BEFORE THEDEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.OFFICE OF THE SECRETARY

______________________________)

In the Matter of ))

ESSENTIAL AIR SERVICE ) Docket DOT-OST 2017-0108AT McGRATH, AK )

______________________________)

ESSENTIAL AIR SERVICE BID OF

J&M ALASKA AIR TOURS, INC.

d/b/a ALASKA AIR TRANSIT

FOR McGRATH, ALASKA

Communications with Respect to this Document Should Be Addressed to:

Hank Myers Dan Owen/Josie OwenPrincipal Consultant OwnersMTC Alaska Air TransitPO Box 7142 2301 Merrill Field DriveBellevue, WA 98008-1142 Anchorage, AK 99501-4134

May 18, 2020

BEFORE THEDEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.OFFICE OF THE SECRETARY

______________________________)

In the Matter of ))

ESSENTIAL AIR SERVICE ) Docket DOT-OST 2017-0108AT McGRATH, AK )

______________________________)

ESSENTIAL AIR SERVICE BID OFJ&M ALASKA AIR TOURS, INC.

d/b/a ALASKA AIR TRANSITFOR McGRATH, ALASKA

INTRODUCTION

Alaska Air Transit (AAT) holds a Certificate of Public Convenience and Necessity from the

Department of Transportation, as well as an Air Carrier Operating Certificate from the FAA. The

operating authority allows for multiple aircraft and pilots, although limited to four flights a

week of scheduled service between two non-stop points. AAT will submit a Pre-Application

Statement of Intent for the Commuter Operations Specifications required to operate the

increased frequency of flights necessary to support the eventual passenger and priority mail

needs of the market.

Since the enactment of the Rural Service Improvement Act of 2002, air service to McGrath has

been bifurcated between large mainline aircraft transporting non-priority and bypass mail and

heavy freight, and medium bush aircraft transporting passengers and time sensitive mail and

freight. Since the emergence of the COVID-19 pandemic, passenger traffic is almost nil due to

the passenger travel restrictions mandated by the State of Alaska and by the City of McGrath.

The large bush operators previously providing passenger service used 24-30 seat class aircraft

on a frequency of three flights per week, or 72-90 seats per week in each direction

IMPACT OF CORONAVIRUS ON SCHEDULED SERVICE TO McGRATH

Pursuant to DOT Order 2020-4-2, addressing the drop in demand due to the coronavirus,

McGrath’s EAS frequency requirement was temporarily reduced to one flight per week in

medium or large aircraft. RAVN, the incumbent EAS carrier subsequently suspended all

operations and declared Chapter 7 bankruptcy. There is no scheduled passenger service in the

market now.

In this proposal, AAT offers four flights a week with nine-passenger Pilatus PC-12 aircraft. The

Pilatus PC-12 is a modern design, comfortable pressurized turboprop aircraft with the best

safety record of all aircraft, including both single and twin engine, in the 9 passenger and under

size class. If there are any primarily cargo trips, AAT may instead use one of its nine-passenger

Cessna Grand Caravan EX aircraft to take advantage the high bulk capacity afforded by its cargo

pod. While the pressurized PC-12 has a higher operating cost per hour, its faster cruise speed

means the cost per roundtrip is about the same as the Cessna Caravan. The PC-12 has a block

time equivalent to the SAAB-340 and deHavilland Dash-8 aircraft previously used.

As traffic recovers from the impact of the COVID-19 pandemic, AAT proposes to operate as

many eight flights per week, or 72 seats, in the market. This is the equivalent of the three

SAAB/deHavilland flights per week previously operated by PenAir and RAVN.

A significant revenue component of the service is priority mail. The current twice weekly

mainline cargo service does not meet the Postal Service’s inhouse standards for priority mail,

but it is the only service available. AAT would transport the mail at the Part 135 wheel rate,

however the Postal Service has not committed to using these flights at that rate. Initial bids are

proposed including and excluding mail revenue.

