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 23rd 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 that 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 anticipation of the end of that contract, by Order 2011-12-7, 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 Island Air and from 

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Island Air (Superseded) The carrier proposed to continue its current service of three nonstop 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 with 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 aircraft. See Appendix B.

Revised Proposal from Island Air

On January 25, 2012, 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, 2012. We served 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 three day per week 

scheduled service into Karluk, Alaska, (ADQ to KYK) unsubsidized. Scheduling will 

meet the Postal Service requirements of three weekly round trips with a 5 seat Piper 

Cherokee (PA-32), for the passenger, freight and mail carrying needs of the community 

based on the revenue PEQ’s2 of Island Air over the previous two year period. Island 

Air is capable of meeting the historical traffic needs of Karluk and any foreseeable

growth if necessary.

Decision

As we do in all our requests for proposals, we asked for proposals “with or without” subsidy. 

Footnote one of Order 2011-12-7 states: 

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) states 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 

place.” 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 subsidyfree 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 Basic 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 prices 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. We will therefore rely on Island Air’s 

subsidy-free EAS at the end of the existing contract on March 31, 2012.

Karluk remains an eligible EAS community, and Island Air must continue providing at least the 

minimum EAS levels4 at the community 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 rely on the subsidy-free air service proposed by Redemption, Inc., d/b/a Island Air Service, 

at Karluk, Alaska, effective April 1, 2012. 

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., and 

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.gov

 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 delays
Appendix B

Subsidy Calculation of Andrew Airways, Inc.
Appendix C

Nonstop Great 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