SeaPort Airlines, Inc. Proposal to Provide Essential Air Service

Transcription

1 Before the United States Department of Transportation Proposal to Provide Essential Air Service at MUSCLE SHOALS, ALABAMA GREENVILLE, MISSISSIPPI LAUREL/HATTIESBURG, MISSISSIPPI TUPELO, MISSISSIPPI Docket DOT-OST Docket Docket Docket Under 49 U.S.C et seq. SeaPort Airlines, Inc. Proposal to Provide Essential Air Service By Order , the Department requested proposals for essential air service (EAS) at a total of 23 communities. Pursuant to that Order, SeaPort submitted a proposal to provide subsidized essential air service at the communities of Muscle Shoals, Alabama (MSL); and Greenville (GLH), Laurel/Hattiesburg (PIB), and Tupelo, Mississippi (TUP) on October 14, The communities rejected all proposals and by Order issued on November 23, 2011, the Department requested a second round of proposals. Pursuant to that Order, SeaPort respectfully submits this timely proposal to provide subsidized essential air service to the communities of Muscle Shoals, Alabama; and Greenville, Laurel/Hattiesburg, and Tupelo, Mississippi. Correspondence regarding this proposal should be directed to: Timothy Sieber Vice President Strategy & Corporate Development SeaPort Airlines, Inc NE Airport Way Portland, OR (971) tsieber@seaportair.com

2 SeaPort Airlines Overview SeaPort Airlines, Inc. is a FAA certified scheduled airline with nearly 30 years of experience in commercial aviation. Our company s foundation is built on efficient and reliable service to rural communities. Both SeaPort Airlines and our sister brand, Wings of Alaska, currently operate service under the Essential Air Service program as well as on an unsubsidized basis. 1 Effective March 1, 2012, SeaPort s approximately 185 professionals will operate an average of 80 daily departures to 20 cities in nine states. Our business model is focused on providing affordable and reliable air service to smaller communities, particularly ones that the mega-airline brands no longer have the operational or economic capability to effectively serve. SeaPort delivers Essential Air Service to seven communities: Excursion Inlet, Alaska; Pendleton, Oregon; El Dorado, Hot Springs, and Harrison, Arkansas; Salina, Kansas; and Jackson, Tennessee. In each of these cases, after award of the EAS contract by U.S. DOT, we have started by the date promised and with fares at or below those outlined in our proposal. We would note that this stands in contrast to some other airlines that place bids with unreasonable fares that are never realized by the traveling public, delay the start of service, or do not launch service that has been awarded by the Department. 1 Wings of Alaska is the premier airline serving Southeast Alaska providing scheduled passenger service, freight and charter service between Juneau and Skagway, Haines, Hoonah, Gustavus, and weekly flights to Excursion Inlet. Wings of Alaska grew in reputation and size, becoming one of the most successful regional air carriers in Alaska, now comprised of a fleet of Cessna 207s and Grand Caravans. Page 2

3 Aircraft SeaPort Airlines is proposing to provide service at Muscle Shoals, Laurel/Hattiesburg, Greenville, and Tupelo utilizing Cessna Caravan turboprop aircraft. Currently being produced in the USA, the Caravan was originally designed in the 1980 s to replace an aging fleet of piston-powered aircraft, such as the De Havilland Otter, Cessna 402, and Piper Chieftain. Over 2,000 Caravans have been built logging a total of over 12.5 million flight hours. SeaPort Airlines currently operates five Cessna Caravans, with additional units planned for delivery during the first half of The Caravan has a spacious cabin that seats nine passengers and we believe this type of aircraft offers the right size capacity increment for each of the communities, enabling us to offer optimal frequency levels and reasonable fares while simultaneously minimizing the required level of subsidy. While the Caravan is certified for single-pilot operation, SeaPort typically operates with both a Captain and First Officer. The large cargo pod on the belly of the aircraft facilitates carriage of baggage volumes and weights much greater than that which can be accommodated on older piston-powered twins, and includes the ability to segregate passenger baggage for security purposes. A Track Record of Building Community Partnerships SeaPort Airlines prides itself on developing partnerships with each community it serves. This includes participation in local events, donation of tickets, regular community meetings, and advance notification of, and opportunity for input, related to schedule changes and fares. We believe this approach serves our own interests equally with those of the community by fostering long-term, stable relationships that result in increased ridership and, eventually, reduced subsidy requirements. We encourage the communities in this proposal to contact any of the EAS communities we serve for additional information. Page 3

4 Pricing Model SeaPort Airlines employs a pricing strategy of reasonable and attractive fares that factors in ticket prices at other airports in the region (i.e., likely leakage points), total itinerary costs including connecting flights on other airlines, costs of other modes of transportation, and the need to minimize subsidy level and taxpayer expenditures. The range of fares and forecasted average fare for each of the cities to each proposed hub is shown on the table below. All fares illustrated are one-way with varying levels of required advance purchase and inventory control. SeaPort Airlines Fares Pricing Range & Average EAS Community Memphis Nashville New Orleans Muscle Shoals, AL (MSL) Greenville, MS (GLH) Laurel/Hattiesburg, MS (PIB) Tupelo, MS (TUP) Fares from $39- $89; average of $57.50 Fares from $29- $79; average of $45.25 N/A Fares from $29- $69; average of $38.10 Fares from $29- $69; average of $49.50 Fares from $49- $109; average of $65.50 Fares from $49- $109; average of $67.20 Fares from $39- $79; average of $55.90 N/A Fares from $59- $129; average of $79.95 Fares from $29- $59; average of $37.70 Fares from $59- $129; average of $71.15 NOTE: Listed fares include taxes and fees. We believe the fares illustrated represent a responsible approach to pricing in EAS communities and which is consistent with the overall objectives of the EAS program. SeaPort Airlines does not engage in baiting communities with low fares that are not sustainable. Rather, we focus on balancing the need to maintain low levels of subsidy with the goal of maximizing the number of passengers using local air service. Other approaches to pricing used by some carriers shift the true cost of air transportation from the consumer to the Department and we believe are inconsistent with the intent of the essential air service program to ensure reasonable access to the air transportation system for smaller communities. Equally as important, the resultant higher levels of subsidy required by offering unreasonably low fares can increase the risk of a community exceeding the $200 per passenger subsidy limitation. Page 4

