### Before the United States Department of Transportation
November 24 , 2014

Proposal to Provide Essential Air Service at

JACKSON, TENNESSEE

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

- 2000

- 7857



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

By Order 2014

- 10

- 21 , the U.S. Department of Tr ansportation (“the Department”) requested proposals from ca rriers interested in providing Essential Air Service ( “ EAS ” ) at Jackson, Tennessee (“Jackson”) no later than November 24 , 2014

. SeaPort Airlines, Inc. (“SeaPort”) respectfully submits this timely proposal to provide subsidized essent ia l air service at Jackson as follows :

• Nashville, TN : 1 2 weekly roundtrips to Nashville International Airport

• Memphis, TN : 6 weekly roundtrips to Memphis International Airport



### This proposal requests annual subsidy of $1,584,275 and is s ubmitted on the assum ption of award of a two year contract . At the discretion of the Department and the community, however, SeaPort would would agree a four year contract with annual subsidies equal to those requested for a two year contract.

After this proposal is docketed , SeaPort Airlines will schedule a meetin g with the community to explain our proposal in detail and answer any questions . In the interim and throughout the carrier selection process, questions regarding this proposal should be directed to:

Timothy Sieber
Executive Vice President

SeaPort Airlines, Inc. 7505 NE Airport Way Portland, OR 97218 (971) 340

- 1716 tsieber@seaportair.comOST

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- 7857 November 24, 2014 Page | 2 

# Discussion of Proposal

Company Introduction

SeaPort Airlines , Inc. is a FAA certified scheduled airline based in Portland, Oregon with over 30 years of experience in commercial aviation

. In addition to Portland

, the company has operational bases at Memphis , Tennessee ( MEM ) ; San Diego, California (SAN); and Juneau , Alaska ( JNU )

.

SeaPort’s team of over 300 aviation professionals operate an average of 150 daily flights to 2 3 cities across nine states . Begininning January 12, 2015, SeaPort will add Muscle Shoals, A labama and Greenville , M ississippi to its route system, and anticipates being awarded the EAS contract at Visalia, California shortly

.
The primary focus of SeaPort is to provide affordable and reliable air service to rural communities across America. Including contracts awarded but not yet started and contracts expected to be awarded, s ervice to 12 of the communities on our route map is /will be provided under the EAS

program : Muscle Shoals, Alabama; Pendleton, Oregon; El Dorado, Hot Springs, and Harrison

, Arkansas; Tupleo and Greenville , Mississippi; Salina and Great Bend, Kansas; Jackso n, Tennessee; and Visalia and Imperial/El Centro, California.

SeaPort Airlines History at Jackson



### SeaPort Airlines initiated service to McKeller

- Sipes Regional Airport on January 22, 2012, replacing Pacific Wings dba Tennessee Skies. During that carrier ’s ten ure at Jackson

, enplanements deteriorated and subsidy levels climbed well above the statutory limit of $200 per

passenger. While enplanements have grown during the time SeaPort’s tenure at Jackson, it has not been without challenges.

 First, refusal by TSA to reinstate passenger screening at Jackson or p e r form reverse screening arriving in Nashville from Jackson r equires that we deplane at the non

- sterile FBO ramp and shuttle passengers to the main terminal. This has required customers to allow longe r connecti n g times at Nashville and, as a result, suppressed traffic. 1



###  Second, when SeaPort initiated service to Jackson in January 2012, Delta operated an average 131 daily departures from Memphis. In January 2015, Delta’s daily departures
number will be down to 43 per day. This eroded the value of Memphis International Airport as a connecting hub over much of the time that SeaPort was attempting to rebuild traffic at Jackson. That said, in recent months other airlines have added service to Memphis crea ting a more vibrant competitive environment that has resulted in lower fares. To illustrate, during 2Q 2014 fares at Memphis International Airport **declined** an average 4.2% compared to one year earlier

, whereas at the other top 100 airports in the U.S. fare s **increased** 2.5% on average. 2 

### As the Memphis International Airport moves

1 The lack of TSA at Jackson and resultant non

- sterile arrival procedures is a challenge that would exist for any carrier providing service to any hub from McKeller

- Sipes Regional Airport.

We note that flights departing Nashville to Jackson, do so from the main terminal having been able to obtain facilities despi te claims of Pacific Wings it been “unable to procure counter of gate space at [Nashville InternationalAirport] on reasonable term s. ” This was undertaken so as to minimize connecting times fo r passengers inbound to Jackson and attempt rebuild traffic levels.

2 Department of Transportation, Bureau of Transportation Statistics.OST

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### ahead with announced initiatives to recruit additional service, further declines in fares and restoration of nonstop service to larger markets will improve connecting opportunities

.

