### Before the United States Department of Transportation July 11 , 2014

Proposal to Provide Essential Air Service at

MERCED, CALIFORNIA VISALIA, CALIFORNIA

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

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### Proposal of SeaPort Airlines, Inc. to Provide

Essential Air Service at Merced and Visalia, California

By Order 2014

- 5

- 9 , the U.S. Department of Tr ansportation (“the Department”) requested proposals

from ca rriers interested in providing Essential Air Service (EAS) at Merced and Visalia, California no later than June 27 , 2014

. On June 25, 2014, Mokulele Airlines requested and was granted an extension of the proposal submission deadline to Ju ly 11, 2014.

SeaPort Airlines, Inc. respectfully submits the proposal s to provide subsidized essent ia l air service

contained herein and summarized as follows :

 Merced, California : 18 weekly roundtrips to Oakland International Airport (San Francisco Bay

Area ) and 6 weekly roundtri ps to Burbank Bob Hope Airport ( Central Los Angeles) with an annual subsidy requirement of $ 1, 838,623

.

 Visalia, California : 12 weekly roundtrips to Oakland International Airport and 12 weekly roundtrips to Burbank Bob Hope Airport requiring an annual subsidy of $ 1, 990,563

.

Each proposal is s ubmitted on a stand

- alone basis and assumes award of a two year contract . At the discretion of the Department and each community, however, SeaPort would enter into a four
year contract with annual subsidies equal to those requested for a two year contract.

After this proposal is docketed , SeaPort Airlines will schedule a meeting with each community to explain our proposal in detail and answer any questions . In the interim and throughou t the carrier selection process, questions regarding this proposal should be directed to:

Timothy Sieber

Executive Vice President SeaPort Airlines, Inc. 7505 NE Airport Way Portland, OR 97218 (971) 340

- 1716 tsieber@seaportair.comOST

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# Discussion of Proposal

Company Introduction

SeaPort Airlines , Inc. is a FAA certified scheduled airline based in Portland, Oregon with over 30 years of experience in commercial aviation

. In addition to Portland

, the company has operational

bases at Memphis , Tennessee ( MEM ) ; San Diego, California (SAN); and Juneau , Alaska ( JNU )

.

Our 2 40 professionals provide service to 2 3 cities across nine states with a fleet of 1 8 aircraf t

. The company’s route map as of the date of this proposal is provided below:

The primary focus of SeaPort Airlines is to provide affordable and reliable air service to small and

rural communities across America. Service to nine of the communities on our route map is provided under the EAS program : Athens, Georgia ; Pendleton, Oregon; El Dorado, Hot Springs, and

Harrison , Arkansas; Salina and Great Bend, Kansas; Jackson, Tennessee; and Imperial/El Centro,

California. SeaPort Airlines has submitted p roposals to provide EAS at Tupelo and Greenville, Mississippi and Muscle Shoals, Alabama.

Finally, increasing our presence in California is a major focus of SeaPort Airlin es. In addition to the proposals herein to provide EAS at Merced and Visalia, SeaP ort has submitted applications to the Department for authority to operate service between San Diego and San Felipe, Baja California,OST

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July 11 , 2014 Page | 3 Mexico. SeaPort has also identified four intra

- California routes that it believes have strong profit potential and, subject to available aircraft, will be added during 2015.

Once SeaPort Airlines is awarded an EAS contract and service is launch ed

, we develop a partnership wi th each community by participating in local events, donation of tickets, on

- going dialogue with airport management and community leaders, and presentation s to civic clubs and other similar organization s

. We also have a reputation of being responsive to community needs, affording them the opportunity to comment on schedule and fare chan ges before they become

effective. The most recent example occurred at Imperial/El Centro, CA, where a departure time from

Burbank was moved 10 minutes later to better accommodate connections with a Southwest Airlines flight from Sacramento.

