OST-98-3671 / Aspen Mountain Air / High Density Rule, Chicago O'Hare / March 26, 1998

NOTICE: ANY PERSON WHO WISHES TO SUPPORT OR OPPOSE THIS APPLICATION MUST FILE AN ANSWER BY APRIL 10, 1998, AND MUST SERVE THAT ANSWER ON ABOVE-NAMED COUNSEL AND ON ALL PERSONS SERVED WITH THIS APPLICATION.

Application of

Docket OST-98-3671

for an exemption from 14 CFR Part 93 Subparts K and S pursuant to 49 U.S.C. § 4171 4(c) (Chicago O'Hare - Sioux City, Iowa/Branson, Missouri)

Pursuant to 49 U.S.C. § 41714(c), Exec Express II, Inc. d/b/a Aspen Mountain Air ("AMA") petitions for an exemption from the High Density Rule (Subparts K and S of Part 93 of the Federal Aviation Regulations), as applicable to Chicago O'Hare International Airport, so that AMA may commence twice-daily nonstop service in the Chicago-Sioux City, Iowa and Chicago-Branson, Missouri markets. AMA will operate these flights using 30-passenger Dornier 328 aircraft, of which it has nine in its fleet. These operations, which AMA plans to inaugurate this summer, will require four daily arrival and four daily departure slots at O'Hare. /1 AMA has never held, sold

1/ AMA has confirmed with the FAA Slot Administration Office that there are no slots otherwise available at O'Hare, save for a few Saturday/Sunday "odds and

(continued. . . )

or given up any O'Hare slots, and is therefore a new entrant as defined in 49 U.S.C. 41714(h).

In support of this application, AMA submits the following:

1. AMA is a certificated air carrier providing safe, reliable and convenient regional airline service between major cities and small and medium-sized communities, primarily in the Midwest and Southwest. /2 AMA also provides transborder service to points in Mexico. In many of its city-pairs, AMA is the only provider of service in the market (several of which are EAS markets). As a result, AMA's service is unusually important to the economic well-being of many of the

communities it serves.

2. AMA's proposed service as a new entrant in the Chicago-Sioux City and Chicago-Branson markets will benefit these communities similarly. Chicago is by far the dominant origin and destination point for these communities, yet in both

1/ ( . . . continued) ends" that are fully utilized the rest of the week. Acquisition of slots by purchase or lease (assuming their availability) is not an option given the economics of the subject markets.

2/ AMA's certificate of public convenience and necessity authorizing it to engage in domestic scheduled combination service using aircraft of up to 60 passenger seats was issued by Order 94-9-5. The carrier operates a fleet of nine 30 passenger Dornier 328 and nine 1 9-passenger Swearingen Metro turboprop aircraft under Part 121 of the Federal Aviation Regulations. AMA operated under the names Lone Star Airlines and Aspen Mountain Air through the end of 1997; effective January 1, 1998, it discontinued use of the Lone Star name.

markets there is no nonstop service and only very limited direct service. /3 AMA proposes to eliminate that problem by providing two conveniently-timed daily nonstop round-trips in each market. Appended as Attachment A is the tentative schedule AMA plans to operate. In the case of Branson, note that AMA proposes to serve the M. Graham Clark Airport, immediately adjacent to the city of Branson, rather than the inconvenient Springfield, Missouri airport (SGF) which is some 45 miles away.

3. Appended as Attachments B and C, respectively, are historical passenger traffic data for Sioux City and Branson. In the case of Sioux City, for the periods ended December 31, 1 996, and June 30, 1997, the Chicago market comprised over 12,000 annual origin-and-destination (O&D) passengers. Connecting markets representing logical traffic flow over Chicago accounted for another 45,000 passengers for the year ended June 30, 1997.

In the case of Branson, Chicago O&D passengers for calendar year 1995, as well as for the year ending March 31, 1996, were approximately 29,000. While these data are for SGF and therefore necessarily include Springfield (as distinguished from Branson) traffic, local Branson officials estimate that approximately 30% of the

3/ From Chicago to Sioux City, there is no nonstop or direct service; from Sioux City to Chicago, there is a single circuitous one-stop departure (at 5:25 a.m. via Minneapolis) which will be discontinued as of April 4, 1998. Between Chicago and Branson, there are three one-stop flights in each direction, although the first southbound flight does not arrive until 1:24 p.m., and the last northbound flight departs at 1:00 p.m. Moreover, the service is provided through the Springfield, Missouri airport, which is located approximately 45 miles from Branson. Sources: Official Airline Guide, March 1998; AOPA's Airport Directory, 1998 Edition.

SGF traffic is destined for Branson, a well-known country-and-western musical entertainment mecca that attracted some 5.8 million visitors in 1997. /4 In Branson's case, connecting traffic that would flow logically over Chicago adds some 75,000 annual passengers. Note also that at present, several hundred thousand Branson visitors per year fly into St. Louis, Kansas City and Tulsa, where they are bused to Branson.

