OST-98-4499 / AccessAir / High Density Rule, LaGuardia / Answer of Borough of Queens / October 19, 1998

Application of

for an exemption from Subparts K and S of 14 CFR Part 93 (High Density Rule) as applied to New York LaGuardia Airport to provide nonstop service between:

Des Moines, Iowa/Moline-Quad Cities, Illinois and New York LaGuardia (combination service); and

Des Moines, Iowa/Peoria, Illinois and New York LaGuardia (combination service)

I. INTRODUCTION

II. BACKGROUND

A. The High Density Rule

B. The Statutory Test for High Density Rule Exemptions

III. ARGUMENT

A. The Time Period for USDOT to Grant Additional Slots Has Expired

B. USDOT Must Hold an Ashbacker Hearing Before Granting Any Additional Slots

C. AccessAir's Application Fails to Meet the Statutory Test for the Award of Slot Exemptions

1. Granting Slot Exemptions to AccessAir Would Be Contrary to the Public Interest

2. AccessAir Has Failed to Demonstrate the Existence of Exceptional Circumstances Warranting the Granting of Slot Exemptions

a. AccessAir Can Provide Service to an Alternate Airport

b. AccessAir Failed to Show That it Cannot Purchase or Lease Slots on the Buy-Sell Market

c. The Department Can Reallocate Underutilized Slots

d. AccessAir's Proposed Service Will Not Be Operationally or Financially Viable

IV. CONCLUSION

I. INTRODUCTION

On November 4, 1997, AccessAir Holdings ("AccessAir") filed an application for six slot exemptions from the High Density Rule to initiate service to LaGuardia Airport in New York City (Docket No. OST-97-3087). Specifically, AccessAir sought four slots to provide two daily round-trip flights to Peoria, Illinois, and two slots to initiate a daily round-trip flight to Moline/Quad Cities, Illinois, with all flights having connecting service to Des Moines, Iowa.

On April 21, 1998, the United States Department of Transportation ("USDOT" or Department") issued an order denying AccessAir's application in full. The Department stated that it would not take the Extraordinary step of granting slot exemptions to AccessAir when its certification by the FAA was still pending, and also found that AccessAir's application was "not as strong traffic-wise" as other applications that had been submitted. /1

Just six months later, AccessAir is back seeking slot exemptions once again. AccessAir has dropped its request for slots to serve Moline/Quad Cities, and instead is seeking four slots to provide service to Peoria, Illinois, with connecting service to Des Moines. AccessAir makes this application even though it still has not received its final certification by the FAA, and even though AccessAir has submitted no evidence that the proposed traffic will be larger that the projected levels that were found inadequate six months ago. Accordingly, USDOT should, once again, reject AccessAir's application.

1/ Applications of AccessAir Holdings, American Trans Air, America West Airlines, Colgan Air, Spirit Airlines. Pan American World Airways and Carnival Airlines, Order 98-4-22 (April 21, 1998)(hereinafter referred to as "AccessAir Holdings"), page 24.

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A. The High Density Rule

Queens County is the home of both LaGuardia Airport and John F. Kennedy International Airport. These two airports together handle about 700,000 flights carrying 53 million passengers per year, and these flights impose a tremendous burden upon the almost 2 million residents in this borough. Specifically, local residents must suffer from a disproportionate amount of aircraft noise, congestion, delays and pollution, and these airport related impacts have been a constant problem in Queens County for many years.

Prior to 1968, there were absolutely no legal or regulatory limits on the number of flights that could be added at LaGuardia and Kennedy Airports, and eventually the congestion of the aviation system reached a crisis stage. In its 1995 Report to Congress, the United States Department of Transportation ("USDOT" or "Department") described the problem as follows:

The FAA finally took action against this problem on November 27, 1968 by adopting the High Density Rules, which limits the number of flights at High density airports during particular hours. /3 The High Density Rule provided tremendous relief to both air travelers and local residents from the problems that had been caused by airspace congestion, and the rule

2/ Report to Congress: A Study of the High Density Rule, United States Department of Transportation, May 1995, page 22 (footnotes omitted).

