### :;\(), ::-,**;--:"-,,,~u** 

## Before the United States Department of

## Transporta~iOP~':Ct**c~'** _, -_,;**~** _ I' 1 

### August 3, 2011

Proposal to Provide Essential Air Service at Cedar 

### City, Utah Docket OST-2003-16395 Under 49 U.S.C. 41731 et seq.



# SeaPort Airlines, Inc. Proposal to Provide Essential Air Service at Cedar City, Utah

By Order 2011-6027, the Department requested proposals for Essential Air Service at Cedar City, Utah due on August 3, 2011. Pursuant to that Order, SeaPort respectfully submits this timely proposal to provide subsidized essential air service to the community of Cedar City, Utah for a two year term beginning January 1,2012. Correspondence regarding this proposal should be directed to: Timothy Sieber Vice President
- Strategy & Corporate Development SeaPort Airlines, Inc. 7505 NE Airport Way Portland, OR 97218 (971)340-1716 www.seaportairlines.com

# SEA<'PORT

SeaPort Airlines: Focused On Serving Small Communities Company Overview SeaPort Airlines, Inc. is a FAA certified scheduled airline with over 27 years of experience in commercial aviation. Our company's foundation is built on efficient and reliable service to rural communities

. Both SeaPort Airlines, and our sister brand Wings of Alaska , currently operate service under the Essential Air Service program , as well as unsubsidized routes

. 1 SeaPort's approximately 200 professionals operate an average of 100 daily departures to 20 cities in nine states with a business that is focused on providing service to smaller communities. This is in sharp contrast to the strategies of the mega-airline brands, which no longer have the operational or economic capability, or strategic desire, to serve rural America. Last month's announcement by Delta Air Lines to cease service at over two dozen such communities is just the latest such example. SeaPort delivers Essential Air Service to seven communities: Excursion Inlet, Alaska; Pendleton , Oregon; Jonesboro, EI Dorado, Hot Springs, and Harrison, Arkansas; and Salina, Kansas. In each of these cases, after award of the EAS contract by US DOT, we have started on time, on budget, and with fares either at or below those outlined in our proposal. We would note that this stands in stark contrast to so many other airlines that place bids with unreasonable fares that are never realized by the traveling public, delay the start of service, or do not launch service that has been awarded by the Department. Aircraft SeaPort Airlines operates a fleet of Pilatus PC-12 aircraft configured for 9-passengers and two pilots. Manufactured in Switzerland, the PC-12 offers air conditioned, pressurized comfort with each seat being both a window and aisle

. This aircraft operates at a cruising speed faster than any other 9-passenger aircraft currently in the EAS program (Le

., Cessna 402 and Cessna Caravan) and comparable to larger turboprop aircraft, such as the Embraer 120 Brasilia and Saab 340.**~** '0.

# -'**~"'I!**

1 Wings of Alaska is the premier airline serving Southeast Alaska

. Providing scheduled passenger service, fast freight and charter service between Juneau and Skagway, Haines, Hoonah, Gustavus, and weekly flights to Excursion Inlet. Wings of Alaska grew in reputation and size, becoming one of the most successful regional air carriers in Alaska, now comprised of a fleet of seven planes from Cessna 206 and 207's to Cessna Grand Caravans

. Wings ofAlaska presently operates 38 daily scheduled flights to six Southeast cities in Alaska

