### us.Departmentof Transportation OfficeoftheSecretary ofTransportation

Mr. Bryon Mazade CityMamiger 933 Terrace St. Muskegon, MI 4944(} DearMr. Mazade: 1200 NewJersey Avenue, SE Washington, DC 20590

September 2, 2011

As you know, SkyWest Airlines, Inc., d/b/a United Express (SkyWest), provides subsidized air service under the essential air service (EAS) program at Muskegon. The Department's current contract with SkyWest at Muskegon calls for an annual subsidy of $660,720 with fourteen nonstop round trips per week to Chicago O'Hare with 50-seat CRJ-200 aircraft, and it expires December 31,2011. In anticipation ofthe end ofthat contract, by Order 2011-8-10 the Department requested "best and final" proposals to serve Muskegon for a new, two-yearperiod, and we received timely-filed proposals from SkyWest, SovereignAir, Inc., Multi-Aero, Inc., d/b/a Air Choice One (Air Choice One), and Intrepid International Airlines. My purpose in writing is to inform you ofthe results ofeach carrier's service and subsidy proposal and request your commentbefore we submit arecommendation on the carrierselection issue to the Assistant Secretary for Aviation and International Affairs for decision. Copies ofeach carrier's full proposal may be accessed online through the Department's Dockets Management System at http://www.regulations.gov/by entering "DOT-OST 2009-0301" in the "enter Keyword or ID" field, so we will only summarize them here. Air Choice One The carrierproposes to provide a total offorty two ( 42) nonstop round trips per week to Chicago O'Harefor $2,288,646 annual subsidy. All service would be with 9-seat, single-engine, unpressurized, turboprop Cessna Caravan aircraft. We note that Muskegon's EAS calls for service with 15-seat, twin-engine aircraft. Thus it is likely we would only selectAirChoice One ifthe community waives those assurances. In that event, we would consider that waiver effective only for the two-yearperiod ofthe Air Choice One's contract. Sovereign Air The carrier proposes to operate nineteen (19) nonstop round trips per week to Chicago O'Hare for $636,365 annual subsidy. All service would be with 19-seat Jetstream 31132 aircraft. The carrier notes that it is "currently in the process ofacquiring its scheduled service authority and anticipates being able to start its Essential Air Service by December 15, 2011."

### - 2 - SkyWest The carrier proposes to provide a total offourteen (14) nonstop round trips per week to Chicago O'Hare for $1,112,826 annual subsidy. All service would be with 50-seat CRJ-200 regional-jet aircraft. Intrepid International Airlines The carrierproposes to provide service with 19-seat Jetstream 31132 aircraft "arriving4 days a week, in the early morning from Lansing, Michigan, and then carry on to Chicago/Midway or, Indianapolis on an alternating daily basis and then returning on that same route in the laterpart ofeach afternoon

..." The carrier.requests• $1,000,000t'or this service. The carrier also notes that "ifnot granted the contractual·subsidy, we fully intend to ask for permissionto provide this alternative service": Because this service would not exceed four days per week, the carrierhas authority to provide this service. Also, I would note that the carrier does not need our permission to inaugurate subsidy-free service at any time so long as it meets the requirements ofthe Federal Aviation Administration and our Office ofAir CarrierFitness. Please note that the average passengerfares shown in the carriers' proposals do not necessarily reflect the average local fares passengers would pay, but rather reflect the prorated portion ofthe total ticketprice, e.g., the Muskegon- Chicago portion ofa Muskegon

- Chicago- New York ticket that the carrier would realize. Also, the implicit average fare, as reflected in the carriers' subsidy calculations is net ofcertain charges such as federal transportation security fees, excise and ticket taxes, and passengerfacility charges. Ofcourse, carriers have the discretionto charge fares they deem appropriate, and the proposed passenger fares were developed for subsidyrate computation purposes only. Each carrier would have to realize passengerfares comparable to the averages shown in its proposal in order to achieve break-even orprofitable operations even with subsidy. You should also note that any schedules submitted bythe carriers are illustrative only, and the carrier selected may make schedule changes to reflect changing conditions, e.g., to bettermeet shifting connecting bank times at the hub. The Department expects subsidized air carriers to maintain well-timed and well-spaced flights in orderto ensure full compensation. We know this matter is important to you and we will act as quickly as possible upon receipt of your letter. In orderto expedite the case, please submit your comments by email to EAS @dot.gov and to Kevin.Adams @dot.gov, by October 3. Ifyou have any questions ordo not wish to submit formal comments, please contact Kevin Adams at (202) 366-1047.

