[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
              ALASKA BYPASS MAIL DELIVERY: A BROKEN SYSTEM

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    US POSTAL SERVICE AND THE CENSUS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 4, 2014

                               __________

                           Serial No. 113-90

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 TONY CARDENAS, California
THOMAS MASSIE, Kentucky              STEVEN A. HORSFORD, Nevada
DOUG COLLINS, Georgia                MICHELLE LUJAN GRISHAM, New Mexico
MARK MEADOWS, North Carolina         Vacancy
KERRY L. BENTIVOLIO, Michigan
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

 Subcommittee on Federal Workforce, U.S. Postal Service and the Census

                   BLAKE FARENTHOLD, Texas, Chairman
TIM WALBERG, Michigan                STEPHEN F. LYNCH, Massachusetts, 
TREY GOWDY, South Carolina               Ranking Minority Member
DOUG COLLINS, Georgia                ELEANOR HOLMES NORTON, District of 
RON DeSANTIS, Florida                    Columbia
                                     WM. LACY CLAY, Missouri


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 4, 2014....................................     1

                               WITNESSES

The Hon. Mark Begich, U.S. Senator from the State of Alaska
    Oral Statement...............................................     5
    Written Statement............................................     8
The Hon. Don Young, U.S. Representative (At-Large) from the State 
  of Alaska
    Oral Statement...............................................    11
    Written Statement............................................    13
Mr. Ronald S. Haberman, Alaska District Manager, U.S. Postal 
  Service
    Oral Statement...............................................    24
    Written Statement............................................    26
Ms. Tammy Whitcomb, Deputy Inspector General, Office of Inspector 
  General, U.S. Postal Service
    Oral Statement...............................................    30
    Written Statement............................................    32
Mr. Dennis Devany, Deputy Director, Office of Aviation Analysis, 
  Office of Aviation and International Affairs, U.S. Department 
  of Transportation
    Oral Statement...............................................    40
    Written Statement............................................    42
Mr. Steven Deaton, Senior Vice President, Alaska Central Express 
  (ACE) Air Cargo, Inc.
    Oral Statement...............................................    47
    Written Statement............................................    49
Mr. Jeff Butler, Vice President, Airport Operations and Customer 
  Service, Alaska Airlines
    Oral Statement...............................................    54
    Written Statement............................................    57

                                APPENDIX

Chairman Darrell Issa, Opening Statement with pictures...........    84
Statement of Senator Lisa Murkowski of Alaska....................    90
USPS OIG letter to Senator Murkowski, Rep. Young, and Sen. Begich 
  responds to their Dec. 2 letter regarding USPS OIG.............    93


              ALASKA BYPASS MAIL DELIVERY: A BROKEN SYSTEM

                              ----------                              


                         Tuesday, March 4, 2014

                  House of Representatives,
    Subcommittee on Federal Workforce, U.S. Postal 
                           Service, and the Census,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 1:33 p.m., in 
Room 2154, Rayburn House Office Building, Hon. Blake Farenthold 
[chairman of the subcommittee] presiding.
    Present: Representatives Farenthold, Collins, Issa, Clay, 
and Cummings.
    Staff Present: Ali Ahmad, Professional Staff Member; 
Melissa Beaumont, Staff Assistant; Will L. Boyington, Deputy 
Press Secretary; Molly Boyl, Deputy General Counsel and 
Parliamentarian; Lawrence J. Brady, Staff Director; Sharon 
Casey, Senior Assistant Clerk; John Cuaderes, Deputy Staff 
Director; Adam P. Fromm, Director of Member Services and 
Committee Operations; Linda Good, Chief Clerk; Tyler Grimm, 
Senior Professional Staff Member; Mark D. Marin, Deputy Staff 
Director for Oversight; Ashok M. Pinto, Chief Counsel, 
Investigations; Jeffrey Post, Senior Professional Staff Member; 
Jessica Seale, Digital Director; Peter Warren, Legislative 
Policy Director; Rebecca Watkins, Communications Director; Eric 
Cho, Detailee; Kevin Corbin, Minority Professional Staff 
Member; Devon Hill, Minority Research Assistant; Julia Krieger, 
Minority New Media Press Secretary; Lucinda Lessley, Minority 
Policy Director; and Mark Stephenson, Minority Director of 
Legislation.
    Mr. Farenthold. The committee will come to order.
    I would like to begin this hearing by stating the Oversight 
Committee's mission statement, as we do at every hearing. We 
exist to secure two fundamental principles. First, Americans 
have a right to know that the money Washington takes from them 
is being well spent. And second, Americans deserve an 
efficient, effective government that works for them. Our duty 
on the Oversight and Government Reform Committee is to protect 
these rights.
    Our solemn responsibility is to hold the government 
accountable to taxpayers because taxpayers have a right to know 
what they get from their government. We will work tirelessly, 
in partnership with citizen watchdogs, to deliver the facts to 
the American people and bring genuine reform to the Federal 
bureaucracy. This is the mission of the Oversight and 
Government Reform Committee.
    I will start today by recognizing myself for a short 
opening statement. Today we are here to discuss the Alaska 
Bypass mail delivery. Our goal is to see if the current Bypass 
system is really the most cost-effective way for the Postal 
Service to subsidize the cost of packages for delivery to rural 
and outlying areas in the State of Alaska and talk about 
whether it is also the most economical way for the Alaskan 
people. We will also discuss a number of potential reform 
options for the Bypass system that could provide the cost-
effectiveness that the Postal Service needs in able for a 
greater benefit to be able to be passed along to rural 
Alaskans.
    The Bypass system was first designed in 1972 as a way to 
save the Postal Service money and improve service to isolated 
villages throughout the State of Alaska. Under the system, 
instead of large parcel orders being processed through the 
normal Postal Service infrastructure, the entire process is run 
and managed by private air carriers throughout the State.
    Over the last several decades, Bypass mail has evolved into 
the most widely used way to ship many foods and commodities to 
the rural areas of the State on large several-hundred-pound 
pallets that are shrink wrapped. As a result, Bypass mail 
doesn't look at all like the mail we have in the other 49 
States.
    Under the current system, Bypass orders must be at least 
1,000 pounds. This differs greatly from the Postal Service 
policy outside of Alaska which prohibits parcel post weighing 
more than just 70 pounds. Once the 1,000 Bypass order is 
placed, it is fulfilled at warehouses in Anchorage or Fairbanks 
and completed orders are grouped together on any number of 
pallets. From there the pallets are handed off directly to 
private air carriers who are then responsible for the 
transportation and final delivery of the shipment.
    The air carriers are paid for their service based on rates 
set by the Department of Transportation. It is one of the last 
remaining vestiges of the government setting rates for 
airlines. The Postal Service has no control over these rates 
and no power to contract with more efficient service providers. 
It may only pay the applicable rate to each air carrier that 
has met certain statutory qualifications.
    With little power to control costs, the Bypass Program only 
covers about 30 percent of its cost. In the last fiscal year, 
the Postal Service lost more than $70 million operating the 
Bypass system. In D.C.-speak that may not sound like a lot of 
money, but you multiply it over the 40 years of the program, we 
are talking close to $3 billion.
    Today's Bypass mail system is tightly governed by lengthy 
statutes that create significant barriers for entry for new air 
carriers and deliberately discourage competition. The 
ostensible goal of this regulation is to allow air carriers to 
feel secure in markets and allowing them to feel comfortable in 
purchasing larger, more efficient aircraft without fear of 
being outcompeted by new, more efficient competitors.
    However, a November 2011 report by the IG, inspector 
general of the Postal Service, has cast doubt on whether the 
Bypass Program is operating ideally for the Postal Service or 
for the rural Alaskan. Specifically, the IG audit concluded 
that the current system subsidizes the Alaskan aviation 
industry, is made up of shipments that would normally be 
nonmailable elsewhere in the Nation, and appears to fail at 
reducing the cost of goods for rural Alaska, with the savings 
to the program largely diverted to a wide variety of other 
commercial interests within the State.
    Today we will hear testimony from representatives of many 
of the key stakeholders in the current system, the Postal 
Service, the Department of Transportation, and two 
representatives of the Alaska aviation industry. But first we 
will hear from some of the elected representatives here in 
Washington from Alaska. I thank the witnesses and look forward 
to a spirited discussion on how we can make this important 
program better.
    I will now recognize the distinguished ranking member, I 
guess of the full committee, Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    The Alaska Bypass Program is one of the most complicated 
systems in the United States Postal Service and is unfamiliar 
to those who have never lived or traveled to Alaska. The system 
was established in response to a unique local circumstance and 
needs.
    Unlike other Postal Service programs, the Bypass Program is 
just not only to deliver packages and freight, but also to 
subsidize passenger air service to remote locations in Alaska. 
It is proper for us to examine whether the Bypass Program is 
the most efficient way of moving packages in Alaska and whether 
it remains the right way to support faster air service there.
    In 2011 the Postal Service inspector general issued a white 
paper finding that the cost of the Alaska Bypass Program 
exceeded the rates paid by shippers by tens of millions of 
dollars every year, resulting in significant annual losses to 
the Postal Service. The inspector general offered 
recommendations to reduce the costs of and increase the 
revenues generated by the Bypass Program to make the Postal 
Service responsibilities in Alaska more reasonable and 
consistent with its current role to provide universal service, 
as it does in every other State.
    Last month the committee voted to approve H.R. 4011, the 
Alaska Bypass Fair Competition Act. During our consideration of 
this legislation Chairman Issa stated that the measure would 
encourage greater competition and bring savings to the Postal 
Service and rural Alaskans. However, the committee considered 
H.R. 4011 without first holding hearings or hearing from Alaska 
residents.
    Before the vote last month, Congressman Don Young of Alaska 
wrote to the committee in opposition to this legislation. He 
wrote that, ``The passage of H.R. 4011 will undermine successes 
accomplished,'' in the Rural Service Improvement Act of 2002. 
He also wrote, ``The market pressures would invite the 
operations of smaller, less efficient carriers and necessitate 
multiple stops. This will increase the operating costs of the 
USPS, and these costs will ultimately be passed along to 
consumers and taxpayers.''
    I am pleased that we are convening a hearing today to 
examine the many complexities of the Bypass Program. I am also 
pleased that we now have the opportunity to hear from Senator 
Begich, as well as Congressman Young, since they represent the 
people who would be directly affected by any legislation 
reported by this committee.
    With that, Mr. Chairman, I yield back and look forward to 
the testimony.
    Mr. Farenthold. Thank you very much.
    And I believe the Chairman of the full committee, the 
gentleman from California, Mr. Issa, has an opening statement 
as well.
    Mr. Issa. Thank you, Mr. Chairman. And I want to associate 
myself with the ranking member's statement. This committee does 
have an obligation to protect the ratepayers of the post 
office, particularly in light of their year-over-year losses.
    Additionally, I side with the ranking member in saying that 
the earlier bill moved last month or 2 weeks ago was in fact 
moved specifically without a hearing. One of the reasons for 
that was that when the law was created, it was moved without a 
hearing and it was clearly anticompetitive.
    Notwithstanding that, Alaskan Bypass Mail is, in fact, a 
complex system, carefully constructed as a program designed 
purposely to use postal taxpayers--it is designed for the 
purpose of having postal ratepayers' funds subsidize Alaska's 
aviation industry. Last year alone, that subsidy was $76 
million.
    I make no attempt to minimize the fact that the situation 
in Alaska is different than the lower 48. Additionally, the 
situation in Alaska really does beg the question of, are there 
places in which universal service is required and promised and 
not available by road? The answer, of course, is yes.
    There is no question, though, that the bulk ordering system 
in Alaska, if it were simply done exactly the same as the lower 
48, would still lose money, but it would lose very little 
money. If the parcel post rate were applied, the losses to the 
post office would be less. That is not to say that I want to 
end Bypass mail. Just the opposite. The bill that we are going 
to be considering in a markup next week is designed to bring 
Bypass mail to a 50 percent self-sufficiency with a 50 percent 
subsidy.
    Now, going from 30 to 50 percent shouldn't seem like a 
lofty goal, nor does it mean that over the coming weeks, 
months, or years we are going to fix a system that should be 
funded by appropriations, should be funded by the FAA, should 
be funded by the transportation bill, but in fact is funded on 
the backs of ratepayers. The postal inspector general, though, 
deserves to have his recommendations considered and 
efficiencies found.
    I will give you an example of why Alaskans should be 
concerned. If I were to go, as I did, to Anchorage and attempt 
to buy a bag of potato chips, the cost of a given bag of potato 
chips would be $4.29 in Anchorage, while in Bethel, some 400 
miles away, a single plane trip, which I took, the price would 
go to $9.99, meaning more than double, more than $5.
    The fact is the shipping costs under Bypass mail for that 
trip is 35 cents. Alaskans need to understand that the prices 
they pay in Bethel or on remote islands often have more to do 
with other parts of distribution and profiteering by people in 
that system. The difference between 35 cents and $1 in that bag 
of chips, if passed on proportionately, would take that $4.29 
bag that already goes to $10 and would take it to $10.70. I am 
not asking Alaskans to pick up $10.70 cents. I am asking them 
to pick up 20 cents or less of that cost.
    To give you an example in the lower 48, because today we 
will hear arguments undoubtedly that Alaska doesn't have roads, 
well, here in Washington, we have roads. In Toledo, Ohio, we 
have roads. In you were if you were to ship 150 pounds of goods 
some 400 miles, let's say, from here to Toledo via UPS it would 
cost approximately 80 cents a pound.
    Well, in fact to ship that same distance in Alaska costs 
less than half that. In other words, you can ship by air in 
Alaska cheaper than you can ship by ground in the U.S. That was 
not and should not have been the cost of doing business.
    If we go to the most efficient way of delivering this 
freight called Bypass mail to Alaskans, we can save money. 
Witnesses today will undoubtedly argue that you will destroy 
passenger travel in Alaska. If that is the case, the question 
is, should postal ratepayers anywhere, but particularly in the 
lower 48, subsidize passenger traffic in Alaska or should 
Alaska seek to receive, as it might well, some portion of FAA 
money, landing fees, or an appropriation to take care of the 
need for maintaining subsidized passenger travel in Alaska?
    Our bill and the bill that we will consider next week deal 
with the ability to try to give the opportunity to be more 
competitive. For some reason, Alaska Air, which operates a 
fleet of 737-400s, a relatively old aircraft, and only recently 
upgraded to that, makes the case that their unique ability to 
haul as a preference this freight at a rate the Department of 
Transportation sets is essential and that if they have 
competition attempting to deliver this freight for the same or 
less, that it will somehow disrupt a carefully designed plan 
which is working perfectly.
    The American people understand this best when one puts it 
in perspective. To be clear, the excess capacity of these 
airlines is paid for by the Postal Service. More importantly, 
the subsidy means that every 6 years the American ratepayer is 
buying a Bridge to Nowhere. If one were to look at the so-
called Bridge to Nowhere in Alaska, what you discover is that 
in fact it was a bridge to provide access to an airport. I 
personally am not a user of the Bridge to Nowhere very often, 
but the level of this subsidy every 6 years rises to the cost 
of another one of those bridges.
    That is why I put forward H.R. 4011, which I believe at a 
minimum tries to reduce the preferences given to specific 
airlines carefully crafted to lock out new competition. No 
American understands why incumbent carriers should be in 
perpetuity able to have a preference over other carriers 
operating for at least 1 year in Alaska.
    Mr. Chairman, thank you for your indulgence. I yield back.
    Mr. Farenthold. Thank you very much.
    Mr. Farenthold. And other members will have up to 7 days to 
submit their opening statements for the record.
    Mr. Farenthold. We will now recognize our first panel. We 
have the junior Senator from Alaska, Mr. Begich, and we have 
the Honorable Don Young, the Representative to the House from 
the State of Alaska.
    We will start by recognizing Senator Begich.

