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OST-2008-0056 - 2008 Los Angeles-San Jose del Cabo Proceeding
OST-2005-22590 - Frontier's Los Angeles-San Jose del Cabo Authority
OST-2005-23498 - 2005 Los Angeles-San Jose del Cabo Combination Service ProceedingOST-2000-7656 - United Air Lines - Los Angeles-San Jose del Cabo
OST-2000-7714 - American Airlines - Los Angeles-San Jose del Cabo
OST-2000-8361 - 2000 Los Angeles-San Jose del Cabo Exemption Proceeding
OST-1996-1306 - Alaska Airlines' Los Angeles-San Jose del Cabo Certificate
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2008 Los Angeles-San Jose del Cabo Proceeding Order 2008-2-14 Issued and Served February 8, 2008 By this order we institute a proceeding to select one primary carrier and one backup carrier to provide direct carrier (own-aircraft), scheduled combination air services in the Los Angeles-San Jose del Cabo market. Under the U.S.-Mexico aviation agreement, three U.S. carriers may be designated to provide foreign scheduled air transportation services of persons, property, and mail between Los Angeles, California, and San Jose del Cabo, Mexico. Currently, American Airlines, Inc., Alaska Airlines, Inc., and Frontier Airlines, Inc. are designated to provide these services. On February 4, 2008, however, Frontier notified the Department that it will cease service on this route after April 13, 2008. Thus, one designation opportunity will become available for U.S. carrier combination service as of April 14, 2008. We have already received an application from United for the subject route authority (see captioned application, above). Delta Air Lines, Inc., filed an answer opposing the application, stating that both United and Delta seek the available designation. Both Delta and United urge the Department to promptly institute a comparative selection proceeding in this matter. Our principal objective in awarding the available authority will be to maximize public benefits. In this regard, we will consider which applicant will be most likely to offer and maintain the best service for the traveling and shipping public. We will also consider the effects of each applicant’s service proposals on the overall competitive environment, including the market structure and the level of competition in the U.S.-Mexico market, and on any other market shown to be relevant. The subject combination authority will become available on April 14, 2008. In light of the requests of both United and Delta to promptly institute this case, and the public benefit of facilitating the timely introduction of replacement service on the route, we accordingly intend to process this case on an expedited procedural schedule. That schedule is as follows:
By: Michael Reynolds
February 19, 2008 Application of Delta Air Lines - Bookmarked Delta proposes to operate daily nonstop service between Los Angeles and San Jose del Cabo using 183-seat Boeing 757 aircraft, the largest narrow-body aircraft in Delta's fleet. This service will operate on a year-round basis. An award to Delta would maximize the public benefits resulting from this proceeding. It would inject a strong new entrant in the West Coast-San Jose del Cabo and Los Angeles-San Jose del Cabo markets. Delta's growing presence at Los Angeles would ensure the success and long-term viability of the service and fulfill the Department's previous determination to select Delta for the back-up award over other applicants in the 2006 proceeding. No other applicant has taken such full advantage of the open and uncontested U.S.‑Mexico opportunities available to it, and Delta's proven commitment to the development of new U.S.‑Mexico transborder services warrants top consideration for the Los Angeles‑San Jose del Cabo designation at issue in this case. Indeed, Delta's U.S.‑Mexico service has increased by more than 135% since 2005, expanding options to Mexico from several regions in the United States, including the Northeast (JFK), the Southeast (Atlanta, Orlando), the Inter‑Mountain West (Salt Lake City), and the West Coast (Los Angeles). Counsel: Delta and Hogan & Hartson, Robert Cohn, 202-637-4999
February 19, 2008 Amendment and Supplemental Information of United Air Lines - Bookmarked On January 15, 2008, United applied for exemption authority and a designation to operate year‑round services between Los Angeles and San Jose del Cabo. United plans to operate its Los Angeles‑San Jose del Cabo service twice daily during peak season and daily during off‑peak, beginning June 5, 2008, or within 90 days of the issuance of a final order in this proceeding. United will operate its Los Angeles‑San Jose del Cabo service using its "Ted" product. All "Ted" service will be operated with A320 aircraft with 156 seats in an all economy configuration (including Economy Plus) currently in United's fleet. The "Ted" product was developed specifically for leisure markets such as San Jose del Cabo, where its service has been well received by consumers. Because of its success in these markets, United would like to expand "Ted" service to the Los Angeles San Jose del Cabo market. Counsel: United and Wilmer Cutler, Bruce Rabinovitz, 202-663-6960
