BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. ) Application of ) ) ALLEGIANT AIR, INC. ) Docket OST-99- ) for a certificate of public convenience and ) necessity, pursuant to 49 U.S.C , ) to engage in scheduled interstate air ) transportation of persons, property and mail ) ) APPLICATION OF ALLEGIANT AIR, INC. Communications with respect to this document should be sent to: Mitchell H. Allee Chairman & CEO Allegiant Air, Inc E. Andersen Avenue Suite 120 Fresno, California Aaron A. Goerlich Boros & Garofalo, P.C Connecticut Avenue, N.W. Suite 700 Washington, D.C (202) Counsel for Allegiant Air, Inc. APPLICANT REQUESTS THAT THIS APPLICATION BE PROCESSED BY NON-HEARING PROCEDURES UNDER SUBPART Q OF THE DEPARTMENT OF TRANSPORTATION'S PROCEDURAL REGULATIONS. Notice: Any person who wishes to support or oppose this application must file an answer by October 22, 1999 and serve that answer on the above-named persons. September 24, 1999

2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. ) Application of ) ) ALLEGIANT AIR, INC. ) Docket OST-99- ) for a certificate of public convenience and ) necessity, pursuant to 49 U.S.C , ) to engage in scheduled interstate air ) transportation of persons, property and mail ) ) APPLICATION OF ALLEGIANT AIR, INC. Allegiant Air, Inc. ("Allegiant") applies, pursuant to Section of Title 49 of the United States Code, Parts 201 and 204 of the Economic Regulations, and Subpart Q of the Procedural Regulations of the Department of Transportation ("DOT" or "Department"), for a certificate of public convenience and necessity to authorize Allegiant to engage in scheduled interstate air transportation of persons, property and mail. Allegiant requests that this application be processed through the use of expedited nonhearing procedures. As an operating certificated carrier, Allegiant further requests that the Department dispense with show-cause procedures in this matter and proceed directly to a final order issuing the requested scheduled authority. 1/ 1/ By Order , November 30, 1998, the Department issued domestic scheduled certificate authority to an operating charter carrier without utilization of show-cause procedures (Application of WinAir, Inc., Docket OST ); the same process has been followed in other cases as well. Allegiant respectfully submits that its application presents no novel, complex, or unusual issues that would warrant a departure from this precedent.

3 In support of its application, Allegiant states as follows: 1. Allegiant is a corporation organized and existing under the laws of the State of California. Allegiant s principal office is located at 4955 E. Andersen Avenue, Suite 120, Fresno, California 93727; its telephone number is (559) A certificate of good standing issued by the California Secretary of State is appended as Exhibit ALLEGIANT Allegiant is a citizen of the United States as defined in 49 U.S.C (a)(15). All of Allegiant s shareholders, officers and directors are U.S. citizens, and the company is controlled de facto and de jure by U.S. citizens. An affidavit of citizenship is appended as Exhibit ALLEGIANT-2. Allegiant s key personnel are identified in Exhibit ALLEGIANT Allegiant requests that a certificate of public convenience and necessity be issued in standard form authorizing Allegiant to engage in scheduled interstate air transportation of persons, property and mail. 4. Allegiant has no subsidiaries nor does it own stock in or control any air carrier, foreign air carrier, common carrier, or person substantially engaged in the business of aeronautics. No corporation aside from Allegiant itself is relevant as defined in section 204.2(k) of the Department s regulations. 5. Allegiant is privately held and therefore is not required to file 10Q or 10K reports. Allegiant inaugurated charter air carrier operations in July 1998 and has been operating continuously since that date. Its historical and current financial statements are attached as Exhibit ALLEGIANT Allegiant s compliance information as required by subsections (l), (m), (o), (p), and (q) of section of the Department s regulations is set forth in Exhibit ALLEGIANT

