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OST-2000-7655

Continental Airlines, Inc. / Delta Air Lines, Inc. / U.S. - Colombia Combination Service Proceeding (2000)

While both of the applicants in this case have presented proposals that would benefit travelers, based on our review of the record and all relevant factors, we tentatively conclude that Delta is the better choice. Delta's proposal offers greater service benefits and better fulfills our goal of increasing competition in the U.S.-Colombia market. Delta would provide Colombia service at a new U.S. gateway, thereby benefiting both local and connecting passengers. Furthermore, selecting Delta would add a significant new competitor to a major South America market.

Currently, American and Continental are the two carriers authorized to serve Colombia. American operates 35 weekly frequencies, all from its large Miami gateway, with three daily flights to Bogota and a daily flight each to Barranquilla and Cali. Continental operates 14 weekly flights to Bogota with a daily flight each from its two major hubs-Newark and Houston. Colombian carriers operate 47 weekly frequencies, nearly all from Miami. /11 Bogota is by far the largest market, as reflected by the predominant level of services provided to that city. American operates the majority of its services to Bogota, Continental operates all of its services to Bogota, and the Colombian carriers serve Bogota on over half of their services.

Delta's proposal would offer the public service to this important Colombian destination from a new U.S. gateway, Delta's hub at Atlanta. This service would afford Atlanta passengers their first nonstop service to Colombia. Delta's Atlanta hub, which serves passengers throughout the United States with over 150 daily flights, would also provide travelers in the Atlanta catchment area with an important competitive service option for connecting service to Colombia to the services offered by American at Miami and Continental at Houston. Given the size of Delta's Atlanta hub and the fact that U.S. services are now provided by U.S. carriers from only two U.S. cities, the addition of a new gateway will increase significantly the service options for Colombia passengers.

By:  Bradley Mims

Continental objects to the Department’s precipitous, tentative decision to award Delta certificate authority and seven frequencies to operate duplicative U.S.-Bogota service via Atlanta. The Department’s failure to institute full comparative proceedings to consider the relative merits of Continental’s Houston-Cali proposal and Delta’s Atlanta-Bogota proposal reflects a "don’t confuse me with the facts" attitude which has resulted in factual errors and omissions in the Department’s tentative decision which can be cured only by instituting an evidentiary proceeding to give Continental and Houston the full consideration they deserve and to base the Department’s final decision on a fully-developed factual record.

In the Department’s rush to judgment, it has reached factual conclusions which are erroneous, as noted above, and failed to develop a sufficient factual basis for its decision to add a seventh carrier to U.S.-Bogota routes rather than a second carrier to U.S.-Cali routes. Thus, the Department must, at the very least, institute further proceedings to develop a factual record on the benefits of the two proposals before it. Had the Department held a full comparative proceeding, it would have before it actual numbers of passengers who would receive their very first online Cali service and their first competitive online Cali service to compare with the minimal number of passengers who would receive their first online Bogota service or their first competitive online Bogota service. Similarly, the Department could compare the number of Bogota seats available per passenger with the number of Cali seats available per passenger to evaluate which new competition would provide more significant benefits. Although the Department is well aware of the effects of monopolies in air transportation generally, a full proceeding would enable it to consider the actual adverse effects of continuing American’s monopoly on U.S.-Cali service. Without evaluating such factors, the Department cannot reasonably conclude that Delta’s proposal would provide greater benefits. Thus, the Department’s conclusion that there are "no unresolved issues of relevant fact that would benefit from further evidentiary procedures" (Order 2000-7-19 at 7) is simply incorrect.

Counsel:  Continental and Crowell Moring, Bruce Keiner

The Department correctly recognized the importance of authorizing service from a major hub gateway in order to maximize the online service benefits of an award. Thus, not only will Delta’s Atlanta-Bogota services provide Atlanta travelers their first and only nonstop service to Colombia, but Delta’s new Colombia flight will provide an unprecedented number of new and competitive nonstop-to-nonstop connecting services to all areas of the country. As the Department observed, there is vastly greater demand for Bogota service, than there is for travel to Cali. Atlanta holds the undisputed title of "world’s largest airline hub." From Atlanta, Delta and the Delta connection carriers offer some 900 daily flights to over 160 nonstop destinations. Consequently, more U.S.-Colombia passengers will have convenient competitive online service options than ever before.

The Department correctly recognized that Delta’s large capacity B-757 proposal (with 48 percent more seats than Continental’s competing proposal) coupled with the strategic attributes of Delta’s Atlanta hub, will have a profound effect on improving the competitive market structure between the United States and Colombia.

Counsel:  Delta and Shaw Pittman, Robert Cohn

In the limited opportunity that it was given, Continental made a persuasive case for using the seven available frequencies between Houston and Cali, Colombia. By awarding these frequencies to Continental, the Department would ensure that the central and western regions of the United States will have the benefit of adequate service to Colombia. Continental operates a single daily flight to Bogota from Houston, the only Colombia gateway west of the Mississippi.

