Order 2010-10-16

Served: October 22, 2010

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 22nd of October, 2010

INTRA-ALASKA BUSH 

SERVICE MAIL RATES Dockets OST-2003-14694

Order Denying Petition for Review of Staff Action

Summary

By this order, the Department is denying the Postal Service’s petition to stay the 

effectiveness of Order 2010-9-24, September 22, 2010, which made the regular quarterly 

fuel adjustment for Intra Alaska bush mail rates for Part 121, Part 135, and Seaplane 

classes of service. 

Background

Order 2009-11-2 established the current final annual rates for Part 121, Part 135, and 

Seaplane classes of service, but provided for the regular quarterly update of those rates for 

changes in fuel expenses.

1

 Order 2010-9-24 updated those rates to reflect fuel expenses for 

the quarter ended June 30, 2010, the most recent data available, with the new rates to be 

effective on October 2, 2010. That order increased the Part 1212 linehaul element3 of the 

mail rate by 5.93 percent, reflecting a 22.32 percent increase in the fuel expenses for that 

class of service.4

 As typical with quarterly fuel updates, the order was issued on a final 

basis. The order noted that parties had ten days to petition the Department for review of the 

final order but that filing of such a petition would not stay the effectiveness of the order.

On September 29 the Postal Service petitioned the Department for review of the order. 

 1 Order 2004-10-2, October 6, 2004, inaugurated quarterly fuel updates. 2 The Part 121 rate is made up of two carriers, Frontier Flying Service, Inc., and Peninsula Airways, Inc. In 

the most recent quarter, PenAir made up 88.82 percent of Eligible Mail RTMs, so any expense parameter 

affecting PenAir has a very large effect on mail rates for that class.

3 The linehaul element includes direct aircraft expenses such as pilot, fuel, aircraft, and maintenance. 

Quarterly fuel updates do not update the terminal element -- the expense of loading the mail onto the aircraft -

- because volatile fuel prices have little effect on those expenses. 4 There were no objections to the increase and decrease in the Part 135 and Seaplane rates, respectively, even 

though the seaplane rate decreased significantly. 
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“The occasion for this request is the significant variance in PenAir's reported 

freight RTMs as compared to those of the previous quarter, (50,600 vice 163,562). 

That difference drives a 22.32% increase in the fuel adjustment set to be effective 

October 2. When contacted, PenAir claimed unfamiliarity with the discrepancy, 

which further suggests that the figure is incorrect. All of this clearly warrants a 

brief postponement of the Order's effective date until the Department can resolve 

the matter of the data's accuracy with the carrier, since otherwise there is no

mechanism by which an erroneous windfall can be recouped.”

On October 7, 2010, PenAir answered the Postal Service’s petition. PenAir states the 

following:

“The data submitted by PenAir is accurate. The alleged “significant variance” 

claimed by the USPS reflects the seasonal nature of the traffic in certain Alaska 

markets, particularly the Dutch Harbor market. In this case, the higher RTMs 

[revenue ton miles] were the result of the substantially increased amount of freight 

traffic that PenAir transports for the fishing and processing industries in Dutch 

Harbor during January each year. When those industries slow down in the second 

quarter of the year, there is a corresponding (and unsurprising) drop-off in such 

freight, resulting in a substantial reduction in PenAir’s RTMs for that quarter. 

Indeed, PenAir’s data for 2009 show a similar drop off between the first and 

second quarters of that year. Accordingly, the USPS is wrong to question the 

validity of PenAir’s data. 

The USPS also requested that the Department postpone the effectiveness of the 

Order pending resolution of its Petition. This request also has no merit. First, 

PenAir respectfully submits that this Answer should provide the Department with 

sufficient information to reject the Petition expeditiously. Second, the 

Department’s Order also made clear that the “filing of a petition for review shall 

not stay its effectiveness.” 

Decision

The record substantiates PenAir’s claim that its freight RTMs regularly experience very 

large decreases between the first and second quarter of each year, due to the very seasonal 

nature of the Dutch Harbor to Anchorage market. Appendix A, which is drawn from the 

T-100 Segment report, shows that the individual Dutch Harbor to Anchorage market made 

up between 58.28 and 67.33 percent of PenAir’s scheduled freight RTMs during the first 

quarter in each of the last four years. Moreover, that same market is extremely seasonal, 

decreasing between 92.32 and 92.84 percent for the first and second quarter for each of 

those same four years. 

The Postal Service correctly notes that it was the big decrease in PenAir’s Eligible Freight 

RTMs between the first and second quarter of 2010, as shown in Order 2010-9-24, which 

drove the 22.3 percent increase in fuel expenses. As reflected in that order, it appears 

anomalous that unit fuel expenses would increase so significantly between those two time 
- 3 -

periods when fuel prices were relatively stable, increasing only 4.5 percent between the first 

and second quarter, from $2.91 to $3.04 per gallon. 

However, the annual mail rates for all linehaul elements – pilot, maintenance, aircraft, and 

insurance, as well as fuel -- are constructed on a rate per revenue ton mile (RTM). 

Similarly, the quarterly fuel updates are updated on the basis of fuel expense per RTM 

rather than on simple changes in fuel price per gallon. This recognizes the great deal of 

seasonality in Alaska operations from one quarter to the next, and the effect overall load 

factor – passenger, freight and mail RTMs combined divided by available ton miles -- has 

upon average fuel expenses. Updating the annual rate simply on fuel prices would not 

recognize this reality and would therefore be less accurate. 

We will therefore deny the Postal Service’s petition on the merits. 

ACCORDINGLY,

1. We deny the Postal Service’s petition for review of staff action;

2. We affirm the rates set by Order 2010-9-24;

3. This docket shall remain open until further order of the Department; and

4. We will serve this order upon all parties on the Service List for these Dockets.

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

Scheduled Freight Revenue Ton Miles for PenAir, per T-100 Segment Report

Year 2007 2008 2009 2010

Quarter 1 2 1 2 1 2 1 2

Origin Dest Freight RTMs Freight RTMs Freight RTMs Freight RTMs

DUT ANC 233,979 17,691 200,379 15,391 154,682 10,956 148,876 10,657

PenAir Total 1/ 367,768 152,488 343,816 160,953 250,614 115,275 221,108 101,173

Dutch Harbor 2/ 63.62% 58.28% 61.72% 67.33%

% Decrease 3/ -92.44% -92.32% -92.92% -92.84%

1/ Part 121 aircraft only, #455, #456, #467, and #459

2/ Dutch Harbor to Anchorage Freight RTMs, as a percentage of the total.

3/ Decrease in Freight RTMs between the first and second quarter of each year for the 

Dutch Harbor to Anchorage market.

Note: Scheduled traffic above is not the same as eligible traffic reflected in Appendix A 

of Order 2010-9-24, but is very close. Eligible traffic is scheduled traffic less traffic

on segments where there is mainline service.