PACIFIC NORTHERN AIRLINES .-
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Pacific Northern Airlines, Inc.
Directors:
G. P. O'Grady
Washington, D. C.
W. E. Boeing, Jr.
Seattle, Washington
Paul Porzelt
New York, New York
R. A. Rowan
Los Angeles, California
Officers:
M. B. Kirkpatrick
Anchorage, Alaska
C. W. Nelson
Seattle, Washington
A.G. Woodley
Seattle, Washington
A. G. Woodley, President and General Manager
H. A. Olsen, Vice President-Traffic and Salts
John A. Cunningham, Vice President-Operations
J. H. Foster, Vice President-Engineering and Maintenance
C. W. Nelson, Secretary-Treasurer
M. E. Diamond, Assistant Secretary
Dean B. Hart, Assistant Secretary
General Counsel: G. P. O'Grady, 1625 Eye Street, Washington, D. C.
General Offices: 1626 Exchange Building, Seattle, Washington
City Ticket Offices: Anchorage
Homer
Kodiak
Cordova
A uditors: Lybrand, Ross Bros. & Montgomery
Juneau
Portland
Kenai
Seattle
Transf er Agent: Bankers Trust Company, New York, New York
Registrar: Manufacturers Trust Company, New York, New York
Common Stock listed on
the American Stock Exchange
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Highlights of
1954
NEW RECORDS WERE ESTABLISHED IN-
Revenues
Traffic
Capacity
Productivity
Safety
$6,474,693
10,440,088 revenue ton miles
16,482,695 available ton miles
23,200 ton miles of revenue
traffic per employee
23rd consecutive year without
a passenger fatality
To the Stockholders of
Paci.fie Northern Airlines
its Customers and Personnel
The most significant aspect of 1954 opera-
tions was the ability of the Company to
maintain its traffic participation and to
achieve financial gains despite adverse com-
petitive conditions which prevailed during
the year.
Early in the spring of 1954 the two
major competitors of the Company intro-
duced DC-6B equipment on the Company's
two principal routes, Seattle-Anchorage and
Seattle-Juneau. The Civil Aeronautics Board
permitted the operation of this higher-speed,
pressurized equipment at the same fare
levels which prevailed for DC-4 aircraft,
then used by all carriers serving this area,
and the Company was faced with a severe
competitive handicap which continued
throughout the year, mainly because of the
time element inherent in obtaining replace-
ment equipment. Although substantial traf-
Financial
Operating revenue in 1954 amounted to
$6,474,693, a gain of 6 percent over the
previous year and a new record for the
Company.
Operating expense of $6,397,988 during
1954 was an increase of $358,684 over the
preceding year. The largest element of this
increase relates to additional charges for
depreciation of flight equipment in the
amount of $160,690. 1954 was the first full
year of operation of the Company's entire
fleet of five DC-4 aircraft, and the attendant
rise in operating costs is a normal reflection
of the use of additional equipment and
expanded services. Non-operating expense
was reduced by $25,237 to a total of $52,917.
The Company realized net income of
$21,651 after depreciation charges of
$662,954. Because of the Company's tem-
porary mail rate status, which is designed
to permit a carrier to operate only on a
break-even basis, this profit figure is pre-
liminary and does not indicate the final
fie diversion resulted from this unequal
situation, the Company succeeded in estab-
lishing traffic gains over the preceding year.
In February 1955, the Company nego-
tiated a lease arrangement for three Lock-
heed Constellation aircraft, which will be
put into service during April of this year.
It is confidently anticipated that the em-
ployment of pressurized equipment will
enable the Company to recapture its leading
position in the Alaskan travel market and
offset the temporary growth interruption
experienced during 1954.
The acquisition of the Constellations
has made it possible for the Company to
dispose of three of its DC-4 aircraft. The
Company's fleet during the remainder of
1955 will therefore consist of three Lock-
heed Constellations, two DC-4's and four
DC-3's.
financial results of the year's operations.
