OST-97-2985 / Simmons Airlines, Inc. d/b/a American Eagle (exemption from high-density rule governing Chicago O'Hare / Answer of United Air Lines / October 24, 1997

Application of

under 49 U.S.C. § 41714 for an exemption from the high density rule governing Chicago O'Hare slots (14 CFR Part 93)

Simmons Airlines, Inc. d/b/a American Eagle, a wholly owned subsidiary of AMR Corp., parent of American Airlines, Inc. ("American") has applied for an exemption for 60 commuter slots which it claims it may, at some future time, operate to a variety of smaller communities with 50-seat regional jet aircraft.

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allowed to impede the progress the Department has made on determinations regarding previously filed requests. Service to small communities that would be inaugurated with a grant of those outstanding applications should not be held hostage American's procedural gambit. 2/

American's application deals with the implementation of an innovative development designed to meet the needs of smaller communities for modern, efficient air transportation services -- the introduction by network carriers of regional jet service. United is among those actively preparing to implement regional jet service by United Express carriers at O'Hare and will be filing a competing application for exemption slots for this purpose.

The Department should now, however, move forward to issue an order granting pending applications for exemption slots to serve nonhub communities. American's request should be dealt with in the broader context of the merits competing applications to provide regional jet service. This will allow the timely issues raised by American's application to be fully and

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carefully vetted by the Department over the course of the coming weeks and months.

Congressional interest in the question of service to small communities has been piqued, and numerous draft bills currently are circulating on Capitol Hill that would effectively re-regulate portions of the domestic air transportation market. At the same time, the marketplace itself has more promptly and efficiently produced a market-based solution to meet this need -- the regional jet. These smaller jet aircraft are more cost-effective for medium-sized and smaller markets and will allow carriers to provide services to these communities and to expand access to the nation's air transportation system. Legislation or regulatory activity that seeks to compel carriers in their efforts to accomplish this objective will only hamper the process.

All of the major network carriers are moving to adopt this new equipment and to develop new feeder structures to their national and international markets based on the advantages this

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equipment will provide local communities. 3/ United, along with its express partners, intends to introduce this new service enhancement.

United is in the final stages of the process necessary to the introduction of regional jets by United Express carriers. 4/ Upon completion of this process, United Express carriers intend to file an application for exemption slots to enable them to provide service with regional jets not only to all of the cities American proposes, but to add two additional communities to the list that will receive this new air service option.

At bottom, American's request merely offers the possibility that regional jets, not yet in American's fleet, might be put into these communities. As in the past, American's extravagant promises of upgraded service to smaller communities could once again prove hollow. 5/ (See page 9, infra.) Based on its history, American is just as likely to serve these small communities with

3/ See e.g. "Continental Express to Expand With All-Jet Fleet," Aviation Daily, Oct. 21, 1997 at 117.  

4/ Unlike the integrated AMR Corp., which owns American and all of the American Eagle commuters, all of the carriers that operate as United Express are independently owned and operated.

5/ See Petition of American Airlines, Inc., FAA Regulatory Docket 26339.

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the 34-seat Saab 340 turboprop aircraft already in its fleet using exemption slots while deploying its new regional jets to larger and more lucrative markets.

American is already the largest commuter slot holder at O'Hare, with more than twice as many commuter slots as all of the independent United Express carriers combined. Regulatory relief that gives such operational muscle a competitive advantage, when the chances of the promised benefits actually being realized are so speculative, would be a waste of valuable capacity at O'Hare. 6/

United expects shortly to conclude the process that would result in United Express carriers being able to file an application for directly competing authority. The Department should, therefore, stay consideration of American's untimely filing and proceed with its order in pending cases. American's

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filing should then be considered in the context of all pending applications for exemptions for regional jet service.

Overall, deregulation of the domestic airline industry has produced dramatic benefits for the traveling public. Studies by the DOT 7/ and the GAO 8/ conclude that, for the vast majority of communities, fares are lower by as much as 11 percent, and the number of departures -- a measure of breadth of service -- has increased by as much as 68 percent. Nevertheless, these studies also demonstrate that not all communities fared equally well.

For fifty years, from 1938 to 1978, the Civil Aeronautics Board controlled the fares airlines could charge and the markets they could enter. Charged with ensuring the growth and development of the domestic air transportation system, the CAB set fares for trips of shorter distance below the price that would be necessary to cover the cost of providing the service, and higher than the cost for longer haul trips. Long-distance

7/ "Secretary's Task Force on Competition in the U.S. Domestic Airline Industry," Feb. 1990.

8/ "Airline Deregulation: Changes in Airfares, Service, and Safety at Small, Medium-Sized, and Large Communities," April 1996.

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services effectively subsidized shorter haul operations. In addition, the CAB protected carriers from competition and limited the creation of new airlines.

After fifty years, however, lawmakers recognized that this regulatory scheme of cross-subsidization and limited entry was producing negative consequences for the vast majority of Americans by denying them access to air transportation at competitive prices. Congress adopted the Airline Deregulation Act to take the government out of the business of regulating domestic aviation and to allow the market to establish price and service norms.

