UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

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1 Order: Served: October 26, 2015 UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 26 th day of October, 2015 Essential Air Service at CAPE GIRARDEAU/SIKESTON, MISSOURI MARION/HERRIN, ILLINOIS QUINCY, ILLINOIS/HANNIBAL, MISSOURI DOT-OST DOT-OST DOT-OST under 49 U.S.C et seq. ORDER RE-SELECTING AIR CARRIER Summary By this Order, the United States 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 Cape Girardeau/Sikeston, Missouri (Cape Girardeau), Marion/Herrin, Illinois (Marion), and Quincy, Illinois/Hannibal, Missouri (Quincy) to Lambert-St. Louis International Airport (STL) using 9-passenger Cessna 402 aircraft. The contracts length, weekly frequencies, and annual subsidy rates are detailed below: 1 Cape Girardeau 2-year contract, 24 round trips per week Year 1 $2,063,432 Year 2 $2,145,969 1 Such subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds.

2 - 2 - Marion 4-year contract, 36 round trips per week Year 1 $2,626,625 Year 2 $2,731,690 Year 3 $2,840,958 Year 4 $2,954,596 Quincy 2-year contract, 36 round trips per week Year 1 $2,532,335 Year 2 $2,633,628 Background By Order (April 11, 2011), the Department selected Cape Air to provide EAS at the above mentioned communities for a four-year contract term beginning December 1, 2011, through November 30, 2015, for a combined annual subsidy rate of $5,689,438 ($1,627,966 for Cape Girardeau, $2,104,616 for Marion, and $1,956,856 for Quincy). As the end of the contracts approached, the Department issued Order (April 30, 2015) requesting proposals from airlines interested in providing EAS at the communities for new contract terms. In response to that Order, two airlines submitted proposals: Multi-Aero, Inc. d/b/a Air Choice One (Air Choice One) and Cape Air. Each airline s complete proposal and community comments may be accessed online at by entering each community s respective docket number in the search block. Proposal of Air Choice One Air Choice One submitted proposals to serve all three communities with 9-passenger Cessna Grand aircraft with the option of either a 2-or 4-year contract term. At Cape Girardeau, the airline proposed to provide 24 weekly nonstop round trips to STL. The annual subsidy for a two-year contract term would be $2,117,956. The annual subsidy for a four-year contract term would be $2,117,956 for the first two years and $2,096,776 for years three and four. At Marion, the airline proposed to provide 36 weekly nonstop round trips to STL. The annual subsidy for a two-year contract term would be $2,465,608. The annual subsidy for a four-year contract term would be $2,465,608 for the first two years and $2,440,952 for years three and four. At Quincy, the airline proposed two options. Option 1 proposed to provide 36 weekly nonstop round trips to Chicago O Hare International Airport (ORD). The annual subsidy for a two-year contract term is $3,684,437. The annual subsidy for a four-year contract term is $3,684,437 for the first two years and $3,647,593 for years three and four. Option 2 proposed to provide 18 weekly nonstop round trips to ORD and 18 weekly nonstop round trips to STL (for a combined total of 36 round trips per week). The annual subsidy

3 - 3 - for the two-year contract term is $3,104,568. The annual subsidy for a four-year contact term would be $3,104,568 for the first two years, and $3,073,522 for years three and four. Proposal of Cape Air Cape Air submitted two-year and four-year options to serve all three communities from STL using 9-passenger Cessna 402 aircraft. 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 a 4 percent increase in annual subsidy for each year of the EAS contract. Cape Air s proposed annual subsidy for each community is summarized below: Cape Girardeau Option 1 24 weekly nonstop round trips Two-Year Re-selection Annual Subsidy Year 1 $2,063,432 Year 2 $2,145,969 Four-Year Re-selection Year 1 $2,012,928 Year 2 $2,093,445 Year 3 $2,177,183 Year 4 $2,264,270 Cape Girardeau Option 2 28 weekly nonstop round trips Two-Year Re-selection Annual Subsidy Year 1 $2,283,572 Year 2 $2,374,915 Four-Year Re-selection Year 1 $2,227,680 Year 2 $2,316,788 Year 3 $2,409,459 Year 4 $2,505,837

