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United States of America Department of Transportation Office of the Secretary Washington, D.C Order: 2019-6-16 Served: June 27, 2019 UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 27th day of June, 2019 Essential Air Service at RUTLAND, VERMONT DOT-OST-2005-21681 (FAIN 69A3452060182)1 under 49 U.S.C. §41731 et seq. ORDER RESELECTING AIR CARRIER Summary By this Order, the U.S. Department of Transportation (the Department) is reselecting Hyannis Air Service, Inc. d/b/a Cape Air (Cape Air) to provide Essential Air Service (EAS) at Rutland, Vermont, with 21 nonstop round trips per week to Boston Logan International Airport (BOS) using 9-passenger Cessna 402 aircraft or 9-passenger Tecnam P2012 Traveller (Tecnam) aircraft for a two-year contract term from November 1, 2019, through October 31, 2021, at a first-year annual subsidy rate of $1,702,873, and a second-year annual subsidy rate of $1,753,960.2 Background By Order 2017-7-12, issued on July 18, 2017, the Department reselected Cape Air to provide EAS at Rutland with 21 nonstop round trips per week to BOS using Cessna 402 aircraft for the two-year contract term from November 1, 2017, through October 31, 2019. Under the terms of this contract, Cape Air’s first-year annual subsidy rate was $1,639,426, and the second-year annual subsidy rate is $1,688,609. As the expiration of the current contract approached, the Department issued Order 2019-3-13 on March 22, 2019, requesting proposals from air carriers interested in providing EAS for a new contract term. In response to that Order, Boutique Air and Cape Air submitted proposals. Each carrier’s complete proposal and the community comments may be accessed online at www.regulations.gov by entering docket number DOT-OST-2005-21681 in the search block. 1 FAIN = Federal Award Identification Number. 2 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds. - 2 - Proposal of Boutique Air Boutique Air submitted two-year or four-year options to serve Rutland with 21 nonstop round trips per week to BOS using 8/9-passenger single-engine PC-12 aircraft. Boutique Air also highlighted its codeshare arrangement with United Airlines, as well as a new interline agreement with American Airlines. Boutique’s annual subsidy request is summarized as follows: Year Annual Subsidy 1 $1,986,742 2 $2,046,345 3 $2,107,735 4 $2,170,967 Proposal of Cape Air Cape Air submitted two-year or four-year options to provide Rutland with 21 round trips per week to BOS using Cessna 402 aircraft or soon-to-be delivered 9-passenger Tecnam aircraft. Cape Air highlights its codeshare arrangement with JetBlue, as well as its collocation with JetBlue, BOS’s largest carrier. With regard to its annual subsidy request, Cape Air states in its bid that, in order to align revenue with operating costs over time, the airline has incorporated an escalating annual subsidy for each year of the EAS contract. The annual subsidy rates are summarized below: Two-Year Selection Annual Subsidy Year 1 $1,702,873 Year 2 $1,753,960 Four-Year Selection Annual Subsidy Year 1 $1,652,468 Year 2 $1,702,042 Year 3 $1,753,104 Year 4 $1,805,697 Community Comments On May 1, 2019, the Department requested comments from the community of Rutland regarding this EAS carrier-selection case. In response, the Department received a letter from the Honorable David Allaire, Mayor of Rutland, supporting the proposal put forth by Boutique Air. In his letter, the Mayor stated several reasons for supporting Boutique’s proposal, among them being, “a more modern fleet of planes…a lavatory for customer comfort…[and] options for future flights to desirable destinations.” Additional Comments JetBlue submitted a letter to the Department dated May 7, 2019. Tracy Bink, Director of Alliances and Partnerships, expressed JetBlue’s support for Cape Air’s proposal for Rutland. Ms. Bink also stated in the letter that the community would have access to JetBlue’s “ever- improving portfolio of 71 destinations from Boston’s Logan Airport.” - 3 - Joe Flynn, Secretary of Transportation at the Vermont Agency of Transportation (VTrans), submitted a letter supporting Boutique Air’s proposal. In his letter, Mr. Flynn stated: “VTrans feels that the Pilatus PC-12 aircraft that Boutique Air is proposing is a tested and reliable aircraft. We think that this aircraft has advantages over the Cape Air proposed aircraft as it has a pressurized cabin and has an enclosed lavatory from which our Vermont passengers will benefit. VTrans also feels that the fact that Boutique Air will be flying with a 2-pilot crew is an enormous safety advantage over the Cape Air single pilot crew.” Decision In selecting an air carrier to provide subsidized EAS for an eligible place not in Alaska, 49 U.S.C. § 41733(c)(1) directs the Department to consider five factors: (a) service