New entrants flooded the industry and the old, pre-deregulation carriers were threatened. Service grew at an astonishing pace. The deregulation act recognized, however, that service to some communities would need to be protected. In an environment where economic viability was the measure of survival, it was clear that some smaller towns would not be able to generate sufficient traffic to sustain competitive air service. The "Essential Air Service" program identified those communities and

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Authorized the payment of subsidies to carriers willing to provide services to these markets.

Over the years, however, Congress became more and more reluctant to fund subsidies. For carriers, the costs of providing air transportation to smaller communities, let alone sustaining the benefits of competitive services by several carriers, meant that fares rose, and, in some cases, service was terminated.

These developments have, once again, attracted the attention of Congress. Taking aim at federally slot-regulated airports, members have devised a number of legislative proposals that would interpose a federal regulatory process for the efficiencies of the marketplace to address the concerns of service to smaller communities. 9/

9/ Some bills propose that slots be withdrawn from incumbent carriers at O'Hare and La Guardia. Such proposals overlook two important facts. First, Chicago and New York are two of the most competitive air transportation markets in the country. Fares at O'Hare are comparable to average fares at the top 20 domestic airports and fares between O'Hare and smaller midwestern communities are comparable to fares between those communities and other hub cities. See Aviation Daily, April 4, 1997, at 31-32; General Accounting Office, "Airport Competition: Essential Air Service Slots at O'Hare International Airport," March 1994. Second, the folly of attempting to redistribute slots administratively is demonstrated by a GAO study that concludes that, of the 152 slots originally available to be distributed to new entrants and limited incumbents by lottery during the transition to Buy-Sell, only 13, less than 10%, were in the hands of the original recipients within five years. See "Airline Competition: Industry Operating and Marketing Practices Limit Market Entry," GAO/RCED-90-147, August 1990, at 22-24. This finding shows that in a competitive market such assets of production will migrate to their highest and best use.

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The marketplace has, however, devised its own solution. Among other things, the use of regional jet aircraft in smaller markets will allow carriers to provide an improved jet service lower costs and to expand service overall.

The major U.S. network carriers are working toward the introduction of regional jet services. From the hub-and-spoke network to the global alliance, network carriers have continued to respond to the demands of the marketplace. This innovative development is further evidence of the creativity and ingenuity these carriers have had to demonstrate to adapt successfully to the post-deregulation world. It is the same resourcefulness that has enabled the U.S. aviation industry to become the most efficient and competitively successful in the world.

United Express carriers, too, are planning to introduce regional jets into the United network of services at Chicago.

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Now in the process of seeking ratification of a tentative agreement with its pilots, United is working diligently to enable this plan to move forward. United expects, therefore, that its United Express proposal will be before the Department for consideration long before American receives the regional jet aircraft necessary to implement the services it has proposed.

United's service proposal will include regional jet services [in] those markets identified in American's filing 10/ as well as Rapid City, South Dakota and Bismarck, North Dakota. Services currently being provided to these cities with turboprop aircraft will be upgraded to jets, including Roanoke and Chattanooga.

American's proposal, by contrast, must be evaluated in the context of that carrier's history of unfulfilled promises of upgraded service to smaller communities in the past. In 1990, American petitioned to amend the High Density Rule to permit the operation of commuter slots with small jet aircraft. American was, at the time, on the verge of receiving a new shipment of

10/ Charleston, West Virginia; Chattanooga, Tennessee; Duluth, Minnesota; Fayetteville, Arkansas; Montgomery, Alabama; New Haven, Connecticut; Roanoke, Virginia; Shreveport, Louisiana; Springfield Missouri; Wilkes-Barre/Scranton, Pennsylvania.

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Fokker 100 aircraft with which these so-called "converted" slots would be operated.

American lobbied most heavily five communities in the Midwest: Duluth, Minnesota; Fargo, North Dakota; Sioux Falls, South Dakota; and Springfield and Peoria, Illinois. Fargo, Sioux Falls, and Duluth were promised new American service and Springfield and Peoria were to have their existing turboprop service upgraded to F-l00s. State and local political and business leaders from the four states flooded the docket with praise for American's proposal, urging the FAA to act promptly to ensure that the economic benefits to be afforded their communities by F-100 service would be realized as quickly as possible.

Today, none of these communities is receiving F-100 service. American does not operate to Fargo, Sioux Falls or Duluth at all, and serves Peoria and Springfield only with smaller turboprop equipment. The lesson for the communities to which American is promising regional jet service, and for the Department, is clear.

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American's application has created an important opportunity to review marketplace solutions to the current concerns about service to smaller communities. The application should serve as springboard for consideration of how best to meet these needs. It should not, however, be allowed to delay action on early requests for slot exemptions to serve smaller communities and to deny those passenger the benefit of expanded access to O'Hare. Consideration of American's application should occur in the context of a corresponding service proposal from United Express carriers for service with regional jets to the same list of communities, plus two.

Respectfully submitted,

GINSBURG FELDMAN, Joel Burton
Counsel for UNITED AIR LINES, INC.

DATED: October 24, 1997