Order 2018-7-12 July 16, 2018 UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 16th of July, 2018 Essential Air Service at PRESCOTT, ARIZONA DOCKET DOT-OST-1996-1899 (FAIN 69A3451860460)1 under 49 U.S.C. § 41731 et seq. ORDER SELECTING AIR CARRIER Summary By this Order, the U.S. Department of Transportation (the Department) is selecting SkyWest Airlines, Inc., operating as United Express (SkyWest), to provide Essential Air Service (EAS) at Prescott, Arizona, for the period from August 1, 2018, through August 31, 2020, using 50-seat CRJ-200 aircraft. SkyWest will provide Prescott with 12 weekly round trips to Denver International Airport (DEN) and Los Angeles International Airport (LAX) for an annual subsidy of $3,983,055. Background By Order 2017-2-14 (February 23, 2017), the Department selected Great Lakes Airlines to provide EAS at Prescott, with 12 weekly nonstop round trips to LAX, using 30-seat Brasilia EMB-120 aircraft, for an annual subsidy of $2,798,419. Over the course of the contract, Great Lakes frequently operated its service to/from Prescott with Beech 1900-D aircraft, reconfigured to 9 passengers seats. After the close of business on March 26, 2018, the Department received an e-mail from Great Lakes stating, “All revenue flying is ending tonight.” Great Lakes suspended all of its operations, including those at Prescott, notwithstanding that 49 U.S.C. § 41734 prohibits the carrier from suspending service before 90 days.2 As a result, the Department issued an emergency request for replacement service by Order 2018-3-25 (March 27, 2018) for both long- term and short-term emergency replacement service. Proposals for interim service were due 1 Federal Award Identification Number. 2 A notice of service suspension was posted on Great Lakes’ website at www.flygreatlakes.com. The carrier failed to provide the Department the notice required under 49 U.S.C. § 41734. April 3, 2018, while proposals for long-term service were extended with a due date of July 2, 2018, at the request of the community. Summary of Proposals In response to Order 2018-3-25, regarding the short-term proposals, we received proposals from Advanced Air, Boutique Air, Inc. (Boutique), and Mokulele Flight Service, Inc. dba Mokulele Airlines (Mokulele). Prescott requested that the Department reject all interim proposals, citing the lack of multi- engine proposals and the community’s view that the subsidies proposed for the single-engine service were too high. The community expressed concern that single-engine service, at such subsidy rates, would jeopardize Prescott’s eligibility in the EAS program by potentially exceeding the $200 per passenger subsidy limit.3 Summary of Long-Term Proposals In response to long-term proposals, we received proposals from Advanced Air, Aerodynamics, Inc. dba California Pacific Airlines (Aerodynamics), Boutique, Key Lime Air, Mokulele, Silver Airways, and SkyWest Airlines. Aerodynamics Aerodynamics proposed two options, both with 50-seat ERJ-145 aircraft. Option 1 proposed 12 weekly nonstop round trips to DEN, at an annual subsidy of $5,213,834; this option is a contingent bid with Alamosa, Colorado. Option 2 proposed 12 weekly nonstop round trips to PHX, at an annual subsidy of $4,139,563. Advanced Air Advanced proposed three options, all with 9-seat, twin-engine King Air 350 aircraft. Option 1 proposed 14 weekly nonstop round trips to Hawthorne Municipal Airport (HHR) in the Los Angeles area and 14 weekly nonstop round trips to Phoenix Sky Harbor International Airport (PHX), at an annual subsidy of $3,552,363. Option 2 proposed 14 weekly nonstop round trips to HHR and 17 weekly nonstop round trips to PHX, at an annual subsidy of $3,854,944. Option 3 proposed 7 weekly nonstop round trips to HHR and 24 weekly round trips to PHX, at an annual subsidy of $3,864,060. Advanced Air’s operations to HHR would include transport for passengers and luggage to any terminal at LAX. 3 The Department of Transportation and Related Agencies Appropriations Act, 2000, Pub. L. No. 106-69, prohibits the Department from subsidizing air service at a community where the subsidy per passenger exceeds $200 (the Subsidy Cap), unless the community is more than 210 miles from the nearest large- or medium-hub airport. Prescott is located fewer than 210 miles from PHX, a large-hub airport, making it subject to this requirement. Boutique Air Boutique Air provided several proposals, as listed in the table below. Key Lime Air Key Lime proposed 14 weekly nonstop round trips to DEN. All service would be provided with 30-seat Dornier 328 Jet aircraft for an annual subsidy of $4,880,330. Mokulele Mokulele proposed 28 weekly nonstop round trips to PHX. All service would be provided with 9-seat Cessna Caravan aircraft for an annual subsidy of $1,248,279. Silver Airways Silver proposed 12 weekly nonstop round trips, with 10 weekly round trips to LAX, and 2 weekly round trips to Las Vegas McCarran International Airport (LAS), using 46-seat ATR- 42-600 aircraft for an annual subsidy of $5,303,561. SkyWest Airlines SkyWest proposed 12 weekly round trips to LAX and DEN, branded as United Express, using 50-seat CRJ-200 regional jet aircraft, for an annual subsidy of $3,983,055. Community Comments On July 3, 2018, the Department requested the community’s views regarding this carrier- selection case. In a letter dated July 3, 2018, the Department received comments from Prescott Mayor Greg Mengarelli, stating that, after considering a detailed analysis of its air service market and after reviewing the proposals from each of the seven carriers carefully, the City of Prescott supports the selection of SkyWest “in the strongest terms.”4 The letter from the Mayor outlined what the community sees as SkyWest’s strengths, including United Airlines-branded and coded 4 The community’s full analysis of proposals and recommendation letter may be found in the community’s docket on www.regulations.gov by entering “OST-1996-1899.” regional jet service to Denver and Los Angeles, its large fleet of aircraft, “a long history of very successful EAS service,” and current EAS service at over three dozen communities. The Mayor further stated that more than 30,000 annual passengers are generated at SkyWest’s average EAS community, and all of its communities are complaint with EAS program requirements. Regarding the other carrier proposals, the community expressed concerns, including service reliability, the use of single-engine aircraft, lack of interline ticketing and baggage agreements with major carriers, overly-optimistic passenger forecasts that may hinder the community’s ability to comply with its requirements to maintain eligibility for EAS, particularly the $200 per passenger subsidy cap, and lack of connecting opportunities within the main commercial passenger terminal at certain airports. Decision After carefully reviewing the proposals and the community’s comments, the Department has decided to select SkyWest Airlines to provide Prescott’s EAS at an annual subsidy of $3,983,055, for the period from August 1, 2018, through August 31, 2020. In selecting a 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 air carrier at the hub; (C) interline arrangements with a larger air carrier at the hub (D) community views, giving substantial weight to the views of the elected officials representing the users of the service; and (E) whether the air carrier has included a plan in its proposal to market the service. In addition, the Consolidated Appropriations Act, 2018, Pub. L. No. 115-141, provides that, when selecting a carrier to provide EAS, the Department may consider the relative subsidy requirements, thus codifying a factor that we have considered since the inception of the program. SkyWest meets all of the selection criteria. Furthermore, the Department finds that SkyWest’s proposed service and subsidy levels are reasonable. Community 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. Prescott is within 175 miles of Phoenix Sky Harbor International Airport (PHX), a large-hub airport, and is subject to this requirement. 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 subsidy 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. 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. Prescott is also subject to the $200 subsidy cap. In addition, 49 U.S.C. Section 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 nearest hub airport. The $1,000 subsidy per passenger limit applies to all EAS communities outside of Alaska and Hawaii.