4 7. Allegiant plans to conduct the proposed scheduled operations with one Douglas DC-9 aircraft that is currently used by Allegiant to provide passenger charter service. Allegiant has already completed FAA requirements to add domestic scheduled authority to its Part 121 operations specifications; the company plans to commence such operations promptly upon receipt of corresponding DOT authority. An affidavit of aircraft compliance is attached as Exhibit ALLEGIANT Allegiant is a privately held corporation, having been formed by Mitchell H. Allee in early 1997 under the name WestJet Express Airlines, Inc. A formal name change occurred in June 1998, shortly before the Department issued effective certificate authority to Allegiant (see Order ). 9. Allegiant has a highly skilled and experienced management team that possesses expertise across a wide range of technical and administrative aviation disciplines. In the year since Allegiant was found fit for passenger charter operations, its key personnel have remained essentially unchanged. The Company has very successfully operated its DC-9 equipment in a variety of passenger charter modes; over the past seven months, it has concentrated on the marketing and operation of direct-sale Public Charter flights under Parts 212 and 380 of the Department s regulations. Those operations have proved successful, and Allegiant has expanded them to include additional communities (South Lake Tahoe and Hollywood/Burbank, California) with the intention of converting its direct-sale charter flights to scheduled service (see discussion in Exhibit ALLEGIANT-8). Meanwhile, Allegiant is in the process of adding three DC-9s (supported by appropriate increases in personnel) to its fleet, which will be dedicated primarily to charter operations. The combination of Allegiant s cautious entry into scheduled service with its phased expansion into historically-reliable charter markets should yield a successful and profitable blend of operations reflective of the company s conservative business philosophy. 10. As noted above, Allegiant has successfully completed FAA requirements to obtain Part 121 domestic scheduled operating authority. The FAA office responsible for Allegiant's Part 121 certificate and operations specifications is the Fresno Flight Standards District Office,

5 East Andersen Avenue, Suite 110, Fresno, California 93727, telephone (559) The Principal Operations Inspector (POI) assigned to Allegiant is James B. Williams. Appended as Exhibit ALLEGIANT-7 is a copy of a letter from Mr. Williams to Allegiant dated May 11, 1999, confirming Allegiant s successful completion of the above FAA requirements. 11. Pro-Forma Balance Sheets and Income Statements for the first year of the proposed scheduled operations are contained in Exhibit ALLEGIANT Allegiant plans to continue financing its operations through a combination of operating revenues, debt, and equity as more fully described in Exhibit ALLEGIANT Allegiant s signed OST Form 4523 is on file with the Department s Docket Section. A copy is appended as Exhibit ALLEGIANT Appended as Exhibit ALLEGIANT-11 is the verification statement required by the Department s regulations. 15. The supporting data required by the Department s regulations are set forth in the exhibits appended hereto. To the extent information has been unchanged since Allegiant s original application in Docket OST , as well as its May and September 1999 updates to the Air Carrier Fitness Division, Allegiant, pursuant to sections and of the Department s regulations, hereby incorporates such information by reference. A section cross-reference list precedes Exhibit ALLEGIANT-1, as does Allegiant s opening argument as required by Rule 1704(a)(3) of the Department s Rules of Practice. 16. As reflected in the exhibits and information set forth herein, Allegiant is fit, willing and able to engage in scheduled interstate air transportation of persons, property and mail in compliance with the requirements of Title 49 of the United States Code and the rules, regulations and requirements issued thereunder. WHEREFORE, Allegiant Air, Inc. respectfully requests that the Department issue a - 4 -

6 certificate of public convenience and necessity authorizing Allegiant to provide scheduled interstate air transportation of persons, property and mail, and that Allegiant be granted such additional or other authority, consistent with this application, as may be necessary or proper. Respectfully submitted, September 24, 1999 Aaron A. Goerlich BOROS & GAROFALO, P.C. Counsel for Allegiant Air, Inc

7 INDEX TO EXHIBITS Title Certificate of Good Standing Exhibit ALLEGIANT-1 Affidavit of Citizenship ALLEGIANT-2 Key Personnel Current and Historical Financial Statements ALLEGIANT-3 ALLEGIANT-4 Compliance Information ALLEGIANT-5 Affidavit of Aircraft Compliance ALLEGIANT-6 FAA POI Letter ALLEGIANT-7 Operations Plan for Next 12 Months/ Forecast Financial Results Financing Plan OST Form 4523 ALLEGIANT-8 ALLEGIANT-9 ALLEGIANT-10 Verification ALLEGIANT-11