 STATEMENT OF THE HONORABLE MARK BEGICH, UNITED STATES SENATOR 
                    FROM THE STATE OF ALASKA

    Senator Begich. Chairman Farenthold of the subcommittee and 
subcommittee Ranking Member Lynch and Chairman Issa and Ranking 
Member Cummings, thank you for the invitation that the Alaska 
delegation can make today in these opening remarks. And, again, 
I look forward to the continued discussion on this issue.
    I would also like to submit for the record my written 
comments, if that is possible, Mr. Chairman.
    Mr. Farenthold. They are already part of the record, I 
believe.
    Senator Begich. Thank you.
    As everyone knows, the Postal Service has an obligation 
under the Constitution to provide universal service to all 
areas of the Nation. I am here today to shed some light on 
Bypass mail, a crucial system that allows the Postal Service to 
fulfill its universal service obligation to Alaska. I am also 
here to tell you the system is not broken.
    Chairman Issa, I appreciate your visit to Alaska a couple 
of years ago.
    There is no doubt Alaska presents some unique challenges to 
the Postal Service when it comes to universal service. I want 
to note the hard work that the Postal Service employees put in 
every day to deliver Alaska mail in a timely manner. In 
particular, I single out Alaska's District Manager Ron 
Haberman, who is testifying here today.
    Ron, I want to thank you for your hard work for Alaska.
    Bypass mail is very important to Alaska, but it also is 
very important for the Postal Service because it allows 
universal service to Alaska in the most cost-effective way 
possible. Before Bypass mail existed, Alaskans still relied on 
the Postal Service to make shipments. Eighty percent of Alaska 
communities are off the road system, so we are forced to ship 
groceries and other necessary items through the mail. When it 
became clear that the postal facilities couldn't handle the 
high volume of postal parcel post, the Postal Service 
established Bypass mail. The system relieves the Postal Service 
of the need to pay for staff, facilities, and equipment to 
process these shipments.
    Let me make that point very clear: Bypass mail saves the 
Postal Service money. The savings from using Bypass mail and 
avoiding the costs of parcel post are estimated to be $45 
million annually. Anyone citing the cost needs to make sure 
that is factored into the savings.
    Last month this committee approved legislation, the intent 
of which is to increase competition among mainland carriers 
that deliver Bypass mail in rural hubs, to supposedly save 
money. However, the bill will actually have the opposite 
effect, make the system more expensive and less effective for 
the Postal Service and customers.
    Here is why. The Rural Improvement Service Act of 2002 
purposely limited competition among mainland carriers because 
too many carriers were providing mainland service and they 
didn't have an adequate share of the mainland market. The 
result was unreliable service for Alaskans and high operating 
costs for the Postal Service. The bill created an 
interdependent relationship between mail and passenger service 
to make the system more cost-effective and reliable.
    Remember, Alaska is a fifth the size of the continental 
United States and has very few roads. When you are covering 
that many miles, sometimes you need to kill two birds with one 
stone. Something to highlight, the Postal Service has not asked 
for the changes that Chairman Issa has proposed. Why is the 
chairman pursuing changes that would increase costs for the 
Postal Service, especially when the Postal Service has stated 
the current process is the most cost-effective way for it to 
provide service to Alaska? While the Chairman's proposed 
legislation might benefit air carriers that want to enter the 
mainland market, it would not benefit Alaskans or the Postal 
Service, period.
    Let me hit on a couple more points. Chairman Issa has 
argued that the system benefits businesses more than it does 
rural residents. Wrong again. Just to point out the issue that 
we responded to the IG report in regards to your example, on 
the potato chip package, it didn't incorporate fuel costs, 
utility costs, healthcare costs, housing and wages that are 
much more expensive in rural Alaska. It is not as simple as 
drawn by the presentation. The cost of living is high in rural 
Alaska, plain and simple. If you charge carriers and small 
businesses more to provide goods, those expenses will simply be 
handed down to the communities in the form of higher grocery 
prices.
    Chairman Issa has also argued Alaskans need to pay 
disproportionately more for their service. This flies in the 
face of the Postal Service's universal service obligation. We 
should not have to pay more to receive the same service as 
other Americans.
    While the committee has failed to reach a bipartisan 
agreement on much-needed postal reform legislation, here we are 
today debating proposals that would actually cost the Postal 
Service more money and make the system less effective. These 
proposals are counterproductive to the overall postal reform 
effort. I just participated in the Senate committee markup of 
the postal reform legislation. We need to stay focused on the 
comprehensive postal reform legislation for the sake of the 
Postal Service and the American people.
    Despite the title of this hearing, Bypass mail is not 
broken. The system is far from it. Alaskans are open to change 
to make the system more effective, but I urge the committee to 
reject any changes that would violate universal service for 
Alaska or make the Bypass mail system more expensive for the 
Postal Service or my constituents.
    Finally, I urge the committee to consult both the Alaska 
delegation and the Postal Service before proceeding with any 
proposed changes.
    Thank you, Mr. Chairman. I am happy to answer any 
questions.
    Mr. Farenthold. Thank you very much, Senator.
    [Prepared statement of Senator Begich follows:]

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    [GRAPHIC] [TIFF OMITTED] T7203.031
    
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    Mr. Farenthold. We will now recognize Representative Young.

      STATEMENT OF THE HONORABLE DON YOUNG, UNITED STATES 
       REPRESENTATIVE (AT-LARGE) FROM THE STATE OF ALASKA

    Mr. Young. Thank you, Mr. Chairman. I ask unanimous consent 
to submit for the record, if it is not there, my written 
statement.
    Mr. Farenthold. Without objection, so ordered.
    Mr. Young. Mr. Chairman, I again thank you for this 
hearing, and because I have a written statement I am not going 
to use it because the Senator has covered most of the subject 
that I would cover in my written statement, so I will just 
speak from the cuff.
    Mr. Chairman, I will agree on one thing with the Senator, 
the comment of this hearing, ``Alaska Bypass: A Broken 
System.'' I don't know where that came from. I don't know why 
it was used. It is not broken. It is working. It is working 
quite well. And as the Senator mentioned, why this proposal is 
before us I don't quite and do not know for sure.
    Chairman Issa has a great interest, as I have said before, 
in legislating in my State, and he is worried about $70 million 
lost, supposedly, which would cost the Postal Service probably 
$200 million if they were to have just what we call parcel 
post. And there is a $15 billion debt in the post office and 
you are worried about $70 million that would cost $200 million. 
I don't quite understand that. That is what you call picking up 
peanuts when you have a forest fire in your backyard. It 
doesn't make a whole lot of sense.
    When this system works, it is working well, not only for 
the rural community, but again I would like to remind my 
colleagues very straightly, because you are reading, I see one 
guy up there, Mr. Clay, is on his telephone, and that deeply 
disturbs me as a chairman. So I would prefer if you would like 
to listen very carefully. Okay. Okay. All right. That is fine.
    You take all the land east of the Mississippi River to the 
tip of Maine, to the tip of Florida, that is part of Alaska, 
and in that area you have got 253 Congressmen and 52 Senators. 
And you have more mileage of highway in that area, 10,000 times 
more than we do. There are no highways in Alaska. We do have 
post offices. And the people as American citizens have a right 
for universal service.
    Now, if we wish to do so, we will just go back to the 
parcel post system. Bypass mail, people don't understand. What 
it is, it is the products you are going to ship parcel post 
don't go through the post office. That means you don't need to 
build more postal buildings. It means you don't have to hire 
any more people if you want universal services.
    Now, I will say the post office attempted to in fact 
eliminate parcel post in Alaska, and that was changed back to 
the way it should be.
    So we are talking about a situation here that concerns me a 
great deal because it doesn't make sense to have this bill or 
the bill that was passed last week moved to the House floor 
when it has something in it that saves peanuts, when in fact it 
costs us money, the taxpayer money, the Postal Service money.
    Now, we all know that, very frankly, there were some people 
talking about noncompetition. This is not a new subject. 
Chairman Issa has gone to Senator Stevens and advocated for one 
of his constituents to make it more competitive. The way it was 
written into law, and it was Senator Stevens, was in fact it is 
very competitive now. It is not just one. But we couldn't have 
everybody participating in or you have not enough to make it 
work.
    Now, people say we are subsidizing the passengers. Now, you 
build me some highways, Mr. Chairman, and I will go along with 
you. You give me the land back that this Congress took away 
from Alaska, I will go along with you. You let us have what the 
statehood said and I will go along with you. Do you know that 
this Congress took 27 million acres away from the State of 
Alaska and hodge-podged our map so we can't build a road if we 
wanted to.
    In the IG's report--and, by the way, he is full of it, I 
mean right up to his eyeballs, and if he is in the room I will 
say it again, when he says in fact the State of Alaska ought to 
build more roads. That is the dumbest statement I have heard in 
my whole life. I doubt if he has ever been to Alaska. If he 
has, he knows why we can't build roads.
    We need this for the people, in fact, in the rural areas of 
Alaska. We don't need to fix something that is not broken. It 
does work. We use the potato chip example like we said before. 
You go into one of those stores, and I used to be in a little 
side store business in Fort Yukon before we had Bypass mail and 
I know the what the profit margin is, it is about 1 percent. So 
let us think about this before we move this bill.
    Three people versus 253 Congressmen. Two Senators. Maybe we 
ought to really think about it. This is not good legislation. 
It doesn't do what it says it will do. It doesn't fix a system 
that is not broke. It meddles, and I don't like meddling.
    I yield back.
    Mr. Farenthold. Thank you very much, Mr. Young.
    [Prepared statement of Mr. Young follows:]