Counsel:  Houston and Leftwich Douglas, Rebecca Taylor, 202-434-9100-rltaylor@ldpllc.com

Continental's objections seek to obfuscate the enormous market structure and service improvements that will result from installing a third network competitor to Colombia. Regardless of the number of gateways served by Continental and American, travelers today have just two U.S. flag choices for service to Colombia. When Delta begins service from Atlanta, travelers in virtually every city across the country will have three competitive choices. The Department correctly found that "these benefits [are] particularly significant and compelling in a market that has been artificially restricted for so many years."  The Continental and Houston objections fail to refute in any way the Department's finding.  Contrary to Continental's objections, the Show Cause Order did not overlook Continental's proposal to provide competitive Cali service. Rather, the Department carefully weighed the options and correctly concluded that "the public interest is better served by using the first new service opportunity in many years ... to promote entry in the market by an additional U.S. carrier from a new gateway - and that the public benefits of such service outweigh the benefits of expanded service by Continental in this case."

Counsel:  Delta and Shaw Pittman, Robert Cohn, 202-663-8060

If the Department takes this opportunity to consider fully the correct facts regarding Colombia service, it will recognize that adding a seventh U.S.-Bogota carrier is far less important than adding a second U.S.-Cali carrier. Delta ignores the fact that U.S.-Cali service is not only a U.S.-flag monopoly for American, it is a total monopoly. Although Delta quotes the Department’s conclusion, neither the Department nor Delta has explained why eliminating a monopoly is less important than adding a seventh carrier between the U.S. and Bogota. Only an opportunity to submit exhibits and briefs can allow the Department to answer the questions raised.

Indeed, it is ironic that the Department is rushing to expedite this proceeding while the 1999 U.S.-Brazil Combination Service Proceeding has been on the Department’s docket since September 1999, languishing over 100 days since Continental submitted a motion asking for immediate allocation of a single frequency.

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202.624.2500

Continental’s Motion for Leave to File should be denied, and its associated erroneous Reply should not be admitted into the record. Contrary to Continental’s assertions, Delta’s Answer did not contain any factual errors, and admitting Continental’s unauthorized pleading would only serve to further confuse the issue.

Delta’s Answer correctly stated the level of Continental’s Colombia operations and did not attribute Continental with double-daily Houston and Newark frequencies. It appears that Continental’s confusion stems from its misplaced reliance on an unofficial electronic source document posted by a commercial internet vendor, rather than the official signed copy of record (which, as far as Delta can determine, was duly served on Continental). As for Continental’s claim that Delta has "misstat[ed] Continental’s service record in South American," Delta believes that the facts speak for themselves. The remainder of Continental’s unauthorized Reply is devoted to repeating arguments already raised in its Objections, and which were fully addressed in Delta’s previous Answer. There is no point in allowing Continental to repeat them again here.

Counsel:  Delta and Shaw Pittman, Alexander Van der Bellen, 202-663-8060

Delta wants the Department to deny Continental's motion for leave to file. Continental's reply to Delta's factually inaccurate answer because Delta's counsel supplied an incorrect version of Delta's answer to a commercial Internet vendor for publication, the vendor published it and Continental relied on this version of Delta's answer to prepare its reply. Whether Delta's official version of its answer said, Continental offers double-daily Houston and Newark frequencies or not misses the point, however. Delta has not challenged, much less refuted, the balance of the factual errors in the record that Continental correctly cited in its reply, which are myriad, material and require correction. Delta has also failed to rebut Continental's argument that comparative selection procedures will enable Continental to show the Department that breaking American's monopoly on U.S.-Cali service will produce far greater public benefits than adding a seventh airline for U.S.-Bogota service. Without a proceeding, the Department cannot weigh the arguments and evidence to ensure the maximum public benefits of a Colombia award and introduce competition on U.S.-Cali routes.

Counsel:  Crowell Morning, Bruce Keiner, 202.624.2500

By this order we make final our tentative decision in Order 2000-7-19 and award Delta Air Lines, Inc., certificate authority to operate scheduled combination service between Atlanta, Georgia, and Bogota, Colombia, and allocate it seven weekly combination frequencies for that service.

By:  Susan McDermott

Continental petitions the Department to reconsider its decision awarding seven frequencies and related route authority to Delta for Atlanta-Bogota service because the Department’s failure to institute full comparative proceedings to consider the relative merits of Continental’s Houston-Cali proposal and Delta’s Atlanta-Bogota proposal and develop the facts necessary to evaluate the relative merits of the two applications fails to comport with relevant judicial standards. The Department’s decision is arbitrary and capricious and an abuse of the Department’s discretion. Moreover, the decision is not based on substantial evidence and fails to comply with relevant procedural standards. Only through the Department’s normal evidentiary process can Continental and Houston be given the requisite due process they deserve so the Department can make a rational decision based on a fully-developed factual record.