8 Cross-Reference Index Subsection of Refer to (a)... Application 1 (b)... Application 1 (c)... Application 1 (d)... Exhibit ALLEGIANT-1 (e)... (f)... Exhibit ALLEGIANT-2 Exhibit ALLEGIANT-3 (g)... Exhibit ALLEGIANT-3 (h)... Application 4 (i)... Application 4 (j)... Not Applicable (k) Exhibit ALLEGIANT-4 (l)... (m)... Exhibit ALLEGIANT-5 Exhibit ALLEGIANT-5 (n)... Application 7, Exhibit ALLEGIANT-6 (o)... Exhibit ALLEGIANT-5 (p)... Exhibit ALLEGIANT-5 (q)... Exhibit ALLEGIANT-5 (r)... Application 8 and 9 (s)... Application 10 (t)... Exhibits ALLEGIANT-8 and ALLEGIANT-9 (u)... Exhibit ALLEGIANT-10 (v)... Exhibit ALLEGIANT-11

9 OPENING ARGUMENT While Allegiant s existing authority is operationally sufficient at present, Allegiant anticipates that the absence of scheduled certification may soon become a hindrance to the carrier. In particular, Allegiant s competitors in the Fresno-Las Vegas and Lake Tahoe (TVL)-Southern California markets provide their services on a scheduled basis. That status affords the competitors access to significant marketing advantages not available to Allegiant. For instance, the competitors flights are listed in the Official Airline Guide (OAG), whereas Allegiant, as a charter carrier, is not eligible to use that marketing medium. Similarly, Allegiant is unable to offer its flights through computer reservation systems (CRS) such as Sabre and Worldspan. It is also quite possible that as Allegiant s direct-sale public charter service continues to develop, the dynamics of its markets will change. The more successful Allegiant s service becomes, the greater the likelihood that new competitors will enter the market. Under that scenario, it will be essential that Allegiant not be hamstrung by the marketing restrictions inherent in the charter mode, but that it have unfettered access to the sales media and opportunities available to its actual and potential competitors; hence this application.

10 Exhibit ALLEGIANT-9 FINANCING PLAN Allegiant s conversion of its direct-sale public charter operations to scheduled service will impose very little financial burden on the company, for three principal reasons. First, Allegiant has already met FAA requirements for upgrading its Part 121 operations specifications from supplemental to domestic (scheduled) status; consequently, few if any additional expenses will be incurred in that regard. Second, since service equivalent to the planned scheduled pattern is currently being provided by Allegiant on a direct-sale charter basis, the company is already bearing the full measure of advertising, marketing, and administrative expenses of the flights in addition to their direct operating expense; here again, expenses will not change significantly upon conversion to scheduled service. Third, the revenue stream produced by the direct-sale flights will not suffer any reduction by virtue of conversion to scheduled service; if anything, it will increase in light of the marketing efficiencies and opportunities to be gained. Allegiant s overall operations -- both scheduled and charter -- will continue to be financed through a combination of operating revenues, equity, and debt. For the year ended July 31, 1999, total operating revenues surpassed $3 million with a one-aircraft fleet for nearly the entire year. That figure will increase very substantially in light of the continued development of Allegiant s direct-sale public charter markets and the overall expansion described in Exhibit ALLEGIANT-8 As to equity, as of July 31 Allegiant s owner has provided the company a paid-in capital base in excess of $4 million. That figure far exceeds the equity commitment of $1 million set forth in Allegiant s December 1997 application for a charter certificate, and reflects the owner s confidence in Allegiant s direction and future. As to debt -- and as a further and very significant testament to the owner s, Mr. Allee s, confidence in the company -- Mr. Allee has furnished a $6 million line of credit for the company s use on an as-needed basis. Allegiant s entry into scheduled service is unlikely per se to require significant use of the line of credit, nor has the company s introduction of additional DC-9s into its fleet required

11 Exhibit ALLEGIANT-9 resort to the line of credit to date. Thus, the full amount of the line of credit remains available to Allegiant for a term of five years from May 25, A copy of the line-of-credit agreement is included in this exhibit. Independent third-party verification of Mr. Allee s ability to fund the line of credit is on file with the Department s Air Carrier Fitness Division in the context of Allegiant s May 1999 request for fleet-expansion approval.

