## MOKULELE FLIGHT SERVICES DBA MOKULELE AIRLINES, INC.

PROPOSAL TO PROVIDE ESSENTIAL AIR SERVICES

Kalaupapa, Hawaii

Dated: October 30 th 

## , 2013

Order 2013-10-3

Served: October 4, 2013

Docket: DOT-OST-2000-6773Mokulele Airlines Proposal to Provide Essential Air Service to Kamuela Airport

Mokulele Flight Services, Inc. ,dba Mokulele Airlines , submits the enclosed proposal to provide essential air services to the community of Kalaupapa, located on the island of Molokai, Hawaii. Such service is provided under Essential Air Service Order 2013-10-3, dated October 4, 2013.

Mokulele Airlines is a 135 FAA cert ified scheduled airline with auth orization to carry both passengers and mail. Operating under this ce rtificate, Mokulele Airlines, prov ides scheduled passenger services throughout the islands of Hawaii. Founded seven years ag o, Mokulele Airlines is an integral part of the
Hawaiian Island culture.

Mokulele fulfills the four selection criteria for esse ntial air service award: (1) service reliability; (2) contractual and marketing arrangements with a larger ca rrier at the hub; (3) inte rline arrangements with a larger carrier at the hub; and (4) community views.

Proposal:

In response to the Request for Proposal issued by th e Department of Transportation, Mokulele Airlines is proposing several potential options for service to the community of Kalaupapa. We are prepared to implement all or selected options. Option One - daily departures between Kalaupapa and Honolulu, Option Two – daily departures between Kalaupa pa and Kahului, Option Three - d

Mokulele’s goai is providing cost effective flights fo r the residents of Kalaupapa with competitive fares on non-stop flights to Honolulu and Kahului. The timing and price of these flights afford the residents access to easy same day travel to an d from Kalaupapa. Every effort is made to insure that the flight schedule affords the traveler connectivity to intern ational and mainland departures in Honolulu and
Kahului.

Mokulele is poised to begin this service within 60 days of acceptance of the proposal. Many of the residents of Kalaupapa are familiar with the excellent service provided by Mokulele Airlines to and from Hoolehua, Molokai and other destinations throughout the islands. Mokulele Airlines is in a position to offer passengers onward flights through global distribution networks assuring online access by traditional travel agents and online travel agencies such as Expedia and Orbitz.

Experience:

Earlier in the year, Mokulele Airlines was awarded it’s first bid to provide Essential Air Service to Kamuela, Hawaii. With service begi nning in September, 2013, this route has become very popular with Kamuela residents. Operating twelve weekly flight s to and from Kamuela, Mokulele Airlines providescomfortable, reliable air transport between Kamuela and Kahului. We are confident in our ability to provide excellent service to Kalaupapa Airport.

We feel that our excellent marketing programs, responsible management, customer service, new and well maintained aircraft, and our demonstrated operat ional excellence will build traffic in the Kalaupapa market. We are prepared to partner with the community to make this a viable market.

We have experience in returning under- serviced, neglected communities back to life. Through a marketing arrangement with Traavasa/ Hana Hotels, we entered the Ha na/Kahului market in 2012. We offered a competitive fare pricing structure that was not available from the previous operator.

In operation for eight months, the Kaha lui/Hana route is a real success story. In the first eight months of operation, Mokulele flew 1,706 passengers compared to the previous operator who flew less that four hundred passengers in the first ten months of 2012.

Mokulele Airlines will repeat this success story with Kamuela/Waimea/Kohala Coast communities.

Equipment:

The proposed flights are offered aboard a Cessna Gra nd Caravan operated with both a pilot and a first
officer onboard. The Cessna Caravan is a modern ai rcraft, still in production . Manufactured by one of the most recognized aviation companies in history, the Caravan is one of the largest and safest aircraft of its size and range. The aircraft comfortably seats nine passengers with a large cargo pod for baggage. The aircraft is equipped with modern avionics, fully integrated auto pilot, weather radar, and onboard weather. The aircraft are air conditioned and heated for passenger comfort.

