Order 2013-7-3

Served: July 2, 2013

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 2

nd of July, 2013

Essential Air Service at

KAMUELA, HAWAII

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

 DOCKET DOT-OST-1997-2833

ORDER SELECTING CARRIER

Summary

By this Order, the Department is selecting Mokulele Flight Services, Inc., d/b/a Mokulele 

Airlines (Mokulele), to provide Essential Air Service (EAS) at Kamuela, Hawaii, for the fouryear period beginning when the carrier begins full EAS for annual subsidy rates of $494,291, 

$434,411, $417,310, and $412,389 for the first through the fourth years.

1

Background

On March 14, 2013, Pacific Wings, LLC, filed notice of its intent to terminate its subsidy-free 

service at Kamuela, Hawaii, effective June 12, 2013. Pacific Wings’ proposed termination of 

service at Kamuela would have left the community with no scheduled air service, and by Order 

2013-4-17, April 25, 2013, the Department prohibited the carrier from terminating its service. 

That Order held Pacific Wings in through July 12, 2013, 30 days past the end of its 90-day notice, 

and indicated that we would continue to hold the carrier in until a carrier actually began service 

and relieved Pacific Wings of its hold-in obligation. Most recently, Order 2013-6-7, June 10, 

2013, extended Pacific Wings’ obligation through August 11, 2013.

Order 2013-4-17 also requested proposals for EAS at Kamuela, with a deadline of May 22, 2013, 

for those proposals. In response, we received timely-filed proposals from the incumbent, Pacific 

Wings, Schuman Aviation Company, Ltd, d/b/a Makani Kai Air Charters, and Mokulele. 

 

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.
- 2 -

Below is a summary of each carrier’s proposal, and Appendix C provides a detailed outline of 

the subsidy calculations.

Proposal of Pacific Wings

Pacific Wings proposes to provide ground transportation with 12 round trips per week between 

Kamuela and Kona (KOA) with 9-passenger van service. The carrier requests $297,603 annual 

subsidy for this service.

Proposal of Makani Kai

Makani Kai proposes to provide 12 nonstop round trips per week between Kamuela and 

Honolulu with 9-seat Cessna Caravan aircraft. The carrier requests $998,950 subsidy the first 

year and $948,925 subsidy the second year. 

Proposal of Mokulele

Option 1

Mokulele proposes to provide 12 nonstop round trips per week between Kamuela and Honolulu 

with 9-seat Cessna Caravan aircraft. The carrier requests $584,956 subsidy the first year, 

$517,894 the second year, $507,645 the third year, and $499,557 the fourth year. 

Option 2

Mokulele proposes to provide 12 nonstop round trips per week between Kamuela and Kahului 

(OGG) with 9-seat Cessna Caravan aircraft. The carrier requests $494,291 subsidy the first year, 

$434,411 the second year, $417,310 the third year, and $412,389 the fourth year. 

Comments

We received comments from the Kona-Kohala Chamber of Commerce, from the State of Hawaii, 

and from numerous other local parties. 

The Kona-Kohala Chamber of Commerce, which includes the Kamuela vicinity, is the leading 

business advocacy organization on the west side of the big island of Hawaii where Kamuela is 

located. The Chamber favors the selection of Mokulele, but does not distinguish between the 

carrier’s Option 1 (Honolulu) and Option 2 (Kahului). The chamber indicates that “Eliminating 

the one-hour drive time to Kona International Airport will benefit leisure and business travel and 

departures from a smaller airport will facilitate a faster check in. ....Mokulele has been a 

member of the Kona-Kohala Chamber of Commerce since 2005 and we can attest to its 

community support, being actively involved with the Chamber throughout that time.” 

Mr. Kimo Tabor also recommends the selection of Mokulele, and prefers Option 1, service to 

Honolulu. Mr. Tabor recognizes that Honolulu is a bigger population center than Kahului. Also, 

he notes that flights bound for Honolulu overfly the shorter distance (21 nautical miles) between 

Maui and the big island of Hawaii. Day trips between the two Islands are thus made possible. 

