BEFORETHE DEPARTMENTOFTRANSPORTATION WASHINGTON, DC
EssentialAirService at CRESCENTCITY, CALIFORNIA ) ) Docket DOT-OST-1997-2649 ) 

# ____________________________________ )

PROPOSALOF PENINSULAAIRWAYS, INC. TO PROVIDE ESSENTIALAIR SERVICEAT CRESCENTCITY, CALIFORNIA Correspondencewith regard to this documentshould be addressedto:

Danny Seybert, CEO Scott Bloomquist, President PENINSULAAIRWAYS, INC. 6100 BoeingAvenue Anchorage, AK 99502

February 17, 2015

\\DC- 00472Ji000002 3339473 v4 Robert E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555Thirteenth Street, NW Washington, DC 20004 202 6374999/5659 robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com Counselfor PeninsulaAirways, Inc.BEFORETHE DEPARTMENTOFTRANSPORTATION WASHINGTON, DC EssentialAirService at ) CRESCENTCITY, CALIFORNIA ) Docket DOT-OST-1997-2649 ) __________________ ) February 17, 2015
PROPOSALOF PENINSULAAIRWAYS, INC. TO PROVIDE ESSENTIALAIR SERVICEAT CRESCENTCITY, CALIFORNIA Pursuantto DOT Order2014-11-18 ("Order"), 1 Peninsula Airways, Inc. ("PenAir") hereby submits its proposal to provide subsidized, year-round essential air service ("EAS") between Crescent City, California, and Portland, Oregon, for a period of two years, commencing on September 15, 2015.2 PenAir's EAS proposal readily satisfies the requisite criteria set forth in the relevant Statute and the Order. It would offer superior benefits for passengers and businesses in the local community and its catchment area at a reasonable subsidy level.

I. BACKGROUND. PenAir is an established airline with over 55 years of experience in providing reliable scheduled service, including EAS, to smaller communities. For many years, PenAir provided reliable and safe EAS for several communities in Alaska.3 And, since 2012, it has operated EAS to Plattsburgh (NY), Presque Isle (ME), and Bar Harbor(ME)
By e-mail notification, dated January 13, 2015, the Department extended the deadline forthe submission of

**~roposals** to February 17, 2015. PenAir informed the community that, due to aircraft availability considerations, it could not commence EAS between Crescent City and Portland until September 15, 2015. As explained later in this proposal, the community encouraged PenAirto submita bid and seemed receptive to PenAir'sservice proposal. 3

**See,~.** DOT Order2009-5-4 (Akutan); DOT Orders2004-6-20 and 2006-5-21 (Atka and Nikolski).

,DC- 00472l/000002 33394n v4EAS Proposal ofPeninsulaAirways, Inc. (CrescentCity, California) Page 2
from its newestoperational base in Boston, Massachusetts.4 PenAir is based in Alaska, but plans to set up a new base of operations at Portland, Oregon, to support its proposed EAS for Crescent City, California, just as it has done in Boston to support its EAS network in the Northeast United States.

II. PENAIR'S PROPOSAL OFFERS SIGNIFICANT CAPACITY AND WELLTIMED SCHEDULES TO/FROM PORTLAND, A MAJOR HUB FOR ITS CODESHARE PARTNERALASKA AIRLINES. PenAir proposes 14 weekly nonstop roundtrips between Crescent City and Portland on aschedule of2 roundtrips perday. PenAirwould operatethis serviceyearround using pressurized, multi-engine Saab 340 aircraft with 30 passenger seats (in a comfortable 2-by-1 seating configuration), atwo-pilot cockpit crew, aflight attendant, inflight beverage/snack service, and an on-board lavatory. This service schedule will provide 420 weekly seats each way between Crescent City ("CEC") and Portland ("POX"). As detailed in Exhibit KS-1, PenAir's CEC-PDX service would require an annual subsidyof$3,506,231 forthefirstyearand $2,951,831 forthe second year. Portland is a major destination, in and of itself, for Crescent City travelers and a gateway for connections to other destinations. A CEC Air Service Survey found that Crescent City businesses have more ties with offices in Portland than any other U.S. city (except Los Angeles which has the same number ofoffice ties to Crescent City as