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202-624-2500

In the limited opportunity that Continental as well as the Houston Parties had to present a case, they submitted sufficient evidence and arguments at least to require the Department to review the competing proposals with a closer eye. For example, the Houston Parties noted that while the central and western regions of the U.S. relied on a single daily flight to Colombia from Houston, U.S. and foreign-flag carriers operate 74 flights per week to Colombia from the southeastern comer of the United States, including 39 flights to Bogota alone.' The Department did not address this tremendous geographic imbalance in any of its orders in this proceeding.

Moreover, the Houston Parties, in their objections, noted the existence of significant gaps in the record before the Department. For example, the Department did not address whether the differences in the size of the aircraft that Delta and Continental proposed to operate should have been compared in light of the (undetermined) load factors that each carrier reasonably could expect to achieve. In previous cases in which a route award was made based on abbreviated proceedings which had not carefully scrutinized carrier service proposals, the Department has subsequently changed its decision. For example, in the Los Angeles- Guadalajara Exemption Proceeding, Docket OST-95-244, the Department withdrew its initial award to United Airlines and instead authorized American Airlines to serve the market based on additional information that had not been made available to the Department at the time of its original decision, and was disclosed only in response to a request for additional details about each carrier's plans. See Order 95-8-3, at 3. Similar uncertainty in this proceeding does not benefit the public interest.

Finally, the Department appears in its orders in this proceeding to have relied on claims about connecting services and the effectiveness thereof at Delta's Atlanta hub which never were substantiated in the record. As far as the Houston Parties are aware, the Department at no time has explained to what extent it can or will rely on evidence external to the record if it proceeds to confer a route award without a full evidentiary proceeding. At a minimum, the Department should clarify its position on this issue in order to provide guidance for future proceedings.

Counsel:  Leftwich Douglas, Rebecca Taylor, 202.434.9100, rltaylor@ldpllc.com 

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202-663-8060

Counsel:  Continental and Crowell Moring, Bruce Keiner, rbkeiner@cromor.com

March 18, 2005

Application for Renewal of a Certificate of Public Convenience and Necessity

Delta hereby applies for renewal of its certificate authority to engage in scheduled combination service between Atlanta and Bogota, as authorized by Route 796. This authority was issued by Order 2000-9-21 in the US. -Colombia Combination Service Proceeding (2000), and is set to expire on September 20, 2005. Delta requests renewal for a period of at least five years.

Pursuant to Route 796 and its allocation of seven weekly frequencies, Delta provides daily nonstop service between its Atlanta hub and Bogota using Boeing 757 equipment. In addition, pursuant to exemption authority and statements of authorization granted in Docket OST-2002-14057, Delta displays the designator code of Aerovias Nacionales de Colombia, S.A. on its Atlanta-Bogota flights, and AVIANCA displays Delta's designator code on connecting flights operated by AVIANCA beyond Bogota.

Counsel: Hogan & Hartson, Robert Cohn, 202-637-4999, recohn@hhlaw.com

OST-1996-1417- American - Exemption Renewal- Miami-Paris
OST-1998-3419 - American - US-Japan Combination Services
OST-2003-14523 - American Airlines and Iberia - US-Spain Codeshare
OST-1996-1118 - Arrow Air - US-Uruguay
OST-1999-6587 - Continental - US-South Africa
OST-2000-7655 - Continental - US- Colombia Combination Service Proceeding
OST-2000-7186 - Continental - Houston- Cali, Colombia
OST-2000-7104 - Atlanta/New York- South America: U.S.- Belize; Atlanta, Georgia- Bogotá, Colombia
OST-1997-3218 - Delta - Certificate - Atlanta/New York-South America; US-Belize
OST-2004-19165 - Continental - US-Tripoli, Libya Codesharing with KLM
OST-2001-9953 - Continental - US- Brazil/Argentina Codeshare with Transbrasil
OST-1997-2708 - Delta - US-Brazil Codesharing with Transbrasil
OST-1997-2967 - Delta - US-Recife and Iguassu Falls, Brazil Codeshare with Transbrasil
OST-2002-12161 - Delta - United States-Algiers, Algeria Codeshare with Alitalia
OST-2004-19232 - Northwest - US-Tripoli Codeshare with KLM
OST-2000-7339 - US Airways - LaGuardia- Nassau, Bahamas
OST-2002-12481 - US Airways - Washington Reagan National - Nassau-Bahamas
OST-2002-13854 - US Airways - Boston-Nassau, Bahamas
OST-2001-9952 - Continental - US- Brazil/Argentina Codeshare with Transbrasil
OST-2001-9951 - Continental - US- Brazil/Argentina Codeshare with Transbrasil
OST-2003-16354 - TAMPA - Miami-Lima-Colombia All-Cargo

Issued April 19, 2005

Dismissing Applications - Various Dockets

By: Paul Gretch

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