OST-97-2477 | May 7, 1997

NOTICE: Answers supporting or opposing this application are due on May 22, 1997.

Application of

under 49 USC 40109 for exemption (U.S.-Mexico and route integration; code-sharing with Aero California)

American Airlines, Inc., under 49 USC 40109, hereby applies for exemption authorizing it to engage in foreign air transportation of persons, property, and mail, as follows:

(1) Between Los Angeles and Culiacan, Durango, Hermosillo, Ixtapa/Zihuatanejo, La Paz, Loreto, Manzanillo, Mazatlan, San Jose del Cabo, and Torreon; between San Francisco and Mazatlan and Puerto Vallarta; between Dallas/ Ft. Worth and Chihuahua and Aguascalientes; and between Tucson and Hermosillo; and

(2) Between points in the United States, via Mexico gateway cities, and Aguascalientes, Chihuahua, Ciudad Obregon, Ciudad Victoria, Colima, Culiacan, Durango, Guadalajara, Guaymas, Hermosillo, IxtapatZihuatanejo, La Paz, Manzanillo, Mazatlan, Mexico City, Monterrey, Morelia, Puebla, Puerto Vallarta, San Jose del Cabo, San Luis Potosi, Tepic, Tijuana, and Torreon.

American further seeks exemption to integrate the authority requested above with its certificates of public convenience and necessity for Route 560 (Dallas/Ft. Worth

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Cancun/Puerto Vallarta/Guadalajara, Miami-Mexico City, and Miami-Cancun), reissued by Order 96-11-25, November 30, 1996; and for Route 628 (Dallas/Ft. Worth-Acapulco/Mexico City/ Monterrey and Chicago-Mexico City), issued by Order 92-5-20, May 8, 1992; and with its exemption authority to serve Chicago-Acapulco and Dallas/Ft. Worth-Leon, issued by Order 95-7-1, July 3, 1995; Los Angeles-Guadalajara, issued by Order 95-8-3, August 2, 1995; and Dallas/Ft. Worth-San Jose del Cabo, issued by Order 96-9-28, September 21, 1996.

The requested exemption will be used to implement a proposed code-sharing arrangement between American and Aero California S.A. de C.V., as described in the agreement attached to their accompanying joint application (undocketed) for statements of authorization under 14 CFR Parts 207 and 212. See Annex B. To implement these services, American requires the underlying economic authority requested herein.

The Air Transport Agreement between the United States of America and the United Mexican States of August 15, 1960, as amended, permits U.S. and Mexican carriers to provide service from a point or points in the United States to a point or points in Mexico. Approval of this application is consistent with the U.S.-Mexico bilateral agreement, and is supported by comity and reciprocity. While the Air Transport Agreement does not expressly provide for code-sharing, both governments have

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Each carrier will use the other's flights to extend its on-line services to markets where new direct flights may be economically infeasible, or to increase service options in markets where it is already operating. Hence, competition will be enhanced by new entry that would otherwise be foreclosed.

Although the U.S.-Mexico bilateral agreement restricts entry on each transborder gateway route segment to one carrier from each country, the agreement explicitly provides a mechanism by which both countries may agree to designate an additional airline. Under this provision, the U.S. and Mexico have agreed to dual designation on more than 100 such gateway route segments. To the extent that additional designations are required for code-sharing services on routes that only have single designations, American and Aero California will request dual designations through an exchange of notes.

This application also includes several routes on which two carriers of one or both countries have been designated and are operating nonstop transborder services. To the extent that designation is required and unavailable on a particular route, American and Aero California will take steps

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to ensure that they do not display service in excess of the allowable designations on that route.

The proposed code-sharing between American and Aero California is consistent with the public interest. The Department has approved numerous similar code-sharing arrangements involving other carriers and other markets, including the U.S.-Mexico market, and encourages such services in the interest of consumers and competition.

In order to facilitate advance marketing and sales of the proposed services, American requests expedited approval of this application.

Respectfully submitted,

CARL B. NELSON, JR.

Associate General Counsel American Airlines, Inc.

May 7, 1997