OST-1998-4899 - EAS at Yakutat, Alaska

By Order 93-12-13, served December 14, 1998, the Department tentatively selected Alaska Airlines to provide subsidized EAS at Cordova, Gustavus, Petersburg, Wrangell, and Yakutat, Alaska, and provided 20 days, until January 4, for competing proposals before the order became final. On January 4, 1999, Taquan Air Service requested a 45day extension to submit a competing proposal. Taquan agreed with the staff to a deadline of February 1. The time for filing competing proposals has expired, and we have received none, thus making final Alaska Airlines' tentative reselection.

Alaska Airlines has provided subsidized jet service to these five southeast Alaska cities for many years. Most recently it was reselected under Order 98-12-13 to continue serving them with Boeing 737 jets at an annual subsidy rate of $1,365,485, for the three-year period through September 30, 2001. The proposed rate we are tentatively authorizing in this order reflects virtually the same level of service that Alaska Airlines has provided for a number of years.

Yakutat, Alaska is a unique area because there is no possibility of a road system linking Yakutat to any other areas. Alaska Airlines 'IS' our link to the outside world. The Greater Yakutat Chamber of Commerce and its' businesses recognize this dependency and beseech the Federal Government to renew the Essential Air Service agreement at full funding and renew Alaska Airlines contract to supply Essential Air Service to Yakutat.

It is important that Alaska Airlines continues to provide essential air service using jet aircraft to our communities in Southeast Alaska ‑ Petersburg, Wrangell, Cordova, Yakutat. This service has an impact on Sitka and Ketchikan as well. Daily jet service with freight capabilities is critical for our fishing industry. Alaska Airlines has routes to the East Coast, expanding our fish product markets in a timely manner. We do not have a road system connecting our communities with the rest of the State. We are isolated and depend on the daily jet service for our commerce and medical issues. Alaska Airlines has a many year track record, being very sensitive to our unique geography and isolated communities. Their pioneering into advanced flight navigation equipment to help service Alaska's special needs is a strong statement of their commitment to our communities.

OST-98-4899

Letters in Support of Alaska Airlines

OST-98-4899

Letters in Support:

OST-98-4899

December 19, 2003

Re: Continuation of Alaska Airlines EAS Service at Cordova, Alaska

This letter is to express strong support for Alaska Airlines being selected to continue to provide essential air service using jet aircraft to the Community of Cordova, Alaska.

By: Edgar Blatchford, Alaska Department of Community and Economic Development

OST-98-4899

Letters in Support of Alaska Airlines

OST-98-4899

January 12, 2004

Re: Continuation of Alaska Airlines EAS Service at Wrangell, Alaska

By: Cori Robinson

OST-98-4899

December 18, 2003

Re: The Greater Sitka Chamber of Commerce Letter in Support of Alaska Airlines EAS

By: Keith Perkins

January 2, 2004

Re: The Petersburg Chamber of Commerce Letter in Support of EAS Service at Petersburg, Alaska

By: Joseph Lanham

January 12, 2004

Re: The Wrangell Chamber of Commerce Letter in Support EAS Service at Wrangell, Alaska

By: Cori Robinson

Essential Air Service at Cordova, Gustavus, Petersburg, Wrangell, and Yakutak, Alaska

Order 04-05-05
OST-98-4899 - Essential Air Service at Cordova, Gustavus, Petersburg, Wrangell and Yakutat, Alaska

Issued and Served May 4, 2004

Order Tentatively Reselecting Carrier

We will tentatively reselect Alaska Airlines to provide essential air service at the five southeast Alaska communities as detailed in Appendix C, for an additional two‑year period through April 30, 2006, for an annual subsidy of $5,723,008. Alaska Airlines has provided reliable service at the communities, and the rate is reasonable for the level of service provided. Alaska has provided continuous subsidized service in these markets for almost 25 years, and the communities are very supportive of Alaska's service. We find Alaska's proposal reasonable and we will tentatively adopt it in this order.

