OST-97-2771 (formerly Docket 49743) / Reno Air, Inc. / Exemption Reno-Chicago O'Hare / September 4, 1997

Application of

to amend exemption(Reno-Chicago O'Hare Service)

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Under these circumstances, if the Department accepts United's untimely Answer to Reno Air's Amendment Application, Reno Air respectfully requests leave to file this Reply two days late to complete the record.

Far from providing the Department with Evidence necessary to supplement the record", United's argument in opposition to Reno Air's request for two additional O'Hare slots simply is part of United's strategy to preserve, to the maximum extent possible, United's dominant position at Chicago O'Hare. Whenever any new entrant seeks slots, United asserts that the carrier, in this case Reno Air, should purchase the slots it seeks. United, however, knows full well that slots are not available. In its original exemption application in 1994, Reno Air stated that its efforts to acquire slots were futile, with available slots being offered at completely unacceptable prices and the Department made specific findings on this issue

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in Order 94-9-30 at 4. Of course, United conveniently fails to note that it received the majority of its 770+ slots at O'Hare for free.

The grant of two additional slots to Reno Air will not -- as United asserts -- distort the competitive marketplace; rather exemptions to the high density rule help correct what has become a monopolistic market structure. Airline competition is extraordinarily restricted as a result of barriers to entry at fortress hubs such as Chicago O'Hare. The GAO has repeatedly commented on slots as a barrier to entry, which contribute to the alarming high fare differentials between cities with competitive service and those without competitive service. GAO's April 1996 study shows that air fares at a competitive hub (Reno) declined 21.1% between 1979 and 1994 while air fares at Chicago increased 1.2% during the same period. Indeed, the marketplace is distorted in part because new entrants must pay for that which United and other entrenched hub carriers received for free. Perhaps the best way to correct for this distortion would be to reallocate ail of O'Hare slots and thus end United's "subsidy".

Also, United mistakenly asserts that the Existence of the Buy-Sell rule at O'Hare ensures that slots are allocated to their highest and best use, producing the maximum benefits for consumers." Response at 3. In reality, United directs its available O'Hare capacity to markets that have the highest yields and are the most profitable for United, regardless of the number of passengers it serves or could serve and regardless of the effect on

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consumers. United's current usage of its O'Hare slots -- including decisions not to make those slots available to new entrants -- is driven by a desire to maintain a dominant position in the Chicago market.

United also argues that the grant of two additional slots to Reno Air means that "better" use of these slots is foreclosed. Unlike United's slot authority at O'Hare, Reno Air's authority is only temporary and can not be sold, traded, or transferred. If a "better" use for these slots were to materialize at some later date, the Department can address such uses when it adopts new final rules on slot regulations.

United's opposition to Reno Air's request for two additional O'Hare slots stems from its desire to maintain its dominant position in the market after having received the largest free award of O'Hare slots ever granted. United's arguments are without merit and should not deter the Department from granting Reno Air's request for an amendment to its exemption to add one-daily round trip in the Reno-Chicago O'Hare market.

Respectfully submitted,

Law Offices of Stephen H. Lachter
Counsel for Reno Air, Inc.

September 4, 1997