Mokulele Airlines continues to expa nd and improve its fleet of caravans, adding additional aircraft as the traffic warrants and replacing older aircraft with new on es. The fleet currently consists of 11 aircraft of which five were purchased in the last year.

Reservations and connectivity:

Flight reservations are made easy on Mokulele Airl ines. Reservations can be made via our website at
www.mokulelehawaii.com . Customers can also make reservatio ns by telephone with our experienced, industry knowledgeable staff located in Hawaii. Mokulele Airlines offers global distribution integration, thus accommodating easy access to inventory by tr aditional travel agents and online travel agencies such as Orbitz or Travelocity.

Mokulele Airlines is the only commuter airline in Ha waii with a code share partner operating interisland. This same affiliation carries the potential for bilate ral interline ticketing with many major carriers. Mokulele has operated as a codesh are partner with Mesa Airline, Go! Since 2007. Mokulele also has interline agreements with Alaska Airlines and two in ternational carriers. Under the Mesa Airlines code, Mokulele can also offer interline ticketing to Mesa partners – American, Delta, and USAIR.Service:

Like all of our ticket counters, the facility in Ka laupapa will be staffed by professional, well trained personnel who will assist in both reservations and the boarding process. The counter will be professionally marked with clearly readable signs identi fying it as the Mokulele Ai rlines ticket counter. Personnel will assist boarding passengers in a professional and helpful manner.

Passengers are required to check in 30 minutes prior to departure in Kalaupapa. Check in times in for the Honolulu return fight may be longer due to TSA requirements.

Flights to and from Honolulu are operated out of the interisland terminal. Shuttle bus service operates continuously assuring easy transporta tion to the international terminal.

Conclusion:

Mokulele’s record for on time performance and reliability coupled with th eir dedication to the communities that they serve, makes Mokulele an idea l candidate to provide essential air service to the Kalaupapa Airport. Daily service between Kalauapapa nd Honolulu provides this community the ability to
connect with mainland as we ll as interisland flights.

Our bid assures that the proposed route is serviced reliably and cost effectively. The proposed schedule coincides with many daily departures to the mainland and other islands.

We appreciate the opportunity to re spond to your request for proposal.

Respectfully submitted by:

Ron Hansen

CEO/President

Mokulele Flight Services dba Mokulele Airlines, Inc.

73-350 U’u Street

Kailua-Kona, Hi. 96740OVERVIEW

Based in Kona, Hawaii, Mokulele was founded in 1998 as an inter-island airline offering service to seven destinations on five islands. The management team of Mokulele is highly experienced in the airline industry and has seized on the opportunity for ex pansion by providing greater efficiencies and operational controls. Mokulele is a “scheduled” Part 135 Air Carrier with an excellent service record. Mokulele operates more than 120 daily flights and carries 20,000 plus passengers monthly with its fleet of ten Cessna Grand Caravans.

Current Operations

Mokulele currently employs 87 full-time and 30 part -time employees, most performing collateral duties at the seven airports it currently serves. The employee group is non-union, primarily comprised of young, local residents eager to see the company pros per and grow in the island market. In December 2012, Mokulele relocated its call center from the ma inland to Maui to provid e Mokulele’s passengers with an enhanced level of customer service by en suring that their calls will be answered by local residents who are knowledgeable about Hawaii. Presently, Mokulele owns and operates ten ne w and late model Cessna Grand Caravans, each configured with nine passenger seats The aircraft maintenance departments are located at Kona and Kahului where it employs 12 licensed A&P mechanics on a 20 hour, seven day per week schedule. All maintenance except engine and prop overhaul is accomplished by Mokulele’s maintenance department.

Operating Certificate and Authority

Mokulele conducts business as a certified FAA Part 135, Scheduled Air Carrier. Refer to Exhibit A for copies of Mokulele’s FAA Air Carrier Certific ate No. MK9A559L and DOT Certificate of Public Convenience and Necessity for Interstate Air Transportation.

Routes and Airports Served Mokulele operates as a passenger carrier and code shares with Go Airlines with the intention of expanding the inter-line agreements with foreig n and domestic airlines which serve Hawaii. The attached route map attests to Mokulele’ coverage of the island. 