. OST-2003-16395 August 3,2011 Page 12

# SEA PORT
<.=/. I f--' L I r; t.**~** The oversized cargo door on the PC-12 ensures plenty of room for customer baggage and is a strong contrast to other 9-passenger aircraft that rely on smaller "belly pods" and wing lockers. Equally as important, SeaPort does not charge for the first checked bag. Utilizing the PC-12, SeaPort is able to "right capacity" in small communities such as Cedar City with an optimal service pattern and frequency level that minimizes traffic leakage, enables us to offer reasonable fare levels, and reduces the economic burden on the Department. Pricing Model Generally, SeaPort Airlines employs a simplified pricing strategy of all fares being one-way with varying levels of advance purchase and capacity controls. 2 The objective of this strategy is to offer a community attractive fares while at the same time minimizing required levels of subsidy from the Department which, in turn, helps the community maintain its eligibility for participation in the Essential Air Service program. Consistent with this model, SeaPort charges reasonable fees for ticket changes ($35 v $100+ on most major airlines), pet travel, and unaccompanied minors. 3 These fee levels are reflective of SeaPort's philosophy of building customer loyalty through quality service at reasonable prices rather than opportunistically "nickel and diming" passengers at every possible term. Marketing & Public Relations Strategy SeaPort intends to implement a comprehensive marketing and public relations strategy aimed at introducing the brand and service model to the community and ensuring ridership levels are maintained. Among the marketing activities that SeaPort has implemented or presently is rolling out on a systemwide basis, and which will be applied in Cedar City, are the following:
• Website: The majority of SeaPort's passenger book through the Company's website (www.SeaPortAir.com) which is currently undergoing a redesign to improve user navigation and facilitate an easier booking process.
• Online Booking Portal. SeaPort recently developed a "stand alone" booking engine that can be easily imbedded in any outside website or social media site for direct booking on any SeaPort Airlines flight. This booking engine has been distributed to the website of airports in other EAS communities, local Chambers of Commerce, and several local travel/hotel websites. SeaPort would employ a similar strategy in Cedar City.
• Local Event Marketing. Recognizing that visible participation in local events has been successful for both legacy and low-cost airlines, SeaPort has implemented a similar strategy in all of its communities. These have ranged from SeaPort Airlines community egg hunts to presenting at business expos to hosting "after hours" events at local Chamber of Commerce meetings. In addition, SeaPort often makes "in kind" donations of tickets for use by local charities, either for the conduct of their own business or as a fundraising tool (Le., raffles, silent auctions, etc.).

2 From time to time SeaPort will offer fares outside ofthis basic model, however these are typically promotional fares with additional savings to passengers.
3 Pets on SeaPort Airlines travel in a baggage compartment that is directly behind the passenger cabin and which ensures these four-legged customers enjoy the same pressurized, air conditioned, and heated environmental comfort as our human customers. OST-2003-16395 August 3,2011 Page 

### 13

# SEA PORT
Sample SeaPort Airlines Advertising

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fly f-:.**p...t(·mp~i-s** o n J;;I),J,)I 7' C /' ',,:,'**"!"' ~**  (o rIt ,,, ALlfoZon

.**l. i~**  Bowl

; ° 1 for '49-$149 Orl# way '

### . 

# SEAtPORT !**.a>P 0<1:"'rI;:~** **lho 1""j** **'** "lH:'i :, "" t'**.~.,. L::..::::=oL:** **=~ ",",f',** **'" ,"** **",** " c-" "

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• Social Media. Beginning in 2010, SeaPort Airlines has managed a successful social media campaign, allowing the Company to dynamically engage its customer base in a two-way conversation through sites such as Facebook, Twitter, FourSquare & Linkedln. We have found social media to be an excellent tool for generating passenger referrals and information sharing in other communities, and expect similar results in Cedar City.

• FlyerFlex Customer Rewards. During 2011, SeaPort launched a new and improved customer loyalty program called "FlyerFlex. "This program provides the following benefits:

- Free flights

- Fee waivers

- Bonus points

- Gift memberships

- Personalized cards or bag tags SeaPort anticipates unveiling phase two of the FlyerFlex program by the end of 2Q 2012 to include a wider choice of travel rewards. It is important to note that although this program is relatively new early indicators are that the objectives of generating new and repeat business are being achieved.

OST-2003-16395 August 3, 2011 Page 14

# SEAPORT

• Corporate Value Accounts. SeaPort will offer its Corporate Value Account at Cedar City, a program that encourages businesses to make a long-term investment in local air service by offering a variety of benefits and savings, including 5%-15% reductions off published fares. It is important to note that unlike the corporate travel programs of major airlines that are not designed to effectively serve small businesses in rural communities, SeaPort's Corporate Value Accounts can provide savings to a company ofvirtually any size.
• Destination Packaging. SeaPort has recently obtained the capability to create travel packages with other local businesses and plans are being formulated to offer packages with hotels, spas, and attractions in each community served. This will be included in the roll out of the "new and improved" www.SeaPortAir.com. referenced above. We intended to include Cedar City as part ofthis offering Distribution Strategy SeaPort has invested heavily in improving our inventory distribution abilities. We are now in all five major global distribution systems. We have distribution on all major online travel agencies and meta-searchers. SeaPort has an interline ticketing agreement with US Airways and is working on securing additional agreements.

