Essential Air Service at

PRESQUE ISLE/HOULTON, MAINE PLATTSBURGH, NEWYORK



# DOT-

# 03-\

# -~olt - 0\

# ~sBEFORE THE DEPARTMENT OFTRANSPORTATION

WASHINGTON, DC

) ) ) Docket DOT-OST-2000-8012 ) Docket DOT-OST-2003-14783 ) -------------) PROPOSAL OF PENINSULA AIRWAYS, INC. TO PROVIDE ESSENTIAL AIR SERVICE AT PRESQUE ISLE, MAINE, AND PLATTSBURGH, NEWYORK Correspondence with regard tothisdocument should beaddressed to:

Scott Bloomquist, President PENINSULA AIRWAYS, INC. 6100 BoeingAvenue Anchorage, AK 99502 907-243-2485

March 11,2014

\\DC. 0041211000002.5496900 v8 Robert E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555Thirteenth Street, NW Washington, DC20004 2026374999/5659 robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com Counsel for Peninsula Airways, Inc.Essential AirService at

PRESQUE ISLE/HOULTON, MAINE PLATTSBURGH, NEWYORK BEFORE THE DEPARTMENT OFTRANSPORTATION

WASHINGTON, DC

) ) ) Docket DOT-OST-2000-8012 ) Docket DOT-OST-2003-14783 ) ) March 11,2014



# ------------------- PROPOSAL OF PENINSULA AIRWAYS, INC. TO PROVIDE ESSENTIAL AIR SERVICE AT PRESQUE ISLE, MAINE, AND PLATTSBURGH, NEWYORK Pursuant to DOT Order 2014-1-21 ("Order"), Peninsula Airways, Inc. ("PenAir") hereby submits its proposal to continue providing subsidized, year-round essential air service ("EAS") for two years between Presque Isle/Houlton ("PQI"), Maine, and Plattsburgh ("PBG"), New York, on the one hand, and Boston Logan International Airport, onthe other hand,' InJune 2012, PenAir established an East Coast operation based in Boston and,
as partof its East Coast system, began operating subsidized EAS between Boston and Plattsburgh/Presque Isle, as well as non-subsidized EAS between Boston and Bar Harbor during the High Season. PenAir has developed substantial knowledge and experience with the two communities operating these EAS flights during the past two years, Based on this experience, PenAir has crafted service and subsidy proposals to meet the service needs of the two communities and the operational needs of PenAir, with subsidy amounts necessary tofairly compensate PenAirforthe EASservice.

The Department granted PenAir's request foraone-week extension to submit its EAS proposal.

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- 5496900 '18EAS Proposal of Peninsula Airways, Inc. Page2 PenAir isoffering two EASoptionsforthe Department's consideration:
Option 1- This service andsubsidy proposal isbased on aschedule similarto the one PenAircurrently operates atpal and PBG. Option2- This alternative service and subsidy proposal is based on the schedule Presque Isle has requested involving an early morning pal departure and a late evening pal arrival.

PenAir's proposal to provide EAS to Plattsburgh and Presque Isle is indivisible. PenAir will only accept an award for subsidized service covering both Plattsburgh and Presque Isle. In addition, if PenAir's proposal to provide subsidized EAS at both Presque Isle and Plattsburgh for a two-year period is granted, PenAir also intends to provide non-subsidized essential air service between Bar Harbor, Maine, and Boston during the High Season2 for the same two-year period (as described herein), complementing Cape Air's year-round subsidized EAS. Inthe absence of an award at both Presque Isle and Plattsburgh for another two-year period, however, PenAir could notcommittocontinuing service to BarHarbor. PenAir's EAS proposals readilysatisfy the criteria setforth inthe Statute andthe Order, and would continue to offer substantial benefits for passengers and the local communities.

The High Season covers the period approximately aweek before Memorial Day and approximately aweek after Labor Day,

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-5496900 v8EAS Proposal of Peninsula Airways, Inc. Page

### 3 I. PENAIR'S PRESQUE ISLE AND PLATTSBURGH PROPOSALS. Presque Isle. PenAiroffers twoservice options for EASto Presque Isle. Option 1: Under this proposal, PenAir would provide 

### 19 weekly nonstop roundtrips between PQI and Boston with the following pattern of service: 

### 3 roundtrips per weekday; 2 roundtrips on Saturday; and 2 roundtrips on Sunday, on the same or very similar schedules to those currently being operated at PQI. The annual subsidy under Option 

