OST-98-4424 / Chautauqua Airlines / Bloomington/Normal-Washington National / September 8, 1998

APPLICATION OF:

Chautauqua Airlines, Inc. / OST-98-4424

For an exemption from Subparts K and S of 14 CFR Part 93 (Slot Restrictions at Ronald Reagan Washington National Airport) to provide non-stop service between: Bloomington/Normal, IL and Washington, DC (Ronald Reagan Washington National Airport)

APPLICATION OF CHAUTAUQUA AIRLINES. INC.

Chautauqua Airlines ("Chautauqua") hereby applies for an exemption from Subpart K and S of Part 93 of the Federal Aviation Regulations (14 C.F.R. Part Subpart K and S) (the "High Density Rule') to permit Chautauqua to conduct three weekday, one Saturday, and two Sunday roundtrip flights between Bloomington-Normal, IL (Central Illinois Regional Airport) and Ronald Reagan Washington National Airport. Chautauqua will operate the proposed service using 50-seat Embraer 145 regional jet aircraft.

In making this request for relief for the High Density Rule at Washington National Airport, Chautauqua is well aware of the limits of the authority of the Secretary of Transportation to grant such relief. Section 41714 (d) contains special rules regarding Washington National Which includes, among other things, the requirement that the Secretary only grant relief to those carriers that are currently operating or holding a slot at the Airport. Chautauqua is not such a carrier.

While Chautauqua Cannot currently qualify as a recipient of slots with which to serve Washington National, this circumstance may change in the very near future. In recognition of the constraints the High Density Rule has placed on the millions of passengers annually making use of Washington National, the Congress is considering seriously the need to inject more opportunities for service at the Airport. Arn«g the legislative proposals being considered upon the return of Congress from its summer recess is one which would open Washington National to additional commuter carrier operations within the existing 1250 mile perimeter rule

If this legislation is adopted and signed into law, Chautauqua's application for Washington National slots will be capable of being favorably considered by the Secretary. To this extent, this request may be considered anticipatory but at the same time it reflects an earnest desire on the part of Chautauqua to link Bloomington/Normal with the nation's Capitol through its most convenient and preferred airport. Likewise this request is fully supported by the Central Illinois Regional Airport operated by the Bloomington/Normal Aviation Authority and the thousands of passengers that use this important regional facility as their link to the nati«'s air transport network. It is important to both Chautauqua and the Airport to make their plans to serve Washington National with efficient and popular regional jet aircraft known to the Department as soon as they were finalized. Chautauqua is confident that with the likely passage of legislation to broaden the opportunities for regional jet commuter air service at Washington National Airport the Department will be in a position to act favorably on this application.

In anticipation of the DOT's consideration of this request to enhance service opportunities at Washington National, it will be instructive to view the merits of Chautauqua's service proposal through the prism of the recent DOT decisions applying the exceptional circumstances test to other air carrier slot requests.

First, the DOT noted As preference for Stage 3 jet aircraft as does the proposed legislation. Chautauqua's proposed service will be operated with Embraer 145 regional jets, one of the quietest passenger aircraft in current operation.

Second, the DOT said it will consider the operational and financial viability of the carrier slot petitions. Chautauqua's application will satisfy both of these tests. Operationally, the Embraer 145 has excellent operating characteristics in markets of from 400 to 800 miles, as is the case of Bloomington-Normal, IL to Washington, D.C. In addition, the demographics of the Bloomington-Normal service area will provide sufficient passenger traffic to permit Chautauqua to profitably serve the proposed city pair using 50-seat regional jets.

Third, the DOT said it would judge applications based on the introduction of new nonstop service where none presently exists. /3 This factor is satisfied by Chautauqua's application. There is currently no nonstop service between Bloomington-Normal and the Washington, D.C. metropolitan area, and Chautauqua's application will produce valuable service benefits to the traveling public if slots at Ronald Reagan National Airport are made available to Chautauqua for the purpose of enabling regional jet service.

3/ One legislative proposal calls for the Secretary to make within-perimeter exemptions in a manner consistent with the promotion of air transportation. See, S.2279. Committee Amendment (Staff Working Draft), July 14, 1998.

The Bloomington-Normal market is served by the Central Illinois Regional Airport, which is situated at the intersection of four major highways and offers access within an hour's drive to the residents and businesses of Bloomington-Normal and all, or substantially all, of the populations of Peoria, Champaign, Urbana, Springfield, and Decatur. All told, Chautauqua's proposed service would provide convenient jet service to approximately 800,000 people.

