City of Adak, Alaska

Memorandum

Date: May 15, 2017 To: City Council From: Layton J. Lockett, City Manager RE: Evaluation of Essential Air Service Proposals 2017-2019

Today we received two proposals for providing Essential Air Service (EAS) for Adak starting October 2017- September 2019. We received proposals from Alaska Airlines and Peninsula Airways (PenAir). The proposals are summarized as follows: • Alaska Airlines o Aircraft: 737-700 all seaters, twice weekly; 737-700 freighter twice monthly o Subsidy: $2,907,935/annual ($22,718.24/Round-trip) o Service type: Nonstop to ANC-ADK; Wednesday & Sunday changing to Wednesday-Saturday with freighter service on Sunday • PenAir o Aircraft: Saab 2000 all seaters, twice weekly o Subsidy: $2,064,545 for year 1,$1,907,045 year 2 ($19,094.18/Round-trip average) o Service type: ANC-CDB-ADK; unknown dates

In reviewing the proposals it is my recommendation that the City Council choose the Alaska Airlines proposal based on the following points of analysis: • Alaska Airlines has provided service to Adak for 15 years with jet aircraft • In 2002, when the community had a choice to switch from PenAir to Alaska, 92% of the community polled chose Alaska as its first choice, based on the service PenAir provided to the community at that time. • Alaska Airlines’ proposal provides freight service, allowing seafood shipments and other large shipments to continue. This is especially important with limited barge service. • Although the subsidy request is increasing by $864,315 notwithstanding inflation and other cost factors the community receives an extra two flights per month solely for cargo. This may allow for Hazmat products, currently restricted to freighter aircraft to be tendered to Adak on a regular basis. • PenAir has provided no means for significant cargo capacity; fresh seafood shipments originating from Adak would cease or have to be on chartered aircraft. • Based on Northern Air Cargo’s (NAC) 2015 proposal for air cargo service; an extra $589,071-1,034,071, notwithstanding updated figures related to 2017 costs, would be required to provide adequate lift for Adak’s cargo needs. Note: NAC did not provide a proposal for 2017-2019 service. Total subsidy would be approximately $2,574,866-3,019,866, notwithstanding updated figures from NAC. • PenAir does not seem to have fully accounted for Adak station costs, especially since there has been no contact between the City and PenAir. • PenAir does not have the support of several of the communities that it provides service to, including Cold Bay, Sand Point and Dillingham. Attached is an article from the Dutch Harbor Fisherman describing ongoing issues. Given the service levels seen in the past, choosing the PenAir proposal unnecessarily exposes the community to these problematic issues.

CITY OF ADAK, ALASKA 100 Mechanical Street, Suite B122 • Adak, Alaska 99546 Post Office Box 2011 • Adak, Alaska 99546 • Tel: 907.592.4500 • Fax: 907.592.4262 www.adak-ak.us

BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC

Essential Air Service at ) ) Docket DOT-OST-2000-8556 ADAK, ALASKA ) )

PROPOSAL OF PENINSULA AIRWAYS, INC. TO PROVIDE ESSENTIAL AIR SERVICE AT ADAK, ALASKA

Correspondence with regard to this document should be addressed to:

Scott Bloomquist, President Robert E. Cohn PENINSULA AIRWAYS, INC. Patrick R. Rizzi 6100 Boeing Avenue HOGAN LOVELLS US LLP Anchorage, AK 99502 Columbia Square 555 Thirteenth Street, NW Washington, DC 20004 202 637 4999/5659 [email protected] [email protected]

Counsel for Peninsula Airways, Inc.

May 12, 2017

\\DC - 004721/000002 - 10304093 v2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC

Essential Air Service at ) ) Docket DOT-OST-2000-8556 ADAK, ALASKA ) ) May 12, 2017

PROPOSAL OF PENINSULA AIRWAYS, INC. TO PROVIDE ESSENTIAL AIR SERVICE AT ADAK, ALASKA

Pursuant to DOT Order 2017-3-3 (“Order”), Peninsula Airways, Inc. (“PenAir”) hereby submits its proposal to provide subsidized, year-round essential air service

(“EAS”) between Adak, Alaska, and Anchorage, Alaska, for a period of two years, commencing on October 1, 2017.

In addition to readily satisfying the requisite criteria set forth in the relevant

Statute and the Order, PenAir’s EAS proposal would offer superior benefits for passengers and businesses in the local Adak community and the greater Anchorage area.

I. BACKGROUND.

PenAir is an established airline with over 60 years of experience in providing reliable scheduled air service, including EAS, to smaller communities. PenAir is based in Anchorage, and for many years, PenAir provided reliable and safe EAS for several communities in Alaska, including Adak.1 It currently provides EAS to the following nine small communities in five states: Presque Isle and Bar Harbor (seasonal), Maine;

1 See, e.g., DOT Order 2000-12-11 (Adak); DOT Order 2009-5-4 (Akutan); DOT Orders 2004-6-20 and 2006- 5-21 (Atka and Nikolski).