reliability; (b) contractual and marketing arrangements with a larger carrier to the hub; (c) interline arrangements with a larger carrier at the hub; (d) community views, giving substantial weight to the views of the elected officials representing the users; and (e) whether the carrier has included a plan in its proposal to market its service to the community. In addition, the Consolidated Appropriations Act, 2018, Pub. L. No. 115-141, as continued by the Continuing Appropriations Act, 2019, Pub. L. No. 115-245, and the Further Additional Continuing Appropriations Act, 2019, Pub. L. No. 116-5, provides that, when selecting an air carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that the Department has considered since the inception of the program. After carefully reviewing the proposals submitted under these factors, the Department has decided to reselect Cape Air to provide EAS at Rutland for a new, two-year contract term from November 1, 2019, through October 31, 2021. While the Department is not selecting the community’s preferred carrier, Cape Air’s proposal meets four of the five Section 41733(c)(1) factors. Although Cape Air does not meet the community support factor, the Department is mindful of its fiduciary responsibilities and needs to consider here the relative subsidy requirements of the two proposals. Boutique Air’s subsidy request for a two-year contract term would cost the Federal Government $576,254 more than Cape Air’s subsidy request for a two-year contract term (Boutique Air’s two-year subsidy of $4,033,087 vs. Cape Air’s two-year subsidy of $3,456,833). Given the significant cost increase of Boutique Air’s proposal over Cape Air’s proposal, the Department is unable to justify such an increase in spending when Cape Air has served Rutland reliably for almost 12 years. In addition, Cape Air will continue to offer Rutland passengers a seamless travel experience with its interline ticketing and baggage agreements with many of the largest U.S. airlines at BOS, a large hub airport. Furthermore, Cape Air increased the marketing funds it will spend promoting its service at Rutland, and it continues to operate a city ticket office in the town for the convenience of the area passengers. During the course of Rutland’s current EAS term, no information has come to the Department’s attention that the community was unhappy with Cape Air’s service or that Cape Air was not meeting the community’s EAS. The Department instructs Cape Air to work with the community to ensure a mutually beneficial relationship. Regarding the reselection of Cape Air for a two-year term over a four-year term, the Department has decided to award the contract for a two-year period since Cape Air did not secure the support of the community. Thus, the Department reselects Cape Air to continue to provide EAS at Rutland for the next two years. - 4 - The Department makes this reselection contingent upon receiving properly-executed certifications from Cape Air that it is in compliance with the Department’s regulations regarding drug-free workplaces and nondiscrimination, as well as the regulations concerning lobbying activities.3 Reminder About EAS Eligibility Title 49 U.S.C. § 41731(a)(1)(B) provides that a community must maintain an average of 10 enplanements per service day, as determined by the Secretary of Transportation, during the most recent fiscal year, to remain eligible for EAS. Locations in Alaska and Hawaii, and communities that are more than 175 driving miles from the nearest large or medium hub airport, are exempt from this requirement. Rutland is within 175 miles of BOS, a large-hub airport, and is subject to this requirement. Rutland is also within 175 miles of Bradley International Airport (BDL), a medium hub airport. Further, the Department of Transportation and Related Agencies Appropriations Act, 2000, Pub. L. No. 106-69, prohibits the Department from subsidizing EAS to communities located within the 48 contiguous States with a subsidy per passenger amount exceeding $200, unless the community is located more than 210 miles from the nearest large- or medium-hub airport. The FAA Modernization and Reform Act of 2012, Pub L. No. 112-95, provides that the Secretary of Transportation may waive the $200 subsidy cap, subject to the availability of funds, on a case- by-case basis, for a limited period of time. Rutland is subject to the $200 subsidy cap. To remain eligible for EAS, communities must comply with all applicable EAS eligibility requirements. Title 49 U.S.C. § 41731(a)(1)(C) states that, to be eligible for EAS, a community must have an average subsidy per passenger of less than $1,000 during the most recent fiscal year, as determined by the Secretary of Transportation, or face termination of subsidy eligibility, regardless of distance to the hub airport.
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