## Before the United States Department of Transportation

September 13, 2011

Proposal to Provide Essential Air Service at

Owensboro, Kentucky

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

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# SeaPort Airlines, Inc. Proposal to Provide Essential Air Service at

Owensboro, Kentucky

By Order 2011

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- 6 , the Department requested proposals for Essential Air Service at Owensboro, Kentucky due on September 13, 2011

.

Pursuant to that Order , SeaPort respectfully submits this timely proposal to provide subsidized

essent ia l air service to the community of Owensboro, Kentucky for a two year term beginning on or about November 1, 2011, or other date as may be agreed upon with the Depar tment, community, and current provider of air service at Owensboro

- Davies County Regional Airport.

Correspondence regarding this proposal should be directed to:

Timothy Sieber

Vice President

– Strategy & Corporate Development

SeaPort Airlines, Inc.

7505 NE Airport Way Portland, OR 97218 (971) 340

- 1716 tsieber@seaportair.comDOT OST

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September 13, 2011 Page | 2 

# SeaPort Airlines: Focused On Serving Small Communities

Company Overview

SeaPort Airlines , Inc. is a FAA certified scheduled airline with nearly 29 years of experience in commercial aviation. Our company’s foundation is built on efficient and reliable service to rural

communities. Both SeaPort Airlines

, and our sister brand Wings of Alaska

, currently oper ate

service under the Essential Air Service program as well as on an uns ubsidized basis

. 1

SeaPort’s approximately 200 professionals operate an average of 100 daily departures to 20

cities in nine states with a business that is focused on providing service to smaller communities. This is in sharp contrast to the strategies of the mega

- airline brands, which no longer have the operational or economic capability, or strategic desire, to serve rural America.

SeaPort delivers Essential Air Service to seven commu nities: Excursion Inlet, Alaska; Pendleton, Oregon; Jonesboro, El Dorado, Hot Springs, and Harrison, Arkansas; and Salina,

Kansas. In each of these cases , after award of the EAS contract by US DOT , we have started by the date promised and with fares either at or below those outlined in our proposal. We would

note that this stands in contrast to some other airlines that place bids with unreasonable fares

that are never r ealized by the traveling public, delay the start of service, or do not launch service

that has been awarded by the Department.

A Track Record of Rebuilding Local Air Service

SeaPort Airlines is keenly aware of the air service issues that the Owensboro market has faced in recent years:

 Big Sky Airlines ceased service on January 6, 2008;

 Great Lakes Aviation was selected as the replacement carrier but did not begin service

which resul ted in Owensboro being without service from January 6, 2008 through August 30, 2009 a period of 20 month s; and

 Pacific Wings inaugurated service on August 31, 2009, but traffic fail ed to rebuild anywhere

near historical levels. 2

The Arkansas communities of El Dorado, Jonesboro, Harrison, and Hot Springs experienced a period of sixteen (16) months without a ny air service, and suffered inferior service prior to the hiatus. SeaPort Airlines, as the new provider of essential air service in these communities, has worked diligently to reestablish affordable and reliable air service that has resulted in residents and businesses returning to their local airport.

1 Wings of Alaska is the premier airline serving Southeast Alaska. Providing scheduled passenger service, fast freight and charter service between Juneau and Skagway, Haines, Hoonah, Gustavus, and weekly flights to Excursion Inlet. Wings of Alaska grew in reputation and si ze, becoming one of the most successful regional air carriers in Alaska, now comprised of a fleet of seven Cessna 207’s and Grand Caravans. Wings of Alaska presently
operates an average of 38 daily scheduled flights to six Southeast cities in Alaska

.

2 US DOT Order 2011

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September 13, 2011 Page | 3 To illustrate this point, the graph below compares SeaPort’s monthly enplanements since we reestablished scheduled service at the four Arkansas communities during the fall of 2009 to enplanements at Owensbo ro during the approximate same period

. 3

It is clear that SeaPort has experienced success in reestablishing air service in the Arkansas communities and we reasonably believe similar success can be achieved in Owensboro with the right combination of schedule, fares, destination, reliable service, and community partnership.

