Essential Air Service at

PRESQUE ISLE/HOULTON, MAINE

PLATTSBURGH, NEW YORK

DOT- 03-\ -~olt - 0\ ~sBEFORE THE

DEPARTMENT OF TRANSPORTATION

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, NEW YORK

Correspondence with regard to this document should be addressed to:

Scott Bloomquist, President

PENINSULA AIRWAYS, INC.

6100 Boeing Avenue

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

555 Thirteenth Street, NW

Washington, DC 20004

202 637 4999/5659

robert. cohn@hoganlovells.com

patrick. rizzi@hoganlovells.com

Counsel for

Peninsula Airways, Inc.
Essential Air Service at

PRESQUE ISLE/HOULTON, MAINE

PLATTSBURGH, NEW YORK

BEFORE THE

DEPARTMENT OF TRANSPORTATION

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, NEW YORK

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, on the other hand,'

In June 2012, PenAir established an East Coast operation based in Boston and,

as part of 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 to fairly compensate PenAir for the EAS service.

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

\\DC - 00412IIOO<XlO2 - 5496900 '18
EAS Proposal of Peninsula Airways, Inc.

Page 2

PenAir is offering two EAS options for the Department's consideration:

Option 1- This service and subsidy proposal is based on a schedule similar to

the one PenAir currently operates at pal and PBG.

Option 2- 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 Season2for the same two-year period (as described herein),

complementing Cape Air's year-round subsidized EAS. In the absence of an award at

both Presque Isle and Plattsburgh for another two-year period, however, PenAir could

not commit to continuing service to Bar Harbor.

PenAir's EAS proposals readily satisfy the criteria set forth in the Statute and the

Order, and would continue to offer substantial benefits for passengers and the local

communities.

The High Season covers the period approximately a week before Memorial Day and approximately a week

after Labor Day,

\\DC. 0047211000002 - 5496900 v8
EAS Proposal of Peninsula Airways, Inc.

Page 3

I. PENAIR'S PRESQUE ISLE AND PLATTSBURGH PROPOSALS.

Presque Isle.

PenAir offers two service options for EAS to 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 1 for Presque Isle-Boston service would 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,3 this 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 per weekday; 1 roundtrip on

Saturday; and 1 roundtrip on Sunday, on the same or very 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 v8
EAS Proposal of Peninsula Airways, Inc.

Page 4

The combined annual subsidy for EAS to Plattsburgh and Presque Isle under

Option 1 totals $ 7.424,757 and under Option 2 totals $ 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 a lavatory.

The chart 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 .19 weekly,

Year-Round: Saab 340 $ 4,710,683 $ 5,180,456

3x per per year per year

weekday 30-33 pax

2x on Saturday

2x on Sunday

Plattsburgh Boston 12 weekly,

Year-Round: Saab 340 $ 2,714,074 $ 2,714,074

2x per per year per year

weekday 30-33 pax

1x on Saturday

1x on Sundav

TOTAL $ 7,424,757 $ 7,894,530

ANNUAL SUBSIDY per year per year

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 of the 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 Order 2014-1-21, at 3.

\\DC • 004n1/000002. 5496900 vS
EAS Proposal of Peninsula Airways, Inc.

Page 5

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 not due to

increases in expenses, but are principally driven by the substantial decline in passenger

traffic and passenger revenues in recent years: from 28,795 passengers (YE 30 2010)

to 21,800 (YE 30 2013) at Presque Isle and 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 lower than 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 are firmly 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 a late evening POI arrival and to meet the

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 PenAir to

double-crew these POI flights. That is, Option 1 can be operated daily, with one crew

and one crew overnight; Option 2 will require two crews daily and two crew overnights.

In addition to paying for an additional 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.•.8
EAS Proposal of Peninsula Airways, Inc.

Page 6

On the other hand, the subsidies for Presque Isle and Plattsburgh are mitigated

when the Department takes into account the subsidy-free Bar Harbor service that

PenAir would offer as part of its package (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 at the 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, and the travelling public substantial benefits.

