OST-00-7194 / US-Vietnam Third Country Codesharing Opportunities / Reply of United Air Lines / April 18, 2000

CONSOLIDATED REPLY OF UNITED AIR LINES, INC.

Pursuant to the Department's Notice dated April 5, 2000, in the above-captioned proceeding United Air Lines, Inc. ("United") submits the following consolidated reply to the answers of American, Delta and Northwest filed on April 14, 2000:

1 . A review of the answers demonstrates that United has by far the strongest proposal of any applicant and that United's application should have priority in receiving both a code-share opportunity and frequency allocation. Only United can offer daily service to Ho Chi Minh City, a factor the Department has previously considered determinative in awarding code-share authority. Moreover, United offers more services to Hanoi than any other applicant and is the only carrier offering services to Da Nang. United's application should be granted for the additional reasons that it is in a position to start code-share services immediately and that only by selecting United can the Department avoid wastage of opportunities made available under the U.S./Vietnam March 3, 2000 Memorandum of Discussions ("MOD").

2. There is a general consensus that American has the weakest proposal. It offers services only to Ho Chi Minh City and only three days per week. Moreover,

Consolidated Reply of United

Page 2

except for passengers from Dallas/Ft. Worth, /1 those traveling from other U.S. gateways who want to avail themselves of the best service between the U.S. and Vietnam (which is two-stop) would move entirely on the services of a foreign carrier. The only services operated by American between the U.S. and Zurich will be those from Dallas/Ft. Worth, which represents a relatively small market for U.S.-Vietnam traffic.

American boasts that it will offer same-day connections between the U.S. and Ho Chi Minh City in both directions. However, American's concept of what constitutes a "day" is, to say the least, highly eccentric. In the outbound direction from Los Angeles, by far the largest market, any service that involves Right operations performed by American would operate via Dallas/Ft. Worth. Based on schedules effective this summer, a trip from Los Angeles to Ho Chi Minh City via a combination of American and Swissair connections at DFW and ZRH would have an elapsed time of nearly 43 hours. That is a very long "day" indeed. 'If the flying between Los Angeles and Ho Chi Minh City were performed entirely by Swissair, the elapsed time would be 36 hours. These flights are operated over a routing of nearly 14,000 miles, compared to 8,800 miles between Los Angeles and Ho Chi Minh City via Tokyo and Bangkok. United's elapsed time for Los Angeles passengers would be 32 1/2 hours.

Moreover, because the American/Swissair service operates only three days per week, a Los Angeles passenger willing to travel on one of the four days when American/Swissair does not operate would have to add 24 hours to the elapsed time. For

1/ American currently serves Zurich from Chicago but will move that service to DFW at the beginning of June and turn the Chicago gateway over to its code-share partner Swissair. DFW represents only 2.3 percent of the U.S.-Vietnam traffic, according to CRS booking data for 1999.

Consolidated Reply of United

Page 3

trips involving American flying via DFW, this results in elapsed times of 67 hours and for trips exclusively by Swissair, 60 hours. Because United operates daily service, there is no need for passengers to wait for the day when a flight will operate. The Department has previously addressed the issue of the relative importance of daily service and same-day connections in code-share proceedings. In the U.S.-Ukraine Code Share Proceeding, United proposed same day round trip connections between the U.S. and Odessa via Frankfurt three days per week. Delta offered daily services via Vienna but connections involved an overnight stay. Despite the lack of same day connections, the Department awarded the authority to Delta over United because of Delta's daily service. The reasoning of the Department in the Ukraine case is equally applicable here:

Order 95-5-4 at 5-6. (Emphasis supplied.) In the same way here, United's service will afford passengers to Ho Chi Minh City, the largest market at issue, the valuable

Consolidated Reply of United

Page 4

opportunity to travel on the days of their choice. The services of the other applicants will not offer this choice. 2/

3. Moreover, as in the Ukraine case, United's proposal to offer daily service to Ho Chi Minh City, as well as less-than-daily to Hanoi and Da Nang, will allow the Department to make allocations that will result in the full utilization of the 21 available frequencies. An award to American would, on the other hand, result in an underutilization of frequencies. American can only use three weekly frequencies. If American were selected at United's expense (as it seems to propose), a total of only 16 frequencies would be utilized, leaving five to go to waste. 3/

The U.S. negotiated long and hard with Vietnam over several months to obtain the right for U.S. carriers to offer a total of 21 frequencies. The Department has followed a consistent policy of seeking to maximize the utilization of valuable bilateral rights such as these code-share frequencies, as is attested in the Ukraine case quoted above. Such a maximization of the use of these 21 frequencies can be accomplished only if United is selected because only United can offer daily service to Ho Chi Minh City as well as less-than-daily service to two other points in Vietnam.

American would also waste a code-share opportunity by only offering service to Ho Chi Minh City and not to Hanoi. While Ho Chi Minh City is by far the preferred origin and destination for U.S.-Vietnam traffic, Hanoi is the capital of Vietnam

3/ This assumes that the applications of Northwest and Delta for a total of 13 frequencies are also granted in full.

Consolidated Reply of United

Page 5

and an important destination in its own right. United offers more service to Hanoi than any other applicant. And only United would offer service to three points in Vietnam, the maximum allowable under the U.S.-Vietnam MOD.

United would, therefore, maximize the use of these bilaterally-agreed opportunities in several ways: use of more frequencies, more service to the largest market, more service to the capital city and service to more total points. An award to American, on the other hand would leave more frequencies unused and more points unserved. Certainly, based on the proposals before the Department, it would be contrary to the public interest and to the Department's precedent to select American at United's expense. 4/

4. American also concedes that it cannot code share on Swissair's services as operated over the present routing because those services overfly Afghanistan. While American hopes Swissair will reroute its flights to accommodate U.S. carrier code-share traffic, there is no commitment from Swissair that it will do so. In addition, any such routing modification could result in even longer flights, misconnections, and even greater elapsed times.

