OST-97-3079 / US Airways / Philadelphia-Milan / November 3, 1997
NOTICE: Any person may support or oppose this application by filing an answer and serving a copy of the answer upon US Airways and all persons served with this application on or before November 18, 1997.
Application of
US AIRWAYS, INC.
for an exemption pursuant to 49 U.S.C. 40109
(Philadelphia-Milan)
APPLICATION OF US AIRWAYS, INC.
FOR AN EXEMPTION
Pursuant to 49 U.S.C. § 40l0g and Subpart D of the Department's Rules of Practice (14 C.F.R. Part 302), US Airways, Inc. applies for a two-year exemption from 49 U.S.C. § 41101 to engage in scheduled foreign air transportation of persons, property and mail between Philadelphia, Pennsylvania and Milan, Italy. In support of this application, US Airways states as follows:
SUMMARY OF SUPPORTING POINTS
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I. US AIRWAYS SEEKS TO LAUNCH THE FIRST NEW MILAN SERVICE IN YEARS AND CONTINUE PHILADELPHIA'S DEVELOPMENT AS A PREMIER INTERNATIONAL GATEWAY.
New nonstop service between Philadelphia and Milan is critically important to the continued development of US Airways as a strong transatlantic competitor and of Philadelphia as a major U.S. gateway to Europe. Although Milan is an authorized point for U.S. carrier service under the present bilateral, frequency restrictions currently
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prevent US Airways from serving Milan in addition to US Airways' current service to Rome. Thus, the prospect of a new agreement with Italy or accommodation of additional frequencies by Italy as a matter of comity and reciprocity would provide the opportunity for US Airways to add Milan to its transatlantic route network.
Nonstop service to Milan will further the immensely successful joint efforts of US Airways and the City of Philadelphia to establish Philadelphia as a premier international gateway. Working together with Philadelphia, in just a short time, US Airways has inaugurated services from Philadelphia to Paris with two daily roundtrip frequencies, to both Frankfurt and Munich in Germany, to Madrid, and to Rome. US Airways' service to London is scheduled to begin next April, serving Gatwick Airport until access to Heathrow Airport becomes available.
US Airways' Rome service has demonstrated conclusively Philadelphia's enormous potential as a gateway for service to Italy. In fact, US Airways has carried significantly more passengers than were forecast by US Airways and DOT in the carrier\gateway selection proceeding last year. For the twelve months from September 1996 through August 1997, US Airways' average load factor was 77.5%, and it carried 110,000 passengers. New service to Milan, a market of at least equally strong potential, promises similar competitive benefits for consumers and the structure of transatlantic competition.
As a technical matter, US Airways also needs additional economic authority to serve Milan. During the 1996 U.S.-Italy Service Proceeding, US Airways was awarded
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its first route to Italy. Although US Airways' application in that proceeding sought authority between Philadelphia and both the coterminal points Rome and Milan, because US Airways proposed initially to serve the Philadelphia-Rome market, the Department limited US Airways' certificate authority to Rome. US Airways now seeks to expand its Italy authority to include the opportunity to serve Milan. This would place US Airways on a par with the other carriers designated under the 1990 Memorandum of Understanding agreement with Italy, American and United, the authorizations of which include both Milan and Rome. Because U.S. carrier service to Milan is available under the bilateral, US Airways' application should be approved without delay.
II. US AIRWAYS' MILAN SERVICE PROPOSAL WILL PROVIDE NEW COMPETITION AND CONSUMER BENEFITS OF MAJOR IMPORTANCE AND WARRANTS TOP PRIORITY IN NEGOTIATIONS WITH ITALY.
As US Airways demonstrated in the 1996 U.S -Italy Service Proceeding, Philadelphia is an ideal gateway to Italy. The strong local community of support, combined with US Airways' extensive online support, has virtually guaranteed the success of US Airways' Italy service. Despite these strengths, however, Philadelphia still lacks nonstop service to Milan. US Airways' plans for Milan should receive top U.S. Government attention during the upcoming negotiations with Italy and, in the interim, should be pursued with Italy as a matter of comity and reciprocity.
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US Airways' success with its Philadelphia-Rome service has demonstrated the large, untapped traffic potential of Philadelphia as a gateway to Europe, and particularly Italy. Philadelphia has very strong economic and cultural ties with Italy. It enjoys the second largest U.S. concentration of persons of Italian ancestry, some 844,000, according to the 1990 census. There also are well-established business relationships between Philadelphia and Milan. Several Italian companies operate in Philadelphia and many more companies from the Tri-State Region conduct business or have established operations in Italy. US Airways' service to Milan will tap into this strong base of support and bring clear and tangible benefits to the business community, travel and tourism industry, and transportation consumers in the market.
US Airways' thriving hub at Philadelphia hosts over 325 daily US Airways flights, providing nonstop service to more than 75 communities. This hub operation is more than capable of fully supporting new service to Milan. It also will enhance competition in the overall U.S.-Italy market. US Airways' introduction of service to Milan will generate much-needed intergateway competition with the current nonstop Milan flights offered by Continental/Alitalia at Newark, Delta and TWA from New York, American from Chicago, and United from Washington, D.C.