# Company OverviewMarket Opportunity The following, in descending order of importance, ar e ten elements that will lead to the continued success of Mokulele Airlines:

 Employing an experienced, professional management team that combines vision, realism and solid knowledge of the Federal Aviation Regulatio ns relating to flight and legal responsibilities involved for companies engaged in scheduled passenger flights. The management team’s strengths include familiarity with the latest aviat ion, electronic and info rmational technologies; familiarity with the region and markets to be serv ed; realization of the crucial importance of an organization’s personnel and their relation ship to the company’s success and a total commitment to the overall mission and goals of the airline.

 Implementing an intelligent, progressive and aggressive marketing strategy that identifies Mokulele Airlines as a unique air carrier flying unique routes with a unique passenger clientele. It is a marketing philosophy that identifies Moku lele and its employees as sharper, smarter and with a higher level of professionalism and operat ion standard than is the norm in the market, combined with highly competitive fare pricing.

 Presenting a friendly, cooperative, enjoyable yet highly professional safety-conscious flight crew to the traveling public.

 Maintaining aircraft with a highly trained and knowledgeable staff equipped with spare parts and tooling, yields aircraft that comply with all FAA aircraft maintenance standards and high dispatch reliability.

 Establishing a high level of operat ional oversight and quality control that will ensure that Mokulele always lives up to its co mmitment to a high level of flight safety, customer satisfaction and convenience at a reasonable, highly competitive fare.

 Growing the company based on need rather than growth for growth’s sake. This requires being aware of solid niche-enlargement opportunities that will allow incremental, but always profitable expansion. Examples of this strategy include the expansion of service to Kapalua and Hana, Maui in 2012.

 Development and implementation of code share and interline agreements with well established major airlines thus offeri ng cost advantages to our clients.

 Identifying and developing cost-effective opportunities for new markets, new market concepts and expanded sales potential. This objective ca n be accomplished by maintaining an awareness of combining the core aviation business with an cillary marketing concep ts and activities and ground-based operations that support, supplemen t, and complement the aviation elements of the business. These elements include such acti vities as aviation services, and other logical business pursuits both within and outside the immediate aviation business.

 Utilization of the latest electronic and informatio nal technologies in sales and marketing, reservations, scheduling, resource planning and operational oversight. Technologies such as Internet marketing, reservations, operational ov ersight and flight tracking all contribute to reduced staffing requirements for Mokulele.Competitive Advantages

 The current competitive environment for Mokulele Ai rlines is bright with very little competition. Mokulele Airlines is uniquely positioned to co ntinue growing. Mokulele has the most daily flights from the following airports: Kona (KOA) 12, Kahului Airport (OGG) 21, Kapalua (JHM) 7, Hana (HNM) 2, Ho’olehua Airport (MKK) 14.

Sales and Marketing

Mokulele’s growth strategy concentrates on bu ilding market share through the following actions:

 Code Sharing and Interline Agreements — Code sharing offers the passengers that begin their flight on Mokulele a reduced fare when they transfer to a code-sharing partner of Mokulele’s to continue their flight to the final destination.“Our entire trip over to Molokai to ride the mules down to Kalaupapa, beginning with a flawless flight, was so amazing and challenging for me. Not one to love heights, nothing during the flight caused me concern or angst. Your pilots did a great job!” - Cheryl B.

“I want to thank you Lehua Wanda for helping me with my United flight issues. She is so wonderful and helpful. I wouldn't be able to get to Maui without her help for over an hour. Big Hugs to her. Thank you Manit

“On 7 February I flew from Molokai to Maui for a day trip. I flew my favorite airline, of course. Great service by the staff at the counter and th e pilots were outstanding. There is one more reason to like Mokulele...you take great care of our military personnel. Thanks for a great flight. I will be flying with you again in another 10 days.” - Paul S.