    [GRAPHIC] [TIFF OMITTED] T7203.001
    
    [GRAPHIC] [TIFF OMITTED] T7203.002
    
    Mr. Farenthold. We appreciate your testimony, as well as 
the Senator's.
    I know, Senator, you agreed to answer some questions. 
Typically when we have legislators testify, unless they are 
willing, we don't question them. We do have some questions if 
you all would be willing to entertain them.
    I am going to yield my time to the gentleman from 
California to ask his questions. Being from Texas, the second 
largest State, we are over the fact you all are bigger than us 
now. So I yield to the gentleman from California, another large 
State.
    Mr. Issa. Thank you. That is how the gentleman won his 
primary today.
    Senator, your statement repeatedly of the guarantee of 
universal service, I might note for the record that there is no 
such guarantee in the Constitution. However, in my visits to 
Alaska, both officially and unofficially, going up to Prudhoe 
Bay, obviously looking at Bypass mail going to Alaskan islands, 
I am totally committed to the fact that unless we find other 
sources of revenue to provide the appropriate subsidy for 
reaching those islands, that the post office will continue to 
maintain Bypass mail, because as both of you alluded to, it is 
more efficient than taking in a bunch of parcels in 70-pound 
increments. You don't have an argument with me. Both the 
legislation that has already been passed by this committee and 
the next legislation deal only with the questions of 
efficiency.
    Now, I might ask why it is that everywhere else companies 
such as Alaskan Airlines sooner or later have to rebid and they 
can lose in a rebid, but in Alaska they are guaranteed 
effectively in perpetuity to have what effectively is a 
legislative earmark for them to get a certain amount of 
revenue. Senator, do you have a reason?
    And I understand Congressman Young said that we are 
meddling and that they can't afford--I think he basically said 
you couldn't afford to have additional competition. Is it 
additional competition that is objected to, and if that is the 
case, then couldn't we name a number of maximum vendors, but 
then allow a bid in which a vendor could lose theirs, whether 
it is Alaska Airlines or a smaller one?
    Senator Begich. Mr. Chairman, let me make it very clear 
again. How it is operated, as you know, in 2002 I wasn't here 
when the original bill was done. I know Don can--Congressman 
Young, can talk to it.
    Mr. Issa. You know, Senator, you would not have wanted to 
be sitting in the office with Ted Stevens telling me not to 
meddle in Alaska when I asked him why he was locking out 
existing carriers.
    Senator Begich. I would be very happy to answer your 
question. Mr. Chairman, the economy of scale, Alaska Airlines 
is a dominant player. It creates opportunities to create more 
efficiency in the delivery of the system. I fly on those 
flights a lot. I know you came up one time and you went up to 
Prudhoe. Prudhoe is not a village, okay?
    Mr. Issa. Senator, Prudhoe is where I went to look at other 
issues. I have been to Alaskan islands on a hydrofoil. I came 
up to look at Bypass.
    Senator Begich. Right. And when you went up there, going 
out to the villages, when we have direct and we have volume 
players in there, and Alaska Airlines is a volume player, and I 
know you are going to have a representative here, you can ask 
more questions, but in order to do it on economy of scale in 
Alaska, if you have multiple carriers the odds they will not be 
able to create the business necessary to keep the prices 
marketable and fair to the consumer at the end of the day.
    Now, you may disagree with that. I come from the private 
sector just like you. You are much wealthier than me, and I get 
it. But I come from the small business world. And you always 
want competition, but you also have to understand this delivery 
system of parcel post, and I know how you packaged up your 
comments when you said they put them in big 1,000 packages. 
Well, that is because it is more efficient. If they didn't do 
it that way, they would do the 70 pounders and the post office 
would pay that bill and that shipping cost and it would be 
passed on.
    Mr. Issa. Senator, that wasn't the question. Would you be 
responsive to the question? And I want to be very fair to you. 
You came here to help us. But we are not arguing over changing 
the efficiencies that are in Bypass mail.
    Senator Begich. Yes, you are, by the conversation.
    Mr. Issa. No. What we are talking about is excessive stops, 
additional port stops, if you will, of aircraft; the ability 
for carriers to bid to do additional work, for additional 
carriers to bid; and ultimately the possibility that carriers 
might not carry passengers, but might only carry freight. These 
are areas we are looking at to try to wrench out 10, 20, 30 
million dollars worth of the cost of the existing Bypass mail.
    No part of those freight shipments called Bypass mail are 
we talking about eliminating. We are asking can you in fact, 
tell us that locking out potential bidders of existing Alaskan 
airlines that have been doing business in Alaska for more than 
a year continuously, locking them out of the so-called 
preference, tell us why that is important, that they will in 
perpetuity never have an opportunity to replace an incumbent 
carrier.
    Senator Begich. Again, Mr. Chairman, in all due respect----
    Mr. Issa. I don't want due respect. I just want the 
question answered.
    Senator Begich. That is fine. There is competition in the 
market. New carriers can enter the system. The issue is, 
especially in Alaska, when you are flying in Alaska several 
aspects play into it, not only the competition that we have in 
Alaska, but also the safety issues and knowing Alaska pilots 
and knowing Alaska flight areas. This is a part of the equation 
also. It is not just getting the mail there. It is also the 
safety of the passengers and getting mail there. There is 
multiple reasons.
    You are not going to get the answer you want from me. I 
understand that. We are going to disagree on this aspect of 
what you are proposing.
    Mr. Issa. Senator, the airlines that we are talking about, 
the three I understand----
    Senator Begich. I disagree with your premise, Mr. Chairman.
    Mr. Issa. Well, I understand. I just want you to make sure 
we make the record accurate. The airlines that would be added, 
I think there are three that under this legislation, there 
could be more later, as far as I know they are able to carry 
this same freight, they are safe enough to be able to carry. 
They are just locked out from the preference. Additionally, 
there is, what, $870 per thousand if a plane simply lands one 
additional time even if bypassing that might be efficient for 
carrying the mail. These are the areas we are dealing with.
    And I think it is important that the record be clear. Are 
you saying that these other three carriers would not be safe to 
carry milk or vegetables or cans of Coke?
    Senator Begich. I am saying that safety is part of the 
equation. But let me just say this.
    Mr. Issa. But what level of safety do you need for a can of 
Coke?
    Senator Begich. Mr. Chairman, I am not going to go back and 
forth with you. Maybe you want to. I have seen how some of 
these hearings work. I operate differently in the way we have 
conversations. I am not going to go back and forth with you 
over the same argument.
    I will just tell you this. The Senate has passed out of the 
committee in a bipartisan way a comprehensive postal reform 
bill that puts the postal reform on the right track with 
ensuring Bypass mail stays in the way it is because it is a 
small piece of the puzzle and does it efficiently. We have been 
able to balance the budget on the Postal Service and doing it 
the right way with the Senate bill and looking at all these 
issues, and Bypass mail, as it is today, which I will go back 
to my original quote, it is not broken, despite this committee 
hearing's title. And we were able to do it with Democrats and 
Republicans in a bipartisan way on the Senate side.
    Mr. Farenthold. Thank you very much.
    Mr. Young. May I make a comment?
    Mr. Farenthold. If you would like to comment for a moment, 
Mr. Young, absolutely. Did you have something you wanted to 
add?
    Mr. Young. You know, this is about safety and efficiency. 
If you open for bid, I can come in, I know on the bill it says 
I believe they are supposed to be operating 6 months, I think 
that is correct.
    Mr. Farenthold. I think it is a year.
    Mr. Young. A year before they can bid? But you remember 
this system has been working for a period of time where each 
carrier now has a system by equipment, loading capability, and, 
in fact, if you had another competitor would he guarantee 
passengers back to the home base? If he just wants to supply 
Bypass mail he would have to raise the rates because there is 
no passengers.
    Alaska Airlines has passengers. I think that is crucially 
important to remember. This is about saving money and making 
sure that the planes are safe. Now, that may be up to the FAA. 
I don't know. I mean, that is something we have to think about, 
the system. We have not had an accident. We have delivered the 
mail. There hasn't been any real problems. I mean, that goes 
back is it broken? Are we just looking for a problem? That is 
all.
    Mr. Farenthold. We are a little over on Mr. Issa's time--or 
my time--and Mr. Cummings has indicated he would like to go to 
Mr. Clay first.
    So, Mr. Clay, you are recognized for an equal amount of 
time.
    Mr. Clay. Thank you, Mr. Chairman.
    And thank you, my friend from Maryland, the ranking member, 
for yielding.
    Senator Begich, welcome to the friendly confines of the 
House Oversight and Government Reform Committee. You know, on 
December 2, 2011, the Alaska delegation sent IG Williams a 
letter requesting the findings within the 2011 inspector 
general's report. Could you elaborate on the delegation's 
concerns with the report?
    Senator Begich. Absolutely. Thank you very much for the 
question.
    First off, when you look at it, as I mentioned a little bit 
earlier in regards to the cost, as I highlighted, that 35 cent 
bag of chips, shipping, they didn't incorporate all the other 
costs of that product and therefore that is a huge gap. They 
also had information regarding the flights, for example, 
comparing a 144-seat passenger planes to 36-prop passenger 
planes and making them equal, which is incorrect.
    We went through a list of items. The infrastructure cost, 
how is that incorporated? If I took the position, and I do, and 
I would love more roads, as Congressman Young said, if you 
suddenly say we don't want Bypass mail, then there is a 
substitute, parcel post, like everyone else can get. They can 
drive and deliver parcel post. Well, okay, where is that road 
construction money, that cost factor? None of these things are 
put into this discussion in the IG's report. We detail that, as 
you noted, 2-1/2 pages by the delegation, which we think are 
legitimate issues that detail out why the system today is not 
broken and is efficient. It is very efficient in the delivery 
of the system.
    So as I said on the costing, the shipping, the amount of 
travel, the savings, they never incorporated. They never asked 
the post office how much are they saving by not doing this. 
Well, it is $35 million bucks. Well, where is that in this 
equation? That should be incorporated.
    So there are several items that we highlighted that we 
think should be taken into account when you are looking at this 
system. And that is what it is. It is not a program. It is not 
a subsidy in the sense like people like to make other programs. 
This is a postal delivery system. I mean, I would just venture 
to guess an envelope from California to D.C. costs more than an 
envelope going from southern California to maybe a town across 
the street, but the postal cost is the same.
    Mr. Clay. And I do empathize with your position, having 
just finished a recent trip to the North Pole. And I was in a 
place called Churchill, Manitoba on Hudson Bay, pretty close to 
the North Pole. And it was a remote town. There were no roads 
leading in or out. The only way there was through train 
service, by rail or by plane. And, yes, the cost of goods and 
services were much higher in that town.
    Let me move on to Representative Young. I hope you are not 
reading your BlackBerry, Representative Young.
    Mr. Young. I have never read my BlackBerry in my life. The 
day I turn that sucker on is the day I am going to walk out of 
these halls, I will tell you that right now.
    Mr. Clay. You know, for the life of me I cannot understand 
why we are having this hearing on this bill. I mean, maybe you 
can shed some light on it, to bring----
    Mr. Issa. I can----
    Mr. Clay. No, I am talking to the witness now, Mr. Chair. I 
am talking to our colleague.
    Mr. Young. I really think, in all due respects to the 
chairman of the full committee, it was being held because Mr. 
Cummings and Mr. Lynch raised this point on the letter I wrote, 
and I do think this is why this hearing is being held. I 
believe the same provisions are in the major bill that was 
voted on, and now we can go to the floor and say we had a 
hearing. I think that is the main reason.
    But the reality is, this will inform you, I think, a little 
bit about the challenges we have in the State of Alaska. I have 
said before, if you guys help me build some roads, I will be 
all for it. We have a broken infrastructure system in the lower 
48. We don't have any infrastructure of any consequence in the 
State. Remember how many miles of road.
    So we need to have universal service for the post office. 
The post office is losing money. There is no doubt about that. 
And I hope in the postal reform we will finally solve the 
problem and allow them to make some money. But $70 million, 
when it is going to cost about $200 million to do what they are 
losing on $70 million, to me that is a $130 million profit, any 
way you want to cut it. So I don't know.
    Mr. Clay. I yield to the gentleman from Maryland.
    Mr. Cummings. Congressman Young, the reason why we wanted 
to hold a hearing is so we would get a better understanding 
about this mail. I understand that there are unique situations 
in Alaska, and what we wanted to do was make sure we understood 
what we were voting on.
    And so as I have been listening to the discussion, I 
wondered, you know, we often hear in the Congress the terms 
picking winners and picking losers, and I am just wondering, 
those carriers that are in already, have we now given them a 
license to be there forever, and what about others that might 
want to compete? This is just out of curiosity. I mean, this is 
a question. And I just wondered, if you were on the outside 
looking in, I mean, how would you handle that?
    In other words, if you were a carrier and you wanted to 
have an opportunity to get in on the action. And I am not 
saying. I don't know. I am just curious.
    Mr. Young. May I address that? I am not locked into any 
airline's permaturity as far as carrying mail, but I am locked 
into safety and efficiency. That is what I am locked into. And 
when you put up a bid, now, I have seen some of the bids the 
post office puts up, and they may go for the cheapest bid. Now, 
that is well and good for their bottom line, but that doesn't 
protect the person that is flying in that airplane or the lack 
of efficiency receiving the mail.
    Mr. Cummings. So if they put up the requirements of a bid 
were to have the level of safety and the things that you just 
talked about in there, your concern is, I take it, first of all 
that they would likely not require those things in the bid, and 
even if they did, that bidders would, even if they said they 
were going to do it, they probably wouldn't perform to the 
level of safety and efficiency that you are talking about. Is 
that a fair statement?
    Mr. Young. That is what I am saying. And by the way, again, 
I go back to the post office, they will take the cheapest bid. 
That is what concerns me. They will take the cheapest bid. And 
in doing so they can jeopardize the efficiency and the safety.
    Mr. Cummings. Okay. Senator.
    Senator Begich. Very quickly. Also, inherently when you do 
freight, for example freight coming out of Anchorage going, 
say, to Bethel or Koyukuk or a small village, that goes out 
there full up, if it is just a straight freight liner, it comes 
back empty. What do you think the costs are going to be? They 
have got to pay for that. So the costs go up. That is why there 
is this combo. And people who have a combo, they can enter the 
market now. But you do the combo so then it becomes a more 
efficient system. It is the similar problem we have with our 
big boat ships that come up tote. They come up full, they go 
back empty because we don't have product that we are exporting 
back to Seattle or Tacoma.
    Inherently a straight freight shipper will cost more money 
in the end product. Now, I know someone will argue differently, 
but I am telling you, I have flown on those have known on those 
combi planes, Don Young has flown on those combi planes, half 
freight, half people. And the reason it is done is because you 
have got an efficiency to the system, and that is just a fact, 
and that has been proven by the post office in its analysis of 
savings.
    Mr. Young. Another thing, too. Unless they have the 
aircraft available, and that is where the bid would come in, if 
you think you are going to be able to carry this freight in a 
Caravan, which is a single engine turbo prop, or in a Dash 8, 
you are not going to meet the requirement. The efficiency goes 
out the door. And to my knowledge those seeking this new 
competition within the State don't have any type of aircraft 
like that. It will probably come, very frankly, someone leasing 
them from the lower 48 bringing the new aircraft in to get in 
the direct freight business.
    Mr. Farenthold. Thank you very much.
    And we will now recognize the gentleman from Georgia for 5 
minutes, Mr. Collins.
    Mr. Collins. Well, in the midst of all the big States 
discussing here, the small State of Georgia is going to yield 
its time to the chairman from California.
    Mr. Issa. I thank the gentleman for yielding.
    Well, I think the round of questioning helped us a lot in 
understanding that it is all about passengers. Is that correct, 
Representative Young? That in fact, notwithstanding everything 
else, this program, what is basically the current rules tie the 
hands of the post office, forcing them to give a preference to 
airlines who carry passengers. Is that correct?
    Mr. Young. No, it is not correct. It is forcing them to 
make it more efficient. If you fly empty, you know this, Mr. 
Chairman, if you fly empty going back you are going to raise 
that price of the potato chips up to $12 a pack.
    Mr. Issa. Well, that begs the question, if the post office 
has the ability--and I am happy to change this legislation to 
make it fit the model that you and the post office seem to 
want--if the post office has an obligation to get the lowest 
long-term price, does that meet your requirement?
    Mr. Young. Lowest long-term price with efficiency. With 
efficiency. And you can't be efficient if you don't haul 
passengers.
    Mr. Issa. Okay. But it is all about passengers.
    Mr. Young. No, it is about efficiency.
    Mr. Issa. Well, you know, Don, when I went----
    Mr. Young. If you can't have passengers, you will not have 
efficiency.
    Mr. Issa. Well, when I went up to that Aleutian island on a 
hydrofoil we went up with freight and we came back without 
anything. We didn't bring any passengers back.
    Mr. Young. You lost money, too.
    Mr. Issa. Well, I didn't, but the hydrofoil, I guess, might 
have done that. But let's go through the arithmetic that you 
have been giving up until now. The $35 million you say it would 
cost more to do parcel post, that is a number you are good 
with?
    Mr. Young. I think it would.
    Mr. Issa. That is fine. I am fine with that number. They 
lost $76 million. Had they billed parcel post rate they would 
have billed over $100 million. The arithmetic is that they 
could raise the price $41 million, pass only on to the 
efficiency of the Bypass mail $41 million in discounts, and 
everybody walks away happy. The only problem is that is more 
than my bill is purporting to charge.
    The current cost, let's just say round numbers, it is $100 
million, $110 million to ship if you were shipping parcel post. 
And by the way, that is almost exactly the number of what it 
would take for this program to break even, meaning if they used 
Bypass mail but charged parcel post rates the post office would 
roughly break even.
    And I will take your number, it is a good number, $35 
million in savings. I believe the post office needs to pass on 
that entire $35 million that they save by not touching the 
mail. I am completely in agreement with you. The problem is 
they pass on tens of millions of dollars of additional 
discount. The problem is that universal service has a price. 
The Alaskan who receives parcel post by air, even including 
discounting the Bypass savings, is still paying less than a 
parcel post person who gets a package delivered over 1,000 
miles or 800 miles or whatever in the U.S. The discount is 
greater currently than in fact is earned due to Bypass.
    And, Senator, I believe Bypass is the most efficient way. I 
think it could be more efficient if we allow some competition, 
and we could talk about ways to protect against unreasonable 
competition. But do you agree that Bypass mail, the portion of 
the savings that comes from a more efficient distribution, is 
what should be passed on to the ratepayer, not that plus more?
    Senator Begich. I will give just a general comment. Not 
seeing your numbers, and I like to see stuff written down, but 
let me just make it a broad----
    Mr. Issa. Senator, I was taking Don Young's numbers.
    Senator Begich. Well, let me just make a broader sweep 
here.
    Mr. Young. He hasn't seen my numbers either.
    Senator Begich. That is right. I was looking over his 
shoulder here. But let me take a broader. You made the comment 
that you will tweak the bill to get it to where it needs to be 
to make it work. Well, it is working now. Now, if we want to 
argue the point about, for example, if you now want to change 
the system of universal service in the sense of making sure it 
pays for itself in areas, then we should talking about the 
Grand Canyon. I could start taking a list of places across the 
board to deliver that mail.
    Mr. Issa. Senator, I will tell you, on this side of the 
dome I am happy to hear you out as long as you want to talk. 
But I asked you a question about the level of discount. I have 
already said I believe Bypass mail should be maintained. What I 
am looking to do in this legislation is to have as much free 
market competition as possible. If there is an explicit subsidy 
for passenger, not an efficiency but a subsidy for passenger, I 
want that to be measured in a way that everyone knows that it 
is open and transparent. But most importantly, if we can find 
ways to lower the cost, I want to lower the cost, because 
currently the discount given for Bypass mail is greater than 
the savings versus parcel post, which it was an alternative to.
    Now, to be honest, we are arguing over about $20 million 
and three companies that might be able to enter the market, at 
least measured under this current legislation. It is not a lot 
of money. It is more a matter of principle, that I want to make 
sure that the post office is allowed to seek the most 
competitive vendors. And if you want to have a discussion about 
what those vendors must do and maybe they have to be in 
business for 5 years, that is fine.
    When I went up to Alaska the first time, I saw tail 
dragger, gas burner, they weren't DC-3s, they were more like 
DC-5s, but they were cousins, big cousins of a DC-3, and those 
were carrying postal freight in some of the oldest planes I had 
ever seen. So I have seen a lot of old ragged planes carrying 
postal freight.
    The question isn't, is Alaska a first class airline? It is. 
Is Alaska an efficient carrier? I believe it is. But that is 
not the whole system and that is not really what we are talking 
about.
    Chairman Young, Don Young, quite frankly, he is always 
going to be a chairman to me, he made the point about those 
single engine props. Well, they will carry a lot of those 
locations. Alaska Air carries a relatively few number of 
locations but a lot of freight. And as you know, small singles 
and light twins are carrying a lot of the freight. That is 
really where I suspect that some of the efficiency could be, if 
they were to Bypass a stop here or there, deliver more 
appropriate for the needs of freight, maybe less appropriate 
for the desire of passengers.
    That is what this discussion is about, and I hope you could 
ask me will I work with you to achieve certain things and then 
tell you us what you want to achieve rather than saying there 
is no savings here. The post office and the IG are going to get 
up after you and they are going to say, yes, there is. I am 
quite sure of that.
    Senator Begich. Mr. Chairman, I guess my comment back to 
you would be that we have done this work on the Senate side I 
think with fair deliberation on the overall issue on the budget 
of the post office in trying to get a solid bill that pulls the 
post office in a broad, back to breaking-even-plus, in order 
for it to survive.
    Bypass mail, as we are sitting here, to be frank with you, 
I will talk Bypass mail forever, but to spend this kind of 
amount of time on what you just claimed a $20 million issue 
seems why taxpayers are more outraged with us than ever before, 
when it is a multibillion dollar issue. We have a bill that we 
passed that dealt with Bypass mail and everything else.
    Mr. Issa. Senator, as far as we know, your bill didn't 
touch Bypass mail.
    Senator Begich. Because we don't think it is broken, 
Republicans and Democrats.
    Mr. Issa. And most of the savings came from a transfer from 
the post office to Medicare. It is no net savings to the 
unified bill.
    Senator Begich. On the overall bill, I beg to differ. 
Senator Coburn, who is fairly conservative I would say, who 
supported the bill coming out of committee as the ranking 
member, I wouldn't think he would pass a bill that, one, cost 
money, doesn't show savings, and doesn't solve the problem long 
term.
    Senator Begich. He even, through the discussions we had in 
that committee, saw no need to modify or change Bypass mail 
because it wasn't broken. Other elements of the post office are 
broken. That is where we should be spending our time.
    Mr. Farenthold. We are getting a little beyond the scope of 
where we get here overall postal reform versus the more focused 
look at the Alaska Bypass mail system. At this point, I think 
we do need to move on to our other witnesses, Let 
Representative Young and the Senator get back to work for the 
people.
    Mr. Young. Thank you, Mr. Chairman, and thank you, Mr. 
Chairman, two chairman up there. As chairman and chairman, I do 
appreciate the hearing. I am still willing to sit down and talk 
to people about solving, if there is a problem, if there is 
something we can do together. But right now, it ain't broke, 
don't fix it.
    Mr. Farenthold. Thank you very much. Now we will take a 
short recess while the clerks set up for the next panel.
    [recess.]
    Mr. Farenthold. Well, we are back, and we will now 
recognize our second panel.
    Mr. Ronald Haberman is the Alaska district manager for the 
United States Postal Service. Ms. Tammy Whitcomb is deputy 
inspector general for the Postal Service Office of Inspector 
General. Mr. Dennis Devany is deputy director of the Office of 
Aviation Analysis in the Office of Aviation and International 
Affairs at the Department of Transportation. Mr. Steve Deaton 
is senior vice president at ACE Air Cargo. And Mr. Jeff Butler 
is vice president of customer service, airports, and cargo for 
Alaska Airlines.
    Pursuant to committee rules, all witnesses will be sworn in 
before they testify. Would you please rise and raise your right 
hand, please. That was two pleases.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    Let the record reflect that all the witnesses answered in 
the affirmative. You all may be seated.
    We've received your written testimony, so in order to allow 
time for discussion, please try to limit your testimony to 5 
minutes. Your entire written statements are a part of the 
record. You should see in front of you a red, yellow, and green 
light. Much like when you're driving, green means you're doing 
good, yellow means hurry up, and red means stop. So we will now 
start our testimony with Mr. Haberman.
    You are recognized for 5 minutes, sir.