February 19, 2008 Application of Virgin America for an Exemption and Designation - Bookmarked Virgin America seeks an exemption authorizing it to provide scheduled foreign air transportation of persons, property, and mail between Los Angeles and San Jose del Cabo, Mexico. Virgin America currently offers convenient connecting service via Los Angeles from New York (JFK), Washington, D.C. (IAD), San Francisco, and Seattle. Virgin America should be awarded the designation now held by Frontier for many of the same reasons that Frontier was selected in 2006. Indeed, with a first class cabin on all of its aircraft, its award-winning coach cabin, state-of-the-art in-flight entertainment, and growing connecting service from the West Coast, Virgin America’s application presents even more compelling reasons than Frontier’s did in 2005. Virgin America, like Frontier, will offer new entrant benefits to Mexico, Los Angeles and the Western portion of the United States as well as new competition to both U.S. and foreign carriers in the market, resulting in “an increase in the competitive benefits to the traveling and shipping public.” Counsel: Virgin America, David Pflieger, 650-762-7115
February 26, 2008 Answer of Delta Air Lines - Bookmarked Delta hereby answers (i) in support of its Application for an exemption and designation authorizing it to serve the Los Angeles–San Jose del Cabo route, and (ii) in opposition to the applications of United Air Lines, Inc. and Virgin America, Inc. for that same authority. United is submitting a proposal that would dramatically increase the annual frequencies it operates with double-daily service during a shorter (June-August) peak season, and daily service during the remainder of the year. Given United’s harsh criticism of Delta in the 2006 proceeding for the alleged “inconsistencies between Delta proposals here and its actions in other similar markets,” the irony of United’s new fictitious proposal is palpable. In 2006, the Department awarded this valuable third designation for Los Angeles-San Jose del Cabo service to Frontier Airlines, a new entrant and self-proclaimed low-cost carrier, with little experience or presence in Los Angeles. See DOT Order 2006-6-25. Delta was awarded back-up authority over United and Continental Express. Within 18 months of the award, Frontier announced it was withdrawing from the route entirely. That outcome is not surprising given the level of competition in the market and Frontier’s lack of experience and presence at Los Angeles and in Mexico. The Department should not commit the same mistake again by awarding this designation to another so-called “new entrant” that has limited presence at Los Angeles and no international experience, much less experience in operating Los Angeles-Mexico service. Counsel: Hogan & Hartson, Robert Cohn, 202-637-4999, recohn@hhlaw.com
OST-2008-0056 February 26, 2008 Answer of United Air Lines - Bookmarked Delta's proposal to institute daily service in the LAX-SJD market also suffers by comparison to United's in three important respects: (1) Delta would provide fewer annual and peak season seats than United; (2) Delta does not have a hub at LAX, so it can offer fewer network connections than United; and (3) an award to Delta would worsen, rather than improve, the competitive structure of U.S.-Mexico air travel markets. Outside the summer travel season, Delta would provide somewhat more seats per day than United if it carries through on its proposal to use a B757 aircraft on this route. That proposal, however, should be viewed with considerable skepticism -- because Delta has no hub at LAX, and it uses smaller aircraft to offer service to all of the 14 other points in Mexico to which it currently holds out service from Los Angeles. In a limited-entry market like LAX-SJD, seating capacity is a key consideration, and there is no contest between United and Virgin America on this score. United will offer over 34,000 more annual seats than Virgin America. And the capacity advantage would be especially marked during the summer months, when United (with its two conveniently timed daily flights) will offer more than twice as many seats per day as Virgin America to meet the summer spike in demand. By offering far greater capacity, United would do more to promote competition in this limited-entry market and would better ensure that public benefits will be maximized through the award of this additional designation. With its LAX hub, United also has a far more extensive connecting network at Los Angeles than Virgin America. Counsel: Wilmer Hale, Bruce Rabinovitz, 202-663-6960, bruce.rabinovitz@wilmerhale.com
February 26, 2008 Consolidated Answer of Virgin America - Bookmarked This proceeding presents the Department with a unique opportunity to select one new-entrant, low-cost carrier, Virgin America, to replace another, Frontier Airlines, in the Los Angeles-San Jose del Cabo market. In this proceeding, as well as the one in which Frontier was selected, the Department stated its objective for awarding this limited-entry route opportunity would be to maximize public benefits. More specifically, the Department would determine which applicant would be most likely to offer and maintain the best service for the traveling and shipping public, and how the service offered would affect the overall competitive environment, including the market structure and the level of competition in the U.S.