OST-97-3086 / Colgan Air / Exemption, High Density Rule, New York LaGuardia / November 4, 1997

Notice: Any party may file an answer to this application. Answers must be served upon the persons listed above and on the attached service list. Answers must be filed on or before November 21, 1997.

November 4, 1997

Application of

Colgan Air, Inc.

for an exemption pursuant to 49 U.S.C. §41714 New York LaGuardia Airport

APPLICATION OF COLGAN AIR, INC. FOR AN EXEMPTION

INTRODUCTION

Colgan Air, Inc. ("Colgan") respectfully requests an exemption from the requirements of Subparts K and S of Part 93 of the Federal Aviation Regulations so that it may continue its service to New York LaGuardia Airport. /1 Colgan requests commuter slots at LaGuardia to provide eight LaGuardia round-trip flights. /2 Colgan requests 16 commuter slots (Exhibit 1).

1/ The Secretary of Transportation may under the provisions of 49 U.S.C. § 41714(c) provide exemptions from the rules governing high density airports to enable new entrant air carriers to serve these airports when the service is in the public interest and the circumstances are exceptional. Since Colgan holds fewer than 12 slots at LaGuardia, it falls within the definition of a limited incumbent carrier as defined by 14 C.F.K § 93.213(a)(5), and qualifies as a new entrant under 49 U.S.C. §41714(h)(3).

2/ The specific times when slots are required to enable Colgan to provide competitive service are set forth in Exhibit 1.

Colgan would use the commuter slots to serve: Hyannis, Massachusetts; Nantucket, Massachusetts; and Charlottesville, Virginia.

Since 1968, the FAA's high density traffic airport rule ("HDR") (14 CFR Section 93.12 et seq.) has restricted the number of aircraft operations at JFK, LaGuardia, Washington National and O'Hare airports. Under the HDR, in order to conduct any IFR operation (arrival or departure) at an HDR airport, the operator must have a slot for the particular time frame during which the operation will be conducted. Slots are classified as either air carrier or commuter, based upon the aircraft's seat certification basis. /3

Colgan is forced to request an exemption for commuter slots because although Colgan leases Slots, /4 Colgan has been unable to obtain permanent slots under the existing rules. A large majority of the commuter slots at LaGuardia are controlled by the major carriers or their large regional affiliates, while approximately 98% of the air carrier slots are controlled by the major carriers. Slots are not available for sale and would not be sold at prices that would allow Colgan to serve current markets. Colgan has not been able to purchase commuter slots. As a number of carriers have stated on the record in other slot petition requests, they cannot obtain air carrier slots. If large carriers are unable to purchase slots, Colgan would have no opportunity to obtain any. As noted by the General Accounting Office (GAO) in its October 1996 report on barriers to

3/ 14 CFR 93.123 defines commuter slots as operations with turboprop aircraft having a certificated maximum passenger seating capacity of less than 75 or by turbojet aircraft having a certificated maximum passenger seating capacity of less than 56; air carrier slots are operations with aircraft having a certificated maximum passenger seating capacity of 75 or more seats or by turbojet aircraft having a certificated maximum passenger seating capacity of less than 56.

4/ Although Colgan has no reason to believe that it will lose its leased slots within a short period of time, its operations are based upon short-term leases. Those leases could be terminated at any time leaving Colgan with no alternative. This would leave Colgan without any presence at LaGuardia despite significant investments in facilities and route development.

competition, slot constraints at key hub airports such as LaGuardia have restricted carrier competition. They further noted that the full benefits of deregulation have yet to be realized and that "there has been little progress toward reducing these barriers, and some, such as slots, have grown worse." As a result of the nature of its service, Colgan cannot serve an alternative airport. As noted by GAO in explaining the need for service by new entrants at the slot restricted airports, each airport in the New York area has its own separate market. This service would not work at Newark -- which also happens to be significantly congested -- or at Kennedy, which is also slot constrained.

The grant of Colgan's application is consistent with Congressional intent that the Department increase access to high density airports for small-medium sized communities. As noted in Order 97-1-7, January 13, 1997, p. 1, Congress has directed the Secretary "to make the fullest possible use of existing exemption powers under 49 U.S.C. 41714 …'to improve service to nonhub airports where significant improvements can be achieved,"' citing the Conference Report to the DOT FY 1997 Appropriations Bill, Public Law 104-205. State and local officials participated in the National Air Service Roundtable in Chattanooga, Tennessee in February, to discuss market-based solutions to local air service problems. The genesis for the meeting was the need to finish "the unfinished business of the Airline Deregulation Act of 1978 by bringing a competitive mix of service to all communities, particularly those that, like Chattanooga, lack adequate airline competition or service quality. At the end of the conference, the attendees urged the Department to provide slots at high density airports to allow new services to small and medium communities.

