DOT-0»T-a^OO *• k>^'*3 

Pacific L.L.C. 

P.O. Box 20280 

Mesa, Arizon a 85277-028 0 

888) 575-454 6 Tol l Free 

www. pacificwings.co m 

April 22, 2011 

VIA ELECTRONIC MAIL 

Mr. Brian Swanson 

Department of Transportation 

EAS and Domestic Analysis Division 

1200 New Jersey Avenue, SE 

"W86-471- ' • • - ' 

Washington, DC 20590-

RE: DOT-OST-2000-6773 

Dear Mr. Swanson, 

t J 

Please accept this correspondence as notice of Pacific Wings' 

intent to continue serving Kalaupapa subsidy-free. 

Pacific Wings is one of few airlines in continuous scheduled 

operation for nearly 40 years. We have been an Essential Air 

Service provider for approximately 14 years. During that time, 

the airline has been awarded nine separate EAS contracts in 

communitj.es throughout country. 

Our understanding of the program is that: 

EAS serves as a "safety net" 

communities remain linked to 

transportation network; 

to ensure eligible 

the national air 

designated points become eligible for EAS funding when no 

air carrier ia willing to serve a particular location 

without subsidy; 

reduction and elimination of federal taxpayer subsidies 

are fundamental objectives of the EAS program; 
B. SWANSON - 22 APR 2011 

• and, 

• federal law currently prohibits payment of EAS subsidies 

in locations where one or more scheduled air carriers is 

wiling to provide service without them. 

Of nine EAS communities served throughout the continental US 

and Hawaii, Pacific Wings has phased out (declined to continue 

accepting) subsidies in all but three during the past five 

years. Moreover, the airline has continued to serve the seven 

communities where we have eliminated EAS subsidies at our own 

expense, as a purely commercial venture. 

Pacific Wings continues to serve every EAS community we have 

ever entered, with or without federal subsidies; a first for 

any EAS provider. 

During the past four years. Pacific Wings has saved' US 

taxpayers in excess of $7.3 million dollars over subsidy 

amounts USDOT previously paid the airline to serve those 

locations Taxpayers will save another $3.6 million during the 

coming two years (the term of a subsidized EAS contract) as 

Pacific Wings continues to operate in these locations subsidyfree . 

During the past 12 months, Pacific Wings has phased out 

(declined) subsidies in three additional cities across the 

country, saving taxpayers an additional $7 . 9 million over the 

next two years. Collectively, this represents in excess of 

$18. 3 million in savings to federal taxpayers. 

These taxpayer' savings do not represent an act of charity or 

corporate generosity. Rather, they reflect an understandng 

that rampant waste clearly evident in the program could 

eventually result in its elimination; and with it, airlines 

dependent primarily on subsidies for survival. Indeed, some of 

the largest EAS providers in the country have operated (or are 

operating) in bankruptcy, despite deriving the majority of 

revenues from EAS contracts which guarantee a 5% profit 

margin, 

Migration from subsidized to non-subsidized EAS delivery 

models necessarily involves higher fares, as the financial 

burden of providing service shifts from federal taxpayers to 

Page 
B. SWANSON ^ 22 APR 2011 

beneficiaries actually receiving services. These fares are 

certainly higher than those charged when service is 

underwritten by US Taxpayers, but considerably lower than 

subsidies paid by USDOT on a per-seat basis under the EAS 

program: 

• In Macon, GA one-way fares increased from 539 to $185 

after Pacific Wings declined EAS subsidies; a decrease 

of 60% from the $464 per-passenger subsidy previously 

paid by EAS to fly fewer than five passengers per day 

• In Jackson, TN one-way fares increased from $39 to $185 

after Pacific Wings stopped accepting EAS subsidies to 

serve that location; a decrease of mor e than 5 0"6 from the 

$37 3 per-passenger subsidy previously paid by EAS to fly 

fewer than nine passengers per day. 

• In Owensboro, KY one-wa y fare s increased" frgm $39 to $185 

after Pacific Wings stopped accepting EAS subsidies to 

serve that location; a decrease of more than 81% from the 

$9 95 per-passenger subsidy previously paid by EAS to fly 

fewer than nine passengecs per day. 

Nationally, USDOT has purchased up to 80% more capacity than 

historical data indicate eligible communities require to 

accommodate the handful of passengers typically utilizing the 

service in some locations; resulting in gross waste of federal 

money and prohibitively high subsidy levels. 

Some communities appear to recognize and accept that it is 

preferable to have a self-sufficient provider operating at its 

own expense (albeit with higher fares) than to lose service 

altogether in the event Congress significantly curtails or 

eliminates the EAS program; or, in the event per-passenger 

subsidy levels reach a threshold which disqualifies them from 

the program. - ' > • 

Members of Hawaii's Congressional delegation, however, began 

applying political pressure on USDOT to intervene in Pacific 

Wings' deregulated pricing and service almost immediately 

after the airline adjusted fares to a level necessary to make 

formerly-subsidized EAS communities self sufficient. 