During 1954 the Company received a total
of $2,030,395 in mail compensation from
the United States Government, equivalent
to approximately 30 percent of total opera-
ting revenues for the year. The Company
has been operating under a temporary mail
rate since February 10, 1954, and all mail
pay received subsequent to that date will
be subject to adjustments by the Civil
Aeronautics Board when permanent rates
of mail compensation are established. Until
these final computations have been made
by the Board, in conference with the Com-
pany, it is impossible to state the actual
profit element for 1954 operations.
With the sale of its surplus flight equip-
ment the Company paid its entire bank loan
obligations, leaving a remaining debt of
$158,000. In addition to this important
reduction in long-term debt, 1954 opera-
tions resulted in a net increase in working
capital of $281,000 over 1953.
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Tra.ffic and Sales
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The Company established new system
records in each class of traffic during 1954.
Although the gain over 1953 was relatively
slight-10,440,000 total revenue ton miles
in 1954 as compared to 10,169,000 during
the preceding year-this increase carries
added significance when consideration is
given to the competitive handicap which
existed during most of 1954 with respect to
aircraft equipment.
Revenue passenger miles increased from
58,977,000 in 1953 to a new high of 59,610,-
000 during 1954. A gain .of 5 per cent was
reflected in the 3,338,000 ton miles of air
cargo and revenue baggage carried in 1954.
The volume of U.S. mail increased from
750,000 ton miles last year to 881,000 ton
miles in 1954, growth of 18 percent.
The Company succeeded in maintaining
its 1953 overall revenue load factor of 63
percent, which is the second highest reve-
nue load factor of any carrier operating
under the American flag. This enviable
record demonstrates the public necessity of
air transportation between the United States
and Alaska, and within Alaska, where pas-
senger service by air is an absolute necessity
and air cargo and mail service by air are
required to a much greater extent than in
any other area of the world.
Principa I services in operation
Services applied for
A A
E
Personnel
The high morale, loyalty, and efficiency of the Company's entire
staff of personnel were evidenced in many ways during the
year. In achieving over 23,000 ton miles of revenue traffic per
employee in 1954, the Company surpassed all productivity
records of previous years. This new level of efficiency further
improved the Company's position among the foremost carriers
in the entire aviation industry.
Safety
1954 added the twenty-third year to the Company's unbroken
record of safe operation and marked the completion of a
quarter of a billion passenger miles without a fatality. This
accomplishment again qualifies the Company to receive the
Aviation Safety Award of the National Safety Council.
A Decade of Rapid Growth
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ATIONAL
SAFETY COUNCIL
1954
AVIATION
SAFETY
AWARD
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and Improved Efficiency
5 YEARS AGO 10 YEARS AGO
1954 1949 1944
Total Revenues . $6,475,000 $1,535,000 $258,000
Ton Miles of Revenue Traffic:
Passenger 6,221,000 897,000 124,000
Mail . 881,000 94,000 l 0,000
Cargo 3,338,000 180,000 19,000
Total Traffic 10,440,000 1,171,000 153,000
Available Ton Miles of Capacity . 16,483,000 2,312,000 312,000
Plane Load Factor 63% 51% 49%
Unit Costs per Revenue Ton Mile 61 C $1.31 $1.49
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Civil Aeronautics Board
O verseas Route Renewal
ix ~onths have now elapsed since the
Civil Aeronautics Board heard oral argu-
ment on the Company's application for
renewal and extension of its overseas routes
between the United States and Alaska. Al-
though oral argument represented the last
procedural step to be completed in pro-
cessing the application, the Board has not
yet issued its final orders.
Meanwhile, the Civil Aeronautics Board
is reported to have reached several tentative
decisions in its prolonged consideration of
the States-Alaska Case, which also involves
similar appli~ations filed by Northwest Air-
lines, Pan American and Alaska Airlines.
In December it was reported in the national
press that the Board had voted not to renew
Pacific Northern's certificate, and that the
overseas routes now operated by the Com-
pany would be turned over to Pan American.
These news releases of the Board's con-
templated decision spontaneously touched
off an unprecedented storm of public pro-
test throughout the entire Territory of
Alaska and the Pacific Northwest. Without
solicitation by the Management, the general
public sent thousands of letters and tele-
grams to the Board and to the White House,
strongly objecting to the elimination of
Pacific Northern's overseas services and
to the unwarranted creation of a virtual air
route monopoly for Pan American.