-Mexico market. The record demonstrates that the high-quality, low-cost, low-fare, competitive service proposed by Virgin America will maximize the public benefits from this award. Indeed, Virgin America believes that its proposal is superior to the service proposed by Frontier. This is so because Virgin America’s proposal, unlike the proposals put forward by Delta and United, will provide beneficial service options, will lower fares and will offer convenient connecting possibilities for the benefit of the traveling and shipping public to and from Los Angeles, thereby resulting in demonstrable competitive and market structure benefits in several U.S.-Mexico markets where Virgin America’s new service will have an impact. Counsel: Virgin America, David Pfleiger, 650-762-7115, Dave.Pflieger@VirginAmerica.com
February 29, 2008 Reply of Delta Air Lines - Bookmarked Delta has shown its commitment to developing Los Angeles‑Mexico markets to a greater degree than United. Delta provides nonstop Los Angeles service to 14 Mexico destinations, compared to only three for United. Delta's presence at Los Angeles (where United is the dominant airline) with strong service to Mexico is a factor favoring Delta because it will best ensure the most dynamic competitive challenge to the strong U.S. and foreign incumbents in the Los Cabos market. Los Cabos is an important missing piece to Delta's Los Angeles‑Mexico operation, and no carrier is better equipped to inject strong competition in that market than Delta. Counsel: Delta and Hogan & Hartson, Robert Cohn, 202-637-4999
February 29, 2008 Reply of United Air Lines - Bookmarked Based on the record now before the Department, United's proposal clearly offers public benefits that are superior to what Delta and Virgin America have to offer.
Counsel: United and Wilmer Cutler, Bruce Rabinovitz, 202-663-6960
February 29, 2008 Consolidated Reply of Virgin America - Bookmarked This proceeding presents the Department of Transportation with a clear choice for selecting a replacement carrier in the Los Angeles-San Jose del Cabo market at this critical juncture in the history of the U.S. airline industry. On the one hand, the Department can select, as it did in its two prior decisions regarding this market, a vibrant, new entrant competitor with a high-quality product, a credible service proposal, lower fares, and desirable connecting service, which will have a demonstrable competitive and market structure effect on five separate U.S.-Mexico markets. On the other, it can select between two legacy carriers with checkered service and performance histories in U.S.-Mexico markets, which have not proposed credible service, low fares, or any meaningful connecting service and whose selection would only exacerbate an U.S.-Mexico market structure dominated by legacy carriers. Counsel: Virgin America, David Pflieger, 650-762-7115
March 25, 2008 Re: Answer of United Air Lines United Air Lines today filed the attached answer to the motion for confidential treatment under Rule 12 of Virgin America in Docket OST-2008-0107. Because United makes reference to Docket OST-2008-0056 (2008 Los Angeles-San Jose del Cabo Exemption Proceeding) in its answer, we are also filing the answer in that docket and serving all parties to that proceeding. Counsel: United, Jonathan Moss
Issued and Served April 14, 2008 By this order, we tentatively award (1) primary exemption authority to United Air Lines, Inc. and back-up exemption authority to Delta Air Lines, Inc. United has offered a superior capacity proposal for its Los Angeles-San Jose del Cabo service, with daily year-round flights using 156-seat A320 aircraft, and a second-daily flight during the peak travel months of June, July, and August. Specifically, United will offer approximately 34,000 more annual seats than Virgin America on the route and 9,300 more annual seats than Delta. Virgin America and Delta have questioned United’s ability to maintain the proposed level of service. However, in calendar years 2006 and 2007, America and Alaska each offered at least double-daily, and sometimes more, flights in the subject market, and both of these carriers reported a significant increase in load factors during the months of June, July, and August. Under these circumstances, we tentatively believe that United’s offer of service with the greatest capacity overall, and with capacity that directly responds to the higher demand during the heavily-traveled peak summer season, constitutes a significant factor in its favor. While Delta’s proposal offers certain public benefits, we have tentatively determined that those benefits are outweighed by those offered by United’s proposal in this proceeding. In this regard, Delta has proposed a year-round daily service on the route with 183-seat B-757 aircraft. Although this larger aircraft would provide 27 more seats daily than United’s proposal (during United’s indicated off-peak season) and 34 more seats daily than Virgin America’s proposal, Delta would offer less overall annual capacity in the market than United. More important is that United’s proposal would respond to the peak traffic demand in the market (offering a second daily flight in the summer months), whereas Delta has offered no seasonal adjustment in its schedule. Regarding Virgin America, while the