OST-97-2870 / Spirit Airlines / August 29, 1997

NOTICE: ANY PARTY MAY FILE AN ANSWER TO THIS APPLICATION. ANSWERS MUST BE SERVED UPON THE PERSONS LISTED ABOVE AND ON THE ATTACHED SERVICE LIST. ANSWERS MUST BE FILED ON OR BEFORE SEPTEMBER 15, 1997.

Date: August 29, 1997

Application of

SPIRIT AIRLINES, INC.

for an exemption pursuant to 49 U.S.C. § 41714 Melbourne, Florida- New York (La Guardia Airport)

Under Section 206 of the Federal Aviation Administration Authorization Act of 1994, 49 U.S.C. § 41714(c) ("FAAA Act"), the Secretary of Transportation by exemption may provide new entrant airlines with an opportunity to serve High Density Rule airports (other than Washington National) upon finding the proposed air transportation services to be "in the public interest and the circumstances to be exceptional." Spirit Airlines, Inc. ("Spirit") hereby requests such an exemption so that Spirit may provide two daily non-stop round trip scheduled jet services between Melbourne International Airport ("Melbourne") and New York's La Guardia Airport. Spirit intends to introduce this new service on or about November 15, 1997. Accordingly, Spirit requests that the relief requested in this application be granted by October 1, 1997.

Spirit, with the active encouragement of the Melbourne Airport Authority, has proposed to offer the only nonstop air service between Melbourne and the New York area. Spirit's plan, if implemented, will:

For this plan to succeed, Spirit Airlines must gain access to appropriate slots at La Guardia.

For the reasons which follow, the Department should find that grant of the requested exemption would comport with both the intent of the FAAA Act and the Department's prior rulings on new entrant slot requests.

Melbourne is located on the East Coast of Florida, in the center of the state. The Melbourne market, comprised of Brevard, Indian River and Okeechobee Counties, and parts of Highland, Osceola, Polk and St. Lucie Counties, has a catchment area of nearly 800,000 passengers.

The Melbourne area is perhaps best known for its beaches and major tourist attractions - he, the Kennedy Space Center and Port Canaveral, the third largest cruise ship port in North America. However, the area's economy is rather diversified. Several high-tech companies, such as Harris Corporation and Johnson Controls, are headquartered or have a major presence in the region. Patrick Air Force base also is located in Brevard County.

Although the Melbourne market is relatively large, and the regional economy is healthy, the market is severely underserved. US Airways announced in May that, as part of its broader restructuring, it would suspend its three daily Charlotte-Melbourne services as of September 4. Continental Airlines, which last winter had offered a daily seasonal service between Newark and Melbourne, also has indicated that it intends to terminate its service at Melbourne International. With the exit of US Airways and Continental from the market, Melbourne as of next week will be served by a single airline, Delta. From Melbourne, Delta offers scheduled nonstop service to a single point -- Atlanta.

Spirit is proposing to offer residents of the Melbourne area nonstop, non-seasonal access to Melbourne's largest O&D market, New York City. Spirit believes that its low costs and low fare structure will enable it to thrive in the Melbourne market, and to fill a pressing air service need. Without this service, Melbourne area residents will have limited options for travel to New York -- they will either have to drive long distances in order to catch a nonstop flight to the New York area (for example, Melbourne is a 3/-hour drive from Miami, and a 75-minute drive from Orlando), or can travel on a one-stop basis over Delta's hub at Atlanta.

The Department previously has determined that operational and economic characteristics of a market may constitute "exceptional circumstances" under section 206 of the FAAA Act. See. e.g.. Application of Air South, Order 96-5-33, and Application of Reno Air, Order 94-9-30. In Air South, the Department granted Air South six slots at JFK so that Air South could offer scheduled service from New York to Myrtle Beach, Savannah, Charleston, Columbia, and Greenville/Spartanburg. The Department's conclusion that "extraordinary circumstances" warranted approval of the application was based on DOT's finding that "there is sufficient traffic in the JFK-South Carolina/Savannah markets to justify the proposed service and clearly the markets are underserved." See Order 96-5-33 at 4.

Similarly, in Reno Air, the Department approved Reno Air's request for six O'Hare slots because Reno Air demonstrated rather conclusively that the Chicago-Reno market easily could support nonstop service even though the market presently was underserved. Contributing to DOT's finding of "extraordinary circumstances" was the fact that low yields in the Reno-Chicago market, and the operational and financial hurdles associated with gaining access to O'Hare, probably had prevented other carriers from introducing nonstop service on the route. See Order 94-9-30 at 4.

The parallels between this case and those of Air South and Reno Air are quite striking. The paucity of service at Melbourne, and particularly the lack of nonstop service to New York, is at odds with the size of the market. New York is Melbourne's largest O&D market and La Guardia is the preferred New York area airport. Traffic data indicates that the New York-Melbourne market alone generates 94,980 passengers per year, or 260 passengers per day. /1 Although this traffic is more than adequate to sustain the service proposed by Spirit, it is essential to note that this 08D figure, in all likelihood, significantly understates the size of the market. The lack of nonstop service in the market has caused Melbourne-area travelers to travel to New York from other Florida airports. These travelers are not accounted for in Melbourne's O&D traffic base. Moreover, this figure does not reflect the stimulation of the market which has occurred (and which will continue to occur) because of the recent dramatic growth of the Port Canaveral cruise market.