### 1for Presque Isle-Boston servicewould be$

### 4,710,683. Option 2: Under this proposal, PenAir would provide 19 weekly nonstop roundtrips between pal and Boston with the following pattern of service: 3 roundtrips per weekday; 2 roundtrips on Saturday; and 2 roundtrips on Sunday. As requested by Presque Isle,3this schedule would provide an early morning pal departure and a late evening pal arrival each day. The annual subsidy under Option 2 for Presque IsleBoston service would be

### $5,180,456. Plattsburgh. PenAir proposes to operate 12 weekly nonstop roundtrips between PBG and Boston with the following pattern of service: 2 roundtrips perweekday; 1 roundtrip on Saturday; and 1 roundtrip on Sunday, on the same orvery similar schedules to those currently being operated at PBG. The annual subsidy for Plattsburgh-Boston service would be

### $2,714,074.

3 Leller from S. Wardwell, Northern Maine Regional Airport, to K. Schlemmer, USDOT, March 1,2014.

\\DC • 00472I!OOOOO2. 5496900 v8EAS Proposal of Peninsula Airways, Inc. Page4 The combined annual subsidy for EAS to Plattsburgh and Presque Isle under Option 1totals $7.424,757 and underOption 2totals $7.894,530. PenAir would operate these services year-round using a pressurized, multiengine Saab 340 aircraft with 30-33 passenger seats.4 This service would provide about 90 passenger seats each way Monday-Friday for Presque Isle and 60-66 such seats per weekday for Plattsburgh. The Saab 340 has a two-person cockpit crew, a flight attendant providing on-board drink/snack services, and alavatory. Thechart below summarizes PenAir's subsidized EAS proposals for Presque Isle and Plattsburgh.

Hub Frequenclesl Aircraft I' OPTION 1 OPTION 2

Schedule Pax Capacity Subsidy Subsidy Reauest Reauest Presque Isle Boston .19weekly, Year-Round: Saab 340 $4,710,683 $5,180,456 3xper peryear peryear weekday 30-33 pax 2x on Saturday 2xon Sunday Plattsburgh Boston 12 weekly, Year-Round: Saab 340 $2,714,074 $2,714,074 2x per peryear peryear weekday 30-33 pax 1xon Saturday 1xon Sundav TOTAL $7,424,757 $7,894,530

ANNUAL SUBSIDY peryear peryear
TOTAL SUBSIDY FOR $ 14,849,514 $ 15,789,060 TWO-YEAR PERIOD

PenAir is movin9 to commonality among its Saab 340 aircraft, thereby making its passenger aircraft interchangeable. One result of this fleet commonality initiative is that each Saab 340 will carry 30-33 passengers. This change will not affect the service proposal because, regardless ofthe seat capacity on the Saab aircraft serving Presque Isle, three daily weekday flights would be needed to meet the requirement for 67 seats per day each way. DOT Order2014-1-21, at3.

\\DC •004n1/000002. 5496900 vSEAS Proposal of Peninsula Airways, Inc. Page5 The proposed annual EAS subsidies for Presque Isle (under Option 1) and Plattsburgh are modestly higher than the current subsidies for these routes by about $810,000 and $240,000, respectively. Notably, the increased subsidies are notdueto increases inexpenses, butare principally driven bythe substantial decline in passenger traffic and passenger revenues in recentyears: from 28,795 passengers (YE 30 2010) to 21,800 (YE 30 2013) at Presque Isleand from 17,091 (YE 30 2010) to 14,748 (YE 30 2013) at Plattsburgh. DOT Order 2014-1-21. Indeed, under Option 1, PenAir's projected total operating expenses for POI are about $300,000 lowerthan the expenses on which the previous EAS subsidy amount for 2012 was based. For Plattsburgh, expenses are only slightly (about $120,000) higher than the 2012 EAS projection. Notably, the unit costs used in calculating PenAir's subsidy request arefirmly based on PenAir's actual expense data, as reported to the Department, for the YE September 2013. The proposed subsidy for Presque Isle EAS under Option 2 is somewhat higher than under Option 1. In order to provide the EAS schedule requested by Presque Isle involving an early morning POI departure and alateevening POI arrival and tomeetthe FAA's new flight, duty, and rest time regulations under 14 C.F.R. Part 117 (and to accommodate training, sick leave, etc.), the Option 2 schedule would require PenAirto double-crew these POI flights. That is, Option 1 can be operated daily, with one crew and one crew overnight; Option 2will require two crews daily and two crew overnights. Inaddition to paying for anadditional crew complement to handle the schedule, PenAir would have the added cost for overnight accommodations for the additional crew at POI.