Department has often considered new entry as an important carrier selection factor, we weigh this factor, as we do any carrier selection factor, in the context of achieving a result that would best serve the public interest in a given case. Thus, although Virgin America might offer certain advantages because of its new entrant status, we cannot, in evaluating the relative merits of its proposal, overlook that Virgin America would offer the least annual capacity and the fewest connecting opportunities of any of the applicants in this case. Also, based on the record, Virgin America does not yet have the necessary operations specifications from the FAA to operate the proposed service; does not yet have the aircraft to operate the proposed service; and does not yet have a station in San Jose del Cabo. These factors take on greater weight in a case such as this, which we expressly stated is being held on an expedited schedule designed to enable a prompt replacement for a carrier vacating the market. By: Michael Reynolds
April 21, 2008 Delta is disappointed by the Department's decision to make this primary award to United, especially given the inherently unrealistic nature of United's service proposal, the fact that United would offer less capacity than Delta for three-quarters of the year, and the fact that even on an annual basis United would offer only 9,300 more seats than Delta. Notwithstanding this, the Show Cause Order correctly recognizes the important public benefits of Delta's proposal in its tentative decision concerning back-up authority. Given the clear superiority of Delta's proposal to that offered by Virgin America, this conclusion was clearly correct. Delta does not object to the Department's tentative decision in the Show Cause Order. Delta is eager to begin service on this important route as soon as possible in the event that its proposed back-up authority is activated. Counsel: Delta, Scott McClain, 404-773-6514
April 21, 2008 Virgin America Inc. respectfully objects to the tentative findings and conclusions set forth in pages 5-7 and Ordering Paragraph No. 1 of Order 2008-4-20 insofar as the Department of Transportation failed to award Virgin America exemption authority to provide foreign scheduled air transportation of persons, property and mail in the Los Angeles-San Jose del Cabo market. More troubling, however, is the fact that this decision and others recently made by the Department seem to indicate a reversal of some thirty years of precedent and philosophy in considering the value and importance that new entrant carriers provide to the traveling public in the form of more competition, lower fares, more innovation and better service. Virgin America respectfully hopes that this new pattern of Departmental decision-making becomes tempered by the prospect of industry consolidation and the realization that there is no motivation or willingness by incumbent legacy carriers to effectively utilize scarce public assets such as airport slots or bilateral route rights such as those at issue here. The tentative decision fails to meaningfully consider Virgin America’s high quality service, low fares, and competitive connections that are vastly superior than those proposed (or, in the case of fares, not proposed) by the other applicants in this proceeding. When properly considered, Virgin America’s proposal will maximize the public benefits resulting from this award. Counsel: Virgin America, David Pflieger, 650-762-7115, dave.pflieger@virginamerica.com
OST-2008-0056 - 2008 Los Angeles-San Jose del Cabo Exemption Proceeding
April 28, 2008 The injection of effective new competition into limited entry markets is obviously a public benefit that should be relevant in any competitive route case in which limited entry rights are at stake. However, all three carriers in this case would be new entrants on this city pair, and both United and Delta proposed to inject more new-entrant capacity into the market than Virgin. Virgin's effort to turn its lack of experience serving Mexico into a virtue rather than a deficiency, provides no basis for giving it any special preference in this proceeding. Counsel: Delta, Scott McClain, 404-773-6514
April 28, 2008 Consolidated Answer of United Air Lines The Department's tentative decision to award United primary exemption authority to introduce service on the Los Angeles-San Jose del Cabo route is sound and well reasoned. No objections have been raised that could justify an alternative outcome. Delta does not object to the Department's decision, but rather submitted brief "comments" in support of its tentative selection for an award of back-up authority. Virgin America alone objects to the Department's decision. Virgin America's response, which essentially is a lengthy restatement of its previous arguments in support of its application, does not offer any valid basis (e.g., in terms of new evidence or arguments) for the Department to reverse its tentative decision. United requests that the Department issue a final order confirming its selection of United as soon as possible, so that United can begin the process of implementing its service plans without delay. Counsel: Wilmer Hale, Bruce Rabinovitz, 202-663-6960, bruce.rabinovitz@wilmerhale.com |
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