OST-97-2965 / Undocketed / American Airlines and Iberia (codeshare US-Spain) / Consolidated Answer of Puerto Rico / October 17, 1997

Application of

under 49 U.S.C. § 40109 for an exemption (U.S.-Spain and beyond) (code-sharing with Iberia)

Joint Application of

AMERICAN AIRLINES, INC.
And
IBERIA LINEAS AEREAS DE ESPANA, S.A.

for statements of authorization under 14 C.F.R. Parts 207 and 212 (reciprocal codeshare services)

In support of its position, the Government of Puerto Rico states as follows: 

Government of Puerto Rico Answer to AA/IB Applications 2

1. For several years, the Government of Puerto Rico has placed a high priority on international air service expansion in order to stimulate tourism growth, international commerce and Puerto Rico's economy. The Government's efforts in the air service development sphere are merely one part of a multifaceted program to increase Puerto Rico's attractiveness to visitors. Additional steps include the encouragement of resort development and other tourism infrastructure enhancements, support for programs to make Puerto Rico a more welcome place for visitors and the expansion of overseas promotional activities. Of course, an increase in foreign visitors to Puerto Rico benefits the United States as a whole because added foreign currency flows to the U.S. economy rather than to alternative foreign Caribbean vacation destinations.

2. Three years ago, in recognition of Puerto Rico's special air transportation needs and to assist Puerto Rico's air service development efforts, the Department formulated and announced its "open skies for Puerto Rico" policy. In the absence of extraordinary countervailing circumstances, the Department has committed itself in that policy to authorize foreign airline service "between Puerto Rico and home states as well as beyond to third countries". 1/

1/ Letter from former DOT Secretary Pena to the Honorable Pedro Rossello, December 2, 1994.

Government of Puerto Rico Answer to AA/IB Applications 3

3. Well before the Department announced that policy, Puerto Rico was fortunate to have had air links to Europe, including service by Iberia between San Juan and Madrid. The American/Iberia code-share arrangement will enhance the economic attractiveness of Iberia's long continuing San Juan-Madrid service. The arrangement therefore furthers the interests of Puerto Rico and, more broadly, the United States.

4. Under the arrangement, American will place the "AA" code on Iberia's flights between San Juan and Madrid. This will provide Puerto Rico O&D travelers with first competitive nonstop service offerings between those two points. Additionally, because American operates an extensive Caribbean network from San Juan and proposes to place its code on certain Iberia flights within Europe, the arrangement will open a variety of new markets to AA on-line service. Puerto Rico OLD and flow passengers thus benefiting will include:

· Those travelling from American's code-share points in Europe to Puerto Rico (via Madrid);

· Those travelling from Madrid to Caribbean points beyond San Juan; and

· Those travelling from American's code-share points in Europe (via Madrid) to points in the Caribbean beyond San Juan.

5. In addition, the AA on-line service extension should enable American to increase its traffic flow between Europe and the Caribbean. This, in turn, should boost the load

Government of Puerto Rico Answer to AA/IB Applications 4

factors on Iberia's San Juan-Madrid flights and ultimately should enable Iberia to increase its level of service. Puerto Rico will benefit substantially, because increased San Juan-Madrid service will reduce existing air service impediments to the successful European marketing of Puerto Rico as a destination.

6. Furthermore, the American/Iberia code-share arrangement for the first time will establish San Juan as a gateway for Europe-Caribbean traffic. While this will not increase foreign visitor expenditures in Puerto Rico (except to the extent of attracting stopover passengers), it will assist Puerto Rico by stimulating expenditures at San Juan's Luis Marin Munoz International Airport and by augmenting the traffic base that supports San Juan's existing Caribbean service. Now, Puerto Rico is totally out of the running in the contest to be the air transportation focus of burgeoning traffic flows between Europe and the Caribbean. Passengers currently are offered on-line connections at a variety of other points -- most notably, major foreign gateways such as London, Paris and Amsterdam. 2/

2/ If It would be a mistake to underestimate the importance of Europe-Caribbean traffic flows. Today, according to Caribbean Tourism Organization statistics, European traffic to Caribbean islands other than Puerto Rico is nearly as great as North American traffic to Caribbean islands other than Puerto Rico. Moreover, European traffic is growing much faster than North American traffic and is expected to exceed North American traffic by the year 2001.

Government of Puerto Rico Answer to AA/IB Applications 5

7. For these reasons, the Department should act promptly to grant the authority necessary for American and Iberia to implement their code-share arrangement over the San Juan-Madrid sector and in related behind-Madrid markets. We are aware of no genuine countervailing bilateral considerations.

WHEREFORE, the Government of Puerto Rico urges prompt grant of the referenced forms of authority relating to San Juan services.

Respectfully submitted,

VERNER LIIPFERT, John Merrigan, Russell Pommer
Counsel for the GOVERNMENT OF PUERTO RICO

October 17, 1997