OST-97-2970 / America West / High Density Rule, New York LaGuardia and Chicago O'Hare / Response of America West to United / December 31, 1997
Application of
AMERICA WEST AIRLINES, INC.
for an exemption pursuant to 49 U.S.C. § 41714
Columbus - New York LaGuardia Airport, Phoenix - Chicago O'Hare Airport
MOTION FOR LEAVE TO FILE AND RESPONSE
OF AMERICA WEST AIRLINES, INC. TO
THE SECOND UNAUTHORIZED FILING BY UNITED AIR LINES, INC.
America West Airlines, Inc. (America West) requests leave to file this response to United Air Lines, Inc's. (United)
second unauthorized filing in this docket. This document repeats the same arguments United made in its two prior filings opposing America West's application for five O'Hare slots to fill a significant void in low-fare full service from O'Hare to Phoenix and the West Coast.America West filed its application for an exemption under 49 U.S.C.§ 41714(c) on
October 3, 1997. The application explained that Chicago O'Hare constitutes a separate market from Midway, and that slot constraints at O'Hare prevent America West from offering competitive low-fare full service at peak demand times to its principal hub of Phoenix and beyond to the West Coast. America West demonstrated in its application that approval of five slots at O'Hare would enable it to provide significant low-fare competitive benefits to both
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business and leisure travelers through its Phoenix hub. America West also demonstrated how the need for new low-fare competition coupled with its unique status as the only low-fare full service major carrier with virtually no slots at O'Hare met the Department's public interest and exceptional circumstances test. Answers were filed by several incumbent carriers including United on
October 20, 1997. United's answer was approximately 10 pages of which 2 were devoted to the issue of whether O'Hare and Midway constituted separate markets. On October 27, America West filed a consolidated reply, the last pleading authorized by the Department's Rules of Procedure. Approximately 3 pages, of the reply was directed at rebutting the incumbents' arguments that Chicago - Phoenix was a single well served market. America West's rebuttal relied largely upon the Department's Report to Congress, A study of the High Density Rule, May 1995. (HDR Report).On
November 7, United filed a 24 page unauthorized reply. While ostensibly claiming a right to comment on the Department's decision in Application of Simmons et. al, Order 97-10-17, October 24, 1997, approximately 20 pages of United's unauthorized submission presented arguments about O'Hare and Midway which it could have, and should have raised in its prior answer. America West, on November 21, filed a reply noting United's effort to delay and confuse the straight forward issues in this proceeding, again demonstrating the separate nature of the O'Hare and Midway markets and reaffirming the critical need for more competition to
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Phoenix. Now a month later United files yet another unauthorized 25 page paper in which it reargues exactly the same points to further delay a decision by the Department. /1
Given this history, America West in the strongest possible terms urges the Department to reject United's filing as extremely late and imposing a needless burden on the Department and on America West which must again respond to United's efforts to delay the Department's decision and obfuscate the issues. In addition, America West respectfully suggests that the Department issue an order to prevent the filing of additional unauthorized pleadings.
I. UNITED'S HAS AGAIN FAILED TO DEMONSTRATE THAT O'HARE AND MIDWAY CONSTITUTE A SINGLE MARKET
America West reaffirms all the points made in its application, consolidated reply and reply to United's first unauthorized reply. None of the accusations contained in United's second unauthorized response undermine the fact that O'Hare and Midway generally service different passenger markets. America West simply cannot provide the much needed competitive low-fare service to the local and connecting business and leisure traffic between O'Hare and Phoenix and
1/ Amazingly, United states it has been too busy to respond earlier to America West's prior filing while threatening the Department that its due process rights would be denied unless it has the last word to challenge America West's responses to United's prior unauthorized filing.
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the West Coast by service to Midway. /2 This is not a matter of conjecture. As shown in America West's
Exhibit B to its prior filing, the airline operated Midway - Phoenix service for over two years without success.United would have the Department hold there must be absolutely no cross-elasticity of demand between O'Hare and Midway to support a finding that the two airports constitute separate markets.
