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OST Docket 38961

Intra Alaska Class Service Mail Rates (Rate Equalization Notice)

38961 and 4445 | July 28, 1997

Equalization Notice of Alaska Central Express

By: Al Wilt, General Manager

Intra Alaska Class Service Mail Rates

38961 | 44445 | November 5, 1997

Rate Equalization Notice of Alaska Central Express

By: Al Wilt, General Manager

Intra-Alaska Class Service Mail Rates (Mainline Rate)

Order 98-1-9 | OST-95-429 | 38961 | Issued January 12, 1998 | Served January 15, 1998

Order Establishing Final Service Mail Rates

By this order the Department is setting final intra-Alaska mainline service mail rates for the period beginning with the date of issue of this order through September 30, 1998, or until further order of the Department, whichever occurs later.

Appendix A - Intra-Alaska Class Service Mail Rates: Mainline Rates January 1-September 30, 1998

By: John Coleman

Intra-Alaska Class Service Mail Rates

Order 98-9-28 OST-95-429 Docket 38961	Issued September 28, 1998 Served October 2, 1998	Order Establishing Final Service Mail Rates	Mainline Intra-Alaska Mail Rate
		Appendix A:  Mainline Rates

The fair and reasonable final rates of compensation to be paid in their entirety by the Postmaster General pursuant to the provisions of 49 U.S.C. 41901 for the transportation of mail by mainline aircraft 1 over intra-Alaska routes, the facilities used and useful therefor, and the services connected therewith, by each holder of a certificate authorizing the transportation of mail by aircraft 2 for the period beginning October 1, 1998, through September 30, 1999, or until further order of the Department, whichever occurs later, are those specified in the attached Appendix A

By:  John Coleman

Intra- Alaska Class Service Mail-Rates( Mainline Rates)/Northern Air Cargo, Inc.

Petitioner is an Alaskan air carrier engaged, inter alia, in the air transportation of mail between points within Alaska, for which compensation is paid by the Postal Service pursuant to rates fixed and determined by the Department of Transportation, previously the Civil Aeronautics Board. The cost experience of NAC and of Alaska Airlines, Inc. ("Alaska") provides the cost base from which the mainline service mail rates are fixed and determined. The most recent such rate order is Order 99-9-13, finalizing Order to Show Cause 99-6-16 and fixing the final rates for intra-Alaska mainline service for the period beginning October 1, 1999 through September 30, 2000. In this most recent Final Order, the Department is continuing to use the methodology first implemented in Order 98-7-3 for the annual period October 1, 1998-September 30, 1999. In setting the new rates for the year ending September 30, 2000 in the afore cited Orders, the Department implemented procedural and methodological changes that were proposed and discussed in its Show Cause Order 97-9-37. The changes were also fully discussed and considered in written comments involving the Department's staff, the Postal Service and the carriers, and as set forth in the DOT Final Report on the Review of The Alaska Mail Ratemaking Methodology, dated September 2, 1997 ("Final Report"), prepared and issued by the Office of Aviation Analysis.

Counsel:  Hewes Gelband, Theodore Seamon, 202.337.6200

Intra-Alaska Class Service Mail Rates (Mainline Rates)

Northern Air Cargo, Inc. ("NAC"), Petitioner herein, herewith amends its Petition of October 6, 1999 for Ad Hoc Mail Rate Adjustment for the purpose of correcting inadvertent error in the attached Appendix.  The Appendix, as was its original intent, labels as "Intra-Alaska" the data for the year ending March 31, 1999 and the quarters ending June 30, 1999 and September 30, 1999. The data should be shown as "System" Fuel Expense, also applicable to available ton miles and unit cost per ATM for the dim periods represented in the Appendix. The original intent of the Appendix was to show the Intra-Alaska Fuel Expense and Unit Cost for the three types of aircraft represented in the Appendix. However, when the appendix was prepared, data necessary to break out Intra-Alaska Fuel Costs was not available. In order to provide information with respect to the cost increases on a comparative basis, the carrier used system expense for each of the three periods involved. Pursuant to directive from the Office of Aviation Analysis, the necessary data is being supplied by both Alaska Airlines and NAC to provide basis for breakouts of Intra-Alaska Fuel Costs.

