PenAir markets is set by the lowest rate class aircraftthat is operated in a given marketsometimes by
a given carrier. For example, PenAiroperates Part 121 Bush aircraft between Anchorage and Sandpoint but also operates Part 135 cargo aircraft in this market. Because PenAirtransports a significantvolume ofmail overabnormally long stage lengths, the impactofwhere the cost data flows will naturally have a greater impact. The fact that PenAir elects to transport Part 121 Bush rate mail in a Part 135 Bush aircraft should notaffectthe rate paid for Bush 135 mail that should be set on expenses incurred in the transport of Bush 135 mail. The Department has always distinguished the classification on aircrafttype operated under 135/121 ratherthan considered the classification based on the established rate in a market. Using Dutch Harboras an example; PenAirflies;

• 1.3% oftheir passengers in Metro III aircraft

• 66% ofits freight and mail in Metro III aircraft

• 77% ofjust its mail in Metro III aircraft100% ofthis mail and freight is likely paid atthe Bush 121 rate, yet nowthe associated costs are proposed as being part ofthe Bush 135 calculation, which not surprisingly increases PenAir's revenue by having the Part 121 rate increase and negligibly decreasestheir revenue because mostof PenAir's mail is either flown at Mainline or Bush 121 rates. This reclassification mayeven appearto be consistentwith DOT precedence but is clearly not in the spirit ofcalculating compensatory rates for Part 135 Bush operations. As ofOctober 1, 2010 Frontier Flying Service, Inc. no longeroperates any aircraft under Part 121. A more natural impactto the Bush 135 rate will occur when those aircraft are exclusively operated in traditional Part 135 Bush markets. One would expectthe Bush rate to decrease as the increase in capacity ofthe larger aircraft comes into play and subsequently, the Part 121 Bush rate will also decrease because Frontierwas the higher cost operator in the rate case for Bush 121 rates. While Frontier has consistently argued thatthe Part 121 rates have not been compensatory, PenAir has clearly benefited from the blending of Frontier costs and PenAir costs. In an attemptto address the disparityof Frontier and PenAir stage lengths, the Department created a "Taper". We would reluctantly support a reintroduction ofa taperforthe Bush 135 rate ifthe department elects to accept the PenAir reclassification. CONCLUSION The Department should do a closer analysis ofthe data. PenAir Saab 340AlB and Metrolinercostdata should not be allowed affectthe Bush 135 mailrates unless the costs are directly related to markets that have a Bush 135 established rate. The expiration ofspecific exemptions for the B1900C and Metroliners obviously impacted both Frontier's and PenAir's decision to move those aircraft into Part 135 operations. It is time for the Department to look more closely at this particular impact and where those newlydesignated part 135 aircraft are still flying in marketswhose rates are Part 121, then those costs should be excluded from any Bush 135 mailrate calculation.Respectfully submitted,

Robert Hajdukovich Frontier Flying Service, Inc. Hageland Aviation Services, Inc. dba FrontierAlaskA 5245 Airport Industrial Avenue Fairbanks, Alaska 99709 907-474-1739 x233