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III. SERVICE TO MILAN IS TO PERFECT COMPLEMENT TO US AIRWAYS' OTHER TRANSATLANTIC SERVICES, AND US AIRWAYS MUST CONTINUE TO EXPAND AND DEVELOP ITS TRANSATLANTIC ROUTE NETWORK IN ORDER TO REMAIN COMPETITIVE.
Milan is a "must" for US Airways' transatlantic route network. Nearly all of US Airways' major competitors currently provide daily nonstop service to Milan, and for good reason.
Milan is a very large and established population center. It has 2.5 million inhabitants, second only to Rome. Milan is also Italy's major economic and commercial center. It offers a vast industrial base, serves as the headquarters of Italy's primary stock exchange, and hosts Italy's leading banks, insurance companies and other financial institutions. An impressive one third of Italy's total trade with foreign countries passes through Milan. Milan's Malpensa Airport is undergoing a major expansion and renovation to make it a first class gateway for international air travel. This project will be completed in 1998 and enhance the consumer benefits and economic success of US Airways' planned introduction of new service from Philadelphia. With Milan's extensive and modern communications and transportation networks, it is poised to become a critical link between Italy and the rest of the European continent. US Airways must obtain access to this thriving commercial center in order to remain competitive and continue developing its transatlantic network. Milan plays a central role in US Airways' plan to offer its
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passengers and the communities it serves access to the primary business centers of Europe.
Milan also will complement and enhance Philadelphia's development as an international gateway. US Airways has already brought the city its first nonstop services to Paris, Frankfurt, Munich, Madrid and Rome. In addition, US Airways is vigorously pursuing London (Heathrow) authority and recently obtained London (Gatwick) authority for start-up next spring. This substantial offering demonstrates that Philadelphia has become a premier East Coast gateway to Europe, and Milan is the logical next step.
US Airways' major competitors are expanding through alliances with European airlines to extend their networks throughout Europe. By combining with their former competitors and placing their passengers on the flights of foreign airlines through codesharing, they have strengthened their competitive positions. US Airways does not object to international code-sharing. It must, however, fully maximize new bilateral route opportunities in order to compete effectively with these alliances as an independent transatlantic flag carrier. Initiating service in the U.S.-Milan market is critical to meeting the competitive challenge.
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IV. TIME IS OF THE ESSENCE IN GRANTING US AIRWAYS AUTHORITY AND NEGOTIATING THE FREQUENCIES NECESSARY FOR US AIRWAYS TO BEGIN SERVICE IN APRIL.
In order for US Airways to launch its new Milan service at the start of the 1998 summer traffic season, only five months away, US Airways must be authorized promptly for Milan service. As pointed out above, there is no bilateral impediment to immediate approval of this application. The authorizations of the other carriers designated under the 1990 MOU with Italy include both Milan and Rome. Milan is an authorized point for U.S. carrier service under the bilateral, and US Airways is fit, willing and able to provide the service. Thus, the Department should promptly grant US Airways economic authority to serve Milan, and then proceed to reach an accommodation on frequencies in the upcoming negotiations. Only this course will position US Airways to provide the competitive new Milan service that the market and the traveling public deserves. For these reasons, US Airways' application should be expeditiously approved.
Required Showings
1. US Airways is a Delaware corporation with its principal office at Crystal Park Four, 2345 Crystal Drive, Arlington, Virginia 22227. US Airways is a citizen of the United States within the meaning of 49 U.S.C. § 40102(a)(15)(C) and is fit, willing and able to serve the U.S.-Italy market. US Airways holds various certificates of public convenience and exemption authorities. See e.g., Orders 97-7-2 and 96-3-17. Pursuant
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to Rule 24 of the Department's Rules of Practice, US Airways requests that the Department take official notice of all information previously filed to establish the company's fitness.
2. Beginning in April 1998, US Airways will operate daily service between Philadelphia and Milan, utilizing Boeing 767-200ER aircraft configured for 203 seats, or other suitable aircraft. A route map illustrating US Airways' proposed service pattern is attached as
Exhibit A. Illustrative service schedules are included as Exhibit B. Anticipated annual operating statistics and estimated fuel consumption are detailed in Exhibit C.3. As detailed in Exhibit C, US Airways' fuel consumption for the proposed new services would not exceed the ten million gallon threshold specified in Section 313.4(a)(1) of the Department's regulations. US Airways anticipates no difficulties in obtaining adequate fuel supplies for this service.
4. US Airways will accept and abide by all terms, limitations and conditions which the Department normally attaches to exemption authority for foreign air transportation.
WHEREFORE, US Airways, Inc. requests that the Department grant it an exemption from 49 U.S.C. § 41 101, effective for a period of two years, authorizing US Airways to engage in scheduled foreign air transportation of persons, property and mail between Philadelphia, Pennsylvania and Milan, Italy, and that the Department grant such further relief as the Department deems appropriate.
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Respectfully submitted,
ZUCKERT, SCOUTT & RASENBERGER, L.L.P.
Richard D. Mathias
Frank J. Costello
Cathleen P. Peterson
888 Seventeenth Street, N.W., Suite 600
Washington, D.C. 20006
(202) 298-8660
Counsel for US Airways, Inc.
November 3, 1997