# Before the United States Department of Transportation May 9 , 2012

Proposal to Provide Essential Air Service at

Victoria, Texas

Under 49 U.S.C. 41731 et seq. Docket OST

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

Victoria, Texas

By Order 2012

- 3

- 14 , the Department requested proposals for Essential Air Service at Victoria, Texas not later than April 25, 2012. By Memorandum date April 25, 2012, the Department extend ed the due date for proposals until May 9, 2012. Pursuant to that Memorandum, SeaPort Airlines, Inc. respectfully submits this timely proposal to provide s ubsidized essent ia l air service to the community of Victoria, Texas.

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 tsieber@seaportair.comOST

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May 9 , 2012 Page | 2 

# SeaPort Airlines: Focused On Serving Small Communities

Company Overview

SeaPort Airlines , Inc. is a FAA certified scheduled airline with 30 years of experience in commercial

aviation and built around providing efficient and reliable service to rural communities. This is in sharp contrast to the strategies of the global airline brands and their regional airline partners that no longer have the operational or economic capability, or in many cases even a strategic desire, to serve small

and mid

- size communities such as Victoria.

SeaPort’s approximately 1 65 professionals operate an average of 90 daily departures to 21 cities in eight states with a business that is focused on providing affordable and reliable service to small and

rural communities.

Presently, SeaPort delivers Essential Air Service to seven commu nities: Excursion Inlet, Alaska; Pendleton, Oregon; El Dorado, Hot Springs, and Harrison, Arkansas; Salina, Kansas ; and Jackson,

Tennessee

. In each of these cases , after award of the EAS contract by US DOT , we have started

service 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 r ealized by the tra veling public, delay the start of service, or do

not launch service that has been awarded by the Department.

A Track Record of Building Community Partnerships

SeaPort Airlines prides itself on developing partnerships with each community it serves. This

i ncludes participation in local events, donation of tickets, regular community meetings, and advance notification of, and opportunity for input, related to schedule changes and fares.

We believe this approach serves our own interests equally with those of the community by fostering long

- term, stable relationships that result in increased ridership and, eventually, reduced subsidy requirements. SeaPort’s partnership approach is building recognition by those who watch the Essential Air Service program as evid enced by the following weblog entry from Skyland Centre for

Essential Air Service: 1

1 SkyLand Centre for Essential Air Services offers news, information, expert opinion and industry insights through www.SkyLandNews.com home page, where breaking news is posted as it comes in and a weekly news di gest, currently circulated to 5 ,0 00 essential air service professionals around the world

.OST

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May 9 , 2012 Page | 3 We encourage the communities in this proposal to contact any of the EAS communities we presently serve for additional information. Additional evidence of our ability to develop a strong partnership and provide the communities in this proposal with reliable, customer

- focused air service is demonstrated through commu nity and customer comments that are provided later in this document.

Aircraft

SeaPort Airlines proposes to serve Victoria with 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.

The PC

- 12 operates at a cruising speed faster than any other 9

- passenger aircraft currently in the EAS program (i.e., Cessna 402 and Piper Chieftain ) and comparable to larger turboprop aircraft,

such as the Embraer 120 Brasilia and Saab 340. 2

2 We also note that neither the Cessna 402 n or Piper Chieftain is pressurized as is the P ilatus PC

- 12.OST

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May 9 , 2012 Page | 4 T he oversize d cargo door on the PC

- 12 ensures is a strong contrast to other 9

- passenger aircraft that rely on wing lockers and nose compartments shared with avionics equipment

. Equally as important, SeaPort does not charge a fee for the first checked bag.

Utilizing the 9

- passenger PC

- 12, SeaPort is able to “right size” the capacity in small communities

such as Victoria 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 Departmen t

and , specifically, the EAS program.

The Victoria community acknowledged the benefits of greater frequency levels in an email to the Department during the last round EAS proposals in 2010.

“I must add that during these meetings, it became clear that the two flights per day covered under the EAS program provides insufficient service to our traveling public. Although I fully understand t hat it is not the program's intent to provide ideal service, adding a third flight would very likely result (in time) in not needing the subsidy at all. Our air service development studies all indicate that our enplanements are directly related to the freq uency of flights offered to VCT. Increasing the frequency will undoubtedly reduce the need for the subsidy over time, as our travelers habits are changed. I must add that during these meetings, it became clear that the two flights per day covered under the EAS program provides insufficient service to our traveling public.

