OST-97-2145 / OST-97-2201 / Northwest / United / Objections of United / August 11, 1997

Applications of

for allocation of all-cargo frequencies under the United States-Philippines Air Transport Services Agreement (Route 2)

DATED: August 11, 1997

1. The Department favors Northwest over United by characterizing the former as a "new entrant" in the U.S.Philippines cargo market (p.5). This finding wholly ignores the fact that Northwest is, in fact, the dominant U.S. carrier in the U.S.-Philippines market, with 14 of the presently available 31

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frequencies. Although Northwest is not currently operating allcargo services to the Philippines, it can hardly be accorded status as a "new entrant" when it is in a position to convert any of these 14 U.S.-Philippines frequencies into all-cargo services. That Northwest is not operating all-cargo services is of its own choosing and not due to bilateral or regulatory restraints which have prevented its entry into that market.

In previous cases, the Department has discounted the benefits of service to a new market by an incumbent carrier where that carrier held a larger number of frequencies under a bilaterally agreed capacity regime. Thus, in 1995 United sought additional U.S.-China frequencies to allow it to become a new entrant in the U.S.-Guangzhou market that was a foreign carrier monopoly. Instead, Northwest was chosen at the expense of the consumer benefits United's new entry at Guangzhou would have produced. This decision was justified on the basis that United already held more U.S.-China frequencies than Northwest and the perceived need to give Northwest "parity of economic opportunities." Order 94-12-7 at 6. Northwest used the newly allocated frequencies not to open service to a new market, as United would have done, but to operate more service in its existing markets.

To the same effect here, Northwest holds more U.S.Philippines frequencies than any other U.S. carrier, including

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United. It is United here that is seeking frequencies to achieve "parity of economic opportunities." The Department's disregard of this factor based on Northwest's alleged status as a new entrant in this case is wholly inconsistent with its decision in the U.S.-China case where new entry by United was disregarded to Northwest's benefit because of United's larger frequency allocation. /1 While the Department is entitled to decide frequency allocations on a case-by-case basis, that does not permit the Department to ignore its precedents. The award to Northwest in this case is diametrically inconsistent with the award to that same carrier in the U.S.-China case, especially where in both cases those inconsistent awards are made at United's expense. Such decisionmaking is arbitrary and capricious and an abuse of the Department's regulatory discretion.

2. The Department also erroneously concludes (pp.5-6) that Northwest's service would make better use of the available frequencies than would United's because Northwest will use larger B747 aircraft. However, there is no support in the record for

1/ The Department rather feebly seeks to distinguish its U.S.-China decision on the basis that United already held over half the U.S.-China frequencies at the time Northwest's award was made. This ignores the fact that Northwest will hold 16 out of a total of 33 U.S.-Philippines frequencies as a result of its decision here, or nearly half the total, with the balance split between United and Continental Micronesia.

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this conclusion, which is highly questionable at least with respect to one of Northwest's two weekly flights. For example, one of Northwest's flights will operate through Manila in an eastbound direction only. The BKK-MNL leg of that flight will be carrying freight moving from Thailand to both Japan and U.S. as well as to the Philippines. There will also be Japan to the Philippines and U.S. to the Philippines freight on that aircraft. Northwest's U.S.-Thailand, Japan-Thailand, Thailand-Philippines and Japan-Philippines freight will occupy space that could be utilized by U.S.-Philippines shippers.

Both of United's flights, on the other hand, operate to Manila as a turnaround point and will not be carrying any freight through Manila in either direction. Both Northwest and United operate via intermediate points in Japan but only Northwest will serve an additional point on its flights to Manila. Whether Northwest's B747 flights will have more available U.S.Philippines capacity than United will depend upon how much U.S.-Thailand and fifth-freedom freight Northwest will carry on these flights. /2 There is no evidence in this record upon which the

2/ In the U.S.-Thailand All Cargo Frequency Allocation Proceeding, Docket OST-96-1496, Northwest proposed services to Bangkok via Japan and on those flights, Northwest estimated that 18 percent of its eastbound freight tonnage, and 62 percent of its westbound freight tonnage would be fifth-freedom traffic moving between Japan and Thailand. Exhibit NW-100, p. 6, Docket OST-96-1496. The Department has not requested comparable detail on traffic composition in this proceeding and, as a result, has no record evidence upon which to base its conclusion as to Northwest's available capacity for U.S.-Philippines traffic. 

