Order 2001-1-6 - US-China

Order 2001-1-6 - US-China - Final Order

U.S.- China Air Services (2001)

Order 2001-1-6 OST-1999-6323	Issued January 5, 2001 Served January 10, 2001	Final Order 4:30 pm Version of Final Order	U.S.- China
		Attachment: Certificate of Public Convenience and Necessity

We have decided to make final our tentative decision in Order 2000-11-24 and select UPS as the fourth airline authorized to serve China and allocate it six weekly frequencies for this service. We also make final our proposed additional frequency allocations to United, Northwest, and Federal Express.

Although the competing applicants for the new airline authorization have expressed disappointment with our tentative decision, no party has objected to our proposed selection of UPS to serve China or to our allocation of six weekly frequencies to UPS for its services. We therefore will make that selection final and will award UPS the necessary certificate authority and frequency allocation for its proposed services. The award to UPS will bring new all-cargo capacity to this valuable market. It will also provide consumers the benefit of carrier choice and a full range of competitive all-cargo services to the services now offered by Federal Express, as well as enhanced competition with the services offered by Chinese-flag carriers. This new airline service will serve our objective to increase the number of competitors in this market and to expand the range of price/service options available to consumers.

The principal objection to our tentative decision involved our allocation of the remaining four frequencies available on April I under the 1999 Protocol, with both Northwest and Federal Express contending that they should have been allocated more of the remaining frequencies. Both carriers have argued that such additional allocations to themselves would provide greater public benefits.

We have fully considered the arguments raised by Northwest and Federal Express and find that neither carrier has presented any new evidence or argument to warrant modifying our tentative allocations of the remaining four frequencies.

This case was instituted as the second phase of a major expansion of services provided for under the 1999 U.S.-China Protocol that enabled both sides to double the number of frequencies operated over a three-year period, and the allocations to incumbent carriers must be considered in the context of the overall expansion of services permitted. The first phase of the agreement enabled the three incumbent carriers to add 17 additional flights to the market. As a result of allocations made under the first phase of the agreement, Federal Express and Northwest each was allocated six additional flights and United was allocated five. In making those allocations, we recognized that the market had been restricted for many years and that all of the incumbent carriers had proposed services that would benefit the traveling and shipping public and respond to the pent-up demand for service. Collectively the incumbent carriers requested more frequencies than were available, reflecting the high demand for service and the need in both the cargo and combination segments of the market for additional new services. Recognizing the deficiencies in both segments of the market, we allocated the frequencies to ensure that all three carriers could expand their services and that both segments of the market would benefit.

Taking into consideration the combined frequency awards in both proceedings under the Protocol, each of the three incumbent carriers would be allocated a total of seven weekly frequencies to expand its operations in the market to meet the demands for service. We believe that these overall allocations meet our stated objectives of ensuring that all of the incumbent carriers be able to make substantial use of the service expansions under the Protocol and that both the combination and cargo segments of the market benefit from those service expansions.

Both Northwest and Federal Express have renewed service and structural arguments made prior to our tentative decision in arguing now for greater awards to each of them. Federal Express contends that its cargo proposal offers greater economic benefits and that an award for all-cargo service is more consistent with the Department's show-cause order. Northwest claims that its various proposals are better substantiated and supported, warranting a greater award. Both argue that they should be allocated more frequencies so that they can be more competitive in the market, with Federal Express arguing that it should get more since the majority of U.S.-China frequencies are used for combination services, and Northwest arguing that it needs a greater allocation because it holds fewer overall frequencies than United.

We agree with both Northwest and Federal Express that additional services by both would benefit the public. However, having carefully reviewed all of these renewed arguments, we do ot find, upon reviewing the record as whole and the combined awards under the Protocol, that any party has made a persuasive showing that the overall public interest would be better served by increasing one caffier's allocation over another's in this case. Our combined awards to the incumbent carriers, taking into account both phases of the allocation, ensure that the combination and all-cargo segments of the market benefit from the service expansions now available and that all carriers serving can participate and compete substantially in the markets at issue. As we said in our tentative decision, with the awards in this proceeding United will be able to increase its current nonstop services in the San Francisco-Shanghai market, one of the largest U.S.-China markets, to a daily service and offer enhanced competition with the code-share services of Northwest and Air China from San Francisco. Northwest will be able to increase either its passenger or all-cargo services in the market. Federal Express will be able to expand further its existing all-cargo services that now serve three Chinese cities. We remain convinced that these allocations best serve the public interest and no party has provided any persuasive arguments that warrant modifying our proposed allocations.

By: Susan McDermott

U.S.- China Air Services (2001)

Order 2001-1-6 OST-1999-6323	Issued January 5, 2001 Served January 10, 2001	Erratum	U.S.- China
		Attachment: Certificate of Public Convenience and Necessity

By: Susan McDermott