Enclosures Sincerely,

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# x:-9--'**~~:;**J. DeVany Chief, Essential Air ServiceDivision Office ofAviation Analysis

cc: Airport Manager, SkyWest, Air Choice One, SovereignAir, IntrepidMuskegon, Michigan- Chicago O'Hare International Airport- Caravan Operation Revenues MKG-ORD Revenues Other Revenues Total Operating Revenues
Direct Operating Expenses Flying Operations Fuel and Oil Maintenance Aircraft Leases Total Direct Marketing Indirect Total Operating Expenses Operating Loss Profit Element (5% total Oper. Exp.) Compensation Required Compensation per PAX Compensation per Departure $1,621,500.00 8,107.50 $1,629,607.so

$ 578,400.90 963,450.64 743,658.30 475,000.00 $2,760,509.84 191,452.15 779,708.00 $3,731,669.99 $2,102,062.49 186,583.50 $2,288,645.99 $97.39 $533.19 # Passengers: Average Fare: Departures: Block Hours: Revenue Passenger Miles: Available Seat Miles: 23,500 $69.00

4,292 3,305 2,773,000 4,546,040 Representative Schedule Departure Arrival MKG 6:00AM ET ORD 6:00AM CT ORD 6:30AM CT MKG 8:30AM ET MKG 8:45AM ET ORD 8:45AM CT ORD 9:15AM CT MKG 11:15AM ET MKG 11:30AM ET ORD 11:30AM CT ORD 12:00 PM CT MKG 2:00PM ET MKG 2:15PM ET ORD 2:15PM CT ORD 2:45 PM CT I MKG 4:45PM ET MKG 5:00PM ET ORD 5:00PM CT ORD 5:30 PM CT MKG 7:30PM ET MKG 8:00 PM ET ORD 8:00PM CT ORD 8:30 PM CT MKG 10:30 PM ET 

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## .. Muskegon Schedule

Fit# Freq From 101 1234567 MKG 111 1234567 ORO 201 23456 MKG 211 23456 ORO 301 1234567 MKG 311 1234567 ORO TO ORO MKG ORO MKG ORO MKG Opt-Arr 6:30am-7:OOam 8:30am-9:00am 10:30amll:OOam 12:30pm-1:00pm 5:30pm-6:00pm 8:30pm-9:00pm

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...v19-SeatJetstream 31/32
Sovereign Air, Inc. Annual Compensation Requirement for Essential Air Service for Muskegon MKG-ORD Aircraft Type Available Seats Per Departure Passengers Per Trip
Block Hours Departures Total Passengers Average Fare

Revenue Passenger Miles Available Seat Miles Passenger Revenue Other Rev. @ .6 of pax. Rev. %

Total Revenue Aircraft and Hull Insurance Fuel and Oil Flying Operations Other Direct Costs Maintenance

Total Direct Costs Total Indirect Costs
Total Operating Expenses Operating Loss Profit@ 5%

Completion Rate Load Factor $90 one way

Annual Compensation Requirement

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19-seat 19 Avg 12.2 958 1,916 23,347

2,754,946 4,295,672 $2,101,230

$126,074 $2,227,304

$102,000 $312,853 $310,000 $178,221 $222,212 $1,125,286 $1,602,018
$2,727,304

$500,000 $136,365 $636,365

97% 64%SkyWest Airlines Muskegon, Ml Essential Air Service Bid 8/31/2011

Number of round-trips per week
Aircraft type Passenger Revenue Passengers Average fare Revenue
Block Time Trip block time (minutes) Total scheduled block time Total completed block time
RPMS Passengers Stage length

ASMs Scheduled departures Competed departures Stage length Available Seats

Revenue
Direct operating expenses Flight attendant RPM related Departure related ASM related Total expenses Operating income (loss)
5% profit margin Subtotal Marketing assistance Subsidy requirement SkyWesteffective rates per unit Cost per trip Cost per passenger SkyWest cost per block hour
Effective Subsidy rate per unit Subsidy pertrip Subsidy per passenger

loadfactor 98%

98%

CRJ Blk Hr $ 2,066.24 Blk Hr $ 37.30 RPMs $ 0.003 Departures $ 412.56 ASMs $ 0.011 2012-2013 Muskegon, Ml

Chicago, IL
14 CRJ200

25,000 $ 82.00 $ 2,050,000

46 1,116 1,094

25,000 118 2,950,000

1,456 1,427

118 so 8,590,400
$ 2,050,000 $ 2,260,345 $ 40,804 $ 8,850 $ 588,674 $ 94,494 $ 2,993,167 $ (943,167) $ 149,658 $ 1,092,826 $ 20,000 $ 1,112,826
$ 2,098 $ 120 $ 2,736
$ 766 $ 44

34%

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