5 Global Distribution & Interline Connectivity SeaPort has a presence in all five major global distribution systems. This enables our flights to be available on all major online travel agencies and meta-searchers including Orbitz, Travelocity, Expedia, Kayak, Hipmunk, and CheapoAir. SeaPort currently has an interline ticketing agreement with US Airways and is working toward securing agreements with other carriers to allow single-ticket itineraries from each of the communities in this proposal to destinations around the world. 2 Among the carriers we are pursuing interline agreements with are Delta Air Lines, United Airlines, Alaska Airlines, and Frontier Airlines. We have found some major carriers more receptive to interlining that provides rural communities with much needed connectivity than others, but nonetheless these agreements remain among the highest priorities for SeaPort management. Marketing & Public Relations Strategy SeaPort will implement a comprehensive marketing and public relations strategy aimed at introducing our brand to the community and maximizing the number of passengers onboard. In addition to local advertising, these activities include: Local Event Marketing: Recognizing that visible participation in local events has been successful for both legacy and low-cost airlines, SeaPort has implemented a similar strategy in all of its communities. These have ranged from SeaPort Airlines community food drives, to presenting at business expos, to hosting after hours events at local Chamber of Commerce meetings. In addition, SeaPort often makes in kind donations of tickets for use by local charities, either for their own business needs or as a fundraising tool (i.e., raffles, silent auctions, etc.). Website: The majority of SeaPort s passengers book through the Company s website ( Social Media: Since 2010, SeaPort Airlines has managed a successful social media campaign that has allowed the Company to dynamically engage its customer base in a twoway conversation through sites such as Facebook, Twitter, FourSquare & LinkedIn. We have found social media to be an excellent tool for generating passenger referrals and information sharing in our communities, and expect similar results in the four communities in this proposal. FlyerFlex Customer Rewards: SeaPort Airlines offers a customer loyalty program called FlyerFlex. This program provides customers with a variety of benefits including free flights, service charge waivers, and bonus points. Enhancements to the FlyerFlex program are planned during 2012 that will include a wider choice of travel rewards and additional customer benefits. 2 US Airways serves all of the three hubs Memphis, Nashville, and New Orleans that are being offered to the communities in this proposal as access points to the national air transportation system. Page 5

6 Value Accounts: SeaPort offers a Corporate Value Account in every community served. This program encourages businesses to make a long-term investment in local air service by offering a variety of benefits such as change fee waivers and savings of 5% to 15% off published fares. It is important to note that unlike the corporate travel programs of major airlines that are not designed to serve small businesses in rural communities, SeaPort s program can provide savings to a company of virtually any size and can be used by any employee of a company. In the following proposals, SeaPort Airlines has allocated specific dollar amounts for marketing and sales activity appropriate to each community and service pattern. These budgets factor in that SeaPort will be a new brand in these communities and the resultant need to engage in aggressive sales and marketing activities to ensure continued use of the local airport. Access to Multiple Hubs For each community, SeaPort Airlines is offering multiple proposal options for consideration that includes service to New Orleans, Nashville and/or Memphis. The option of multiple access points results in greater choice for consumers and will assist each community in this proposal to maximize the level of traffic retention at their local airport. This is based on our experience in Arkansas communities, where the addition of Dallas and/or Kansas City to existing Memphis service resulted in significant traffic growth. We strongly believe similar results will be achieved in the communities in this proposal. The connecting opportunities afforded by each airport are discussed on the following pages: Page 6

7 Nonstop Destinations from Memphis International Airport January 2012 SOURCE: OAG Memphis International Airport is a major connecting hub for Delta Air Lines, offering one-stop connecting service to virtually every metropolitan area in the United States, service to Amsterdam which functions as a major European hub, and Toronto. In addition to Delta, virtually every major airline brand serves Memphis. Delta s flight schedule at MEM is structured into three distinctive connecting banks and, if selected to provide service in these communities, SeaPort is committed to providing each community with flights that are well timed for connections. Page 7

8 Nonstop Destinations from Louis Armstrong New Orleans International Airport January 2012 SOURCE: OAG New Orleans is a major commercial center for the Southern United States, including the financial, medical, educational, legal, energy, and government sectors. Tourism, of course, is a major component of the New Orleans economy and if awarded the EAS contract in these markets, SeaPort would endeavor to offer weekend packages to these communities residents. Louis Armstrong New Orleans International Airport offers consumers connecting opportunities to over 35 airports on a nonstop basis, as well as access to the networks of every major airline and each of the three major global alliances. Of particular interest to the communities should be New Orleans competitive environment resulting from a large percentage of low fare carrier service. jetblue, Frontier, AirTran, and Southwest offer nearly half of the departing seats from MSY each day. 3 This results in the low-fare brands setting the ceiling on fares to and from New Orleans such that even when a passenger connects to a legacy brand carrier (i.e., Delta, American, United, etc.), they will realize the benefits of such price competition. 3 While SeaPort Airlines (along with every other U.S. based airline) does not have an interline ticketing and baggage agreement with Southwest Airlines, Internet savvy consumers figured out long ago how to build end to end connecting itineraries with this carrier, as well as others. This has been validated in a number of our other EAS markets that are linked with airports served by Southwest (as well as other low-fare airlines). Page 8