Our commitment to EAS communities is demonstrated by the fact that in every “Lower 48” community that SeaPort serves in the EAS program

, we have been re

- selected for subsequent

terms at the end of our first contract period

. This includes reselection during 2012 to four

- year

contract renewals (rather tha n the standard two

- years ) at both Salina, Kansas and Pendleton, Oregon, after both communities voiced their overwhelming support for SeaPort Airlines. Similarly, during 2013, we were selected for a four

- year renewal at the Arkansas communities of El Dorado, Harrison, and Hot Springs.

Aircraft



### SeaPort Airlines ’ proposal at Merced and Visalia c ontemplates operations with Cessna

Caravan s that will allow us to offer safe, comfortable, and affordable air transportation with a reasonable level of frequency

.

Produced in the USA, the “ Caravan ” was originally designed in the 1980’s to replace an aging fleet of piston

- powered aircraft, such as the De Havilland Otter and Piper Chieftain

. Over 2,000 Caravans have been built logging a total of over 12.5 million flight hours. The Caravan is certified for single

- pilot operation , however SeaPort typically operates with both a Captain and

First Officer.OST

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### The large cargo pod on the Caravan allo ws for more baggage than can be accommodate d on older piston twins (i.e., Piper Chieftain and Cessna 402) and allows us to segregate passenger baggage for security purposes. 1

Proposed Service Pattern s & Illustrative Flight Schedules

At Merced, SeaPort Airlines proposes to provide 18 weekly roundtrips to Oakland and 6 weekly roundtrips to Burbank. At Visalia, 12 weekly r oundtrips to Oakland and 12 weekly roundtrips to

Burbank a re proposed

. An Illust rative schedule for Merced and Visalia is provided belo w

.



### Illustrative Schedule s for Merced & Visalia, California

It is important to point out that the schedules shown are for illustrative purposes only and that, if selected to provide EAS at Merced and/or Visalia, SeaPort Airlines will solicit comments from each community on proposed flight schedules prior to publishing them for sale to the public and, as much
as pract ical, any comments will be incorporated into the final schedule.

SeaPort believes that the schedule pattern contained herein would meet the needs of travelers to/from Merced and Visalia for the following reasons:

 Sc hedules at both communities include 1

- stop service (no change of planes) to/from San Diego via Burbank that SeaPort would initiate concurrent with the new EAS service at

Merced and Visalia

, result ing in both communities having nonstop or 1

- stop to three of the four largest markets in California. 2

1 The cargo pod on the Cessna Caravan has a maximum capacity of 111 cubic feet and 1,090 pounds. In comparison, the Piper Chieftain has a maximum capacity of 65 cubic feet and 700 pounds in its nose compartment and two wing lockers.

2 San Francisco/Oakland, Greater Los Angeles, and San Diego, with Sacramento being the unserved fourth largest

metro market.OST

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July 11 , 2014 Page | 5  At both Merced and Visalia, we are proposing four flights each weekday to/from hub airports, with reduced frequencies on Saturdays and Sunday s

. This is doub le the number of flights to/from the hub that the incumbent operates and we believe the greater choice of flight times (along with attractive fares) will result in more residents and visitors using the “hometown” airports at Merced and Visalia.

 We propo se that an aircraft overnight at both Merced and Visalia

, allowing both cities the benefit of an early morning departure.

 Both communities will be provided with a dual

- hub service that provide s extensive connectivity with both legacy and low

- fare airlines. As we have proven in other EAS markets,

dual

- hub service plus greater flight frequencies increases resident and visitor use of the local airport. 3

 Most importantly, our proposal will not resu lt in Merced and Visalia sharing aircraft capacity

. This means that each community will have access to 100% of the capacity of each flight

, increasing chances that seats will be available at a reasonable fare

. This is particularly important at Merced, whic h is at risk of losing its eligibility for subsidized EAS service (see discussion below).

As outlined above, SeaPort’s proposal contemplates service from Merced and Visalia to both Oakland International Airport and Burbank Bob Hope Airport. The benefits of each of these hubs as gateways to the national air transportation system are summarized below.

Oakland International Airport (San Francisco Bay Area)

SeaPort Airlines ’ proposal to provide EAS at Merced includes three roundtrips to Oakland International Airport (OAK) each weekday, two roundtrips on Saturday, and one roundtrip on Sunday. The proposal at Visalia includes two roundtrips to OAK each weekday and one roundtri p on both Saturday and Sunday.

