Application of

for an Exemption from Subparts K and S of Part 93 of the FAR's pursuant to 49 U.S.C. 41714

Application of

for an Exemption from 14 C.F.R. Part 93, Subparts K and S. 49U.S.C.§41714 as to allow non-stop service to Chicago O'Hare Airport

On March 11, 1998, the community of Savannah, Georgia/Hilton Head, South Carolina ("Savannah/Hilton Head") along with other municipalities and businesses from the states of Georgia and South Carolina 1/ ("Parties") requested that the Department of

1/ The parties include the Governors of Georgia and South Carolina, Chambers of Commerce, the Savannah/Hilton Head Area Convention and Visitors Bureau, and civic officials, hotels, resorts, and businesses.

Transportation ("the Department") grant an exemption from the requirements of Subparts K and S of Part 93 of the Federal Aviation Regulations to award the necessary slots so that they may obtain direct. non-stop service to Chicago s O'Hare Airport. The parties requested eight slots at O'Hare to allow four Savannah/Hilton Head-O'Hare round-trip flights.

The parties asked that the Department award eight slots to the Savannah Airport Commission. The Parties noted that awarding the slots to the community is consistent with the high density regulation which allows communities to own slots. The Parties agreed that if those slots were not utilized within 180 days from the date of award, the slots would be returned.

While awaiting a decision on the application submitted by the Parties, pursuant to 49 U.S.C. § 41714 (c, Atlantic Coast Airlines d/b/a United Express ("ACA" filed an application for slots under the provisions of Subparts K and S of the Part 93 of the Federal Aviation Regulations ("FAR's") (14 C.F.R. Part 93, Subparts K and S ("Subparts K and S" or the High Density Rule") to authorize ACA to conduct five operations (three round-trip flights at O'Hare utilizing 50-seat regional jet aircraft to and from Savannah/Hilton Head. ACA has constructed a three daily roundtrip flight schedule using the requested exemption authority and combined it with an operation in a non-controlled hour.

Since the Parties submitted their original application, two notable events have occurred that fully justifies and supports the basis for an immediate award of the requested slots.

First, as stated in ACA's application, "the combined Savannah Georgia/Hilton Head, South Carolina market is now the largest Chicago O'Hare market without nonstop service."

Second, as announced in the application filed by the Parties, ACA initiated four roundtrips per day in the Savannah/Hilton Head-Dulles market with regional jets. According to ACA's application, that service is successful. As a result of that service, Savannah/Hilton Head has become an important part of ACA's route system and its ability to add and promote service to Chicago has been enhanced. Service to Chicago will complement ACA's Washington service and will help solidify both markets. Moreover, by serving two of Savannah/Hilton Head's top markets, ACA's costs will be proportionately reduced, solidifying ACA's future as a viable competitor in this part of the country. 3/

As a significantly large market, Savannah/Hilton Head-O'Hare will clearly support nonstop service, which it had up until 1995. The market has more recently begun to grow, supporting projections submitted by the Parties and ACA's analysis that the Savannah/Hilton Head market can readily support nonstop O'Hare serviced ACA forecasts that it will carry over 78,000 passengers in the first full year of three times daily nonstop service at an average fare of $124.00 and achieve a 71.7% load factor. ACA is forecasting a segment operating profit of $1.6 million. (See Exhibit 2 of ACA's petition. As the two-state area is increasing in business and leisure traffic, the opportunities for service to Chicago are expanding.

ACA will attract both local and connecting passengers to its nonstop service with the support of United's O'Hare connecting complex. As noted in ACA's petition, with the introduction of ACA's service, 43 markets will gain single connecting service to and from

3/ Application of the Community of Savannah/Hilton Head, Docket OST-98-3603.

Savannah/Hilton Head that previously only had double connecting service. Other markets will also have enhanced connecting service to and from Savannah/Hilton Head.

ACA proposes to serve the Savannah/Hilton Head-O'Hare market commencing November 3, 1998, utilizing its 50-seat Canadair Stage 3 regional jet aircraft -- the quietest jet in the commercial fleet. By adding Savannah/Hilton Head to its O'Hare route system, ACA will be enhancing its regional jet service to O'Hare from Charleston, West Virginia, Wilkes Barre/Scranton, Pennsylvania, and Springfield/Branson, Missouri. Each of those markets will also benefit.

Based upon the data depicting available traffic, marketing and potential growth information for the two-state area, there is no doubt that the service proposed in the ACA application, as well as that proposed by the Parties, justifies an exemption to allow O'Hare service.

In responding to recommendations of the U.S. General Accounting Office that the legislative standard governing the granting of landing slots to accommodate new entrants should be reconsidered to include competition as a key criterion, the Department took the following position:

In our past approvals and denials of slot exemptions, we have recognized as an exceptional circumstance the existence of markets that were demonstrably large enough to support nonstop service but had no nonstop service. Here we have determined to define "exceptional circumstances" more broadly by recognizing the need for competitive service in a market ...In expanding the range of exceptional circumstances, we are concurring with the concerns that have been raised by members of Congress, numerous community groups, new entrant airlines, the General Accounting Office and within the Department about the state of competition in the airline industry.

The grant of requests for slots for the Savannah/Hilton Head community is consistent with Congressional intent and statements by DOT officials that the Department intends to increase access to high density airports for small-medium sized communities. As noted in Order 97-1-7, January 13, 1997, p. I, 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 FY1997 Appropriations Bill, Public Law 104-205.