By: Karan Bhatia

Order 2006-1-16
OST-1998-4899

Issued and Served January 20, 2006

Order Requesting Proposals

By this order, the Department is requesting proposals from carriers interested in providing essential air service at Cordova, Gustavus, Petersburg, Wrangell, and Yakutat, Alaska, for a new two-year period, with or without subsidy.

As the end of the current rate term approaches, we are here requesting proposals from carriers interested in providing service at Cordova, Gustavus, Petersburg, Wrangell, and Yakutat, with or without subsidy, for the two-year period beginning May 1, 2006. Carriers should file their proposals within 30 days of the date of service of this order.

Proposals should provide sufficient capacity to accommodate historical traffic levels. We note that overall traffic for year ended September 30, 2005, as shown in Appendix C, increased by 13.8 percent from that for year ended September 30, 2003, as shown in Appendix D of Order 2004-5-5.

Essential Air Service for Cordova, Petersburg, Wrangell, and Yakutat, requires seven round trips per week with large aircraft having 60 seats or more. Essential air service for Gustavus requires that level of service only during the peak season, and only three round trips per week with small aircraft (up to 10 seats) during the rest of the year, and that service is provided subsidy free. Specifically, we request proposals consistent with the essential air service determinations, including the designated hubs, shown below, but note that Alaska Airlines has provided dual-hub service to all of the communities except Gustavus. Alaska Airlines’ linear service pattern is not required, but it appears to minimize aircraft positioning costs the carrier would otherwise incur and thus is less expensive than a nonlinear system.

Eligible Points	Designated Hubs
Cordova	Anchorage
Gustavus	Juneau
Petersburg	Juneau or Ketchikan
Wrangell	Juneau or Ketchikan
Yakutat	Juneau or Anchorage

By: Todd Homan

OST-1998-4899

February 21, 2006

Proposal of Alaska Airlines

Annual compensation requirement for the period May 1, 2006 forward is estimated at $5,1551,700.00. Alaska has based this requirement on its need calculated for the twelve months ended September 2005.

Counsel: Alaska Airlines, Joseph Sprague

March 8, 2006

Clarification Letter of Alaska Airlines

First, there is a $45,218 difference in Alaska's General and Administrative expense between the amounts reflected under Alaska's (a) subdivided proposals for Cordova, Yakutat and Gustavus, on the one hand, and for Petersburg and Wrangell, on the other, for which the total G&A expense is $1,336,059 and (b) Alaska's initially submitted aggregated proposal in which the total G&A expense appears on the summary P&L page as $1,290,843. The G&A understatement Alaska made in its initial proposal was entirely the result of an incorrect transposition of the correct G&A expense number shown in Exh. AS-5, p. 9, to the summary P&L appearing on AS-2, p. 1. The transposition was discovered when the subdivided proposals were prepared and the G&A expense for the proposals totaled the same $1,336,059 amount reflected in Alaska's original AS-5, but which was incorrectly carried forward to the summary P&L for Alaska's original aggregated proposal. The correct G&A figure is $1,336.059.

Second, Alaska's initial proposal requesting $5.207 million (as corrected for the G&A transposition error discussed above) was based on Alaska's actual 97% schedule completion factor and actual costs for the 12 months ended September 30, 2005. In submitting that proposal, Alaska assumed that the Department would, as it has consistently done for decades including most recently in 2004, adjust the final EAS compensation number to reflect Alaska's most recently experienced completion factor of 97 percent. To do otherwise would not only represent a sharp departure from years of precedent, but it would unfairly penalize Alaska by treating its implicit 97% completion factor proposal as the equivalent of an operationally unattainable 100% completion. That would force Alaska to unjustifiably accept a more than $150,000 reduction in its new EAS rate proposal - which already reflects a $520,000 reduction from Alaska’s current EAS rate. Parenthetically, it is also worth noting that Alaska’s current rate was predicated on an even lower completion factor of just 96%.