The Melbourne area has been losing air service in part because yields in the market are relatively low, making it difficult for higher-cost carriers such as US Airways to earn a profit in the market. As a low-cost carrier, Spirit would be in a position to both offer low fares and turn a profit. /2

Although Melbourne generally is identified as a leisure market, Spirit expects that its traffic will be split between leisure travelers and business traffic.. Spirit's ability to capture business traffic is, of course, contingent upon its ability to offer flights timed to meet the demands of business travelers. If Continental, which offered seasonal service to Melbourne from its Newark hub, was unable to tap into the business market at Newark,

1/ U.S. DOT, O&D data, year ending 2Q 1996.

2/ Spirit's entry into a market causes average fares to decline quite considerably. See Department of Transportation, "The Low Cost Airline Service Revolution," April 1996, at Attachment 2, pp. 1-2.

it is clear that Newark would not be a viable alternative for Spirit. /3 Well timed access to La Guardia is absolutely critical to this proposal. Spirit Airlines accordingly requires slots to permit service on the Schedule set forth in Exhibit 1. /4

Only grant of the requested exemption will provide Spirit with access to La Guardia /5 Spirit has made, both orally and in writing, bona fide offers to purchase/lease slots at La Guardia. These offers, extended to all holders of jet slots at the airport, have elicited no response whatever. Spirit therefore must conclude that commercially viable slots are simply unavailable. Spirit also wishes to note that, even if such slots were offered to sale in sufficient numbers, and at times that permit efficient aircraft utilization and satisfy consumer preferences, Spirit could not move forward if the offers made for La Guardia jet slots were for short-term leases. Spirit cannot make the significant financial investment required to enter into a new market, let alone offer a viable service, if its slots at La Guardia are subject to recall on short notice. The business risks of mounting an operation to La Guardia Airport from Melbourne using short-term leased slots controlled by another carrier are of such magnitude that Spirit Airlines must be granted an exemption in order to proceed with its plans to establish operations at Melbourne.

3/ Spirit also wishes to observe that, although Newark is not a slot-controlled airport, congestion at EWR is quite severe.

4/ Specifically, Spirit Airlines requests allocation of the following La Guardia slots: 0910 arrival; 1000 departure; 1610 arrival; and 1700 departure.

5/ Spirit Airlines is a "new entrant" at La Guardia within the meaning of 49 U.S.C. 41714. Spirit holds no slots at La Guardia, and has neither held nor given up slots at La Guardia since December 16, 1985.

The slots will manifestly promote better and more competitive service. The two nonstop frequencies that Spirit Airlines proposes to provide if its exemption request is granted will provide the only nonstop service in the Melbourne-New York market, which is, by far, Melbourne's largest market. Development of Melbourne and the surrounding region will depend on whether passengers will have convenient access to the nation's most important airports, including La Guardia, at a price that offers good value. /6

With the impending departures of US Airways and Continental from Melbourne, Melbourne will become a monopoly market. Only Delta will offer scheduled service at Melbourne, providing service to and from its Atlanta hub. Spirit's entry into the Melbourne market will provide area residents with a choice of air carriers to meet their travel needs.

Approving the exemption requested herein will restore competition at Melbourne, providing passengers destined to New York and other points in the Northeast with their only alternative to Delta. Mounting any new service can be a significant challenge. The challenge facing Spirit is heightened, however, because its prospective competitors at La Guardia, which have served the airport for several years, hold "grandfathered" slots which they did not have to purchase.

Spirit's La Guardia service will offer passengers an attractive, low-fare competitive service alternative. Spirit Airlines is confident that high quality, low fare service could fit

6/ Spirit will maintain the low fare policies which have contributed to its competitive success. For the Department's information, Spirit's average yield in the markets in which it competes are at 30% and as much as 45% below the industry average.

attract a significant volume of business and leisure passengers traveling between Melbourne and New York and will in fact stimulate traffic this market.

WHEREFORE, Spirit Airlines, Inc. respectfully requests that the Department grant to Spirit on or before October 1,1997, an exemption from Subparts K and S of Part 93 of the Federal Aviation regulations to the extent necessary to permit Spirit to operate two daily non-stop round-trip flights from Melbourne to New York's La Guardia Airport on the requested schedule using Stage 3 aircraft.

Respectfully submitted,

Anita Mosner

GALLAND, KHARASCH & GARFINKLE, P.C.

1054 Thirty-First Street, N.W.

Washington, D.C. 20036

(202) 342-5200

Attorneys for SPIRIT AIRLINES, INC.

Date: August 29,1997

Exhibit 1

Dep. MLB 0630

Arr. LGA 0910

Dep. LGA 1000

Arr. MLB 1250

Dep. MLB 1330

Arr. LGA 1610

Dep. LGA 1700

Arr. MLB 1945