 Finally, the past two winters in the Southeast US have been unusually harsh, causing multiple extended periods of schedule disruptions which negatively impacted operational reliability and hurt efforts to rebuild customer confidence in the air service avai lable at
McKeller

- Sipes Regional Airport. SeaPort acknowledges that this challenge was compounded by the mechanical reliability of some older aircraft in its fleet, a problem which is being addressed by the acquisition of factory

- new airplanes as discussed below.

While we have faced these challenges , SeaPort has made progress toward Jackson achieving the statutory requirements needed to secure its participation in the EAS program : Maximum subsidy of $200 per passenger and enplanements averaging 10 per oper ating day. We traveled to Washington, DC with the airport manager and other community leaders to d iscuss with DOT staff, as well as p rovided a letter of support for the community’s waiver from the 10 enplanement per day rule that the Department subsequentl y granted on September 26, 2014. 3



### That being said, we recognize additional work needs to be done and if selected for a new EAS

term at Jackson, SeaPort will implement more aggressive strategies as outlined in the remainder of this proposal. We also recognize that achieving this goal will require SeaPort to

nuture a stronger level of partnership with the Jackson community than we have in the past.

Aircraft



### SeaPort Airlines is proposing to continue providing EAS at Jackson using Cessna Caravan s that
allow for safe, comfortable, and affordable service

. That said, there will be a significant improvement in aircraft as a result of SeaPort taking delivery of three brand

- new Cessna Caravans direct from the manufacturer. SeaPort has accepted two of the aircraft and one more
will delivered be before the close of 2014. All three aircraft will be based at Memphis International Airport and, if SeaPort is reselected, routed through Jackson on a regular basis.

3 Order 2014

- 9

- 21OST

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### These new aircraft, one of which SeaPort displayed to the public at McKeller

- Sipes Regional Airport on November 21 st 

### , will result higher schedule completion rates needed to restore ridership

.

Each of the new Caravans are equipped with the state

- of

- the

- art, all

- glass Garmin G1000
avionics suite which inc ludes Synthetic Vision Technology (SVT) to provide flight crews with topographical displays of terrain, visualization of other air traffic, and improved situational

awareness . R eal

- time dat a and trend monitoring of aircraft systems and the engine can be transmitted to SeaPort’s maintenance personnel so that pre

- emptive maintenance work can
reduce flight delays and cancellations attributable to mechanical issues. The G armin G 1000 suite include s an advanced autopilot system that can perform virtually all pilot actions from
climb

- out through final descent , reducing pilot workload through precise ve rtical and horizontal guidance and benefit our customers through higher fli ght completion rates and enhanced levels of both safety and comfort

.

Each of the new airplanes are being delivered with TKS anti

- ice/de

- ice systems that exude glycol

- based fluid through laser drilled holes on the leading edge of the wing and other critica l surfaces. Th is system prevents precipitation from adhering the aircraft, enhancing both safety and operational reliability even during weather conditions as such as experienced in the Southeast U.S. over the past two winters.

Proposed Service Pattern & Flight Schedules

SeaPort proposes to continue providing service at Jackson with flights to both Nashville and Memphis, TN

. Illustrative schedules for February 2014 are provided below:



### Illustrative Schedule s for Jackson, TN

It is important to note that in preparing this proposal, SeaPort evaluated the potential for service to different hubs and/or increasing the number of frequencies to Nashville. We concluded that a change might result in Jackson generating an average of 10 enplanements per day . Th e challenge with this approach, however, is that service to more distant hubs considered would require subsidy levels over the long

- term virtually guaranteed to exceed the statutory limit of $200 per passenger. 4

Our proposal to maintain service to Nashville and Memphis, allows us to build upon the customer base cultivated over the past three years. Service to another hub would discard this traffic base and increase the risk that Jackson not achieve the statutory r equirements for continued EAS eligibility within a reasonable. Building on the current base will be undertaken through the use of aggressive pricing and marketing strategies, both of which are outlined below.

4 Hubs considered were St. Louis, Kansas City, and Atlanta, and cost of doing business at each airport (including initial depos its, as well as limited

- time fee waivers and marketing support for new service). Flight Leave Arrive Stops Frequency Flight Leave Arrive Stops Frequency TO: MEMPHIS, TN FROM: MEMPHIS, TN

2621 9:05am 9:45am 0 ExSat 2612 4:30pm 5:10pm 0 ExSat TO: NASHVILLE, TN FROM: NASHVILLE, TN

2610 8:25am 9:30am 0 ExSun 2621 7:45am 8:50am 0 ExSun

2612 5:25pm 5:30pm 0 ExSat 2623 5:55pm 7:00pm 0 ExSatOST

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- 7857 November 24, 2014 Page | 5 Fares & Pricing

If reselected, SeaPort Airlines would commit to a $39 fare on every seat on every flight for at least six months . This would be supported by aggressive marketing and sales activities outlined below, and intended to have customers experience the new aircraft, our new loca tion at the main terminal in Memphis and improvements to Nashville facilities, both of which will allow for more convenient

conn e ctions.

