Order 2012

- 3

- 13 Served: March 23, 2012



### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION 

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

Issued by the Department of Transportation on the 23 rd of March, 2012

Essential Air Service at

KARLUK, ALASKA

Under 49 U.S.C. 41731 et seq

. DOCKET OST

- 2004

- 19342

ORDER TERMINATING CARRIER

- SELECTION CASE Summary By this Order , the Department is : (1) relying on Redemption
, Inc., d/b/a Island Air Service
, to provide subsidy

- free Essential Air Service (EAS) at Karluk, Alaska, and (2) terminating the carrier

- selection case effective immediately

. Background By Order 2010

- 6

- 13, the Department selected Island Air Service to provide subsidized EAS to Karluk, Alaska, for the two

- year period ending March 31, 2012. Under t hat Order , the Department authorized subsidy for Island Air consisting of three nonstop round trips per week to Kodiak (ADQ). 1 All of the service was to be provided with five

- seat Piper PA

- 32 aircraft, for an annual subsidy rate of $44,349.

In anticipa tion of the end of th at contract, by O rder 20 11

- 12

- 7, December 15, 2011, the Department requested “best and final” proposals for subsidized air service to Karluk, with proposals due January 24, 2012

. In response we received proposals from I sland Air and f rom Andrew Airways, Inc , described below

.

1 There are several airports at the community of Kodiak. Only ADQ, with scheduled service to Anchorage, provides access to the national transportation system.- 2

-

Island Air (Superseded) The carrier propose d to continue its current service of three nonstop round trips per week to Kodiak (ADQ) at an annual subsidy of $44,203 for a two

- year period. All service would be wit h 5

- seat, Piper PA

- 32 aircraft. See Appendix A

. Andrew Airways The carrier proposes to operate three nonstop round trips per week to Kodiak (ADQ), at an annual subsidy of $38,492 for a two

- year period. All service would be with 6

- seat, Piper PA

- 32 aircr aft. See Appendix B

. Revised Proposal from Island Air On January 25 , 20 12 , we summarized these proposals and requested comments from the State of Alaska
, regarding which carrier or option they wished to have us select , with comments due by February 21 , 2 012

. We serv ed copies of that letter on both carriers

. On February 13, 2012 , we received a revised proposal from Island Air

. In its revised proposal, Island Air indicated that
At the end of the current subsidy rate period for Karluk
, Alaska
, (March 31 , 2012), Redemption Inc
., dba Island Air Service
, is willing to continue t hree day per week scheduled service into Karluk
, Alaska
, (ADQ to KYK) unsubsidized. Scheduling will meet the P ostal S ervice requirements of three weekly round trips with a 5 seat Pi per Cherokee (PA

- 32), for the passenger, freight and mail carrying needs of the community based on the revenue PEQ’s 2 of Island Air over the previous two yea r period. Island Air is capable of meeting the historical traffic needs of Karluk and any foreseea ble growth if necessary.

Decision As we do in all our requests for proposals, we asked for proposals “with or without” subsidy. F ootnote one of Order 20 11

- 12

- 7 state s :
In cases where a carrier proposes to provide Essential Air Service without subsidy and we determine that service can be reliably provided without such compensation, we typically do not proceed with the carrier

- selection case. Instead, we simply rely on that carrier’s subsidy

- free service as proposed. 3

In addition, 49 U.S.C. 41733(d) st ates that the “Secretary shall end payment of compensation to an air carrier for providing basic Essential Air Service to an eligible place when the Secretary decides the compensation is no longer necessary to maintain basic Essential Air Service to the pl ace. ” The Department’s policy is that we will not terminate a subsidized EAS carrier’s contract in mid

- term, but we will not renew it upon expiration if reliable and adequate subsidy

free service exists. Island Air has demonstrated its ability to provide basic EAS based upon its

2 PEQs, short for passenger equivalents. For capacity purposes, 200 pounds of mail or freight is treated as one passenger equivalent. 3 B asic EAS , whether subsidy