A Track Record of Building Community Partnerships

With respect to community partnerships, SeaPort Airlines prides itself on those which it has been able to develop in each market serve d . This includes participation in local events, donation of tickets, regular community meetings, and advance notification of and opportunity for input related to schedule changes and fares.

3 Note that Pacific Wings started service in Owensboro on August 31, 2009, with the first complete month of service being September 2009. SeaPort Airlines started service in Arkansas during October 2009, with the first complete

mont h being November 2009. The data illustrated begins with the first complete month of service for each carrier. Data for SeaPort Airlines ends in August 2011, the last complete month prior to the filing deadline of this D ocket. Pacific Wings enplanements we re sourced from T

- 100 market reports, May 2011 being the most recent publicly

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September 13, 2011 Page | 4 We believe this approach serves our own interests equally with tho se of the communities served by fostering long

- term, stable relationships that result in increased ridership and, eventually, reduced subsidy requirements. SeaPort’s partnership approach is beginning to get recognized by those who watch the Essential Air Service program as evidenced by the following weblog entry from Skyland Centre for Essential Air Service: 4

We invite the Owensboro community to contact any of our EAS partner communities for

additional information. Additional evidence of our ability to develop a strong community partnership and provide Owensboro with reliable, customer

- focused air service is demonstrated through community and customer comments that are provided later in this proposal.

4 SkyLand Centre for Essential Air Services offers news, information, expert opinion and industry insights through www.SkyLandNews.com home page, where breaking news is posted as it comes in and a weekly news di gest, currently circulated to 5 ,0 00 essential air service professionals around the world

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# The SeaPort Airlines Experience

Below, we have summarized for the benefit of the Department and the community key elements of SeaPort’s operating model and service strategy that we intend to employ at Owensboro KY if selected to provide essential air service

.

Aircraft

SeaPort Airlines is proposing service at Owensboro with 9

- passenger Cessna Caravan aircraft. Currently manufactured in the USA, the Caravan was originally designed in the 1980’s to replace an aging fleet of fleet of piston

- powered aircraft, such as the De Havilland Otter and

Cess na 402.



# SeaPort Airlines Cessna Caravan

The Caravan has a spacious cabin that is highlighted by a large aisle a nd huge windows for all

around excellent visibility. The large cargo pod on the belly of the aircraft facilitates carriage of baggage volumes and weights much greater than that which can be accommodated on older piston

- powered twins.

We be lieve the Cessna Caravan offers the “right size” increment of capacity to rebuild passenger traffic at OWB, enabling us to offer optimal frequency levels and reasonable fare s toDOT OST

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September 13, 2011 Page | 6 the community , while at the same time minimizing the required level of subsidy by the Department.

Airport Terminals

SeaPort Airl ines is offering three proposal options for consideration by the community and Department that include service to St. Louis, Nashville, and Memphis. For service at each

ai r port , SeaPort proposes the following terminal arrangements:

 St. Louis (STL) : SeaPort Airlines will operate from the main terminal complex with all

passengers being screened by the Transportation Security Administration (TSA)

.

 Nashville (BNA): SeaPort Airlines would ope rate from the main terminal with TSA

- screened operations. We have obtained the airport’s schedule of rates and charges and, unlike the current EAS provider at Owensboro, have no indication that we would be “unable to procure counter or gate space at [Nash ville International Airport] on reasonable terms.” 5

 Memphis (MEM): SeaPort would utilize its existing business terminal at Memphis International Airport, which offers convenience for quick trips to and from the Memphis metropolitan area. We provide a complimentary and quick shuttle service to and from the

main airline ter minal for passengers connecting to, or from, distant destinations. Passengers departing Owensboro would go through TSA screening. Passengers departing Memphis would not go through TSA screening and would be deplaned into a non

- sterile area at

Owensboro.