Our air service development studies all indicate that our enplanements are directly related to the frequency of flights offered to VCT. Increasing the frequency will undoubtedly reduce th e need for the subsidy over time, as our travelers habits are changed.”

3

Pricing Model

Generally, SeaPort Airlines employs a simpl ified pricing strategy of all fares being one

- way with varying levels of advance purchase and capacity controls. 4 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 S ervice program.

The range of fares and forecasted average fare between Victoria and each of the two hub options are proposing is show n on the table on the next page:

3 Email from Jason Milewski (Victoria Regional Airport) to Michael Martin (US DOT) on April 4, 2011 and published in

Docket OST

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4 From time to time SeaPort will offer fares outside of this basic model, however these are typically promotional fares with additional savings to passengers.OST

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## SeaPort Airlines Illustrative Fares Pricing Range & Average

EAS Community Dallas (Love Field) Houston (Bush Intercontinental)

Victoria, Texas (VCT) Victoria Regional Airport Fares ranging from $ 85

- $1 75 ; average of $ 138 Fares ranging from $35

- $ 85 ; average of $ 55

NOTE: Listed fares include Federal Excise Tax and segments fees, PFCs, or security

We believe the fares illustrated represent a responsible approach to pricing in EAS communities and

one that is consistent with the overall objectives of the EAS program. SeaPort Airlines does not engage in “baiting” communities with low fares that are not sustainable. Such pricing schemes shift the true cost of air transportation from the consumer to the Department and we believe are

inconsistent with the intent of the ess ential air service program to ensure reasonable access to the air transportation system for smaller communities. Equally as important, the resultant higher levels of subsidy required by offering unreasonably low fare s can increase the risk of a community e xceeding $200 of subsidy per passenger and thereby risking continued eligibility in the program

.

SeaPort Airlines also charges reasona ble fees for ticket changes ($35 v $100+ on most major airlines), pet travel , and unaccompanied minors. 5 These charges ar e reflective of SeaPort’s philosophy of building customer loyalty in small communities through quality service at reasonable prices instead of opportunistically “nickel and diming” passengers at every possible t urn

.

Interline Connectivity

SeaPort currently has a n interline ticketing agreement with US Airways and is working toward securing agreements with other carriers that will facilitate single ticket itineraries Victoria and destinations around the world. We anticipate that these agreements wil l include industry standard

interline e

- ticketing (IET) and baggage check.

To facilitate implementation of interline agreements with IET, SeaPort migrated to the Radixx reservation system on March 7, 2012 . Radixx offer s us the ability to enter into and ex ecute unilaterial and bilaterial interline agreements, including inter airline thru check

- in (IATCI). Simply put, SeaPort has made the necessary investment to ensure that airports such as Victoria Regional Airport have “shelf space” virtually anywhere in t he global travel market.

With this new system now functional , SeaPort anticipates announcing one, possibly two, interline agreements in the coming months. We have targeted additional airlines for interline agreements during the balance of 2012, including United Airlines which is the largest carrier operating at George Bush Intercontinental Airport.

Global Distribution

In addition to interline agreements, SeaPort Airlines is presently displayed in the major global distribution systems. This enables our flights to be available on all major online travel agencies and

meta

- searchers including Orbitz, Travelocity, Expedia, Kayak, Hipmunk, and CheapoAir.

5 Pets on SeaPort Airlines travel in a baggage compartment that is directly behind the passenger cabin and which

ensures the se four

- legged customers enjoy the same pressurized, air conditioned, and heated environmental comfort

as our human customers. Additionally, SeaPort Airlines transports the pets of military families at no charge when relocation orders are presented.OST

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May 9 , 2012 Page | 6 Marketing & Public Relations Strategy

If selected to serve Victoria, SeaPort will implement a comprehensive marketing and public relations strategy aimed at introducing our brand to the community and maximizing the number of passengers onboard. In addition to local advertising, these activities include:

 Local Event Marketi ng: 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 Easter 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 their own business needs or as a fund raising tool (i.e., raffles, silent auctions, etc.).

 Website: The majority of SeaPort’s passengers book through the Company’s website ( www.SeaPortAirlines.com ).