4 - 4 - Marion 36 weekly nonstop round trips Two-Year Re-selection Annual Subsidy Year 1 $2,692,527 Year 2 $2,800,228 Four-Year Re-selection Year 1 $2,626,625 Year 2 $2,731,690 Year 3 $2,840,958 Year 4 $2,954,596 Quincy 36 weekly nonstop round trips Two-Year Re-selection Annual Subsidy Year 1 $2,532,335 Year 2 $2,633,628 Four-Year Re-selection Year 1 $2,470,354 Year 2 $2,569,168 Year 3 $2,671,935 Year 4 $2,778,812 Community Comments On June 8, 2015, the Department requested comments from all three communities regarding this EAS carrier-selection case. The communities were unanimous in their support for the re-selection of Cape Air to continue providing EAS. Ms. Molly Hood, Assistant City Manager for the City of Cape Girardeau, submitted a letter to the Department supporting Cape Air s Option 2 proposal with the increased frequency of 28 weekly round trips vs. the status quo frequency of 24 weekly round trips. In her letter Ms. Hood states that the Cape Girardeau Regional Airport Advisory Board and the Cape Girardeau Regional Airport Administration, representing the City of Cape Girardeau, concluded that the city would benefit from air service provided by Cape Air for the following reasons: 1) six years of very successful Cape Air operations at Cape Girardeau; 2) increased passenger enplanements of over 6,500 enplaned passengers in 2014; 3) Cape Air operating at a 99% completion rate; 4) Cape Air using nine-passenger capacity aircraft (Cessna 402), rather than the eight-passenger Cessna Caravan aircraft proposed by Air Choice One; 5) Cape Air s code-share agreement with American Airlines; 6) Cape Air s ability to offer interline baggage agreements with all major airlines at STL; 7) Cape Air s City Ticket Office in downtown Cape Girardeau; and 8) Cape Air s vast marketing capacity and community outreach. The community states that it normally would support a 4-year contract term, but in this case it supports a 2-year contract term in

5 - 5 - the hope that the Department would be willing to select the option with the additional frequencies and see how the additional weekly frequencies perform under a shorter-term arrangement. The City of Marion and the Williamson County Regional Airport submitted letters supporting Cape Air s proposal. The Honorable Robert L. Butler, Mayor of Marion, states in his letter, I have found [Cape Air] to be professional, efficient, and accommodating, adding, I will from time to time hear comments about Cape Air s service very seldom is it anything but favorable. Doug Kimmel, Airport Director at for the Williamson County Regional Airport stated that the Williamson County Airport Board of Commissioners voted in favor of Cape Air s four-year service proposal. The Honorable Kyle A. Moore, Mayor of Quincy, submitted a letter strongly supporting Cape Air, stating that the airline was the clear and consistent choice to serve the City of Quincy. Mayor Quincy mentions that Cape Air has been a valuable member of our community... and added, Their local staff is always courteous, friendly, and goes the extra mile to serve our community. Mayor Moore states that the community prefers a two-year contract term. Decision Since the communities did not support Air Choice One, and, thus, did not waive their rights to service provided in aircraft with two engines and using two pilots, 2 we did not further consider Air Choice One s proposal at any of the three communities. After carefully reviewing each air carrier s proposal and taking into account the communities feedback, the Department has decided to re-select Cape Air for a two-year contract term at Cape Girardeau and Quincy, and a four-year contract term at Marion. The Department bases its decision on the five factors 49 U.S.C (c)(1) directs us to consider: 1) service reliability; 2) contractual and marketing arrangements with a larger carrier at the hub; 3) interline agreements with a larger carrier at the hub; 4) community views, giving substantial weight to the views of the elected officials representing the users; 5) whether the carrier has included a plan in its proposal to market its service to the community. First, Cape Air has a proven record of providing reliable EAS at Cape Girardeau, Marion, and Quincy, as well as many other EAS communities. In addition, Cape Air s service to STL, a medium hub airport, coupled with its established interline ticketing and baggage agreements with most major U.S. airlines, in addition to its code-share agreement with American Airlines will provide customers with seamless connections to the national air transportation system. Furthermore, Cape Air has unanimous support from the communities, a key airline-selection criterion. Additionally, Cape Air included annual marketing expenses in its proposals, and operates city ticket offices in each of the communities to provide greater awareness and ticket sales to the public U.S.C (b)(5)