“What do I enjoy about flying for Mokulele?” “The people, the company, the planes, all the views... It’s all great.” - Jordan B., pilot

“As a former Navy P-3 Orion dude I just wanted to say what an amazing flight my family (especially very nervous-to-fly wife) had with Chris flying us from Maui to Kona on Sunday 26 August. He is a tremendous "stick" and really gr eased the landing, and his positive attitude and aloha spirit made the flight extremely memorable. I will absolutely be flying Mokulele again on my next tripto Hawaii! Many thanks and please pass my gratitude and comments on to Chris and everyone in a leadership position wi th your great company!” – Commander Dave

“I need help to locate one of your employees na med Jeremy. Back in March I lost my backpack off the cliffs of Honolua Bay. To my surprise it was mailed back to my home in New York by Jeremy. He left a note with his business card bu t unfortunately I have lost this information. I want to contact him and thank him for his thoughtfulness. All I need is an email.” - Angela

“My name is Mark H. and I feel a bit delinquent at submitting this. It was toward the end of September I flew out of Waimea Airport into Kaha lui, Maui. This is regarding especially Rona Lee, Station Manager and Edwyna, Customer Service Agent.I went into the terminal before the early morning flight,although I was flying on the afternoon flight,burdened with a baggage concern wanting to see if one of my bags could go out on the early flight in case there was no room for it later. I am disabled and have a special chair that requires two bags for reassembly, 

# What Our Customers Say About Usin addition to my carry on and back pack.Before they even knew I had an issue, they welcomed me with such warm aloha,immedi ately, the stress I was feelin g diminished significantly.

Then when they heard of my request, even though they admitted they were unable to fulfill my request per se, they assured me they would help me. I was then feeling the full force of aloha spirit and totally relaxed. Aunty Patsy, the Ko na Station Manager happened to be there at the time and they spoke with her. In the end, all I was asked to do was show up a little early and they would take care of it. On top of it, th ey informed me handicapped equipment was no charge even though I was prepared to pay full pric e! Wow! I left blown away with Aloha Feeling all through me. On top of all that, a whole 10 days later when I returned on the evening flight, one of the two mentioned at the top, the shorter of the two (Edwyna?...maybe Rona Lee...but the shorter, smaller one)recognized me and ev en remembered my na me!!! and asked me how my trip went!!! Wow! More Al oha! Out to my car with a smile soooooo big! Never had an experience like that wi th any airline before.

I had to give these two women magnified praise for their very special Customer Care aloha spirit, far above and beyond the norm, and the "call of duty". Totally COOL!

I am flying the same trip this weekend and again next weekend fully looking forward to supporting your airlines!!!!!!!!!!!!! “Blessings and Mahalo,Mark H Extremely Satisfied CustomerGDS Connectivity

Mokulele Airlines provides full global distribution co nnectivity. Mokulele flights are listed on Apollo, Worldspan, Galileo,Travelport and Sabre.

Mokulele Airlines flights are available for booking by most travel agents and through popular online booking sites such as Expedia and Orbitz.

Passengers can book directly with Mokulele Airlines through our website at www.mokulelehawaii.com

. We also provide a call center for telephone bookings . .

CODESHARE AND INTERLINE

Currently, Mokulele Airlines codeshares flights with GO Airlines. Through this connection, passengers can book onward flights with a number of interline carriers.

RESERVATION

Mokulele Airlines utilizes a sophisticat ed airline specific reservations system to initiate, track and report on reservations made through their website. 

# Your Connection to the World from HawaiiMokulele Airlines operates eight nine passenger Cessna Grand Caravan aircraft. The Grand Caravan aircraft is currently in production. Five of the ten aircraft are new, off the production line.

The Cessna Grand Caravan enjoys a reputation for depe ndability and safety. The aircraft is in worldwide use, accumulating more than 12 million hours throughout the worldwide fleet of aircraft.

The aircraft is air conditioned and heated assuring passenger comfort. The nine passenger Cessna includes a large cargo pod assuring comfort in the passenger cabin.