9 Nonstop Destinations from Nashville International Airport January 2012 Nashville offers access to legacy carrier networks and low-fare airlines. During January 2012, the carriers serving Nashville International Airport provide an average of 169 daily departures to 47 nonstop destinations in the United States and Canada. Southwest is the dominate carrier at Nashville, providing over 40% of the daily departing seats at BNA. Southwest s service is complemented by Frontier Airlines, which provides service to its hubs at Milwaukee and Denver, with further onward connections. At each of the hub airports, SeaPort Airlines proposes the following terminal arrangements: Nashville (BNA): SeaPort Airlines will operate from the main terminal with TSA screening and ground handling provided by American Eagle. 4 New Orleans (MSY): SeaPort Airlines will operate from the main terminal with TSA screening. The company has not determined whether we will employ our own staff or utilize a third-party ground handler. This decision will be made after the carrier selection process in these Dockets and the number of operations that we would have at MSY is known. We have maintained a dialogue with Louis Armstrong New Orleans International Airport and ground handling entities throughout, however, and will be ready to implement main terminal operations. 4 SeaPort will begin service to BNA from Jackson, TN on January 22, Page 9

10 Memphis (MEM): SeaPort Airlines continues to pursue an agreement on economically viable terms to sublease space or enter into a handling agreement at the main terminal of Memphis International Airport. Until such an agreement is reached, Memphis operations will be at our existing private terminal that offers convenience for quick trips to and from the Memphis metropolitan area with complimentary and quick shuttle service to the main terminal for passengers making connections at MEM. 5 Frequency Levels In Order , the Department specifically stated that: For proposals with 8/9-seat aircraft, we would expect proposals for four round trips a day (24 a week). 6 In some cases, SeaPort is proposing service patterns that result in flight frequencies being shared among more than one community. In these cases, the proposed service pattern equates to 36 weekly round trips. While Order is silent on such service patterns, we note that Order stated: We may subsidize additional frequencies if the affected community is served in conjunction with another community. 7 Passenger Traffic Projections To develop projections of traffic and revenue for each community in this proposal, as well as the resultant subsidy requests, SeaPort Airlines utilized the same Quality Service Index (QSI) forecasting methodology that was utilized to prepare our proposals submitted on October 14, As we pointed out in that proposal, this approach considers frequency levels, connecting options, brand (i.e., independent v code-share), aircraft size, average fares, etc. Given that frequency levels are a weighted factor, the frequencies requested by the Department in Order resulted in traffic projections for the proposals herein that are lower than historical levels provided in Appendix B of that Order. This is illustrated on the table on the next page. 5 In anticipation of reaching an agreement to sub-lease space at MEM, SeaPort proposes to maintain TSA screening in each of the EAS communities and continue screening of all outbound passengers including those bound for Memphis. 6 Order , p. 2 7 Order , p. 6 Page 10

11 Market Level O&D Traffic Comparisons Recent Years v SeaPort Airlines Proposal Muscle Shoals Tupelo Greenville Hattiesburg/Laurel YE 2Q ,646 HISTORICAL TRAFFIC LEVELS 29,451 10,948 23,202 YE 2Q ,756 23,396 12,296 28,808 YE 2Q ,949 26,228 14,759 29,367 PROJECTED TRAFFIC LEVELS SeaPort Option -1 11,987 12,577 11,665 13,678 SeaPort Option -2 11,622 13,125 13,119 15,992 SeaPort Option -3 11,794 13,876 11,298 N/A SeaPort Option -4 N/A 13,616 N/A N/A We raise this point because during communication with the EAS Division related to another Docket, SeaPort Airlines was advised that the Department s calculation of whether a proposal meets statutory requirements is based on actual passenger counts and not a carrier s forecast. Notwithstanding that application of numbers, we believe the forecasts which we have developed represent a reasonable estimate of traffic that will be generated in each market and therefore provides the basis for the proposals contained herein which simultaneously satisfy the community s needs and minimize taxpayer expenditures. Page 11

12 Proposal: Greenville, Mississippi (GLH) SeaPort Airlines is offering the community of Greenville, Mississippi three service options as illustrated by the maps and representative schedules below: 8 Greenville, Mississippi (Mid-Delta Regional Airport) Map of Service Pattern Options 8 In all cases, the schedules provided in this proposal are intended to illustrate the type of schedule that SeaPort would provide. Actual schedules will be developed after consulting with each community. Page 12

13 Representative Schedule for Service Pattern Options GLH Option G-1 12 Weekly Roundtrips: Greenville - Memphis 12 Weekly Roundtrips: Greenville - New Orleans (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Greenville to Memphis From Memphis to Greenville 10:45am 11:35am ExSun 0 1:15pm 2:05pm ExSat 0 6:35pm 7:25pm ExSat 0 7:50pm 8:40pm ExSat 0 From Greenville to New Orleans From New Orleans to Greenville 6:15am 8:00am ExSun 0 8:45am 10:30am ExSun 0 2:20pm 4:05pm ExSat 0 4:35pm 6:20pm ExSat 0 GLH Option G-2 12 Weekly Roundtrips: Greenville - Nashville (via TUP) 18 Weekly Roundtrips: Greenville - New Orleans (Contingent on Tupelo Selecting Option T-3) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Greenville to Nashville From Nashville to Greenville 10:45am 12:50pm ExSun 1 8:10am 10:35am ExSun 1 3:05pm 5:10pm ExSat 1 1:20pm 3:25pm ExSat 1 From Greenville to New Orleans From New Orleans to Greenville 6:15am 8:00am ExSun 0 8:45am 10:30am ExSun 0 10:50am 12:35pm ExSun 0 1:05pm 2:50pm ExSun 0 3:40pm 5:25pm ExSat 0 6:00pm 7:45pm ExSat 0 GLH Option G-3 18 Weekly Roundtrips: Greenville - Memphis 6 Weekly Roundtrips: Greenville - New Orleans (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Greenville to Memphis From Memphis to Greenville 6:30am 7:20am ExSun 0 9:00am 9:50am ExSun 0 2:20pm 3:10pm ExSun 0 3:30pm 4:20pm ExSat 0 5:00pm 5:50pm ExSat 0 7:50pm 8:40pm ExSat 0 From Greenville to New Orleans From New Orleans to Greenville 10:05am 11:50am ExSun 0 12:20pm 2:05pm ExSun 0 Note that options G-1 and G-3 are standalone proposals. Option G-2 is a contingent proposal, in this case being contingent on SeaPort Airlines being awarded the EAS contract to serve Tupelo, MS and that community selecting option T-3 (see proposal below). For purposes of calculating subsidy requirement in option G-2 that includes one-stop service to Nashville via Tupelo: 50% of the direct operating costs of flight segments between Greenville and Tupelo have been allocated to Greenville and 50% of the direct operating costs have been allocated to Tupelo; Page 13