OST -2003-16395 August 3, 2011 Page 

### 15

# SEAPORT

Community 

# &Customer Feedback
While SeaPort Airlines has outlined above why we believe our airline is well positioned to ensure that reliable and reasonably priced air transportation continues to playa vital role in the local economy and quality of life in Cedar City, the strongest proof resides in the accolades we receive. Below is just a small sample of the comments SeaPort has received from our customers and community partners:
"Eastern Oregon Regional Airport at Pendleton had been struggling since schedule changes following 

### 9/11 selVed by

### a carrier flying 

### 37 seat aircraft. Low passenger count attributed to poor schedule, which then contributed to poorer passengercount. The carrier's solution was to bring in largeraircraft and fly to 

### a different hub. The Airport and community balked at this suggestion and went in search ofalternatives. The solution found through the EAS process was SeaPort Air flying 

### a 9 passenger Pi/atus. The passengers have welcomed the new selVice, much betterschedule, and are elated with "no security check"andstand by time. Passengers today will say, "I love the selVice", "great customerselVice", and "I'm sure glad I finally triedit, cause I'llbe back". In our particular market, the 

### 9 passenger aircraft is perfect, and SeaPort Air provides the schedule, the professionalism, and customer selVice we need and desire. " Larry Dalrymple Airport Manager Pendleton RegionalAirport
"I have never had such 

### a positive experience connected with any airline. I read about SeaportAirlast October when they opened the Mid-South Route, but didn't have the chance to fly until March. Usually the dread ofthe process comes then you just grin and bear it; however, with SeaPort Air I could arrive 

### 15 minutes early. The hassle free no TSA is wonderful and made me feel special. I have flown twice in the last 

### 2 months and the customer selVice from start to finish is outstanding. I will be 

### a regular customer and have already recommended the airline to several associates. Thank you, SeaPort Air, for making me feel like a queen!"

OST -2003-16395 August 3, 2011 - Catherine Martin Customer (few from Memphis to Harrison)

Page 16

# SEA PORT

"For two decades I have been picking my mother up at the airport and for two decades I have been met with the defeated, hang-dog look that the ordeal ofair travel has given her. I guess itprettymuch does it to all ofus, but (as she is well into her80's) I worryabout the toll it takes on hermore andmore lately. When Ipickedherup today from herSeaPort flight K52325 from Dallas andsaw she was smiling, you could have knocked me over with a feather! She couldn't stop raving about howpleasant the flight was. Let me be clear. My mother is a tough-as-nails Mid-western yankee from the old school who has been around the world

### a couple oftimes since the late 1940's. She doesn't bestow idle praise andshe seldom raves. Since it was 

### a 9-seaterplane that had to stop for

### a bathroom break, I can only conclude that it was the above average service she received from your staff. She, in fact, said as much. From the ticket counter in Dallas to the ride she got to the main terminal in Memphis she was impressed. She even liked the way she was asked to turn offhermobile phone and the help she was given doing so (she's not

### a big techie). I'm in the service industry myself and I know how often complaints come through. Ijust want to be sure to let you know how well everyone did on this flight. In the future, I will look to SeaPort first formy travel needs and will spread the good word to myfriends. A smile and 

### a kind word go 

### a long way y'all. Thank you for getting this one so right. "

- Mark Davis Peterson Customer (flew from Dallas to Memphis)

"I want to letyou know thatAlan, the owner, and I were stuck in the horrendous traffic getting to the airport. Yourpeople called to see where we were at. Called 

### a few times to try andget us out ofthejam
- which was impossible, we were too fare from the Gateway and we already had been on the road 

### 1 Y2 hours. Did manage to break free taking 102 (I think) and called close to the Embassy to let them know we werejust

### a minute awayand theyheld the plane for us!!Amazing and kudos to your team!! I have been telling everyone of the stellar customer service andyou will be ourflight ofchoice going forward."

