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 MOTION OF AMERICAN AIRLINES, INC. AND AERO

CALIFORNIA, S.A. de C.V. FOR LEAVE TO FILE AND RESPONSE

TO UNAUTHORIZED SURREPLY OF CONTINENTAL AIRLINES, INC.

 

American Airlines, Inc. and Aero California, S.A. de C.V. hereby jointly move for leave to file the following response to the unauthorized surreply submitted on June 12, 1997 by Continental Airlines, Inc. This response should be accepted in the interest of a complete record for the Department's consideration.

 

Apart from the fact -- as we will discuss below -that Continental's pleading is highly improper and in violation of the Department's rules and orderly administrative procedures, there is no basis to delay approval of the proposed American/Aero California code-share pending bilateral negotiations with Mexico.

 

According to Continental, the Department should not approve "any further U.S.-Mexico code-shares" until (1) the U.S. has negotiated "appropriate code-share provisions with Mexico," and (2) additional U.S.-flag designations for the Los Angeles-Mexico City marked have been achieved as part of the new agreement. The Department should reject Continental's position.

 

A moratorium on further code-share approvals would be unwarranted and anticompetitive. By Order 97-1-15, January 21, 1997, the Department approved a major code-sharing program between Delta Air Lines, Inc. and Aerovias de Mexico, S.A., finding that the "proposed codeshare operations will enable the carriers to expand services under their own codes, increasing the service options available to the public and promoting competition with other carriers serving the U.S.-Mexico market.... While there are no specific provisions in the U.S.-Mexico agreement governing codeshare operations. Mexico has previously approved codeshare operations proposed by Delta and Aeromexico as well as between other U.S. and Mexican carriers. In these circumstances, we believe that sufficient reciprocity exists to warrant approval of the proposed Delta/Aeromexico services" (p. 6).

 

Having approved the Delta/Aeromexico applications, despite the absence of a code-sharing provision in the bilateral agreement, it would not be appropriate for the Department to reject "further" requests, and indeed to do so would confer an unfair competitive advantage on Delta and on its partner Aeromexico, which with its affiliate Mexicana constitutes the dominant flag carrier of Mexico.

 

Continental argues that the U.S. should insist on amendment of the U.S.-Mexico bilateral agreement to allow for code-sharing and additional independent services in markets that are not being adequately served due to existing designation limitations. Whatever the merits of Continental's view that more designations should be made available in certain markets, consideration of that broader policy issue (as to which views may or may not be different on opposite sides of the border) should not delay prompt approval of the proposed code-sharing arrangement. The fact that the American/Aero California code-share embraces more city-pairs than other approved or pending agreements in this market does not change the essential facts that (1) the joint applicants have done no more than propose to code-share, and (2) both the Department and Mexican aeronautical authorities have previously approved code-sharing in the U.S.-Mexico market, and found it to be in the public interest.

 

Continental fails to demonstrate how approval of the code-share arrangement proposed here would in any way limit competition, or reduce options for providing independent services in any specific market. To the contrary, American and Aero California have agreed to accept a condition that would allow a carrier providing its own service on any particular route to replace code-sharing serv ice where necessary because of a limited number of available designations. American and Aero California have also agreed that they would not offer services in any particular market in excess of those allowed under the bilateral agreement. Thus, approval of their propos al does not require the Department to negotiate an amended bilateral agreement to address the broader competition policy questions that Continental seeks to inject into this proceeding.

 

Continental's interest in seeking a moratorium on new U.S.-Mexico code-shares pending negotiation of an amended bilateral agreement is not based on any principled reason why such a moratorium might be appropriate. Rather, what is plain is that Continental does not have a code-share partner in the U.S.-Mexico market, and thus wants to do what it can to delay or impede the ability of other carriers to offer new and competitive services to the traveling public.

 

The Department should clearly reject Continental's assertion that further code-sharing approvals should be held hostage to additional designations on the Los Angeles-Mexico City route. Alaska Airlines, Inc. made a similar claim in its answer of May 22, 1997, and our reply of June 3, 1997 to Alaska applies with equal force to Continental. While American would itself serve the Los Angeles-Mexico City route if the opportunity were available, the Department should, in the interim, welcome the additional competition that the American/Aero California code-sharing service will bring to the marketplace. There is no legitimate basis for linking additional U.S. carrier designations between Los Angeles and Mexico City to the code-sharing applications at issue here.

 

Indeed, Continental is in a particularly poor position to urge such as result, given the fact that the Department has allowed Continental and Alitalia to engage in code-sharing service between the United States and Italy, despite the absence of a code-sharing provision in the U.S.-Italy Air Transport Agreement, and despite the fact that the U.S.-Italy market is one of the most restricted in the world. American and others opposed the Continental/Alitalia arrangement, urging that the United States should first insist on expanded opportunities for U.S. carrier service. By Order 94-10-27, October 21, 1994, the Department approved the Continental/Alitalia code-share, finding that while "we fully share the opponents t desire for greater access to Italy," the arrangement would provide additional competition, significant consumer benefits, and improved service (p. 6). The same outcome is warranted here, and Mexico's limited designation policy should not be used as a reason to defeat the benefits that American and Aero California will offer.

 

Finally, we strongly object to Continental's contempt for orderly administrative procedures in submitting a "surreply" and motion for leave to file on June 12, 1997. American and Aero California filed their applications on May 7, 1997. Under 14 CFR 302.406, answers were due on May 22, 1997, or some three weeks prior to Continental's pleading.- Nothing was presented in the timely answers filed by United/Mexicana and Alaska on May 22, or in the timely reply filed by American and Aero California on June 3, to justify a "surreply" by Continental. Continental's arguments against further code-sharing approvals in the U.S.-Mexico market could have been made on May 22. /1 It is inexcusable for Continental to stand silent for three weeks, and then expect the Department to entertain its unauthorized pleading.

 

1/ Indeed, if Continental were concerned about code-sharing between U.S. and Mexican carriers, it should have responded to the Delta/Mexicana application (filed on October 25, 1996) when answers to that request were due on November 5, 1996 -- more than seven months ago.

 

 

Continental's meddlesome "surreply" should be rejected as improper and in complete violation of the Department's rules. The relief that Continental is suggesting is simply intended to frustrate American/Aero California (and United/ Mexicana) in their efforts to bring additional competition to the U.S.-Mexico market. The unremarkable applications at issue here should be approved forthwith, so that the public may begin enjoying the benefits of additional service, quality, and price options between points in the United States and points in Mexico that American and Aero California will offer.

 

Respectfully submitted,

 

DAVID H. COBURN of Steptoe Johnson for Aero California

CARL B. NELSON of American

June 17, 1997