This widespread public protest was vigor-
ously supported by the entire congressional
delegations of Oregon, Washington and
Alaska, and by virtually all of the leading
business concerns and labor unions having
trade interests in Alaska. The state legis-
latures of Oregon and Washington unani-
mously passed resolutions urging recon-
sideration by the Board and the President.
Strong editorial support was contributed by
leading newspapers throughout the Pacific
Northwest and Alaska, and the issue was
repeatedly highlighted by radio and tele-
vision commentators.
It is probable that no other issue, not
even the question of statehood, had ever
stirred the Alaskan public and the residents
of the Pacific Northwest into such a spon-
taneous and vigorous expression of senti-
ment. In the entire history of the Civil
Aeronautics Board this amazing demonstra-
tion of articulate public opinion was without
precedent. Although its final opinion in the
case has not yet been announced, the Board
unquestionably will reconsider its tentative
vote of last December. The Management is
completely confident that the final decision
will result in recertification of Pacific
Northern's overseas routes. Considerations
of public need and the Company's demon-
strated record of fitness and ability make it
inconceivable that there could be any other
outcome. All other routes of the Company
are permanently certificated, and therefore
are not subject to periodic review by the
Board.
M erger Negotiations
Final decision was reached during 1954
concerning the possibility of merger be-
tween Pacific Northern and Alaska Airlines.
Every facet of the complex problem was ex-
haustively analyzed during the summer
months, and in October the Management
of Pacific Northern met with the principals
of Alaska Airlines in Washington, D. C., for
an entire week of formal negotiations. As a
result of these discussions, the Manage-
ment of Pacific Northern formally advised
Alaska Airlines on January 31, 1955, that
a merger clearly could not contribute to
any properly pertinent objective, and that
it would be contrary to the public interest
and detrimental to the future of Pacific
Northern. Since that date there have been
no further communications concerning
merger with Alaska Airlines, and the Com-
pany now considers the matter closed.
The Year Ahead
Without question, the formidable obstacles which confronted
the Company during 1954 are now being successfully overcome.
The Management has complete confidence that 1955 operations
will witness further rapid strides in the continued growth of
both the Company and the Territory of Alaska. The inaugura-
tion of Constellation services this month will fully restore
Pacific Northern's competitive position and will enable the
Company to recapture and enhance the rapid growth potential
of preceding years.
Final decision of the Civil Aeronautics Board concerning
the recertification of the Company's overseas routes is expected
momentarily. Renewal of this important franchise will serve to
eliminate the atmosphere of uncertainty which has clouded
recent efforts to implement plans for sound, future expansion.
The basic economy of the Territory of Alaska holds better
promise in 1955 than ever before. Several major pulp and timber
enterprises are now being organized which can quickly trans-
form certain undeveloped areas in Southeastern Alaska into
thriving communities. Petroleum exploration projects are being
initiated on a large scale in numerous locations in Alaska, and
large military construction projects are underway at many of
the towns served directly by the Company. Substantial interest
has been demonstrated in the Territory's abundant mineral
resources, with particular emphasis upon strategic metals. The
climate and the natural scenery of Alaska offer a summer's
paradise to the vacation traveler, and the 1955 volume of tourist
trade will undoubtedly exceed all previous records.
The decade which has elapsed since the close of World War
II has witnessed the dynamic transformation of the Territory
from an isolated frontier into a thriving area of rapidly growing
population and accelerating industrial activity. The vast natural
resources of Alaska are now at the verge of a new surge of
development. The impact of this activity must reflect itselrin
the further substantial growth of Pacific Northern, for the
destiny of the Company is linked inseparably with that of
the Territory.
Respectfully submitted,
April 11, 1955 President and General Manager
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Announcing . .... .
L
PACIFIC NORTHERN
The inauguration of pressurized, 300 mile-per-hour Lockheed Constellation service
on the Company's overseas routes in April of 1955
These aircraft offer to the traveling public the maximum in speed, comfort
and dependable performance, and they represent another important advance
in Pacific orthern's 23-year record of continuous service to the Territory
of Alaska.