 Social Media: Since 2010, SeaPort Airlines has managed a successful social media campaign that has allowed the Company to dynamically engage its customer base in a two

- way conversation through sites such as Facebook, Twitter, FourSquare & LinkedIn. We have foundOST

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May 9 , 2012 Page | 7 social media to be an exce llent tool for generating passenger referrals and information sharing in our communities, and expect similar results in the four communities in this proposal.

 FlyerFlex Customer Rewards: During 2011, SeaPort launched a new and improved customer loyalty pr ogram called “ FlyerFlex .” This program provides customers with a variety of benefits including free flights, service charge waivers, and bonus points. During the summer of 2012,

SeaPort will be unveiling further enhancements to the FlyerFlex program includ ing a wider range of travel award options and the ability for customers to check balances and redeem awards

online.

 Value Accounts: SeaPort offers a Corporate Value Account in every community served. This program encourages businesses to make a long

- term investment in local air service by offering a variety of benefits such as change fee waivers and savings of 5% to 15%. It is important to note that unlike the corporate travel programs of major airlines that are not designed to serve small

businesses in ru ral communities, SeaPort’s program can provide savings to a company of virtually any size and can be used by any employee of a company.

In service proposals herein , SeaPort Airlines has allocated specific dollar amounts for marketing and sales activity a ppropriate to each community and service pattern. These estimated expenses take into consideration the lower costs of media in small markets and the reality that most local traffic typically originates in the EAS community rather than the hub market. Our approach to marketing budgeting is based on the philosophy that reasonable advertising budgets can be effectively leveraged with “new media” such as social networking, blogs, opt

- in email, etc. to engage with customers on a more personal level.

We strongl y believe that such a strategic approach represents a more fiscally responsible use of subsidy (and therefore taxpayer dollars) in EAS communities than irrationally high marketing budgets intended to promote smaller communities in a hub market as “destinat ion.” Passengers with trips beginning in other than the EAS community quite often are connecting from a more distant origination point.

Illustrative examples of SeaPort’s advertising and promotional materials are provided on the next

page.OST

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May 9 , 2012 Page | 8 

## Sample SeaPort Airlines Advertising & Promotional MaterialsOST

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May 9 , 2012 Page | 9 

# 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 play a vital role in the local economy and quality of life in both of these communities , 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:

Our Essential Air Service Community Partners

“I understand the importance of having dependable, reliable air service with an affordable cost. Not only will SeaPort Airlines meet these needs , but excel by providing great customer service, a high level of community involvement, and an eagerness to become a community partner”.

− Luci Larson Former Mayor & Owner of

Action Travel Salina, KS

“South Arkansas Regional Airport and the entire South

- central Arkansas region suffered from the loss of air service previously provided by Mesa Airlines in the Spring of 2008. Unreliable service and a poor schedule were already negatively impacting enplan ements before Mesa pulled out, but at that point, the nearest option for air service of any kind was almost a two hour drive away. After sorting through applications from many different interested carriers, the El Dorado Airport Commission, along with El Dorado’s Mayor, chose SeaPort to restore air service to South Arkansas. This was the beginning of a great partnership between SeaPort and our local community.

“Working with SeaPort has been nothing but a pleasure from the bottom to the top of their

orga nization, and their commitment to excellence shines through the glowing comments that I hear from people who fly with them. In addition to hearing comments from others, I have flown SeaPort on several occasions, and have come away from the experience thin king ‘This is how all air service

should be.”

− Josh Zylks Airport Manager South Arkansas Regional Airport (Goodwin Field)

“Eastern Oregon Regional Airport at Pendleton had been struggling since schedule changes following 9/11 served by a carrier flying 37 seat aircraft. Low passenger count attributed to poor schedule, which then contributed to poorer passenger count. The carrier's solution was to bring in larger aircraft and fly to a different hub. The Airport and community balked at this suggestion and

w ent in search of alternatives. The solution found through the EAS process was SeaPort Air flying a 9 passenger Pilatus. The passengers have welcomed the new service, much better schedule, and are elated with ‘no security check’ and stand by time. Passenger s today will say, ‘I love the service’, ‘great customer service,’ and ‘I'm sure glad I finally tried it, cause I'll be back’OST

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May 9 , 2012 Page | 10 “In our particular market, the 9 passenger aircraft is perfect, and SeaPort Air provides the schedule, the professionalism, and customer service we need and desire.”

− Larry Dalrymple Airport Manager Pendleton Regional Airport

Our Customers

“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!”