Counsel: Squire Sanders, Marshall Sinick, 202-626-6600

OST-1998-4899

March 9, 2006

DOT Letter to Alaska Statewide Aviation

My purpose in writing you at this time is to inform you of the results of the carrier’s service and subsidy proposal, before we submit a recommendation on the carrier selection issue to the Assistant Secretary for Aviation and International Affairs for decision. Since there are no other options before the Department at this time, you need not respond to this letter. However, we wanted to give you the opportunity to submit any comments if you wish.

For the same level of service, Alaska Airlines requests $5,207,177 annual subsidy -- $0.5 million less than the current rate. Projected revenue has increased by over $3 million dollars, and maintenance expense decreased by $1.6 million, reflecting the fact that Alaska is replacing its older jet aircraft with newer, more efficient models. Offsetting those improvements, projected fuel expense increases by $2.3 million, overall indirect expense by $1.1 million, non-fuel flying operations by $0.6 million, and interest expense, because of the new aircraft, by $0.3 million.

By: Dennis DeVany

OST-1998-4899

March 14, 2006

State of Alaska Department of Transportation and Public Facilities Support of Alaska Airlines

I am writing to express my support for the renewal of Alaska Airlines' essential air service agreement to provide Cordova, Petersburg, Wrangell, and Yakutat with one daily round trip as well as one round trip per day between Gustavus and Juneau for a thirteen-week peak period. The service Alaska Airlines has been providing to these communities since 1968 has become a critical part of life in Southeast Alaska.

By: John Torgerson

Order 2006-3-20
OST-1998-4899

Issued and Served March 22, 2006

Order Tentatively Re-selecting Carrier - Bookmarked

By Order 2004-5-5 the Department selected Alaska Airlines to provide essential air service to Cordova, Gustavus, Petersburg, Wrangell, and Yakutat, Alaska, through April 30, 2006, at an annual subsidy rate of $5,723,008. The carrier was selected to provide daily service as follows: Cordova, one nonstop round trip to Anchorage and one one-stop round trip to Juneau; Yakutat, one one-stop round trip to Anchorage and one nonstop round trip to Juneau; Petersburg, one nonstop round trip to Juneau and one one-stop round trip to Ketchikan; and Wrangell, one nonstop round trip to Ketchikan and one one-stop round trip to Juneau. Gustavus received seasonal service by Alaska Airlines in the 13-week peak period consisting of one daily nonstop round trip to Juneau.

Because the contract for Alaska Airlines is due to expire on April 30, we requested proposals to provide subsidized service at the five communities by Order 2006-1-16, January 20, 2006.

Only Alaska Airlines submitted a proposal, and it submitted only one option. The carrier proposes to continue provide the same level of service described above, and requests $5,207,177 annual subsidy -- a reduction of $515,831.

We have reviewed Alaska’s proposal and find it reasonable. The projected level of subsidy reflects a significant decrease from that projected in Order 2004-5-5. Revenue has increased by over $3 million dollars, and maintenance expense decreased by $1.6 million, reflecting the fact that Alaska is replacing its older jet aircraft with newer, more efficient models. Offsetting those improvements in the subsidy calculation, fuel expense is projected to increase by $2.3 million, indirect expenses by $1.1 million, flying operations less fuel by $0.6 million, and interest expense on the new aircraft by $0.3 million.

Our typical contract period is for two years. However, in this case, Alaska Airlines has proposed a three-year contract. Based on the carrier’s long track record of providing reliable service at these communities, the traditional support of the communities and state for Alaska Airlines’ service, and the significant reduction in subsidy from the current contract, notwithstanding significant fuel price increases, we will select it for a new three-year period, through April 30, 2009.

By: Michael Reynolds

Order 02-2-06 OST-98-4899	Issued February 8, 2002 Served February 8, 2002	Order Tentatively Reselecting Carrier	Essential Air Service at Cordova, Gustavus, Petersburg, Wrangell and Yakutat, Alaska
		Appendix A: Map
		Appendix B: Annual Subsidy
		Appendix C: EAS to be Provided
		Appendix D: Annual Traffic
		Service List