Oakland International Airport is one of three major airports serving the San Francisco bay area. Of

the three airports, OAK has the lowest cost per enplanement

, which translates into lower subsidy requirements which enhances our ability to offer low fares that can increase enplanements. Equally important, Oakland does not incur air traffic delays at any meaningful level

, and certainly not in any

way comparable to those at San Francisco International Airport.

OAK provides co nvenient access to the San Francisco Bay Area, including transportation to both downtown Oakland and San Francisco via the Bay Area Rapid Transit (BART) system. AirBART is a shuttle service that links with the BART rail system at the Coliseum/Oakland Airpo rt station. From there, it is a quick ride to major tourist and business ce nters in the Bay Area including San Francisco’s Embarcadero (21 min), downtown Berkeley (23 min), and Central Oakland (1 0 min)

.

As of June 2014, OAK was served by eight airlines offering an average of 142 daily departures to 49 nonstop destinations. Low

- fare carrier Southwest Airlines has the largest presence at OAK, offering approximately 71% of the total departing seats at the airport each day. While Southwest is not the

low

- f are leader it once was, it still provides market discipline with respect to fares which, when combined with the carrier’s large presence, results in average paid fares at Oakland being lower than at either San Francisco International Airport or San Jose In ternational Airport.

3 This is not operationally or economically viable in all EAS markets. In the case of Merced and Visalia, however, it is

feasible and ther efore should be leveraged.OST

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### Nonstop Destinations Served from Oakland International Airport

– June 2014

The newest carrier at OAK is Norwe g i an Air Shuttle, a carrier that offers low

- fare trans

- Atlantic service to Stockholm and Oslo on the advanced Boeing 787. From these two hubs, connections are offered to major cities throughout Europe. Norwegian Air Shuttle has announced that during Summer

201 5, it will add service from Oakland to Barcelona and London Gatwick.

SeaPort’s interline partner, Alaska Airlines, provides a wide breadth of service f rom Oakland including to its two largest hubs at Seattle and Portland, as well as service to four markets in Hawaii. In total, Alaska Airlines provides an average of 10 departures each day from OAK.

SeaPort has met with Oakland International Airport to discuss facilities t o accommodate the flight

schedu l e s to/from Merced and Visalia , as contained herein, with those discussions resulting in

estimates for the calculation of “Traffic Servicing” costs in the requested subsidy levels. SeaPort would utilize a “common use” ticket counter in Terminal 1 and enplane/deplane passengers through gate 4A, which provides gro und level boarding with an elevator to accommodate handicapped customers. This gate is in the same concourse as all other airlines serving OAK, except Southwest,

which operates from preferential use gates in a separate concourse that is connected by a walkway

inside the security checkpoint (i.e., no need to reclear security when not checking baggage)

.

Bu rbank Bob Hope Airport (Los Angeles Basin )

SeaPort’s proposal to provide EAS at Merced includes a single roundtrip to Burbank each business day, with no northbound service (i.e., Burbank to Merced) on Saturday and no southbound service on Sunday. SeaPort’ s Visalia proposal includes two roundtrips each weekday, one roundtrip on Saturday, and one roundtrip on Sunday.

Burbank Bob Hope Airport (BUR) provides convenient access to the Los Angeles area. It is the closest commercial service airport to many popular LA destinations, including Universal Studios, Warner Brothers Studios, Rose Bowl Stadium, Dodger Stadium, Kodak Theater, Getty Center, SantaOST

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July 11 , 2014 Page | 7 Monica, Griffith Park, Hollywood Bowl, and The Grove. The drive from BUR to downtown Los Angeles typically takes about 30 minutes compared to 4 5 minutes from Los Angeles International Airport.

BUR also offers the convenience o f multi

- model transportation. Both Amtrak and Metrolink trains serve the Bob Hope Airport Train Station daily, provid ing service to Downtown Burbank, Glendale

and Union St ation in Downtown Los Angeles. In addition, the a irport offers free shuttle service to the Downtown Burbank Station, where connections with the Santa Clarita Line can be made , a s well as to the North Hollywood Red Line Station for easy access to Hollywood and Downtown Los Angeles.

