Docket OST-95-277

Application of

WESTERN PACIFIC AIRLINES, INC.

for an exemption from 14 C.F.R. Part 93, Subparts K and S. pursuant to Section 206(c)(1) of the Federal Aviation Administration Authorization Act of 1994.

Western Pacific Airlines, Inc. ("WestPac") has moved to reopen consideration of its request for an exemption from the High Density Rule under the new entrant provision of § 41714 to provide Colorado Springs-Chicago O'Hare service. 49 U.S.C. § 41714(c). This request comes two years after the Department denied WestPac's original application on grounds that are still rational, legitimate, and sustainable today. Order 95-4-33.

Since its original application, WestPac has mounted a successful Colorado Springs-Chicago Midway service and announced the move of its hub from Colorado Springs to Denver./1 These circumstances obviate any suggestion that "extraordinary circumstances" exist sufficient to warrant WestPac's being given free slots at O'Hare under the exemption statute. Nevertheless,

1/ "Western Pacific and Mountain Air Express Announce Denver Entry," April 28, 1997.

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having leapt onto the "competition" bandwagon, WestPac apparently hopes that the Department will disregard its own precedent, the findings of its own High Density Rule Study, and, most importantly, the pernicious consequences of adopting a new "competition"-driven interpretation of "exceptional circumstances." As articulated by WestPac, Frontier /2 and ValuJet 3, "competition" is a limitless standard that will generate such a flood of applicants that any ability to rationally manage access to capacity-constrained High Density Airports will be washed away.

Other than its transparent attempt to join with Frontier and ValuJet in seeking to obtain valuable slots without the requisite investment, WestPac has provided no basis for a grant of the exceptional relief it is seeking in this proceeding. WestPac's 18-month old Midway Airport service has shown dramatic gains. This success proves that no "exceptional circumstances" exist sufficient to justify subsidizing WestPac's entry into O'Hare. If WestPac wants to compete at O'Hare, it should, like all other competitors, bid for slots in the after-market.

Approximately 45 city-pairs are served from O'Hare by a single carrier. A definition of "extraordinary circumstances" that includes subsidizing a second carrier in these markets with

2/ "Application of Frontier Airlines, Inc.," Docket OST 97-2230.

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enough slots to mount three or four round-trips in competition with the incumbent would require the creation of 279 to 360 additional slots. With this definition of "competition," the exemption process would simply overwhelm the High Density Rule.

WestPac is simply trying create "competition" issues where none exist. The fact is that Chicago is one of the most competitive aviation markets and the most competitive hub market in the country. Low cost carriers have made a critical impact in Chicago. The Department's April 1996 study of low cost carriers identified Chicago as among the largest cities with a majority (52%) of passengers traveling in low cost markets. /4 With the entry at Midway of low cost and new carriers like Southwest and WestPac, and the competition at O'Hare driven by the presence of two hub carriers, Chicago passengers realize all of the benefits of a vigorously competitive air transportation marketplace. The so-called "Southwest Effect" that the DOT identified in 1993 is alive and well in Chicago. /5 No competitive need is unmet; there is no competitive justification or "extraordinary circumstance" that requires giving WestPac free slots at O'Hare.

If competitive harm is being felt by any carrier, it is being felt by United which is the only carrier in the United

4/ "THE LOW COST AIRLINE SERVICE REVOLUTION," U.S. Department of Transportation, April 1996.

5/ See e.g. "Airline Deregulation Continues: The Southwest Effect," Department of Transportation, May 1993.

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States whose largest domestic hub is slot-controlled. The High Density Rule restricts United's ability to expand and enhance the efficiencies of its network. By limiting United's ability to grow, the High Density rule constrains its ability to compete with carriers at other hubs that are free to expand to meet local and connecting needs.

Midway, which WestPac now serves and which is not slot-controlled, has absorbed the growth of Chicago traffic at a compelling pace. Carriers at Midway are free to add capacity without regard to slot constraints. The result, as Chicago Department of Aviation statistics show, is that while passenger departures O'Hare have grown at an annual average rate of 2% between 1992 and 1996, at Midway the an annual average rate is 23% over the same period.

