OST-97-2230 / OST-97-2442 / OST-97-2557 / OST-95-277 / O'Hare and LaGuardia Slots / July 9, 1997

Application of Frontier Airlines for an exemption from 14 C.F.R. Part 93, Subpart K and S. pursuant to Section 206 C (l) of the Federal Aviation Act of 1996

Application of ValuJet Airlines, Inc. for an exemption from 14 C.F.R. Part 93, Subpart K and S. pursuant to Section 206 C(l) of the Federal Aviation Act of 1996

Application of Air Tran Airways, Inc. for an exemption from 14 C.F.R. Part 93, Subpart K and S. pursuant to Section 206 C(l) of the Federal Aviation Act of 1996

Application of Western Pacific, Inc. for an exemption from 14 C.F.R. Part 93, Subpart K and S. pursuant to Section 206 C(l) of the Federal Aviation Act of 1996

Dated: July 15, 1997

Reply of US Airways, Inc. Page 2

Answers objecting to the above-referenced applications. Those applications ask the Department to award, by exemption from the high density airport rules, slots for domestic service at LaGuardia and O'Hare airports.

Although US Airways has not filed an Answer to those applications, ACAA accuses US Airways of "hypocrisy," "duplicitous arguments," and "anti-competitive comments," quoting statements by US Airways on the totally different matter of access to Heathrow Airport. DOT should refuse to allow ACAA's intemperate and confused filing to remain in these dockets, but, if it is accepted, then US Airways should be permitted to respond to the insults and clarify the confusion of issues.

Whatever is involved in the pending applications for waiver of DOT's buy-sell rules on slots for domestic U.S. service, they have nothing to do with the Heathrow Airport access issues in the U.S.-United Kingdom bilateral negotiations and the proposed American Airlines\British Airways mega-alliance. The latter involve different issues and policy considerations concerning the U.S. effort to replace a highly restrictive bilateral regime that has limited access to only two U.S. carriers and the application of the two largest carriers in the market for antitrust immunity.

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IN SEEKING SLOTS FOR HEATHROW ACCESS, U.S. CARRIERS ARE ASKING FOR EQUAL, RECIPROCAL TREATMENT FROM THE BRITISH, WHOSE CARRIERS ARE GIVEN SLOTS IN THE U.S. FOR FREE UNDER DOT RULES.

If ACAA, in its purported review of the high density airport slot rules, had fully outlined the basic provisions, it would have shown that the Department accords fundamentally different treatment to slots for domestic services than it does to international services. DOT has drawn a clear, clean line between the two, with a buy-sell rule in place for domestic slots only and the free provision of international slots. As a result, foreign air carriers like British Airways are awarded free slots for international flights at U.S. slot-restricted airports to permit them to exercise their bilaterally agreed operating rights.

Therefore, no hypocrisy or contradiction arises from U.S. carriers seeking equal, reciprocal treatment when proposing new international services to London's Heathrow Airport. In the international context, the principles of comity and reciprocity are the cornerstones of our international agreements. The basic idea of equal treatment must apply directly to the operating rights of both U.S. and foreign carriers, including the provision of take-off and landing rights, i.e., slots.

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In seeking access to Heathrow Airport, U.S. carriers are not asking for waiver of a buy-sell rule; indeed, there is none in place. What US Airways is seeking is reciprocal treatment matching that granted by the Department to British carriers who receive free slots to implement their bilaterally agreed operating rights.

ACCESS TO HEATHROW SLOTS INVOLVES PRESERVING COMPETITION IN THE MOST IMPORTANT U.S. INTERNATIONAL MARKET, WHERE THE TWO DOMINANT CARRIERS PROPOSE TO COMBINE WITH ANTITRUST ,IMMUNITY.

The U.S.-London market is not only the most important U.S. international market, but also one which has been very restricted under the Bermuda II agreement, with entry to the principal gateway, Heathrow Airport, limited to only two U.S! carriers. Now the two largest carriers, American and British Airways, with a combined share of over 60% of the market and monopoly shares in over 15 major U.S.-Heathrow city-pair markets, are proposing an operational merger and requesting the extraordinary privilege of immunity from the antitrust laws. To offset the obvious anticompetitive effects of this mega-alliance, the U.K. is offering to agree to an open skies bilateral agreement that would remove the de jure legal restrictions which now prevent new competitive entry in the U.S.-Heathrow market. In response, the U.S. has stated that any approval of the proposed AA\BA alliance would require steps that assure new U.S. carriers have de facto

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access to slots and facilities at Heathrow in order to make competitive open skies a reality.

In these bilateral negotiations, the U.S. is seeking to open up a highly restricted and vitally important part of the global aviation market. At the same time, the U.S. is considering a proposed mega-alliance of perhaps the two strongest carriers in the world -- certainly the two now dominating the U.S.-London market. In addition, these carriers are seeking the extraordinary grant of antitrust immunity so they can fix prices, allocate markets, slots, and facilities, and pool their revenues. The resolution of these matters will shape the competitive structure of the industry worldwide well into the next century. And the issue of adequate access to slots and facilities at Heathrow for carriers, such as US Airways, seeking to use newly negotiated operating rights under an open skies regime, is essential to preserve and expand competition with the proposed AA\BA mega-alliance.

In this context, it is ludicrous for ACAA to claim that its members' desires for a waiver of the established buy-sell rules on slots at LaGuardia and O'Hare airports involve the same issue. Instead of flinging charges of hypocrisy against US Airways, which has not filed an Answer to the ACAA members' applications, ACAA should have attempted to rebut the actual, serious objections presented by the Queens Borough

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In conclusion, US Airways strongly objects to both ACAA's highly intemperate attacks on US Airways and its confused attempt to link the fundamentally different issues of Heathrow access with its members' applications for waivers of DOT's domestic slot rules. If DOT accepts for consideration ACAA's unauthorized filing, US Airways requests that DOT also accept this Reply and, on the basis of the points set forth above, reject the spurious argument of ACAA.

Respectfully submitted,

ZUCKERT, SCOUTT & RASENBERGER, L.L.P.

Richard D. Mathias

Frank J. Costello

Cathleen P. Peterson

888 Seventeenth Street, N.W.

Suite 600

Washington, D.C. 20006

(202) 298-8660

Counsel for US Airways, Inc.

July 15, 1997