The new Constellation services provide the ultimate in relaxing passenger
comfort. The most outstanding features include-
PRESSURIZATION to sea level comfort.
Two ABREAST SEATING with plenty of leg room, wide aisles, and reversible
foam rubber seats which enable family and social groups of four to
travel together.
REVERSIBLE PITCH PROPELLERS for added safety reserves.
RUBBER INSULATION to insure a minimum of noise and vibration.
Arn CONDITIONING to maintain constant temperature on the ground and
in flight.
DELICIOUS MEALS and attractive service by highly trained stewardesses.
300 MILE-PER-HOUR SPEED to reduce flight times by 25%.
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New Developments
in the Growing Economy of Alaska
POPULATION-Continued growth at the most rapid
rate of any area in the United States or its possessions.
FISHERIES-Recovery from cyclic reverses with 1954
total production valued at approximately $100 million.
Alaska's comparatively new crab industry is expand-
ing at an accelerated rate with the 1954 crab pack
valued at over $2.5 million. A rapidly growing volume
of crab is now being exported from the Territory by air.
MINING-Uranium, mercury, tin, tungsten, nickel,
and cobalt head the list of strategic metals which are
being aggressively explored by Alaskan mining inter-
ests. In Southeastern Alaska the U.S. Steel Company
has recently acquired extensive iron deposit claims;
the Kaiser Corporation has acquired title to large
gypsum deposits; and Quebec Metallurgicallndustries,
Ltd. has initiated an extensive exploratory program
of magnetite deposits. 1954 total mineral production
in Alaska totaled over $24 million.
PETROLEUM-Eight major oil companies plus a num-
ber of small organizations are actively exploring petro-
leum prospects along the Company's Alaskan routes.
Phillips Petroleum, Havenstrite and Associates, and
the Alaska Oil Development Company commenced
drilling operations during 1954. Standard Oil and
Richfield Oil Company have now completed leasing
arrangements and are expected to begin field opera-
tions in 1955. Texas Oil Company, Union Oil, Ohio
Oil, and Humble Oil Company are all presently active
in the Territory.
PULP AND TIMBER-The Ketchikan Pulp Company,
a joint venture of American Viscose Company and
Puget Sound Pulp and Paper Company, began pro-
duction in its $52 million dissolving pulp plant near
Ketchikan in July 1954. Georgia-Pacific Plywood Cor-
poration was granted a Certificate of Nece_
ssity in 1954
for a $54 million newsprint plant in the Juneau area.
The Pacific Northern Timber Company of Portland,
Oregon, plans to have a sawmill in operation by 1957
and a pulp mill by 1962. The Alaska Pulp Company
formed in Japan and the Alaska Lumber and Pulp
Company, its Alaskan subsidiary, have made applica-
tion to the Forest Service for construction of a saw-
mill with a daily capacity of 70,000 board feet and a
300 ton per day pulp mill.
HYDROELECTRIC POWER-During 1954 Ventures,Ltd.
and Frobisher, Ltd. received permits to commence
work on a $269 million power development program
at the Canadian border near Juneau. The Harvey
Aluminum Company also received permits to begin
engineering surveys of a power development near
Cordova which has a potential of 7 billion kw annually.
MILITARY CONSTRUCTION-A billion .dollar Defense
construction program in Alaska and northern Canada
was announced jointly by the United States and
Canadian governments in 1954.
Pacific Northern Airlines, Inc.
Statement of Income and Earned Surplus
for the year ended December 31, 1954
OPERATING REVENUES:
Passenger .
Air mail .
Cargo ..
Excess baggage .
Other transport service
Incidental revenues, net .
Total . . .
OPERATING EXPENSES:
Flying operations .
Direct maintenance-flight equipment .
Gro!,lnd operations . . . . . . .
Ground and indirect maintenance .
Passenger service . . .
Traffic and sales . . . . .
Advertising and publicity .
General and administrative
Depreciati~n:
Flight equipment . . .
Ground equipment . .
Operating income
DEDUCTIONS FROM INCOME:
Interest on long-term notes
Other interest . .
Miscellaneous, net . . . .
Profit before taxes on income
PROVISIONS FOR Federal and Territorial income taxes .
Net income . .. .. .