4. AMA's proposed nonstop service to O'Hare would provide consumers in both the Sioux City and Branson air transportation markets the convenient service they are sorely lacking. Given the vitality of the markets (even though their size is constrained by the inadequacy of existing service) as well as the preeminence of Chicago as an O&D point, the only plausible explanation for the absence of nonstop Chicago service in these markets is the existence of slot restrictions at O'Hare. On the one hand, it is obvious that incumbent O'Hare carriers, preferring to stick with their "tried and true" markets, are unwilling to allocate a portion of their slots to serving initially and developing Sioux City and Branson as nonstop destinations. On the other hand, existing Sioux City and Branson O&D traffic is substantial, with significant untapped potential constrained by the O'Hare slot restrictions. As such, these markets represent precisely the situation that led to establishment of "the Congressional goal of enabling such communities to obtain

4/ Source: 1998 Marketing Plan Summary published by the Branson/Lakes Area Chamber of Commerce & Convention and Visitors Bureau.

convenient service to slot-controlled airports" /5 pursuant to DOT exemption authority.

As an added benefit, the plethora of connecting service available at O'Hare would offer Sioux City and Branson passengers significantly improved access to myriad domestic and international destinations. Since this is both a significant public benefit and an important marketing element of AMA's planned service, the theoretical alternative of AMA's serving Chicago Midway Airport, where connecting opportunities are quite limited, is not viable. In short, AMA's service via O'Hare would result in enhanced interhub competition benefitting an extensive array of Sioux City and Branson connecting markets.

5. The Federal Aviation Administration Authorization Act of 1994 authorizes the Department to grant exemptions from the High Density Rule for the provision of essential air service (EAS), for international service, and for service by new entrant carriers. With respect to service by new entrants, the exemption must be based on a finding that the service would be in the public interest and under circumstances the Department deems "exceptional." /6 In response to GAO's October 1996 report Airline Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Domestic Markets finding that control of slots at O'Hare, New York LaGuardia, and Washington National airports essentially chokes competition and limits

5/ Order 97-10-16 at 10.

6/ 49 U.S.C. § 41714(c).

entry, the Department decided to take a broader view of what constitutes an exceptional circumstance, and recognized that the need for competitive service in a market could constitute such a circumstance. See Order 97-10-16 at 3-5. Whether the particular circumstances are exceptional depends upon factors such as the type of aircraft proposed for the service, the probability of financial and operational viability of the service, and whether there is existing service in the market.

6. In the case of the Sioux City-Chicago and Branson-Chicago markets, existing service is woefully inadequate as shown above. As to financial and operational viability, AMA has prepared the projections appended as Attachments D (Sioux City) and E (Benson). As is evident, AMA anticipates a modest loss of $58,000 for the first year of Sioux City service and a profit of $870,000 for the second year. The projected load factors of 39% for the first year and 49°/O for the second are appropriately conservative.

In the case of Branson, profits of $ 174,000 and $238,000 are forecast for the first and second years of operation, respectively. The projected load factor of 67-69% versus a breakeven load factor of 64-66% is typical for leisure/resort destinations, such as Branson, where load factors tend to be high while average fares tend to be low. Note further that Illinois is Branson's fourth largest originating market, trailing only Branson's home state of Missouri and the two nearest adjacent states (Oklahoma and Arkansas). /7

7. Given the above it is clear AMA's proposed service is in the public interest and that the circumstances are exceptional under the Department's guidelines. Although the Department favors proposals with jet aircraft, it has exempted service in comparable O'Hare markets using modern Stage 3 regional turboprop aircraft, such as the Dornier 328, where the service advances the "important Congressional goal [of] using slot exemptions to promote service to medium-sized communities." Order 97-10-16 at 9. Both cities AMA proposes to serve from Chicago are medium-sized communities with extremely limited nonstop air service. Most importantly, there is no nonstop and very little direct service to Chicago in either of these markets.

8. AMA would commence operations between Chicago and the above points as soon as practicable following a grant of exemption. AMA is cognizant, however, of the important air traffic control considerations that underlie the High Density Rule and is, therefore, prepared to work collaboratively with the FAA to fine-tune its schedule.

9. The service AMA proposes to operate would provide important public benefits. This service would offer two underserved communities vital nonstop

7/ Source: See Note 4 above.

access to the Midwest's preeminent business and economic center, as well as significantly enhanced access to the worldwide transportation network. Grant of the exemption would result in the only nonstop service in each of these markets, offering passengers and shippers a much-needed quick, reliable and convenient means of transportation.

WHEREFORE, AMA respectfully requests that the Department grant it an exemption from the High Density Rule (Subparts K and S of Part 93 of the Federal Aviation Regulations) and allocate to AMA four daily arrival and four daily departure slots at Chicago O'Hare International Airport for nonstop service to Sioux City, Iowa and Branson, Missouri.

Respectfully submitted,

Aaron A. Goerlich

Katherine M. Aldrich

BOROS & GAROFALO, P.C.

Counsel for Exec Express II, Inc.

D/b/a Aspen Mountain Air

March 26, 1 998