The Bloomington-Normal business base is diverse. It has a large concentration of service and manufacturing industries, and is an active participant in the global economy. For example, Eureka, which is headquartered in Bloomington-Normal, manufactures vacuum cleaners and appliances both locally and in factories overseas. In addition, Mitsubishi Motors of Japan manufactures automobile components in Normal, IL, for its own brands as well as for Chrysler, Dodge, and Plymouth. Bloomington is home to the corporate headquarters of State Farm Insurance, one of the largest insurance providers in the country. Finally, the University of Illinois at Urbana-Champaign has over 35,000 students and 2,000 faculty.

Granting this request for an exemption will not only improve consumer access to the transportation system, but will provide an economic benefit to a region which is lacking convenient air service to one of the country's largest and most important metropolitan areas.

Chautauqua projects that it will carry approximately 51,000 passengers annually between Bloomington-Normal and Ronald Reagan National Airport. Lois equates to a 55 percent load factor, assuming a 98 percent schedule completion factor.

Chautauqua is aware that its travel projections are greater than levels which are reflected in reported origin and destination traffic data ("O&D data') . However, Chautauqua believes that O&D data only reflects market response to current and historical service offerings and can not be construed as representative of true market demand.

Historical market performance at Bloomington/Normal supports this assertion. Frontier Airlines, with a single one-stop flight to Denver (at sub-optimal times) is attracting over 17,000 annual passengers. Recent DOT data, however, indicates that there are only about 10,000 passengers in the total market, including those carried by other airlines.

Chautauqua is not alone in this assertion. The Office of the Inspector General of the Department of Transportation stated that "although O&D data are used by Department analysts to provide quantitative support for key policy and funding decisions, we found that O&D data are unreliable for use in making these important decisions." /4

Accordingly, Chautauqua asserts that O&:D data is an invalid measure by which to judge to viability of its proposed service and respectfully requests that the Department not rely on such data when evaluating the merits of this application.

Internal profitability forecasts performed by Chautauqua indicate that the route will generate a profit in excess of $2.8 million in its first full year of operation. This forecast is thought to be conservative based on traffic projections, cost projections of the EMB-I45 aircraft, and expected yields in the market.

Finally, with respect to the Chautauqua's ability to generate sufficient passenger levels to ensure a viable service, we point to recent public remarks by the Secretary. In those remarks, he said: "Now I understand that in some areas of the country there has been insufficient demand to support jet service. The development of a new generation of regional jets may assist addressing the problem. We all need to work together - labor and industry, Congress and the Department of Transportation, to integrate these planes into the aviation system." /5 In so much as Chautauqua

4/ Department of Transportation, Office of the Inspector General, Report Number AV-1998-086.

5/ Remarks Prepared for Delivery by Transportation Secretary Rodney Slater to the American Bar Association Forum on Air and Space Law, Washington, DC, January 30, 1998.

proposes to operate Embraer 145 Regional Jets between Bloomington-Normal and Ronald Reagan National Airport, this application meets the Secretary's stated goal.

Chautauqua is mindful of the Department's need to balance the dual objectives of maximizing competition at High Density Airports while avoiding significant adverse impact on the air traffic control system. Therefore, Chautauqua is committed to work with the FAA to produce a schedule pattern which will minimize any operational problems that may arise.

Furthermore, as a condition of the granting of this application, Chautauqua would agree and acknowledge that the slots do not confer on Chautauqua any permanent right to serve Ronald Reagan Washington National Airport for the purpose of selling, trading, transferring or conveying the slots for anything of value. Chautauqua would, however, respectfully request the right to slide any slots it obtains through an exemption into another time period by agreement with another slot holder to make reciprocal slide such that the number of operations in any relevant time period is not increased.

It is understood by Chautauqua that the grant of an exemption in order to serve Washington National presents challenges for the Department. However, legislation being considered by the Congress may soon clarify the authority of the Secretary to address the competition and service issues at Washington National which is one of the most constrained reports in the nation. This Chautauqua request is in the public interest since it will expand air service opportunities at Washington National.

Therefore, Chautauqua Airlines, Inc. respectfully requests that the Secretary grant its request for exemption to the High Density Rule, and provide Chautauqua Airlines, Inc. with sufficient and appropriate slots to operate three weekday, one Saturday, and two Sunday roundtrip flights between Bloomington-Normal and Washington's Ronald Reagan National Airport.

Respectfully submitted,

John Presburg

Vice President

Chautauqua Airlines, Inc.

Box 160

South High School Road

Indianapolis, Indiana 46241

(317) 484-6000 Fax (317) 484-6040