Or der: 20 10

- 6

- 6

Served : June 3 , 2010



### UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 3 rd of June , 2010

Essential Air S ervice at

KIRKSVILLE, MISSOURI

under 49 U.S.C. 41731 et seq. Docket DOT

- OST

- 1997

- 2515

ORDER SELECTING CARRIER

Summary By this order

, the Department is s electing Hyannis Air Service, Inc. dba Cape Air ( Cape Air ) to provide essential air service (EAS) at Kirksville, Missouri , at a n an nual subsidy rate of $1, 422,110

, for a two

- year period beginning when the carrier inaugurates service through the end

of the 24 th month thereafter

. 1

Background By Order 2008

- 5

- 2, May 5, 2008, the Department selected Mu lti

- Aero, Inc. d/b/a Air Choice (Air Choice One) to provide 1 1 weekly nonstop flights using 6

- or 9

- seat twin

- engine air craft

from Kirksville to Lambert

- St. Louis International Airport, f or a two

- year period beginning when the carrier inaugurated service through the end of the 24 th month thereafter, at an annual subsidy of $ 806,169

. Air Choice One inaugurated service to Kirksville on Ju ly 28 , 2008. Currently, it operates a 7

- seat Piper N avajo for Kirksville’s service.

1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of appropriated funds.- 2

-

In anticipation of the end of Air Choice One’s current contract on July 31, 2010, the Department

issued Order 2010

- 3

- 31, March 25, 2010, to solicit proposals from all interested air carriers to provide service at Kirksville. In that Order, we stated that, b ased on 12

- month traffic levels ending December 31, 2009, 1,877 passengers (enplaned and deplaned) used Air Choice One’s service at Kirksville Regional Airport, resulting in a per

- passenger subsidy of $429. We reiterated that the Department is prohibited from subsidizing service at communities whose subsidy

- per

- passenger exceeds $200 unless the community is more than 210 miles from the nearest medium or large hub airport, which is not the case here. Kirksville is 163 highway miles from Kansas City International Airport, the closest medium hub airport. 2

Proposal s We did not commit, at that stage, to continue Kirksville’s eligibility in the program, but, rather, committed only to explore what options the request for propos als might elicit.

In response to that order, we received proposals from four carriers: Air Choice One, C ape Air,

C harter Air Transport, and Sovereign Air. The proposals are summarized in the chart below.

Carrier/Option Hub (# of round trips per day) Aircraft Annual subsidy amount

Air Choice One Option 1 St. Louis (2), Chicago O'Hare (1) Navajo/Caravan $836,605

Air Choice One Option 2 Chicago O'Hare (2), St. Louis (1) Navajo/Caravan $739,841

Air Choice One Option 3 St. Louis (3) Navajo $847,618

Air Choice One Option 4 St. Louis (3) Caravan $899,254

Air Choice One Option 5 Chicago O'Hare (3) Caravan $582,938

Cape Air St. Louis (3) Cessna 402 $1,422,110

Charter Air Transport Kansas City (2)* Jetstream 32 $1,383,015

Sovereign Air Kansas City (2) Cessna 401 $371,636

* Charter Air Transport proposes one round trip per week to Branson, Missouri

, that would not be subsidized

The complete proposal s of all four carriers may be accessed online at http://www.regulations.gov/ entering “DOT

- OST

- 1997

- 2515” in the “Enter Keyword or ID”

field.

Community and State Comments

On April 28 , 2010 , we requested co mmunity co mment s regarding the carrier selection at
Kirksville

.

An April 23 letter from American Airlines says the carrier “enthusiastically supports” Cape Air’s proposal to service Kirksville. It states “[i]f Cape Air is selected to serve Kirksville, American Airlines expects to expand our existing codeshare agreement with Cape Air into the Kirksville market, providing to the Kirksville community seamless booking and travel on American

Airlines’ worldwide network. ”

2 Congress first established the $200 ceiling under P.L. 101

- 164 for fiscal year 1990, and reestablished it in fiscal years 1994

- 1999. The ceiling was made permanent by P.L. 106

- 69, the Department of Transportation and Related Agencies Appropriations Act of 2000.- 3

-

The Department received letters from Todd Kuhns, Mayor of Kirksville. The letters state that the Kirksville City Council voted to recommend “Cape Air to serve as the essential air carrier at the Kirksville Regional Airport for the 2010 contract

, ” and, as a result, to waive their right to 15

- seat or larger aircraft.

Decision We have decided to select Cape Air to provide Kirksville’s EAS.

