OST-97-2477 & 97-2481 & Undocketed / American and Aero California - Answer of Mexicana and United / May 22, 1997

Applications of

DATED: May 22, 1997

1. United and Mexicana have no objection to the authority sought by American and Aero California, but do not want the bilateral questions raised by the scope of that authority and the possible need for numerous new designations to delay approval of the United-Mexicana code-share application that has been pending for nearly six months. Moreover, if the American-Aero California request is approved, United and American should be allowed to implement similar essentially systemwide code-shares in the United States-Mexico market.

2. By their applications, American and Aero California seek authority to code share on certain transborder services

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which each of them operate in U.S.-Mexico city pairs. In addition, they request authority to code share to points in the U.S. and Mexico behind their respective transborder gateways in each country.

3. The American/Aero California applications seek authority that is similar to but considerably more extensive than the code-share authority being sought by United and Mexicana in their joint application dated November 26, 1996 (Docket OST-96-1988). The Department has yet to act on the pending United/Mexicana application. This may be due to some extent to American's having filed an answer in objection in which it likened the United/Mexicana code share to that between American and the TACA Group of carriers and demanded that the United/Mexicana code share be made the subject of an investigation comparable to that being conducted into the American/TACA Group matter. (Docket OST-96-1700). American had taken a similar position with respect to undocketed code shares involving Delta and Aeromexico.

The Department has already rejected American's position in the case of the Delta/Aeromexico code shares. See Orders 9612-8 and 97-1-15. Moreover, United has demonstrated in its Reply dated December 20, 1996, in the United/Mexicana case that the structure of the U.S.-Mexico market is more competitive than that between the U.S. and Central America.

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4. Notwithstanding American's objection to the implementation of the United/Mexicana code share, United and Mexicana do not object to the applications of American and Aero California so long as their approval would not interfere with approval of the United/Mexicana code-share requests. Both code shares will produce benefits similar to those under the Delta/Aeromexico code shares that have previously been approved. Although there is no agreement on code sharing between the U.S. and Mexico, both governments have allowed code sharing to operate in recognition of the benefits it will bring to consumers on both sides of the border.

5. The Department should note, however, that the code share proposed by American and Aero California raises complex issues that are not raised by the code shares proposed by either United/Mexicana or Delta/Aeromexico. Thus, American will be offering code-share services for Aero California to 70 U.S. points behind its U.S. gateways, and Aero California will code share for American to 24 points in Mexico behind its gateways. These carriers are essentially code sharing for each other over their entire domestic route systems via all of their transborder gateways. This creates nearly 1,000 transborder city pairs in which American and Aero California are seeking authority to code

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share. /1 Unless the U.S. and Mexico reach an agreement to amend their designation requirements with respect to code-share services, the American/Aero California code shares will require designations in all of those city pairs.

United initially proposes to code share for Mexicana to only seven (7) behind gateway points in the U.S. and Mexicana for United to only six (6) behind gateway points in Mexico. United and Mexicana limited the extent of the code-share services for which they seek approval in recognition of the restrictions imposed on designations by the U.S./Mexico bilateral air services agreement. By so doing, they hoped to expedite the approval of their initial code-share application by minimizing the issues it might raise with respect to the bilateral designation limits.

American and Aero California, unlike United/Mexicana, have chosen not to restrict the city pairs in which they propose to code share. The Department will have to address the issue of whether such unlimited, systemwide U.S.-Mexico code shares may be approved consistent with the terms of the U.S./Mexico bilateral air services agreement as well as with the public interest. Implementation of these services may also require bilateral

1/ This is based on the code-share authority as described in Annex B. para's 2 and 3 of the American/Aero California Codeshare Agreement dated April 18, 1997. American would code share from four U.S. gateways to 24 points in Mexico for a total of 96 city pairs and Aero California would code share from a total of 12 Mexican gateways to 70 U.S. points for a total of 840 city pairs.

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consultations to determine the extent to which such systemwide code sharing will be allowed and under what conditions.

6. In these circumstances, United and Mexicana object to any further delay in the processing of their own U.S.-Mexico code-share application while the Department resolves the issues raised by the American/Aero California applications. United and Mexicana have been waiting nearly six months for approval of their code share. The carriers plan to start code-share services later this month and have given the Department more than ample time to consider their application. Meanwhile, the Department has not only approved but has also allowed subsequent expansions of the code shares to be offered by Delta and Aeromexico, even though the applications for that expanded service were submitted over three months after the United/Mexicana joint application was filed. See Notice of Action Taken, dated April 22, 1997, in Docket OST-97-2161.

The delay in the Department's action on the United/Mexicana code share while Delta and Aeromexico are expanding their services is unfair and inexplicable. The objections raised by American to the United/Mexican code share were identical to those which have already been considered and rejected by the Department in the case of Delta/Aeromexico. Indeed, American did not even bother to raise these objections in the case of the most recent expansion of the Delta/Aeromexico

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code share (Docket OST-97-2161) and has now found its own Mexican partner.

Unless the Department acts quickly to approve their applications, United and Mexicana will be forced to postpone the start-up of their code services which are now scheduled to open for sale on June 21, 1997. United and Mexicana should not endure still more delay due to the submission of the more extensive American/Aero California application.

7. To the extent that the Department decides that systemwide code shares such as those proposed by American and Aero California are permissible, other U.S./Mexico code-share partners should be entitled to offer competing code-share service over their own systems. Indeed, if the Department approves systemwide code shares for American and Aero California, United and Mexicana should be entitled to receive similar authority. In these circumstances, United and Mexicana specifically object to any approval of code shares sought by American and Aero California that would preclude the grant of any portion of the pending United/Mexicana application as well as any future application seeking systemwide code shares comparable to those for which American and Aero California request authority. In the meantime, however, United and Mexicana urge that they be permitted to implement, without further delay, their earlier filed and more limited code-share arrangement that was carefully

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designed to avoid designation conflicts under the U.S./Mexico bilateral agreement.

Respectfully submitted,

Robert Papkin of Squire Sanders for Mexicana

Joel Burton of Ginsburg Feldman for United