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

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