\\DC. 004721/000002. S496900.•. 8EAS Proposal of Peninsula Airways, Inc. Page6 Onthe other hand, the subsidies for Presque Isle and Plattsburgh are mitigated when the Department takes into account the subsidy-free Bar Harbor service that PenAirwould offer aspart of itspackage (described further below).

II. PENAIR'S SUBSTANTIAL EXPERIENCE IN SAFELY AND RELIABLY SERVING SMALL COMMUNITIES WITH ITS SAAB 340 AIRCRAFT AND ITS CODESHARE AND INTERLINE RELATIONSHIPS WITH OTHER AIRLINES WILL CONTINUE TO PROVIDE SUBSTANTIAL BENEFITS FOR PASSENGERS ON THESE ROUTES. In selecting a carrier to provide subsidized essential air service, the Department considers several factors: (1) service reliability; (2) contractual and marketing arrangements with a larger carrier at the hub; (3) interline arrangements with a larger carrier atthe hub; (4) community views of actual and potential users of the air service, and (5)whether the carrier has included in its proposal a plan 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 2014-1-21, at 2 n.4. PenAir's EAS proposal offers the Department, the communities, andthetravelling publicsubstantial benefits. Service Reliability andExperience. PenAir has been operating airservice in the challenging weather environment inAlaska for more than half a century. In 2013, PenAir flew approximately 216,400 passengers and nearly 96 million revenue passenger miles. For YE September 2013, PenAir had more than 48,000 enplanements on its "East Coast" network, ofwhich 21,800 were for Presque Isleand 14,748 were for Plattsburgh. PenAir is afamily-owned carrier, has approximately 470 employees, and operates an all-Saab 340fleet. As the Department knows, PenAirwas the veryfirst recipient ofan EAS subsidywhen the program began decades ago. Ithas

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_S496900 "'&EAS Proposal of Peninsula Airways, Inc. Page7 provided subsidized EAS to small communities in Alaska and currently provides such service to Presque Isleand Plattsburgh. Safety is PenAir's highest priority. It was the first Part 135 U.S. air carrier to become a Part 121 air carrier. The FAA has also awarded the Diamond Certificate of Excellence to PenAir for 12 years. PenAir's management, crews, mechanics, dispatchers, and Saab 340 aircraft have relatively unparalleled experience insafelyand reliably operating from small, remote, single-runway airports and major hubs, over water, arid inalltypes ofweather, including harsh winterweather. This experience isof substantial value to PenAir, these EAS communities, and passengers on these routes. Indeed, despite the sometimes challenging weather environment in the Northeast, PenAir hada97% completion rateforits Plattsburgh and Presque Isleservices in2013. TheSaab 340. As noted above, PenAir proposes operating Saab 340 aircraft onthese EAS routes. Itisan aircraftwith which PenAir has more than 15years ofoperational experience inthe harshAlaskan weather. The Saab 340 iswell-suited for these routes. Itisadependable, multi-engine aircraft with seatsfor 30-33 passengers in
a comfortable 2-by-1 seating configuration. It has a cargo capacity of 2,500 Ibs. and cruises at approximately 265 knots. In addition, the Saab 340 aircraft has significant passenger amenities: lavatory facilities, a pressurized cabin, and aflight attendant. It also hasatwo-pilot cockpit crew. Relationships with Other Carriers. Codeshare: PenAirhas a longstanding relationship with Alaska Airlines, including codesharing. Alaska Airlines places its designator code on PenAir's flights between Boston and Presque Isle/Plattsburgh, and, as such, these flights have high

\\DC •0047211000002. 54969()QvBEAS Proposal of Peninsula Airways, Inc. Page8 visibility notonlyon PenAir's andAlaska Airlines' websites, butalso onthird-party travel distribution systems such as Orbitz. Travelers on PenAir's Plattsburgh and Presque Isle flights can also earn and redeem frequent flyer miles as part ofthe Alaska Airlines frequent flyer program. Frequent flyer miles earned on PenAir's flights can be redeemed for free travel or upgrades on flights offered not only byAlaska Airlines but also by some of its partners, Air France, American Airlines, British Airways, Cathay Pacific, DeltaAir Lines, KLMAirlines, Korean Air Lines, LAN, PenAir, FijiAirways, Aero Mexico, and Emirates. Interline: PenAir has Electronic Interline Ticket and Baggage agreements with Alaska Airlines, Delta Air Lines (and its regional carriers), US Airways (and its regional carriers), and United Air Lines (and its regional carriers). These relationships allow for single check-in, single-ticket air travel, making it easier for passengers traveling from/to these EAS pointsto/from destinations beyond Boston. Marketing. PenAir will continue its local marketing efforts, in conjunction with the local communities, as part of its ongoing initiative to raise awareness and brand recognition about itsservices.