Distribution Strategy

SeaPort has invested heavily in improving our inventory distribution abilities. We are now in all five major global distribution systems and are available on all major online travel agencies and

meta

- searchers including Orbitz, Travelocity, Expedia, Kayak.com, Hipmunk.com, and CheapoAir.com.

SeaPort currently has an interline ticketing agreement with US Airways and is working toward securing agreements wi th other carriers that will facilitate single ticket itineraries from

Owensboro to destinations all around the world.

Pricing Model

Generally, SeaPort Airlines employs a simplified pricing strategy of all fares being one

- way with varying levels of advance purchase and capacity controls. 6 The objective of this strategy is to offer a community attractive fares that encourage use of the local airport, while at the same time minimizing required levels of subsidy provided by the Department . Equally as i mportant, we oppose the notion of “baiting” a community with ridiculously low fares and inflated traffic projections that are neither attainable nor sustainable and , in reality, shift the true and fair cost of air transportation from consumers to the Depar tment and EAS program.

5 US DOT Order 2011

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- 6, p. 2

6 From time to time SeaPort offers pro motional fare sales that offer additional savings to passengers. We anticipate, for example, offering introductory fares in the Owensboro market to generate market awareness of SeaPort Airlines as the new provider of regular air service at OWB and, depending on the service option selection by the community and Department, the new service option.DOT OST

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September 13, 2011 Page | 7 Consistent with our pricing model , SeaPort charges reasonable fees for ticket changes ($35 v $100+ on most major airlines), pet travel, and unaccompanied minors. The se fee levels reflect SeaPort’s philosophy of building customer loy alty through quality service at reasonable prices rather than opportunistically “nickel and diming” passengers at every possible turn.

Marketing & Public Relations Strategy

SeaPort will implement a comprehensive marketing and public relations strategy aimed at introducing the brand and service model to the community a nd promoting increased ridership

levels . Among the marketing activities that SeaPort has implemented in other markets and which will be applied at Owensboro are the following :

 Local Event Marketing. Recognizing that visible participation in local events has been successful for both legacy and low

- cost airlines, SeaPort has implemented a similar strategy in all of its communities. These have ranged from SeaPort Airlines community egg hunts

, to presenting at business expos

, to hosting “after hours” events at local Chamber of Commerce meetings. In addition, SeaPort often makes “in kind” donations of tickets for use by local charities, either for the ir own business needs or as a fundraising too l (i.e., raffles, silent auctions, etc.).

 Website : The majority of SeaPort’s pas sengers book through the Company’s websit e ( www.SeaPortAir.com ) which is currently undergoing a redesign to improve user navigation

a nd facilitate an easier booking process.

 Social Media: Since 2010 , SeaPort Airlines has managed a successful social media campaign that has allowed the Company to dynamically engage its customer base in a two

way conversation through sites such as Facebook, Twitter, FourSquare & LinkedIn

. We

have found social media to be an excellent tool for generating passenger re ferrals and information sharing in our communities, and expect similar results in Owensboro.

 FlyerFlex Customer Rewards: During 2011, SeaPort launched a new and improved customer loyalty program called “ FlyerFlex .” This program provides customers with a variety of benefits including free flights , service charge waivers, b onus points , gift memberships, and personalized baggage tags. SeaPort anticipates unveiling further enhancements of the FlyerFlex program during 2012 that will include a wider choice of travel rewards.

