Docket OST-97-2230 | May 8, 1997

Application of

for an exemption from Subparts K and S of Part 93 of Title 14, Code of Federal Regulations pursuant to Section 206 of the Federal Aviation Administration Authorization Act of 1994.

United Air Lines, Inc. ("United") hereby moves for leave to file the following Surreply to ensure that the unrelenting campaign of mischaracterizations, misrepresentations, and misstatements that Frontier is waging in this docket, in the media, and elsewhere to induce the government to prop up its operation at Denver is at least balanced by a fair view of the facts. /1 Although United has taken no position on Frontier's request for LaGuardia slots, Frontier has nevertheless taken every opportunity to malign United. United respectfully requests that, if the Department does not dismiss Frontier's pleading sua sponte, United have the opportunity to cast an honest light on Frontier's claims.

1/ United is filing this contingent Motion and Surreply to the extent necessary to address the issues raised by Frontier in its April 28, 1997 Reply to United's Motion for Leave to File.. The Department's Rules of Practice expressly prohibit the filing of answers to Motions for Leave to File Unauthorized Documents. Rule 4(f)(3). United, therefore, seeks leave to file this Surreply only to the extent the Department does not Qua sponge dismiss Frontier's Motion as being in violation of Rule 4(f)(3).

Frontier is one of several new entrant carriers claiming an entitlement and petitioning the government to interfere with the free marketplace to protect them from the rigors of competition that all other carriers are required to confront. This campaign, in essence, is asking the government not to promote competition, but to first economically support and then to protect selected competitors. What these carriers want is contrary to the letter and spirit of the Airline Deregulation Act (the "ADA"), and will produce precisely the type of market distortion the ADA was intended to eliminate.

By acceding to the demands of these clamorous new entrants, the government would, essentially, be underwriting the rink investors must incur in any new enterprise at the expense of the employees and shareholders of the established, incumbent carriers. In the case of United, its employees and shareholders are largely one and the same.

These new entrants want, among other things, to constrain or eliminate existing legitimate competitive tools, thus increasing incumbent carriers' costs and hampering their ability to provide superior service to their passengers. The tools targeted by these new entrants include, among others:

• Computer Reservations Systems
• Travel Agent Commission Overrides
• Frequent Flyer Programs
• Commuter code-share agreements
• Competitive scheduling
• Ability to match competitive prices

The U.S. economy has always rewarded companies that bring to the market something innovative that consumers want. In transportation, those that have used the freedom and flexibility provided by deregulation creatively to find new processes, procedures and ways to compete have succeeded. Others, having failed to achieve sufficiently low cost structures, or to otherwise capture the imagination of the customer, then resort to asking the government to support and protect them.

Most significantly, these carriers seek benefits from the government in the form of free slots at capacity constrained airports. To meet their self interest, they have lobbied the Department to alter the criteria that had been established for granting to new entrants exemptions from the High Density Rule ("HDR").

The criteria for slot exemptions under the statute are that the grant is in the public interest and that the case presents Perceptional circumstances." The standard reflects the enormous investment made in slots and facilities since 1986 under the "buy-sell" rule by carriers who would rather compete than complain.

In the past, the Department has declined to find "exceptional circumstances" in markets where at least one carrier is providing non-stop service to the High Density Airport. This is justified, in part, on the basis that the HDR airports are located in cities where other airports provide an alternative to the new entrant. The consumer, therefore, is able to receive competitive service in the city-pair market and all of the attendant benefits of competition.

The new "competition" definition promoted by the new entrants is tantamount to direct economic regulation of air transportation. The Department's determination as to which applicant's "competitive" service in a city-pair offers the greatest benefit is the same determination made by the Civil Aeronautics Board in pre-deregulation domestic route cases. Here, however, no specific standards exist to determine what constitutes 'competition in a given city-pair except what is offered by the new entrants whose purpose is to persuade the government to constrain competition rather than promote it.

In United's case, this campaign produces particularly egregious results for United's employee-owners who have contributed billions of dollars in wage concessions to reduce the Company's costs and streamline its operations. The greatest irony is that having made the sacrifices to reduce costs and increase efficiency, this largely unionized workforce is being told, in effect, that they should not be permitted to price their product to compete with services offered by new entrants with less compensated labor. The new entrant is saying, in essence, that because it is a self-proclaimed low fare carrier, United should be prohibited from matching the new entrant's prices.

These new entrants object to established carriers' use of legitimate competitive tools: CRS, contracts with travel agents, frequent flyer programs, and the ability to offer price and service options to the public as contemplated by the ADA. The protectionism they seek -- regulated price supports, schedule restrictions, capacity controls, marketing constraints, and direct government subsidies -- has already proved to be detrimental for the consumer.

Just as the U.S. is signing an unprecedented number of "open skies" agreements with its trading partners around the world, new entrants in the domestic market are pushing relentlessly for a return to price and service regulation. These are the same protectionistic practices the U.S. is trying to dissolve through its negotiations for "open skies" agreements; they should not be re-established at home.

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: May 8, 1997