Order 2001-4-24

Order 2001-4-24

U.S.- Israel Third-Country Codeshare Opportunities (2001)

Order 2001-4-24 OST-2001-8726	Issued April 18, 2001 Served April 18, 2001	Order to Show Cause	U.S.- Israel Third Country Codeshare
		Appendix: Frequencies

We have tentatively decided to select American to operate third-country code-share service via Zurich with Swissair and United to operate third-country code-share service via Munich/Frankfurt with Lufthansa in the U.S. -Israel market effective upon the issue date of a final order in this proceeding. In addition, we have tentatively decided to select Northwest to operate third-country code-share services in the U.S.-Israel market with KLM, beginning April 1, 2002.

The recent agreement with Israel provides valuable opportunities for U.S. carriers to operate service between the U.S. and Israel on a bilateral code-share basis and with third-country carriers. Currently, one U.S. carrier, Continental Airlines, serves the market with its own aircraft with nonstop services between New York and Tel Aviv. In addition, Delta and El Al have applied to operate bilateral codeshare services in the market under the new agreement. Thus, implementation of the third-country code-share rights here constitutes an important opportunity to maximize the number of carriers serving Israel and the level of competitive services offered travelers and shippers.

United and American offer the most frequencies on the critical segment between Europe and Israel. American/Swissair would operate 14 weekly flights and United/Lufthansa 17 weekly flights. On the other hand, NorthwesVKLM would offer only eight weekly flights. In addition, overall, United and American offer the best elapsed flight times, providing the most convenient connections between the U.S. and Israel. For example, in the nine city-pair markets proposed by all three applicants (Atlanta, Boston, Chicago, Los Angeles, Miami, Newark, New York (JFK), San Francisco, and Washington DC), United would offer the fastest roundtrip elapsed time in five of the nine common markets while American would offer the fastest roundtrip elapsed time in the remaining four markets. Northwest would not offer the fastest roundtrip elapsed time in any of the nine common city-pair markets.

Under our proposed allocation, American and United would offer double-daily or better service between 15 geographically dispersed U.S. cities and Israel with each carrier offering comparable elapsed flight times in most cornmon city-pair markets. We tentatively conclude that this outcome provides the greatest overall service and competitive benefits in this case. In light of these facts, and given our goal of increasing the level of competitive service in the market, we have tentatively concluded that the proposals of American and United would provide greater public benefits than Northwest and should be awarded the two third-country authorizations that are available now.

In reaching this tentative decision, we have fully considered Northwest's arguments that it should be awarded one of the two currently available code-share opportunities based on the large number of geographically diqxrsed U.S. gateways (14) it would serve, including three not served by the other applicants, and tht high level of transatlantic frequencies its provides. However, as mentioned above, we note that Northwest’s total daily elapsed flight times would be less competitive and convenient than those offered by American and United. Moreover, Northwest would offer far fewer Europe-Israel frequencies (8) than American (14) and United (17), meaning that Northwest would be able to offer significantly less capacity and fewer practical connecting options. Against this background, we have tentatively concluded that the public benefits offered by Northwest's proposal do not outweigh the service and competitive benefits offered by the proposals of American and United for award of one of the first two authorizations for third-country code-share service.

That said, we tentatively conclude that Northwest's proposal would offer an additional service option for travelers and shippers and that Northwest should be awarded the service opportunity available in April 1, 2002. Even if KLM does not secure a capacity increase, Northwest would still offer eight weekly flights with KLM between Amsterdam and Tel Aviv with nonstop-to-nonstop connections to cities throughout the United States. Moreover, as noted earlier, since Northwest does not now serve Israel, its service would provide consumers further choice for. service in the market. We, therefore, conclude that the benefits of Northwest's proposal wan-ant its selection for the service opportunity available April 1, 2002.

By: Susan McDemott