OST-97-2477 / OST-97-2481 / Undocketed

 

Applications of

AMERICAN AIRLINES, INC. and AERO CALIFORNIA, S .A. de C. V.

for exemptions under 49 USC 40109 and statements of authorization under 14 CFR Parts 207 and 212 (U.S.-Mexico code-sharing)

 

JOINT REPLY OF AMERICAN AIRLINES, INC. AND

AERO CALIFORNIA, S . A. de C . V.

 

American Airlines, Inc. and Aero California, S.A. de C.V. hereby reply jointly to the answers submitted on May 22, 1997 by Alaska Airlines, Inc. and United Air Lines, Inc./Compania Mexicana de Aviacion, S.A. de C.V. /1 Neither Alaska nor United/Mexicana opposes the joint applicants' requests for U.S.-Mexico code-sharing approval, and we urge that all necessary authority be granted forthwith. However, these parties have raised issues concerning Mexico's designation policy. In reply, the joint applicants respectfully state as follows.

 

1/ The joint applicants have the right to reply in the captioned exemption dockets (14 CFR 302.402). The rules on undocketed applications for statements of authorization, however, do not provide a right of reply (14 CFR Parts 207 and 212). To the extent required, the joint applicants request leave to file this reply with respect to both the docketed and undocketed applications.

 

 

I. ALASKA AIRLINES

 

Alaska correctly notes that under the current policy of the Government of Mexico, "U.S. carriers operating on a code-share basis are treated in the same fashion as U.S. carriers operating their own aircraft for purposes of counting designations" (p. 2). Alaska goes on to suggest that as a condition for approval of the American/Aero California proposal, the Department should permit a U.S. carrier subsequently willing to operate any city-pair route, with its own aircraft and crews, to replace the code-sharing carrier and obtain the limited designation.

 

American and Aero California do not object to such a condition, provided that it is applied evenly to all U.S.-Mexico code-sharing arrangements, including Delta/Aeromexico, which the Department has already approved (Order 97-1-15, January 21, 1997), and United/Mexicana, which is pending in OST-96-1988. Indeed, the principle that service operated by U.S. carriers should not be precluded by code-sharing service is well established. See, e.g., Delta/Varig, Order 94-3-33, April 26, 1994; American/South African Airways, Order 92-10-19, October 9, 1992, p. 5 n. 9. Alaska's proposal is therefore unexceptionable, so long as it is applied evenly to all similarly-situated carriers.

 

Alaska also contends that American should be precluded from "any entry" in the Los Angeles-Mexico City market, presumably meaning even on a code-sharing basis, because of the "well-known history of Alaska's interest" in serving that route, which Alaska has been unable to do in light of designation limits imposed by the Government of Mexico. American urges that the Department not erect any such barrier as suggested by Alaska.

 

If the Government of Mexico determines to allow American and Aero California to serve the Los Angeles-Mexico City market on a code-sharing basis, surely the Department should not prevent such service, even if Mexico continues to limit additional direct flights by U.S. carriers over this route. While American favors complete freedom of entry in the U.S.-Mexico market, and would itself serve the Los Angeles-Mexico City route if the opportunity were available, the Department should, in the interim, welcome the possibility of code-sharing service in this city-pair as substantially enhancing competition. Alaska's proposed restriction should be rejected.

 

II. UNITED/MEXICANA

 

United and Mexicana state that they "have no objection to the authority sought by American and Aero California," but that they "do not want the bilateral questions raised by the scope of that authority and the possible need for numerous new designations to delay approval of the United-Mexicana codeshare application that has been pending for nearly six months" (p. 1). They state that "[b]oth code shares will produce benefits similar to those under the Delta/Aeromexico code shares that have previously been approved. Although there is no agreement on code sharing between the U.S. and Mexico, both governments have allowed code sharing to operate in recognition of the benefits it will bring to consumers on both sides of the border" (p. 3).

 

American and Aero California believe that it is procompetitive to authorize broadened code-sharing arrangements in the U.S.-Mexico market. We understand that the Department has urged the Government of Mexico to liberalize its aviation policy to allow code-sharing without requiring designations of marketing carriers, or without counting toward bilateral limitations the designations of marketing carriers in codesharing relationships between airlines of the two countries (as is the case with Brazil).

 

Mexicana and affiliated carrier Aeromexico (which are under common ownership of the Cintra Group) have by far the largest presence among Mexican-flag airlines serving the U.S.-Mexico market. These carriers are in a unique position to persuade their Government that it is in the best interest of the travel and tourism industry in Mexico to apply a designation policy that would permit liberalized code-sharing services.

 

Such an effort by Mexicana within Mexico is likely to be far more productive than complaining to the Department that its delay in acting on the United/Mexicana code-sharing application is "unfair and inexplicable" (p. 5). American and Aero California fully support the principle that designations should be made available for liberal code-sharing arrangements of the type that they have proposed here, and that United and Mexicana would apparently like to benefit from as well. We urge Mexicana to support the same principle in order to promote competition, benefit consumers, promote the travel and tourism industry in Mexico, and benefit all of the carriers -- both U.S.-flag and Mexican-flag -- involved in these arrangements.

 

CONCLUSION

 

Aside from suggested conditions with respect to designation limitations, the American and Aero California applications for code-sharing authority are unopposed. The Department should immediately grant these applications, and should continue to work with the Government of Mexico to achieve a code-sharing designation policy that will increase competition and provide benefits to consumers in the U.S.-Mexico market.

 

Respectfully submitted,

David Coburn of Steptoe Johnson for Aero California

Carl Nelson of American Airlines