14 100% of the revenue generated by passengers traveling between Greenville and Nashville has been allocated to the Greenville market; and Zero traffic is forecast between Greenville and Tupelo. It is also worth noting that option G-2 has more than 24 weekly round trips which results from two communities sharing frequencies. Page 14

15 SeaPort Airlines, Inc. GLH Option G-1 12 Weekly Roundtrips: Greenville - Memphis 12 Weekly Roundtrips: Greenville - New Orleans (Standalone Proposal) Operating Projections Average Sector Length (sm) 183 Scheduled Departures 2,496 Scheduled Block Hours 3,224.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 3,159.5 Passenger Projections Projected Passengers 12,224 Passengers per Departure 5.0 Projected Average Fare $68.25 Revenue Passenger Miles (RPMs) 2,236,992 Available Seat Miles (ASMs) 4,028,694 Projected Load Factor 55.5% Financial Projections Revenues Passenger Ticket Revenues $834,275 Ancillary Revenues $12,514 Total $846,790 Expenses Flight Operations $268,559 Aircraft Ownership/Lease $240,000 Fuel & Oil $938,377 Sales & Marketing $70,000 Traffic Servicing $474,464 Insurance $56,871 Maintenance $658,819 Sub-Total - Direct $2,707,091 Indirect $378,993 Total Expenses $3,086,084 Projected Operating Profit/(Loss) ($2,239,294) Subsidy Calculations Operating Loss $2,239,294 Economic 5% $154,304 Required Subsidy $2,393,598 Subsidy per Departure $ Subsidy per Passenger $ Page 15

16 SeaPort Airlines, Inc. GLH Option G-2 12 Weekly Roundtrips: Greenville - Nashville (via Tupelo) 18 Weekly Roundtrips: Greenville - New Orleans (Contingent on Tupelo Selecting Option T-3) Operating Projections Average Sector Length (sm) 202 Scheduled Departures 3,120 Scheduled Block Hours 4,524.0 Projected Completion Factor 98.0% Projected Completed Departures 3,058 Projected Completed Block Hours 4,433.5 Passenger Projections Projected Passengers 14,447 Passengers per Departure 4.7 Projected Average Fare $73.60 Revenue Passenger Miles (RPMs) 2,912,515 Available Seat Miles (ASMs) 5,547,709 Projected Load Factor 52.5% Financial Projections Revenues Passenger Ticket Revenues $1,063,352 Ancillary Revenues $15,950 Total $1,079,303 Expenses Flight Operations $324,870 Aircraft Ownership/Lease $360,000 Fuel & Oil $1,135,134 Sales & Marketing $70,000 Traffic Servicing $382,200 Insurance $68,796 Maintenance $942,564 Sub-Total - Direct $3,283,564 Indirect $459,699 Total Expenses $3,743,263 Projected Operating Profit/(Loss) ($2,663,960) Subsidy Calculations Operating Loss $2,663,960 Economic 5% $187,163 Required Subsidy $2,851,123 Subsidy per Departure $ Subsidy per Passenger $ Page 16

17 SeaPort Airlines, Inc. GLH Option G-3 18 Weekly Roundtrips: Greenville - Memphis 6 Weekly Roundtrips: Greenville - New Orleans (Standalone Proposal) Operating Projections Average Sector Length (sm) 153 Scheduled Departures 2,496 Scheduled Block Hours 2,652.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 2,599.0 Passenger Projections Projected Passengers 11,298 Passengers per Departure 4.6 Projected Average Fare $61.83 Revenue Passenger Miles (RPMs) 1,722,945 Available Seat Miles (ASMs) 3,357,245 Projected Load Factor 51.3% Financial Projections Revenues Passenger Ticket Revenues $698,580 Ancillary Revenues $10,479 Total $709,058 Expenses Flight Operations $220,912 Aircraft Ownership/Lease $240,000 Fuel & Oil $771,891 Sales & Marketing $70,000 Traffic Servicing $259,896 Insurance $46,781 Maintenance $483,407 Sub-Total - Direct $2,092,887 Indirect $293,004 Total Expenses $2,385,891 Projected Operating Profit/(Loss) ($1,676,832) Subsidy Calculations Operating Loss $1,676,832 Economic 5% $119,295 Required Subsidy $1,796,127 Subsidy per Departure $ Subsidy per Passenger $ Page 17

18 Proposal: Tupelo, MS (TUP) SeaPort Airlines is offering the community of Tupelo, Mississippi four service options as illustrated by the map and representative schedules below. Tupelo, Mississippi (Tupelo Regional Airport) Map of Service Pattern Options Page 18