Counsel:  Hewes Gelband, Throdore Seamon, 202-337-6200

Intra-Alaska Class Service Mail Rates

By:  Bradley Mims

Intra-Alaska Mainline Class Service Mail Rates

Counsel:  Senior Counsel U.S. Postal Service, Michael Vandamm

Intra-Alaska Mainline Class Service Mail Rates

By:  Bob Anderson

Intra- Alaska Class Service Mail Rates

NAC’s primary request is that the Department significantly refine its current practice of weighting each intra-Alaska carrier’s costs solely on the basis of each carrier’s relative intra-Alaska capacity expressed in ATMs. Under the current ATM approach, the Department does not take into consideration either the relative volumes of mail transported by each carrier or the relative costs of the aircraft used by each carrier to transport mail. NAC’s recommendation would have the Department weight each intra-Alaska carrier’s costs on the basis of the mail volumes carried and on the basis of the costs of the particular aircraft used by each carrier to transport mainline mail. The logic behind NAC’s suggestion is compelling. NAC’s proposed approach would more closely reflect the cost of the actual carriage of intra-Alaska mail rather than simply continuing to weight each carrier’s costs on the basis of that carrier’s aggregate ATM output, a parameter which also measures the capacity provided—for passengers and freight—in addition to mail. NAC properly points out that the present aggregate ATM approach has resulted in Alaska’s relatively low unit cost B-737-400 and MD-80 combination aircraft artificially decreasing the mainline mail rates even though these combination aircraft carry less than thirteen (13%) percent of the intra-Alaska mail Alaska transports.

Counsel: Squire Sanders, Marshall Sinick, 202.626.6600

Intra-Alaska Class Service Mail Rates (Mainline Rates)

Northern Air Cargo, Inc. herewith submits this Reply to the Answers of the U.S. Postal Service and Alaska Airlines, Inc. which contain their responses to the Petition of NAC for Adjustment in Update Methodology to Weight Costs of Carriers and Aircraft by Amount of Mail Transported. To the extent this pleading may be construed as an unauthorized document and/or an untimely filing, NAC respectfully moves for leave to file same and that it be received and considered by the Department in its final disposition of our Petition. The USPS and Alaska responses reinforce the Petition that the mainline rate making methodology should be reformed so as to provide for weighting the cost data by the amount of mail transported; and that such modification should be made effective with the beginning of the next rate period, October 1, 2000, for the Fiscal Year ending September 30, 2001, although the Postal Service does present some invalid caveats.

Counsel:  Northern Air Cargo, Theodore Seamon, 202-337-6200

Intra- Alaska Class Service Mail Rates

Counsel: Squire Sanders, Marshall Sinick, 202.626.6600 and Northern Air Cargo, Theodore Seamon, 202-337-6200

Intra-Alaska Class Service Mail Rates (Mainline Rates)

Counsel:  U.S.P.S., Michael J. Vandamm

Intra- Alaska Class Service Mail Rates

Counsel: Squire Sanders, Marshall Sinick, 202.626.6600 and Northern Air Cargo, Theodore Seamon, 202-337-6200

After discussions with the parties several years ago the Department indicated that it favored abolishing the practice of establishing retroactively adjustable rates in favor of issuing final temporary rates. We recently implemented this policy in the bush proceeding in Order 2000-4-1. However, upon careful consideration, we have reluctantly decided to extend the rates set by Orders 2000-6-5 and 99-9-13 as interim rates subject to retroactive adjustment until we can resolve the issues discussed in the show cause order with full benefit of all comments.

The situation in this instance is much different than that in the bush proceeding. The issue in the bush proceeding was a narrow one of whether a certain carrier should be added to the pool. Here, we are discussing a fundamental change in ratemaking methodology, which when finalized, will settle the issue beyond the immediate rate term for the foreseeable future. Moreover, the Postal Service has indicated how very important it believes this issue to be by both asking for a meeting with the parties and even declaring its intent to review its critically important and long-established mail tender policies in response to our decision.

Because the fundamental change in methodology proposed in the show-cause order is very significant both in magnitude and in its likely duration, it is critical that we have a full consideration of the issue before taking final action. On the other hand, we are sensitive to the carriers' position that if the Department ultimately does adopt the proposed new methodology, they (the carriers) should not be permanently deprived of the higher rates. In order to balance these competing and legitimate interests, we will reluctantly deviate from our policy of not adjusting rates retroactively, and will in fact here extend the current rates on an interim basis subject to retroactive adjustment. We will also attempt to resolve matters on a consensual basis as expeditiously as possible.