The numerous other civic parties expressed concern about the one- or two-hour drive from 

Kamuela to Kona (Kamuela is 37 highway miles from Kona) and would like to have low-fare 

service. Among the many comments, many did not focus on the choice of hub. Of those that 

did, most favored Honolulu rather than Kahului. 
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Decision

The selection of Mokulele is straightforward. Each of the carrier’s proposals is significantly less 

expensive than that of Makani Kai -- $998,950 for Makani Kai vs. $584,956 for Mokulele’s most 

expensive option. Also, the overwhelming number of parties submitting comments 

recommended that we select Mokulele. The commenters favoring Makani Kai were largely 

customers of that carrier in Kalaupapa, who favored Makani Kai because of their familiarity with 

its good service at that other destination. However, Mokulele is a known quantity in the islands 

as well, and their historical service at other communities received praise from many commenters.

Pacific Wings submitted by far the least expensive option. However, as that carrier’s proposal 

was for ground transportation, we are precluded by the statute from subsidizing anything other 

than air service. Furthermore, there was no community support for Pacific Wing’s proposal. 

The remaining issue is which of Mokulele’s two options to select. The only difference between 

the two options is whether the aircraft would go to Honolulu or Kahului and the required 

subsidy. The subsidy difference would be $90,665 during the first year and $351,650 over the 

four-year term the carrier has requested. 

Both Honolulu and Kahului are hubs with a great deal of intra-Hawaii service, and Kahului, as 

well as Honolulu, has nonstop service to the continental U.S. In CY 2012 Kahului was 40 

percent the size of Honolulu in term of departures – 95 per day vs. 233. In terms of population 

base Honolulu has the clear advantage. As Kimo Tabor mentions, Kamuela is strategically 

located – the closest distance between the island of Maui and the big island of Hawaii is 21 

miles, and Kamuela is the closest airport to that 21 miles, which may provide some potential for 

developing a market for Hawaiian day trippers. However, nonstop service between Kamuela and 

Kahului would be most advantageous for such a “day-tripper” market, because passengers would 

not need to fly the additional distance to Honolulu, make a connection, and then a back haul to 

Kahului and another segment to Hana. (See the map in Appendix A). Clearly Honolulu being 

the bigger hub with a much larger population than Kahului favors the selection of Option 1. 

Nevertheless, flying to Kahului would provide passengers access to the national air 

transportation system more quickly than the more distant Honolulu. Moreover, Mokulele 

already provides nonstop service between Kahului and Honolulu, so it may elect to provide 

single-plane, one-stop service to Honolulu. 

Typically we select carriers for a two-year rate term. In this instance, the carrier has proposed a 

four-year rate term. Many of the community comments recognized the four-year rate term, but 

none opposed our making a four-year selection. We will select that longer rate term, which will 

provide the carrier the opportunity to experiment with service to either or both hubs. With a 

four-year rate, the subsidy advantage of Option 2 to Kahului is magnified. 

In brief, we have decided to select Mokulele’s Option 2, two round trips per week to Kahului 

with a 9-seat Cessna Caravan, for annual subsidy rates of $494,291, $434,411, $417,310, and 

$412,389 for years one through four, respectively. However, we will afford Mokulele the 

flexibility of operating to either Honolulu or Kahului. As noted above, one-stop service to 

Honolulu over Kahului is a real possibility with Option 2, while nonstop service to Honolulu 
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would require a significant backhaul. In addition, with concurrence from the community, 

Mokulele would have the flexibility to experiment with split hub service, i.e., one nonstop round 

trip to Honolulu and one nonstop round trip to Kahului per day. 

Carrier Fitness

49 U.S.C. §§ 41737(b) and 41738 require that the Department find an air carrier fit, willing, and 

able to provide reliable service before the Department may subsidize it to provide EAS. 

Mokulele is subject to the Department’s continuing fitness requirements, and no information has 

come to our attention that would cause us to question the carrier’s fitness at this time. DOT has 

contacted the Federal Aviation Administration, and it has raised no concerns that would 

negatively affect our fitness findings. We therefore conclude that the carrier remains fit to 

conduct the operations proposed here.

