Order 98-1-29 / OST-97-3073 / American Airlines / Cuzco, Peru / January 28, 1998

Issued by the Department of Transportation on the 28th day of January, 1998

Served: January 28, 1998

Application of

under 49 U. S. C. 40109 for an emergency exemption to serve Cuzco, Peru

By this order, we grant American Airlines, Inc., exemption authority for one year to serve the New York (JFK), New York-Cuzco, Peru, market via Lima, Peru. /1

Under the U.S.-Peru bilateral aviation agreement, U.S. carriers may operate a total of 42 weekly frequencies in the U.S.-Peru market. Those frequencies are currently allocated as follows: American, 21 weekly frequencies (14 for service from the Miami gateway and 7 for service from the Dallas/Ft. Worth gateway); Continental, 14 weekly frequencies (7 for service from the Newark gateway, and 7 for service from the Houston gateway); and United, 7 weekly frequencies for service from the Miami gateway.

AMERICAN'S APPLICATION

1/ American holds underlying route authority between New York and Lima by its certificate for Route 389, as amended by Order 92-6-21, June 14, 1992. On September 10, 1992, American filed in Docket 38343 a timely application for renewal and realignment of its certificate for Route 389. American's authority for this route remains in force under the provisions of the Administrative Procedure Act and 14 CFR Part 377.

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Continental, Delta, and United each argues that (1) the U.S. Government has sole authority to negotiate bilateral rights for the benefit of all U. S. carriers, and it would be inappropriate for American to negotiate a private deal with Peru for additional frequencies, which would come at the expense of other carriers;3 (2) it would be unlawful and inconsistent with U. S. international aviation policy for the Department to cede its carrier selection authority to Peru, by allowing Peru to designate American as its "chosen instrument" for additional U.S.-Peru opportunities; and (3) the selection of American to provide additional U. S.-Peru services would have the worst possible effect on competition between the U.S. and Peru because American is the dominant carrier to Peru, and any available frequencies in excess of American's existing allocation should be awarded by the Department in a carrier selection proceeding.

Delta states that it is submitting its own application for U. S.-Peru authority to allow it to operate Atlanta-Lima service (Docket OST-97-3 124), together with a motion to consolidate Delta's application and American's proposal to use additional Peru frequencies.

United states that it, along with other U.S. carriers serving Peru, was solicited by Peru with regard to its possible interest in serving other points in Peru outside of Lima. However, United states that it understood that solicitation to involve only flights to such points outside Lima either nonstop from the U. S. or by extension of existing U.S.-Lima flights.

American argues that Delta's application is not responsive to the urgent request by Peru for service to Cuzco for the coming winter season, and, therefore, is not mutually exclusive with American's application. Further, American argues that the opposing carriers' various complaints about American's overall position in the U.S.-Peru market provide no basis for denying the authority American has requested since both Continental and United declined Peru's invitation to propose additional services.

Under a December letter, the Government of Peru agreed that the United States may authorize a U. S. carrier to operate a daily flight on a New York-Lima-Cuzco routing for service beginning in January 1998, and also authorize operation of an additional seven weekly frequencies in the U.S. -

2/ Delta accompanied its filing with a motion for leave to file, which we will grant.

3/ Continental also urges the Department to deny the application and institute an investigation of American's activities in Peru.

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Lima market beginning no earlier than June 1998. These later frequencies may also serve Iquitos, on a coterminal basis with Lima. /4

We have decided to grant exemption authority to American for one year for service in the New York-Cuzco market via Lima. We also allocate to American seven weekly frequencies for this service. The frequency allocation will be subject to our standard 90-day dormancy provision.

U.S. carrier services in the U. S. -Peru market are limited. While three U. S. carriers, American, Continental, and United, serve the market, they may operate a combined total of no more than 42 weekly frequencies. Late last year, the Governments of the United States and Peru undertook negotiations toward the conclusion of an open-skies bilateral agreement; however, such an agreement has not yet been reached. We expect that further negotiations on this subject will take place in the near future. In the meantime, the two parties have agreed to a mutual expansion of services in the market. In this regard, Peru has agreed to expand the opportunities for U. S. carriers to serve the market by making an additional 14 weekly frequencies available for U.S. carrier services--seven for services in the New York-Lima-Cuzco market effective in January 1998, and another seven weekly frequencies for services from any U. S. point and Lima/Iquitos, available in June 1998. These frequencies represent valuable opportunities to increase U.S.-carrier services in the market in the near-term.

American is the only carrier that has applied to serve the New York-Lima-Cuzco market. Its service not only will expand the service options available for New York-Peru passengers, it also will make immediate use of the New York-Lima-Cuzco route opportunity. While other carriers have objected to American's application, none has expressed interest in serving Cuzco or offered a competing proposal to serve the route. Against this background, we find that approval of American's application is consistent with the public interest, and will ensure that a valuable route opportunity is not wasted. /5

Contemporaneously with this order, we are issuing a notice inviting applications from U. S. carriers interested in using the seven additional weekly frequencies that will become available in June 1998 for U.S.-Peru service. /6

ACCORDINGLY,

1. We grant an exemption under 49 U.S.C. 40109 to American Airlines, Inc., to provide scheduled foreign air transportation of persons, property, and mail in the New York (JFK), New

4/ Peruvian carriers will also receive the right to introduce 14 additional frequencies on dates as near as possible to those on which the new U.S.-carrier services to Peru will begin.

5/ We are unpersuaded that an investigation into American's activities in Peru is warranted. The authority granted American by this order is founded on an agreement between the Governments of the United States and Peru, not a private contractual arrangement between American and the Government of Peru.

6/ Under the terms of the December letter, the applications of American and Delta are not mutually exclusive; we will accordingly dismiss Delta's motion to consolidate its application with that of American to serve Peru. The notice we are contemporaneously issuing, inviting applications for the seven additional weekly frequencies for U.S.-Peru services, acknowledges Delta's expressed interest in serving Peru, and makes clear that Delta will have the opportunity to pursue its interest in that proceeding.

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York-Cuzco, Peru, market, via Lima, Peru, and we allocate it seven weekly frequencies for this service;

2. The authority granted in ordering paragraph 1, above, will be effective immediately for a period of one year from the service date of this order;

3. The frequencies allocated in ordering paragraph 1, above, are subject to the condition that the frequencies will revert automatically to the Department if they are not used for a period of 90 days;

4. We dismiss the motion of Delta Air Lines, Inc. for consolidation of its application in Docket OST-97-3 124 with the application of American Airlines, Inc., in Docket OST-97-3 073;

5. We grant the motion of Delta Air Lines, Inc., for leave to file an otherwise unauthorized document in Docket OST-97-3073;

6. To the extent not granted or dismissed, we deny all other motions and requests in this docket; and

7. We shall serve this order on American Airlines, Inc.; Continental Airlines, Inc.; Delta Air Lines, Inc.; United Air Lines, Inc.; the Ambassador of Peru in Washington, D.C.; the U. S. Department of State (Office of Aviation Negotiations); and the Federal Aviation Administration (AFS-200).

By:

CHARLES A. HUNNICUTT

Assistant Secretary for Aviation and International Affairs

(SEAL)