Sovereign Air does not have the requisite operating authority from either the Federal Aviation Administration or the Department of Transportation to operate its proposed service. Moreover, there was no community support for the carrier’ s proposal . Although the community is waiving its right to 15

- seat aircraft, it is d oing so only in conjunction with its recommendation of Cape

Air

.

While Air Choice On e offers a choice of proposals with annual subsidy amounts similar to the

current rate , the Department has reservations about its ab ility to significantly increase

Kirksville’s enplanements to lower the per passenger subsidy below $200, to avoid terminating Kirksville’s eligibility in the EAS program. While the community has conveyed its s atisfaction

with Air Choice One’s on

- time performance and completion factors, it has told us that the lack of distribution channels and interline agreement s has prevented enplanements from realizing their full potential. When the Department selected Air C hoice One, under Order 2008

- 5

- 2, we stated

that Air Choice One needed to work with the community to maximize the use of its services to avoid exceeding the $200 per passenger cap. In our request for proposals, Order 2010

- 3

- 31, we

stated that the subsidy per passenger for Kirksville was well over the $200 cap , a nd we requested proposals from carriers that would demonstrate that it would carry enough passengers to produce a subsidy per passenger cap of less than $200. Air Choice One’s proposals off er limited details on its plan to increase usage of its services

. Its responsiveness to community concerns regarding its flight schedules was very slow and it continues to experience difficulties in securing interline ticketing and baggage agreements with major airlines

, and its flights are not yet available online at consumer websites (online ticketing agencies) . All of these factors give us serious concern about its ability to substantially increase enplanements at Kirksville

.

While C harter Air Transpo rt offers 15

- seat or larger aircraft, and its requested annual subsidy is comparable to C ape Air’s , it was not recommended for selection by the community. Its proposal offers some details of its distribution strategies, but it does not yet have a track re cord of success in providing scheduled air service.

Cape Air’s proposal contains all of the key elements that give it a very good chance to increase enplanements and significantly lower the subsidy per passenger below the $200 cap

. 3

3 In selecting a carrier to provide subsidized essential air service, 49 U.S.C. 41733(c) (1) directs us to consider four

factors. (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) i nterline arrangements with a larger carrier at the hub; and (4) community views. Cape Air

is a well

- established carrier, providing a s ignificant amount of subsidized EAS throughout the

country and it has a proven record of dramatically increasing enplanements in several

communities , including Rutland, Vermont, Saranac Lake, New York, Marion and Quin cy,- 4

-

Illinois, and Cape Girardeau, Missouri. These communities ha d suffered from air service deficiencies, such as a carrier hiatus, or market damage due to less than full EAS or lack of interline ticketing/baggage agreements. The communities it serves hav e provided very positive

comments about Cape Air, including its on

- time performance, completion factor, availability of

its flights and connecting flights on major airlines through computerized reservations systems and online travel agencies, its marketing plans, and community involvement. The online distribution systems and ticketing/baggage agreement s that Cape Air offers are key component s in our selection of Cape Air. Moreover, Cape Air currently has a code

- share arrangement with

American Airli nes at St. Louis , and American Airlines h as stated on the record that it will extend

that agreement to include the Kirksville

- St. Louis service. W e also find that the subsidy levels are reasonable for the service levels to be provided.

Based on all of the a bove , we will select Cape Air to provide service from Kirksville to St. Louis, for a two

- year beginning when it inaugurates full service, at an annual subsidy rate of $1,422,110.

Although we are selecting Cape Air to serve Kirksville for a two

- year perio d, we remain concerned that Kirksville is currently well over the $200 cap. We plan to afford the community

and new carrier a three

- month ramp up period, and then examine the next 12 months of data, i.e.,

months 4 through 15 after start up. Even though w e are confident that Cape Air will increase passenger levels substantially, i f we find that the subsidy level still exceeds the statutory $200 per passenger cap, we will take appropriate action. We encourage the community and Cape Air to work together to maximize use of the service awarded under this Order to avoid exceeding the $200 per passenger cap, which could result in the termination of eligibility for subsidy under the EAS program.

We shall make Cape Air’s selection at Kirksville contingent upon th e Department’s receiving properly executed certifications from Cape Air that it is in compliance with the Department’s regulations regarding drug

- free workplaces and nondiscrimination, as well as the regulations governing lobbying activities.