19 Representative Schedule for Service Pattern Options TUP Option T-1 18 Weekly Roundtrips: Tupelo - Nashville 6 Weekly Roundtrips: Tupelo - Memphis (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Tupelo to Memphis From Memphis to Tupelo 10:00am 10:40am ExSun 0 1:30pm 2:10pm ExSat 0 From Tupelo to Nashville From Nashville to Tupelo 6:30am 7:40am ExSun 0 8:10am 9:20am ExSun 0 2:25pm 3:35pm ExSat 0 4:05pm 5:15pm ExSat 0 5:30pm 6:40pm ExSat 0 7:10pm 8:20pm ExSat 0 TUP Option T-2 12 Weekly Roundtrips: Tupelo - Nashville 12 Weekly Roundtrips: Tupelo - Memphis (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Tupelo to Memphis From Memphis to Tupelo 10:00am 10:40am ExSun 0 1:30pm 2:10pm ExSat 0 5:30pm 6:10pm ExSat 0 7:45pm 8:25pm ExSat 0 From Tupelo to Nashville From Nashville to Tupelo 6:30am 7:40am ExSun 0 8:10am 9:20am ExSun 0 2:25pm 3:35pm ExSat 0 4:05pm 5:15pm ExSat 0 TUP Option T-3 18 Weekly Roundtrips: Tupelo - Nashville 12 Weekly Roundtrips: Tupelo - New Orleans (via GLH) (Contingent on Greenville Selecting Option G-2) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Tupelo to Nashville From Nashville to Tupelo 6:30am 7:40am ExSun 0 8:10am 9:20am ExSun 0 12:00pm 1:10pm ExSun 0 2:00pm 3:10pm ExSat 0 4:20pm 5:30pm ExSat 0 6:00pm 7:10pm ExSat 0 From Tupelo to New Orleans via GLH From New Orleans to Tupelo via GLH 9:35am 12:35pm ExSun 1 8:45am 11:45am ExSun 1 3:25pm 6:25pm ExSat 1 1:05pm 4:05pm ExSat 1 TUP Option T-4 18 Weekly Roundtrips: Tupelo - Nashville 12 Weekly Roundtrips: Tupelo - New Orleans (via PIB) (Contingent on Laurel/Hattiesburg Selecting Option L-2) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Tupelo to Nashville From Nashville to Tupelo 6:30am 7:40am ExSun 0 8:10am 9:20am ExSun 0 11:05am 12:15pm ExSun 0 12:45pm 1:55pm ExSat 0 4:20pm 5:30pm ExSat 0 6:00pm 7:10pm ExSat 0 From Tupelo to New Orleans via PIB From New Orleans to Tupelo via PIB 9:35am 11:55am ExSun 1 8:30am 10:50am ExSun 1 2:10pm 4:30pm ExSat 1 1:45pm 4:05pm ExSat 1 Options T-1 and T-2 are presented as standalone proposals. Option T-3 is contingent on SeaPort being awarded the EAS contract at Greenville, MS and that community selecting option G-2. Option T-4 is contingent on SeaPort being awarded the EAS contract at Hattiesburg/ Laurel, MS and that community selecting option L-2. Page 19

20 For purposes of calculating subsidy requirement in options that include one-stop service shared with another community: 50% of the direct operating costs of flight segments between the other community and Tupelo have been allocated to Tupelo with the remaining 50% allocated to the other EAS community. 100% of the revenue generated by passengers traveling to and from Tupelo on these shared routings have been allocated to the Tupelo market; and Zero traffic is forecast between Tupelo and the other EAS community. It is also worth noting that options T-3 and T-4 have more than 24 weekly round trips which, as discussed, results from the two communities sharing frequencies. Page 20

21 Operating Projections SeaPort Airlines, Inc. TUP Option T-1 18 Weekly Roundtrips: Tupelo - Nashville 6 Weekly Roundtrips: Tupelo - Memphis (Standalone Proposal) Average Sector Length (sm) 152 Scheduled Departures 2,496 Scheduled Block Hours 2,600.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 2,548.0 Passenger Projections Projected Passengers 12,577 Passengers per Departure 5.1 Projected Average Fare $50.02 Revenue Passenger Miles (RPMs) 1,914,848 Available Seat Miles (ASMs) 3,351,741 Projected Load Factor 57.1% Financial Projections Revenues Passenger Ticket Revenues $629,042 Ancillary Revenues $9,436 Total $638,478 Expenses Flight Operations $216,580 Aircraft Ownership/Lease $240,000 Fuel & Oil $756,756 Sales & Marketing $70,000 Traffic Servicing $374,318 Insurance $45,864 Maintenance $545,076 Sub-Total - Direct $2,248,594 Indirect $314,803 Total Expenses $2,563,397 Projected Operating Profit/(Loss) ($1,924,920) Subsidy Calculations Operating Loss $1,924,920 Economic 5% $128,170 Required Subsidy $2,053,089 Subsidy per Departure $ Subsidy per Passenger $ Page 21

22 Operating Projections SeaPort Airlines, Inc. TUP Option T-2 12 Weekly Roundtrips: Tupelo - Nashville 12 Weekly Roundtrips: Tupelo - Memphis (Standalone Proposal) Average Sector Length (sm) 131 Scheduled Departures 2,496 Scheduled Block Hours 2,288.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 2,242.2 Passenger Projections Projected Passengers 13,125 Passengers per Departure 5.4 Projected Average Fare $48.95 Revenue Passenger Miles (RPMs) 1,712,813 Available Seat Miles (ASMs) 2,872,921 Projected Load Factor 59.6% Financial Projections Revenues Passenger Ticket Revenues $642,445 Ancillary Revenues $9,637 Total $652,081 Expenses Flight Operations $190,590 Aircraft Ownership/Lease $240,000 Fuel & Oil $665,945 Sales & Marketing $70,000 Traffic Servicing $346,288 Insurance $40,360 Maintenance $417,057 Sub-Total - Direct $1,970,241 Indirect $275,834 Total Expenses $2,246,075 Projected Operating Profit/(Loss) ($1,593,994) Subsidy Calculations Operating Loss $1,593,994 Economic 5% $112,304 Required Subsidy $1,706,297 Subsidy per Departure $ Subsidy per Passenger $ Page 22

23 SeaPort Airlines, Inc. TUP Option T-3 18 Weekly Roundtrips: Tupelo - Nashville 12 Weekly Roundtrips: Tupelo - New Orleans (via GLH) (Contingent on Greenville Selecting Option G-2) Operating Projections Average Sector Length (sm) 160 Scheduled Departures 3,120 Scheduled Block Hours 3,432.0 Projected Completion Factor 98.0% Projected Completed Departures 3,058 Projected Completed Block Hours 3,363.4 Passenger Projections Projected Passengers 13,876 Passengers per Departure 4.5 Projected Average Fare $62.72 Revenue Passenger Miles (RPMs) 2,214,610 Available Seat Miles (ASMs) 4,391,937 Projected Load Factor 50.4% Financial Projections Revenues Passenger Ticket Revenues $870,371 Ancillary Revenues $13,056 Total $883,426 Expenses Flight Operations $233,906 Aircraft Ownership/Lease $360,000 Fuel & Oil $817,296 Sales & Marketing $70,000 Traffic Servicing $275,184 Insurance $49,533 Maintenance $582,990 Sub-Total - Direct $2,388,910 Indirect $334,447 Total Expenses $2,723,358 Projected Operating Profit/(Loss) ($1,839,931) Subsidy Calculations Operating Loss $1,839,931 Economic 5% $136,168 Required Subsidy $1,976,099 Subsidy per Departure $ Subsidy per Passenger $ Page 23