\\DC - 004721/000002 - 10304093 v2 EAS Proposal of Peninsula Airways, Inc. Adak, Alaska Page 2

Plattsburgh, New York; Crescent City, California; Liberal and Dodge City, Kansas;

Kearney, Scottsbluff, and North Platte, Nebraska. PenAir flew more than 385,000 passengers and more than 116.5 million revenue passenger miles in 2016.

II. PENAIR’S PROPOSAL OFFERS SIGNIFICANT CAPACITY AND WELL- TIMED SCHEDULES TO/FROM ANCHORAGE.

PenAir proposes to provide two weekly roundtrips between Adak (“ADK”),

Alaska, and Anchorage (“ANC”), Alaska, with a brief enroute stop at Cold Bay, Alaska.

PenAir would operate this service year-round using pressurized, multi-engine Saab

2000 aircraft with 45 passenger seats (in a comfortable 2-by-1 seating configuration), a two-pilot cockpit crew, a flight attendant, in-flight beverage/snack service, and on-board lavatory facilities. This service schedule will provide 180 weekly seats between Adak and Anchorage, which is more than sufficient to comfortably handle the historic passenger traffic on this route. As detailed in Exhibit PENAIR 1, PenAir’s ADK-ANC service would require an annual subsidy of $2,064,545 for the first year and $1,907,045 for the second year.

Anchorage is a major destination, in and of itself, for Adak travelers and is also a gateway for connections to other destinations in Alaska and beyond. PenAir’s ADK-

ANC schedule will be designed to facilitate convenient connections at ANC with flights of major U.S. carriers to/from numerous other destinations in the United States and with

PenAir’s other intra–Alaska flights.

\\DC - 004721/000002 - 10304093 v2 EAS Proposal of Peninsula Airways, Inc. Adak, Alaska Page 3

With its experience serving Alaska for more than half a century, including the

Aleutian Islands, its years of EAS operations, and its enhanced understanding of the

Anchorage market, PenAir is well-situated to provide this vitally important EAS to Adak.

III. PENAIR’S SUBSTANTIAL EXPERIENCE PROVIDING EAS AND ITS RELATIONSHIPS WITH OTHER AIRLINES WILL PROVIDE ADDITIONAL BENEFITS FOR PASSENGERS ON THE ADK–ANC ROUTE.

In selecting a carrier to provide subsidized essential air service in Alaska, the

Department considers six principal factors: (A) service reliability; (B) contractual and marketing arrangements with a larger carrier at the hub; (C) interline arrangements with a larger carrier at the hub; (D) community views; (E) whether the carrier has included a plan in its proposal to market its service to the community; and (F) the experience of the applicant in providing scheduled air service in Alaska, see 49 U.S.C. 41733(c)(1), as well as the relative subsidy requirements. See DOT Order 2017-3-3, at 2 n.2. PenAir excels in these categories, and its proposal provides the Department, the community, and the travelling public with substantial benefits at a reasonable subsidy level by offering highly cost-efficient essential air service appropriately sized in terms of aircraft and frequencies to meet the needs of the community.

(A), (F) Service Reliability and Experience in Alaska. PenAir is among the largest and most reliable commuter airlines in the state of Alaska and has had decades of experience in providing scheduled air service in Alaska, including experience serving

Adak. It is family-owned and has several hundred employees, the majority of whom have many years of service with the airline. PenAir has more than 60 years of

\\DC - 004721/000002 - 10304093 v2 EAS Proposal of Peninsula Airways, Inc. Adak, Alaska Page 4 operational experience in Alaska’s harsh weather environment. It currently operates a fleet of 21 multi-engine passenger and all-cargo Saab 340 and Saab 2000 aircraft, providing vital air service to eight Alaska communities from Anchorage, as well as to 13 communities in the continental United States (including nine EAS communities).

PenAir is very familiar with the Department’s EAS Program and the vital importance of providing safe, reliable, and convenient EAS to small communities.

Indeed, as the Department knows, PenAir was the very first recipient of an EAS subsidy when the Program began decades ago.

Safety is PenAir’s highest priority. PenAir was the first Part 135 U.S. air carrier to become a Part 121 air carrier. The FAA has awarded the Diamond Certificate of

Excellence to PenAir for 16 consecutive years. PenAir’s management, crews, mechanics, and dispatchers have relatively unparalleled experience with Saab aircraft in safely and reliably operating from both small, remote airports without control towers

(e.g., Dutch Harbor, Alaska; Presque Isle, Maine) and major hubs (e.g., Ted Stevens

Anchorage International Airport; Boston Logan International Airport), over water (e.g., the Bering Sea; the Atlantic Ocean), and in all types of weather, including the harsh winter weather often encountered in Alaska and the Northeast United States. This experience will be of substantial value to Adak, a small community near the western tip of the Aleutian Islands.