As of June 2014, BUR was served by seven airlines (inclu ding SeaPort) that operate an average of

66 departures each day to 12 nonstop des tinations. As with OAK, the lar gest carrier at Burbank is Southwest Airlines, which offers approximately 80 % of the total departing seats each day. This

contributes to Burbank consistently having the lowest average fare among all of the airports in the Los Angeles Basin. 4



### Nonstop Destinations Served from Burbank Bob Hope Airport

– June 2014

SeaPort currently provides service at Burbank and our existing leasehold is sufficient to accommodate the average 3 additional flights that Merced and Visalia would generate, as well as the planned frequencies between SAN and BUR that would be launched on the same day if awarded the EAS contracts in this proposal

. 5

4 Includes Burbank Bob Hope Airport, Los Angeles International Airport, Orange County/John Wayne Airport, and Ontario International Airport.

5 And planned flights SAN

- BUR flights planned to launch concurrent with this EAS contra ct or, if not selected, during
4Q2014.OST

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July 11 , 2014 Page | 8 Fares & Pricing

In every market that SeaPort serves, we offer fares priced on a one

- way basis with the following

structure :

 The highest price point (br anded “ FULL Fl ex ”) provides customer s with total flexibility to change their travel plans or , if travel plans get cancelled

, obtain a full refund without incurring

a service charge

. Customers using this fare also are permitted a second checked bag at no additional charge and, at select airports, access to the “express lane” at the security checkpoint (this option will be sought at Oakland).

 The lowest price point (branded “ NO F lex ”) is offered on a limited number of seats on each flight and best suited to customers certain about their travel plans . This fare requires an advance purchase of between 7 and 14

- days and once purchased, no refunds or changes to the itinerary are permitted. In exchange customer s get a great low fare, with NO Flex fares typically priced between $39 to $59, including taxes and fees.

 In between these two price points are a range of fares ( branded as “ F REE2 F le x ” and

“ F lex 4 FEE ”) offering different levels of flexibility to change tickets d epending on a specific

customer need

. As with NO Flex fares

, these fares are made available on every flight, but on a limited number of seats depending on time of day, day of the week , season, etc. The

farther in advance a reservation is made, the more likely a customer will be to obtain the fare

best for them

.

The table below summarizes the selling fares that SeaPort proposes to offer at Merced and Visalia along with the rules and restrictions applicable to each “fare family

. ”



### SeaPort Airlines Fare Families & Proposed Selling Fares at

Merced & Visalia, California

During the first 30 days of service, SeaPort Airlines would offer an introductory fare of $ 3 9 ( including all taxes and fees) in both Merced and Visalia . This fare would be available on every seat and every flight during the period.OST

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July 11 , 2014 Page | 9 Interline Connectivity & GDS Display

SeaPort Airlines tickets may be purchased by calling our toll

- free reservation number, online at www.SeaPortAirlines.com, at any travel agent connected to a m ajor global distribution system (GDS), or all of the major online travel agencies and meta

- searche rs such as Orbitz, Travelocity, Expedia, Kayak, Hipmunk, and CheapoAir.

On March 23, 2014, SeaPort Airlines became the first US airline to be completely hosted by the

Amadeus Altéa reser vation platform. This system is one of the top three distribution systems in the

world and is the same reservation system for such leading airlines as Air France/KLM, Qantas, Emirates, Korean Airlines, and othe rs. Southwest Airlines has annou nced it will become the second US carrier to be fully hosted by Amadeus, when it migr ates domestic reservations to Altea in 2015 having already deployed the platform for its international service in January 2014.

With t his new system, SeaPort has unsurpassed capability compared to other regional airlines with
respect to interline ticketing, offering optional services, through baggage check

- in, Inte r

- Airline Thru
Check

- In (IATCI), SMS notifications to customers of schedule changes and flight irregularities

, the ability for customers to make online changes to reservatio ns, and (eventually) online check

- in.

