OST-97-2481 & 97-2477 & Undocketed

Application of

for an exemption to codeshare with American Airlines, Inc.

Application of

for an exemption to codeshare with Aero California S.A. de C.V.

Joint application of

Alaska Airlines, Inc. ("Alaska"') respectfully submits its consolidated answer to the complementary exemption applications of American Airlines, Inc. ("American") and Aero California S.A. de C.V. ("Aero California") as well as both carriers' requests for corresponding statements of authorization to implement a code-share agreement under which, among others, American would display its new U.S.-Mexico code-share services between four U.S. gateways (Los Angeles, San Francisco, Dallas/Fort Worth and Tucson) and twenty-four cities in Mexico including Mexico City, Mazatlan, Ixtapa/Zihuatanejo, Puerto Vallarta and San Jose del Cabo. /1

Alaska's primary concern is with the potential consequences which could easily result from this broad-based code-share arrangement under which American will apparently display its code in almost 1600 U.S.-Mexico city-pairs. Under the current code-share policy of the Mexican Government, U.S. carriers operating on a code-share basis are treated in the same fashion as U.S. carriers operating their own aircraft for purposes of counting designations. Since the Mexican Government also limits the number of U.S. carrier designations to two per city pair, implementation of the code-share agreement will likely absorb hundreds of limited designations to be used for code-sharing services rather than for actual service by a U.S. carrier.

Alaska would respectfully suggest that the Department condition its approval of this as well as the other pending code-share agreements to permit a U.S. carrier subsequently willing, with its own aircraft and crews, to replace the codeshare carrier and obtain the limited designation. One of the fundaments of the

1/ Since Annex B to the code-share agreement indicates that Aero California plans to place its "JR code on American/American Eagle flights to sixty-six U.S. behind-the-gateway cities, it is reasonable to assume that American will similarly be holding out code-shared services between each of these sixty-six cities and twenty-four cities in Mexico--a total of almost 1600 city pairs.

Department's policy in limited entry markets has long been that each such limited designation should be used in the fashion which represents "the highest and best use" of these valuable bargained-for resources. /2 That same policy should be applied here in view of the almost 1600 U.S. Mexico city-pair designations which will be taken up by American's code-share services. /3

Alaska has one further potential concern about America's pending codeshare agreement--the Los Angeles-Mexico City market. Since the code-share agreement indicates that Mexico City is one of the Mexican behind-the-gateway cities to which American intends to display its code on Aero California's internal Mexican sectors, it is unclear whether American therefore intends to hold out Los Angeles-Mexico City services on a connecting flight, code-share basis. It is also unclear whether the Mexican Government's code-share policy would extend to such connecting flight-"behind-the-gateway" operations. With the well-known history of Alaska's interest in the Los Angeles-Mexico City market, Alaska would strongly object to any entry of American in that market as long as the Mexican Government intends to limit the number of U.S. carriers in the largest and most important U.S. Mexico market. It is the Department and not the two code-share

2/ See e.g., Application of Laker Airways, Order 96-5-36, dated May 28, 1996 (at 9); U.S.-Germany Third/Fourth/Fifth Freedom Frequency Allocations, Order 95-8-37, dated August 24, 1995 (at 10-11) (with respect to non-"grandfathered" allocations).

3/ It hardly requires mentioning that Alaska's concern would be obviated if the Mexican Government was prepared to relax its policy toward code-share operations.

carriers which should decide which U.S. carriers should be permitted entry in that most significant of all U.S.-Mexico markets. Therefore, unless and until the Mexican Government can be persuaded to relax its policy of treating code-share operations as the equivalent of direct carrier operations, the Department should condition its approval of the code-share agreement to exclude either carrier from holding out Los Angeles-Mexico City service.

Wherefore, Alaska Airlines, Inc. respectfully requests, for the reasons expressed above, that the Department condition its approval of the American-Aero California code-share agreement so that any U.S. carrier willing to operate direct service with its own aircraft and crews shall be entitled to supplant a U.S. carrier operating only code-share services and further that neither American nor Aero California be permitted to hold out any code-share or direct service in the Los Angeles-Mexico City market.

Respectfully submitted,

Marshall S. Sinick, Esq.

SQUIRE, SANDERS & DEMPSEY L.L.P.

1201 Pennsylvania Avenue, N.W.

Suite 500

Washington, D.C. 20004-0407

(202) 626-6651

Alaska Airlines, Inc. Washington Counsel

DATED: May 22, 1997