4/ American also urges that its selection will improve the "competitive balance in the Pacific" which American says is dominated by United and Northwest. How a codeshare in which all American-coded operations are conducted over the Atlantic, where American and Delta are the dominant U.S. carriers, would achieve this "balance" in the Pacific is unclear. Moreover, how the competitive balance among U.S. carriers in the Pacific or elsewhere would be improved by a code share in which virtually all the revenues would be turned over to a foreign carrier is also, to say the least, something of a mystery. And yet that would be the case under the American/Swissair code share in circumstances where the only U.S. gateway served by American would be Dallas/Ft. Worth. In these circumstances, American's "competitive balance" argument is nothing but a red herring.

Consolidated Reply of United

Page 6

Indeed, United itself could offer transatlantic connections to Vietnam with THAI on a daily basis via London, Paris or Frankfurt. THAI has daily services between each of these points and Bangkok where it offers good connections on a daily basis to points in Vietnam. United also has connections to Lufthansa which operates between Frankfurt and Ho Chi Minh City via Bangkok. United has chosen not to propose services over these routings in this proceeding, however, both because of the mileage circuity involved, particularly for West Coast passengers, and because THAI and Lufthansa, like Swissair and, possibly Air France, overfly Afghanistan between Europe and Vietnam. 5/ United could not, in these circumstances, offer any assurances as to when it would be able to implement code-share service to Vietnam via Europe. Nor can American, or possibly Delta, offer any such assurances. 6/

5/ In some cases, United code shares via Europe and Bangkok would have slightly better elapsed times from some U.S. points (especially in the Eastern part of the country) than would be the case via Japan and Bangkok.

6/ American asserts in its answer (p.8) that Delta and Air France "may be similarly situated with respect to overflying Afghanistan" as are American and Swissair.

Consolidated Reply of United

Page 7

routing that overflies Afghanistan, American cannot offer the necessary assurance of when its code-share service to Vietnam could be implemented.

5. United's proposed transpacific routing via Tokyo and Bangkok is the most popular among those at issue. The relative strengths and weaknesses of the marketability of code-share service under the various routings proposed can be determined from CRS booking data for 1999: 7/

These data demonstrate the value attached by U.S.-Vietnam passengers to daily service and the preference of such passengers for transpacific, rather than transatlantic routings. Indeed, based on total CRS booking data, over 99% of the U.S.-Vietnam traffic moved on carriers operating over transpacific routings in 1999. The circuitous transatlantic routings offered by the partners of American and Delta are simply not successful in the marketplace, and the addition of a U.S. carrier code share on such flights is unlikely to change this. 8/

7/ These data represent passengers on services marketed by the carrier on the first overwater portion of the journey between the U.S. and Vietnam. This would, for example, include passengers that traveled on a U.S. carrier to each foreign carrier's U.S. gateway.

8/ As noted above, if (contrary to current data) these transatlantic routings were found to offer more attractive alternatives for some U.S. points as compared to transpacific routings, United would be able to offer them in conjunction with both THAI and Lufthansa via a variety of European connection points once Afghanistan overflight restrictions were lifted and assuming sufficient frequencies were available. With respect

Consolidated Reply of United

Page 8

6. United's proposal is also stronger than either Northwest or Delta. While each of these other carriers would offer more service than American/Swissair, neither Northwest/MAS nor Delta/Air France can offer daily service to Ho Chi Minh City. Moreover, each of them offers fewer flights to Hanoi than United/THAI and neither serves Da Nang.

All services between the U.S. and Vietnam involve relatively long elapsed times because of the distances involved. The many time changes also create the need for layovers enroute. Northwest requires long layovers at Kuala Lumpur and Delta, at Paris (at least on routings outbound from the U.S.) that are comparable to United's layovers at Bangkok. In these circumstances, frequency and regularity of service are an important advantage. Because only United can offer regularly scheduled daily service operated at consistent times in both directions every day, its service is superior to those of Northwest and Delta.

7. Another issue is raised with respect to Delta. That carrier is reported to be in the process of forming a code-share relationship with Vietnam Airlines. (See United Answer at 10- 11). If such a relationship has been formed, it would be contrary to the public interest to award any of the 21 third-country frequencies to Delta where there are other applicants lacking such a relationship who are ready, willing and able to use them. Delta would not require a frequency allocation to code share to points in Vietnam with

to THAI, these transatlantic services would be offered in conjunction with the same THAI flights to/from Vietnam that connect to United's transpacific services to Bangkok and for which frequencies are requested herein. Additional frequencies would not, therefore, be needed under the U.S.-Vietnam MOD for United to offer both transpacific and transatlantic code-share options under its code-share arrangement with THAI when the Afghanistan overflight restriction is lifted.

Consolidated Reply of United

Page 9

Vietnam Airlines and could offer as many code-share services as it chose to and from Vietnam under such an arrangement.

Delta has offered no information regarding its reported relationship with Vietnam Airlines. The Department should inquire into the status of that relationship and, if it exists, deny Delta's application. At the very least, the Department in its final order ,should provide that, in the event any carrier that is awarded third-country code-share authority in this case subsequently seeks authority to offer code shares in conjunction with a Vietnamese carrier, the Department will reopen that carrier's award made in this proceeding. In that event, the Department should re-examine the issues surrounding the third-country code-share award in light of services to be performed by the U.S. carrier in conjunction with the Vietnamese carrier.

Respectfully submitted,

Jeffrey A. Manley

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6670

Counsel for UNITED AIR LINES, INC.

DATED: April 18,2000