EARNED SURPLUS, January 1, 1954 .
EARNED SURPLUS, December 31, 1954
$2,037,323
736,551
845,837
510,406
411,419
677,037
84,047
432,414
586,302
76,652
41,690
9,592
1,635
. $
The accompanying notes are an integral part of the financial statements.
$3,385,771
2,030,395
891,813
43,876
82,845
39,993
6,474,693
6,397,988
76,705
52,917
23,788
2,137
21,651
46,289
67,940
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PACIFIC NORTHERN AIRLINES, INC.
December 31, 1954
Current:
Cash.
Receivables:
Traffic balances
United States Government.
Other . . . . . . . . .
Less, Allowance for losses . . .
ASSETS
Maintenance and operating supplies, at average cost .
Prepaid expenses, mainly insurance .
Total current assets
Investments:
Cash surrender value of life insurance .
Aeronautical Radio, Inc. stock, at cost .
Property and Equipment, most of which is pledged as collateral for debt (at cost
to the Company or predecessor):
Flight equipment . . . . . . . . . . . . .
Ground equipment . . . ., . . . . . . .
Buildings and improvements to leased property
Replacement parts for flight equipment
Construction work in progress . . . . . . . .
Property Acquisition Adjustment, Unamortized .
Route Extension and Development, at Cost .
Other Deferred Charges . . . . . . .
Cost
$3,306,360
392,409
273,520
192,803
31,520
$4,196,612
$ 237,728
479,989
46,206
763,923
22,904
15,488
1,000
Allowances
for
Depreciation
$1,965,235
209,140
92,807
122,703
$2,389,885
The accompanying notes are an integral part of the financial statements.
$ 204,436
741,019
138,324
157,014
1,240,793
16,488
1,806,727
130,020
43,140
13,788
$3,250,956
( An Alaska Corporation)
Current:
Current portion of long-term debt
Accounts payable:
LIABILITIES
Trade . . . . . . . . . . . . . . . . .
Taxes withheld or collected for benefit of taxing authorities .
Accrued liabilities:
Salaries and wages . . . . .
Insurance and miscellaneous .
Interest . . . . . . . . . .
Taxes other than federal income taxes .
Provision for federal income taxes
Air travel plan deposits . . . . .
Unearned transportation revenue .
Total current liabilities . .
Reserve for income tax contingencies
Long-term debt:
Chattel mortgage notes to bank . . . . . . . . . . . . . .
Chattel mortgage note, for equipment purchase . . . . . . . . . .
Demand notes payable to stockholders, subordinated to above mortgage notes
to bank . . . . . . . . . . . . .. . . . . . . . . . . . . . .
Less, Amount included in current liabilities
Total liabilities
Commitments (See notes)
CAPITAL AND SURPLUS
Common Stock, authorized 2,000,000 shares, par value $1 each, issued and out-
standing 1,068,109 shares . . . . . . . . . . . . . . . . - . .
Paid-in Surplus, excess of net proceeds from 401,665 shares of common stock
over par value-no change during 1954 . . . . . . . . . . .
Earned Surplus, of which $58,980 is restricted, statement annexed
$
$ 356,427
462,045
56,892 518,937
83,999
75,453
10,058
22,588 192,098
2,100
8,925
56,539
1,135,026
142,000
444,800
39,603
125,000
609,403
356,427 252,976
1,530,002
1,068,109
584,905
67,940 1,720,954
$3,250,956
The accompanying notes are an integral part of the financial statements.
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Notes to Financial Statements
PROPERTY AND EQUIPMENT: The Company owns four
and has under lease one DC-4 aircraft. The lease,
containing a purchase option, expires in June 1955.
In February 1955 an agreement was entered into
for the sale of two of the Company's DC-4 aircraft
-one for delivery in March and the other for
delivery in April 1955. Part of the proceeds of the
sale, which was at more than book value, has been
used to pay the chattel mortgage notes to bank.
In March 1955 the Company entered into a one-
year renewable lease for three Constellation aircraft
and certain related equipment, the rental for which
is payable monthly.
