DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

June 6 , 2013

Essential Air Service at

EL DORADO, HARRISON, HOT SPRINGS, ARKANSAS
Under 49 U.S.C. 41731 et. Seq. Docket DOT

- OST

- 1997

- 2935

COMMENTS OF SEAPORT AIRLINES, INC IN RESPONSE TO SUPPLEMENTAL

INFORMATION SUBMITTED BY BOUTIQUE AIR

By Order 2013

- 4

- 6 issued on April 12, 2013, the Department requested proposals from air carriers interested in providing Essential Air Service at the Arkansas communities of El Dorado, Harrison, and Hot Springs for a new term to begin on November 1, 2013.
F our companies submitted proposals: SeaPort Airlines, Inc. (hereafter also referred to as “SeaPort”); Multi

- Aero, Inc. dba Air Choice One; Boutique Air, Inc. (hereafter also referred to as “Boutique”); and Osage Airlines, LLC. On May 20, 2013
, the Departme nt provided all of the proposals to elected officials, airport managers, and other interested parties via email
, and
asked that comments be submitted to the Docket no later than June 19, 2013. 1 On May 31, 2013, Boutique Air sent an email to the Department’s EAS division stating : “As we spoke about, here is the clarifying information regarding our per passenger subsidy at Hot Springs. Please let me know if you have any additional questions.” 2 The “clarifying ”
information specified the amount of subsidy per passenger that Boutique was requesting at Hot Springs , along with the forecast ed number of passengers for each opti on in its proposal that
included service to Hot Springs.

1 The Department noted in its email: “Osage states that its proposal is contingent upon the Department's approval of its application for Commuter Air Carrier Authority. To date, the Department has not yet received such application from Osage.” On this basis, we assume that Osage Air’s propos al was not considered valid by the Department.

2 Email from Daniel Helland to AJ Muldoon, with copies to all that the Department had provided carrier proposals. Information was provided on an attachment.Comments of SeaPort Airlines, Inc.

Docket DOT

- OST

- 1997

- 2935 Page 2

In these comments, SeaPort Airlines will show that the information submitted to the Depa rtment by Boutique A ir include s an incorrect calculation of the amount of the subsidy per
passenger the carrier is requesting at Hot Springs

. SeaPort Airlines respectfully requests that the Department give full consideration to the comments and supporting data provided herein , as well community comments, as it completes
the carrier selection process for EAS a t El Dorado, Harrison, and Hot Springs, Arkansas.
I n support of its position, SeaPort states the following:

Subsi dies p er Passenger Requested by Boutiqu e Air Are Based On Incorrect Calculation s

As noted, Boutique Air email ed to the Department “ clarifying ” information with regard to the number of passengers it projected to carry at Hot Springs and, as result, the amount of subsidy per Hot Springs passenger it was requesting

. That information included annual ized projections of “itinerary” and “segment” passengers for each the three options in its EAS proposal that included service to Hot Springs

. After studying the numbers, we concluded that the pro jection of “itinerary” passengers is equivalent to what is more commonly referred to as “O&D passengers. ” These passengers are

c ounted as traffic between a specific origin and destination (i.e ., Hot Springs to Memphis) or over a specific “itinerary” (i.e., Dallas to El Dorado to Hot Springs to Memphis).
We also concluded that p rojected “segment” passengers refers to the total of numbe r of
passengers onboard between point A and point B, without regard to each passenger’s true origin or destination

. This inc ludes th ose purchasing a ticket between A and B, those flying
between A and B but originating or terminating at an upline or downline city, and those flying to or from entirely different city but purchasing a ticket that requires connection(s) at A and/ or B.
On page 4 , SeaPort has replicated the “itinerary” and “segment” data that Boutique Air submitted to the Department as “ clarifying” the number of passengers it projects to carry and amount of subsidy per passenger is requesting at Hot Springs

. As subm itted to the Department, Boutique Air calculates subsidy at Hot Springs of between $126 and $132 per passenger, which is less than half the amount paid by the Department during 2012 and well b elow the statutory limit of $200 per passenger

. If Boutique
Air is selected to provide EAS at Hot Springs , however, this will not be the case

. Simply, the carrier’s calculation was performed incorrectly.Comments of SeaPort Airlines, Inc.