OST-2003-16395 August 3, 2011 - Joanne Bosworth Customer (flew from Portland)

Page 

### 17

# SEAPORT

"Two hours before the flight I booked my ticket to Memphis from Hot Springs. Wow! What 

### a surprise; it was simple, convenient, great price, and impeccable service. It far exceeded my expectations and I will be flying to Memphis on SeaPort Airlines instead of driving from now on. The customer service was fabulous!"

OST-2003-16395 August 3, 2011 Ruth Ann Smith Customer (flew from Hot Springs to Memphis)

Page 18

# SEA**~c PDRT** 

Schedules 

# & Capacity
Schedules While final schedules will be established after consultation with the community, SeaPort's illustrative schedule for Cedar City is outlined below. It takes into consideration both the community's need for access to Salt Lake City, as well connections with airlines during peak "push periods" at SLC

.4

6:15am 12:15pm 7:30am 1 :30pm 

## o o o ExSun ExSat ExSat 9:00am 3: 15pm 8:1 10:15am 4:30pm 9' 

### o 

## o o ExSun ExSat ExSat The Department and community should know that SeaPort evaluated proposing service to Las Vegas as an alternative or in addition to Salt Lake City. This would have represented a shorter stage length and resultant lower subsidy requirement. However, taking into consideration the community's long-standing ties with Salt Lake City as an economic, governmental, and cultural center, SeaPort believes that the proposal herein best serves the community and objectives of the Essential Air Service program. Capacity SeaPort Airlines is proposing 18 weekly round trip flights between Cedar City and Salt Lake City International Airport

. This represents a 50% increase over the frequency level currently offered at Cedar City. This level of frequency will result in a projected load factor of 60.0% at SeaPort's annually forecast of 9,7990&0 passengers. We recognize that such a load factor is above the 50% level desired by the Department, however we believe it represents a more effective use of EAS funds and will provide the community with a greater choice of departure times than the current twice daily current service pattern, and which had a 29

.9% load factor during the 12 months ending March 31, 2011. Moreover, as the graph on the next page illustrates, demand at Cedar City is subject to minimal seasonal fluctuations and, therefore, SeaPort's capacity proposal is sufficient for Cedar City.5

'We would also note that while connections with Delta Air Lines are the primary focus at Salt Lake City community, SeaPort has found a high percentage of our passengers in our other EAS markets also connect with low-fare carriers

. The proposed schedule factors in those ofjetBlue, Southwest, and Frontier Airlines at SLC.

5 Source: T-100 OST-2003-16395 August 3, 2011 Page 

### 19

# SEA "PORT

Cedar City Load Factors: YE March 31,2011 100% 90% 80% 70% 60% 50% 40% 30%

# ~ • __ -4

....

____

### .-4.--~ 

# .**...-----.--~~ ~** **~ ~-....,.e----4.~____.**  20% 10% 0%

-Load Factor
Finally, we would point to the press release on the next page (issued by the Salina Airport Authority) as indicative of how SeaPort dynamically manages capacity but equally important of how we are an effective community partner. Cedar City can expect a similar partnership from SeaPort ifwe are selected to provide air service and become part ofthe community.

OST-2003-16395 August 3,2011 Page 110FORIIIDIEDHTE RELE.\sE 

# SeaPort offersflexibilitytofit Salina SalinaAirportAuthority 

### J.HelissaJ.'1cCoy 

# . Jfanagerof Public

### AffairsandCommunications 

# SEAPORT**Salina~** 

### Ka.n., (May 17,2011)

- 

### SeaPortAirlines has a longreputationofdepartingearly 

### if all passengers are accounted for and re.ady to go, but ,,,hen it 

### group of loc.al officials bookedthe7:30

### a.m. flight andleft threehours**e.arly~** 

### theymayhave seta nevv' record. The flight \\ClS 

### booked weeks 

### prior to their March 7 

### flight and completely filled ,,,i.th Salinarepresentatives ,,,nosefinal destination,vas'Washington, 

### D.C. "'Salina communityleaders 

### \\ill meet \\1.th our congressional delegation and share with them those federal policy issues and initiatives most important to Salina's future," explained City Manager Jason Gage before hopping aboard the Pilatus PC-12. 