6 - 6 - With specific respect to Cape Girardeau, the decision as to which of Cape Air s two options to choose requires the Department to look at several factors. The community made it quite clear in their comments that they support the airline s Option 2 for a two-year term. While the Department places significant weight on the comments of the community, it is not its only consideration. It is also highly important that the Department considers its fiduciary responsibilities. The purpose of the EAS program is to provide a safety-net level of air service to connect communities to the national air transportation system that otherwise would not have air service. Cape Air s Option 1 for status-quo service fully meets the community s EAS needs. Based on calendar year 2014, the total traffic enplaning and deplaning at Cape Girardeau was 12,313, with average enplanements of 20 passengers a day. Cape Air s existing service provides 36 seats per day each way, which more than adequately meets the community s EAS needs. While Cape Air clearly provides excellent service, the annual rate increase of nearly 25% is of concern to the Department, given the cost pressures the EAS program continually faces. While the community supports the additional frequency to STL, Cape Air s Option 2 twoyear proposal is $220,140 more (in year 1) than the Option 1 two-year proposal, and would be $655,606 higher (for year 1) than the current annual subsidy. Even the Option 1 statusquo service will see a $435,466 increase over the current annual subsidy. The Department cannot reasonably justify increasing federal subsidy so that a community can have an increased level of air service when it currently has sufficient air service connecting it to the national air transportation system. In addition, Cape Air is free to provide additional frequencies at Cape Girardeau on its own (up to four weekly, as Cape Air had proposed), if it deems market demand and favorable conditions exist. Therefore, the Department will select Cape Air s Option 1 for 24 weekly nonstop round trips to STL. The Department shall make these selections contingent upon its 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 Carrier Fitness 49 U.S.C (b) and require that the Department find an air carrier fit, willing, and able to provide reliable service before the Department may subsidize it to provide EAS. Cape Air is subject to the Department s continuing fitness requirements, and no information has come to the Department s attention that would cause the Department to question the air carrier s fitness at this time. The Department has contacted the Federal Aviation Administration, and it has raised no concerns that would negatively affect our fitness findings. The Department therefore concludes that Cape Air is reliable and fit to conduct the operations proposed at all three communities. This Order is issued under authority delegated in 49 CFR Part 1.25a(b). 3 The certifications are available online under Reports and Publications at

7 - 7 - ACCORDINGLY, 1. The Department re-selects Hyannis Air Service, Inc. d/b/a Cape Air to provide Essential Air Service at Cape Girardeau/Sikeston, Missouri, Marion/Herrin, Illinois, and Quincy, Illinois/Hannibal, Missouri, and establishes the annual subsidy rates as described in Appendix C; 2. The Department directs Hyannis Air Service, Inc. d/b/a Cape Air to retain all books, records, and other source and summary documentation to support claims for payment, and to preserve and maintain such documentation in a manner that readily permits its audit and examination by representatives of the Department. Such documentation shall be retained for seven years from the service date of this Order or until the Department indicates that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold or disposed of must be retained. The carriers may forfeit their compensation for any claim that is not supported under the terms of this Order; 3. The Department finds that Hyannis Air Service, Inc. d/b/a Cape Air is fit, willing and able to operate as a commuter air carrier, and capable of providing reliable Essential Air Service at Cape Girardeau/Sikeston, Missouri, Marion/Herrin, Illinois, and Quincy, Illinois/Hannibal, Missouri; 4. These dockets will remain open pending further Department action; and 5. The Department will serve a copy of this Order on the mayors of Cape Girardeau, Hannibal, Herrin, Marion, Quincy, and Sikeston, the airport managers of Cape Girardeau Regional Airport, Williamson County Regional Airport (Marion), Quincy Regional Airport, Hyannis Air Service, Inc. d/b/a Cape Air, and Multi-Aero, Inc. d/b/a Air Choice One. By: BRANDON M. BELFORD Deputy Assistant Secretary for Aviation and International Affairs (SEAL) An electronic version of this document is available at