                STATEMENT OF RONALD S. HABERMAN

    Mr. Haberman. Good afternoon, Chairman Farenthold and 
members of the committee. My name is Ronald Haberman, and I 
serve as the district manager of the Postal Service's Alaska 
District. I have been employed by the Postal Service for 29 
years, and I have been a resident of Alaska for nearly 18 
years.
    Thank you, Mr. Chairman, for calling this important hearing 
on Alaska Bypass service. I am pleased to be here today to 
provide a historical overview of Bypass mail delivery in Alaska 
and to explain how the current system works. I will also 
discuss the differences between Alaska Bypass mail and standard 
post, previously known as parcel post, and some of the costs 
associated with bypass service.
    The State of Alaska is vast in geography with no roads 
connecting the majority of its communities. Mail is transported 
via airplanes, helicopters, hovercraft, and ferries. While a 
very limited road system allows some areas to be reached by 
surface vehicles, nearly all mail must at some point be 
transported by air in order to reach its final destination.
    Bypass mail service came into existence in the early 1970s 
when increased parcel post volume, which at that time included 
mail delivered to bush communities, began to exceed the Postal 
Service's operational facility and infrastructure capacities. 
Bypass mail is prepared by an authorized shipper, tendered 
directly to mainline and bush carriers, and then delivered to 
the addressee at final destination. Items that flow through the 
Bypass process are not collected, transported, or delivered by 
the Postal Service. These items bypass originating and 
designating postal operations, thereby incurring no cost for 
Postal Service infrastructure, such as labor, facilities, 
processing, and equipment.
    The Department of Transportation is the sole rate-making 
authority for all intra-Alaska mail transportation. Alaska is 
the only remaining regulated air environment, which means the 
Postal Service is not authorized to negotiate rates directly 
with air carriers except under limited circumstances.
    There are stark differences between Bypass mail and 
standard post. Standard post consists of single packages that 
must adhere to weight and size restrictions and enters the 
Postal Service system via contact with postal retail or 
delivery employees. The packages are processed and delivered 
within the Postal Service's infrastructure.
    Alaska Bypass service consists of goods and commodities 
that are similar to freight and cargo that is shipped in bulk 
on pallets to rural communities. The pallets far exceed the 
Postal Service's maximum weight limit of 70 pounds and are 
prepared in a warehouse and inducted into air carrier 
facilities for transportation and delivery.
    Alaska Bypass service allows businesses, which typically 
include popular big box wholesalers with locations in Anchorage 
and Fairbanks, to ship directly to rural customers, usually 
retail merchants, schools, and medical clinics using a hub-and-
spoke system. These recipients order goods and supplies from an 
approved Bypass shipper who processes the order and tenders it 
to an approved Bypass air carrier based at acceptance point 
airports in Anchorage or Fairbanks. The assigned Bypass air 
carrier transports the order to a hub community where the large 
pallets are tendered to bush air carriers who deliver the items 
to the recipients.
    Goods shipped via Bypass mail must be ordered from 
authorized shippers in minimum quantities of 1,000 pounds, and 
Bypass pallets generally travel the same routes and in the same 
planes as Priority Mail, Priority Mail Express, and First Class 
mail. The minimum shipping price for a Bypass mail order is 
$365. Last year, 87.5 million pounds of Bypass mail was 
delivered.
    The Postal Service incurred $109 million in transportation 
costs and $32 million in revenue for Bypass mail service in 
fiscal year 2013. This means that Bypass mail costs exceeded 
revenue by $77 million. However, transporting mail to customers 
and post offices in remote areas of Alaska is a part of the 
Postal Service's universal service obligation. Although the 
measures the Postal Service takes to deliver to remote areas of 
Alaska are unique, operating delivery services to some 
locations at a loss are not. For instance, the Postal Service 
loses money transporting mail to customers at the bottom of the 
Grand Canyon using mule trains. Nonetheless, as part of the 
Postal Service's statutory mission to provide prompt, reliable, 
and efficient service to all communities, these addresses must 
receive the same level of commitment to delivery as all others 
across the United States.
    Bypass mail is a cost-effective and efficient way to handle 
items that would otherwise require processing through the 
postal infrastructure. If the Postal Service were to process 
Bypass mail through in-house operations, it would incur 
substantial transportation, facility, and labor cost.
    Mr. Chairman, this concludes my remarks. I would be pleased 
to answer any questions.
    Mr. Farenthold. Thank you very much, and you gave back some 
time. Always a winner with that.
    [Prepared statement of Mr. Haberman follows:]

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    Mr. Farenthold. We'll now go to the deputy inspector 
general for the Postal Service, Ms. Tammy Whitcomb.
    You're recognized for 5 minutes.

                  STATEMENT OF TAMMY WHITCOMB

    Ms. Whitcomb. Thank you. Mr. Chairman and members of the 
committee, Alaska Bypass is a unique service not provided 
anywhere else in the country. It was created in 1972 to ease 
operational bottlenecks but has come to resemble a freight 
service rather than typical mail or parcel delivery.
    As you can see on the screen, under the program, large 
orders weighing a minimum of 1,000 pounds are shipped on 
pallets via air transportation. The Postal Service's normal 
weight limit for parcels is 70 pounds.
    The Alaska Bypass pallets of goods travel from the 
commercial warehouse via the airline to the merchant's door, 
bypassing the Postal Service's infrastructure. The Postal 
Service is required to pay for this air transportation; 
however, postage is assessed at less than $30 for every 70 
pounds and has no relation to the actual cost.
    The Postal Service has lost money on Alaska Bypass every 
year since its inception. In 2013, the Postal Service paid out 
$108 million for Alaska Bypass transportation while it brought 
in only $32 million in revenue, losing $76.8 million.
    Keeping the program consistent with its original intent has 
been challenging. For example, in the late 1980s, the Postal 
Service began prohibiting shipments of concrete and certain 
building materials after excesses emerged. In 2002, the program 
goals were formally expanded to include supporting Alaskan 
passenger and freight air transport. Thus the program has 
evolved beyond improving Postal Service operations.
    The Postal Service is also restricted in how it operates 
the program. Changing the Bypass network requires 12 months of 
public notice in consultation with the government of Alaska. 
Additionally, in a throwback to the days before airline 
deregulation, the law mandates that the Postal Service pay air 
carriers noncompetitive rates set by the Department of 
Transportation. The Postal Service is required to equitably 
share Bypass volume among designated carriers, and new carriers 
must overcome significant hurdles to participate. These 
features burden the Postal Service with additional costs 
unrelated to the postal mission.
    Alaska is an enormous State with few roads and many 
communities accessible only by air. We are sympathetic to 
States facing infrastructure challenges, but national and State 
infrastructures are typically financed by the Federal 
Government and the States. Under the current Bypass program, 
significant support to Alaska's transportation infrastructure 
is paid for by postage sales outside Alaska.
    Postage revenues are collected from postal customers, not 
taxpayers, and the Postal Service has a duty to collect only 
such revenues as are needed to provide each service. Programs 
that do not pay for themselves requires cross-subsidization 
from other products and customers, which is normally prohibited 
for the Postal Service. Moreover, our research suggests that 
Alaskans buying goods shipped through Alaska Bypass do not 
appear to benefit from this transportation subsidy. For 
example, in the towns our staff visited, a tube of toothpaste 
cost $1.10 more than in Anchorage even though shipping costs 
through the Bypass program were as low as 14 cents. Also, the 
University of Alaska, Fairbanks, has found that the same basket 
of groceries can cost more than twice as much in some Bypass 
hubs than in Anchorage.
    One possible reform is to end Alaska Bypass and return 
freight shipment to the private sector. If Congress wishes to 
retain Alaska Bypass, we developed several options for 
consideration. The Postal Service could be given freedom to 
operate Alaska Bypass more efficiently by ending the 12-month 
notice and consultation period. Statutory restrictions that 
prevent new carriers from entering the market and that restrict 
competition could be removed. The Postal Service could charge 
higher rates to make the Alaska Bypass self-sufficient and 
eliminate its burden on other postal customers.
    Alternatively, the Federal Government or the State of 
Alaska could reimburse the Postal Service for its Alaska Bypass 
losses. The Alaska Permanent Fund, which was established to 
invest Alaska's oil and mineral revenues, has a balance of 
almost $50 billion that earns interest. The postal losses from 
Alaska Bypass would be just 2.6 percent of the nearly $3 
billion that the fund earned last year.
    Delivering mail and parcels anywhere in the United States, 
regardless of geography, is the Postal Service's primary 
responsibility to the American people. But this universal 
service obligation has no relation to Alaska Bypass. Reforming 
the program should not affect universal mail and parcel 
services to Alaskans or to any other American. Thank you.
    Mr. Farenthold. Thank you very much for your testimony.
    [Prepared statement of Ms. Whitcomb follows:]

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    Mr. Farenthold. We'll now recognize the deputy director of 
the Office of Aviation Analysis for the Department of 
Transportation. That would be Mr. Dennis Devany.
    Devany is correct, right?

                   STATEMENT OF DENNIS DEVANY

    Mr. Devany. Yes.
    Mr. Farenthold. If you could make sure your microphone is 
on, please, sir. Press the ``talk'' button.
    Mr. Devany. Okay. I'm not good at this.
    Mr. Farenthold. And you need to bring the microphone a 
little bit closer. We are all dying to hear what you have to 
say.
    Mr. Devany. Yeah, I'm sure. And I sat on my glasses 
yesterday. My wife found 10-year-old glasses, so I can barely 
see.
    But in any event, thank you, Mr. Chairman and members of 
the committee. I appreciate the opportunity to be here. Am I 
too loud?
    Mr. Farenthold. No, you're great. You're knocking it out of 
the park.
    Mr. Devany. Okay. I'm not good at this, so I don't know.
    DOT is required by statute to set intra-Alaska mail rates. 
I can read what the statute says, but you guys probably already 
know it. I've done written testimony. It's fairly detailed and 
boring, and so I'll try and kind of just do an overview here.
    First of all, the rates we set have nothing to do with the 
price of stamps. It doesn't have anything to do with you put a 
stamp on a mail. The rates we set are what the Postal Service 
pays to the airlines to carry a ton of mail a mile or whatever 
distance.
    When Congress deregulated the airlines in 1978 and they 
said anybody can fly wherever they want, charge whatever they 
want, an exception was made for intra-Alaska mail rates. The 
mail system in Alaska comprises both what we consider regular 
mail, which is where you put a stamp on a mail, and Bypass, 
which is the focus, obviously, of this hearing.
    And Bypass takes its name from the fact that it bypasses 
the Postal Service. They don't take physical possession of the 
mail. If a shipper from a big box store, as I think Mr. 
Haberman mentioned earlier, wants to send something from 
Anchorage to Bethel, they contact the Postal Service, the 
Postal Service will say give it to Carrier A or Carrier B, 
depending on who had the last shipment.
    There's two elements to the mail rate. Basically what we 
call the terminal charge and the linehaul charge. The terminal 
charge means how much does it cost to get a ton of mail on this 
airplane, irrespective of distance. You know, you got to get a 
forklift, you got to do something to get it on the plane. The 
linehaul is how far does it fly, and that costs fuel, that 
costs pilots, maintenance, and so on. And those are the two 
rates we set. It's the terminal and the linehaul.
    Originally, when we took this responsibility over, and it's 
been a number of years, we conducted an exhaustive study to try 
and differentiate between the cost to carry mail, the cost to 
carry cargo, passengers. Passengers walk onto an airplane, mail 
doesn't. Mail can offload cargo if the plane is overloaded.
    In any event, we went through an exhaustive study, 
established what we call base rates. Since then, we have done 
an update, much like you'd update with the Consumer Price Index 
or any other index. We don't use CPI. We use cost per available 
ton mile. The assumption in our methodology is that if the unit 
cost of flying an airplane in Alaska goes up 2 percent, the 
mail rates go up 2 percent. If you go down 1 percent, the costs 
go down 1 percent.
    The only other refinement, if I can call it that, we've 
done to that, I think it was in 1999, we did a fuel surcharge 
when fuel was going up steadily. Now we do quarterly fuel 
surcharges, so we adjust the rate.
    Other than that, we set the rates every year, and it's a 
fully transparent process. We issue, we call it a show cause 
order. It says this is what we think the rates should be, we 
have all the underlying data, costs, unit costs, and people can 
say, they have an opportunity to object if we have done our 
arithmetic wrong, if we have done something else wrong, and 
then we take those comments, of course, into consideration. And 
then we issue a final order, and that's it for the next year, 
and then we do it annually.
    So I hope I helped.
    Mr. Farenthold. That's a great overview of the process. We 
appreciate your enlightening us.
    [Prepared statement of Mr. Devany follows:]

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    Mr. Farenthold. Our next witness is Mr. Steve Deaton, 
senior vice president at ACE Air Cargo.
    Mr. Deaton.