Pacific Wings has provided Kalaupapa with 7 5% more service 

than the statutory EAS requirement - at its own expense^ -

Page 3 
. SWANSON - 22 APR 2011 

since 2007. This includes greater frequency and more 

destinations than Kalaupapa is entitled to under the EAS 

program, at absolutely no cost to U.S. Taxpayers. 

It is our hope that USDOT will not allow Hawaii politics or 

political influence to unnecessarily increase costs to U.S. 

Taxpayers or undermine our business during this time of 

ballooning federal deficits and economic crisis. 

RespeCZpally, 

•t^reg Kahlstorf 

Chief Executive' Officer 

Pacific Wings, L.L.C. 

attachm<3n"t 

Page 4 
PAHONBOGGS 

AIIONE n HI LAW 

UP 

2^50 W SURfii. NW 

Washington, DC ^003? '350 

20? -l^^bQOO 

Facsimile ?02 ib l 6315 

www paitonboggs com 

April 20, 2011 Gregorys. Waldcn 

202-457-6135 

G Wa !den @paltonboggs.com 

Honorable Susan L. Kurland 

Assistant Secretary for Aviation and International Affairs 

Office of the Secretary 

United States Department of Transportation 

Filed with www.regulations.eov & Docket Operations 

M-30 West Building Ground Floor 

Room W12-140 

1200 New Jersey Avenue. SE 20590 

Re: Docket DOT-OST-2000-6773. Response of Pacific Winss to Order 2011 -4-7 

Dear Assistant Secretary Kurland: 

Pacific Wings hereby responds to the Order Requesting Proposals, served April 6, 2011, from 

carriers interested in providing Essential Air Service as Kalaupapa, Hawaii, for a two-year 

period, with or without subsidy. Pacific Wings has provided subsidy-free service since April 

1, 2007, and intends to continue to provide subsidy-tree service using 9-seat Cessna Grand 

Caravan aircraft. The Order acknowledges that "[i]n cases where a carrier proposes to 

provide EAS without subsidy and we determine that service can be provided reliably without 

subsidy, we typically do not proceed with the carrier-selection case." Notwithstanding Pacific 

Wings* expressed intention to continue providing subsidy-free service, the Order Requesting 

Proposals was predifated on two findings: (1) a decrease in enplanements and flight 

completion percentages; and (2) continuing service complaints "from the community." We 

believe neither finding is supported by the facts, suggesting that the Order was prompted 

solely because of complaints over fares, a matter deregulated since 1978, even for EAS 

routes. 

Pacific Wings completed more than 1,800 flights o\er the EAS statutory requirement, 

from 2007 through 2010 

Order 2011-4-7 states: "[CJommunities are entitled to receive their minimum EAS levels, 

established by statute." "Basic essential atr service" is "at least 2 daily round trips 6 days a 

week, with not more than one intermediate stop on each flight," 49 U.S.C. 41733(b)(1)(A), 

between an EAS point and a hub airport. In the Kalaupapa market, that means at least 12 

Washingto n DC Nortiier n Virgini a New Jfirsoy N e w Yo''k Dall3<i Denve r Anchorag e Dol l a Auu Oh a 1)1 
PAITONBOGGS. 

Pacific Wings' Response to Order 2011-4-7 

April 20, 2011 

Page 2 

weekly round trip flights between Kalaupapa (LUP) and Honolulu, with one stop permitted. 

The Order also states, "The completion percentage at the community falls short of acceptable 

levels of EAS." Pacific Wings has consistently operated twice daily round trips between 

Kalaupapa and Honolulu, with an intermediate stop in Hoolehua (Molokai) (MKK), and daily 

round trip service between Kalaupapa and Kahului (OGG)» with an intermediate stop in 

Hoolehua. That schedule is well in excess of the EAS statutory minimum requirement of 12 

round trips. Thus, the Kalaupapa community not only receives 14 weekly round trip flights 

between Kalaupapa and Honolulu; the community also receives round trip service to Kahului, 

This is 21 round trips per week, which is 75% more scheduled service than the statutory EAS 

requirement. 

We calculate that the annual EAS required minimum for a 100% completion percentage is 

1,248 flight segments (a round trip counts as two flight segments; 12 round trips per week X 

52 weeks). The BTS, T-lOO segment data of actually performed flights that Pacific Wings 

files with the Department is consistent with the figures noted in Attachment C to the Order, 

which is taken from Pacific Wings' published schedules. However, in determining whether a 

carrier is providing the minimum EAS level required under the statute, as well as whatever 

the Department deems is "an acceptable level of EAS," it is incorrect to compare the flights 

actually performed with Pacific Wings' scheduled departures, because Pacific Wings' 

schedule includes many additional flights not required under the statute. 