24 SeaPort Airlines, Inc. TUP Option T-4 18 Weekly Roundtrips: Tupelo - Nashville 12 Weekly Roundtrips: Tupelo - New Orleans (via PIB) (Contingent on Laurel/Hattiesburg Selecting Option L-2) Operating Projections Average Sector Length (sm) 183 Scheduled Departures 3,120 Scheduled Block Hours 3,848.0 Projected Completion Factor 98.0% Projected Completed Departures 3,058 Projected Completed Block Hours 3,771.0 Passenger Projections Projected Passengers 13,616 Passengers per Departure 4.5 Projected Average Fare $62.56 Revenue Passenger Miles (RPMs) 2,489,005 Available Seat Miles (ASMs) 5,030,364 Projected Load Factor 49.5% Financial Projections Revenues Passenger Ticket Revenues $851,872 Ancillary Revenues $12,778 Total $864,650 Expenses Flight Operations $251,233 Aircraft Ownership/Lease $360,000 Fuel & Oil $877,837 Sales & Marketing $70,000 Traffic Servicing $188,552 Insurance $53,202 Maintenance $620,904 Sub-Total - Direct $2,421,728 Indirect $339,042 Total Expenses $2,760,770 Projected Operating Profit/(Loss) ($1,896,120) Subsidy Calculations Operating Loss $1,896,120 Economic 5% $138,039 Required Subsidy $2,034,159 Subsidy per Departure $ Subsidy per Passenger $ Page 24

25 Proposal: Hattiesburg/Laurel, MS (PIB) SeaPort Airlines is offering the communities of Laurel and Hattiesburg, Mississippi two service options as illustrated by the representative schedules below: Hattiesburg/Laurel, Mississippi (Hattiesburg-Laurel Regional Airport) Map of Service Pattern Options Page 25

26 Representative Schedule for Service Pattern Options PIB Option L-1 24 Weekly Roundtrips: Laurel/Hattiesburg - New Orleans (Contingent on Greenvile Selecting Option G-1, G-2, G-3, or or Tupelo selecting option T-3 or T-4) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Laurel/Hattiesburg to New Orleans From New Orleans to Laurel/Hattiesburg 6:15am 7:00am ExSun 0 8:30am 9:15am ExSun 0 10:30am 11:15am ExSun 0 11:45am 12:30pm ExSat 0 1:30pm 2:15pm ExSat 0 2:45pm 3:30pm ExSat 0 4:00pm 4:45pm ExSat 0 7:00pm 7:45pm ExSat 0 PIB Option L-2 18 Weekly Roundtrips: Laurel/Hattiesburg - New Orleans 12 Weekly Roundtrips: Laurel/Hattiesburg - Nashville (via TUP) (Contingent on Tupelo Selecting TUP Option T-4) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Laurel/Hattiesburg to Nashville From Nashville to Laurel/Hattiesburg 9:30am 11:55am ExSun 1 8:10am 10:55am ExSun 1 1:25pm 3:50pm ExSat 1 12:30pm 2:50pm ExSat 1 From Laurel/Hattiesburg to New Orleans From New Orleans to Laurel/Hattiesburg 6:15am 7:00am ExSun 0 8:30am 9:15am ExSun 0 11:10am 11:55am ExSun 0 12:25pm 1:10pm ExSat 0 3:05pm 3:50pm ExSat 0 7:00pm 7:45pm ExSat 0 Option L-1 is contingent on SeaPort Airlines being awarded the contract to provide EAS service at Greenville, MS (any option presented) or awarded the EAS contract to provide service at Tupelo and that community selecting option T-3 or T-4. In this case, the contingency is necessary to allow for aircraft to be rotated back to our maintenance base in Memphis and is not due to shared frequencies. As a result 100% of the operating costs and revenues for option L-1 are allocated to Hattiesburg/Laurel for purposes of calculating subsidy requirements. Option L-2 is contingent on SeaPort Airlines being awarded the EAS contract to provide service at Tupelo and that community selecting option T-4. For purposes of calculating subsidy requirement on option L-2 that includes one-stop service from Laurel/Hattiesburg to Nashville via Tupelo: 50% of the direct operating costs of flight segments between Laurel/Hattiesburg and Tupelo have been allocated to Laurel/Hattiesburg for purposes of calculating subsidy requirements with the remaining 50% allocated to Tupelo; 100% of the revenue generated by passengers traveling between Laurel/Hattiesburg and and Nashville has been allocated to the Laurel/Hattiesburg market; and Zero traffic is forecast between Tupelo and Laurel/Hattiesburg. Page 26

27 SeaPort Airlines, Inc. PIB Option L-1 24 Weekly Roundtrips: Laurel/Hattiesburg - New Orleans (Contingent on Greenville Selecting Option G-1, G-2, G-3, or Tupelo selecting option T-3 or T-4) Operating Projections Average Sector Length (sm) 115 Scheduled Departures 2,496 Scheduled Block Hours 1,872.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 1,834.6 Passenger Projections Projected Passengers 13,678 Passengers per Departure 5.6 Projected Average Fare $37.70 Revenue Passenger Miles (RPMs) 1,572,970 Available Seat Miles (ASMs) 2,531,693 Projected Load Factor 62.1% Financial Projections Revenues Passenger Ticket Revenues $515,661 Ancillary Revenues $7,735 Total $523,396 Expenses Flight Operations $159,120 Aircraft Ownership/Lease $240,000 Fuel & Oil $555,984 Sales & Marketing $70,000 Traffic Servicing $285,176 Insurance $33,696 Maintenance $373,992 Sub-Total - Direct $1,717,968 Indirect $240,515 Total Expenses $1,958,483 Projected Operating Profit/(Loss) ($1,435,087) Subsidy Calculations Operating Loss $1,435,087 Economic 5% $97,924 Required Subsidy $1,533,012 Subsidy per Departure $ Subsidy per Passenger $ Page 27

