Application of

for an Exemption from Subparts K and S of Part 93 of the FARs pursuant to 49 USC § 41 714

Application of

for an Exemption from 14 CFR Part 93, Subparts K and S. 49 USC § 41714 as to allow nonstop service to Chicago O'Hare Airport

American Airlines, Inc. and American Eagle Airlines, Inc. hereby jointly answer in opposition to the captioned application of Atlantic Coast Airlines (hereinafter "United Express") for exemption slots at Chicago O'Hare International Airport to serve Savannah/Hilton Head through Savannah International Airport. 1/

1/ The application submitted by United Express also captions a previously docketed application by Savannah/Hilton Head. To the extent required, and in the interest of procedural fairness, American and American Eagle request leave to address the Savannah/Hilton Head application in this joint answer.

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The Department's decision in Order 98-4-21 to award 32 O'Hare exemption slots to United Express, and just 16 to American Eagle, when United/United Express already command the lion's share of slots at Chicago, is fundamentally unfair and contrary to the public interest. Because United has chosen to operate its commuter network with multiple franchisees, United is able to muster multiple surrogates as applicants for exemption slots, and further bolster its lead.

Not only did United Express receive two-thirds of the small community slots the Department awarded in Order 98-4-21, but each United Express carrier is required to serve only three cities, while American Eagle must spread the same number of slots over four cities. As a scheduling matter, this means that Trans States d/b/a United Express can offer three daily roundtrips to two of its three cities; Atlantic Coast d/b/a United Express can also offer three daily roundtrips to two cities; but American Eagle would be limited to two daily roundtrips to each of the four cities it was awarded.

This is an unwarranted penalty against American Eagle, and against the communities that American Eagle would serve. Such a result is also contrary to the expressed intent of Order 98-4-21, which asserts that "we find a compelling case for giving equal consideration to Simmons' proposal with those of ACA and Trans States," and that "a significant element of equity...weighs in favor of awarding an appropriate number of slot exemptions to each of the applicants" (p. 17, emphasis added).

The application submitted here by United Express is unusually disingenuous. In the first place, United Express conceals its very identity in the caption, referring to itself only as "Atlantic Coast Airlines," without any indication that

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its entire scheduled route system is operated d/b/a United Express under the "UA" code. 2/ Inasmuch as the applicant would operate all of its proposed Chicago-Savannah flights as United Express, it surely has no legitimate claim to "new entrant" status under 49 USC 41714(c). United and United Express hold more slots at O'Hare than any other carrier

group, 3/ and should not be allowed to achieve still more access at the expense of American and American Eagle, and at the expense of two-carrier hub competition at O'Hare, under the preposterous claim that United Express is a "new entrant."

The Department should flatly reject United Express's contention that it can still be a "new entrant" even though it received 16 O'Hare exemption slots by Order 98-4-21. While United Express devotes several pages of its application to a tortured interpretation of "new entrants" and "limited incumbent carriers" as defined by 49 USC 41714 and 14 CFR 93.213, the fact remains that Atlantic Coast itself already has 16

2/ Atlantic Coast's assigned designator code is "DH." We searched computerized airline schedules available for 1997 and 1998, and could not find a single flight listing under the "DHt' code. One hundred percent of Atlantic Coast's scheduled service is held out to the public as "UA*."

3/ Prior to Order 98-4-21, United and its United Express partners held 1,016 O'Hare slots, compared to 898 held by American and American Eagle. With the award of 32 additional slots to United Express and only 16 to American Eagle by Order 98-4-21, the totals are 1,048 v. 914.

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O'Hare exemption slots, which disqualifies it from being either a new entrant or a limited incumbent.

