BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC

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Essential Air Service at WATERTOWN, NEW YORK Under 49 U.S.C 41731 et seq.

DOT-OST-1997-2842

AMERICAN AIRLINES PROPOSAL TO PROVIDE ESSENTIAL AIR SERVICE AT

Watertown, New York

American Airlines, a wholly owned subsidiary of AMR Corporation, respectfully submits its proposal to continue subsidized Essential Air Service to Watertown, NY~ American Airlines seeks to continue service from American's hub, Chicago O'Hare to the Watertown International Airport with two daily roundtrips with the exception of Saturday for a total of thirteen weekly roundtrips. The service would be conducted by American Airlines regional brand, American Eagle using 44 seat jet aircraft. American Airlines regional feed is operated under the American Eagle and American Connection brands. Flying for American Eagle is conducted by American Eagle Airlines, SkyWest Airlines, and ExpressJet. American Connection flying is operated solely by Chautauqua Airlines. American Airlines customers currently have access to more than 260 cities, 50 countries and more than 3400 daily departures. Through our oneworld alliance, customers have access to more than 700 destinations and 140 countries. These flights will continue to be operated with the AA code, pursuant to a code sharing agreement with American Airlines. Additional codes of the oneworld carriers are also applied to this route, and would continue to be. The service proposed by American Airlines continues existing service to American's hub, Chicago O'Hare ("ORD"). At ORD, American, American Connection, and American Eagle offer more than 460 daily departures to 120 destinations, making it one of the largest hubs in the country. This direct access on such a large scale has helped stimulate traffic from Watertown with significantly easier connecting options than what had been offered to travelers to and from the region prior to our award of the current Essential Air Service bid. Watertown has performed well under subsidized Essential Air Service since American's EAS subsidy award in November 2011, despite regional tendencies to favor SYR and its presence of low-cost carrier and network carriers. Passenger numbers have increased steadily over the course of our nearly two years operating in the market. We have made progress in developing airservice in Watertown, and see the influence of the current service geographically redefining the

local catchment area. The proposed EAS subsidy is higher than our previous agreement primarily due to the proposed additional departure. The proposed subsidy also reflects the costs associated with the unique operational challenges that exist in Watertown which were unforeseen in our first two years of operation. Our current bid should reflect our belief that the Essential Air Service subsidy is vital, and on this trajectory the service may one day be able to exist profitably without Federal subsidy. American would like to also request that the DOT and Watertown allow us flexibility in substituting an Embraer EMB 140 (44 seats), operated by Chautauqua under the American Connection brand, when needed for the same rates. This will allow us to provide an additional. layer of schedule protection. American also requests that the DOT and Watertown waive the right to hold-in American Eagle service upon issuance of a 120 days-notice to terminate service. Although we do not foresee this to be an issue and plan to continue developing the Watertown market, we cannot be operationally constrained and kept in a market indefinitely, without ability to adapt to changing circumstances. We believe that our to-date success in Watertown is demonstrative of the American Airlines network and marketing programs. American Airlines is the only airline with a dedicated Regional Market Development team that will continue its promotion of the brand and service in the communities. This is a testament of American's support and ability to provide air service to small communities unlike low cost carriers in the industry today. We look forward to serving the Watertown area for many years to come and appreciate the communities and the Department of Transportation consideration of continued American Airlines service.

Sincerely,

Charles Schubert Vice President American Airlines Network Planning

Market: Aircraft
Mileage Annual Deps (Factored) Block per Dep
~nnual

Watertown. NY to Chicago O'Hare

EMB140 617 1,329 2.12 2,823 98.0% Number of Seats per Dep Annual ASMs (Factored) Annual RPMs (Factored) Annual LF 44 36,076,434 24,820,587

Block Hours (Factored)

68.8%

Completion Percentage

Revenues
Annual Passengers Avg Fare - Onboard 40,228 $132

Total Revenues Expenses

Flight Operations (incl Fuel) Aircraft Ownership Pax Variable Other

$5,328,809

$6,975,187 $233,733 $830,340 $498,696

Total Expenses Profit I (Loss) Profit Element(@ 5%) Subsidy Required Subsidy I Departure Subsidy I Pax

$8,537,956 ($3,209, 148) $426,898 $3,636,045 $2,736 $90.39

Proposed Schedule Segment

ART-ORO ART-ORO ORO-ART ORO-ART

Depart
7:20AM 5:35PM 2:15PM 3:15PM

Arrive
9:00AM 6:55PM 5:00PM 6:00PM

Freguency
Daily Daily* (Except Sat.) Daily* (Except Sat.) Saturday only

ORO-ART 6:40PM 9:25PM Daily* (Except Sat.) ** Schedule is shown for illustrative purposes only and American Airlines reserves the right to change without notice. All times are local.