OST-97-2885 / Pan Am and Carnival / Slot Restrictions at JFK Intl Airport / Motion and Joint Reply of Pan Am and Carnival / September 24, 1997

Joint Application of

PAN AMERICAN WORLD AIRWAYS, INC. and CARNIVAL AIR LINES, INC.

for an exemption from Subparts K & S of 14 C.F.R. Part 93

(slot restrictions at New York JFK International Airport)

AND CARNIVAL AIR LINES, INC.

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It is no surprise that Delta and TWA, both with substantial operations at New York's Kennedy International Airport ("JFK") and in the Boston-JFK market the Joint Applicants desire to enter, object to the Joint Applicants' request for limited relief from the High Density Rule ("HDR"). Their self-serving objections, though, reflect nothing more than a general concern that exercise of the Department's slot exemption authority will adversely affect their competitive position at slot-controlled airports like JFK. A key goal of 49 U.S.C. § 41714(c) is to foster new entry at these airports, and the Department has recognized the role of competition in its "exceptional circumstances" analysis. In this environment, the objections of TWA and Delta should be rejected for the reasons discussed below.

Contrary to Delta's and TWA's assertions, the Joint Applicants have sought diligently to obtain needed slots in the marketplace, but with only limited success. The Joint Applicants advised the Department in their Initial application that they were continuing slot negotiations with several carriers. To date this effort has produced four slots under short-term leases for the upcoming winter slot scheduling period (from October 26, 1997 to April 4, 1998),

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when demand is lowest at JFK. The schedule that can be pieced together using these slots is far from ideal. In addition, the Joint Applicants do not anticipate that a Boston station can be opened before mid-December, complicating compliance with the HDR's "use-or-lose" provision. Nevertheless, given the scarcity of slots on the open market, the Joint Applicants were compelled to take the above slots despite these problems.

As is evident, Pan Am and Carnival have sought to rely on the slot aftermarket, and will use the slots they have leased as best they can. Still, the slits they have obtained are under short-term leases and at times of limited utility, adversely affecting the ability to successfully launch Boston-JFK service. The Joint Applicants therefore continue to seek an exemption, for an initial period of one year, to ensure slots will be available to meet their original service proposal for a full, one-year initial period.

Much of the debate over the application of 49 U.S.C. § 41714 has centered on the nature of the "exceptional circumstances" required for relief under that statute. Delta and TWA, as incumbents operating substantial numbers

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of slots at New York's LaGuardia and JFK airports, have taken it upon themselves to raise the "exceptional circumstances" bar by objecting to the Pan Am/Carnival application and those of other carriers. In so doing, they have sidestepped important considerations in the Boston-JFK market that demonstrate the propriety of granting the slot relief Pan Am and Carnival request.

Delta's specific argument against Pan Am and Carnival hinges on narrow, conclusory reliance on the Department's factual findings in Application of Reno Air, Order 94-9-30. It ignores the Department's announced intent to take a more liberal approach to 49 U.S.C. § 41714(c) (an intent Delta has acknowledged in other slot exemption proceedings). Further, Reno Air is only one of several cases decided under 49 U.S.C. § 41714. Taken as a whole, the Department's precedents and its announcement of a more liberal approach suggest a case-by-case analysis that considers the balance between traffic levels and current service, as well as an applicant's ability to enter the market effectively. Considered in these broader terms, the Application demonstrates the requisite "exceptional circumstances."

TWA's Answer differs from Delta's in its tone and approach to the characteristics of the Boston-New York market, and it reflects an incumbent's selective factual analysis in seeking to protect a competitive advantage at JFK. TWA begins with a fundamental misunderstanding of the

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Joint Applicants' reasons for proposing Boston-JFK service. Contrary to TWA's assertion (see TWA Answer at 9) the Application does not argue that additional Boston-JFK flights are necessary to feed JFK-Europe service. Neither is there evidence in the record to support TWA's conjecture that Pan Am "determined that its long-haul New York-Florida/Caribbean service would be more profitable if it could add Boston tags to the flights." Id. The Application does recognize that the Joint Applicants already serve Ft. Myers, Ft. Lauderdale, and Santo Domingo, but it makes clear that the requested slot exemption would be used to support new services to these points timed "to complement" Boston-JFK service. Application at 5.

TWA's reliance on the number of daily flights, rather than capacity available to local Boston-JFK passengers, as a measure of the market also is inappropriate. The Joint Applicants do not contest TWA's statement that "JFK actually has more daily Boston flights" than either LaGuardia or Newark. TWA Answer at 9-10. However, this argument, by the carrier responsible for over a third of these daily Boston-JFK flights, obscures the crucial consideration -- capacity available in the market, especially for local Boston-JFK traffic.

All but a handful of Boston-JFK services today are operated with small commuter aircraft. In contrast, LaGuardia service, and most Newark service, is operated by

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jet aircraft with four to six times the seating capacity of the 29-seat aircraft operated at JFK by TWA's commuter partner. (Parenthetically, the Joint Applicants propose service with 146-seat Boeing 737-400s, which are hardly "small aircraft," to quote TWA's Answer at page 4.) Thus, the most generous calculation of seating available in the Boston-JFK market does not come close to that available on hourly services by the Delta and US Airways Shuttles at LaGuardia and by Continental at Newark. The many Boston passengers connecting with transatlantic service at JFK further reduce the seats available for local Boston-JFK travelers.

TWA's specious fare arguments also miss the mark. Since local Boston-New York traffic today is far better served by the extensive jet operations at LaGuardia and Newark than by Boston-JFK service, the Joint Applicants view these shuttle operations -- with their high average fares -as the appropriate measure for comparison with the lower Boston-JFK average fare they propose. Moreover, that proposed average fare is about 15% lower than the current, average JFK fare TWA cites. In any event, whatever the average Boston-JFK fare may be, it is available today only on small commuter aircraft and a sprinkling of jet flights ill-timed for passengers traveling in the local Boston-JFK market.

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TWA and Delta seek to preserve the competitive advantage attending their incumbency during slot-controlled hours at JFK, but this desire must be subordinated to the needs of the traveling public. The Joint Applicants propose to use the limited slot exemption they request to significantly benefit travelers between Boston and JFK, as well as points south, which is an appropriate circumstance for the exercise of the procompetitive slot authority Congress has granted the Department.

WHEREFORE, Pan American World Airways, Inc. and Carnival Air Lines, Inc. respectfully request that the Department grant the above-captioned application.

Respectfully submitted,

Aaron A. Goerlich

BOROS & GAROFALO, P.C.

Suite 700 1201 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 822-9070

Counsel for Carnival lair Lines, Inc.

William C. Evans

John R. Mietus

VERNER, LIIPFERT, BERNHARD, McPHERSON AND HAND, CHARTERED

901 15th Street, N.W.

Washington, D.C. 20005

(202) 371-6000

Counsel for Pan American World Airways, Inc.

September 24, 1997