T-98-3863 / 1998 US-Brazil Combination Service Case / Answer of Delta Air Lines / January 13, 1999

Delta Air Lines, Inc. ("Delta") hereby files this Answer to the Objections of United Air Lines, Inc. ("United"). Delta agrees with United that the Show Cause Order is in error and should be vacated, for the reasons set forth in Delta's Objections. but strongly disagrees with United's position that (1) it, rather than Delta, should receive the primary award of seven U.S.-Brazil frequencies; (2) United's interim authority should be extended for a two-year period, and (3) United, not Delta should receive the back-up award.

In support of this Answer, Delta states the following:

1. Delta's Objections compellingly demonstrated that the Department's tentative decision seriously erred by reason of its failure to authorize the one carrier-selection option that would result in new Houston-Sao Paulo nonstop service by Continental Airlines, Inc. ("Continental") and allow Delta to initiate Boston-New York-Sao Paulo

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Montevideo service. Delta's and United's Objections are consistent in showing that Continental is squandering seven valuable U.S.-Brazil frequencies on grossly uneconomic service which could be more productively employed to initiate Houston-Sao Paulo nonstop operations.

3. The Department correctly concluded that were it not for the benefits fit Continental's Houston-Sao Paulo proposal (benefits that Delta has shown can be obtained in the absence of an award in this case), "Delta would be our tentative choice in this case" (Show Cause Order at 9) and that Delta's proposal Should provide greater public benefits than would the selection of American or United" (Show Cause Order at 10). United's allegations of alleged bias and its criticisms of the Department's selection of Delta over United are completely without merit. United confuses its own parochial interests with the public interest. The Show Cause Order highlighted the significant market structure and public service benefits of Delta's proposal:

3. Delta's proposal is superior to United's from the perspectives of both market structure and service benefits. With respect to market structure, Delta has the

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fewest frequencies (only seven) of any U.S.-flag carrier serving Brazil. United is the second largest carrier, holding four times as many frequencies and operating four times as many weekly U.S.-Brazil flights as Delta. DL-R-102, R-115. Delta should receive frequencies to provide a second daily flight before United is authorized to operate its fifth. As the Department noted, "next to American, United has more access to Brazil than any other U.S. airline, and now serves Sao Paulo via Chicago, Miami and New York gateways." Show Cause Order at 9. In fact, as Delta's Brief shows, United holds enough U.S.-Brazil frequencies to allow it to maintain daily service in each of the city-pairs it currently serves and to add new Brazil service at Los Angeles. DL-R-103, R-301. Delta, which is limited to only seven weekly frequencies serving a single gateway. has no such flexibility. The selection of Delta would, in the Department's words Enhance the ability of a relatively new Brazil entrant to compete and to reduce concentration. Show Cause Order at 8.

4. Moreover, Delta is the only carrier (U.S. or Brazilian) that cannot operate between New York and Brazil. This critical gap in Delta's Latin America route structure hinders its ability to be a fully effective competitor. By awarding Delta them seven frequencies, the Department will significantly enhance intragateway competition in the second largest U.S.-Brazil market.

5. Delta's proposal is superior to United's on the basis of service benefits as well. Unlike United, Delta plans to take full advantage of the service rights available in

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this case by operating single plane service not only to a major U.S. point (Boston, but also to second Latin American country (Uruguay). The Department has determined that single-plane service proposals significant public benefits. Order 96-2-35, 1996 U.S.-Italy Service Proceeding). In addition, while United touts the tact that Los Angeles-Sao Paulo is larger than Houston-Sao Paulo, it ignores the tact that New York-Sao Paulo is 300% larger than Los Angeles-Sao-Paulo. DL-R-110.

6. The deficiencies of United's proposal were fully addressed in the Show Cause Order. United tails to "improve service in the overall U.S.-Brazil market" on which the Department "'attached significant weight" because "United's proposal relies heavily on Asia-Brazil connecting passengers." Show Cause Order at 9. United wrongly criticizes the Department for allegedly overlooking the benefits of global competition. First, Delta's proposal will enhance global network competition by its ability to use its international gateway at JFK to serve as a connection point for online traffic moving between Europe and Latin America. But, unlike United, Delta will do so without sacrificing even greater benefits for U.S.-Brazil passengers. The Department has a longstanding policy to give less weight to proposals, like United's, that rely heavily on sixth freedom traffic. See, Delta Brief at 32, citing Order 91-19-32 at 16-17 and the Recommended Decision in that case at 58. Delta's proposal will benefit 60% more U.S. passengers than United's. DL-R-314.

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7. Delta strongly opposes United's request to extend its interim award to two years. United's request would turn the award of interim authority on its head giving it more importance than the primary and back-up awards. Delta should be given the primary award for the reasons stated in its Objection and that award were made. Delta would initiate its proposed service at the beginning of the 1999 winter season. United's request is merely a back-door attempt to grab the frequencies and undermine the ability of the primary or back-up carriers from implementing service that the Department found would be superior to United's.

9. In conclusion, Delta urges the Department to grant Delta's Motion to reopen the record concerning Continental's squandering of Brazil frequencies, vacate the Show Cause Order. and grant Delta primary authority to operate Boston-New York-Sao Paulo-Montevideo service.

Respectfully submitted,

Robert E. Cohn

SHAW, PITTMAN, POTTS & TROWBRIDGE

2300 N Street, N.W. Washington, D.C. 20037-1128

(202) 663-8060

Counsel for Delta Air Lines, Inc.