28 SeaPort Airlines, Inc. PIB Option L-2 18 Weekly Roundtrips: Laurel/Hattiesburg - New Orleans 12 Weekly Roundtrips: Laurel/Hattiesburg - Nashville (via TUP) (Contingent on Tupelo Selecting Option T-4) Operating Projections Average Sector Length (sm) 147 Scheduled Departures 3,120 Scheduled Block Hours 3,068.0 Projected Completion Factor 98.0% Projected Completed Departures 3,058 Projected Completed Block Hours 3,006.6 Passenger Projections Projected Passengers 15,992 Passengers per Departure 5.2 Projected Average Fare $47.18 Revenue Passenger Miles (RPMs) 2,357,221 Available Seat Miles (ASMs) 4,056,212 Projected Load Factor 58.1% Financial Projections Revenues Passenger Ticket Revenues $754,528 Ancillary Revenues $11,318 Total $765,846 Expenses Flight Operations $186,259 Aircraft Ownership/Lease $360,000 Fuel & Oil $650,810 Sales & Marketing $70,000 Traffic Servicing $444,024 Insurance $39,443 Maintenance $407,578 Sub-Total - Direct $2,158,114 Indirect $302,136 Total Expenses $2,460,251 Projected Operating Profit/(Loss) ($1,694,404) Subsidy Calculations Operating Loss $1,694,404 Economic 5% $123,013 Required Subsidy $1,817,417 Subsidy per Departure $ Subsidy per Passenger $ Page 28

29 Proposal: Muscle Shoals, AL (MSL) SeaPort Airlines is offering the Muscle Shoals community three service options, providing access to the national air transportation system at Memphis and Nashville with various frequency levels. This is illustrated on the representative schedules below. Muscle Shoals, Alabama (Northwest Alabama Regional Airport) Map of Service Pattern Options Page 29

30 Representative Schedule for Service Pattern Options MSL Option M-1 24 Weekly Roundtrips: Muscle Shoals - Nashville (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Muscle Shoals to Nashville From Nashville to Muscle Shoals 6:15am 7:00am ExSun 0 8:30am 9:15am ExSun 0 10:30am 11:15am ExSun 0 11:45am 12:30pm ExSat 0 1:30pm 2:15pm ExSat 0 2:45pm 3:30pm ExSat 0 4:00pm 4:45pm ExSat 0 7:00pm 7:45pm ExSat 0 MSL Option M-2 18 Weekly Roundtrips: Muscle Shoals - Nashville 6 Weekly Roundtrips: Muscle Shoals - Memphis (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Muscle Shoals to Memphis From Memphis to Muscle Shoals 10:00am 11:00am ExSun 0 1:45pm 2:45pm ExSat 0 From Muscle Shoals to Nashville From Nashville to Muscle Shoals 6:15am 7:00am ExSun 0 8:30am 9:15am ExSun 0 3:15pm 4:00pm ExSat 0 4:30pm 5:15pm ExSat 0 5:45pm 6:30pm ExSat 0 7:00pm 7:45pm ExSat 0 MSL Option M-3 12 Weekly Roundtrips: Muscle Shoals - Nashville 12 Weekly Roundtrips: Muscle Shoals - Memphis (Standalone Proposal) Depart Arrive Frequency Stops Depart Arrive Frequency Stops From Muscle Shoals to Memphis From Memphis to Muscle Shoals 10:00am 11:00am ExSun 0 1:45pm 2:45pm ExSat 0 5:15pm 6:15pm ExSat 0 7:30pm 8:30pm ExSat 0 From Muscle Shoals to Nashville From Nashville to Muscle Shoals 6:15am 7:00am ExSun 0 8:30am 9:15am ExSun 0 3:00pm 3:45pm ExSat 0 4:15pm 5:00pm ExSat 0 All options are presented as standalone proposals. Page 30

31 24 Weekly Roundtrips: Muscle Shoals - Nashville MSL Option M-1 SeaPort Airlines, Inc. (Standalone Proposal) Operating Projections Average Sector Length (sm) 109 Scheduled Departures 2,496 Scheduled Block Hours 1,872.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 1,834.6 Passenger Projections Projected Passengers 11,987 Passengers per Departure 4.9 Projected Average Fare $49.50 Revenue Passenger Miles (RPMs) 1,306,583 Available Seat Miles (ASMs) 2,399,604 Projected Load Factor 54.4% Financial Projections Revenues Passenger Ticket Revenues $593,357 Ancillary Revenues $8,900 Total $602,257 Expenses Flight Operations $159,120 Aircraft Ownership/Lease $240,000 Fuel & Oil $555,984 Sales & Marketing $70,000 Traffic Servicing $299,938 Insurance $33,696 Maintenance $348,192 Sub-Total - Direct $1,706,930 Indirect $238,970 Total Expenses $1,945,900 Projected Operating Profit/(Loss) ($1,343,643) Subsidy Calculations Operating Loss $1,343,643 Economic 5% $97,295 Required Subsidy $1,440,938 Subsidy per Departure $ Subsidy per Passenger $ Page 31

32 SeaPort Airlines, Inc. MSL Option M-2 18 Weekly Roundtrips: Muscle Shoals - Nashville 6 Weekly Roundtrips: Muscle Shoals - Memphis (Standalone Proposal) Operating Projections Average Sector Length (sm) 116 Scheduled Departures 2,496 Scheduled Block Hours 2,028.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 1,987.4 Passenger Projections Projected Passengers 11,622 Passengers per Departure 4.8 Projected Average Fare $51.53 Revenue Passenger Miles (RPMs) 1,345,247 Available Seat Miles (ASMs) 2,548,204 Projected Load Factor 52.8% Financial Projections Revenues Passenger Ticket Revenues $598,897 Ancillary Revenues $8,983 Total $607,880 Expenses Flight Operations $168,932 Aircraft Ownership/Lease $240,000 Fuel & Oil $590,270 Sales & Marketing $70,000 Traffic Servicing $312,534 Insurance $35,774 Maintenance $369,664 Sub-Total - Direct $1,787,174 Indirect $250,204 Total Expenses $2,037,379 Projected Operating Profit/(Loss) ($1,429,498) Subsidy Calculations Operating Loss $1,429,498 Economic 5% $101,869 Required Subsidy $1,531,367 Subsidy per Departure $ Subsidy per Passenger $ Page 32