3/ 14 C F. R. Part 93, Subpart K

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remains the only protection that airline passengers and residents have against a return to the problems that plagued the air traffic system in the 1960s.

B. The Statutory Test for High Density Rule Exemptions

In 1994, the United States Congress ordered USDOT to undertake a study of the High Density Rule. In addition, during the time period of the study, Congress authorized USDOT to grant exemptions under very narrow circumstances, and established a two-part test for evaluating slot exemption applications.

The first part of the statutory test requires a showing that the additional flights are in the Public interests. To meet this portion of the test, an airline seeking an exemption initially must demonstrate that public benefits would result from the additional flights, such as: (1) the institution of new service, or new non-stop service, where none previously existed; or (2) a substantial reduction in airfares in a market which is dominated by a single carrier or which otherwise lacks meaningful price competition. If the applicant makes this showing, then those potential benefits must be weighed against any potential adverse impacts on the public, including: (1) an increase in aircraft noise; (2) more flight delays; (3) a worsening of vehicular traffic congestions; (4) a decrease in safety resulting from more congested airspace; and (5) the adverse health impacts from increased air pollution.

If the Department determines that the adverse impacts from the flights outweigh any possible positive benefits, then the Department must deny the slot exemption application. In the alternative, if the applicant demonstrates that the benefits outweigh the burdens of the new service, then the Department must address the second part of the statutory two-part test.

The second part of the test requires the applicant to demonstrate that Exceptional" circumstances warrant the granting of the application. In undertaking this analysis, there are several factors that the Department must consider:

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1. Alternative Airports and Alternative Times: First, the applicant must demonstrate that it is enable to provide service to the destination through another airport which is not covered by the High Density Rule, or to the requested airport during hours that are not slot controlled. Obviously, if the service can be provided to an alternate airport, or during hours that are not covered by the High Density Rule, then there is no need at all for the slot exemption, and the application must be denied.

2. Purchase or Lease of Slot: Second, the applicant must demonstrate that it cannot obtain the necessary slots from an existing holder, either through purchase or lease. Specifically, the applicant should provide: (1) copies of its written communications to existing slot holders, setting forth the terms of its offers to purchase or lease slots; (2) copies of any responses received, including responses setting forth terms different from those offered; and (3) an analysis of the financial impact on ticket prices if the applicant amortized the cost of any purchase or lease over a ten-year period. Without this information, the Department will not be able to determine whether the applicant should be required to purchase or lease slots on the buy-sell market.

3. Other Factors: Third, in its most recent decisions, the Department has stated that as part of its analysis of Exceptional circumstances it would favor proposals: (a) that propose to use Stage 3 jet aircraft; (b) that demonstrate a reasonable expectation that the service will be operationally and financially viable; anal (c) that would introduce new nonstop service where none exists or would bring proven low-fare competition into a market which has only a single carrier or which otherwise does not have meaningful price competition.

4. Reallocation of Slots: If the applicant demonstrates that it cannot provide service to another airport or at the requested airport during non-slot controlled hours, that the cost of purchasing or leasing the slots would cause ticket prices to become uncompetitive, and that the other factors established by the Department have been met, then the Department will have to decide whether to grant a new slot, or to reallocate an existing slot. If there are existing slots which are being underutilized, then the Department should withdraw those slots and should award them to the new applicant. If there are no underutilized slots, then Exceptional circumstances exist and new slots can be awarded.