By:  Francisco Sanchez

Intra- Alaska Class Service Mail Rates

Order 2000-11-9 sets a new final intra-Alaska mainline mail rates effective October 1, 2000, through September 30, 2001. The rate is based on traffic and costs for the year ended March 31, 2000, except for fuel, where consistent with Order 99-12-15, in response to dramatic fuel price increases, the Department decided to update the fuel portion of the linehaul quarterly. The rates currently in effect were extended as interim rates by Order 2000-9-27, effective October 1.

By:  Francisco Sanchez

Intra-Alaska Class Service Mail Rates 

By:  Dennis J. DeVany

Intra-Alaska Mainline Class Service Mail Rates

The Department has not updated the Reeve rate in almost 20 years because Reeve never petitioned the Department to make an inflation adjustment. Also, special factors present when the rate was created no longer apply. For example, when the territorial rate was established, Reeve was the only carrier operating in the Aleutians, it did not operate outside the Aleutians, and the aircraft types used by Reeve that were severely weight limited due to the long stage lengths and few alternate airports have since been replaced.

Now, of course, Reeve is not operating scheduled service, while Alaska Airlines and Northern Air Cargo both operate in the Aleutians, but with different aircraft types than Reeve operated. The intra-Alaska mainline rate in some respects now exceeds the Reeve rate, even though the Reeve territorial rate was initially carved out from the rest of Alaska to account for Reeve's higher costs, at the time, of operating in the Aleutians. By letter to the carriers and the Postal Service dated December 19, 2000, the Department affirmed that the Reeve territorial rate would continue to apply in the Aleutians until further Department action, notwithstanding that Reeve had ceased scheduled operations. The letter also requested comments about phasing out the Reeve rate. Options specifically addressed were to end the Reeve rate altogether at a pre-agreed to date; make the higher intra-Alaska mainline priority rate apply to priority mail service in the Aleutians and have the higher Reeve rate apply as the non-priority rate until the nonpriority rate exceeded the Reeve rate; and selectively phase out the Reeve rate in specific markets.

All parties agree that the Reeve territorial rate should end. While Alaska Airlines indicates that it would accept April 1 as the transition date, the Postal Service is silent on the date. However, there is no justification for extending the non-compensatory Reeve rate beyond the time needed for an orderly transition. Service to most markets in the Aleutians is now provided with bush-only aircraft, and so the much higher intra-Alaska bush rate applies. However, at Dutch Harbor Peninsula Airways has equalized to the Reeve rate for its service with bush aircraft. Peninsula is entitled to the higher rate, and by offering a higher rate Peninsula may be able to expand service and reduce some apparent capacity shortfalls in the market. We will therefore terminate the Reeve rate effective five days after the service date of this order, and incorporate the Aleutians in the intra-Alaska mainline and bush mail rate system that is applied to the rest of Alaska.

We note the Postal Service's comment that its primary concern is to ensure that the Aleutians receive reliable and dependable mail service and that the mail rates must be high enough to attract and compensate carriers to serve the more remote, smaller Aleutian communities. In that context, the Postal Service has asked that we meet with it and the parties to discuss market specific contracting and perhaps other options for service in the Aleutians. Given these outstanding issues in the Aleutians and the Postal Service's request, we will arrange to meet with the Postal Service, the carriers, and the State of Alaska to examine mail issues in the Aleutians.

By:  Susan McDermott

Intra-Alaska Mainline Class Service Mail Rates

By this order the Department proposes to establish new intra-Alaska mainline mail rates for the year ending September 30, 2002. The rates that are currently in effect were established by Orders 2000-11-9, which finalized the weighting of costs by amount of mail carried on each aircraft type, and Order 2001-4-12, Petition for Reconsideration, which corrected Order 2000-11-9 for revisions in Lynden Air Cargo's data, and Order 2001-6-10, the most recent quarterly fuel update. Those rates, except for the quarterly fuel update, will remain in effect as final .sates through September 30, 2001, or until a final order is issued with respect to the rates proposed here, whichever is later.

As shown in Appendix A, the projected linehaul rate is .32% higher and the terminal is 1.80% lower than the current rates. The small increase in the linehaul element is a result of NAC's and LAC's unit cost increases being offset by the addition for the first time of ACE's relatively low unit costs. The small decrease in the terminal charge is the combined result of a significant decrease in unit cost for NAC and ACE being offset by a significant increase for Alaska Airlines' unit costs. It is not clear what has caused the divergent changes in Alaska Airlines costs and that of the other two carriers, but it is worth noting that the carriers with decreased unit costs are both predominantly all-cargo operators while Alaska Airlines is a combi carrier.

By:  Susan McDermott

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