- free or not, requires, among other things, that flights be “at reasonable times considering the needs of passengers with connecting flights at the airport and at prices that are not excessive compared to the generally prevailing pric es of other carriers for like service between similar places.” 49 U.S.C. §41732(b)(2).- 3

-

performance as a provider of subsidized EAS at Karluk. W e will therefore rely on Island Air’s subsidy

- free EA S at the end of the existing contract on March 31 , 2012

.
Karluk remain s an eligible E AS communit y , and Island Air mus t continue providing at least the minimum EAS levels 4 at the communit y unless it files a 90

- day notice of intent to suspend service or reduce it below the EAS level, at which point we would hold in Island Air , request proposals for replacement service, and conduct a carrier

- selection case.

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

ACCORDINGLY,

1. We re ly on the subsidy

- free air service proposed by Redemption, Inc., d/b/a Island Air Service
, at Karluk, Alaska , effective April 1, 201 2

.
2. We terminate the carrier

- selection case at Karluk, Alaska, effective immediately , based on Redemption Inc.’s proposal to provide basic EAS subsidy

- free ; and

3 . We will serve copies of this Order on the State of Alaska, Andrew Airways, Inc., a nd Redemption, Inc.

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.go v

4 Karluk’s EAS requires a minimum of three scheduled round trips per week year round to Kodiak with small aircraft and up to two intermediate stops.Appendix A Page 1 of 2 Redemption, Inc d/b/a Island Air Service Calculation of Subsidy Requirement 2012 Karluk , Alaska

Total block hours 280 Aircraft Type: PA-32 Total Hours with 10% weather delays 308 Departures 312

REVENUE

Passenger&Cargo 91,073 Mail 20,277 Total Operating Revenue 111,349

DIRECT OPERATING EXPENSES Pilot 71 ph 21,890 Fuel & Oil 105 ph 32,295 Maintenance 76 ph 23,431 Aircraft Lease 40 ph 12,332 Insurance 30 ph 9,249 Total Direct Operating Expenses 99,198

Indirect Operating Expenses Traffic Related 11.5% of Revenues 12,805 departure Related 30.90 per depart 9,641 Capacity Related 23.8% of Revenues 26,501 Total Indirect Operating Expenses 48,947

TOTAL OPERATING EXPENSES 148,145

Operating Loss -36,796 Profit element @ 5 percent of Total Operating Expen 7,407 Compensation Requirement 44,203

Note 1 Bid is scheduled service into Karluk and not on a flag stop basis. scheduled service will be maintained even with any minimum loads of pax or mail as per the contract and OAG listing.

Note 2 Backup aircraft is twin engine BN-2A Islander. With increased performance and capabilities in low weather and poor runway conditions it gets frequent use.Appendix A Page 2 of 2

Redemption, Inc d/b/a Island Air Service Calculation of Subsidy Requirement 2012 Karluk , Alaska

Schedule MIN MIN MIN MIN TRIPS WEEKS Hours Dep./wk Total Dep.

ADQ - KYK - ADQ 49 49 3 52 254.8 6 312

Total Hours 254.8 Total Hours with weather adjustment - see note 2. 280.28

PAX RATE REV CARGO RATE REV MAIL RATE REV KARLUK 471 118 55578 47740 0.7435 35494.7 17480.0 1.16 20276.8

Note 2.: An additional 10 percent for bad weather has been added to the calculated total to account for adverse weather delaysAppendix B
Subsidy Calculation of Andrew Airways, Inc.Appendix C

Nonstop G reat Circle Miles from Kodiak (ADQ) , to the Six Communities on Kodiak Island with Landing Strips

KOZ, Ouzinkie, 13 ORI, Port Lions, 16 OLH, Old Harbor, 47 KLN, Larsen Bay, 57 KYK, Karluk, 74 AKK, Akhiok, 85