At the end of six months , we propose to evaluate the response of the market to service improvements. If necessary, $39 fares could continue for a longer period. If the market responds as anticipate d

, Jackson would migrate to the fare structure use d by SeaPort in its other markets . This would result in price points ranging from $39 to $69 each way, including all taxes and fees. The fare rules for each price are as follows:

 Our “ FULL Fl ex ” ($ 6 9) fare is best

- suited for business travelers and provides total flexibility to change travel plans or , if travel plans get cancelled

, obtain a full refund without incurring a service charge

. Customers using this fare also are permitted a two checked bag s and one
carry

- on bag at no charge and access to the “express ” security checkpoint at Nashville and Memphis

.

 Our “ NO F lex ” fare ($39) is intended for customers with very firm travel plans . This fare requires an advance purchase of at least seven days prior to departure and does not permit any changes to itineraries or refunds after tickets are issued

. This fare is only online. Customers ticketed on NO Flex fares are permitted one

- checked and one carry

- on bag.

 “ F lex 4 FE E ” ($ 5 9) fares are non

- refundable, but provide customers the opportunity to change their flight plans for a $50 service charge. Customers may purchase this fare online, over the phone, or at any SeaPort airport counter, and are permitted one checked and one
carry

- on bag.

This fare structure does not limit the number of seats available at each price point. A s such,
customer largely controls how much they pay based on 1) perceived need for flexibility to change reservations or obtain a refund , 2) how far in advance tickets are purchase d, and 3) value placed on
extras such as greater baggage allowance and faster trips through security screening checkpoints.

We believe this approach to pricing will help reinvigorate traffic at McKeller

- Sipes Regional Airport, but also collect sufficient revenue from actual users of the EAS service that so that within a reasonable time free an average of more than 10 enplanements per day is achieved at a subsidy per pass enger below the $200 limit

.
Sales & Marketing

SeaPort Airlines recognizes that low

- fares and new airplanes will not be enough to maintain servic e at Jackson over the long term. To that end, our proposal to continue EAS at Jackson includes at least $50,00 0 per year in advertising and promotional activities

.

Advertising

Advertising would focus on radio, print, online, and outdoor (i.e, roadside signs and stadium boards) around the Jackson market. On a limited basis, we would purchase commercials during l ocal television news broadcasts. Sponsorship of the Jackson Generals baseball team would be restored, but we plan to also seek to increase our visibility among demographic groups having a higher

propens ity for air travel, including charity events and spons orship of the arts.OST

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- 7857 November 24, 2014 Page | 6 This plan is preliminary in nature and would not be implemented without input from the airport authority, Chamber of Commerce, and other economic and community development organzations. This will be the first step toward rebuilding ou r partnership with Jackson and working together on maintaining the community’s EAS elibility.

Sales & Community Relations

Advertising will be supported by aggressive and **sustained** sales activities focused on Jackson

- area companies and organizations. The sales message would include explanation the value proposition of flying compared to driving, connectivity possibilities, service enhancements, and (probably most importantly) the importance of local busineses to support local air service.

A key componen t of this sales effort are new products that SeaPort is rolling out over the next six months such as Commuter Cards and student stand

- by fares. For example

, SeaPort’s new reservation platform will facilitate the capture of more corporate travel at McKeller

- Sipes Regional Airport through the use of negotiated fares

. This fare program would allow companies to realize progressive savings based on level of activity and/or share of their air travel budget committed to the
local air service.

As with adve rtising, SeaPort would establish a sales and community relations calendar of events, as well prioritize sales targets with the input and participation of Jackson community leadership. Equally as important, costs of sales activities (i.e., printing, travel, etc.) are not included in the $50,000 advertising budget.

Interline Connectivity & GDS Display

SeaPort Airlines tickets may be purchased by calling our toll

- free reservation number, online at www.SeaPortAi rlines.com, travel agents , or any major online t ravel agencies and meta

- searchers such as Orbitz, Travelocity, Expedia, Kayak, Hipmunk, and CheapoAir.

