OST-98-3419 / 1998 US-Japan Combination Service proceeding / Joint Application of Continental and Northwest / February 10, 1998

NOTICE: Any person may support or oppose this application by filing an answer and serving a copy of the answer on counsel for the Joint Applicants, and upon persons served with this application, no later than February 17, 1998.

Joint Application of

CONTINENTAL AIRLINES, INC. and NORTHWEST AIRLINES, INC.

for a frequency allocation (U.S.-Japan and beyond codesharing)

Application of

CONTINENTAL AIRLINES, INC.

for a certificate of public convenience and necessity

(U.S.-Japan and beyond)

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

2

operated by Northwest, in the following mainland U.S.-Japan markets -- Detroit-Osaka, San Francisco-Tokyo, Detroit-Tokyo and Los Angeles-Osaka -- and on a blind-sector basis from points in the United States, via Tokyo, to Seoul, Korea, Singapore, and Bangkok, Thailand. Specifically: (1) the Joint Applicants request that the Department allocate them a total of 28 weekly frequencies for mainland U.S.-Japan codesharing service and 21 weekly frequencies for beyond-Japan codesharing service; and (2) Continental applies for a new or amended certificate of public convenience and necessity, pursuant to 49 U.S.C. H 41102 and 41108 and Subpart Q of the Department's Rules of Practice, authorizing Continental to provide scheduled foreign air transportation of persons, property and mail in these markets and to consolidate this authority with Continental's other exemption and certificate authority consistent with applicable international agreements. The Joint Applicants respectfully suggest award of the frequency allocation for an initial period of two years. In support of their application, the Joint Applicants state as follows:

1. The 1998 MOC offers U.S. carriers important new opportunities to provide same-country codesharing service to and from Japan and the rest of Asia. Northwest has substantial operating experience in these markets and, by

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

3

separate application, seeks expansions in its U.S.-Japan authority to correspond with the new opportunities made available under the 1998 MOC. Continental and its affiliates, by contrast, provide service only between certain U.S. Pacific points and Japan under earlier U.S.Japan Memoranda of Understanding.

2. Continental is applying elsewhere in this proceeding for authority to operate Newark-Tokyo, Houston-Tokyo and Newark-Osaka service, and Continental Micronesia is applying for authority to operate Honolulu-Osaka service and for an additional seven frequencies to be operated by Continental Micronesia between Honolulu and Tokyo. Codesharing with Northwest will enable Continental to offer additional on-line service between the U.S. mainland and Tokyo and Osaka to develop a limited presence in the market prior to institution of its own services and to offer additional options for travelers when its own Houston/ Newark-Tokyo and Newark-Osaka flights begin operating. Codesharing beyond Tokyo will enable Continental to offer its U.S. mainland-Japan passengers service beyond Tokyo which Continental could not offer on its own.

3. The Joint Applicants propose Continental codeshare service in several U.S.-Japan gateway-to-gateway markets. Continental, which operated no mainland U.S.-Japan service

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

4

as of January 1, 1998, is a "Category A" carrier within the meaning of Tab E, section 5(d) of the 1998 MOC. Thus, it is permitted to place its code on other U.S. carriers pursuant to Tab E, section 5(g) of the 1998 MOC. The proposed markets are listed below; as the Department requested, these markets have been ranked in order of the Joint Applicants' preference for allocation. Continental would offer daily service in each market, and Northwest would operate the flights with Boeing 747-200 aircraft (10 first class, 63 business class, and 296 economy class seats) except in the Detroit-Osaka market, which would be operated with Boeing 747-400 aircraft (18 first class, 62 business class, and 338 economy class seats).

As Northwest already operates the flights on which Continental would place its code, codesharing service can begin expeditiously. The Joint Applicants propose to begin codesharing as early as April 5, 1998, when schedule changes take effect, and to operate with the same frequency of

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

5

service throughout the year, although Northwest reserves the right to substitute aircraft.

4. The Joint Applicants also propose Continental codeshare service between the United States and Seoul, Korea, Singapore, and Bangkok, Thailand via Tokyo; thus, Continental would place its code on Northwest flights between Tokyo, on the one hand, and Seoul, Singapore, and Bangkok, on the other, under this aspect of the arrangement. Such beyond-Japan codesharing is permitted on a blind-sector basis under Tab E, section 5(k) of the 1998 MOC. Continental would not transport local Tokyo-Seoul/Singapore/ Bangkok passengers on these codeshare services. Pursuant to the Department's request, the proposed markets are ranked below in order of the Joint Applicants, preference for allocation. Continental would offer daily service in each market, and Northwest would operate the flights with Boeing 747-200 aircraft (10 first class, 63 business class, and 296 economy class seats).