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A. The Time Period for USDOT to Grant Additional Slots Has Expired

As noted above, Congress granted USDOT the power to grant slot exemptions as part of the mandate to study the High Density Rule in the Federal Aviation Administration Reauthorization Act of 1994. Pursuant to that federal law, USDOT was directed: (1) to determine whether technological and procedural improvements to the air traffic control system made it possible to eliminate the High Density Rule; and (2) to evaluate the impact that the elimination of the rule would have on airspace congestion, delays, noise, competition, safety and profitability. /4 Congress required USDOT to submit a report by January 31, 1995, and to commence a rulemaking proceeding and issue a final rule based upon the results of the study. /5

Although Congress granted USDOT the power to grant exemptions to the High Density Rule during the period of the study, Congress specifically required that any slot exemptions that were granted must expire on the date on which the final rule became effective. Congress directed that the notice of rulemaking be issued no later than August 1, 1995, and that the final rule be issued within 90 days after the close of the public comment period. As a result, the final rule should have become effective on November 29, 1995, and therefore all prior exemptions should have terminated and USDOT's power to grant further exemptions statutorily expired on that date.

Contrary to this statutory direction, the Department never commenced a rulemaking on this issue, and thus a final rule was never issued (perhaps because the 1995 study concluded that the eliminating of the High Density Rule would have a net negative impact at both LaGuardia and Kennedy Airports). With the time period granted by Congress for the granting

4/ 49 U. S.C § 41714(e)

5/ 49 U. S.C. § 41714(e)(2) and (f)

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of exemptions to the rule having expired, there is no statutory basis for the granting of any additional slots, and AccessAir's exemption application must be denied.

B. USDOT Must Hold an Ashbacker Hearing Before Granting Any Additional Slots

In Ashbacker Radio Co. v. F.C.C., 326 U.S. 327 (1945), the United States Supreme Court held that where multiple parties have applied for a limited federal right and the applications are mutually exclusive, the federal agency may not grant the right to one applicant without providing a consolidated review of all applications. The Ashbacker doctrine has been followed by the Department in other contexts, such as the grant of international route authority, where a comparative review occurs before any awards are made.

In the Frontier Airlines decision, the Department decided to expand upon its existing statutory authority for review of slot exemption applications by applying a more relaxed scope of review than the standard set forth by Congress. In doing so, the Department made clear that some applicants who meet the new standard would still not receive exemptions, because only a limited number of slots were available. As stated by the Department:

Then, in AccessAir Holdings, the Department explicitly stated that it would grant no more than a total of 30 slot exemptions at LaGuardia Airport, stating:

6/ Applications of Frontier Airlines, ValuJet Airlines and AirTran Airways, Order No. 97-10-17 (October 24, 1997)(hereinafter referred to as "Frontier Airlines"), page 5.

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In Frontier Airlines and AccessAir Holdings, the Department awarded all 30 slots that had been subject to the required environmental analysis. AirTran Airways has now returned four of those slots to the Department, and those slots could now be awarded to an airline that meets the two-part statutory test that the flights are in the public interest and that extraordinary circumstances exist.

However, the Department currently has three separate applications pending from three different airlines seeking to add 15 more flights at LaGuardia and Kennedy Airports. /8 Due to the complex interrelationship between the airspace used at LaGuardia and Kennedy, as well as the joint noise, congestion, delay and safety impacts throughout Queens County, a slot granted at one airport necessarily will reduce the availability of a slot at the other airport.

Because slot exemptions at Kennedy Airport and LaGuardia Airport are a limited federal right, and because not all applications can be granted, the Department must analyze all of the pending requests and determine which airlines, if any, have demonstrated both that the additional flights would be in the public interest and that exceptional circumstances exist. If the airlines that meet the statutory test ale seeking to add more than four daily flights, then the

7/ AccessAir Holdings, Order 98-4-22 pages 4-5

8/ Application of Vanguard Airlines, OST-98-3550 (filed February 23, 1998)(seeking three slots to provide service between Kennedy and Pittsburgh); Application of Pro Air, Inc., OST-98-3583 (filed March 5, 1998) (seeking eight slots to provide service between LaGuardia and Detroit); Application of AccessAir Holdings, OST-98-4499 (filed September 24, 198)(seeking four slots to provide service between LaGuardia and Peoria).