                   STATEMENT OF STEVEN DEATON

    Mr. Deaton. Thank you, Mr. Chairman. Thank you, members of 
the committee, for allowing me to come have this opportunity to 
talk to you today. I've submitted my written testimony, and I 
have decided to take a little bit of a different tack in my 
summary. I wouldn't want to bore you with continuing to talk 
about the uniqueness of Alaska. No doubt it is unique. I think 
the committee recognizes that, and the people have been 
pointing that out because it's very important.
    I think one of the things that I'd like to talk about is 
the fact that it sounds like the committee and Congressman Issa 
and even the Senate through Senator Begich's comments, the goal 
here isn't to do away with the Bypass mail program. It has the 
support of the committee and the Congressman and the Senator. 
And therefore I'd like to talk a little bit about the 
efficiencies, the competition, the ways to make the system 
better. And while I agree that the Bypass mail system is not 
broken, I do have some thoughts on the Rural Service 
Improvement Act, what it's accomplished and what it is 
currently doing to the system and the Postal Service as a 
whole.
    A lot of the testimony today is focused on what I would 
call mainline air carriers. I was involved for 30 years as a 
retired Postal Service person now. I was around when Bypass 
mail was rolled out, when the Bethel experiment happened. I 
managed that process for 25 years. I have submitted my bio. I'm 
here today as senior vice president of ACE, but I'm talking to 
you more as from my postal and my 50-year residency in Alaska 
as my base rather than my current career job.
    The issues, as I see them, ensuring passenger service, 
ensuring freight service for the residents of Alaska, and 
trying to create efficiencies and cost savings or loss 
avoidance for the Postal Service, seem to be what's the 
important thing today. Most of the discussion being mainline 
carriers, the Rural Service Improvement Act. When it was 
enacted, there were three mainline carriers up to that point 
that carried passengers, Reeve Aleutian Airways, Era Aviation, 
and Alaska Airlines. Today, under the Rural Service Improvement 
Act, there are still three mainline passenger carriers carrying 
mail and Bypass mail, Era Alaska, Alaska Airlines, and Penair.
    I think it's important to know that the majority of the 
Postal Service losses don't come from the mainline side. They 
come from the bush air carrier side, the small carriers that 
fly mail around the State of Alaska.
    Prior to the Rural Service Improvement Act, there were as 
many as 35 air carriers. The Rural Service Improvement Act came 
in, was enacted to protect the passenger freight service, and 
it's done its job. There are now nine Bypass bush carriers left 
carrying mail in the State. There are still three mainline 
passenger carriers. In addition, there are three mainline cargo 
carriers. The mainline industry, in my opinion, is not the 
issue.
    On the bush side, where the majority of postal losses 
occur, there are some things in the Rural Service Improvement 
Act that could be improved to provide competition, increase it, 
and to provide efficiencies. One of those things is called the 
pool concept. As the congressman referred to earlier, the 
Postal Service has to give the majority of its mail on the bush 
side to over 200 destinations to the carriers that carry and 
qualify for passenger carriage who have the least amount of 
capacity to move it. Currently today there is more mail 
transfer from bush carrier to freight carrier or bush carrier 
to bush carrier than there was before the Rural Service 
Improvement Act.
    If the pool concept were either eliminated or altered, then 
it would allow for greater competition, there would not be 
monopoly markets, which there are today in bush Alaska, and the 
unit cost for bush carriers that is used by the DOT to set 
rates would have a downward pressure on the Postal Service's 
cost.
    Another element that could be improved would be the 
equalization policies of the DOT, either straight equalizations 
or composite equalizations, the latter which brings an 
immediate savings to the Postal Service by eliminating one of 
the terminal handling fees that Mr. Devany talked about.
    Equalizations bring more competition, both from acceptance 
point to hub and certainly from acceptance point to bush point, 
and more efficiencies, along with better service to the 
communities and lower cost to the Postal Service.
    I thank you for this opportunity to share some of my 
thoughts.
    Mr. Farenthold. Thank you very much, Mr. Deaton.
    [Prepared statement of Mr. Deaton follows:]

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    Mr. Farenthold. We will now hear from the vice president of 
customer service of airports and cargo for Alaska Airlines, Mr. 
Jeff Butler.

                  STATEMENT OF JEFFREY BUTLER

    Mr. Butler. Good afternoon, Chairman Issa, Ranking Member 
Cummings, Chairman Farenthold. My name is Jeff Butler, and I do 
serve as the vice president of customer service, airports, and 
cargo and reservations for Alaska Airlines, and I am genuinely 
appreciative of the opportunity to testify today on the 
importance of the Bypass mail system to the State of Alaska.
    It's been interesting listening to the deficit conversation 
thus far this morning because I agree with Mr. Deaton, 75 
percent of that issue really is between the hub locations and 
the bush, not mainline, which has been the testimony thus far 
and the crux of this bill.
    Nonetheless, the vital importance of this program really 
can be summarized in one sentence: It provides rural Alaskans 
with access to fresh food and basic supplies which otherwise 
they could not afford to pay if they had to pay higher air 
freight prices. Statements to this subcommittee by the Yukon-
Kuskokwim Health Corporation, the mayor of the North Slope 
Borough, and other native organizations confirm the dire 
consequences in these remote communities if there are changes 
to the Bypass mail system.
    Alaska Airlines, the largest air carrier in the State of 
Alaska, has been a significant mainline Bypass carrier and 
respectfully disagrees with H.R. 4011. That legislation could 
create negative effects among all of the mainline Bypass 
carriers' stakeholders, most importantly the residents of the 
State's most isolated villages and regional communities, as 
well as the United States Postal Service and the existing 
Bypass mail carriers.
    The only beneficiaries of H.R. 4011 would be the three or 
so new entrant Bypass mail carriers that the legislation would 
make eligible. It would transform the entire Bypass mail system 
and lead to reduced Bypass mail and passenger service levels. 
It would jeopardize the rural communities' fragile 
transportation infrastructure and drive the United States 
postal costs even higher.
    The economic reality is that the Bypass mail market has 
been shrinking because of out migration from the rural 
communities and other recent changes in the program itself. 
Alaska Airlines' January 2014 Bypass mail volumes were 13 
percent lower than January, 1 year ago. The resulting reduction 
in revenue is already straining the ability to maintain the 
level of regularly scheduled mail, freight, and passenger 
service we have long operated to rural communities. The 
significant Bypass mail revenue diversion resulting from 
additional new Bypass mail carriers would almost certainly 
oblige Alaska to materially reduce the level of both its 
passenger as well as Bypass mail service within the rural 
communities. The Alaska native organizations emphasize the 
serious negative effects on the rural communities from such 
service reductions.
    We strongly encourage this subcommittee to bear in mind 
that an important objective of the 2002 Rural Services 
Improvement Act expressly provided that the use of the Bypass 
mail system be used to support passenger as well as mail 
service to the isolated rural communities. Operating Bypass 
service is costly. The towns do not maintain their own airport 
terminals like most of the lower 48. In Nome, Kotzebue, Barrow, 
Bethel, Alaska Airlines built those terminals. Alaska Airlines 
maintains those terminals on both the passenger, cargo, and 
mail facilities.
    These are really small towns of 2,000 to 4,000 residents 
serving even smaller outlying villages. The resulting economic 
challenges of operating to these communities long ago 
established a clear need for a program like Bypass mail.
    The suggestion that the system is broken that we spoke of 
earlier and would somehow benefit with the addition of more 
carriers just simply does not comport with the facts. The 
Bypass mail market is not a typical aviation market which 
positively responds to the addition of new carriers. It is a 
market that is declining, and there appear to be few prospects 
for meaningful growth.
    There is no possibility of market growth from price 
stimulation. Parcel post rates are set by the USPS with the 
approval of the Postal Rates Commission. It is these parcel 
post rates that the shippers pay directly to the United States 
Postal Service and which the rural residents then indirectly 
pay in the form of commodity prices. With a flat to declining 
market and price uniformity, the addition of three or so new 
Bypass mail carriers could only lead to one result, the 
decrease in each of the four Bypass mail carriers' approximate 
market share from 25 percent to just 14. That substantial 
Bypass mail reduction has to translate into reduced levels of 
Alaska Airlines' passenger and freight service, in addition to 
reduced Bypass mail service among the four existing mainline 
Bypass carriers
    The United States Postal Service would also experience 
significantly worse financial results if new operators of 
smaller, less efficient aircraft became Bypass mail 
participants. Those negative results would directly flow from 
the application of the DOT's longstanding rate-making formula 
establishing the rates the USPS must pay the Bypass mail 
carriers for transporting mail.
    The proliferation of new entrants' smaller, less efficient 
aircraft would unquestionably increase flying costs. The 
magnitude of that substantial increase is apparent. A simple 
comparison of the flying capacity unit cost of Era Aviation, 
one of the prospective new entrants, and the same cost of 
Alaska Airlines shows that Era's available ton mile cost for 
its smaller propeller aircraft is $1.92, in sharp contrast to 
Alaska's Boeing 737 ton mile cost of just 57 cents, a 236 
percent spread.
    The fixed warehouse cost component would also increase 
because of the corresponding reduction in each carrier's Bypass 
mail volume. Under DOT's formula, warehouse costs are computed 
on the basis of the number of tons of Bypass mail each carrier 
transports. A 42 percent reduction in per carrier Bypass mail 
volume means that the same fixed warehouse costs have to be 
spread over far fewer tons, thus driving up the per ton 
warehouse-related expenses. The result will only further weaken 
USPS' financial condition.
    So on behalf of the people of rural Alaska, we urge this 
subcommittee to not advance H.R. 4011. Thank you.
    Mr. Farenthold. Thank you very much.
    [Prepared statement of Mr. Butler follows:]