United unauthorized response at 5. This is a ridiculous proposition and should be rejected. What America West has demonstrated is that these two airports serve substantially different markets which supports the fare premium discussed in the HDR Report. Specifically, O'Hare caters to business and connecting traffic and Midway primarily serves purely local leisure traffic. In this regard, America West demonstrated in its prior filing that contrary to United's earlier assertions, United is able to maintain a substantial fare premium out of O'Hare because of a traffic mix which is business oriented. Indeed, it was in direct response to United's prior claim that America West had not performed an "apples to apples" market comparison that America West compared United and Southwest fares in markets where the two carriers served the same airports versus markets where United operated at O'Hare and Southwest operated at Midway.2/ For the third time United argues that limited slots should be used for small community and international service presumably by providing slots for its commuter affiliates and its international flights. This is a red herring for two reasons. First, Congress has specifically provided for the award of new entrant slots. Second, there are adequate slots available to provide five slots to America West and also meet other needs. Indeed, on November 6, the Commissioner of Aviation for the City of Chicago reported that capacity enhancements at O'Hare have resulted in a 28% reduction in delays and referenced a recent GAO report which found more capacity exists then allowed under the current slot rules. See ACI, Airport Highlights December 8, 1997 at 1.
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United's latest retort provides further evidence to support America West's analysis that O'Hare and Midway serve separate markets. Thus, United states that in California, where it goes head-to-head with Southwest, it was forced to create the "Shuttle by United" to remain competitive, while at O'Hare it can maintain a substantial fare differential. The fact that it maintains this differential by serving business and connecting travelers is exactly the point America West has argued from the start net, that business and connecting passengers move predominantly through O'Hare. United's lengthy and vague effort at explaining its 101% higher average fare for O'Hare - Louisville service versus Southwest's Midway - Louisville fares also supports America West's market definition.
United unauthorized response at 7-10. Essentially, United says it once controlled the whole Chicago - Louisville market but abandoned the low fare passengers willing to fly on Southwest at Midway while retaining for itself the higher fare business and connecting passengers at O'Hare to whom it can charge a substantial fare premium. Clearly, O'Hare is a separate market. Otherwise, United's fares would need to be similar to its fares in California to retain any significant traffic in Southwest markets.United is similarly in error when it attempts to explain why major full service carriers such as American, Continental and TWA have dropped service from their hubs to Midway. United unauthorized response at 10 - 13. United turns logic on its head in attempting to suggest that abandoning Midway while maintaining O'Hare service shows the two airports constitute a single market. In fact, as America West explained in its earlier reply to United, dropping service to Midway proves the markets are not the same. Specifically, if the two airports served the identical markets these carriers would discontinue service to O'Hare, sell their valuable
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O'Hare slots to United or American, and operate Chicago service at Midway. If the passengers were at Midway, these carriers could maintain the same fares, operate at lower costs and thus obtain higher profit margins. /3 This transition has not occurred because the business and connecting passengers these carriers wish to serve are primarily going to O'Hare and not to Midway. /4
Additionally, America West demonstrated in its reply to United's first unauthorized filing that United's fares in the Chicago -Phoenix market are a response to America West's current limited low-fare service at O'Hare and are not related to Southwest's single-plane service from Midway. As evidence of this fact America West compared Chicago - Phoenix fares to Los Angeles - Chicago fares which showed that fares to Los Angeles averaged 57 % higher than fares to Phoenix. See America West's
Exhibit C to its reply to United. In the Chicago - Los Angeles market Southwest serves from Midway. However, United has no low-fare competition from O'Hare. United in its second unauthorized response seeks to explain away this huge fare disparity based upon greater mirage and the passenger mix in the Los Angeles market. These3/ United argues in footnote 4 that carriers would not abandon O'Hare because of their investment in O'Hare facilities. However, a fundamental economic principal is to not consider sunk costs in making future production decisions. Moreover, United provides no support for its contention that these carriers could not recoup their O'Hare investment.