 Value Accounts: SeaPort will offer its Corporate Value Account at Owensboro , a program that encourages businesses to make a long

- term investment in local air service by offering a variety of benefits and savings, including 5%

- to

- 15% s avings

. It is important to note that unlike corporate travel programs of major airlines tha t are not designed to serve small businesses in rural communities, SeaPort’s Corporate Value Accounts can provide savings to a company of virtually any size and can be used by any employee of a company, not just specific employees named on a sales contract

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# Sample SeaPort Airlines AdvertisingDOT OST

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September 13, 2011 Page | 9 

# Community & Customer Feedback

While SeaPort Airlines has outlined above why we believe our airline is well positioned to

ensure that reliable and reasonably priced air transportation continues to play a vital role in the local economy and quality of life in both of these communities , the strongest proof resides in the

accolades we receive. Below is just a small sample of the comments S eaPort has received from our customers and community partners:

“Eastern Oregon Regional Airport at Pendleton had been struggling since schedule changes following 9/11 served by a carrier flying 37 seat aircraft. Low passenger count attributed to poor sc hedule, which then contribu ted to poorer
passenger count. The carrier's solution was to bring in larger aircra ft and fly to a

different hub. The Airport and community balked at this suggestion and went in

search of alternatives. The solution found through the EAS process was SeaPort

Ai r flying a 9 passenger Pilatus

. The passengers have welcomed the new service, much better schedule, and are elated with "no secu rity check" and stand by time. Passengers today will say, "I love the service", "great customer service", and "I'm sure glad I finally tried it, cause I'll be back".

In our particular market, the 9 passenger aircraft is perfect, and SeaPort Air provides the schedule, the professionalism, and customer service we need and

de sire.”

− Larry Dalrymple Airport Manager Pendleton Regional Airport

“I have never had such a positive experience connected with any airline. I read about Seaport Air last October when they opened the Mid

- South Route, but didn’t

have the chance to fly until March. Usually the dread of the process comes then you just grin and bear it; however, with SeaPort Air I could arrive 15 minutes early. The hassle free no TSA is wonderful and made me feel special. I have

flown twice in the last 2 months and the customer service from start to finish is outstanding. I will be a regular customer and have already recommended the airline to several associates. Thank you, SeaPort Air, for making me feel like a queen!”

− Catherine Martin

Customer (few from Memphis to Harrison)

“ For two decades I have been picking my mother up at the airport and for two decades I have been met with the defeated, hang

- dog look that the ordeal of air travel has given her. I guess it pretty much does it to all of us, but (as she is well into her 80's) I worry about the toll it takes on her more and more lately.DOT OST

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September 13, 2011 Page | 10 When I picked her up today from her SeaPort flight K52325 from Dallas and saw she was smiling, you could have knocked me over with a feather! She couldn't stop raving a bout how pleasant the flight was. Let me be clear. My mother is a tough

- as

- nails Mid

- western Y

ankee from the old school who has been around the world a couple of times since the late 1940's. She doesn't bestow idle praise

and she seldom raves.

Since it wa s a 9

- seater plane that had to stop for a bathroom break, I can only conclude that it was the above average service she received from your staff. She, in fact, said as much. From the ticket counter in Dallas to the ride she got to the main terminal in Memp his she was impressed. She even liked the way she was asked to turn off her mobile phone and the help she was given doing so (she's not a big techie).

I'm in the service industry myself and I know how often complaints come through. I just want to be sure to let you know how well everyone did on this flight. In the future, I will look to SeaPort first for my travel needs and will spread the good word to my friends.

A smile and a kind word go a long way y'all. Thank you for getting this one so right. ”

− Mar k Davis Peterson

Customer (flew from Dallas

to Memphis

)

“I want to let you know that Alan, the owner, and I were stuck in the horrendous

t raffic getting to the airport. Your people c alled to see where we were at. Called a few times to try and get us out of the jam

– which was impossible, we were too

far from the Gateway and we already h ad been on the road 1 1⁄2 hours. Did manage to break free taking 102 (I think) and called close to the Embassy to let them know we were just a minute away and they held the plane for us!! A mazing and kudos to your team!! I have been telling everyone of the stellar customer service and you will be our flight of choice going forward.”