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    Mr. Farenthold. To express my gratitude for everybody for 
their testimony. We'll now take a few moments for questions. 
I'll start out by recognizing myself for 5 minutes. And I'd 
like to say up front, I really do appreciate this group 
enlightening this committee, and me in particular. The last 
time I was in Alaska was 5 years before I was elected to 
Congress, and I was much more interested in where the salmon 
were biting than how the mail and goods got delivered to rural 
areas.
    I'd like to start with Mr. Haberman. I'm going to take the 
30,000-foot view of this. This Bypass mail system is something 
that's completely different than the Postal Service offers 
anywhere else. Our idea of universal service is you get your 
bills, you get your catalogs, and you get your packages 
delivered anywhere in the U.S., and there's a 70-pound limit on 
what the Postal Service will deliver through the regular mail. 
Is that correct?
    Mr. Haberman. Yes, sir
    Mr. Farenthold. And Bypass mail is only available in 
Alaska. And would you say it's more akin to something like a 
truck line or a freight company or even an air freight company 
like, you know, FedEx or Atlas or somebody might do?
    Mr. Haberman. Well, Mr. Chairman, I think it's important to 
remember that, even though it's called Bypass, it is mail. The 
pieces in those pallets that you see have to be prepared per 
our DMM regulations.
    Mr. Farenthold. Right, but we could say we are not going to 
play this game anymore and Alaska would have no different 
service than everybody else from the mail system if we 
completely got out of Bypass mail. This is something special we 
are doing for Alaska.
    If I were to walk into the post office with that, I 
couldn't mail it from Corpus Christi to Washington.
    Mr. Haberman. That is correct, sir, but you have to 
remember that each one of those individual pieces you could 
mail, and those were the pieces that were in the parcel post 
lines going through the postal infrastructure prior to Bypass 
mail. They are simply combined on the pallets for ease of 
transportation.
    Mr. Farenthold. Right. All right, so 40 years ago there 
might not have been as many options for getting that. But we're 
getting away from it. I just wanted to make sure we were clear 
that this is something that's unique to Alaska. We don't offer 
it in Hawaii, where it's difficult to get from island to 
island, or to Guam. It's only within Alaska.
    Mr. Haberman. Bypass mail service, yes, sir.
    Mr. Farenthold. Okay.
    Let me go to Mr. Devany from the Department of 
Transportation. You guys set these rates for this. I mean, you 
all used to set rates for passenger air travel. It was all 
regulated. What happened when you all quit regulating that? Did 
rates go down and lots of new service come up and good things 
generally happened? Microphone, please. Microphone, please, 
sir.
    Mr. Devany. How do I do it. Is it on?
    Okay. Yeah, I was at the Civil Aeronautics Board when 
airlines were deregulated. We used to tell airlines where to 
fly, how much to charge for passengers, how much to charge for 
cargo, how much to charge for mail, and so on, and it was 
deregulated. They didn't just flip a switch. But intra-Alaska 
mail rates were unique.
    Mr. Farenthold. Sure. It's a statutory creation.
    Mr. Devany. Yes.
    Mr. Farenthold. I get that. Part of what we've heard is 
that this was designed also to help out passenger service. 
Aren't there other programs that the Department of 
Transportation has to subsidize air service to remote airports?
    Mr. Devany. Yes, there is the Essential Air Service 
program, which I'm also----
    Mr. Farenthold. Right. And so this is basically subsidizing 
Alaska Airlines at the expense of postal customers. So when I 
go buy a Forever stamp and put it on my Valentine card to my 
wife, a small portion of that is going to subsidize delivering 
Diet Coke to remote Alaska?
    Mr. Devany. Well, I don't know.
    Mr. Farenthold. Okay.
    Mr. Devany. First class mail is----
    Mr. Farenthold. Right. But I mean it's coming from the 
Postal Service.
    I guess I can ask that to Ms. Whitcomb. Is that an accurate 
statement that, you know, one whatever of a cent of every stamp 
I buy goes to help subsidize this?
    Ms. Whitcomb. Right. Yes, I think it's fair.
    Mr. Farenthold. I'm going to just say, I think Congress, if 
we wanted to appropriate money for this, that's great, but do 
we really need to hide it within what folks do for stamps.
    One of the other things we heard earlier was there was a 
concern about the safety of these new carriers. Mr. Devany, 
you're in the DOT. I mean, there's a news story whenever 
there's an airline accident, whether it's passenger or freight. 
I mean, there's usually a news story. Do we have a problem with 
safety of any of our carriers in this country?
    Mr. Devany. Mr. Chairman, I don't work for FAA. I'm in DOT.
    Is this on.
    Mr. Farenthold. Yeah, it's on.
    Mr. Devany. I still don't know how this thing works.
    Mr. Farenthold. Mr. Butler, you work for Alaska Airlines.
    Mr. Issa. You need to get the mic closer to you there.
    Mr. Devany. I'm sorry. I'm not in FAA.
    Mr. Farenthold. I'll go to Mr. Butler. He's in the 
industry. I'm sure you all watch accidents for every carrier 
for lessons learned. I mean, do we have a safety problem 
anywhere within the U.S. aviation system?
    Mr. Butler. I wouldn't necessarily say so. But I do believe 
that the conversation earlier this morning was more focused on 
the very unique climate and terrain that you do fly within the 
State of Alaska, and that does take a particular skill level.
    Mr. Farenthold. We certainly found that some of the 
carriers coming into Washington don't have that skill level, 
based on the number of flights that have been canceled over the 
past couple of days.
    Mr. Butler. I think where I was headed with that was that 
there is certainly any number of navigation systems that are on 
a lot of those airplanes that in fact our planes do have, and 
not all of those types of aircraft that Chairman Issa was 
referencing earlier have that. And all of that affects the 
delivery time and delivery strain or timeline of how you get--
--
    Mr. Farenthold. But I mean, if that becomes necessary, the 
NextGen stuff, the NTSB type stuff, they're pretty much 
available for any airplane. I mean, you can buy it.
    Mr. Butler. They're not available for usage at all of the 
mainline airports in Alaska yet. But that's true.
    Mr. Farenthold. That's a problem we can deal with over on 
the Transportation Committee, and believe me, that's something 
they're working on.
    I see I have already gone over time, and I will apologize 
to Mr. Cummings and give him an extra minute-40 for his 
questions.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    According to the inspector general, Congress passed the 
Rural Service Improvement Act of 2002 because carriers in 
Alaska were focusing on providing services to the Bypass routes 
that were the most profitable rather than on providing broad 
passenger service. That created the equitable tender system and 
gave statutory preferences to those mainline carriers providing 
service before January 2001. The act also set high barriers to 
entry to any new carriers seeking to enter the mainline market.
    Mr. Haberman, just so we have the basic facts, can you 
quickly explain how these provisions work, what advantages do 
carriers that were providing Bypass service before January 2001 
how over new entrants, and what are the specific conditions new 
entrants must meet to carry Bypass?
    Mr. Haberman. Congressman, I think the best way to answer 
that is there in RSIA there are some hurdles that a carrier 
would have to live up to in order to enter that pool. And if I 
recall correctly, they are they have to provide service for 36 
months in the marketplace, they also have to have a passenger 
load capability of 75 percent of the other carriers. Does that 
answer your question?
    Mr. Cummings. Yeah, that's a pretty high hurdle? Would you 
consider that a pretty high hurdle to get over?
    Mr. Haberman. I couldn't comment on that, sir. I'm not----
    Mr. Cummings. All right. Well, why don't we go to the 
inspector general. The inspector general's white paper 
criticized this provision of the Rural Service Improvement Act, 
saying that it provided protection for the five existing 
mainline carriers. Ms. Whitcomb, does the IG still stand by 
that position?
    Ms. Whitcomb. Yes, we do
    Mr. Cummings. And why is that?
    Ms. Whitcomb. We believe that the situation, as it stands, 
results in increased cost to the Postal Service because of the 
limitations of the five air carriers and the hurdle that you 
spoke of earlier.
    Mr. Cummings. Well, now, the IG report is recommending 
changing the law to eliminate the statutory restrictions placed 
on new entrants to both the mainline and bush markets.
    Ms. Whitcomb, is it your contention that allowing 
additional carriers to enter this market would drive down the 
cost to the Postal Service?
    Ms. Whitcomb. We believe that it would, there would be some 
impact to the reductions in the cost to the Postal Service. And 
that was one of the options, one of the suggestions in the 
report. We had several others as well that could be considered.
    Mr. Cummings. What effect might the entry of additional 
carriers to the Bypass market have on passenger service in 
Alaska, particularly with regard to the remote regions?
    Ms. Whitcomb. It's a complex system, as you know, and as 
we've discussed here on the panel. We talk about, I think, in 
the report about how the increased competition in the 
international rates has resulted in reduced cost, and so we 
were kind of looking to that as a model. But, again, it's a 
complex system, and this was one suggestion as a possible 
option to look at related to Bypass mail, Bypass.
    Mr. Cummings. Is it the inspector general's position that 
we shouldn't have a Bypass system?
    Ms. Whitcomb. I don't think we've stated that that's our 
position.
    Mr. Cummings. I'm asking you, what time do you think? I'm 
just curious. I mean, I understand that the system was put 
together because of a unique situation.
    Ms. Whitcomb. Right.
    Mr. Cummings. And there have been allegations earlier that 
the Constitution requires that we have this. Do you agree with 
that, some kind of system like this?
    Ms. Whitcomb. We believe universal service is an 
appropriate role for the Postal Service. This, though, in many 
cases resembles more of a freight type of service versus a mail 
kind of service. So that's the way that we looked at it in our 
paper and how we did our evaluation.
    Mr. Cummings. Go ahead.
    Ms. Whitcomb. I think asking about whether we believe it's 
appropriate to have an Alaska Bypass at all, program at all, 
I'm not sure that we came down on whether that is appropriate 
or that we have a position on the appropriateness. We believe 
it serves a purpose for the citizens of Alaska, but it's 
evolved into a very important role in the State of Alaska. We 
do have many concerns, though, about the Postal Service's role 
in kind of subsidizing the system.
    Mr. Cummings. Now, You were in the room when the Senator 
and the Congressman testified a little bit earlier, were you 
not?
    Ms. Whitcomb. Yes.
    Mr. Cummings. Were you here?
    Ms. Whitcomb. Uh-huh.
    Mr. Cummings. And you heard them say that the legislation 
that we passed out of our committee a week or so ago, they 
claim that what it would do is it would cost more, a lot more. 
And do you agree with that? Obviously, you don't.
    Ms. Whitcomb. We have not done a thorough analysis of it. 
It's a very complex system, as I said. We don't believe that it 
would cost more. But again, I'm not certain as to what they're 
relying on, what numbers they're relying on to come to that 
conclusion.
    Mr. Cummings. Now, Mr. Haberman, in February 2014 the 
committee did consider H.R. 4011, the Alaska Bypass Fair 
Competition Act of 2014. What is the Postal Service's 
understanding of exactly what this legislation would do?
    Mr. Haberman. I believe the Postal Service attorneys are 
still looking at that legislation, sir, so I can't offer an 
opinion at this time
    Mr. Cummings. Well, is the Postal Service aware of air 
carriers that are seeking to enter the Bypass market?
    Mr. Haberman. We believe there are some carriers that would 
like to be in the Bypass market, yes, sir
    Mr. Cummings. I mean, have they approached you all? I'm 
just curious
    Mr. Haberman. They have talked to some of our 
representatives in the Alaska District. I don't know who they 
are specifically.
    Mr. Cummings. And could the carrier or carriers meet the 
36-month performance standard?
    Mr. Haberman. I can't answer that, sir. I can certainly go 
back and verify that and provide an answer for the record.
    Mr. Cummings. And, Mr. Butler, what is Alaska Air's 
position on H.R. 4011?
    Mr. Butler. As I stated earlier----
    Mr. Cummings. Keep your voice up, please.
    Mr. Butler. Yes. As I stated earlier, we disagree with it. 
And I think Mr. Haberman's paper that he submitted in advance 
where it says this is the most cost-effective process and 
program there is, is our opinion. It works today.
    Mr. Cummings. And, Mr. Deaton, what is ACE Air's position 
on the legislation?
    Mr. Deaton. ACE believes that there are sufficient barriers 
in entry to intra-Alaska Bypass mail transportation, other than 
requiring 36 months or having a 12/1/2001 date. The requirement 
is 12 months service, not 36 months service between any two 
points within the State of Alaska, and there is also a 
requirement of performing that 12 months with equipment of the 
size, either mainline or bush, that you're going to be 
continuing once you qualify for.
    Those hurdles, along with the certification process by the 
FAA, are extremely strenuous both from a certification and 
regulatory process, as well as from an economic process, 
because even once a mainline carrier gets past its 12-month 
hurdle of intra-Alaska service, which was written in there 
specifically to give it the experience from a safety standpoint 
of flying within Alaska, that carrier then needs to provide 75 
percent of the seats in whatever market it's determined it 
wants to begin carrying passengers in for matching 75 percent 
of the ensured seats offered by the incumbent. That economic 
barrier, in addition to 12 months of flying within the State of 
Alaska, make it extremely difficult, and to my knowledge there 
are no mainline carriers that are seeking Bypass mail entry.
    Mr. Cummings. Thank you very much.
    Mr. Farenthold. Thank you, Mr. Cummings.
    We'll now go to the chairman of the full committee, the 
gentleman from California, Mr. Issa.
    Mr. Issa. Thank you.
    There has been a lot of talk about killing Bypass mail, as 
though there's anything in either of these bills that intends 
do it. Mr. Haberman, you talked about this being the most 
efficient system. What does that have to do with this 
legislation? Aren't we attempting to make this system more 
efficient? In other words, you contrast, in your opening 
statement seemingly parcel post or the post office getting 
involved in this delivery versus not getting involved. Nothing 
in this legislation puts the postal system back into the 
picture, does it?
    Mr. Haberman. Not that I'm aware of, sir.
    Mr. Issa. So I was a little perplexed, because from a 
postal standpoint you simply take the bill that Mr. Devany 
gives you indirectly and pay it. You collect a fraction of the 
revenues that it takes to operate it, so you collect $36 
million and you pay out $100-and-some million. That's really 
all you're doing, right?
    Mr. Haberman. That's the way the system is.
    Mr. Issa. Okay. So you're calling this an efficient system, 
and I'm a little perplexed that you're calling it an efficient 
system.
    Mr. Devany, when you look at the cost of the various 
carriers, do the cost of operation of the various carriers 
vary?
    Mr. Devany. Yes, Mr. Chairman, they do.
    Mr. Issa. Okay.
    Mr. Devany. And what we do----
    Mr. Issa. Well, let's just go through real quickly, because 
I want to allow a lot of time for you to answer, but I'm 
looking at revenue ton prices. You pay Alaska Airline, from 
what I can tell, $2.13 or $2.14 per ton mile as of March 4, 
2014, because they're a mainline nonpriority Bypass carrier, I 
believe. Mainline priority, you would pay them $3.53 per ton 
mile. A bush pilot under Part 121, which is a scheduled airline 
bush pilot, you pay $5.74 a ton mile, and then a Part 135 you 
pay $14, almost $15 a ton mile. And a bush seaplane--now, I 
suspect that these guys don't have advanced equipment and fancy 
terminals when they land on the lake or the ice--you pay $32.59 
per ton mile. Those figures sound familiar?
    Mr. Devany. Yes, sir. Yes, Mr. Chairman
    Mr. Issa. Okay. So you've got all kinds of levels of 
efficiency in Alaska. Isn't that true?
    Mr. Devany. Yes.
    Mr. Issa. Additionally, if I take a bush pilot, every time 
that bush pilot makes a terminal stop you pay him $850 per ton 
that he's carrying. Is there any way that you can see that we 
could save money? For example, if they made less stops at 
terminals, wouldn't you save $850 per ton on a bush pilot?
    Mr. Devany. Well, Mr. Chairman, the DOT is responsible for 
setting what we believe are the best fair and reasonable rates. 
It costs more to operate seaplanes than big planes on a per 
unit basis.
    Mr. Issa. Right.
    Mr. Devany. Because there's salt and whatnot.
    Mr. Issa. So you take what actually occurs and you measure 
it, right?
    Mr. Devany. Yes, sir
    Mr. Issa. And if somebody were to come in, I don't know 
what it is, let's just say with an Embraer small jet, freight 
only, and they could do it for less money than a 737, I'm not 
saying they would, but if they could, you would measure a lower 
amount of cost and put that into your rate calculations, right?
    Mr. Devany. That's exactly correct, sir. What we do is we 
set--and I don't want to get too technical here--but we set 
what is called a class rate. We take the mainline, for example, 
there's a mainline class rate, and there's four or five 
airlines, we put all the cost into the pot, divide it by all 
the units, and we say, okay, it's X dollars per ton and X 
dollars per mile that you fly the mail.
    Now, if your costs are above average, you're not going to 
make out so well. If your costs are below the average, you're 
going to make out fairly well, and that's the whole concept of 
a class rate.
    Mr. Issa. So with the current rating system if you let 
three additional--300 additional, doesn't matter--amount of 
competitors in, the only way it would drive up price is if 
those competitors came in and were less efficient, right?
    Mr. Devany. Yes, I think, is the answer. It gets a little 
more complicated, Mr. Chairman, because then you get into 
equalization and bush rates and so on. But, yes, I mean, if 
you're going to introduce someone who has higher unit costs, 
that would raise the cost for the entire class.
    Mr. Issa. Okay. So I think going back to Ms. Whitcomb's 
report, the report that the IG gave us, it sounds like--and 
we're doing legislation and it's early on to a certain extent. 
We've got a long time to go to pass the bill, pass it out of 
the full House, get with the Senate, conference it, it appears 
as though the Senator from Alaska could have comments.
    But, Mr. Deaton, let me go through a couple of the things 
that you've seen in the way of efficiencies. If we were to 
