Order 97-11-26

Served: November 13, 1997

Issued by the Department of Transportation on the 13th day of November, 1997

 

Application of

CONTINENTAL AIRLINES, INC. | Docket OST-97-2845

for an exemption pursuant to 49 U.S.C. Section 40109

(San Antonio-Mexico City)

Joint Application of

UNITED AIR LINES, INC. | Docket OST-96-1988

and

COMPANIA M:EXICANA de AVIACION, S.A. de C.V.

under 49 U.S.C. 40109 for exemptions (U.S.-Mexico) and route integration; and for statements of authorization under 14 CFR Parts 207 and 212 (reciprocal code-sharing services)

 

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ORDER TO SHOW CAUSE

Summary

By this order we tentatively decide to (1) withdraw the designation and related regulatory authorities for United Air Lines, Inc., (United), to provide scheduled combination services in the San Antonio-Mexico City market pursuant to a code-share arrangement with Compania Mexicana de Aviacion, S.A. de C.V. (Mexicana); and (2) grant exemption authority to, and designate, Continental Airlines, Inc. (Continental), to provide foreign scheduled air transportation services in the San Antonio-Mexico City market with its own aircraft.

Background

The U. S.-Mexico Air Transport Agreement provides that only one carrier from each country may be designated to serve a given city-pair market. These restrictions can be lifted on an ad hoc basis with the mutual consent of both countries. In this regard, the United States and Mexico have agreed to double-designation services in the San Antonio-Mexico City market. American Airlines, Inc. (American), and United have been authorized and designated to serve the market--American provides services with its own aircraft, and United serves under a code share with Mexicana on flights operated by Mexicana. /1

Currently there are no specific provisions in the U. S.-Mexico aviation agreement providing for code-sharing services--such services are considered on the basis of comity and reciprocity. In this regard, it has been the policy of the Mexican government to require code-share carriers to be designated in city-pair markets where they hold out services even though they are not operating their own aircraft in the market. In light of this policy and the existing limitations on U. S. carrier U. S.-Mexico services, in order to insure the most effective use of the limited opportunities, we conditioned all U.S.-Mexico code-share services to provide a rebuttable presumption in favor of services operated by carriers with their own aircraft. Order 97-9-38. The effect of the condition is to permit replacement of code-share services in a given U.S.-Mexico city-pair market by a carrier operating its own aircraft.

Application and Responsive Pleadings

On August 22, 1997, Continental filed an application, in Docket OST-97-2845, requesting exemption authority to provide scheduled combination services in the San Antonio-Mexico City market with its own aircraft. Continental proposes to operate daily nonstop round-trip services with 141-seat MD-80 aircraft beginning December 18, 1997. Continental asks that the authority be awarded for a two-year period.

1/ American and United hold exemption authority to serve the market (see Orders 97-9-20 and 97-7-31, respectively). Mexicana was also granted a statement of authorization to put United's code on its San Antonio-Mexico City flights. United puts its code on two daily nonstop roundtrip flights operated by Mexicana in this market.

 

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In its application, Continental recognizes that the San Antonio-Mexico City market is a double designation market and that both designations are currently taken. Continental states that, unless the Mexican Government is willing to permit three U. S. carrier designations in the market, the Department will be forced to engage in carrier selection. In this regard, Continental noted that the Department had proposed in Order 97-7-31 to condition U. S.-Mexico code-share services so that a preference would be accorded services by carriers operating their own aircraft. /2 Continental maintains that, under these circumstances, its daily 141-seat round-trip flight would provide more public benefits and service options than United's code-share service, and that Continental's service should be authorized to replace United's code-share service in the market.

United filed an answer to the application, and Continental filed a reply.

United urges the Department to seek approval for three U.S. carrier designations on the San Antonio-Mexico City route before making any final decision on Continental's application. United contends that, because one of the existing designations is used by United for code-share services, the Government of Mexico should be willing to allow three designations in the market. If Mexico does not approve the request, United agrees that the Department will have to decide which two carriers should be designated for San Antonio-Mexico City services.

In its reply, Continental states that the Department should immediately issue a show-cause order proposing to replace United's designation for code-share services with Continental's designation for its own flights. Continental states that, although it agrees with United that the Department should ask Mexico immediately to permit three U. S. carrier designations on the route, issuance of the requested show-cause order "should spur Mexico to accept a third designation in the market so United will be able to continue supporting Mexicana's service." /3

Subsequent Events

After receiving Continental's application in this matter, we sought triple designation approval from the Mexican aviation authorities for the San Antonio-Mexico City route. However, such approval has not been forthcoming. While we will continue to pursue approval for triple designation services in this market, we believe it is in the best interests of the traveling and shipping public to proceed with Continental's request. Because American provides services in the market with its own aircraft, its services will not be at issue here. This proceeding will be limited to an examination of which carrier--United or Continental--should hold the second designation for San Antonio-Mexico City service.