− Ruth Ann Smith

Customer (flew from Hot Springs to Memphis)

“My husband and I recently had to make a fast trip to Dallas for the funeral of a dear friend. I was not interested in making that dri ve over a fast weekend. Then I remembered that SeaPort had recently started flights between Hot Springs and Dallas. I called SeaPort, Jim and Bob were so quick to get us booked, last minute so we could fly down and attend the funeral and visit with family and friends that we don't get to see very often.

Everyone was so friendly, helpful and professional. It was a dream trip, even to attend a funeral. The pilot going down was so kind. When he found out that my husband had been a ball turret gunner in WWII, he gave him a set of headphones so he could listen to the communication between the pilots and the air traffic controllers. To say the least, my husband was impressed. It was such a blessing to have been taken care of in such a kind and professional manne r, especially under the circumstances of our trip. Thank you, Jim, Bob, Chris, Doug, Rodney and Michael.”

− Catherine Martin

Customer (few from Hot Springs to Dallas)

“I have never had such a positive experience connected with any airline. I read about SeaPort Air last October when they opened the Mid

- South Route, but didn’t have the chance to fly until March. Usually the dread of the 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 service from start to finish is outstanding. I will be a regular customer and have already recommended the airline to several associates. Thank you,

SeaP ort Air, for making me feel like a queen!”

− Catherine Martin

Customer (few from Memphis to Harrison)

“I want to let you know that Alan, the owner, and I were stuck in the horrendous traffic getting to the airport. Your people called to see where we were a t. Called a few times to try and get us out of the jam

– which was impossible, we were too far from the Gateway and we already had been on the road 1 1⁄2 hours. Did manage to break free taking 102 (I think) and called close to the Embassy to let

them know we were just a minute away and they held the plane for us!! Amazing and kudos to yourOST

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May 9 , 2012 Page | 11 team!! I have been telling everyone of the stellar customer service and you will be our flight of choice going forward.”

− Joanne Bosworth

Customer (flew from Portland to

Se attle)

“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 of air travel has given her. I guess it pretty much does it to all of us, but (as she is well into her 80's) I worry about the toll it takes on her more and more lately.

“When I picked her up today from her SeaPort flight K52325 from Dallas and saw she was smiling, you could have knocked me over with a feather! She couldn't stop raving about how pleas ant 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 of times since the late 1940's. She doesn't bestow idle praise and she seldom raves.

“Since it was a 9

- seater plane 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 i mpressed. She even liked the way she was asked to turn off her mobile 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. I just want to be sure to let you k

now how well everyone did on this flight. In the future, I will look to SeaPort first for my travel needs and will spread the good word to my friends.

“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)OST

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# Service Proposal

SeaPort Airlines is proposing a service plan at Victoria that include s nonstop service to both Dallas (Love Field) and Houston (George H. Bush Intercontinental Airport).

W e have found that offering access to more than one hub from an EAS market can result in significant traffic growth, specifically in our Arkansas communities, where the addition of Dallas and/or Kansas City to our existing Memphis s ervice has resulted in significant recent traffic growth. We believe that similar results can be achieved at Victoria Regional Airport by offering a service pattern that meets the travel needs of a higher percentage of the overall potential traffic base

r esulting in higher traffic retention at VCT and, eventually, leading to lower levels of subsidy.

A n illustrative schedule is provided below

, however final schedules w ill only be established following consultation with the community.

The p roposal consists of 24 frequencies a week, which is compliant with the Departments directive

in Order 2012

- 3

- 14 requesting: “two round trips a day (12 a week) with 30

- seat or larger aircraft; or three round trips a day (18 a week) with 19

- seat aircraft and additional frequencies with 8/9 seat

aircraft.”

6

Finally, the proposal is presented on the basis of a two year term. Notwithstanding the risk of cost inflation in coming years (particularly related to fuel) that could possibly outstrip traffic growth and reasonable fare increases, SeaPort is offering the Department and the community the option to contract the proposed annual subsidy for a four year period at no increase in annual subsidy beyond that level specified for the two year term

. We believe this provides the Victoria community with the assurance of stable air service for an extended period and reduces the administrative burden on both the Department and ourselves.

Respectfully submitted,

Timothy Sieber

Vice President

– Strategy & Corporate Development SeaPort Airlines, Inc.

May 9, 2012

6 Orde r 2012

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