DOCKET: OST-95-277 / Western Pacific / Reply of WestPac / 6/13/97

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.

MOTION FOR

LEAVE TO FILE

REPLY

United's Answer in this proceeding reminds one of the arguments made in the mid-1970s in Civil Aeronautics Board pleadings and Congressional testimony by entrenched incumbents opposed to deregulation, when these carriers expressed grave concerns about the effects of new competition on the "investment" these carriers had made in their existing route systems and advocated maintenance of a system of "regulated" competition. Indeed, the only phrase missing from United's pleading herein is that grant of Western Pacific's exemption application would "destroy the nation's air transportation system as we know it today."

The great irony of the position advocated by United today is that it was United which advocated in the 1970s that the government should disregard these "protectionist" arguments and proceed with deregulation. United has, however, now come full circle, urging that the Department recognize United's "investment" in its slots and connecting traffic at O'Hare and relegate Western Pacific, in the name of "regulated" competition, to providing service in only the Colorado Springs-Midway market.

Such a system of "regulated" competition was rejected by the Congress in 1978 with the passage of the Airline Deregulation Act, and the Department has consistently rejected the arguments now being made by United in favor of a marketplace in which competition rather than governmental decisions determines where service is provided and at what fares. Unfortunately, the High Density Airport Rule stands as a significant barrier to entry at the four airports where it remains in place, a barrier which has been well-documented by the General Accounting Office and others over the years. In response to these studies and the arguments of carriers which found it impossible to gain entry at the slot-controlled airports, the Congress enacted Section 206(c)(1) of the Federal Aviation Act of 1994, 49 U.S.C. § 41714(c)(1), to address this important competitive issue at O'Hare and other slot-controlled airports. Just as the Congress and the Department have consistently rejected efforts to regulate the nation's air transportation system, however, United's arguments must be rejected as a thinly veiled effort by an incumbent carrier to utilize a government regulation to avoid competition.

Turning now to the specifics of United's answer, Western Pacific did not, in its most recent submission, move "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)." Instead, Western Pacific had petitioned for reconsideration of Order 95-4-33 on May 10, 1995, and that petition has not yet been acted upon by the Department. Thus, rather than leaping onto the "competitive" bandwagon (United Answer at 2), Western Pacific's Supplemental Response simply reviewed the most recent reports prepared by the General Accounting Office concerning barriers to entry and updated the data previously provided to the Department, which data demonstrated the need for granting the requested exemption in order to provide badly needed competition to United in the Colorado Springs-O'Hare market. Faced with the compelling nature of this data in establishing the exceptional circumstances and public interest basis for grant of this exemption, United has instead resorted to several time-honored incumbent carrier ad hominem arguments concerning access to the slot-controlled airports, to which we now turn.

First, and perhaps most importantly, rather than, as suggested by United, seeking to "obtain valuable slots without the requisite investment," United has conveniently forgotten that Western Pacific approached United in 1995 to determine whether United had any slots to be sold to, or leased by, Western Pacific. United informed Western Pacific that it did not have any slots for sale or lease l/, and that coupled with a similar

1. Indeed, it has been reported that United has not sold a single slot at O'Hare for the past four years; Consumers' Research Magazine, February, 1997.

response from American (which together control 87% of the slots at O'Hare) occasioned Western Pacific's application herein. Given the intransigence of the two carriers which control slots at O'Hare, Western Pacific is seeking slots in the only manner in which new entrants can obtain slots at O'Hare today.

Second, it comes with particularly poor grace for United, after having refused to enter into any type of slot transaction with Western Pacific, to argue that Western Pacific is seeking to obtain valuable slots without the requisite "investment" and that Western Pacific "should, like all other competitors, bid for slots in the after-market." As United and the Department are well aware, United paid absolutely nothing for the literally hundreds of slots it was given on a grandfathered basis by the Department in 1986 when the "buy-sell" rule became effective. This was not a government subsidy, but instead an absolute, unconditional grant of a governmental right which was worth hundreds of millions of dollars to United. In this application, Western Pacific is seeking nothing more than what was bestowed, a hundred fold, on United in 1986.