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

6

Again, as Northwest already operates the flights on which Continental would place its code, codesharing service can begin expeditiously. The Joint Applicants propose to begin codesharing as early as April 5, 1998, assuming applicable authority is obtained from the foreign governments involved, and to operate at the same frequency of service throughout the year, although Northwest reserves the right to substitute aircraft. /1

5. Continental requests that the Department issue it a new certificate of public convenience and necessity, or amend its certificate for Route 29-F (which authorizes service, without intermediate points, from the U.S. to Korea, Singapore, and Thailand), /2 to provide the necessary, underlying economic authority for codesharing service. Specifically, Continental requests authority: (1) between Detroit, Michigan and Los Angeles, California, on the one hand, and Osaka, Japan, on the other; (2) between San

1/ The Joint Applicants fully expect the governments of Korea, Singapore and Bangkok to allow the proposed codesharing. Should Korea not permit the codesharing (because of the absence of a codesharing article in the U.S.-Korea agreement), the Joint Applicants request codeshare authority to Taipei, Taiwan, with the order of preference becoming (1) Singapore, (2) Bangkok and (3) Taipei.

2/ If codesharing is to Taipei rather than to Seoul (see note 1), Continental requests certificate authority to points in Singapore, Thailand and Taiwan.

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

7

Francisco, California, and Detroit, Michigan, on the one hand, and Tokyo, Japan, on the other; and (3) between a point or points in the United States, via the intermediate point Tokyo, Japan, and points in Korea, Singapore, and Thailand. /3

6. Both Continental and Northwest are well-qualified to provide the proposed service for the reasons set forth herein. As an applicant for certificate authority, Continental further advises that: (1) it is a Delaware corporation with its principal offices located at 2929 Allen Parkway, Houston, TX 77019; (2) it is a citizen of the United States within the meaning of 49 U.S.C. § 40102(15)C), as its principal executive officers, and two-thirds or more of its Board of Directors and other managing officers, are citizens of the United States and more than 75t of the voting stock of the corporation is owned or controlled by persons who are citizens of the United States; and (3) it has been found fit, willing, and able to provide scheduled

3/ Under Tab E, section 4 of the 1998 MOC, codesharing is permitted "whether or not (the codesharing carrier holds) authority to operate services on the routes . . . ." Thus, should the Department select a different form of economic authority for issuance to codesharing carriers under the 1998 MOC, Continental respectfully requests an exemption, pursuant to 49 U.S.C. § 40109(c), or other appropriate authority for the proposed codeshare transportation.

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

8

foreign air transportation of persons, property and mail in a variety of markets.

7. The proposed Continental/Northwest codeshare services are in the public interest. They will enable Continental to offer additional online U.S.-Japan and U.S.-Asia service to U.S. communities throughout its domestic network and increase the service options available to the traveling public. The arrangement also will promote competition. Continental and Northwest will price their services independently and, thus, Continental will bring additional price competition to U.S.-Japan and U.S.-Asia markets Northwest now serves. Finally, the code-share arrangement ultimately will provide other recognized benefits to consumers, including one-stop check-in, frequent flyer program enhancements, improved interline services for baggage, and more convenient, coordinated connections. In sum, the new travel options Continental could offer, combined with the efficiency of codesharing aboard existing Northwest operations, would maximize these valuable bilateral rights and improve the abilities of Continental and Northwest to compete with the mega-alliances anticipated between American and Japan Air Lines and United and All Nippon Airways. See "JAL, AMR Deal Appears to Be Near," Wall Street Journal, February 10, 1998, at A13.

Continental Airlines, Inc. Northwest Airlines, Inc.

Joint Application

9

8. The proposed operations are consistent with the relevant bilateral agreements and regimes. As noted above, these proposed operations are authorized under the 1998 MOC in respect of U.S.-Japan-beyond operations. Further, Continental's proposed codeshare service beyond Tokyo is consistent with the 1997 U.S.-Singapore open skies bilateral and the 1996 U.S.-Thailand Memorandum of Understanding and Agreement (and the blind-sector codesharing would require no U.S.-Thailand frequencies). While the U.S.-Korea agreement does not explicitly provide for codesharing, the Joint Applicants believe that such operations should be acceptable under principles of comity and reciprocity.

9. Continental and Northwest agree to abide by the consumer notice provisions of 14 C.F.R. § 399.88. In addition, the Joint Applicants agree to accept the Department's standard condition requiring that the carrier issuing the ticket or waybill for a codeshare service accept the legal responsibility for the passenger so ticketed or shipment so waybilled under that carrier's contract of carriage.

10. In accordance with office of International Aviation requirements, the Joint Applicants advise the Department that the codeshare arrangement at issue will not have an adverse impact on the Civil Reserve Air Fleet commitments of either Northwest or Continental, since it

Continental Airlines, Inc. Northwest Airlines, Inc.

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will occasion no significant change in aircraft operating commitments.

11. The Joint Applicants urge the Department to use expedited procedures in authorizing U.S. carriers to take advantage of the new rights generated by the 1998 MOC. They are prepared to enter the market expeditiously, and a prompt allocation would allow the U.S. to best use the new codesharing rights.

WHEREFORE, Continental Airlines, Inc. and Northwest Airlines, Inc. respectfully request that the Department grant the authority described herein and such other, further and different relief as may be necessary and appropriate under the circumstances.

Respectfully submitted,

R. Bruce Keiner

CROWELL & MORING LLP

1001 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 624-2615

Counsel for CONTINENTAL

Megan Rae Poldy

Associate General Counsel

NORTHWEST AIRLINES, INC.

901 15th Street, N.W. - Suite 310

Washington, D.C. 20005

(202) 842-3193

February 10, 1998