4 See DOTOrder2012-3-2 (initial selection); DOTOrder2014-6-4 (re-selection).

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**0047211000002~** 3339473 v4EAS Proposal ofPeninsulaAirways, Inc. (Crescent City, California) Page 3 Portland).5 Indeed, more survey respondents wanted nonstop service to Portland than anyothercity/hub. During the businessweek, PenAir plans to overnight an aircraftat Crescent City, thereby providing Crescent City passengers with an early morning departureto, and an evening arrival from, Portland. This schedule will enable CEC passengers to make same-day, roundtrips to Portland. Portland is also a major hub for Alaska Airlines, PenAir's codeshare partner. Alaska Airlines has served Portland for over three decades and currently operates, on average, about 101 daily departures there.6 PenAir's schedule is designed to facilitate convenient connections at POX with Alaska Airlines flights to/from numerous other destinations in the United States, including LosAngeles, Dallas, Seattle, San Francisco, and Sacramento. As a result, PenAir's service proposal offers Crescent City travelers not only convenient nonstop service to Portland, but also seamless, single check-in, single ticket, through-baggage, one-stop service to numerous destinations beyond POX on Alaska Airlines. Moreover, PenAir participates in Alaska Airlines' frequent flyer program, so passengers on PenAir's Crescent City flights could earn miles in that popularprogram. Another attraction of PenAir's proposed service to Portland is POX's relatively strong track record for on-time operations. Forexample, in November2014, Portland's

5 Portland surpassed Seattle, San Diego, Las Vegas, Phoenix, Denver, Honolulu, Dallas, St. Louis, Chicago, Washington, D.C., NewYork City, andAtlanta. 6 See http://www.alaskaair.com/contentlabout-us/newsroom/as-cities.aspx.

\\DC 004721/000002-3339473 v4EAS Proposal ofPeninsulaAirways, Inc. (CrescentCity, California) Page 4 on-time arrival and departures rates were 79.3% and 85.6%, respectively.7 That was 8.5 and 10.3 percentage points higher, respectively, than San Francisco International Airport ("SFO"), CEC's current EAS hub. In December 2014, the difference was even morestark: POX's on-time arrival and departure rates were about20 percentage points higherthan SFO's.8 Thus, PenAir's Portland service should be much more reliable than EASto SFO.



### Ill. PENAIR HAS SUBSTANTIAL EXPERIENCE IN SAFELY AND RELIABLY SERVING SMALL COMMUNITIES. ITS SAAB 340 AIRCRAFT AND ITS RELATIONSHIPS WITH OTHER AIRLINES WILL PROVIDE ADDITIONAL BENEFITS FOR PASSENGERS ON THE CEC-PDX ROUTE. In selecting a carrierto provide subsidized essential air service, the Department considersfive factors: (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier at the hub; (4) community views; and (5) whether the carrier has included a plan in its proposal to market its service to the community, see 49 U.S.C. 41733(c)(1), as well as the relative subsidy requirements. See DOT Order 2014-11-18, at 3 n.4. PenAir satisfies each of these factors, and its proposal provides the Department, the communities, and the travelling public with substantial benefits at a reasonable subsidy level.

See DOTAirTravel Consumer Report (issued January2015), at 18 (Table 7). 8 POX's on-time arrival and departure rates were 73.8% and 79.5%, respectively, as compared to SFO'sat 52.0% and 59.5%. See DOTAirTravel Consumer Report (issued February2015), at 18 (Table 7).

