Two of the biggest issues in the upcoming year will be the cost of fuel, and the future of the U.S. Postal System's Bypass Mail Program.

USPS specialist Steve Deaton has been mysteriously quiet, but he did say that there will be an announcement in January about the Bypass Mail Program.

The USPS proposed in 2008 to implement 14 new intra-Alaska hubs statewide. Hooper Bay, Shishmaref, Savoonga and Kiana are four of the villages proposed in the initial notification, but 10 others will be considered in the future.

Proposed locations are Anaktuvuk Pass, Holy Cross, Pt. Hope, Sandpoint, Togiak, Eagle, Pilot Point, Red Devil, Tanana and Wainwright.

Bypass mail is shipped directly from urban merchants to rural customers through air carriers, bypassing the post office. The program dates back to 1985 and was designed to reduce the cost of living in rural Alaska. Bypass mail can make up as much as 60 percent of some carrier's annual revenue.

The USPS anticipates saving about $7.8 million of its $150 million annual transportation costs if mail is flown direct to the initial four villages, and more if new hubs are implemented statewide.

“The mail flown to the new intra-Alaska hubs would reduce mail volumes flown into Bethel, Nome and Kotzebue because it would be flown direct to the villages, causing unforeseen economic and labor hardships on existing passenger and freight carriers, said Wilfred “Boyuck” Ryan, president of the Alaska Air Carriers Association.

The problem is many of the small villages on the postal service list don't have the infrastructure to accommodate the aircraft used to move the mail.

According to Ryan, the air transportation industry in Alaska operates with marginal profits and instability and overall changes to the bypass mail system, fuel increases and operational costs have had a catastrophic impact on the financial viability of many organizations.

“For instance, changes in mail transportation qualification requirements, contained in the Rural Services Improvement Act of 2002, caused a substantial number of mail-only carriers to go out of business,” said Ryan. “As a result, only those carriers engaged in passenger or freight transport survived. A potential shift in the USPS postal mail hubs from existing rural hubs to potential village hubs could have an even more devastating impact to air transportation industry once again.”

The sky high cost of aviation fuel shipped to the villages via barges this summer, have some carriers flying their own aviation fuels to village airstrips at low December oil prices to save money.

Creating the new hubs at smaller airstrips will basically limit the long-range transportation regulars like Lynden, Northern Air Cargo and Alaska Airlines to rely on smaller aircraft, requiring more frequencies, and better infrastructure to ensure safety. This will require carriers to invest in new equipment, buildings to store and break down shipments, and support staff at a time when the economics are strained nationally, according to Ryan.

“Carriers cannot construct public facilities without long term financing and financial institutions are not willing to extend financing beyond the useful life of an asset, normally about 10 years,” Ryan said. “Long term loans negatively impacts the balance sheet of carriers, and further marginalizes their financial position to remain a viable organization for the benefit of the public and the USPS.”

Out migration of village residents to regional hubs and the downturn in the use of bypass mail due to spoilage, damage by freezing and slow service may further limit the life of this program meant to improve commerce and the quality of life in the villages, according to a study by Information Insights.

Ryan summarized the fears of aviation industry officials as changes to reduce federal spending on the backs of air carriers.

“Furthermore,” Ryan says. “The USPS postal policy regarding new hubs seems to be a moving target, compromising industry stability. Air carriers have little assurance that an investment made to build terminal or storage facilities at the newly expanded hub will remain for the duration of their financial note. This is a tremendous risk for already financially marginalized entities--an expansion one day could easily be a retrenchment the next.”

State DOT officials have stated that they have no plans to immediately improve or reallocate funds to improve any of the target airports listed by the USPS as new mail hubs.

The full impact of this change will not be felt until 2010 if the USPS decides to create new hubs, but will require a financial outlay by carriers in 2009, that will not be subsidized until the following year.

Passenger airlines will see a reduction in frequency of flights, more full flights, and remember those fuel surcharges added to your tickets, they will still be there, according to industry watchdogs.

Further developments that may see additional mergers between regional carriers such as Era Aviation, Frontier Flying Service, Hageland Aviation Services, Peninsula Airways and Warbelow's Air Ventures, Inc. to reduce redundancies and duplication of service to rural communities to reduce operational costs are possible, according to the Alaska Air Carriers Association leadership.

Alaska will also see the formation of a combination of existing air carriers with Alaska Native owned companies to bid on federal contracts that provide emergency transportation to regional and urban areas from the villages.

These newly formed companies will have the advantage of being minority owned, as small disadvantaged businesses that can receive bidding preference on government contracts.

The paradigm shift in the aviation industry will be driven by a downturn in federal spending, low petroleum prices that may knock out an exploration boom, and tighter restrictions on lending by Alaskan banks.

On the bright side, as air cargo activity is falling at Ted Stevens Anchorage International Airport, UPS has increased its pilot staff here to train pilots on a recently installed simulator.

On the positive side the price of fuel has dropped, but fundamentally cargo demand is not to shiny, broadly speaking its going to be a pretty sluggish year in 09',” according to Neal Fried, with the State of Alaska Department of Labor and Statistics.

“This is not an Alaska trend but influenced more by a synchronized world economy,” said Fried.