Carrier Transition

We expect Air Choice One and Cape Air to coordinate a smooth transition in service at Kirksville, including setting a date to switch services from Air Choice One to Cape Air. We
expect Air Choice One to contact all passengers holding reservatio ns for travel after that date, to notify them of the suspension of service, and to secure alternate air transportation for such

passengers or to provide a full refund of the ticket price, without penalty, if requested. W e will compensate Air Choice One at its current subsidy rates , set in Order 2008

- 5

- 2, May 5, 2008, for

its service un til Cape Air inaugurates full EAS.

Carrier Fitness

49 U.S.C. 41737(b) requires that we find an air carrier fit, willing, and able to provide reliable service before we may subsidize it to provide essential air service

. Cape Air is sub j ect to the Department’s continuing fitness requirements, and no informa tion has come to our attention that would cause us to question the carrier's fitness at this time. We have contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness- 5

-

finding. We therefore conclud e that the carrier remains fit to conduct the operations proposed

here.

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

ACCORDINGLY,

1. We select Hyannis Air Service, Inc. dba Cape Air to provide essential air service at Kirksville, Missouri ;

2 . We set the final rate of compensation for Hyannis Air Service, Inc. dba Cape Air

, for the provision of essential air service at Kirksville, Missouri , as described in Appendix C ;

3 . We direct Hyannis Air Service, Inc. dba Cape Air to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentat ion shall be retained for seven years or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The carrier may forfeit its compensation for any

cl aim that is not supported under the terms of this order;

4 . We find that Hyannis Air Service, Inc. dba Cape Air continue s to be fit, willing and able to

operate as a certificated carrier and capable of providing reliable essential air service at

Kirksvil le, Missouri ;

5. We will extend the subsidy rate per flight and weekly compensation set for Multi

- Aero d/b/a

Air Choice One in Order 2008

- 5

- 2, May 5, 2008, until Cape Air inaugurates service ;

6 . Th is docket will remain open until further order of the Department; and

7 . We will serve copies of this order on the Mayor of Kirksville , the manager at Kirksville Regional Airport, Charter Air Transport, Hyannis Air Service, Inc. dba Cape Air

, Multi

- Aero

, Inc. d/b/a Air Choice One, and Sovereign Air

.

By:

SUSAN L. KURLAND Assistant Secretary

for Aviation and International Affairs

(SEAL)

An electronic version of this document is available on the Internet at http://www.regulations.govAppendix A



## AREA MAP

This map is provided by Sabre ® AirVision TM Profit Essentials and is being used with express permission of the copyright holder,

Sabre Airline Solutions®.Appendix B

Proposal of Hyannis Air Service, Inc. dba Cape AirAppendix C

Hyannis Air Service, Inc. dba Cape Air

Essential Air Service to be Provided at Kirksville, Missouri

Effective Period : Two years beginning when Cape Air inaugurates service through the end of the

24 th month thereafter.

Scheduled Service : 21 nonstop round trips t o Lamber t

- St. Louis International Airport each week

Aircraft : Cessna 402

, 8 or 9 seat s Rate per Eligible Flight: $ 67 0 1
Weekly Ceilin g : $ 2 8,140 2

Note: The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and stipulations of the rate order, including the service plans outlined in the order and any other significant elements of the required service, without prior approval. The carrier understands that an

aircraft take

- off and landing at its scheduled destination constitutes a completed flight; absent an explanati on supporting subsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full con formance with the order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the order during the applicable period of these rates, it must first notify the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these rou tes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Departmen t will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community.

If the Department unilaterally, either partially or complete ly , terminates or reduces paymen ts for service or changes service requirements at a specific location provided for under this order, then, at the end of the period for which the Department does make payments in the stipulated amounts or at the stipulated service levels, the carrier may c ease to provide service to that specific location without regard to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and

carrier do not constit ute a total or partial reduction or cessation of payment.

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph.

Funds are not currently available for performance under this order beyond September 30 , 20 10

. The Governmen t’s obligation for performance under this order beyond September 30 , 20 10 , is subject to the availability of appropriated funds from which payment for services can be made. No legal liability on the part of the Government for any payment may arise for performance under this order beyond September 30 , 20 10 , until funds are made available to the Department for performance. If funds are not made available for performance beyond September 30 , 20 10 , the Department will provide notice in writing to the carrier.

All claims for payment must be submitted within 6 0 days of the last day of service provided under this order.

1 Annual compensation of $1,422,110 , divided by 2,124 annual departures (6 flights per day x 365 service days x 97 percent completion)

. 2 42 flights per week multiplied by $ 670 per flight.