8 Appendix A AREA MAP Maps generated by the Great Circle Mapper - copyright Karl L. Swartz.

9 Essential Air Service at Cape Girardeau, Marion, and Quincy Appendix B Page 1 of 2

10 Essential Air Service at Cape Girardeau, Marion, and Quincy Appendix B Page 2 of 2

11 Appendix C Page 1 of 4 Hyannis Air Service, Inc. d/b/a Cape Air Essential Air Service to be provided at Cape Girardeau/Sikeston, Missouri DOT-OST Contract Term: December 1, 2015, through November 30, 2017 Hub: Lambert-St. Louis International Airport (STL) Scheduled Service: 24 nonstop round trips per week Aircraft: 9-passenger Cessna 402 Compensation Schedule: Effective Period Annual Subsidy Rate per Flight 1 Weekly Ceiling 2 December 1, 2015 November 30, 2016 $2,063,432 $852 $40,896 December 1, 2016 November 30, 2017 $2,145,969 $886 $42,528 1 Annual compensation divided by 2,421 annual departures (48 weekly departures x 52 weeks x 97 percent completion) 2 48 weekly departures multiplied by rate per flight

12 Appendix C Page 2 of 4 Hyannis Air Service, Inc. d/b/a Cape Air Essential Air Service to be provided at Marion/Herrin, Illinois DOT-OST Contract Term: December 1, 2015, through November 30, 2019 Hub: Lambert-St. Louis International Airport (STL) Scheduled Service: 36 nonstop round trips per week Aircraft: 9-passenger Cessna 402 Compensation Schedule: Effective Period Annual Subsidy Rate per Flight 1 Weekly Ceiling 2 December 1, 2015 November 30, 2016 $2,626,625 $723 $52,056 December 1, 2016 November 30, 2017 $2,731,690 $752 $54,144 December 1, 2017 November 30, 2018 $2,840,958 $782 $56,304 December 1, 2018 November 30, 2019 $2,954,596 $814 $58,608 1 Annual compensation divided by 3,632 annual departures (72 weekly departures x 52 weeks x 97 percent completion) 2 72 weekly departures multiplied by rate per flight

13 Appendix C Page 3 of 4 Hyannis Air Service, Inc. d/b/a Cape Air Essential Air Service to be provided at Quincy, Illinois/Hannibal, Missouri DOT-OST Contract Term: December 1, 2015, through November 30, 2017 Hub: Lambert-St. Louis International Airport (STL) Scheduled Service: 36 nonstop round trips per week Aircraft: 9-passenger Cessna 402 Compensation Schedule: Effective Period Annual Subsidy Rate per Flight 1 Weekly Ceiling 2 December 1, 2015 November 30, 2016 $2,532,335 $697 $50,184 December 1, 2016 November 30, 2017 $2,633,628 $725 $52,200 1 Annual compensation divided by 3,632 annual departures (72 weekly departures x 52 weeks x 97 percent completion) 2 72 weekly departures multiplied by rate per flight

14 Appendix C Page 4 of 4 Note The carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance with the terms and stipulations of the rate Order, including the service plans outlined in the Order and any other significant elements of the required service, without prior approval. The carrier understands that an aircraft take-off and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are considered eligible for subsidy. In addition, if the carrier does not schedule or operate its flights in full conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in question. If the carrier contemplates any such changes beyond the scope of the Order during the applicable period of this rate, it must first notify the Office of Aviation Analysis in writing and receive written approval from the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and select a replacement carrier to provide service on these routes. The carrier must complete all flights that can be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to which the goals of the program are met and the extent of access to the national air transportation system provided to the community. If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes service requirements at a specific location provided for under this Order, then, at the end of the period for which the Department does make payments in the stipulated service levels, the carrier may cease to provide service to that specific location without regards to any requirement for notice of such cessation. Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department and carrier do not constitute a total or partial reduction or cessation of payment. Subsidy contract are subject to, and incorporate by reference, relevant statutes and Department regulations, as they may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not operate to controvert the foregoing paragraph. Funds may not be available for performance under this Order beyond December 11, The Government s obligation for performance under this Order beyond December 11, 2015, is subject to the availability of funds from which payment for services can be made. No legal liability on the part of the Government for any payment may arise for performance under this order beyond December 11, 2015, until funds are made available to the Department for performance. If sufficient funds are not made available for performance beyond December 11, 2015, the Department will provide notice in writing to the carrier. All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the month for which compensation is being claimed. For example, claims for service provided in July must be filed by October 31; August claims must be submitted by November 30, and so on.