In view of the competitive nature of the Chicago market, the history of slot give-aways at O'Hare is instructive. The record is clear that since the institution of buy-sell, the government's subsidizing slots for new entrants at High Density airports to stimulate competition is a fruitless exercise. In its August 1990 study, GAO found that of the 152 slots originally available to be distributed to new entrants and limited incumbents by lottery, only 13, less than 10%, were in the hands of the

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original recipients. 6/ The majority of those allocated to new entrants and limited incumbents had been sold by the lottery winner to incumbent carriers at High Density airports that obviously could make better economic use of them. /7 Nevertheless, in its recent report, GAO glosses over the economic truism that, in an open market, absent government intrusion, assets of production will find their way to the highest and best economic use that can be made of them. /8 If anything, the newly-found slots the government is reportedly intending to distribute to new entrants would provide greater benefits to the traveling public if they were used to enable United to bring jet service to currently underserved communities to connect them to United's international network through O'Hare rather than to duplicate service in existing markets that are already well-served through Midway.

Successful new entrants and low cost carriers have generally developed business strategies that take advantage of their unique strengths and do not try to match the economies of scale and efficiencies that a large carrier can generate at its own hub.

6/ "Airline Competition: Industry Operating and Marketing Practices Limit Market Entry," GAO/RCED-90-147, August 1990, at 22-24.

7/ Id.

8/ See "Airline Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Domestic Markets," GAO/RCED-97-4, Oct. 1996, at 4.

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Carriers that have met these challenges, such as Southwest at Los Angeles and St. Louis, and ValuJet at Atlanta (before its accident), have done so on their own competitive merits, not with subsidies.

WestPac's service to Chicago's unconstrained Midway airport has had the desired effect -- overall Chicago-Colorado Springs traffic is up and the additional capacity has reduced fares. "Competition" is, indeed, being served. WestPac's only desire for O'Hare slots now is to take advantage of the "connecting" network available at O'Hare. Those connections, built by both United and American Airlines at O'Hare, are the product of investments of billions in infrastructure, facilities, equipment, personnel and marketing. WestPac is simply asking the government to give it access to this investment for free.

WestPac and the other new entrants seeking a government hand-out use the language of competition to cover their parochial self-interest. These carriers want access to the marketplace on the backs of the competitors that have sacrificed and made the enormous investments required to survive and compete. This application is not being renewed for the benefit of competition, but for WestPac's own bottom line. If WestPac were sincere about its desire to serve competition, it would continue to serve Midway, not re-open its application to serve O'Hare.

Certainly, if WestPac were a small business in any other industry in the country, it would not suggest that the government

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subsidize its ability to enter a highly competitive, tightly constrained market. In this case WestPac can show no need for the government to grant such extraordinary relief. WestPac's existing service to Midway is producing competitive benefits. No "extraordinary circumstances" exist to justify the Department's departing from its appropriate reading of the statutory criterion. /9 The Department's original decision should stand.

Respectfully submitted,

JOEL STEPHEN BURTON

GINSBURG, FELDMAN and BRESS,

CHARTERED

1250 Connecticut Avenue, N.W.

Suite 800

Washington, D.C. 20036

(202) 637-9130

Counsel for

UNITED AIR LINES, INC.

DATED: June 9, 1997

9/ DOT would doubtless be hard-pressed to explain a reversal of its decision in Order 95-4-33 and an adequate justification of such a step is certainly required. Bush-Quayle '92 Primary Committee, Inc. v. Federal Election Comm'n., 104 F.3d 448, 453 (D.C. Cir. 1997)(remand to the FEC for agency's failure to supply a reasoned analysis of change in policy); Ohio Fast Freight Inc. v. U.S., 574 F.2d 316, 319 (6th Cir. 1g78)(remand to the ICC for failing to articulate valid justification for departure from previous policy)) Public Service Comm'n. v. Federal Power Comm'n., 511 F.2d 338 (D.C. Cir. 1975).