III. IF SELECTED TO CONTINUE PROVIDING SUBSIDIZED EAS AT PRESQUE ISLE AND PLATTSBURGH FOR TWO MORE YEARS, PENAIR WOULD OFFER NON-SUBSIDIZED SERVICE TO BAR HARBOR DURING THE HIGH SEASON. Ifthe Department awards thesubsidized EASfor Presque Isleand Plattsburgh to PenAir for another two-year term, PenAir intends to operate 14 weekly nonstop roundtrips between Bar Harbor and Boston, without subsidy, forthe High Season, using its 30-33 seat Saab 340 aircraft. PenAir's Bar Harbor service will continue to provide

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- 5496900 vBEAS Proposal of Peninsula Airways, Inc. Page9 important and beneficial larger aircraft, High Season service, complementing CapeAir's smaller-aircraft, subsidized EAS service. Indeed, more than 9,500 passengers traveled
on PenAir between BarHarbor and Boston during the High Season in2013.

IV. CONCLUSION. PenAir's proposals fulfill the statutory prerequisites for EAS and offer superior benefits to passengers and these EAS communities. Accordingly, PenAir urges the Department to select itto provide essential air service for another two years between Boston, on the one hand, and Presque Isle and Plattsburgh, on the other hand, atthe subsidy levels presented herein. Respectfully submitted,

Robert E.Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555Thirteenth Street, NW Washington, DC20004 +1 2026374999/5659 Counsel to Peninsula Airways, Inc.

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### CERTIFICATE OFSERVICE I hereby certify that a copy ofthe foregoing Proposal of Peninsula Airways, Inc., has beenserved this March 11,2014, uponeach ofthefollowing addressees: Dennis DeVaney, USDOT Dennis.DeVany@dot.gov Michael Martin, USDOT Michael.F.Martin@dot.gov Essential Air Service Program EAS@dot.gov

.Scott Wardwell Airport Director, Northern Maine RegionalAirport swardwell@presqueisleme.us Chris Kreig Manager, Plattsburgh International Airport kreigc@co.clinton.ny.us Garry Douglas North Country Chamber ofCommerce, President 

### &CEO gfdoug@hotmail.com Brad Medera Manager, Hancock County-Bar HarborAirport manager@bhbairport.com

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_S496900 v8PQI peG OPTION 1
Annual Flights 1,917 Note 1 1,211 Fa", $131 Note 2 

# ••• Block Time 16 Note 3 1.2 Annual Block Hours 3067.2 1453.2 Passengers 23,306 Note 4 15,515 REVENUE 

# • 3,053,086.00 S 1,303,260.00 Per Hour FJOpsCrew $324.40 

# • 994,999.68 Note 5 

# • 471,418.08 F"", $513.90 S 1,576,234.08 Note 5 

# • 746,799.48 Maintenance $612.90

# • 1,879,886.88 NoleS 

# • 890,666.28 Insurance $60.38

# • 185,197.54 Nole 5 

# • 87,744.22 NC Depr/Rental $240.16 

# • 736,618.75 NoteS 

# • 349,000.51 TOTAL DIRECT Expenses S 5,372,936.93 S 2,545,628.57 FlAttendant per hour $65.40 

# • 200,594.68 NoteS 

# • 95,039.28 TraffIC Related perpax $42.04 

# • 979,784.24 Note 7 

# • 652,250.60 Departure Related perdept $349.97 

# • 670,892.49 Note 6 

# • 423,613.67 Capacity Related per dept $34.85 

# • 66,607.45 Note 6 

# • 42,203.35 Cost Increase Estimates @6% of 

# • 103,049.05 

# • 67,096.06 Traffic••Departure-. and Capacity.ReJated.
TOTAL INDIRECT Expenses 

# • 2,021,128.11 S 1,280,402.96 TOTAL OPERATING Expenses S 7,394,065.04 S 3,826,031.53 Profit@5% 

# • 369.703.25 

# • 191.301.58 [(Total Direct + Indirect) x .05) ECONOMIC COST S 7,763,768.29 S 4,017,333.10 ANNUAL SUBSIDY $4,710,682.29 $2,714,073.10