33 SeaPort Airlines, Inc. MSL Option M-3 12 Weekly Roundtrips: Muscle Shoals - Memphis 12 Weekly Roundtrips: Muscle Shoals - Nashville (Standalone Proposal) Operating Projections Average Sector Length (sm) 124 Scheduled Departures 2,496 Scheduled Block Hours 2,184.0 Projected Completion Factor 98.0% Projected Completed Departures 2,446 Projected Completed Block Hours 2,140.3 Passenger Projections Projected Passengers 11,794 Passengers per Departure 4.8 Projected Average Fare $52.81 Revenue Passenger Miles (RPMs) 1,462,456 Available Seat Miles (ASMs) 2,729,825 Projected Load Factor 53.6% Financial Projections Revenues Passenger Ticket Revenues $622,883 Ancillary Revenues $9,343 Total $632,226 Expenses Flight Operations $181,927 Aircraft Ownership/Lease $240,000 Fuel & Oil $635,675 Sales & Marketing $70,000 Traffic Servicing $332,380 Insurance $38,526 Maintenance $398,100 Sub-Total - Direct $1,896,607 Indirect $265,525 Total Expenses $2,162,132 Projected Operating Profit/(Loss) ($1,529,906) Subsidy Calculations Operating Loss $1,529,906 Economic 5% $108,107 Required Subsidy $1,638,013 Subsidy per Departure $ Subsidy per Passenger $ Page 33

34 Proposal Recap SeaPort Airlines is providing the communities of Muscle Shoals, Alabama and Greenville, Tupelo, and Laurel/Hattiesburg, Mississippi a variety of air service options as summarized on the table below: Service Pattern (Weekly Roundtrips) Summary of SeaPort Airlines Proposals Greenville, MS Tupelo, MS Hattiesburg/Laurel, MS Muscle Shoals, AL DOT OST DOT OST DOT OST Option G-1 Option T-1 Option L-1 Option M-1 Memphis - 12 Memphis - 6 New Orleans - 12 Nashville - 18 New Orleans - 24 Nashville - 24 Projected Passengers 12,224 12,577 13,678 11,987 Projected Average Fare $68.25 $50.02 $37.70 $49.50 Required Subsidy $2,393,598 $2,053,089 $1,533,012 $1,440,938 Subsidy per Passenger $ $ $ $ Subsidy per Departure $ $ $ $ Contingencies Standalone Standalone Any of G-1, G-2, G-3, T-3, or T-4 Standalone Service Pattern (Weekly Roundtrips) Option G-2 Option T-2 Option L-2 Option M-2 Nashville (via TUP) - 12 Memphis - 12 Nashville (via TUP) - 12 Memphis - 6 New Orleans - 18 Nashville - 12 New Orleans - 18 Nashville - 18 Projected Passengers 14,447 13,125 15,992 11,662 Projected Average Fare $73.60 $48.95 $47.18 $51.53 Required Subsidy $2,851,123 $1,706,297 $1,817,417 $1,531,367 Subsidy per Passenger $ $ $ $ Subsidy per Departure $ $ $ $ Contingencies T-3 Standalone T-4 Standalone Service Pattern (Weekly Roundtrips) Option G-3 Option T-3 Option M-3 Memphis - 18 Nashville - 18 Memphis - 12 New Orleans - 6 New Orleans (via GLH) - 12 Nashville - 12 Projected Passengers 11,298 13,876 11,794 Projected Average Fare $61.83 $62.72 $52.81 Required Subsidy $1,796,127 $1,976,099 $1,638,013 Subsidy per Passenger $ $ $ Subsidy per Departure $ $ $ Contingencies Standalone G-2 Standalone Service Pattern (Weekly Roundtrips) Option T-4 Nashville - 18 New Orleans (via PIB) - 12 Projected Passengers 13,616 Projected Average Fare $62.56 Required Subsidy $2,034,159 Subsidy per Passenger $ Subsidy per Departure $ Contingencies L-2 Page 34

35 While SeaPort is providing each community with multiple options from which they can determine the one that best meets their air service requirements, we nonetheless suggest the following as our preferred options that will allow us to provide an optimal mix of (1) multiple hubs to access the air transportation system, (2) low per passenger subsidy requirements, and (3) operational efficiency: Greenville, MS: Option G-1 Hattiesburg/Laurel, MS: Option L-2 Muscle Shoals, AL: Option M-2 Tupelo, MS: Option T-4 Except as otherwise noted herein, proposals for each community are on a standalone basis. There is no intent in our proposal that the four communities represent an all or nothing bid. Finally, the proposals herein are based on a two year term. Notwithstanding the risk of cost inflation in coming years (particularly related to fuel) that could possibly outstrip traffic growth and reasonable fare increases, SeaPort is offering the Department and communities the option to contract the proposed annual subsidy for a four year period at no increase in annual subsidy beyond that level specified for the second year of each option in this proposal. We believe this offer provides each community with the assurance of stable air service for an extended period and reduces the administrative burden on both the Department and ourselves. Our existing infrastructure at Memphis (including maintenance and crew bases) combined with additional aircraft scheduled for delivery during 2012 allows SeaPort to implement the proposed service in a timely manner and at a cost that minimizes taxpayer expenditure. We appreciate the opportunity to submit this proposal and welcome any questions from the communities and/or the Department. Respectfully submitted, Timothy Sieber Vice President Strategy & Corporate Development SeaPort Airlines, Inc. Page 35