12 Exhibit ALLEGIANT-8 OPERATIONS PLAN FOR NEXT 12 MONTHS/ FORECAST FINANCIAL RESULTS Allegiant is seeking authority to provide scheduled interstate air transportation of persons, property, and mail in addition to the charter transportation it currently provides. Allegiant intends to convert its ongoing direct-sale Public Charter flights to scheduled service. 1/ At present, Allegiant operates three DC-9 aircraft in ad hoc and direct-sale charter operations 2/. As to the direct-sale operations, effective February 28, 1999, Allegiant stepped in to operate public charter flights six days a week between Fresno, California (FAT) and Las Vegas, Nevada (LAS) when that service was about to be abruptly discontinued by a public charter operator. Allegiant continues to provide direct-sale charter flights in this market and was able to do so without interruption of service to the traveling public. Moreover, Allegiant has subsequently expanded its daily operational pattern to provide service over a Fresno-Las Vegas- South Lake Tahoe-Burbank-South Lake Tahoe-Las Vegas-Fresno routing. The Allegiant team has performed well and has developed good procedures to monitor and control Allegiant s operations. As testimony to this, Allegiant has frequently received requests to provide sub-service to several air carriers. Additionally, Allegiant operates ad hoc charters as down-time fill-ins in conjunction with its direct-sale services. Much of Allegiant s ad hoc business is with gaming properties throughout Nevada and with collegiate and 1 Allegiant s direct-sale prospectus (PC-99-86, as amended) is on file with the Department s Office of Aviation Analysis, Special Authorities Division. 2 Pursuant to DOT authorization dated June 1, 1999, Allegiant is in the process of expanding its fleet to four aircraft; the third aircraft has recently been delivered to Allegiant and is expected to be added to the carrier s FAA operations specifications today (September 24, 1999).

13 Exhibit ALLEGIANT-8 professional athletic teams. From its inception, Allegiant has been working with the business and civic leaders of South Lake Tahoe, California (TVL) in the development of a plan to provide badly needed air service to what is one of America s premier resort communities. TVL had been without air service for nearly three years prior to Allegiant s inauguration of direct-sale public charter service in June of this year. One of the stipulations that Allegiant placed upon itself, prior to commencement of TVL service, was that of having a second aircraft in its fleet. While a second aircraft was not needed to actually fly the service, Allegiant did not want to begin new service where reliability could become questionable. Upon delivery of its second DC-9, Allegiant began serving TVL with much needed all-jet service. Initially, Allegiant implemented four days per week service from TVL to LAS and to Hollywood/Burbank, California (BUR), later expanded to its present level of six days per week. Allegiant s FAT-LAS-TVL-BUR-TVL-LAS-FAT service pattern (see Page 4 of this exhibit) is the one the carrier plans to convert to scheduled service for the reasons discussed in its Opening Argument, supra. Allegiant s second, third and fourth aircraft, all DC-9-51s, in addition to supporting the above operations, will be used primarily to operate full-time, long-term track charter programs out of cities such as Laughlin, Nevada and Atlantic City, New Jersey under agreements with leading public charter operators. Projected operational statistics for Allegiant s expanded fleet are included in this exhibit. All Allegiant aircraft are Stage 3 noise compliant. Allegiant has adequate staff in place to handle all managerial and operating requirements

14 Exhibit ALLEGIANT-8 of aircraft numbers 1, 2 and 3, with additional personnel being hired as necessary to support aircraft number 4. Allegiant will provide extensive training at its Fresno headquarters for all new hires prior to deploying them to away locations. Allegiant s management staff will frequently rotate assignments to away locations to assure the highest level of compliance with policies and procedures. Allegiant employs a fully integrated automation system in support of its flight and maintenance operations. Aircraft maintenance, crew scheduling/crew tracking, and flight following are supported by this system. The system will be utilized to support all remote locations as well. Allegiant s Operations Control Center is located at its Fresno headquarters and will continue to exercise operational control over every aspect of Allegiant s flight operations. Allegiant forecasts that the blend of charter and scheduled DC-9 operations described above will generate an annual pre-tax profit of approximately $1.9 million (see last two pages of this exhibit). This forecast is based on conservative assumptions, particularly insofar as projected aircraft operating hours are concerned. Revenues and expenses for aircraft number 1 remain essentially static whether the form of service is direct-sale charter or scheduled, since Allegiant (i) has already completed the FAA Part 121 domestic scheduled operations specifications process, (ii) is currently bearing all marketing, advertising, traffic-service, and administrative (as well as operational) expenses of the flights, and (iii) does not anticipate a change in its fare structure based upon type of service.