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requests are mutually exclusive, and the Department must undertake a comparative proceeding under Ashbacker to choose the applications before it can award any slots. If the Department instead grants some applications without deciding others, or without comparing the relative benefits and burdens of the different proposed flights, then it will have violated the Supreme Court's mandate in Ashbacker.

B. AccessAir's Application Fails to Meet the Statutory Test for the Award of Slot Exemptions

Assuming arguendo that the Department still has the statutory power to grant slot exemptions, and that the Department holds the required Ashbacker hearing, it is clear that no slots should be awarded to AccessAir, because AccessAir clearly fails to meet the statutory requirements for the granting of an exemption from the High Density Rule. First, the additional flights would have a net negative impact, and therefore are not in the Public interests. Second, AccessAir has failed to make any showing of Exceptional circumstances".

1. Granting Slot Exemptions to AccessAir Would Be Contrary to the Public Interest

Any airline seeking an exemption from the High Density Rule must demonstrate that the new proposed service would be in the "public interests. Specifically, the applicant must show that the expected benefits from the new service outweigh the significant adverse impacts that would result from the granting of the slot exemption applications. Indeed, in its most recent order relating to slot exemptions, the Department explicitly recognized that it must balance potential public benefits against "adverse effects of authorizing the proposed service, including flight delays, added noise, increased highway congestion, and adverse health ramifications." /9

9/ AccessAir Holdings, Order 98-4-22, page 14.

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The Borough President recognizes that the Department completed an Environmental Assessment in October 1997, finding that up to 30 additional flights at LaGuardia Airport would have no significant environmental impact. The Department also determined that these 30 flights would not adversely impact flight delays or aviation safety, and then issued two orders granting 30 slot exemptions to five different air carriers. /10

Accordingly, the Borough President will not reiterate here the arguments that we have previously raised regarding the adverse noise, safety, pollution, delay and traffic impacts that additional flights will have in New York City, including in response to the 1997 application filed by AccessAir. /11 Instead, the Borough President simply refers the Department to those prior answers and incorporates the arguments made therein by reference. /12

Nevertheless, even though the Department has previously indicated that up to 30 additional flights will not have a "significant" adverse impact, the Department still is required by law to undertake a balancing of the positive and negative consequences that would result from every application for slot exemptions. Any increase in the number of flights at LaGuardia Airport inevitably will increase noise, delays, pollution and traffic and will

10/ Environmental Assessment and Finding of No Significant Impact for Exemptions from 14 CFR Part 93, Subparts K and S for operations at O'Hare and LaGuardia Airport, United States Department of Transportation (October 24, 1997)(hereinafter referred to as "Environmental Assessment"); Frontier Airlines, Order 97-10-17 (October 24, 1997); AccessAir Holdings, Order 98-4-22 (April 21, 1998).

11/ Answer of the Office of the Queens Borough President, City of New York, Docket No. OST-97-2442 (May 15, 1997); Answer of the Office of the Queens Borough President, City of New York Docket No. OST-97-2557 (June 4, 1997); Consolidated Answer of the Office of the Queens Borough President, City of New York, Docket No. OST-97-2870, OST-97-2885, OST-97-2932, OST-97-2970, OST-97-2984, OST-97-3086, OST-97-3087 (December 3, 1997).

12/ The Borough President respectfully reserves the right to submit additional arguments relating to the adverse impacts on local residents if, as a result of AccessAir's application and the other applications currently under review or filed in the future, the Department indicates that the total number of slots to be granted may exceed the 30 total slots that were the subject of the Environmental Assessment.

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decrease aviation safety /13 to some extent, and the Borough President respectfully submits that, even assuming that the Department that the four slots returned by AirTran Holdings should be awarded to another carrier, the slots should not be awarded to AccessAir because the minimal public benefits that would accrue from those proposed flights do not outweigh the adverse impacts on the 2 million residents of Queens.