The Company has instructed the vendor to sell a
prefabricated hangar, estimated to cost $71,500, on
which a deposit of $23,833, included in construction
in progress, was made during 1951; and is working on
plans under which it is expected that the full value of
the deposit will ultimately be realized.
UNITED STATES MAIL: The Company is a certificated
air carrier, subject to regulation by the Civil Aero-
nautics Board. Since February 10, 1954, payments
have been received for carrying air mail under tem-
porary rates which are subject to increases or de-
creases upon final determination by the Civil Aero-
nautics Board.
LONG-TERM DEBT: Substantially all of the flight
equipment and $102,874 of ground property and equip-
ment were pledged as collateral for long-term debt
which consisted of the following at December 31, 1954:
Payable Non-
within one current
year portion
Chattel mortgage notes to bank $333,600 $111,200
Chattel mortgage for equip-
ment purchase, payable in
monthly installments, inter-
est 5% 22,827 16,776
Demand notes payable to stock-
holders, dated March 6,
1953, interest 6%, payable
quarterly, subordinated to
above mortgage notes to
bank 125,000
Totals. $356,427 $252,976
The chattel mortgage notes to bank were paid in
full from proceeds from the sale of the DC-4 airplanes
referred to in a preceding note; and the restrictions
on earned surplus, referred ~o on the balance sheet,
were thereby released.
COMMITMENTS: Minimum annual rentals of real prop-
erty under leases of two or more years' unexpired terms
aggregate $54,305. Of this amount $45,174 relates to
leases which expire within two to five years. See also
comments under Property and Equipment regarding
leases of airplanes and construction in progress.
Auditor's Report
LYBRAND, Ross BRos. & MONTGOMERY
RESIDENT PARTNER
ROBERT L . AIKEN
CERTIFIED PUBLIC ACCOUNTANTS
SKINNER BUILDING
SEATTLE I
Pacific Northern Airlines, Inc.
Seattle, Washington
We have examined the balance sheet of
PACIFIC NORTHERN AIRLINES, INC.
Nt:'W YO RK
PHILAOEL,HIA
CH ICAGO
BOSTON
BALTIMORE
WASHINGTON
,_,ITTSBUROM
DETlllOIT
CLEVE.LANO
CINCINNATI
RO CK,.ORO
TULSA
ST. LOUIS
LOUIS\oflLLE.
l!IIRM IMGMAM
DALLAS
MOUSTON
SAN ,."ANCISCO
LOS ANOE.LES
SE ... TTLI:
LONDON
...... ,.
..
as of December 31, 1954, and the related statement of income and
earned surplus for the year then ended. It was not practicable to
confirm the balances receivable from the United States Government.
We satisfied ourselves as to these balances by means of other auditing
procedures. Our examination was made in accordance with generally
accepted auditing standards, and accordingly included such tests of
the accounting records and such other auditing procedures as we con-
sidered necessary in the circumstances.
In our opinion, the accompanying balance sheet and statement
of income and earned surplus present fairly the financial position of
Pacific Northern Airlines, Inc. at December 31, 1954, and the results
of its operations for the year then ended, in conformity with generally
accepted accounting principles applied on a consistent basis.
Seattle, Washington
April 11, 19 55
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llow is a good time
~ for your trip to
~ALA.SKA.!
+' Fly North to see Alaska at its best
' with PNA-PACIFIC NORTHERN AIRLINES
Visitors will find excellent resort and hotel accommodations readily
available. Industrial and business opportunities invite the attention
of many visitors to a careful inspection of Alaska's vast resources.
Exceptional fishing and hunting exist right at the edge of most Alaska
towns. Camera subjects are so plentiful that you'll have a rich
harvest of pictures from even a short visit to Alaska this fall.
Best of all, you can plan your trip to Alaska to suit your own
convenience. Pacific Northern 4-engine Flagliners fly three times every
day from the Pacific Northwest to Alaska. Fare to Juneau, Alaska's
capital, is $55 plus tax- to Anchorage, Alaska's largest city, $75 plus tax.
You can fly North via Juneau to Anchorage and then return nonstop
to Seattle. Convenient connections from Juneau to all of southeastern
Alaska and from Anchorage to interior and western.Alaska.
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PACIFIC NORTHERN AIRLINES
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