Docket OST-97-2481, Docket OST-97-2477, Undocketed / Aero California and American / Reply of Continental / June 12, 1997
Application of :
AERO CALIFORNIA S.A. DE C.V.
for an exemption to code-share with American Airlines, Inc.
Application of :
AMERICAN AIRLINES, INC.
for an exemption to code-share with Aero California S.A. de C.V.
Joint Application of:
AMERICAN AIRLINES, INC. and AERO CALIFORNIA S.A. DE C.V.
for Statements of Authorization
CONSOLIDATED SURREPLY OF CONTINENTAL AIRLINES, INC.
AND MOTION FOR LEAVE TO FILE
The pleadings in this proceeding demonstrate that the time has come for the U.S. to negotiate appropriate code-share provisions with Mexico to assure that code-share services do not preclude the introduction of services operated by U.S. carriers with their own aircraft and crews and that U.S. carriers can introduce
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such services in markets, such as Los Angeles-Mexico City where U.S. and Mexican carriers are code-sharing but new entry is blocked.
American /1 and Aero California have applied for authority to code-share in over 1600 U.S.-Mexico city-pair markets. Alaska has expressed concerns about the potential pre-emption of other U.S.-flag services by the proposed code-share arrangement and about the lack of opportunities for entry into the Los Angeles-Mexico City market and urged the Department to condition any approval to prevent the American/Aero California code-share from precluding flights operated by U.S. carriers and to preclude American and Aero California from code-sharing in the Los Angeles-Mexico City market on direct or connecting flights. United and Mexicana have expressed concerns about delays in approval of their own application for authority to code-share with Mexicana. American and Aero California have replied, saying they would accept a condition on U.S.-Mexico codeshares which would "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" so long as the same condition is imposed on all U.S.-Mexico code-shares. Continental suggests a different solution: negotiating appropriate code-share provisions with Mexico before any further U.S.-Mexico code-shares are permitted and insisting on additional U.S.-flag designations in the
1/ Common names of carriers are used.
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Los Angeles-Mexico City market as part of that agreement. Continental also requests leave to file this surreply.
Continental states as follows in support of its position and its request for leave to file:
1. As Alaska argues and the applicants concede, the Mexican position on code-sharing would pre-empt additional U.S.-flag designations in markets where American and Aero California code-share. Thus the time has come to update the U.S.-Mexico agreement to meet the requirements of U.S. and Mexican carriers for code-sharing services and for additional U.S.-Mexico services in critical markets where designation limitations are precluding U.S. airlines from meeting customer demand. As both Alaska and United/Mexicana have argued, the American/ Aero California code-share is far broader in scope than applications previously granted, and granting the application could establish a precedent for broader codesharing by other U.S./Mexican airline partnerships. Before the Department approves a code-share arrangement of this magnitude, granting extensive access by Aero California to interior U.S. points and approving integration by the Joint Applicants of their U.S.-Mexico operations, the Department should secure appropriate amendments to the U.S.-Mexico bilateral agreement. Until the U.S. and Mexico have reached an agreement on code-share and independent services which meets the needs of U.S. carriers and their customers, no further approvals,
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including renewals of existing code-share authority, should be given for codesharing between U.S. and Mexican carriers.
2. The Los Angeles-Mexico City market demonstrates why a new agreement must be reached. Continental, like Alaska, has had a longstanding interest in serving the Los Angeles-Mexico City market, but it has been precluded from doing so because of the two-designation limitation insisted upon by Mexico in that market. Even with two U.S. carriers and two Mexican carriers serving the market independently, demand clearly has exceeded supply in the Los Angeles-Mexico City market for some time. Instead of four third/fourth freedom carriers serving the Los Angeles-Mexico City market independently, however, two pairs of carriers may soon be code-sharing together in the market. With Delta and AeroMexico already code-sharing in the market and United and Mexicana seeking authority to do so, effective competition demands additional entry in the market even more than it did when each carrier was offering its service entirely independently. In markets where only two carriers from each country can be designated and each of the Mexican carriers seeks to code-share with one of the U.S. carriers, the U.S. should insist upon open designation, or, at a very minimum, two additional designations for U.S. carriers. Such a solution would provide far more significant competition than the American/Aero California request for authority which would permit them to code-share on one-stop and
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connecting service between Los Angeles and Mexico City, although their request should be granted if (and only if) Mexico agrees to expand the U.S. designations available for Los Angeles-Mexico City service.
3. Although the Department's rules do not permit surreplies to replies to exemption applications, Continental urges the Department to grant it leave to file this surreply. The American/Aero California reply to the Alaska and United/Mexicana answers has raised broad policy issues which are important to Continental and to U.S.-Mexico air service, and the Department should have Continental's position on the record in this proceeding. Although Continental originally planned to answer the American/Aero California application itself, Continental decided not to do so until the broad policy issues were raised by the American/Aero California reply and the answers to which the applicants were responding. No party will be prejudiced by Continental's submission, which should not delay this proceeding.
For the foregoing reasons, Continental urges the Department to defer action on the American/Aero California applications pending negotiation of a U.S.-Mexico agreement which permits code-sharing without precluding additional designations
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and expands opportunities in the Los Angeles-Mexico City market to meet demand and to grant Continental's motion for leave to file this surreply.
Respectfully submitted,
CROWELL & MORING LLP
R. Bruce Keiner, Jr.
Lorraine B. Halloway
Counsel for Continental Airlines, Inc.
June 12, 1997