allow the post office to look for efficiencies, in consultation 
with Department of Transportation's numbers, and then make 
selection on all carriers based not on a bid rate, so to speak, 
but based on a bid rate based on efficiency, thus choosing more 
efficient carriers or more efficient routes, in your opinion, 
would that save us money? You have 25 years of watching the 
system. Could we use systems like that, empower the post office 
to save money by making the network more efficient?
    Mr. Deaton. Are you referring to moving the environment 
from regulated tender to actual contract bid?
    Mr. Issa. Well, contract bid is certainly something that I 
envision as a lower 48 person. But even if we accepted for a 
moment this theory that you have so many people who all get 
access to pick up the freight, but you pay them based on a 
calculation of average cost, is it possible to drive down 
average cost by getting more efficient carriers, meaning that 
the carrier gets the same rate?
    I mean, you're with ACE, next to you is Alaska. If you try 
to compete with Alaska with your aircraft, my assumption is 
that if they pay you the same as they pay Alaska for the same 
route, you wouldn't make money, or you certainly wouldn't make 
what they make. Is that right.
    Mr. Deaton. That's correct.
    Mr. Issa. Okay. So by definition you're only going to want 
to pick up freight if you can be competitive and you have a 
reason to be below the average against other carriers you're 
competing with, right?
    Mr. Deaton. Correct.
    Mr. Issa. So now the question goes back, and this goes back 
to--and I'll go to the IG--when the IG looked at the 
inefficiencies and the ability to fix this, my understanding is 
what they wanted to see was the opportunity to look for cost 
savings. Now, Alaska Air is here, and you, without a doubt, 
with your 737 mixed cargo, if that cargo plane is full, you 
have the most efficient carrying capability, and actually both 
ways because you carry salmon back and so on.
    The real question is, are we picking all the most efficient 
carriers for each route and then routing in the most efficient 
fashion? Mr. Deaton, you've operated there for longer than some 
people on the dais have been alive. Are we doing it as 
efficiently as we could or can we increase efficiency, thus 
causing Mr. Devany the ability to calculate a lower rate as a 
result of efficiencies?
    Mr. Deaton. I believe that could be accomplished, Mr. 
Chairman. I think it's first important to understand, to 
separate out mainline efficiencies from bush efficiencies.
    Mr. Issa. And that's been made abundantly clear that we are 
dealing with three to four different submarkets, Anchorage to 
Bethel, you know. I've been to those places. They have big 
runways, big aircraft land. To be honest, the State capital may 
be a small, isolated place, but it has a big runway
    Mr. Deaton. That's correct. Alaska Airlines is the 
predominant passenger carrier on the mainline side. There are 
two other passenger carriers. But it's important to understand 
that the mainline tender of Bypass mail is a straight equitable 
tender. All the carriers that are qualified and are in markets 
receive an equitable or equal share of mail. This allows them 
to maximize their flight schedules, their combi versus full 
passenger versus all cargo, and is quite an efficient mix. The 
issue there in that mainline market becomes a factor of numbers 
in terms of bringing more mainline carriers in, would that be 
more competitive.
    On the bush side, it's a different----
    Mr. Issa. But let me switch it around before you go off of 
that, because I'm a big fan of Alaska Air, I've flown them, 
frequent flier and all that. But let me ask the question. The 
equitable question is, if we lock out alternate carriers, which 
current law does, and Alaska is making money on theirs, but the 
other carriers are not able to have access to what is 
effectively lucrative freight, are we in fact putting Alaska at 
an advantage in the passenger and other miles? You know, the 
locking them out of the ability to carry that, Alaska would 
say, well, if they can't carry all of that mail on the mainline 
for the most part, then somehow prices are going up. The 
question is, wouldn't you end up with all three carrying the 
same amount of mail and adjusting their aircraft accordingly?
    Mr. Deaton. I believe so, that's correct. You know, the 
issue of mail getting on a passenger airplane, whether it's 
Alaska or Era or Penair, after passengers and bags, means that 
the more efficient carrier, the higher carrier with the higher 
ridership usually carries the least amount of mail because they 
can't enplane it.
    So that becomes transfer functions and moves around to 
carriers, the other passenger carriers that may not have the 
ridership, and they end up carrying the mail that was 
originally given to, for instance, Alaska Airlines. So it 
spreads itself out over an equitable basis based on who has the 
capacity, and at the mainline level it tends to lend itself to 
a flow of mail that increases the efficiency of each carrier.
    There's three passenger carrier, three cargo-only carrier 
at the mainline level. Quite frankly, in my experience and 
opinion, the markets, the economy in Alaska would not support 
anymore than those. Actually, I would argue that there's 
probably too many as there are. There's too many freight 
carriers for sure.
    When you go to the bush side, the issue becomes the pool 
concept. If you're looking for efficiencies, to give 75 percent 
of the mail to those carriers with the least capacity to carry 
it and to restrict entry into monopoly markets because other 
passenger carriers can't get the ridership to enter or freight 
carriers cannot get enough mail to enter, it not only hurts the 
residents of that community from a freight and passenger 
standpoint, but it restricts competition. So it goes in both 
directions.
    Mr. Farenthold. I'm going to do a couple more questions. We 
will do a second round of questions. Chairman Issa has done a 
good job getting down into the bush or the weeds of this. I 
want to get back up to 30,000 feet, because quite a few people 
reading this record may not have the level of familiarity with 
the system that Chairman Issa has.
    Mr. Haberman, I want to go back for a second on the history 
of the Bypass mail. I know in my first line of questioning I 
was pointing out that it was something unique to Alaska. But it 
was actually born to bring Postal Service costs down, if I'm 
not mistaken. Is that correct?
    Mr. Haberman. Yes.
    Mr. Farenthold. I mean, rather than to meet the 70 pound 
limit, I could probably mail, to go back to my Diet Coke 
example, a dozen 12 packs of Diet Coke is about all you can get 
in 70 pounds. Well, if I am a retailer selling Diet Coke I 
would have to do twenty or thirty 70-pound packages of 12 packs 
of soft drink to get what I want, and the Postal Service would 
have to process each one of those individually, probably 
palletize them themselves, contract with an air carrier to get 
them there. So actually in Alaska I would imagine normal parcel 
post would be a huge loss leader for the post office. Is that 
correct?
    Mr. Haberman. I would agree with that statement, Mr. 
Chairman, yes.
    Mr. Farenthold. So it actually does hold some of the costs 
down for the Postal Service. I wanted to get that side of the 
issue into the record.
    I also wanted to ask Ms. Whitcomb, there was some testimony 
that the legislation we are talking about would result in a 
smaller market share as we let more carriers in. Couldn't what 
we do be crafted in such a way that we limit the number of 
carriers but have some competition among the carriers? So 
rather than having 25 Bypass carriers, we have five, but they 
bid for it competitively over a reasonable amount of time. Or 
we could create something that wouldn't flood the market and 
make it fail. Now, is that not correct?
    Ms. Whitcomb. Yes, I think that would be correct.
    Mr. Farenthold. Quite frankly, I am not sure it is the 
government's responsibility to protect businesses from their 
own stupid mistakes, bidding on a contract that they can't keep 
or an industry overbuilding its capacity. A lot of times that 
actually results, I think, in lower costs for consumers as they 
look for more efficiencies and ways to do that.
    So those are my personal final two 30,000-foot questions. I 
will now go to Mr. Cummings for a second round of questioning.
    Mr. Cummings. First of all, Mr. Chairman, I ask for 
unanimous consent to enter into the record letters from 
citizens and interest groups from Alaska concerning H.R. 4011 
and the vitality of the Bypass Program to their community.
    Mr. Farenthold. Without objection, so ordered.
    Mr. Cummings. Mr. Devany, how often does the DOT visit 
Alaska and audit the carriers?
    Mr. Devany. Typically, I think we go up about once a year. 
Whether it is officially what you would call an audit, I don't 
know.
    Mr. Cummings. Well, why don't you tell me what you do?
    Mr. Devany. Okay. All airlines, whether they are Alaska 
Airlines or United Airlines or any airline, are required to 
submit data to the Department. It is called the Bureau of 
Transportation Statistics. They are auditable, just like your 
income taxes. I am not sure every single one is audited, but 
they are subject to audit, and the airlines have to swear and 
declare that the data are accurate. And we use those data to 
set the mail rate.
    Mr. Cummings. And how does the DOT ensure there is no 
collusion between the airlines to keep the costs high?
    Mr. Devany. Well, again, all the data are subject to audit. 
It is in a different department of DOT. It is the Bureau of 
Transportation Statistics. They have audit checks, edit checks, 
and so on. The inspector general at DOT does audit carriers. I 
don't know what their schedule is and they probably don't want 
me to know what their schedule is. But it is audited.
    Mr. Cummings. And the purpose of the audit again is what?
    Mr. Devany. I'm sorry, I didn't hear your question.
    Mr. Cummings. The purpose of the audit is what?
    Mr. Devany. Would be to make sure that the data are 
accurate. And this goes far-reaching beyond Alaska mail rates. 
This could have to do with airline mergers, international 
alliances, all kinds of financial and passenger and traffic 
data.
    Mr. Cummings. At the end of fiscal year 2013, the Postal 
Service estimated the cost of the Bypass Program to be 
approximately $108 million. Mr. Haberman, how much of the total 
cost of the program goes directly to the carriers?
    Mr. Haberman. Those are the costs that go to the carriers, 
sir, so it would be 100 percent.
    Mr. Cummings. One hundred percent goes to the carriers?
    Mr. Haberman. Yes, sir, I believe that is the correct 
answer.
    Mr. Cummings. And, Mr. Devany, can you explain to the 
committee what the Essential Air Service program is and can you 
tell us how many of the airlines participating in the Bypass 
Program also participate in the Essential Air Service program?
    Mr. Devany. Yes, sir. The Essential Air Service program was 
created as part of the Airline Deregulation Act of 1978 to 
ensure that communities that receive air service under 
regulation would receive it for at least 10 years after 
deregulation. It was extended. So that was 1978 to 1988. It has 
been extended a couple of times.
    The current program is roughly 160 communities where we pay 
an airline to provide service where the community would 
otherwise not have any air service, roughly 160. I think it is 
about 117 in the lower 48 and 43 in Alaska. Our total bill is 
roughly $250 million a year. In Alaska it is $18 million, $15 
million to $18 million. Frequently we pay a small airline to 
provide one or two, maybe three round trips a week to Bethel or 
to Juneau or to some acceptance point where people can then go 
to doctors appointments and get medicine and food and so on. So 
there is a little bit of interplay between the mail rates and 
the Essential Air Service program. Not a lot.
    Mr. Cummings. Mr. Butler, does the Alaska Airlines receive 
subsidies under the EAS program?
    Mr. Butler. We do. None of the mainline Bypass markets are 
EAS markets.
    Mr. Cummings. So on average how much does it receive?
    Mr. Butler. I do not know the answer to that question.
    Mr. Cummings. Can you get that to us, please?
    Mr. Butler. I certainly can.
    Mr. Cummings. Very well. I yield back.
    Mr.  Issa. [presiding] Mr. Devany, would you repeat the 
essential air subsidy in Alaska for delivering passengers to 
areas that otherwise wouldn't be served is how many dollars a 
year roughly?
    Mr. Devany. It is 43 communities currently and it is 
between $15 million and $18 million. I can get you the precise 
figure----
    Mr. Issa. Okay.
    Mr. Devany. --including Diomede and Adak.
    Mr. Issa. So some of the same communities that the post 
office is losing money delivering Bypass mail to?
    Mr. Devany. There is some overlap, I believe.
    Mr. Issa. So if there is an Essential Air Service subsidy 
would it be fair for this legislation to say that we are not 
going to subsidize passenger service for those communities? In 
other words, the post office should be able to pick the low 
bidder freight-only in those communities that are already 
subsidized--their passengers are subsidized by passenger?
    In other words, if a freight-only carrier can underbid on a 
competitive basis the rate that would otherwise exist, should a 
freight-only carrier, Mr. Deaton, be able to bid for those 
lines, since obviously we are funding the passengers through 
another means? Because whether the Senator or the House Member 
Mr. Young said so, we all understand, and I understand directly 
from the late Ted Stevens, that this program is intended to 
keep passengers getting access to communities. He made it very 
clear when he did the legislation that he didn't like a number 
of companies, including the one you work for, because you were 
trying to game the system by not carrying passengers. I mean, I 
don't want to speak ill of the dead, but he understood, this 
was why he did it, and he told me so in no uncertain words in 
his own office.
    So the question is for each of you, including Mr. Butler, 
if essential service is being paid for by the Department of 
Transportation providing a subsidy for passengers, is there any 
reason that we shouldn't pick a less expensive carrier if they 
are willing to carry freight-only to those locations?
    Mr. Butler, I will start with you.
    Mr. Butler. I just want to go back to my comment before. In 
my world it doesn't apply because EAS is not in any of the 
mainline markets.
    Mr. Issa. Right. So it wouldn't affect your carrier. But do 
you see any reason that a freight-only carrier shouldn't be 
able to bid freight-only in those markets where there is a 
subsidy? You are not receiving a subsidy for essential service, 
is what you are saying, in the mainline markets.
    Mr. Butler. I think there were other opportunities that we 
talked about earlier that perhaps we should explore instead. 
For instance, the rate-making authority, that doesn't require 
legislation to do that. I would prefer to go down that path 
before I would answer that question.
    Mr. Issa. Okay. Well, you know, one of the reasons we are 
having this hearing today is because in 2002 with no hearings 
Senator Stevens locked out future competition as a matter of 
statute. And today you are objecting to H.R. 4011, which simply 
undoes a portion of the mandate put in by the late Senator 
Stevens.
    Mr. Butler. What I would also say, in that 2002 model, that 
the DOT and the State of Alaska and the Northern Economic Study 
said that the mainline Bypass mail product is more stable, more 
efficient than it was prior to 2002.
    Mr. Issa. Okay. The reason for that lockout had to do with 
people who were trying to not carry passengers. That was the 
reason Senator Stevens did it.
    Mr. Butler. I understand that.
    Mr. Issa. And so I understand as a passenger carrier your 
preference is not to have something that might allow 
nonpassenger carriers to compete more effectively. But I still 
go back to the same point. What share of the market did you 
have in 2001?
    Mr. Butler. The market in the State of Alaska is flat.
    Mr. Issa. What share of the market did you have?
    Mr. Butler. Of the freight market?
    Mr. Issa. Freight or passenger, I will take either one. 
What was your passenger share in 2001, what is your passenger 
share today?
    Mr. Butler. They are pretty much the same.
    Mr. Issa. What was your freight share in 2001, what is your 
freight share today?
    Mr. Butler. They are pretty much the same.
    Mr. Issa. Okay. So this legislation didn't affect Alaska 
Air.
    Mr. Butler. Bypass mail is dropping for us. Freight is----
    Mr. Issa. People are drinking less Diet Coke? Why is it 
dropping? Is it just less people living in the outer areas?
    Mr. Butler. The volume year over year is down. The out-
migration out of the rural communities, yes.
    Mr. Issa. Or in-migration into the cities?
    Mr. Butler. Somewhat. The State of Alaska is not growing 
greatly.
    Mr. Issa. Right. So people are leaving rural Alaska, 
leaving Aleutian islands, leaving Alaskan native islands, and 
coming into cities where they are better served.
    Mr. Butler. There is certainly out-migration from the bush.
    Mr. Issa. You know, they did that in the lower 48 some 
years ago, too.
    So I guess the question is, legislation in 2002 didn't seem 
to do anything for you except lock out competition, but your 
market share is roughly where it was. Your complaint is your 
market is smaller, right?
    Mr. Butler. The market share is what it is, and the 
interior market has never made money for Alaska Airlines.
    Mr. Issa. Okay. Do you carry mail in the lower 48?
    Mr. Butler. Very limited. Los Angeles to Mexico, Los 
Angeles to Vancouver.
    Mr. Issa. So you do carry mail.
    Mr. Butler. A limited amount.
    Mr. Issa. Do you have a monopoly on those two lines?
    Mr. Butler. We do not.
    Mr. Issa. So you do it with a rate schedule and you do it 
because it makes you money.
    Mr. Butler. Yes.
    Mr. Issa. So competition isn't the problem in those two 
routes. I just want to understand that you can carry to Mexico 
and to Vancouver and other people can carry and you are happy 
to take the mail and have it as part of your profit analysis.
    Mr. Butler. My concern in the State of Alaska is all on the 
mainline portion, the portion that Alaska Airlines is 
responsible for out to the hub location.
    Mr. Issa. Okay. But if you had to bid for Bypass mail, 
which is freight basically, because you also bid for freight, I 
assume, in those aircraft. Now, Alaska Air 737-400s, which are 
split cargo-passenger versions, you carry mail, you carry 
people, you carry Bypass mail, and you carry freight.
    Mr. Butler. You're correct.
    Mr. Issa. Okay. And you get paid, let's say, $1 a pound for 
freight, you get paid $1 a pound for Bypass mail, and you get 
paid whatever you get paid for your passengers, roughly. Okay.
    The difference is that, Mr. Haberman, you get paid 32 cents 
a pound, so to speak, to carry freight that is costing you 
$1.08 because of Mr. Devany's rates on a blended basis, is that 
right? I have got my numbers roughly right. But you have about 
$32 million of income and $108 million of outflow, and that is 
how you get a $76 million loss on this program, right?
    Mr. Haberman. Yes, Mr. Chairman, that is accurate.
    Mr. Issa. So the only thing we are dealing with is not the 