Most importantly, however, Altéa enabled SeaPort Airlines to implement its first bilateral interline e

ticketing and baggage agreement. 6 That agreement with Alaska Airlines was activated on March 24,
2014, the day after the reservation migration was completed. The company has initiated disc ussion s with multiple airlines about potential incremental revenue from connecting SeaPort customers to
build a business case for interline agreement s similar to the one with Alaska Airlines . Among those

carriers is Norwe g i an Air Shuttle, the low

- fare international carrier as previously described , that also uses Altea as its reservation platform.

In addition to the r eservation platform, in early 2014 SeaPort Airlines bega n to offer rental cars and

hotels on its website. SeaPort will enhance this offering by early 2015 with a dynamic booking process for business trips and vacations that will allow customers to book flights (including those of interline partners), rental car , and hotel in a single transaction and all from a single screen.

Continued EAS Eligibility for Merced

DOT has filed a notice of determi nation and intent to terminate the eligibility of Merced for EAS

subsidized service based on enplanements for the year ending September 30, 2013 being below an average of 10 per day

. DOT provided similar notices to 12 other communities.

SeaPort’s proposal specifically addresses the EAS eligibility challenge facing Merced as follows:

 A greater choice of departure times

, including an aircraft that or i ginates in Merced each morning.

 El i mination of Merced service potentially being tied as “upline” from Visalia and resulting in both communities having to share seats on each flight. By separating the two markets, this

ensure s that Merced customers will have more access to the seats they want at the price they want

.

6 Bilateral agreements allow both participating carriers to make reservations and issue tickets on each other’s flights. A unil ateral agreement only allows one carrier to sell and issue tickets.OST

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July 11 , 2014 Page | 10  Service to Oakland and Burbank , two airports dominated by Southwest Airlines, with

resultant downward pressure on fares that encourages more traffic , more so than would the

add ition of the local segment to fares offered at Los Angeles International Airport.

 SeaPort’s o perations are conducted under FAR Part 135 which minimizes the impact of the

current pilot shortage affecting other airlines , including the incumbent carrier at Merced and

Visalia , lowering the exposure to cancellations

, and delays due t o crew shortages.

 SeaPort’s m arketing activities would be targeted to address the specific challenge faced by

Merced. This would translate into “front loading ” of marketing expenditures using media placement (print, radio, outdoor, etc.) with each dollar spent leveraged into additional advertising placement through trade agreements. The marketing program will be supported by customer engagement on social media sites and community outreach conducted by

SeaPort’s full

- time, California

- based Manager of Community Affairs. These activities will focus primarily on the Merced community but will also reach into the catchment area of

Modesto City

- County Airport (see discussion below).

 Fares as low as $39 (even the highest fare is less than $100 ) are aimed at stimulatiing use of the Merced’s air service, but yet not so low that resultant sub sidies exceed $200 per passenger (another measure that EAS comm unities m ust not exceed to maintain eligibility for subsidized service).

Finally, we believe that enplanements at Merced will benefit from the recent end of scheduled air service at Modesto, a community 38 highway miles away (or about 44 minutes d r i ve tim e). SeaPort

believes it reasonable to assume a percentage of those travelers that historically used Modesto City

County Airport to fly to the Bay Area w ill, at the very least, explore the service available them at

Merced Regio n a l Airport

. A portion of marketing and communication activities outlined above are specifically intended to target this new source of enplanements.

SeaPort Airlines looks forward to the opportunity to work with the Merced community

, and the Department

, to rebuild enplanement leve ls such that EAS eligibility is no longer at risk.OST

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# Subsidy Request Calculations

The following pag es contain the calculations to support the requested levels of subsidy for SeaPort Airlines to provide EAS at Merced and Visalia, California.

As noted on the cover page, each p roposal is submitted on a stand

- alone basis and assumes award

of a two

- year contract. If desired by one or both communities and approved by the Department, SeaPort Airlines would agree to a four

- year contract at the same level of annual subsidy

Respectfully submitted,

Timothy Sieber

Executive Vice President SeaPort Airlines, Inc.

July 11 , 2014OST

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