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### (1) Service Reliability and Experience. PenAir flew more than 226,200 passengers and more than 95.8 million revenue passenger miles in 2014. It is familyowned and several hundred employees, the majority of whom have many years of service with the airline. PenAir has more than 55 years of operational experience in Alaska's harsh weather environment. It currently operates a fleet of 15 multi-engine passenger and all-cargo Saab aircraft, providing vital air service to 10 Alaska communities from Anchorage, as well as to 3 EAS communities in the Northeast from Boston. As a past subsidized EAS providerfor certain communities in Alaska such as Nikolski, Akutan, and Adak, and as a current subsidized EAS provider for Plattsburgh (NY) and Presque Isle (ME), PenAir is veryfamiliarwith the Department's EAS Program and the vital importance of providing safe, reliable, and convenient EAS to small communities. Indeed, as the Department knows, PenAir was the very first recipient of an EAS subsidywhen the Program began decadesago. Safety is PenAir's highest priority. PenAirwas thefirst Part 135 U.S. aircarrierto become a Part 121 air carrier. The FAA has awarded the Diamond Certificate of Excellence to PenAir for 14 consecutive years. PenAir's management, crews, mechanics, and dispatchers have relatively unparalleled experience with Saab 340 aircraft in safely and reliably operating from both small, remote airports without control towers

**(~,** Dutch Harbor, Alaska; Presque Isle, Maine) and major hubs

**(~,** Ted Stevens Anchorage International Airport; Boston Logan International Airport), over water

**(~,** the Bering Sea; the Atlantic Ocean), and in all types ofweather, including the harsh winterweather often encountered in Alaska and the Northeast United States.

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This experience will be of substantial value to PenAir, Crescent City, the local catchment area, and passengers traveling between CEC, a small airport on the Pacific Ocean, and POX, a majorhub. As noted above, PenAir proposes operating its Saab 340 aircraft on this EAS route, an aircraftwith which PenAir has more than 15 years ofoperational experience. The Saab 340 is well-suitedforthe proposed route between CrescentCityand Portland. It is a dependable, multi-engine aircraft with a two-pilot cockpit crew, seats for 30 passengers, a cargo capacity of 2,500 lbs., and a cruise speed of approximately 265 knots. Each passenger on the Saab 340 has an aisle and/or window seat (i.e., no "middle seats"). In addition, the Saab 340 aircraft has significant passenger amenities for this category of aircraft: lavatory facilities, a pressurized cabin, a flight attendant, and in-flight beverage/snack service. PenAir has substantial experience operating these aircraftsafely and reliably on much longerroutes, and in typically harsherweather environments, than CEC-PDX. Forexample, PenAir regularlyflies between Anchorage and Dutch Harbor (792 miles), betweenAnchorage and St. Paul Island (767 miles), and between Boston and Presque Isle (333 miles). (2) ContractualandMarketingArrangements with a LargerCarrierat the Hub. As described above, Alaska Airlines
- with its hub at POX
- is, and long has been, a codeshare partnerwith PenAir. With this relationship, PenAirwill carrythe AS designator code on its CEC-PDXflights. Passengers will benefitfrom single check-in, single-ticket, through-baggage air travel, making it easier for passengers traveling between Crescent City and the numerous nonstop destinations served by Alaska

\DC 0047211000002 3339473 v4EAS Proposal ofPeninsulaAirways, Inc. (CrescentCity, California) Page 7 Airlines from its Portland hub. Such itineraries would be available on Alaska Airlines' website and certain major on-line travel booking sites. Seats for travel just between Crescent City and Portland could be purchased via PenAir's website, Alaska Airlines' website or booking sites. Passengers on PenAir's CEC-PDXflights would also be able to earn frequent flyer miles in Alaska Airlines' frequent flyer program, which frequent flyer miles can then be redeemed at certain levels forfree travel or upgrades on flights offered not only by Alaska Airlines but also by its partners, Air France, American Airlines, British Airways, Cathay Pacific, Delta Air Lines, KLM, Korean Air Lines, LAN, PenAir, Fiji Airways, Aeromexico, and Emirates. (3) Interlinearrangements with a largercarrieratthe hub. In addition to its codeshare, interline, and frequent flyer relationships with Alaska Airlines, PenAir also has Electronic InterlineTicketAgreementswith DeltaAir Lines (and its regional carriers) and United Air Lines (and its regional carriers). These arrangements also facilitate single-ticket, single check-in, and through-baggagefortravelers. (4) Community Views. Although PenAirwould not presume to speak for the community and it understands that the Department will directly solicit the community's views on the EAS proposals, PenAirhas already received several letters, includingfrom a California State Senator, the Mayor of Crescent City, and the Mayor of nearby Brookings (Oregon), encouraging PenAir to submit a proposal to provide EAS and receptiveto PenAir's proposed aircraft, codeshare, and market/hub. (5) Marketing Proposal for CEC-PDX. If selected for this EAS, PenAir will implement a number of local marketing efforts, in conjunction with the local