4/ United's discussion of Northwest's O'Hare - Minneapolis fares is additional evidence supporting America West's premise that the O'Hare market is the favored airport of the business traveler. Business passengers would benefit substantially if America West could offer a full pattern of competitive low-fare full service to Phoenix and the West Coast.
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two factors might explain a fare differential of 10 - 20 percent but cannot possibly explain the average fare differential of 57 percent. /5
Finally, United attempts to distort America West's discussion of user patterns which further differentiate O'Hare from Midway. America West pointed out in its earlier reply that in addition to being the favored airport for business travel, O'Hare offers connecting opportunities for domestic and international traffic that do not exist at Midway. United's sophist argument that America West's desire to offer the benefit of competition to travelers from the West Coast and Phoenix to Chicago is somehow "inconsistent" with providing low fare service to international or domestic connecting passengers should be ignored. Obviously, United would prefer to keep all this connecting traffic to itself, but it is strongly in the public interest for these travelers to have a low-fare alternative at O'Hare and America West would certainly attempt to attract such interline connecting traffic in addition to servicing the local market.
II. UNITED HAS FOR THE THIRD TIME FAILED TO SHOW THAT THE O'HARE - PHOENIX MARKET IS ADEQUATELY SERVED
United's second unauthorized filing repeats yet again its misleading claim that the "Chicago-Phoenix" market is not underserved. America West in its prior filings has demonstrated that the O'Hare-Phoenix market is very constrained and travelers would significantly benefit from additional service by America West. In this connection, America West
5/ The stage adjustment for length of haul should be no more than 10 - 11%.
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has pointed out that the seven other major full service carriers average 12 daily departures from O'Hare to their primary hubs. However, America West currently can only offer three departures from O'Hare and much of this service is at off-peak times. /6 Moreover, the extremely high average load factors in the O'Hare-Phoenix market (which are substantially higher than the average system load factors for United and American) obviously document an unmet need for more service in this market. There is no doubt that a reasonable pattern of service by America West between O'Hare and Phoenix would result in a tremendous competitive benefit for passengers in the primary market and in beyond markets to the West Coast.
United again incorrectly asserts that America West is just like every other hub and spoke carrier operating out of O'Hare and must make hard choices about what markets to serve. Of course America West is not like every other major carrier at O'Hare since it is a new entrant within the meaning of 49 U.S.C. § 41712. Moreover, unlike United, America West does not have hundreds of slots at O'Hare given to it by the government to move among markets. Finally, contrary to United's assertion, America West has never contended that its "status" alone constituted an "exceptional circumstance." Rather, America West quite properly believes that its status as a new entrant, coupled with the competitive needs of the market and the unique competitive benefits it can provide through the carrier's low-fare full service network together create exceptional circumstances within the meaning of the statute and the Department's orders.
6/ United's repeated suggestion that America West give up all its LaGuardia slots to operate more O'Hare service would leave LaGuardia-Phoenix/Las Vegas and West Coast beyond markets without any direct low-fare full service and would not be in the public interest.
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CONCLUSION
At the close of the procedures authorized by the Department's rules, there was adequate evidence in the record upon which the Secretary could grant the slots requested by America West to enhance competition from Chicago/O'Hare to Phoenix and the West Coast. United has chosen to disregard the Department's rules and has twice filed lengthy repetitive objections with the apparent purpose of delaying a decision and imposing needless burdens on the Department's staff and America West. America West respectfully suggests that the Department deny United's request to file its second unauthorized response and issue a notice that no further pleadings will be accepted in this docket. America West also urges the Department to expeditiously approve the requested slots so America West can bring the competition which United so strenuously opposes to the Chicago/O'Hare - Phoenix and West Coast markets.
Respectfully submitted,
Joanne W. Young
David M. Kirstein
BAKER AND HOSTETLER, LLP
Washington Square, Suite 1100
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5304
(202) 861-1532
December 31, 1997