PenAir also has had longstanding experience in providing essential air service to

Adak. Following the demise of Reeve Aleutian Airways in 2000, PenAir was the only airline with the demonstrated interest and resources to step in immediately to provide

\\DC - 004721/000002 - 10304093 v2 EAS Proposal of Peninsula Airways, Inc. Adak, Alaska Page 5

Adak with essential air passenger service on an emergency basis. During that period of time when PenAir served Adak, it enjoyed a 99% schedule completion rate.

As noted above, PenAir proposes operating its Saab 2000 aircraft on this EAS route. This aircraft is well-suited to provide service between Adak and Anchorage. It is a modern, dependable, multi-engine aircraft with a two-pilot cockpit crew, seats for 45 passengers, and a cruise speed of approximately 380 mph. Each passenger on the

Saab 2000 has an aisle and/or window seat (i.e., no “middle seats”). In addition,

PenAir’s Saab 2000 aircraft has significant passenger amenities for this category of aircraft: a 35-inch seat pitch (equivalent to first/premium classes on most narrowbody jets), lavatory facilities, a pressurized cabin, a flight attendant, in-flight beverage/snack service, and a cabin noise level on par with that of a Boeing narrowbody. Moreover, as the Deputy Commissioner of Aviation recognized back in 2012 regarding Adak EAS,

“the time has come . . . to consider afresh what would be the most cost-effective and appropriate options, which may no longer include jet service.”2

(B), (C) Contractual, Marketing, and Interline Arrangements with a Larger

Carrier at the Hub. PenAir has Electronic Interline Ticket Agreements with Alaska

Airlines (and its regional carriers), Delta Air Lines (and its regional carriers), United Air

Lines (and its regional carriers), and American Airlines (and its regional carriers), each of which flies to Anchorage. These arrangements facilitate single-ticket, single check-in, and through-baggage for travelers.

2 Letter from S. Hatter to D. DeVany, February 6, 2012 (available in this docket).

\\DC - 004721/000002 - 10304093 v2 EAS Proposal of Peninsula Airways, Inc. Adak, Alaska Page 6

(D) Community Views. PenAir would not presume to speak for the community, and understands that the Department will solicit the community’s views as part of its decision-making process.

(E) Marketing Proposal for ADK–ANC. If selected for this EAS, PenAir will institute a number of local marketing efforts, in conjunction with the local Adak and

Anchorage communities, as part of an initiative to enhance awareness and brand recognition about the ADK–ANC service. These local marketing efforts would include advertising in local print and radio/TV media, social networking avenues, community involvement, and donation engagement. In that regard, PenAir has committed $25,000 to such marketing efforts for the two-year period of the next EAS contract. See Exhibit

PENAIR 1 (included in “start-up costs” line item). And, these flights would be available for purchase through PenAir’s website, as well as certain on-line booking sites that consumers frequently use to assist in their travel planning.

\\DC - 004721/000002 - 10304093 v2 EAS Proposal of Peninsula Airways, Inc. Adak, Alaska Page 7

IV. CONCLUSION. PenAir’s proposal to operate ADK–ANC service with two weekly frequencies fulfills the statutory prerequisites for EAS and offers superior benefits to passengers and businesses in Adak and Anchorage. Accordingly, PenAir urges the Department to select it to provide essential air service for two years between Adak, Alaska, and

Anchorage, Alaska, at the subsidy levels presented herein, beginning on October 1,

2017.

Respectfully submitted

Robert E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP

Counsel to Peninsula Airways, Inc.

\\DC - 004721/000002 - 10304093 v2

PenAir chief pledges commitment, better service to Bristol Bay - The Bri... http://www.thebristolbaytimes.com/article/1715penair_chief_pledges_...

Tweet Recommend 0

April 15th 2:18 am | Dave Bendinger, KDLG

1 of 3 4/17/2017 10:19 AM PenAir chief pledges commitment, better service to Bristol Bay - The Bri... http://www.thebristolbaytimes.com/article/1715penair_chief_pledges_...

2 of 3 4/17/2017 10:19 AM PenAir chief pledges commitment, better service to Bristol Bay - The Bri... http://www.thebristolbaytimes.com/article/1715penair_chief_pledges_...

Copyright 2017 The Bristol Bay Times is a publication of Alaska Media, LLC. This article is © 2017 and limited reproduction rights for personal use are granted for this printing only. This article, in any form, may not be further reproduced without written permission of the publisher and owner, including duplication for not-for-profit purposes. Portions of this article may belong to other agencies; those sections are reproduced here with permission and Alaska Media, LLC makes no provisions for further distribution.

3 of 3 4/17/2017 10:19 AM