The eventual goal is to provide ten flights per week, which is the seat equivalent of three

medium sized aircraft per week. Although the Pilatus is not as large as the previous aircraft in

the market, McGrath residents and visitors would enjoy the flexibility of higher frequency

pressurized aircraft service. If priority mail is tendered, then flights would be added based on

incremental passenger traffic gains. It is unknown whether passenger traffic will return to pre-

COVID-19 levels, so operating smaller pressurized aircraft allows incremental capacity

adjustments to more accurately match demand. If demand increases sufficiently, it could result

in AM and PM departures, which would make day trips possible. Another option would be to

offer seasonal service with five flights a week in the off-season, and ten flights a week during

the peak season.

BACKGROUND OF ALASKA AIR TRANSIT

J&M Alaska Air Tours, Inc. d/b/a Alaska Air Transit (AAT) has been owned and managed by Dan

and Josie Owen since 2004. AAT provides statewide service using its fleet of two Pilatus PC-12

and two new generation Cessna Grand Caravan EX aircraft. AAT has been a Medicaid approved

carrier since its inception, and it is approved by and has contracts with both the State of Alaska

and the Federal government to carry their employees. AAT has provided twice weekly Essential

Air Service to the village of Tatitlek in the Prince William Sound since October, 2015.

HISTORY OF SERVICE TO McGRATH and NEIGHBORING COMMUNITIES

In August, 2018, Alaska Air Transit received a Certificate of Public Convenience and Necessity

from the DOT. AAT carries USPS mail and provides unsubsidized Essential Air Service between

the McGrath hub and neighboring Takotna and Tatalina, and it provides mail service between

McGrath and Nikolai. In McGrath AAT uses the terminal facility at the Hotel McGrath, directly

across the street from the aircraft parking area at the McGrath Airport. The Hotel McGrath

facility previously ground handled Peninsula Airways and its 30-passenger SAAB aircraft. Hotel

McGrath staff provide transportation of mail between the McGrath Post Office and its terminal,

where there is an approved mail holding facility. AAT maintains continual contact with Hotel

McGrath via telephone and internet.

AAT is well established at McGrath. It has served McGrath as part of its interior service for 8

years. AAT is a major sponsor of the Iditarod Dogsled Race that passes through McGrath each

spring, and it sponsors local nonprofits in McGrath such as the Back to Bluegrass Festival, KSKO

local public radio, and the Iditarod Area School District students’ annual 4th grade trip. AAT also

supports McGrath artists by purchasing their works, to be presented as the “Spirit of the

Iditarod” award to the first Iditarod musher to reach McGrath.

DOWNTOWN LOCATION AND SHUTTLE SERVICE TO ANCHORAGE INTERNATIONAL AIRPORT

For over 5 years, AAT has provided airport shuttle service in its large capacity 12-person

Sprinter van, connecting Ted Stevens International Airport with AAT’s Merrill Field terminal via

a 15-18-minute shuttle ride. This has provided convenience for oil and commercial fishing

industry employees who fly into Ted Stevens International Airport from outside the State of

Alaska. AAT’s Sprinter van is the long 170-inch wheelbase version, with more than adequate

capacity to carry 9 commercial fishermen and their bulky gear. The Sprinter’s 200 cubic feet of

cargo volume with all passenger seats installed would allow it to easily handle the expected

amount of USPS mail destined for McGrath. AAT’s Merrill Field location is significantly closer

and more convenient to downtown Anchorage hotels, hospitals, and businesses than Ted

Stevens airport, and it has plenty of convenient parking.

OPERATOR FINANCIAL AND SAFETY FITNESS

AAT has a solid financial foundation and operates profitably without subsidy. It maintains an

excellent safety record. The two aircraft types in their fleet are well known for their reliability

in Alaska, and having multiple aircraft provides redundancy so that service may be continued

while aircraft are under maintenance. AAT’s modern all-turboprop fleet averages 9 years since

new.

AAT embraces a continuous improvement safety culture. Its proactive safety programs exceed

regulatory standards, and include in-aircraft CFIT prevention training and the use of trained

Flight Coordinators who provide functions similar to major airline dispatchers. AAT’s Flight

Coordinators participate with Pilots in pre-departure risk assessment and shared decision

making. They use satellite tracking to monitor flights and satellite messaging to provide enroute

flight support. AAT’s safety programs are audited annually by a global corporate client.