This Order is issued under authority delegated in 49 CFR Part 1.25a(b).

ACCORDINGLY,

1. We select Mokulele, Inc., to provide Essential Air Service at Kamuela, Hawaii, as described 

in Appendix C;

2. We direct Mokulele, 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 from the service date of the 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 that is not supported under the terms of this Order;

3. We find that Mokulele, Inc., continues to be fit, willing and able to operate as a commuter 

carrier and capable of providing reliable Essential Air Service at the these communities

4. This docket will remain open until further Order of the Department; and

5. We will serve copies of this Order on the civic officials of Kamuela, Hawaii, Pacific Wings, 

LLC, Schuman Aviation Company, Ltd, d/b/a Makani Kai Air Charters, and on Mokulele Flight 

Services, Inc., d/b/a Mokulele Airlines.

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

Nonstop Great Circle Miles (Statute)

Kamuela (MUE) to Kona (KOA) 30

Kamuela (MUE) to Hilo (ITO) 45

Kamuela (MUE) to Hana (HNM) 59

Kamuela (MUE) to Kahului, (OGG) 172
Appendix B

Essential Air Service Proposals of Mokulele, Makani Kai,

and Pacific Wings, Docket 1997-2833

Pacific

Carrier Mokulele Airlines Makani Kai Wings

Hub Honolulu Kahului Honolulu Honolulu

Aircraft C-208 C-208 C-208 9 Pax. Van

Weekly Round Trips 12 12 12 12

Annual Departures 1/ 1,223 1,223 1,223 1,223

Completion 98% 98% 98% 98%

Block Times 1.1 0.7 1.1

Block Hours 1,345 856 1,345

Miles 146 79 146

Passengers 4,284 3,060 624 4,500

Seats 11,007 11,007 11,007 11,007

Load Factor 38.92% 27.80% 5.67% 40.88%

Avg. Fare $86.51 $63.26 $150.00 $12.00

Passenger Revenue $370,616 $193,563 $93,600 $54,000

Other Revenue $29,988 $12,240 $270

Total Revenue $400,604 $205,803 $93,600 $54,270

Flying Operations $134,640 $85,680

Fuel $259,182 2/ $164,934

Maintenance $249,084 $179,928

Insurance $20,196 $12,852

Ownership $87,516 $55,692

Total Directs $750,618 $499,086 $257,557

Indirects $197,411 $176,054 $77,560

Total Operating $948,029 $675,140 $335,117

Profit $37,531 $24,954 $16,756

Economic Cost $985,560 $700,094 $1,179,568 $351,873

First year Subsidy $584,956 $494,291 $1,085,968 3/ $297,603

1/ 12 trips per week x 2 directions x .98 = 1,223

2/ 55 gph x 1,223 x $3.55/gallon + other = $259,182

3/ Makani Kai requests $998,950 subsidy the first year, but the carrier's calculations, as shown 

above, could not be duplicated.
Appendix C

Mokulele, Inc., Essential Air Service to be Provided to 

Kamuela, Hawaii, Docket 1997-2833

Effective Period: October 1, 2013, through September 30, 2017.

Aircraft: Cessna 208, Caravan, Single Engine Turbo-prop

Scheduled Service: Twelve nonstop round trips per week to either Honolulu (HNL) or Kahului (OGG). 

Annual Annual Subsidy/ Weekly

Subsidy Flights 1 Flight2 Ceiling 3

1

st

 year $494,291 1,223 $404 $9,696

2

nd year $434,411 1,223 $355 $8,520

3

rd year $417,310 1,223 $341 $8,184

4

th year $412,389 1,223 $337 $8,088

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 these rates, 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 contracts 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 may not be available for performance under this order beyond Sep 30, 2013. The Government’s obligation for performance 

under this order beyond September 30, 2013, is subject to the availability of 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, 2013, 

until funds are made available to the Department for performance. If funds are not made available for performance beyond 

September 30, 2013, 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 12 round trips per week x 2 directions x 52 weeks x 98% completion = 1,223.

2 Annual subsidy ÷ annual flights.

3 12 round trips per week x 2 directions x subsidy per flight.