Third, United's "sky is falling" claim that grant of Western Pacific's application could result in the creation of 279-360 additional slots at O'Hare is simply wrong. The Department has stated, in each of its orders issued under Section 206(c)(1), that it considers each application on a market-by-market basis, and will grant an exemption only when the facts and circumstances in a particular market warrant such a result. Thus, the number of applications and slots awarded by the Department will be evaluated on a case-by-case basis under the Department's control.

Fourth, since, as just indicated, the Department considers slot exemption applications on a market-by-market basis, United's assertions about the competitiveness of the overall Chicago market are simply not relevant under this statute. Moreover, as the GAO report indicates, competition for slots at O'Hare (the key ingredient for competition at O'Hare) is anything but competitive, with American and United controlling 87% of the slots, an increase from 66% in 1986, when the buy-sell program began.

Fifth, given the very different connecting opportunities provided at O'Hare (including all international connections), United's claims about Midway service and competition are inappropriate. While Midway service can provide a competitive alternative to some portion of the O'Hare local market, it provides no competitive alternative to traffic which connects at O'Hare. As Western Pacific demonstrated in its third supplemental response, about 75% of United's traffic in the Colorado Springs-O'Hare market is connecting, not local, traffic.

Sixth, United's claims that Western Pacific should not be permitted to participate in O'Hare connecting traffic opportunities harken back to the darkest days of regulation. This is not United's or American's traffic, but is instead passengers who are free to fly on whatever carrier they choose. The government should continue to encourage, rather than discourage, competition for these passengers.

Seventh, although United attempts rely upon the GAO's 1990 report on slot utilization to urge that no new entrants be given slots at O'Hare, the statistics quoted by United relate to slot utilization at all slot-controlled airports, not simply O'Hare. Moreover, as new entrant carriers have pointed out on several occasions, the FAA regulations, which required that the carriers only operate the slots for ninety days before selling them, were an invitation to abuse of the process. And, as United may have forgotten, United was one of the abusers of the system, when it purchased six National airport slots from its code-share partner, Air Wisconsin, which had obtained the slots in a FAA conducted lottery and had operated them for the requisite minimum period of time. See Recommended Decision of Administrative Law Judge Ronnie A. Yoder (September 21, 1987), Appendix K at 1.

Eighth, United's examples of carriers which have successfully competed against hub carriers at their hubs (Southwest at Los Angeles, Southwest at St. Louis and Valujet at Atlanta) undermines, rather than supports, United's arguments. It was precisely because Los Angeles, St. Louis and Atlanta were not slot controlled that Southwest and Valujet could mount a significant level of operations to compete with the incumbent hub carriers. No one seriously contends that even the most sophisticated and well-financed new entrant carrier could enter the O'Hare duopoly to begin a hub operation. As long as the High Density Rule remains, the best that the Department can expect is that carriers such as Western Pacific can provide an important competitive spur in individual markets.

Finally, while Western Pacific is moving part of its operations to Denver, it will continue to provide service at Colorado Springs and is committed to providing service in the Colorado Springs-O'Hare market upon grant of the exemption requested herein.

In the last analysis, United's Answer is but a flurry of hands, devoid of any substantive discussion of the issues raised and data presented in Western Pacific's application. Just as the Congress rejected such arguments in 1978, the Department should reject United's arguments herein and proceed with the grant of the exemption requested by Western Pacific. The public will benefit greatly from the initiation of service by Western Pacific, and, as was demonstrated in the Third Supplemental Response, so will United.

WHEREFORE, for the foregoing reasons as well as those set forth in its Petition for Reconsideration and Supplemental Responses, Western Pacific Airlines, Inc. respectfully requests the Department of Transportation to reconsider Order 95-4-33 and award Western Pacific a total of four slots at O'Hare International Airport.

Respectfully submitted,

John E. Gillick

Winthrop, Stimson, Putnam & Roberts

1133 Connecticut Ave., N.W.

Washington, D.C. 20036

Counsel for Western Pacific

June 13, 1997 Airlines, Inc.