Mesa Air to rebid for flight service: Group had said costs were too high to serve Visalia, Merced, Las Vegas loop.

Jul. 21--VISALIA -- Just two months ago, Mesa Air Group announced it wanted out of its subsidized federal contract to provide passenger air service from Visalia and Merced to Las Vegas, citing unexpectedly high fuel costs for its airplanes.

Now, the airline seems to have had a change of heart. Mesa Air Group is one of three companies bidding on a new agreement to serve the two Valley cities.

Air Midwest, a subsidiary of Phoenix-based Mesa Air Group, has flown a three-city loop between Visalia, Merced and Las Vegas since November, operating with a subsidy under the federal Essential Air Service program. But in May -- just six months into its two-year commitment -- the airline served notice on the U.S. Department of Transportation of its intention to cease service in the two cities.

Federal transportation officials last month barred Mesa Air from terminating service until it could solicit new bids and choose a successor. On Friday, details were released on proposals by Mesa Air, Great Lakes Aviation and Vision Airlines to offer subsidized service.

Mario Cifuentez, manager of the Visalia Municipal Airport, said he'd expected two proposals, based on conversations since June with two of the companies. But Mesa Air Group's bid was a complete surprise.

"Quite frankly, I was shocked to see Mesa make a proposal," Cifuentez said. "It would have been nice if they had communicated to us earlier. ... They neglected to communicate anything to us about their proposal."

Visalia and Merced are each part of the Department of Transportation's Essential Air Service program, created by Congress after the airline industry was deregulated in 1978. The program is intended to ensure that smaller markets continue to have air service connecting them to major airline hubs.

In more than 140 communities across the country -- including Visalia and Merced -- the federal government pays the airline a subsidy that maxes out at $200 per passenger, based on past ridership at the airport.

Mesa Air Group currently receives a combined subsidy of up to $1.6 million a year for operating 24 US Airways Express flights each week from Visalia and Merced to Las Vegas' McCarran International Airport. About half of those flights originate in Visalia and make one stop in Merced before continuing to Las Vegas.

In its new proposal, the airline is asking for twice as much -- $3.2 million a year -- for essentially the same service.

"That happens from time to time," said Bill Mosley, a spokesman for the Department of Transportation. "It's not at all unusual for a carrier to serve their 90-day notice and then resubmit a proposal for a higher subsidy."

Jeffrey Hartz, planning manager for Mesa Air Group, said the airline's decision to file for termination and then rebid was based on fuel and maintenance costs far higher than expected last year.

"This is actually the only way to get more money, to increase the subsidy in a market," Hartz said Friday. "Once you put in a bid and it's selected, the subsidy is frozen for two years, so if your costs go up, you either have to raise fares on customers or file with the department to terminate and rebid the service again."

To make the Merced/Visalia route profitable without an increased subsidy, Hartz added, the airline would have had to raise fares by $40 to $50 per ticket.

"We felt it was in the best interest of the communities, and the company, not to raise our fares dramatically, but to file and hopefully win these routes again," he said. "I'd much rather have the federal government pay for it than the local person in Merced or Visalia."

Linking Merced and Visalia in looped service is also the plan submitted by Vision Air, an upstart charter carrier based in North Las Vegas.

In his company's bid, Vision Air business manager Warren Kaplan offers up two flights per day -- one to the North Las Vegas Airport with shuttle service to the larger McCarran International Airport hub, the other to Long Beach Airport.

Each flight would originate in Merced, stop in Visalia and then continue on to either North Las Vegas or Long Beach. All of the return flights would stop in Merced before Visalia.

But as a charter company, Vision must receive authorization from the Federal Aviation Administration before it can offer scheduled flights.

The third bidder, Wyoming-based Great Lakes Aviation, is a repeat suitor for Visalia's air service contract. Great Lakes was one of the two airlines that sought to replace SkyWest Airlines in 2005, ultimately losing to Scenic Air, and competed against Mesa Air and Big Sky Airlines of Montana when Scenic Air withdrew from Visalia and Merced last year.

Great Lakes has EAS contracts for nearly 30 other markets across the country, but none in California.

In Visalia, Great Lakes is proposing two nonstop round trips per day to Las Vegas and is asking for a subsidy of just over $1.1 million a year. For its two nonstop flights between Merced and Las Vegas, Great Lakes is seeking about $725,000 in subsidies.

For its Las Vegas flights, Mesa Air Group uses 19-passenger Beechcraft 1900D twin-turboprop airplanes, the same airplane that Great Lakes Aviation is proposing for both Visalia and Merced. The Beech 1900D can make the trip from Visalia to Las Vegas in about 1 1/2 hours.

But Vision Air proposes to use a larger, faster aircraft for its service -- the Dornier 328, a 30-passenger, twin-turboprop airplane that can make the trip from Visalia to Las Vegas in less than 50 minutes, and from Visalia to Long Beach in 42 minutes, according to its bid document.

Now it's up to federal officials to determine which of the three bids will win a new two-year EAS contract.

"We'll ask for comments from the cities and the residents in the communities," Transportation Department spokesman Mosley said. "We'll review the comments and each of the petitions and come to a decision as soon as possible."

A decision could take several weeks to perhaps a month or more, Mosley said. Mesa Air would be ordered to keep flying under the terms of its current contract until either a replacement is chosen or Mesa's new proposal is accepted.

The reporter can be reached at tsheehan@fresnobee.com or (559) 622-2410.

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