OST-98-3317 / Continental Airlines / US-Central America / January 7, 1998

NOTICE: Answers supporting or opposing this Application are due on or before January 22, 1998.

Application of

for an exemption pursuant to 49 U.S.C. § 40109

(U.S.-Central America)

Pursuant to 49 U.S.C. § 40109 and Rule 401 of the Department's Rules of Practice, Continental /1 applies for an exemption from 49 U.S.C. § 41101 permitting Continental to engage in scheduled foreign air transportation of persons, property and mail between any point or points in or behind the U.S. and any point or points in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama and any points or points beyond those countries as well as between any point or points in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama on flights originating or terminating in the U.S. Continental also requests authority between any point or points in the United States and Belize City, Belize,

1/ Common names of carriers are used.

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as well as the ability to combine that authority with other authority held by Continental.

In support of its application, Continental states as follows:

2. Although the specific services Continental currently plans are covered by Continental's route integration authority, Continental requires the flexibility to offer services between any points in the United States and any points in Central America and between points in Central America, and to combine its U.S.-Central America authority with its authority between the U.S. and other foreign points, to

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meet the shifting requirements of the marketplace. /2 Such flexibility has already been awarded to the TACA Group carriers, /3 and the Department has even proposed to permit the TACA Group to enter an alliance with American despite the unprecedented dominance of that alliance in the U.S.-Central America markets. Delta announced its first Atlanta-Central America services prior to the Department's tentative decision on American/TACA, although it remains to be seen whether such service will be feasible if the Department falls to reconsider its tentative American/TACA decision. Even without an American/TACA alliance, it remains to be seen whether Delta will institute and maintain any of its proposed Atlanta-Central America services since its previous announcements of Central America service were abandoned before they began. Whatever happens with the American/TACA alliance and Delta's proposed service, however, Continental should be given the flexibility to provide services between any point in the United

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States and any point or points in Central America as well as between points in Central America on flights serving the U.S. and the flexibility to combine this authority with other international authority held by Continental behind the U.S. and beyond Central America. Such authority will provide a firm basis for Continental's Newark-Central America service, allow Continental to serve other U.S. gateways as the need arises, and enable Continental to combine its Central American service with other international services. /4 Continental began its Central America service in 1988 with Houston-Belize City/Guatemala City/Tegucigalpa service, and it has served all of the Central American countries since 1990. Continental has developed its Houston hub further and begun developing its Newark hub into a comprehensive hub for service throughout Latin America, and Continental requires the maximum flexibility possible to meet the challenges posed by American's entrenched dominance at Miami and its expansion of Latin American services at Dallas/Ft. Worth, even without the possibility of an American alliance with all the major carriers of Central America and Delta's potential entry into Central America.

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3. Continental's application is consistent with the bilateral agreements between the U.S. and the Central American countries concerned, /5 and with the aviation relations between the U.S. and Belize. All six of the bilateral open skies accords authorize open entry on all routes, unrestricted capacity and frequencies on all routes, and the right to operate between the U.S. and any point in the corresponding country without restriction, including service at behind, intermediate and beyond points.

4. Continental holds various certificates of public convenience and necessity and exemptions authorizing it to engage in scheduled air transportation of persons, property and mail, and Continental is clearly fit to conduct U.S.-Central America-South America services. See, e.g., Orders 97-7-33 (renewing Continental's Newark-Panama City-Guayaquil exemption); 97-6-16 (authorizing Continental to provide Newark-Caracas service; 96-4-20 (authorizing Continental to provide Newark- Guatemala City service via San Salvador).

For the foregoing reasons, Continental asks the Department to grant promptly an exemption permitting Continental to engage in scheduled foreign air transportation between any point or points in or behind the U.S. and any point or points in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama and any points or points beyond those countries as well as between any point or

5/ See Air Transport Agreements between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama concluded in San Jose, Costa Rica, May 8, 1997.

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points in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama on flights originating or terminating in the U.S. and between a point or points in the U.S. and Belize City, Belize and to combine this authority with Continental's other exemption and certificate authority.

Respectfully submitted,

CROWELL & MORING LLP

R. Bruce Keiner, Jr.

Steven A. Mirmina

Counsel for Continental Airlines, Inc.

January 7, 1998