A comparison of the number of flights actually performed per month with the number of 

flights required under the EAS statutory minimum from 2007 through 2010 shows that 

Pacific Wings operated 1,813 flights to and from Kalaupapa in excess of the EAS statutory 

requirement. (406 additional flights in 2007, which is 32.5% more service than the statutory 

requirement; 916 additional flights in 2008, or a 73.4% more service; 485 additional flights in 

2009, or 38.9% more service; and 6 additional flights in 2010, or 0.5% more service). Thus, 

the Order paints a distorted picture of the service Pacific Wings has provided tlie Kalaupapa 

community over the past four plus years. And, since April 1,- 2007, Pacific Wings has 

provided this service at no cost to the Federal government, saving the taxpayer millions of 

dollars. 

Is the Department changing policy to evaluate the acceptable completion percentage for an 

EAS carrier by considering non-EAS flights? If so, this policy will serve as a disincentive to 

any EAS carrier that is now operating or is contemplating operating service in addition to the 

EAS statutory requirement. 
PAnONBOGGS. 

inaiiEri IT U I 

Pacific Wings' Response to Order 2011-4-7 

April 20, 201! 

Page 3 

Pacific Wings has a completion rate of 99% of flights with one or more passengers 

Even if it is relevant to compare actually performed flights with scheduled departures, Pacific 

Wings completion percentage for flights with one or more passengers since April 2007 has 

been in excess of 99%. This dispatch rate is higher than any other carrier - large or small - in 

Hawaii. The few cancellations of flights with at least one confirmed passenger since April 

2007 (approximately one or two flights per month) have resulted from severe weather or 

maintenance problems. 

In what respect is a 99% completion rate for flights with one or more passengers unacceptable 

to the Department? Is the Order Requesting Proposals predicated on a Department policy 

change that an EAS carrier must operate a plane without any passengers? 

Pacific Wings does not operate a scheduled flight for which there is no passenger who has 

booked the flight at least 60 minutes prior to scheduled departure. As a result of a 

Department inquiry into Pacific Wings' service at Hana Airport in 2007-08, Pacific Wings 

instituted its current one-hour booking and check-in policy, which is clearly stated on Pacific 

Wings' website and in its contract of carriage, and which the Department's Office of General 

Counsel found acceptable. Thus, the Department confirmed that Pacific Wings is not 

obligated to fly an empty aircraft. 

This determination is consistent with previous Department Consent Orders. See hi re 

Airways International, Inc., Order 92-7-11 and fn re Peninsula Airlines, Inc., Order 89-6-23): 

[IJt would not be reasonable to expect absolute adherence to published schedules .since 

flights must be cancelled for numerous reasons, including bad weather and equipment 

failures. Because of thin traffic in many commuter markets such as the Bahamas 

markets at issue here, we can also foresee flights being cancelled, stops being omitted, 

or the order of stops being altered from time to time because there are no passengers 

or freight to transport ... . Nor do we object to the cancellation of an occasional 

flight for lack of traffic provided the carrier rigorously follows the practice of 

checking with outlaying stations to ensure that no traffic is present. 

Peninsula Airlines, at 4. 

In the Department's review of Pacific Wings' EAS operations, tlie Department did not 

identify any harm to the traveling public where a flight without passengers is canceled, and 

the Department raised no objection to the 60-minute before scheduled departure cut-off for 
PAIIONBOGGS. 

MIlllEr] II UR 

Pacific Wings' Response to Order 2011-4-7 

April 20. 2011 

Page 4 

reservations, as this is similar if not more generous than most scheduled airlines. Moreover, 

Pacific Wings keeps a flight open for booking until the check-in time; if no passenger shows 

by check-in time, the flight is canceled. In the two years since the Department completed its 

review of Pacific Wings' EAS operations in the Hana-Honolulu market, the Department has 

expressed no concern to Pacific Wings with its policies. 

Indeed, the number of scheduled flights to or from Kalaupapa with no passenger having 

booked a flight at least 60 minutes before scheduled departure is in part the result of Pacific 

Wings' offering three daily roundtrips between Kalaupapa and Hoolehua, rather than the two 

required by the EAS statute. 

Is the Department changing policy to insist that a non-subsidized EAS carrier operate a flight 

with no passengers? ' If so, such a policy should be announced publicly and, in any EAS 

selection proceeding, the non-subsidized carrier should be given the opportunity to request a 

subsidy to account for those empty flights. 

