OST-98-3982 / OST-98-3603 / Atlantic Coast Airlines / Savannah/Hilton Head / Reply of Savannah/Hilton Head / July 27, 1998

Application of

for an Exemption from Subparts K and S of Part 93 of the FARs pursuant to 49 USC § 41714 )

Application of

The community of Savannah, Georgia/Hilton Head, South Carolina ("Savannah/Hilton Head") hereby files this motion for leave to file and its consolidated response in reply to the application of Atlantic Coast Airlines d/b/a United Express ("ACA") and others for an exemption from Subparts K and S of Part 93 (14 C.F.R. Part 93, Subparts K and S) (the "High Density Rule") to permit it to conduct three Savannah/Hilton Head - O'Hare roundtrips.

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

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.

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 from throughout the South Carolina and Georgia areas. (Copies of letters of support were submitted with the petition.)

First, as stated in ACA's application 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.

As a significantly large market, Savannah/Hilton Head-O'Hare will clearly be able to support nonstop service, which it had up until 1995. The Savannah/Hilton Head market has recently begun to grow, confirming the Parties' projections and ACA's analysis that the Savannah/Hilton Head market can readily support nonstop services to O'Hare. /2 To the extent the

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

applications of Savannah/Hilton Head or ACA and other submissions are deemed mutually exclusive, the DOT must decide how best to maximize the public benefits that will flow from the grant of a waiver from the High Density Rule. In reviewing the two applications, the Savannah/Hilton Head - O'Hare market is more deserving of consideration since it is the largest O'Hare market which currently lacks daily nonstop service. Grant of the Parties' application will advantage three times as many projected passengers than would the approval of the GLA applications. 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's forecasting a segment operating profit of $1.6 million. (See Exhibit 2 of ACA's petition.) As the two-state area's business and leisure traffic continues to increase, 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 Savannah/Hilton Head that previously only had double connecting service. Other markets will also have enhanced connecting service to and from Savannah/Hilton Head.

As stated in a July 14 letter from the Georgia Congressional delegation: The latest statistics show that the Savannah/Hilton Head area is the largest Chicago O'Hare market in the nation without nonstop air service. More than l 16,500 passengers travel between these cities each year. The requirement for this service is expanding daily with the dramatic population growth in the Savannah/Hilton Head area and the dynamic increase in tourism in the area.

The DOT applies a balancing test in awarding slot exemptions, weighing the relative public benefits that will flow from the grant of the competing slot exemption applications. The DOT must carefully weigh these benefits and decide which community or communities (and which carrier or carriers) will be permitted to operate at a High Density Airport outside of the hourly and daily slot limits imposed by the Rule.

In considering the applications before DOT, it is clear that the needs of Savannah/Hilton Head are significantly greater than those proposed in the other petitions. While there may be other communities that likewise wish either to restore or enhance their level of service to O'Hare, the number of passengers benefiting by a DOT award is maximized in the case of the Savannah/Hilton Head market. These public benefits satisfy the public interest test and the exceptional circumstances test of section 41712 (c), as do the many other factors set forth in the Parties' application (along with the supporting comments) and ACA's application. Since the Department must balance these factors in making any award, the weight of the evidence supports the grant of the Savannah/Hilton Head or the ACA application.

At present, American has sufficient slots to operate all of the services it wishes to the communities of Duluth, Fayetteville, Montgomery, and Shreveport. American also utilizes commuter slots with Fokker l00 to serve business markets. Although those slots could be used to serve these small cities, American has chosen not to provide that service. ACA, on the other hand, does not have the slots to provide the service requested by the parties. Since ACA only has exemption slots awarded for service to particular cities, it cannot move any of those slots to serve Savannah/Hilton Head. Moreover, the parties would not ask ACA to cease service to another market.

American's comments misguidedly suggest that the markets currently served from Savannah/Hilton Head are sufficient. Their position is irrelevant and inconsistent with a deregulated airline system. As a growing market, O'Hare-Savannah/Hilton Head service is essential for the continued growth of the two-state region's business and leisure markets. Savannah/Hilton Head should not be denied this essential service because it has successfully attracted new service. ACA's Dulles service was added after the original Savannah/Hilton Head petition was filed as a result of the actions taken by the community to enhance air service. These actions are precisely what the Department has recommended all communities to take. Savannah/Hilton Head, therefore, should not be told that adding Dulles service will be held against it as it attempts to add O'Hare service in the only way possible -- through slot exemptions.

By increasing flight options to Savannah/Hilton Head, the Department will be allowing O'Hare service to the largest market without direct service which also happens to be one of the fastest growing communities in the country -- Savannah/Hilton Head. Allowing this service in an expedited manner is in the public interest.

Respectfully submitted,

EDWARD P. FABERMAN

Michelle M. Faust

UNGARETTI & HARRIS

1747 Pennsylvania Avenue, N.W.

Suite 900

Washington, DC 20006-4604

Submitted: July 27, 1998