On March 23, 2014, SeaPort became the first US airline to be completely hosted by the Amadeus Altéa reser vation platform. This system is one the top three distribution systems in the world and is the same reservation system for such leading airlines as Air France/KLM, Qantas, Emirates, Korean Airlines, and othe rs. Southwest Airlines has annou nced that it too will be fully hosted by Amadeus, in
2015

, wh en domestic markets are joined with international markets that were deployed on Altea in January 2014.

With t his new system, SeaPort has unsurpassed capability compared to other regional airlines with respect to interline ticketing, offering optional s ervices, through baggage check

- in, Inte r

- Airline Thru Check

- In (IATCI), SMS notifications to customers of schedule changes and flight irregularities

, the ability for customers to make online changes to reservations, and (eventually) online check

- in.

Most importantly, however, Altéa enabled SeaPort Airlines to implement its first bilateral interline e

ticketing and baggage agreement. 5 That agreement with Alaska Airlines was activated on March 24, 2014, the day after the reservation migration was compl eted. A second agreement with Hawaiian Airlines will become active on or about December 1, 2014. The company has initiated disc ussion s with multiple airlines about potential incremental revenue from connecting SeaPort customers to build a business case s fo r interline agreement s similar to Alaska Airlines and Hawaiian Airlines

.

5 Bilateral agreements allow both participating c arriers to make reservations and issue tickets on each other’s flights. A unilateral agreement only allows one carrier to sell and issue tickets.OST

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- 7857 November 24, 2014 Page | 7 In addition to the new r eservation platform, in 2014 SeaPort began offer ing rental cars and hotels on its own website. This capability will be enhance d by mid

- 2015 with a dynamic booking process for business trips and vacations that will allow customers to book flights (including those of interline partners), rental car, and hotel in a single transaction and all from a single screen.OST

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- 7857 November 24, 2014 Page | 8 

# Subsidy Request Calcula tions

In December 2011, the Department selected SeaPort to provide subsidized EAS at Jackson for a one year period with an annual subsidy of of $1,149,703. Based on SeaPort’s original proposal, the Department subsequently extended that service period through January 31, 2014 at an annual subsidy of $1,115,210. That service obligation was further extended, at the same rate, through September 30, 2014 while the Department considered a waiver from the continued EAS eligibility requirements contained in th e Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (Public Law No: 1112

- 95). This waiver was granted on September 24, 2014.

On September 30

, 2014, SeaPort requested an increase in annual subsidy to $1,687,696 due to multiple fac tors, including costs at Nashville International and increased training costs due to the national pilot shortage.

Our proposal herein request s an annual subsidy of $1,584,275. This slight reduction from the
earlier requested increase is due to greater op erating efficiencies at Nashville to be realized as a result o new service to Tupelo and Muscle Shoals. Additionally, the brand

- new Cessna Caravans being added to SeaPort’s fleet will have lower maintenance costs and provide a slight increase in fuel effic iency. The table on the next page details and supports the request ed level of subsidy

.

As noted on the cover page, this p roposal is being submitted for a two

- year contract . If desired by the community and approved by the Department, SeaPort Airlines would agree to a four

- year contract at the same level of annual subsidy

.

Respectfully submitted,

Timothy Sieber
Executive Vice President SeaPort Airlines, Inc.

November 24 , 2014OST

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- 7857 November 24, 2014 Page | 9 Operating Projections

Average Sector Length (sm) 111 Scheduled Departures 1,872
Scheduled Block Hours 1,768.0

Projected Completion Factor 99.0%

Projected Completed Departures 1,853 Projected Completed Block Hours 1,750.3

Passenger Projections Projected Passengers 5,061 Passengers per Departure 2.7

Projected Average Fare $48.16

Revenue Passenger Miles (RPMs) 561,771 Available Seat Miles (ASMs) 1,851,427 Projected Load Factor 30.3%

Financial Projections

Revenues Passenger Ticket Revenues $243,723 Ancillary Revenues $4,874

Total $248,597

Expenses Flight Operations $171,531 Aircraft Ownership/Lease $300,000

Fuel & Oil $401,698 Sales & Marketing $50,000 Traffic Servicing $289,434

Insurance $29,755

Maintenance $288,803

Sub-Total - Direct $1,531,222

Indirect $214,371 Total Expenses $1,745,593

Projected Operating Profit/(Loss) ($1,496,996)

Subsidy Calculations Operating Loss $1,496,996
Economic Return @ 5% $87,280

Required Subsidy $1,584,275

Subsidy per Departure $854.85 Subsidy per Passenger $313.04 

### OST-2000-7857 SeaPort Airlines, Inc.

12 Weekly Roundtrips: Jackson - Nashville

6 Weekly Roundtrips: Tupelo - Memphis