Order 2002-2-8 - EAS at Laurel/Hattisburg, MS

Order 2002-2-8 - EAS at Laurel/Hattisburg, MS - Show Cause

Express I, Inc. d/b/a Northwest Airlink

Order 2002-2-8
OST-2001-10685

Issued February 11, 2002
Served February 1, 2002

Order to Show Cause

Termination of Service at Laurel/Hattiesburg, Mississippi

By this order we are directing Express Airlines I, (Express) to show cause why the Department should not dismiss its claim for hold-in subsidy at Laurel/Hattiesburg, Mississippi. The carrier has requested annual compensation of $2,222,783 for three nonstop round trips a day to Memphis with Saab 340 aircraft, the level of service we are requiring the carrier to provide.

We have concluded that the methodology used by Express to calculate subsidy is not appropriate. Given the fixed-fee basis under which Express serves this market, Northwest, not Express, is the party that would sustain losses if revenue generated to and from Laurel/Hattiesburg were inadequate. The proper basis for determining subsidy need in this circumstance is not Express's expenses of operating between Memphis and Laurel/Hattiesburg less a prorated portion of revenue for passengers traveling beyond Memphis on Northwest. Rather, the proper basis for calculating subsidy need for such service is the effect that Express's service to Laurel/Hattiesburg has on Northwest's network profits. A majority of passengers that Express carries between Memphis and Laurel/Hattiesburg travel beyond Memphis throughout Northwest's domestic and worldwide systems. Thus, whether or not Express earns a profit on the Memphis-Laurel/Hattiesburg segment does not dictate whether that service turns a profit for Northwest's system. Indeed, since the cost of operating a spoke segment to a network hub may include most costs of moving passengers from the spoke city to points throughout Northwest's system, it is not unlikely that a carrier will suffer losses on the spoke segment while earning profits overall due to the flow traffic and revenue that spoke generates for the network. Accordingly, we have tentatively determined to dismiss Express's subsidy claim for its holdin service at Laurel/Hattiesburg.

By: Read Van de Water