Decision

After careful examination of the issues in this case, we have tentatively decided to (1 ) withdraw the designation and related regulatory authorities granted for United to provide scheduled

2/ As noted above, the Department finalized that proposal by Order 97-9-38.

3/ Continental Reply, at 2.

 

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foreign air transportation services of persons, property, and mail in the San Antonio-Mexico City market pursuant to a code-share arrangement with Mexicana; and (2) grant exemption authority to, and to designate, Continental to provide foreign scheduled air transportation services of persons, property, and mail in the San Antonio-Mexico City market with its own aircraft (direct carrier services). We further propose to grant the authority to Continental for a period of two years from the date of a final order in this matter. We will provide interested persons an opportunity to comment on our tentative decision.

We tentatively conclude that replacement of United's code-share services with Continental's direct carrier services in the San Antonio-Mexico City market is consistent with the public interest. /4

As noted above, the Mexican government has not agreed to permit three U.S. carriers to serve the San Antonio-Mexico City market. We are thus limited to two U.S. carrier designations. Continental would use its own aircraft, while United would place its code on flights operated by Mexicana. Given the rebuttable presumption set forth in Order 97-9-38, the policy considerations which underlie it, and the facts and arguments in the pleadings on the record, we tentatively find that Continental's proposed daily nonstop operation in this market justifies the award of authority here. Should we subsequently receive triple-designation approval for the San Antonio-Mexico City market--and diplomatic efforts in this regard are continuing--United could seek authority and redesignation for its code-share services in the market at that time.

Based on the above, we tentatively conclude that it is consistent with the public interest to grant exemption authority to Continental to provide scheduled combination services in the San Antonio-Mexico City market. /5 We further tentatively find that it is consistent with the public interest to withdraw the designation of United and related regulatory authorities granted to United and Mexicana for code-share services in the San Antonio-Mexico City market. We will require that any objections to our tentative decision be filed no later than seven calendar days from the date of service of this order. Any answers should be filed no later than five calendar days thereafter.

ACCORDINGLY,

1. We tentatively find that it is consistent with the public interest to withdraw the designation of United Air Lines, Inc., and the regulatory authorities granted to United and Compania Mexicana de Aviacion to engage in code-share services in the San Antonio, Texas-Mexico City, Mexico, market,

4/ Based on data officially noticeable under rule 24(n) of the Department's regulations, we tentatively find that Continental is qualified to provide the proposed San Antonio-Mexico City services. See, Order 97-3-24.

5/ We tentatively find that because our proposed action will not result in a near term change in annual fuel consumption of 10 million gallons, it will not constitute a "major Federal action" under the Energy Policy and Conservation Act of 1975.

 

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2. We tentatively find that it is consistent with the public interest to grant exemption authority to, and to designate, Continental Airlines, Inc., as requested in Docket OST-97-2845, to provide scheduled foreign air transportation of persons, property, and mail between San Antonio, Texas, and Mexico City, Mexico;

3. We direct any interested parties having to our tentative decision set forth above to file an original and five copies of their objections with the Department's Docket Section, Dockets OST-97-2845, and OST-96-1988, U.S. Department of Transportation, 400 Seventh Street, SW, Room PL-401, Washington, DC 20590, no later than 7 calendar days from the date of service of this order; answers thereto shall be filed no later than 5 calendar days thereafter; /6

4. If timely and properly supported objections are filed, we will give consideration to such pleadings before making a final decision; if no objections are filed, we will deem all further procedural steps to have been waived and will proceed immediately to a decision making final the tentative decisions set forth in this order; /7 and

5. We will serve this order on Continental Airlines, Inc.; United Air Lines, Inc.; Compania Mexican de Aviacion, S.A. de C.V.; the United States Department of State (Office of Aviation Negotiations), and the Federal Aviation Administration (AFS-200).

By:

PATRICK V. MURPHY

Deputy Assistant Secretary for Aviation and International Affairs

(SEAL)

6/ All filings should be on 8 1/2" x 11 " white paper using dark ink (not green) and be unbound without tabs, which will expedite use of our docket imaging system.

7/ Since we are providing for the filing of objections to our tentative decisions, we will not entertain petitions for reconsideration of this order