The Cessna Grand Caravans are equipped with:

 Garmin G-100 avionics package

 GPS Traffic and terrain avoidance systems

 Onboard weather and weather radar

 Integrated auto pilot 

# Our Equipment

## Proposed Schedule for Kalaupapa, Molokai

This is only a possible schedule

– Mokulele plans on working with the tour operators, Park Service, and community on developing a schedule that works for the community to maximize their air service. We feel that providing service to both Honolulu and Kahului will alleviate the needs to fly “topside” to Ho’olehua, Moloka’ I

– however we have included 6 flights a week to “ topside ” should the community and DOT want this to be part of the bid package.

Kalaupapa to Honolulu, Oahu Honolulu to Kalaupapa Depart Arrive Frequency 8:55AM 9:25AM X Sun 2:45PM 3:15PM Daily Depart Arrive Frequency 8:30AM 9:00AM X Sun 4:00PM 4:30PM Daily

Kalaupapa to Kahului, Maui Kahului to Kalaupapa Depart Arrive Frequency 9:20AM 9:44AM X Sun 4:55PM 5:17PM Daily Depart Arrive Frequency 8:08AM 8:30AM X Sun 2:00PM 2:22PM Daily



## Proposed Fares for Kalaupapa, Molokai

Below fares are just sample proposed based on today’s current environment and are subject to change. Fares below are ONE WAY and may not include all taxes (IE

– TSA security fee).

Honolulu Kahului Ho ’ olehua Walk up, last seat fare $99 $99 $39 Everyday low fare $79 $79 Lowest fare, advance purchase $59 $59

Mokulele believes in charging ALL residents of Molokai affordable yet realistic fares. The subsidy from the U.S. DOT should not help support “other” operations within our airline, we are only charging fair prices that are sustainable. We will also include Kalaupapa with any and all fare sales that are network-wide.Kalaupapa to Kalaupapa to Kalaupapa to Kalaupapa to Kalaupapa to Kalaupapa to Kalaupapa to Kalaupapa toHonolulu Kahului Honolulu Kahului Honolulu Kahului Honolulu KahuluiYear 1 Year 1 Year 2 Year 2 Year 3 Year 3 Year 4 Year 4Weekly Frequencies26 26 26 26 26 26 26 26Completion Factor99% 99% 99% 99% 99% 99% 99% 99%Annual Departures1326 1326 1326 1326 1326 1326 1326 1326Block Time (in minutes)0.60 0.40 0.60 0.40 0.60 0.40 0.60 0.40Annual Block Hours796 530 796 530 796 530 796 530Stage length (statute miles)62 41 62 41 62 41 62 41Available Seat Miles (9 seats)739908 489294 739908 489294 739908 489294 739908 489294Load Factor35% 23% 38% 27% 41% 32% 44% 34%Passengers 4200 2700 4500 3200 4900 3800 5200 4100Revenue Passenger Miles260400 110700 279000 131200 303800 155800 322400 168100Average Fare$71.16 $73.49 $71.16 $73.49 $73.95 $73.49 $75.81 $77.21$79 fare $79 fare $79 fare $79 fare $82 fare $79 fare $84 fare $83 fareRevenue:Passenger $298,883.72 $198,418.60 $320,232.56 $235,162.79 $362,372.09 $279,255.81 $394,232.56 $316,558.14Ancillaries $3.50 $14,700.00 $9,450.00 $15,750.00 $9,450.00 $17,150.00 $9,450.00 $18,200.00 $9,450.00$313,583.72$207,868.60$335,982.56$244,612.79$379,522.09$288,705.81$412,432.56$326,008.14AssumptionsFuel Cost P/Gal $3.80Fuel Burn Gallons P/Hr 55.00Direct Expenses:Ownership $65.00 Per Blk Hr $51,714.00 $34,476.00 $51,714.00 $34,476.00 $51,714.00 $34,476.00 $51,714.00 $34,476.00Flight Crew $75.00 Per Blk Hr $59,670.00 $39,780.00 $62,653.50 $41,769.00 $68,918.85 $45,945.90 $72,364.79 $48,243.20Fuel & Into Plane Fees $209.00 Per Blk Hr $166,280.40 $110,853.60 $191,222.46 $127,481.64 $210,344.71 $140,229.80 $231,379.18 $154,252.78Insurance $15.00 Per Blk Hr $11,934.00 $7,956.00 $11,934.00 $7,956.00 $13,127.40 $8,751.60 $13,783.77 $9,189.18Maintenance $210.00 Per Blk Hr $167,076.00 $111,384.00 $175,429.80 $116,953.20 $192,972.78 $128,648.52 $202,621.42 $135,080.95Miscellaneous/Reaccom $15.00 Per Blk Hr $11,934.00 $7,956.00 $11,934.00 $7,956.00 $13,127.40 $8,751.60 $13,783.77 $9,189.18Total Direct Expenses $468,608.40 $312,405.60 $504,887.76 $336,591.84 $550,205.14 $366,803.42 $585,646.93 $390,431.29Indirect Expenses:Landing Fees $18.00 per dept $23,868.00 $23,868.00 $23,868.00 $23,868.00 $26,254.80 $26,254.80 $26,254.80 $26,254.80Passenger Services $96,627.50 $89,340.00 $101,458.88 $93,807.00 $111,604.76 $103,187.70 $122,765.24 $113,506.47Marketing $3.35 per Pax $14,070.00 $9,045.00 $15,075.00 $10,720.00 $16,582.50 $11,792.00 $16,582.50 $11,792.00Set up costs / training $10,000.00 $10,000.00General & Admin/Other 4.8% of Direct $22,493.20 $14,995.47 $25,446.34 $16,964.23 $27,990.98 $18,660.65 $30,790.08 $20,526.72Total Indirect Expenses $167,058.70 $147,248.47 $165,848.22 $145,359.23 $182,433.04 $159,895.15 $196,392.61 $159,895.15$635,667.10 $459,654.07 $670,735.98 $481,951.07 $732,638.18 $526,698.58 $782,039.54 $550,326.44Income (loss)($322,083.38) ($251,785.46) ($334,753.42) ($237,338.28) ($353,116.08) ($237,992.76) ($369,606.98) ($224,318.30)Profit element$23,430.42 $15,620.28 $25,244.39 $16,829.59 $27,510.26 $18,340.17 $29,282.35 $19,521.56Subsidy requirement$345,513.80$267,405.74$359,997.81$254,167.87$380,626.34$256,332.93$398,889.33$243,839.86Subsidy per passenger$82.27 $99.04$80.00$79.43 $77.68$67.46$76.71 $59.47Subsidy per departure$260.57$201.66$271.49$191.68$287.05 $193.31 $300.82$183.89per passengerTotal RevenueTotal Operating ExpensesKalaupapaKalaupapa to Ho'olehua Ala Carte Option