Of recent note, Alaska Air Transit is deemed by the State of Alaska to be “essential

infrastructure” and was encouraged to continue operations during a statewide ban on non-

essential travel. AAT was required by state mandate to provide the state with a plan detailing

how it will work to protect its employees and customers, and how it will mitigate the risk of

spreading coronavirus to the remote communities that it serves. The company has

implemented its state approved plan, which includes daily screening of employees, screening

passengers prior to boarding, requiring employees to wear face masks during customer contact,

requiring pilots and passengers to wear face masks during flights, sanitizing aircraft between

flights, and reconfiguring its employee and customer waiting areas to facilitate social distancing.

MARKETING

Alaska Air Transit has maintained a lean marketing budget, with minimal use of paid

advertising. AAT primarily markets through its web site, social media, its affiliate connections

with the Hotel McGrath, and it receives public recognition of its sponsorship of McGrath’s KSKO

public radio station and its “Lead Dog” sponsorship of the Iditarod sled dog race.

SERVICE PROPOSAL

AAT proposes an initial service level of four flights per weeks. In response to surveyed McGrath

community members, the flights would operate Monday, Tuesday, Thursday and Friday. This

pattern allows passengers to stay as little as one night at their destination, with multiple

opportunities for two to three-night stays or longer.

The eventual goal when traffic recovers to pre-coronavirus levels is ten scheduled flights per

week, and the bid explains the basis of adding flights. Bids are shown with and without priority

mail revenue. At that point, AAT would be offering 90 seats per week in each direction, the

same level as RAVN and PenAir, but with more days served.

AAT anticipates eventually offering an average of eight roundtrip flights per week as traffic

rebuilds to previous levels. The recovery timetable is unclear, but AAT has set parameters for

adding flights. An additional flight will be added when passenger demands increases by 10 one-

way passengers per week. This may lead to the operation of seasonal services. The goal is to

operate a total of 416 roundtrips per year with a total subsidy need of $261,000 at peak, or

$313.51 per departure. The immediate need is $7,043.45 per week, or $880.43 per departure.

AAT, as a State and Federally approved carrier , is deemed to be “essential infrastructure”. It

has complied with all COVID-19 mandates, and can begin services immediately. AAT will work

with the Department to negotiate changes in subsidy need per flight as traffic returns toward

historic levels. Normalized first and second year bids are attached as Appendix A, with COVID-

19 service levels also shown.

SUMMARY

These are momentous times in the commercial aviation industry. Because AAT is already

authorized to transport essential traffic during the pandemic, it can begin Essential Air Service

immediately. It is well established at McGrath and Anchorage. With the bifurcated transport of

mail and freight, medium sized bush aircraft have proven uneconomical across the State. Fast,

pressurized nine-passenger aircraft fit the passenger market best. AAT has backup aircraft,

including the Cessna Caravan for bulkier freight and mail loads. In these challenging times, an

agile, passenger oriented service is what is needed. This proposal offers immediate resumption

of service, as well as the capacity in the future to meet all passenger and priority mail needs

plus cargo.

The one condition on this bid is that the Postal Service dispatch at least all priority mail to AAT.

AAT has additional capacity for mail, even up to pallet loads. The flights will operate at a

passenger load factor of 53%, with an outbound total load factor of 61%. Both figures are

significantly higher that for the medium sized aircraft previously used. There is some additional

capacity for outbound freight and mail, and that traffic represents the stability of the service.

Respectfully submitted,

Dan OwenOwner

May 18, 2020

ANCHORAGE-McGRATH ESSENTIAL AIR SERIVCE BID Appendix AJ&M ALASKA AIR TOUR d/b/a Alaska Air Transit Page 1 of 2