− Joanne Bosworth

Customer (flew from Portland to
Seattle )

“Two hours before the flight I booked my ticke t to Memphis from Hot Springs. Wow! What a surprise; it was simple, convenient, great price, and impeccable

service. It far exceeded my expectations and I will be flying to Memphis on

SeaPort Airlines i

nstead of driving from now on. The cus tomer service was

fabulous!”

− Ruth Ann Smith

Customer (flew from Hot Springs to Memphis)DOT OST

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# Service Proposal

Service Pattern

SeaPort Airlines is offering t hree service options for consideration by the Owensboro community as summarized on the map below.

Note that options #2 and #3 would provide the community with access to two different connecting hubs. We believe that this enhanced option of t wo connecting points will help facilitate faster restoration of p assenger traffic a t OWB . We have found this to be true in our Arkansas communities, where the addition of Dallas and/or Kansas City to existing Memphis service has resulted in significant recent traffic growth (see graph on page 3 ), and believe

similar results can be achiev ed in Owensboro.

In the case of Memphis, access would be afforded to virtually every major airline in the United States and is a major hub for Delta Air Lines. St. Louis and Nashville offer similar access to legacy carriers, with the added benefit of access to low

- fare airlines such as Southwest and

Frontier

. 7

7 While SeaPort Airlines (along with every other U.S. based airline) does not have an interline ticketing and baggage agreement with Southwest Airlines, Inte rnet sav v y consumers figured out long ago how to build “end to end” connecting itineraries with this carrier , as well as others. This has been validated in a number of our other EAS markets that are linked with airports served by Southwest (as well as othe r low

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September 13, 2011 Page | 12 Projected Passenger Traffic

The Department provided historical traffic in Appendix B of Order 2011

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- 6 to “assist carriers in developing traffic and revenue projections for their performance.” That data indicates traffic at

Owensboro has been in a “free fall” since service was initiated by the current air carrier. 8

To develop passenger and revenue projections, SeaPort Airlines reviewed histor ical traffic data

back to 2003. This data is provided below and compared to SeaPort’s own traffic forecast during the first year of service at Owensboro for each option.

While SeaPort’s projected passenger levels are higher than recent historical data

, they should not be viewed as unreasonable when the community’s ability to generate passenger traffic is

considered over a longer period of time.

We raise this point because during communication with the EAS Division related to another

docket Seaport Ai rlines was advised the Department ’s calculation of whether a proposal meets statutory requirements is based on actua l passenger counts and not a specific carrier’s forecast. If we were to submit a bid using the actual numbers for the period that Owensboro has been served by Pacific Wings, the level of subsidy requested would have to be substantially higher and would have exceeded the statutory cap of $200 per passenger.

8 See graph on page 3

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September 13, 2011 Page | 13 Service Proposal Detail & Subsidy Request

Projected revenue and operating expenses that form the economic basis of this proposal are summarize d on the table s on the next page for a two year period. Note that the requested level of subsidy for each option declines during the second year as SeaPort is confident that, similar to our experi ence in Arkansas, we will be able to restore consumer confidence in scheduled air

service at Owensboro

- Davies County Regional Airport.

P rojections are based on the assumption of one

- way fares from Owensboro as low as:

 $99 to Memphis;

 $79 to St. Louis; an d

 $59 to Nashville. 9

Notwithstanding the risk of cost inflation in coming years (particularly related to fuel) that could possibly outstri p traffic growth and reasonable fare increases, SeaPort is offering the Department the option to contract the proposed annual subsidy for a four year period at no increase in annual subsidy beyond that level specified for the second year of each option in this proposal . We believe this offer provides the community with the assurance of s table air service for an extended period and reduces the administrative burden on both the Department and

ourselves.

SeaPort Airlines appreciates the opportunity to submit this proposal and welcomes any questions from the community or the Department.

Res pectfully submitted,

Timothy Sieber

Vice President

– Strategy & Corporate Development SeaPort Airlines, Inc.

9 Inclusive of all taxes and fees.DOT OST

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