### "It also provides anopportunityto learnmore about the federal legislative process andtobuild importantrelationshipswhichhave a long-lasting,positiveimpactonourcommunity." A week before the flight, SeaPort officials checked the passenger list and let the group know

### iftheywantedtoleaveearlieritwouldn'tbe aproblem. "Hadwehad additionalpassengers onthe7:30

### flight ,\'e'dhave hadtofigure something else out," 

### explained SeaPort Operations Manager Cullen Krause. "One ofthebenefits of SeaPort isthatwehave the ability tobe flexible andworkwith the communityonshort noticetoaccommodate Salina's airtravel needs." SeaPort Airlines' convenience and flexibility not only saved the group money, but allottedthemanextradaytouse 

### in'Washingtoninsteadofontravel. Fljing on SeaPort to Kansas 

### City and then c.atching a flight with a different airline to \Vashington,thegroupsaved themselves a three-hourcarrideineachdirection, parking fees anda wholelotofheadaches. SeaPort added a planeto the regular 

### flight scheduleto accommodate the group aswell as 

### otherpassengersfortheirreturn

### toSalina. "We are 

### fortunate to have SeaPort as 

### our travel option,'" said Gage. 

### "'Their aircraft is comfortable and 

### their convenient arrival and departure 

### schedules are not only affordable,butmatchupwell v.i.th thefrequent flyer's travel needs. SeaPort is truly an assetforSalina."

OST-2003-16395 August 3,2011 Page 111

# SEAPORT

Service Proposal SeaPort Airlines is submitting a single proposal to serve Cedar City for a two-year term with 18 weekly roundtrip flights between Salt Lake City at an annual subsidy rate of $1,956,900. Fare between Cedar City and Salt Lake will be as low as $79 each way, inclusive oftaxes and fees. Projected revenue and operating expenses that form the economic basis of this proposal are summarized on the table on the next page for a two year period beginning on January 1, 2012. SeaPort's margin is very small and we are concerned about significant cost inflation in coming years that could reasonably outstrip traffic growth and reasonable fare increases. However, SeaPort is offering the Department the option to contract the proposed annual subsidy for a four year period (Le., no increase in annual subsidy). We believe this offer provides the community with the assurance of stable air service for an extended period, as well as reduces the administrative burden on the Department. Respectfully submitted,
Robert 

### L. McKinney President SeaPort Airlines, Inc.

OST-2003-16395 August 3, 2011 Page 11208T -2003-16395 August 3, 2011 

# SEA PORT

:=t.lkLII,tc
SeaPort Airlines, Inc. Cedar City, UT
- Salt Lake City, UT Mon thru Fri: 3x Roundtrip, Sat 1x RT, Sun 2x RT Operating Projections Sector Length (sm) Scheduled Departures Scheduled Block Hours Projected Completion Factor Projected Completed Departures Projected Completed Block Hours Passenger Projections Projected Passengers Local Traffic Connecting Traffic Total Projected Al.€rage Fare Rel.€nue Passenger Miles (RPMs) Available Seat Miles Projected Load Factor Financial Projections Rel.€nues Passenger TIcket Rel.€nues Ancillary Rel.€nues Total Expenses Flight Operations Aircraft Ownership/Lease Fuel & Oil Traffic Servicing Insurance Maintenance Sub-Total
- Direct Indirect Repositioning Total Expenses Projected Operating Profitl(Loss) Subsidy Calculations Operating Loss Economic Return @ 5% Required Subsidy 221 1,872 2,215.2

97.0%

1,816 2,148.7

2,310 7,489 9,799 $99.45 2,165,579 3,611,706 60.0%
$974,511

$24,515 $999,025 $247,106 $408,261 $874,539 $138,069

$42,975 $494,211 $2,205,160

$430,006 $180,000 $2,815,167 ($1,816,141)

$1,816,141

$140,758 $1,956,900

Page 113