Weekly Frequencies 12 Completion Factor 99% Annual Departures 612 Block Time (in minutes) 0.25
Annual Block Hours 153 Stage length (statute miles) 9 Available Seat Miles (9 seats) 49572
Load Factor 25% Passengers 1400 Revenue Passenger Miles 12600 Average Fare $36.28 $39 fare
Revenue: Passenger $50,790.70 Ancillaries $3.50 $4,900.00 $55,690.70

Direct Expenses: Ownership $65.00 Per Blk Hr $9,945.00 Flight Crew $75.00 Per Blk Hr $11,475.00 per passenger Total Revenue 

# Kalaupapa

Fuel & Into Plane Fees $209.00 Per Blk Hr $31,977.00 Insurance $15.00 Per Blk Hr $2,295.00 Maintenance $210.00 Per Blk Hr $32,130.00 Miscellaneous/Reaccom $15.00 Per Blk Hr $2,295.00

Total Direct Expenses $90,117.00

Indirect Expenses: Landing Fees $18.00 per dept $11,016.00 Passenger Services $49,307.50 Marketing $3.35 per Pax $4,690.00 Set up costs / training General & Admin/Other 4.8% of Direct $4,325.62 Total Indirect Expenses $69,339.12

$159,456.12

Income (loss) ($103,765.42)

Profit element $4,505.85 Subsidy requirement 

### $108,271.27

Subsidy per passenger 

### $77.34 Subsidy per departure 

### $176.91 Total Operating Expenses