Service Reliability and Experience. PenAir has been operating air service in

the challenging weather environment in Alaska 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, of which 21,800 were for Presque Isle and

14,748 were for Plattsburgh. PenAir is a family-owned carrier, has approximately 470

employees, and operates an all-Saab 340 fleet. As the Department knows, PenAir was

the very first recipient of an EAS subsidy when the program began decades ago. It has

\\DC. 0047211000002 _ S496900 "'&
EAS Proposal of Peninsula Airways, Inc.

Page 7

provided subsidized EAS to small communities in Alaska and currently provides such

service to Presque Isle and 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 in safely and

reliably operating from small, remote, single-runway airports and major hubs, over

water, arid in all types of weather, including harsh winter weather. This experience is of

substantial value to PenAir, these EAS communities, and passengers on these routes.

Indeed, despite the sometimes challenging weather environment in the Northeast,

PenAir had a 97% completion rate for its Plattsburgh and Presque Isle services in 2013.

The Saab 340. As noted above, PenAir proposes operating Saab 340

aircraft on these EAS routes. It is an aircraft with which PenAir has more than 15 years

of operational experience in the harsh Alaskan weather. The Saab 340 is well-suited for

these routes. It is a dependable, multi-engine aircraft with seats for 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 a flight attendant. It

also has a two-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()Q vB
EAS Proposal of Peninsula Airways, Inc.

Page 8

visibility not only on PenAir's and Alaska Airlines' websites, but also on third-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 of the 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 by Alaska Airlines but

also by some of its partners, Air France, American Airlines, British Airways, Cathay

Pacific, Delta Air Lines, KLM Airlines, Korean Air Lines, LAN, PenAir, Fiji Airways, 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 points to/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 its services.

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.

If the Department awards the subsidized EAS for Presque Isle and Plattsburgh to

PenAir for another two-year term, PenAir intends to operate 14 weekly nonstop

roundtrips between Bar Harbor and Boston, without subsidy, for the High Season, using

its 30-33 seat Saab 340 aircraft. PenAir's Bar Harbor service will continue to provide

\\DC. 004721lO000O2 - 5496900 vB
EAS Proposal of Peninsula Airways, Inc.

Page 9

important and beneficial larger aircraft, High Season service, complementing Cape Air's

smaller-aircraft, subsidized EAS service. Indeed, more than 9,500 passengers traveled

on PenAir between Bar Harbor and Boston during the High Season in 2013.

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 it to provide essential air service for another two years between

Boston, on the one hand, and Presque Isle and Plattsburgh, on the other hand, at the

subsidy levels presented herein.

Respectfully submitted,

Robert E. Cohn

Patrick R. Rizzi

HOGAN LOVELLS US LLP

Columbia Square

555 Thirteenth Street, NW

Washington, DC 20004

+1 2026374999/5659

Counsel to Peninsula Airways, Inc.

\\DC • 0047211000002 - 5496900 vS
CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Proposal of Peninsula Airways, Inc.,

has been served this March 11, 2014, upon each of the following 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 Regional Airport

swardwell@presqueisleme.us

Chris Kreig

Manager, Plattsburgh International Airport

kreigc@co.clinton.ny.us

Garry Douglas

North Country Chamber of Commerce, President & CEO

gfdoug@hotmail.com

Brad Medera

Manager, Hancock County-Bar Harbor Airport

manager@bhbairport.com

IIDC - 004721lO000O2 _ S496900 v8
PQI 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 per pax $42.04 •

979,784.24 Note 7

•

652,250.60

Departure Related per dept $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. 19 f1ightslwk. x 2 directions x 52 weeks x .97 completion = 1.917; PBG- 12 f1ightslwk x 2 directions x 52 weeks x .97 completion = 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 as follows:

(Sum of Total 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 per departure rates were calculated as follows:

(Sum of Total 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 of Total 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 per dept $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- 19 f1ightslwk x 2 directions x 52 weeks x .97 completion = 1,917; PBG- 12 f1ightslwk x 2 directions x 52 weeks x .97 completion'" 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 as follows:

(Sum of Total 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 per departure 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 of Total 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)