Under United Express's theory, a carrier could be awarded any number of O'Hare exemption slots, and still present itself, time after time, as a "new entrant." That is clearly an absurd result, and contrary to any reasonable interpretation of the underlying statute and regulations. And it is even more absurd to hear such an argument from United Express, in view of the slot dominance enjoyed by the United/United Express carriers at O'Hare. 4/

4/ The close relationship between United and its United Express carriers was recently highlighted in a letter dated July 6, 1998 from Assistant Secretary Charles A. Hunnicutt to Douglas G. Voss, President/CEO of United Express Aviation, Ltd. d/b/a United Express, requiring "United Express, in conjunction with United Airlines, to report back to us with an earnest plan as to how [certain] unused slot exemptions may be used to serve Decatur-O'Hare" (p. 3).

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non-hub airport, defined as having less than .05& of total enplaned passengers. See Order 97-1-7, January 16, 1997, p. 2 n. 1. Accordingly, the Congressional directive with respect to non-hub communities, as reflected in the orders cited by United Express, has no applicability to a small hub airport such as Savannah.

Savannah/Hilton Head is already very well connected to the national air transportation network, with far more service than non-hub communities such as Duluth, Fayetteville, Montgomery, or Shreveport. Savannah/Hilton Head, with service through two airports, enjoys an extensive pattern of multiple daily nonstop flights to hubs at Atlanta (Delta and AirTran), Charlotte (US Airways and US Airways Express), Newark (Continental Express), Raleigh/Durham (Midway Airlines/Corporate Express and US Airways Express), and Washington Dulles (United Express); one-stop flights to Birmingham, Boston, Chicago (Midway and O'Hare), Cleveland, Denver, Detroit, Ft. Lauderdale, Hartford, Indianapolis, Phoenix, Pittsburgh, Richmond, San Diego, and West Palm Beach; and a broad array of on-line connections to cities throughout the United States. See BACK Information Systems, published airline schedules, July 15-21, 1998.

Moreover, United Air Lines provided nonstop jet service between Chicago and Savannah as recently as 1995, using its own slots. United Express glosses over this critical fact, merely stating that the market had nonstop service "up until 1995," when "the then incumbent carrier ceased providing nonstop jet operations" (p. 5). The "then incumbent carrier"! Atlantic Coast first avoids showing in the caption of its application that it is a United Express operator, and later seeks to conceal that it is seeking scarce O'Hare exemption slots to serve a small hub that United abandoned in 1995.

Finally, United Express makes a last-ditch argument that the Department should grant Savannah/Hilton Head's application in OST-98-3606 "[i]f...the Department were to conclude that it does not have a legal basis to award ACA relief from Subparts K and S" (p. 10). The Department should reject that

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approach as well. As a matter of sound public policy, the Department should not further enrich United/United Express with O'Hare slots. The loophole that United Express has suggested -- an award of slots to the community where there is no "legal basis" to award slots directly to the operating carrier -- would clearly be contrary to fundamental principles of law. 5/

CONCLUSION

The United Express and Savannah/Hilton Head applications should be denied. The Department should assign four of the remaining exemption slots at O'Hare to American Eagle, as requested in American Eagle's pending objections to Order 98-421. The Department should not allow United Express to masquerade as a "new entrant," nor should the Department award any slots to United Express to reinstate service to a well-served

5/ United Express has itself questioned the legality of awarding slots to a community rather than to the operating carrier. See Answer of Atlantic Coast Airlines to Savannah/ Hilton Head, OST-98-3603, March 25, 1998 ("[t]he application of Savannah/Hilton Head presents the Department with several interesting issues. First, it is not clear that there is a statutory basis under 49 U.S.C. § 41714 to grant the relief for which the communities have applied. The communities are not designated as essential air service cities and Savannah/Hilton Head is not a defined non-hub airport.... While ACA currently does not operate at O'Hare it has...an application pending for 42 O'Hare slots.... ACA may or may not be a new entrant at O'Hare and, therefore, eligible to receive additional slots with which to serve Savannah" (pp. 2-3).

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small hub, such as Savannah, where United Air Lines suspended service in 1995.

Respectfully submitted,

CARL B. NELSON, JR.

Associate General Counsel American Airlines, Inc.

July 9, 1998