\\DC- 004721/000002-3339473 v4EAS Proposal ofPeninsulaAirways, Inc. (Crescent City, California) Page 8 communities, as part ofan initiativeto raise awareness and brand recognition aboutthe CEC-PDXservice. These local marketing effortswould include advertising in local print and radioffV media, social networking avenues, community involvement, and donation engagement. Similar initiatives have proved successfulfor PenAir in promoting its EAS in the Northeast United States. In addition, PenAirwill seekto leverageAlaskaAirlines' large market presence in Portland to promote its nonstop Crescent City-Portland service as well. And, as explained above, theseflights would be availablefor purchase through PenAir's and Alaska Airlines' websites, as well as certain on-line booking sites thatconsumersfrequently use to assist in theirtravel planning.

IV. CONCLUSION. PenAir's proposal to operate CEC-PDX service with 14 weekly frequencies fulfills the statutory prerequisites for EAS and offers superior benefits to passengers, businesses, and agencies in Crescent City and its catchmentarea. Accordingly, PenAir urgesthe Departmentto select it to provide essential airservice fortwo years between Portland, Oregon, and Crescent City, California, at the subsidy levels presented herein, beginning on September 15, 2015.

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**~** 0047211000002- 3339473 v4 Respectfullysubmitted

Robert

### E. Cohn Patrick 

### R. Rizzi HOGAN LOVELLS US LLP Counselto PeninsulaAirways, Inc.CERTIFICATE OF SERVICE I hereby certifythat a copy ofthe foregoing Proposal of Peninsula Airways, Inc., for EAS at Crescent City, California, has been served this February 17, 2015, upon eachofthe following addressees: Kevin Schlemmer, USDOT Kevin.Schlemmer@dot.gov Michael Martin, USDOT Michael.F.Martin@dot.gov Essential Air Service Program EAS@dot.gov Matthew Leitner Airport Director BorderCoastAirport Authority mleitner@co.del-norte.ca.us

**\\f)('~** 00472!/000002 3339473 v4 /PRRScheduled Flights R(f@ 98% Scheduled Departures @ 98%
Block

Hours Per R/T Total Scheduled Block Hours Passengers Enplaned Average 0/W Fare Annual Revenue Cost Build-up from Unit Cost Rates

Cost Item Ownership 2 Aircraft Maintenance Pilots FAs Traffic Related Expenses Departure Related Expenses Overhead Related Expenses Insurance Fuel Cost Driver Monthly Blk Hrs Blk Hrs Blk Hrs Passengers Departure Departure Monthly Blk Hrs

Total Scheduled Completed Flight Opeerating Expenses

Other Costs Aircraft Deposits OneTime

Hanger

Expense Monthly

Start-up

Expenses OneTime

Total

Non-Scheduled Flight Operating Expenses

Total Annual Expense Margin@ 5% TOTAL COSTS Estimated Annual Payment + Margin 714 1428 2.4 1713.6 24000 $111.00 $2,664,000.00 EXHIBIT KS-1 Year 1 Year 2

Unit Cost Annual Expense Annual Expense

$32,000.00 $768,000 $768,000

$653.02 $1,119,016 $1,119,016

$310.00 $531,216 $531,216

$56.18 $96,268 $96,268

$41.05 $985,172 $985,172

$377.52 $539,093 $S39,093

$79.36 $113,330 $113,330

$22,000.00 $264,000 $264,000

$516.06 $884,316 $884,316 $5,300,411 $5,300,411

128000 128000

4000 48000 $48,000

400000 400000 576000 $48,000 $5,876,411 $5,348,411 $293,821 $267,421 $6,170,231 $5,615,831 $3,506,231 $2,951,831