Docket DOT

- OST

- 1997

- 2935 Page 3

W hen calculated correctly and using the carrier’s own projection s of passenger s a nd

own requested level of subsidy, the per pas senger subsidy levels at Hot Springs would actually
increase in two of the three options that Boutique Air included in its proposal

. More specifically, we assert that Boutique’s subsidy per passenger was calculated using projections of passengers that originate or terminate at Hot Springs plus passengers not traveling to/ from Hot Springs but transit ing HOT while e nroute to/ from another airport. 3 To explain, we have deconstructed the calculations of Boutique Air:
The amount of per passenger subsidy at Hot Springs that Boutique Air represented to the Department in its submission:

Option#1 = $132 Option #2 = $126 Boutique Air subsidy per passenger requirement @ HOT Option #4 = $132

In its submission
, Boutique Air stated that 50% of the subsidy request for each of the three options that include service to Hot Springs was allocated to that market for purposes of calculating subsidy per passenger:

Option #1 = $2,041,238 Option #2 = $1,518,892 Boutique Air annual sub sidy requirement @ HOT Option #4 = $1,788,758

Dividing the annual subsidy requirement by the stated subsidy per passenger , we are able to determine the number of passengers that Boutique Air claims it will carry at Hot Springs:

Option #1 = $2,0412,238 / $13 2 = 15,560/pass. Option #2 = $1,518,892 / $126 = 12,060/pass. Option #3 = $1,788,758 / $132 = 13,360/pass.

As explained above and illustrated on the page 5
, t he calculated number of passengers equals the total number of “ itinerary ” passengers that was provided to the Department by Boutique Air

.

3 “Direct” flight (i.e, one

- stop on a multi

- leg ro uting using the same flight number)Comments of SeaPort Airlines, Inc.

Docket DOT

- OST

- 1997

- 2935 Page 4Comments of SeaPort Airlines, Inc.

Docket DOT

- OST

- 1997

- 2935 Page 5

Eligibility for subsidized service is airport specific and, therefore, only that traffic which originates or terminates at the EAS

- eligible point may be used to calculate subsidy per passenger and, as a result, the community’s continued eligibility in the EAS program. Traffic not originating or terminating (i.e., passes through) at the EAS

- eligible point may not be used when calculating the amount of per passenger subsidy because it has no bearing on the true demand
for EAS

- subsidized service at a community

. To calculate the true amount of subsidy per passenger that Boutique Air will require at Hot Springs, the number of p assengers with an origin or destination other than HOT must be
substracted from the carrier’s projection of “ itinerary ” traffic

.

This results in the number of passengers beginning or endi ng their travels at Hot Springs , and therefore eligible to be counted in subsidy per passenger calculation, being 49% to 71% lower than represented by Boutique Air to the Department in the “clarifying” information:

Option #1 = $2,0412,238 / 5,000 = $408 per pass. Option #2 = $1,518,892 / 4,500 = $338 per pass. Option #3 = $1,788,758 / 6,800 = $263 per pass

.Comments of SeaPort Airlines, Inc.

Docket DOT

- OST

- 1997

- 2935 Page 6

Whether the difference between our calculation s and those submitted by Boutique Air

are due to a mistake, a lack of understanding of the EAS program, or a deliberate attempt to
obfuscate the true amount of subsidy per passenger the carrier is requesting

. SeaPort respectively request s that the Department consider the per passenger subsidy w e provided herein as being the accurate representation of per passeng er subsidy that Boutique is requesting at Hot Springs and this these figures be used when evaluating proposals during the EAS carrier selection process.
Summation

In the se comments, SeaPort Airlines has determined an error exists in the calculation of EAS subsidy per passenger requested by Boutique Air at Hot Springs. Rather than a subsidy between $126 and $132 that Boutique claims, the corrected amount ranges from $216 to $408

per passenger dependent on the option.
This includes two of the three options in Boutique’s proposal being higher than the $272
of subsidy per passenger at Hot Springs that SeaPort projects in its proposal . While we

a ckn owledge the level of subsidy at HOT remains above the $200 statutory limit, it i s below the $310 per passenger that the Department paid during 2012. Through continued partnership with the community and the specific plans outlined in our proposal, SeaPort believes we can
continue to gradually reduce the amount of subsidy at Hot Springs and secure that community’s future eligibility in the EAS program. For the foregoing reasons, SeaPort respectfully urges the Department to carefully
consider the informat ion provided herein as it selects a carrier to provide Essential Air Service at El Dorado, Harrison, and Hot Springs, Arkansas

.

Respectfully submitted,

Timothy F Sieber Executive Vice President SEAPORT AIRLINES, INC. 7505 NE Airport Way Portland International Airport Portland, Oregon 97218 (971) 340

- 1716 Email: tim@seaportair.com

June 6 , 2013