Note 1; PQI. 19f1ightslwk.x2 directions x52weeks x .97 completion =1.917; PBG- 12f1ightslwk x2directions x52weeks x .97completion = 1,211 Note 2: Average Fare rounded based on average fare for year ending January 2014 Note 3: Projected Block Time based on average block time for four quarters ending September 2013 Note 4: Annual Passengers based on Annual Totals for YE January 2014 Note 5: The per hour rates were calculated asfollows: (Sum ofTotal Costs Reported for Each Category to USDOT for East Coast Network for OE 1212012+OE 0312013 +QE 06/2013 +OE 0912013) divided by Reported Block Hours Operated (5.556) Note 6: The perdeparture rates were calculated as follows: (Sum ofTotal Cosls Reported for Each Category to USDOT for East Coast Network for OE 1212012 +OE 03/2013 +OE 0612013 +OE 0912013) divided by Reported Departures (4,111) Note 7: The per passenger rates were calculated as follows: (Sum ofTotal Costs Reported for Each Category to USDOT for East Coast Network for OE 1212012+OE 0312013 +OE 0612013 +OE 0912013) divided by Reported Passengers for East Coast YE 09/13 (48,159 pax)PCI
Annual Flights 1,917 Note 1 Fare $131 Note 2 Block Time 1.6 Note 3 Annual Block Hours 3067.2 Passengers 23.306 Note 4 REVENUE $ 3,053.086.00 Per Hour FlOps Crew $324.40 

# • 994,999.68 NoteS Fuel $513.90 

# • 1.576,234.08 Note 5 Maintenance $612.90

# • 1,879,686.88 Notes Insurance $60.38 $ 185,197.54 Note 5 Ale DeprlRental $240.16 

# • 736,618.75 Note 5 TOTAL DIRECT Expenses $ 5,372,936.93 FlAttendsnt per hour $65.40

# • 200,594.88 Note 5 Traffic Related pe'pax $42.04 $ 979,764.24 Note 7 Departure Related per dept $349.97 

# • 670,892.49 NoteS Capacity Related perdept $34.85 

# • 66.807.45 Note /5 Cost Increase Estimates @6% of 

# • 103,049.05 Traffic., Departure-, and Capacffy-Related,
TOTAL INDIRECT Expenses $ 2,021,128.11 COSTS for Additional Crews, $ 447,403.00 Note 8 and Accommodations for Eartyllate POI Flights TOTAL OPERATING Expenses $ 7,841,468.04 Profit@5% 

# • 392,073.40 [(TOlal Direct + Indirect) x .05] ECONOMIC COST 

# • 8,233,541.44 ANNUAL SUBSIDY $ 5,180,455.44 PBG .Q.f!:JQtU 1,211 $84 1.2 1453.2 15,515 $ 1,303,260,00 

# • 471.416.08 

# • 746,799.48 

# • 690,666.28 

# • 87.744.22 

# • 349.000.51 $ 2,545,628.57 

# • 95,039.28 

# • 652,250.60 $ 423.813.67 

# • 42,203,35 $ 67,096.06

. $ 1,280.402.96

$ 3,826,031.53 $ 191,301.58 $ 4,017,333.10 $ 2.714.073.10

Note 1: Pal- 19f1ightslwk x2 directions x 52weeks x .97 completion = 1,917; PBG- 12f1ightslwk x2directions x52weeks x .97completion'" 1,211 Note 2: Average Fare rounded based on average fare for year ending January 2014 Note 3: Projected Block Time based on average block time for four quarters ending September 2013 Note 4: Annual Passengers based on Annual Totals for YE January 2014 Note 5: The per hour rates were calculated asfollows: (Sum ofTotal Costs Reported for Each Category to USDOT for East Coast Network for QE 12/2012 +OE 0312013 +OE 0612013 +OE 09/2013) divided by Reported Block Hours Operated (5,556) Note 6: The perdeparture rates were calculated as follows: (Sum of Total Costs Reported for Each Category to USOOT for East Coast Network for OE 1212012 +OE 0312013 +OE 0612013 +OE 0912013) divided by Reported Departures (4,111)

Note 6: The costs for the earlyllate POI flights include the costs of additional crews, additional hotel accommodations, and training for the additional crews. Note 7: The per passenger rates were calculated as follows: (Sum ofTotal Costs Reported for Each Category to USOOT for East Coast Network for OE 1212012 +QE 0312013 +QE 0612013+QE 09/2013) divided by Reported Passengers for East Coast YE 09113(46.159 pax)