OST-97-2477, OST-97-2481, Undocketed / American and Aero California / July 1, 1997

Applications of

AMERICAN AIRLINES, INC. and AERO CALIFORNIA S.A. DE C.V.

for exemptions under 49 U.S.C. §40109 and statements of authorization under 14 CFR and Parts 207 and 212 (U.S. -Mexico Code Sharing)

Motion and Response of Delta Air Lines, Inc.

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the U.S.-Mexico market in the context of the above-captioned proceedings. Delta did not previously participate in this case. However, to the extent that the Department will consider in this docket regulatory issues relating to U.S.-Mexico code-share services in general, Delta is entitled to submit its views. Accordingly, in the interest of a full record, Delta moves for leave to file this Response.

Motion and Response of Delta Air Lines, Inc.

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those carriers to engage in reciprocal code-share services in over 1,000 transborder city pairs.

3. If the Department decides to consider blanket code-share authority, Delta/Aeromexico and other U.S. carriers with Mexico code-share arrangements have a right to seek comparable blanket authority to provide competing code-share services on a systemwide basis. The Department will need to determine the extent to which multiple blanket U.S.-Mexico code-share services would be consistent with the U.S.-Mexico bilateral agreement and/or would be accepted by the Government of Mexico on an extrabilateral basis. This inquiry will require consultations between the Governments of the United States and Mexico. Delta believes that the public interest strongly supports a liberal code-share regime and a policy that fosters and promotes the expansion of services of all types (direct and code-share) by carriers from both the United States and Mexico. To the extent that bilateral designation limitations restrict the Department's ability to grant blanket code-share authority to multiple U.S. carriers, the Ashbacker doctrine requires that other U.S. carriers have an opportunity to have a comparative evaluation of competing requests for systemwide authority.

Motion and Response of Delta Air Lines, Inc.

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4. Several carriers propose that the Department consider imposing a code-share bumping condition that would permit a U.S. carrier proposing to operate its own aircraft to replace code-share service and receive a designation in lieu of the code-share carrier. Such a bumping provision would be unprecedented and would raise serious public interest issues that need to be carefully considered. Delta urges the Department to avoid imposing any proscriptive conditions before exhausting all opportunities to expand code-share rights through diplomatic negotiations with Mexico. The proposed bumping condition implicitly assumes that carriers providing service with their own aircraft will always provide public service and competitive benefits superior to code-share services. That presumption is invalid. Delta submits that there are many instances in which code-share services would provide superior service and competitive benefits to the traveling and shipping public. The service benefits will depend upon a number of factors including the size and type of aircraft used, the number of on-line connections offered, the number of U.S. gateways served, the number and size of U.S. hubs served, and other important service and competitive elements.

5. As the Department's international policy statement recognizes, code share arrangements provide significant benefits to the traveling and shipping

Motion and Response of Delta Air Lines, Inc.

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public through the provision of expanded on-line service options. Code-shares allow carriers to enter new markets and provide additional service in existing markets on a cost-efficient basis, where the route might not sustain service by the carrier with its own aircraft. The imposition of a bumping provision could force the termination of existing code-share service. Such a result would penalize the carrier that took the entrepreneurial risk to enter and develop a market through a code-share arrangement and allow another carrier to reap the benefit of that developmental initiative. Delta believes that such a result would chill market development and would not be consistent with the public interest.

6. Rather than employing an unprecedented code-share condition, the Department should, in the first instance, seek to establish the broadest possible code-share regime with Mexico. In the absence of such a regime, the Department should deal with the designation issue on a city-pair, case-by-case basis, rather than through the application of a bumping condition. For example, Continental has not established that it has been prevented from serving any U.S.-Mexico citypair because of the existence of a code-share service operated by another U.S. carrier. To the extent that problems arise in particular circumstances relating to specific city-pairs, history has shown that informal communications with foreign

Motion and Response of Delta Air Lines, Inc.

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governments will often produce an accommodation which would permit the new direct service to be operated without adversely affecting existing code-share operations.

Respectfully, submitted,

Robert E. Cohn

SHAW,PITTMAN,POTTS & TROWBRIDGE

2300 N Street, N.W. Washington, DC 20037

(202)663-8060

Counsel for DELTA AIR LINES