efficiency of the program, we will assume for a moment that the 
efficiency was perfect, but you are only getting paid a 
fraction, about 30 cents on the dollar of what it costs to do.
    Mr. Haberman. That is correct.
    Mr. Issa. It is actually slightly less than 30, but close 
to 30. And I want to make sure, Mr. Devany, your testimony 
today is there are some ways that we could structure or allow 
to be structured Alaskan Bypass that would lead to your 
calculations being lower because of less expensive blended 
rates. Is that correct?
    Mr. Devany. Mr. Chairman, we are agnostic on who should be 
included in the rate pool and who not. Obviously----
    Mr. Issa. No, no, I am not asking that. I am asking that 
you calculate it, and you said that some carriers cost less and 
some cost more, right?
    Mr. Devany. Yes, sir.
    Mr. Issa. And you said under oath that if you take the less 
expensive carriers and you give them more and you take the more 
expensive carriers and you take them out, then your rate would 
drop on a blended basis, right?
    Mr. Devany. I believe the blended rate would drop. There is 
also this equitable tender issue. So it is not like if a good 
restaurant opens up in your city and it is cheap and they have 
good food and everybody goes there. The statutes require an 
equitable tender. So everybody, every airline gets an equal----
    Mr. Issa. Every airline that is allowed in.
    Mr. Devany. Yes.
    Mr. Issa. Okay. But they are locking people out, right? And 
they are not locking out the least efficient, they are locking 
out ones after a certain date of incorporation or operation, 
right?
    Mr. Devany. Yeah, I believe it is 2001 or whatever it is.
    Mr. Issa. Okay. I just want to understand that the Senator 
and Congressman Young, they talked about how this whole system 
would fall apart and there would be all this inefficiency and 
it is going to collapse if we change anything, that it is a 
perfect system. Mr. Butler effectively said the same thing from 
Alaska Airlines, you can't change anything, it would only get 
worse, everything is going to cost more money.
    This committee is not interested in destroying Bypass mail. 
We would love to find somebody else to pay for it. We would 
love Essential Air Service to pay for it. But given that that 
is not likely to happen and it is not within our jurisdiction, 
all we are looking for in H.R. 4011 and in follow-on 
legislation we are working on today is, can we enable, not Mr. 
Haberman but the people broadly behind him and so on at the 
Postal Service, to be empowered to find ways to authorize 
greater competition leading to greater efficiency, greater 
efficiency in structure leading to lower cost? If we can't, 
then this exercise is a lot of work for $20 million in savings. 
We are hoping to be able to do that.
    My question to you is, do you see carriers that are more 
efficient and as a result, if they were the only carriers in 
the world, would we have lower costs. And your answer is?
    Mr. Devany. I mean, we would have to look at the numbers, 
Mr. Chairman. Yes, if their unit costs are lower, then the----
    Mr. Issa. But some carriers unit costs are lower. Okay.
    Mr. Devany. Perhaps. I don't know.
    Mr. Issa. Right. So a process of selecting those who had 
the lowest unit cost, either by having them bid because they 
are able to do it for less or having them--for example, if we 
were to allow three other carriers that as a result of changing 
dates or the leading dates in H.R. 4011, if we were allowing 
them only to enter if they could show that their costs would be 
favorable to the pool, in other words they would be at or below 
the average, then contrary to Mr. Butler's statement, it 
actually would lower costs. Is that right?
    If only people could enter who could prove that they would 
not be adverse to the rate pool were allowed to enter, your 
calculation--what was Kevin's name--your functionary, the 
person that works for you who actually does the calculations.
    Mr. Devany. Yes, that is arithmetically correct.
    Mr. Issa. I wish I had had him. But I get the idea. I mean, 
that is one of the things in the legislation, is we don't want 
to open up competition to get higher prices. I am a pro-
competition person because it normally leads to innovation, 
better products, better services, and so on. I understand 
aviation even in the lower 48 is more complex than just open it 
up, get better service. Anyone who has flown knows that 
deregulation wasn't all about better service.
    I saw you didn't leave, Blake.
    Okay, so we have established there are at least ways in 
which the way you calculate cost we could have a favorable 
result as a result of giving the post office certain guidance 
capability.
    Mr. Devany. I think that could be the result. I don't know 
that it necessarily would be.
    Mr. Issa. Mr. Butler, would you agree that if somebody 
could carry freight and have a lower cost of delivering it, 
whether it is on the mainline or in the bush or a hydrofoil to 
a remote island, that we should be able to consider adding them 
if they are a more efficient carrier?
    Mr. Butler. I think you absolutely want to look for 
efficiency. I totally agree with you on that statement.
    Mr. Issa, I keep thinking about your time in Alaska and the 
instability that that industry has been through, whether it be 
Reeve Air Aleutian, whether it be Wien, whether it be Alaska 
Airlines.
    Mr. Issa. Well, let me go through a little of the history--
--
    Mr. Butler. The market is a bit unstable, I guess is what I 
am trying to say.
    Mr. Issa. Well, I understand it is not stable. The post 
office lost $16 billion if calculated under GAAP last year and 
5-point-some billion the way government calculates. That is a 
lot of money. We are doing a long hearing on a small part, but 
I am doing it separately because I want to be fair to the 
Alaskans rather than the lower 48 problems, which the President 
has addressed better than Congress.
    But going back to parcel post, and I just want to make sure 
we get this in the record, Mr. Haberman, do you know when 
parcel post began in the United States?
    Mr. Haberman. I don't know the date, sir. I can certainly 
get that for you.
    Mr. Issa. No, it is 1913. And it was in reaction to the 
1887 international convention where the world began looking at 
the idea of transporting packages, and they worked out a 
convention, and the United States entered a domestic route. 
Prior to that time, we didn't ship freight through the post 
office. The post office was a letter carrier for over 100 
years. So I just want to make sure that we leave that as part 
of the record.
    I had two distinguished Members of the House and Senate in 
front of me and they talked about freight/package delivery as 
some sort of a universal entitlement. It's not. If the post 
office to survive is going to carry only letters and UPS and 
FedEx and all these other folks have to worry about freight, 
that's okay. That's consistent with the Constitution and over 
100 years of our--all of our Founders were dead by the time we 
carried the first parcel post, at least based on my calculation 
of their longevity.
    Mr. Butler, since Alaska Airlines was nice enough to come 
here, let me go through a couple more things. You are in charge 
of freight for Alaska Airlines, right?
    Mr. Butler. The Cargo Division reports to me, yes.
    Mr. Issa. Is the 737-400 your most efficient aircraft?
    Mr. Butler. It is not.
    Mr. Issa. But that is the one you use in Alaska?
    Mr. Butler. It is the one that we are currently flying in 
the State of Alaska.
    Mr. Issa. So when I fly Alaska in the lower 48, I fly a 
newer, more efficient aircraft, isn't that correct?
    Mr. Butler. For passenger traffic, that is true.
    Mr. Issa. Okay. And Boeing, I understand you are from 
Seattle, they would make you a new combo aircraft, wouldn't 
they?
    Mr. Butler. We are in the process of looking at that today.
    Mr. Issa. And if you bought probably a 737-800 type 
airframe combo you would have a cap cost, but you would have a 
lower cost of operation, wouldn't you?
    Mr. Butler. That is a true statement. That airplane would 
not fly to all of those mainline Bypass markets, however.
    Mr. Issa. I understand there is a right plane for every 
runway. But, Mr. Devany, your people, if they were calculating 
a more efficient airplane, would in fact pay Mr. Butler and 
everyone else less, right?
    I just want to understand that the current system rewards 
inefficiency to a certain extent, that if it costs more to 
operate, the rate goes up. And the only reason that you drive 
down your cost is that you want to make sure that whatever the 
rate is you then make money on it, right?
    Mr. Devany. Yes, Mr. Chairman, I think that is essentially 
right. I analogize it to spaghetti sauce. You throw everything 
in there, you put in the spices and everything and stir it up, 
and then there is an average price. And if you can keep your 
costs below average, you make out fairly well; if your costs 
are above average, you don't make out so well.
    Mr. Issa. Right.
    Mr. Butler, you would agree with that?
    Mr. Butler. Yes.
    Mr. Issa. Okay.
    Now, where else do you operate in which you operate based 
on that system, other than Alaska, where you get compensated 
based on the average cost of multiple carriers?
    Mr. Butler. The Bypass mail products is the only one.
    Mr. Issa. The only one. Give me your biggest run. Your 
biggest run would be Anchorage to Fairbanks?
    Mr. Butler. For Bypass mail?
    Mr. Issa. Yes.
    Mr. Butler. Nome or Bethel.
    Mr. Issa. Bethel. Okay, I have taken that run. So 400 
miles, Anchorage to Bethel. How many carriers carry Anchorage 
to Bethel.
    Mr. Devany, in the pool, and you can check with your staff, 
in the pool that you calculate for the run Anchorage to Bethel, 
how many carriers are there?
    Mr. Devany. I don't know the answer, Mr. Chairman. I can 
certainly get that.
    Mr. Issa. Okay. If you would give us for the record sort of 
a calculation of at a given time and a given span who the 
carriers were, A, B, C, D, I don't even care about the names, 
and what their average cost is so we could see the difference 
in the cost calculated based on people all carrying tonnage on 
the same route.
    Mr. Devany. I would be happy to get that to you, Mr. 
Chairman.
    Mr. Issa. Okay.
    Mr. Deaton, we are considering legislation that would 
encourage or prioritize or try to have carriers basically skip 
ports which are presently costing us money and try to have them 
go from point to point without an interim stop. Does that save 
money on the route?
    Mr. Deaton. When authorized the Postal Service can tender 
mail to a composite carrier that flies direct from an 
acceptance point to a bush point and immediately, day in and 
day out, saves the terminal handling fee for every pound of 
mail that is tendered to that location. Consequently, also that 
community, the residents there, also receive direct service, 
better mail service, better product that goes through the 
Bypass mail. So all of those things are correct, yes.
    Mr. Issa. Okay. I obviously have a keen interest in this. 
Between the late Ted Stevens and myself I am the only one left 
to hold a hearing on this. I have asked a lot of questions. Do 
any of you have any additional closing things that you think 
should be made for the record? Do any of you have any 
additional items that we didn't ask that you want to make sure 
were in the record?
    Mr. Deaton.
    Mr. Deaton. I would just like to make sure the record 
reflects that there are multiple components, I think we have 
all established. The Rural Service Improvement Act and Bypass 
mail is a very complex system. I would totally agree, because I 
was involved in the development of the Rural Service 
Improvement Act, with the chairman's position on why it came 
about and what the purpose of it was. The role was to favor 
passenger carriers over all other carriers. The role was to 
restrict entry. The role was to award bush passenger carriers 
more favorable mail tender than they did others. And, quite 
honestly, it was aimed specifically, in the equalization 
portion, was aimed specifically at one carrier at the time. 
That carrier is a freight carrier at the time and remains so.
    Your comment about efficiencies and unit costs, I would 
like to also get on the record that the current law requires 
the DOT on the bush side to only consider passenger carrier 
costs when it sets rates and it does not consider when it sets 
rates the cost and the lower unit costs of efficient freight 
carriers. So I would like to make sure that that is a part of 
the record also.
    Mr. Issa. I appreciate that.
    Mr. Butler?
    Mr. Butler. You know, my only comment is that I don't 
necessarily believe that the Bypass mail product requires 
anywhere near the surgery that this bill particularly 
contemplates, nor the enormous----
    Mr. Issa. Wait a second. The bill only undoes the 2002 
restrictions, as far as I know. We do have some additional 
legislation we are looking at, and that may be more surgery 
than you want. But what in 4011 was so onerous to allow 
additional competitors that were able to be in prior to 2001?
    Mr. Butler. A number of the things that we talked about 
earlier that allow for the potential for the commodity product 
in the bush to go high, sky high, for one, I guess primarily 
that one.
    Mr. Issa. So your point on 4011 is that we should make sure 
that we put protections in, in the selection, that would be 
allowed to prevent that. In other words, the post office in 
consultation with Department of Transportation would be allowed 
to select carriers based on preventing the price from going up 
due to an adverse cost. Is that what you are saying?
    Mr. Butler. No. My point is that I believe that 4011 causes 
a number of disruptions.
    Mr. Issa. But it certainly means that people can compete 
against you for mainline, right?
    Mr. Butler. That is true.
    Mr. Issa. Is there anything you don't like about this bill 
other than that?
    Mr. Butler. Well, I would suggest based upon the 
conversation earlier that there is an opportunity for the rate-
making formula to be looked at, and that doesn't require 
anything related to legislation to make that happen, and that 
is one of the potential opportunities here.
    Mr. Issa. How would the post office affect Mr. Devany's 
absolute ability to look at price, set it, and then they have 
to pay it. You understand, they don't write a purchase order, 
they just write the check.
    Mr. Butler. File a petition with the DOT.
    Mr. Issa. Okay. So you are telling me that the post office 
could beg the DOT to come up with a rule to change something, 
but there is no legislation required.
    Mr. Butler. I think that's a potential.
    Mr. Issa. Mr. Haberman, have you been contemplating begging 
the ability to reduce the cost to the post office?
    Mr. Haberman. I am not aware of any ability for us to 
lobby.
    Mr. Issa. Would it be reasonable that you should have been 
begging for years for that?
    Mr. Haberman. Yes, sir.
    Mr. Issa. Do you think that the postmaster could get back 
to us and see if he has ever thought about trying to pay less?
    Mr. Haberman. Absolutely, sir.
    Mr. Issa. I am astounded that we are only discovering that 
here today. But, Mr. Butler, I certainly will be working with 
the postal system to see if they believe there is any 
reasonable way that they could simply pay less. Something tells 
me that I wouldn't be here if it wasn't for $76 million worth 
of cross-subsidy going on.
    Mr. Butler. I believe that the DOT has routinely changed 
some of those parameters, but you will discover that yourself.
    Mr. Issa. Okay. Anyone else?
    Mr. Devany. Chairman, there are provisions in statute and 
regulations that either party, either the Postal Service or 
airlines, can request to reopen----
    Mr. Issa. Have the airlines ever requested to reopen, try 
to get more money?
    Mr. Devany. No, sir.
    Mr. Issa. They must be doing okay, right? They are not 
dissatisfied apparently.
    Mr. Devany. In our world, Mr. Chairman, we want both sides 
to be mad at us. We want the post office and the airlines to be 
mad at us. Because if one side is happy, then maybe the rates 
are too high or too low. If they are both kind of unhappy----
    Mr. Issa. But your testimony today is you simply measure 
the world as it is. You are not in the business of creating 
efficiencies or even lobbying for efficiencies, isn't that 
correct?
    Mr. Devany. That is correct.
    Mr. Issa. And doesn't that create an odd situation in which 
the post office cannot force efficiencies. You are not in the 
business of creating efficiencies. Mr. Butler is in the 
business of being efficient enough to make money, but not 
necessarily to drive down the cost to the post office. There is 
no particular incentive to him, is there?
    Mr. Devany. It is an unusual situation where we play 
referee between the airlines----
    Mr. Issa. And I understand we could have called in the bush 
pilot that is costing us $32 per ton per mile, plus $850 per 
ton every time he lands. We oddly enough had Alaska Airlines 
volunteer to come here when without a doubt you are flying the 
most efficient aircraft, large capacity aircraft, to these 
large airports in Alaska. I mean, in a sense, Mr. Butler, I was 
a little surprised that you were worried as an incumbent that 
you wouldn't continue to compete successfully and have the 
lion's share of the load. But, you know, I still was happy to 
have you come here and make the case on behalf of your airline.
    Mr. Butler. It isn't just the airline, it is the State and 
our commitment to the State. There is a reason why there is an 
Eskimo on that tail. We represent the State and the people 
within the State.
    Mr. Issa. Ms. Whitcomb?
    Ms. Whitcomb. The only additional comment I would like to 
make is that earlier, in the earlier panel, there was a 
reference to concerns with the report that we issued. We 
provided a response to the concerns that were addressed by the 
Alaska delegation at the time that that report was issued. So 
that might be of interest.
    Mr. Issa. We will make sure that is included in the record, 
since I suspect that you were not in agreement with their 
position.
    Ms. Whitcomb. Right.
    Mr. Issa. Okay. The last thing is I am going to ask each of 
the other potential carriers to submit statements for the 
record, particularly as to the allegation of safety. I am going 
to invite all Alaskan potential carriers of all sort, including 
bush pilots, to submit anything they want for the record 
relative to their ability to safely carry passengers. We will 
send a letter to the FAA asking about carriers in Alaska.
    Mr. Issa. Mr. Butler, if you have concerns about the three 
potential entrants to the market, if you want to tell us about 
their safety records and concerns that they would be unsafe for 
carrying Diet Cokes on the mainline, I would appreciate it.
    Mr. Issa. Those are areas that obviously our goal is not to 
disrupt the ability to carry freight in Alaska at an affordable 
rate. It is just the opposite. It is to drive down the cost, 
not the price but the cost, since it is being borne by the 
ratepayer.
    If there are no other comments, I will keep the record open 
for 5 days for any of your comments in addition to what I had 
described.
    Mr. Issa. And with that, we stand adjourned.
    [Whereupon, at 4:10 p.m., the subcommittee was adjourned.]


                                APPENDIX

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