Initial Service During Modified COVID lockdown

Post COVID Parameters for Schedule Increase

ITEM Per Roundtrip Per Week Per Year & Year 1 Year 2Revenue 416 Roundtrips 416 RoundtripsPassengers 4 16 4000Passenger Revenue (net) $ 837 $ 3,349 $ 837,180 $ 870,667 Mail Volume 250 1000 130,000Mail Revenue $ 707 $ 2,827 $ 367,572 $ 382,275 Freight Revenue $ 75 $ 300 $ 39,000 $ 40,560 TOTAL REVENUE $ 1,619 $ 6,476 $ 1,243,752 $ 1,293,502 Total Revenue w/o Mail $ 912.18 $3,648.72 $ 876,180.00 OperationsRoundtrips 1 4 416Block Time 2.1 8.4 873.6Departures 2 8 832Passengers per Departure 2 2 4.81ExpensesDirect ExpensesFlight Crew $ 313 $ 1,252 $ 130,208 $ 135,416 Aircraft Fuel and Oil $ 383 $ 1,532 $ 163,158 $ 169,684 Hull Insurance $ 175 $ 700 $ 72,800 $ 75,712 Third Party Liability $ 7 $ 28 $ 3,640 $ 3,786 Passenger Liability $ 94 $ 376 $ 39,104 $ 40,668 Aircraft Maintenance/Res. $ 808 $ 3,232 $ 420,160 $ 436,966 Aircraft Depreciation/Rental $ 598 $ 2,392 $ 248,768 $ 258,719 Total Direct Expense $ 2,378 $ 9,512 $ 1,077,838 $ 1,120,952 Indirect Expenses $ - Traffic Related $ 168 $ 673 $ 70,000 $ 72,800 Departure Related $ 522 $ 2,088 $ 217,202 $ 225,890 Capacity Related $ 150 $ 602 $ 72,600 $ 75,504 Total Indirect Expense $ 841 $ 3,363 $ 359,802 $ 374,194 TOTAL OPERATING EXPENSE $ 3,219 $ 12,875 $ 1,437,640 $ 1,495,146 5% Profit Markup $ 161 $ 644 $ 66,952 $ 74,757 TOTAL EXPENSE $ 3,380 $ 13,519 $ 1,504,592 $ 1,569,903 Subsidy Need with Mail $ 1,761 $ 7,043 $ 260,840 $ 276,400 Subsidy Need w/o Mail $ 2,468 $ 9,871

Per Departure with mail $ 1,760.76 $ 1,760. $ 313.51 $ 332.21

ANCHORAGE-McGRATH ESSENTIAL AIR SERIVCE BID Appendix A

J&M ALASKA AIR TOUR d/b/a Alaska Air Transit Page 2 of 2

LOAD FACTOR ANALYSIS

Item With COVID Restrictions Post COVID Restrictions

Load Factor Normalized Yr Outbound

Seats 18 72 7488 3744

Passengers 4.00 16.00 4000 2000

Passenger Load Factor 22.22% 22.22% 53.42% 53.42%

Payload per Flight

Total Payload 4800 19200 1996800 998400

Passenger Weight 900 3600 900000 450000

Freight 50 200 26000 26000

Mail 500 2000 130000 130000

Total Weight 1450 5800 1056000 606000

Total Load Factor= 30.21% 30.21% 52.88% 60.70%

Appendix BPage 1 of 1

TRAFFIC HISTORY CHARTS FOR McGRATH TRAFFIC

YE 2-16

YE 5-16

YE 8-16

YE 11-16

YE 2-17

YE 5-17

YE 8-17

YE 11-17

YE 2-18

YE 5-18

YE 8-18

YE 11-18

YE 2-19

YE 5-19

YE 8-19

YE 11-19

YE 2-20

0

500

1000

1500

2000

2500

3000

PASSENGER TRAFFIC TREND

ANC-MCG MCG-ANC

YE 2-16

YE 5-16

YE 8-16

YE 11-16

YE 2-17

YE 5-17

YE 8-17

YE 11-17

YE 2-18

YE 5-18

YE 8-18

YE 11-18

YE 2-19

YE 5-19

YE 8-19

YE 11-19

YE 2-20

0100000200000300000400000500000600000700000800000 FREIGHT TRAFFIC TREND

ANC-MCG MCG-ANC

YE 2-16

YE 5-16

YE 8-16

YE 11-16

YE 2-17

YE 5-17

YE 8-17

YE 11-17

YE 2-18

YE 5-18

YE 8-18

YE 11-18

YE 2-19

YE 5-19

YE 8-19

YE 11-19

YE 2-20

0100000200000300000400000500000600000700000800000900000

MAIL TRAFFIC TREND

ANC-MCG MCG-ANC

Appendix CPage 1 of 2

Additional Photographs of AAT Aircraft & Base

Appendix CPage 2 of 2

Additional Photographs of AAT Aircraft & Base