Service complaints from the community are based on concerns over fares, a matter not 

subject to Federal or State regulation 

Pacific Wings estimates that over the past two years or so it has received no more than one or 

two complaints from Kalaupapa passengers. It is not surprising that no would-be passenger 

would complain about the cancellation of a flight no more than 60 minutes prior to scheduled 

departure unless that passenger had booked a ticket for that flight.^hus, Pacific Wings has 

not received a single complaint over the cancellation of an empty flight. 

With respect to other service complaints, the Order Requesting Proposals provides no specific 

allegations of inadequate service, and we are aware of no complaints, regular or episodic, 

regarding the service of Pacific Wings gate agents, baggage handlers, or pilots in the last 

couple of years. 

In response to concerns over air fares, Pacific Wing informed the community that it would 

lower its fares if Pacific Wings obtained an EAS subsidy and solicited the community's 

support for such-an EAS bid. In response, Pacific Wings indirectly received reports of 

' Representative Abercrombie, by letter dated July 18, 2008, wrote ihe Department with respect to various 

service complaints reported by his constituents - but not to Pacific Wings - with respect to Pacific Wings' 

service at Kalaupapa. Similarly, Representative Hirono, by letter dated August 1, 2008, wrote Pacific Wings 

with respect to various service complaints. The Department responded to Rep. Abercrombie by letter from 

Michael W. Reynolds, dated September 2, 2008, which Pacific Wings forwarded to Rep. Hirono as its response 

to her letter. 
PAHONBOGGS. 

iiiiiiiEri II l u 

Pacific Wings' Response to Order 20! 1-4-7 

April 20, 201] 

Page 5 

unspecified service problems. So Pacific Wings informed the Department that it would pull 

its EAS bid in order to work with the community to address these service concerns. No such 

service concerns have been brought to Pacific Wings' attention since. 

Thus, we suspect that what the Order Requesting Proposals refers to as air service complaints 

from the community would be revealed as nothing other than a concern over fares. It is an 

obvious fact that a carrier providing non-subsidized service in an EAS market is likely to 

publish higher fares than a carrier providing subsidized service, because the former carrier 

cannot offset Its variable costs with the Federal subsidy. The EAS statute addresses fares in 

defining "basic essential air service" to include flights "at prices that are not excessive 

compared to the generally prevailing, prices of other air carriers" for like services between 

similar places." 49 U.S.C. 41732(bX2). The Order Requesting Proposals does riot reference a 

specific concern over fares, and there is no basis to believe (hat the fares Pacific Wings 

publishes in these markets are more than the fares of competing carriers in the Hawaiian 

interisland markets. As a general matter, fare regulation was eliminated in the Airline 

Deregulation Act of 1978; the only remaining possible regulation of fares relates to 

unreasonably low fares (predatory pricing). 

Under the EAS statute, where a carrier provides service without a subsidy, there is no 

authority to subsidize a competing carrier. See 49 U.S.C. 41733(c); and (d)("The Secretary 

shall end payment of compensation to an air carrier for providing basic essential service to an 

eligible place when the Secretary decides the compensation is no longer necessary to maintain 

basic essential air service to the place.") The deregulated market allows an air carrier to 

compete with Pacific Wings and charge lower fares. It is telling that the carriers that would 

complete with Pacific Wings in the Kalaupapa market are willing to do so only with the 

benefit of a Federal subsidy. 

The Order refers in two places to the "unique needs" of tlie Kalaupapa community. Although 

the Order does not explain why the Kalaupapa community is unique, we believe it is because 

the presence of patients suffering from Hansen's disease. There has never been a complaint 

made that the Cessna Grand Caravan aircraft is inadequate to transport the patients at 

Kalaupapa. Also, Pacific Wings is unaware of any complaint by a Kalaupapa patient 

submitted to the Department under the Air Carrier Access Act. If the Department believes 

these patients are in need of subsidized air service to be able to afford to travel, the 

Department should know that the airfare for Kalaupapa patients as well as most workers 

(National Park and Health workers) is paid for by the State of Hawaii or their respective 

employer. Moreover, we believe there arc now few patients, perhaps no more than four, who 

are able to travel by air and travel on Pacific Wings. This not only explains a lot of the 
PAIIONBOGGS. 

inillET ! 11 111 

Pacific Wings' Response to Order 2011-4-7 

April 20,2011 

Page 6 

decline in enplanements over the years, but also refutes any concern that air travel on Pacific 

Wings is not affordable for these patients. 

In sum, there is no legitimate reason - whetlier under the law, longstanding Department 

policy, or the facts - to reopen the Kalaupapa EAS proceeding to solicit bids for subsidized 

service when Pacific Wings currently provides the community more flights and travel options 

than the statute requires, and does so without Federal subsidy. 

ispectfully submitted, x r\ 

^aiden 

Coiinsel fot pacific Wings