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Department can reliably conclude (p. 5) that "Northwest can provide greater capacity than United with the limited frequencies available. " /3

3. The Department also concludes (p. 6) that the proposed routings of United's and Northwest's services are "generally comparable and thus do not warrant a decisional advantage for either carrier." In reaching this conclusion, the Department overlooks the fact that Northwest's schedules are based on an amended application which was submitted after United had demonstrated that Northwest's original schedule was inferior to United' s. Thus, United proposed two weekly flights that turned around at Manila and provided direct service between the U.S. and Manila in both directions via Tokyo. That remains United's proposal. Northwest, on the other hand, originally proposed two weekly flights that served Manila only in the westbound direction, terminating in Hong Kong and then returning to the U.S. via Tokyo. Recognizing that it could not prevail with such an inferior schedule, Northwest sought to amend its service

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proposal. The new schedule involves one flight that turns around at Manila and one that serves Manila in the eastbound direction only. /4

United objected and continues to object to Northwest's attempt to amend its schedule to improve the odds of its prevailing. The Department claims (p. 3, n. 4) that United "will not be prejudiced" by allowing Northwest to amend its service proposal after United filed its answer and a competing application. In fact, the Department specifically relies upon Northwest's amended application for its conclusion that there is no decisionally significant difference between Northwest's proposal and that of United's. The Department could not reach that same conclusion based on Northwest's original schedules. In circumstances where United's proposal was unequivocally superior to Northwest's prior to the amendment, United has, indeed, been prejudiced by the Department's reliance upon Northwest's amended schedule to deny United's application, and United objects to the Department's decision to the extent that it grants Northwest leave to amend.

Moreover, experience indicates that carrier service proposals which result from such gamesmanship in carrier

4/ Although Northwest claims that this eastbound flight turns around at Manila, it actually operates from the U.S. to Bangkok where it turns around and returns to the U.S. via Manila and Tokyo.

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selection proceedings are inherently unreliable. For example, Northwest itself cited the Los Anqeles-Guadalalara Exemption Proceeding, Docket OST-95-244, as an example of a case where amended schedules had been allowed. The Department there selected American over United based on the former's amended and inflated proposal to operate three daily frequencies in the Los Angeles-Guadalajara market. As a result, the public was shortchanged because, as United predicted, American lacked the traffic feed at Los Angeles to support that level of service and now operates only one daily flight in that city pair. /5

Northwest's schedules for its U.S.-Philippines allcargo service have been a moving target. See, eg, United Response, dated August 30, 1996, in Dockets OST-96-1655/1618, at 3-5. The Department should not countenance Northwest's continued attempts to manipulate the Department's procedures to United's prejudice. The original schedules filed by Northwest should be those on which the Department should rely for carrier selection. On the basis of those schedules and United's proposed two weekly turnaround services, United should be awarded the two available U.S.-Philippines frequencies.

Even if Northwest is permitted to amend its schedule, however, there is no basis for awarding Northwest both

5/ On Saturdays only American supplements its single daily operation with two additional flights. OAG, August 1997.

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frequencies on the basis of those amended schedules. As noted previously, one of Northwest's two weekly flights serves Manila in only the eastbound direction. The Department cannot reasonably conclude that that flight is in any way superior to United's roundtrip turnaround flights. At the very least, the Department should award United one of the two available frequencies based on the superiority of its service proposal and Northwest's dominant position in the U.S.-Philippines market.

Respectfully submitted,

JOEL STEPHEN BURTON

GINSBURG, FELDMAN & BRESS CHARTERED

1250 Connecticut Avenue, N.W.

Suite 800

Washington, D.C. 20036

(202) 637-9130

Counsel for UNITED AIR LINES, INC.