DOT's 1996 Low-Cost Airline Service Study emphasized that there were a number of positive developments attributable to the growth of competitive service but a number of markets were not enjoying the benefits of a deregulated environment.

The importance of airline service to small-medium communities has also been the subject of a number of forums, including the National Air Service Roundtable held earlier this year in Jackson, Mississippi and one year ago in Chattanooga, Tennessee. At these conferences, state and local officials emphasized the significance of airline service to the economic growth of small communities.

In "The Low-Cost Airline Service Revolution," April, 1996, the Department states:

We encourage communities to promote their own interests by undertaking efforts to encourage low-cost new entry. Awareness of the benefits of low-cost service where it has succeeded should be adequate incentive for communities to pursue low-cost service. The Department has Authority to Award the Requested Slot to the Savannah Airport Commission or to ACA.

Today, a community may only obtain service to O'Hare if one of the two primary carriers operating at the airport decides to shift slots for use at that community. While these carriers have obtained additional slots through the exemption process for limited new service, the Parties believe that it would be in the greater public interest to award exemption slots for regional jet operations to the community. Therefore, the Parties asked the Department to award eight slots to the Savannah Airport Commission. Awarding slots to Savannah/Hilton Head would provide the residents of the two-state area with the assurance that if they support O'Hare service, it will not disappear from use so that the carrier using the slot may serve other markets. The Parties are confident that if ACA were provided the slots, its service would be successful. Community control of the slots would be consistent with efforts of the Department to promote service to small and medium communities. Awarding slots to the community is consistent with the high density regulations (allowing communities to purchase and own slots and with actions taken by this Administration to work with local and state governments to promote tourism and economic growth. 3/ If the slots were awarded to the

community, as stated in the filing, service would be provided by ACA. Therefore, there is no concern that service would not be operated or that slots would be underutilized.

As an alternative to awarding slots to the Airport Commission, the Department can award slots for Savannah/Hilton Head service to ACA. To spread the benefits of a deregulated system, the Department has correctly awarded slots for O'Hare service to several communities that have demonstrated a need for enhanced service to slot-controlled airports. A number of those communities have smaller projected Chicago traffic numbers than Savannah/Hilton Head. 4/

ACA is making its application pursuant to section 41714(c. This section authorizes the Secretary of Transportation to grant exemptions from Subparts K and S to enable defined new entrant air carriers to provide air transportation at High Density Airports upon a finding. New entrant air carriers are defined as carriers that do not "hold a slot at the airport concerned and have never sold or given up a slot at that airport after December 16, 1985, and a limited incumbent carrier as defined in subpart S of part 93...." A limited incumbent carrier is, in turn, defined in § 93.213(a(5 of the Federal Aviation Regulations as an air carrier that holds or operates fewer than 12 air carrier or commuter slots, in any combination, at a particular airport.

ACA is a new entrant air carrier within the meaning of section 41714. Although ACA has received exemption slots pursuant to Order 98-4-21, ACA does not have permanent slots under Subparts K and S. Since ACA has been granted an exemption from the High Density

Rule, it cannot be said to either "hold" or, once it commences flight operations, "operate" any O'Hare "slots."

If the slots are awarded to ACA, the Parties ask that:

1. Eight slots be awarded to support four round-trips. 5/ Four round-trips is the number operated in the Dulles market and is the number needed to support projected traffic; and

2. the authority awarded to ACA requires the carrier to notify the community at least 90 days prior to any plan it has to cease operations and the slots be made available for 90 days to allow the Parties to find another carrier to initiate service.

Economic development for the two-state area cannot exist when its service is limited and those wishing to travel to or do business in the area do not have reasonable access to major parts of this country and to the world. True deregulation can only exist when all markets can take part in the international transportation system.

As DOT has suggested, Savannah/Hilton Head has taken a number of important steps to attract service. The service that has started in Savannah/Hilton Head has exceeded all expectations. In some cases, carriers started with a few flights and added service to accommodate growing demand. The residents of these communities want competition and will support it. As service grows, business people and leisure travelers from other areas will drive to Savannah Hilton Head to use the multiple flight options.

The economic growth of small and medium communities is directly related to convenient and competitive airline service. This is particularly essential for a community

such as the two-state area that has increasing amounts of leisure and business travel and a growing need for international service, particularly to Canada. By adding convenient one-stop service to most major Canadian, Asian and European markets, the resorts and businesses in the area would be able to attract a significant number of new customers. Without that service, the area is disadvantaged as to other areas with significant international service.

As demonstrated by the applications, there is a significant market for Savannah/Hilton Head-O'Hare service. As the largest market without service, the Savannah/Hilton Head market will continue to grow, particularly with ACA's already successful Washington-Dulles service. The true winners from a Department action to grant this limited exemption would be the consumers and business people of the two-state region and those that obtain jobs as a result of the economic development stimulated by air service. The Administration has worked closely with communities to build economic growth. By granting this petition, the Department will generate true opportunities for economic growth in the two-state area. It is time for the Department to empower the Community of Savannah/Hilton Head and the two-state area with the ability to control its future economic growth. This can be accomplished by granting it or ACA an exemption from the high density slot regulations to allow four nonstop Savannah/Hilton Head-Chicago O'Hare roundtrips.

Therefore, the Parties request that the Department grant the slots requested in its application or, in the alternative, approve ACA's application.

Respectfully submitted,

UNGARETTI HARRIS, MICHELLE FAUST & Edward Faberrnan

Submitted July 1, 1998