With respect to new entrants, the Department has stated that it "intends to be more receptive to considering competition as a factor in granting slot exemptions . . . under the 'exceptional circumstances' criterion" (Statement of January 6, 1997 in response to GAO Report on Airline Deregulation).

The Department should also consider survival of competition as a factor in granting slot exemptions. As Assistant Secretary Charles Hunnicutt stated before the Senate Commerce, Science and Transportation Subcommittee on Aviation, on May 13, 1997, "New entry has almost completely stopped. We have received no new low-fare applications this calendar year and we have licensed only one new low-fare competitor" since May of 1996.

The Airline Deregulation Act calls for:

"Avoiding unreasonable industry concentration, excessive market domination, [and] monopoly power";

"Encouraging entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive airline industry."

Allowing Colgan to obtain LaGuardia slots would5e consistent with these principles.

At a time in which concentration in the airline industry is increasing, Colgan is one of the few small independent commuter operators remaining on the east coast. With large carriers having virtual control over high density airports, it has become increasingly more difficult for independent carriers or commuter carriers to operate in the northeast section of the United States. Access to the LaGuardia market is especially critical to Colgan's ability to continue to provide service to Hyannis, Nantucket and Charlottesville. Each of these communities is a nonhub city.

For a carrier such as Colgan, options are limited. Its service from LaGuardia to Hyannis, Nantucket and Charlottesville is an essential part of its system. Colgan began service to Hyannis in 1992, to Nantucket in 1993 and to Charlottesville in 1995 -- operating three roundtrips to each market on each weekday. As can be seen by the passenger traffic numbers (Exhibit 2), those loads have grown every year and are expected to continue to grow. Colgan does not have the option of shifting operations elsewhere in the country or to other Northeast markets. Without its high density airport routes, Colgan would be placed in a significant competitive disadvantage -threatening its future economic health and would lessen its ability to serve other markets as well.

Over the past decade the number of air carriers and commuter operators in the country has diminished. This is particularly the case in the Northeast. As a result, small and medium cities have been hit the hardest. Colgan Air is one of the few carriers expanding to these markets. Without permanent slots, Colgan has demonstrated its commitment to maximizing its presence at LaGuardia and to those markets. Yet, Colgan's ability to continue the service and growth is precluded by the current slot limits. If these communities do not have LaGuardia service, all of their service could be impacted. The Department should not force Colgan to cancel its slot leases and halt flights to these communities in order to apply for slots under the exemption authority. If Colgan were forced to take that approach, these markets would lose service and Colgan would be placed in economic jeopardy.

When the Department granted, in part, the application of Trans States Airlines, Inc., for slots at O'Hare (Docket OST-97-2386), it recognized that Trans States' application did not meet all of the criteria set forth to determine whether it is consistent with the exceptional circumstances standard. Nevertheless, in granting Trans States slots, the order stated that the grant of some slots, 11 will advance an important Congressional goal, using slot exemptions to promote service to medium-sized communities. We recognize that some medium-sized communities have not benefited from airline deregulation as much as would be expected by the size of their demand for air service." Hyannis, Nantucket and Charlottesville all fall within this objective.

It is clearly in the public interest to meet the needs of competition and growth of service at small/medium markets by enabling Colgan to secure its position at LaGuardia during slotted time periods. For these communities, LaGuardia service is essential to their economic growth. Department approval of Colgan's application is particularly warranted given the exceptional circumstances of Colgan's disadvantage as to the major carriers. The slots requested will allow Colgan to expand service throughout the region. Through this secured access to LaGuardia, Colgan can significantly benefit the traveling public bringing the benefits of deregulation through scheduled service to key markets. No other commuter can provide such significant procompetitive benefits under the new entrant statute.

A number of those commenting on requests for slots at the high density airports, have suggested that exemptions should not be granted, because of noise concerns. When Patrick V. Murphy, Department of Transportation Deputy Assistant Secretary for Aviation and International Affairs, testified before the Subcommittee on Transportation of the Senate Appropriations Committee on October 21, 1997, he stated:

In 1995, at the direction of Congress, the President, and the commission, the Department completed a study on the high density rule. We concluded that a change in the high density rule would not affect safety. . . In the short term there would be an increased noise impact; however, in the longer term, the transition to quieter all stage 3 aircraft would reduce noise levels to a point lower than experienced today. Colgan's commuter operation would not impact noise.

WHEREFORE, for the reasons stated above, Colgan respectfully requests that the Department grant it an exemption from Subparts K and S of Part 93 of the Federal Aviation Regulations for twelve commuter slots and four air carrier slots at New York LaGuardia Airport.

Respectfully submitted,

Edward P. Faberman.

UNGARETIT & HARRIS

1747 Pennsylvania Avenue, N.W.

Suite 900

Washington, D.C. 200064604

November 4, 1997