Specifically, it is clear that AccessAir has greatly exaggerated the benefits that might result from the institution of the proposed flights to Peoria. AccessAir claims that it will Serve a catchment area that includes more than 2.8 million people who are currently without non-stop or direct service to New York." However, that number is taken from AccessAir's 1997 application, which also sought two slots to serve Moline/Quad Cities, with connecting service to Des Moines. /14

13/ In its prior submissions, this office has asserted that increasing the number of flights at LaGuardia will have an adverse safety impact. In its recent decisions, the Department responded by stating that the existing traffic management system "limits demand to operationally safe levels", and that the FAA "continues to apply the full variety of air traffic control programs and procedures for ensuring safety independently of the limits imposed by the High Density Rule and regardless of any changes to that rule or any slot exemptions that the Department may grant." Frontier Airlines, page 14; AccessAir Holdings, page 16. It is no secret, however, that the "full variety of air traffic control programs and procedures" includes delaying flights that are scheduled to land, diverting flights to other airports, and refusing to allow flights to take off when the airspace gets too crowded. The Borough President respectfully submits that the Department cannot ignore its obligation to consider aviation safety as part of its "public interest" analysis, simply because it knows that the FAA air traffic controllers will cancel, redirect or delay flights when the airspace has reached its safety limits. Nor can the Department assert that there is no safety issue because the controllers will simply delay flights, and at the same time assert that the increased number of flights will not cause delays. To the contrary, the Department must consider the potential implications on the air traffic control system -- looking at both safety and delay impacts in combination -- before granting additional flights.

14/ Application of AccessAir Holdings, OST-97-3087 (November 4, 1997)(hereinafter referred to as "1997 AccessAir Application"), Exhibit 2.

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In its 1998 application, however, AccessAir states that it provisionally claimed slots at LaGuardia and then worked but trades with incumbent slot holders to provide service to Moline/Quad Cities. /15 As a result, AccessAir is no longer seeking slot exemptions to serve Moline/Quad Cities, and cannot base its 1998 application on supposed "catchment areas" serving that airport. In addition, the Department has explicitly stated that it is giving preference to new non-stop service to underserved areas, and AccessAir greatly increases its catchment areas statistics by including Des Moines, which will not receive non-stop service and whose residents already have other options for one-stop flights to New York City. /16

AccessAir conveniently fails to attach any catchment areas or projected passenger traffic data to its 1= application. The reason for this omission is clear. Even assuming that the inflated figures in the 1997 AccessAir application are correct, Peoria has a catchment area of only 589,000 persons. Moreover, AccessAir had claimed in its 1997 application that O&D traffic for Peoria and Des Moines was almost 78,000 passengers per year, but that was based upon 1994 and 1995 figures, and USDOT's order found that the total traffic for the year ended June 30, 1997 was only 39,984, including Moline. /17

In May 1997, AirTran Airways filed an application for slot exemptions to provide service to Moline/Quad Cities, Bloomington/Normal, Toledo, Akron and Knoxville. Although the Department granted AirTran four slots to serve Knoxville, it found that none of the remaining markets were not large enough to warrant slot exemptions. With respect to

15/ Application of AccessAir Holdings, OST-98-4499 (September 24, 1998)(hereinafter referred to as "1998 AccessAir Application"), footnote 4 and Exhibit 1

16/ Residents of Des Moines already are free to choose among at least six different airlines that offer connecting flights to New York City, and those flights are available to LaGuardia Airport, Kennedy Airport and Newark Airport.

17/ AccessAir Holdings, Order 98-4-22, page 23

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Moline/Quad Cities, the Department noted that origin/destination data for 1996 showed only 15,230 passenger per year. As a result, the Department stated:

AccessAir's application must be rejected on the same grounds. The Department has already found that Moline/Quad Cities does not have a sufficient market to warrant the granting of a slot exemption, and AccessAir itself admits that the market for Peoria is no larger than the market for Moline/Quad Cities. /19 Indeed, AccessAir indicates that Moline/Quad Cities has a "catchment area" over 10% larger than the catchment areas for Peoria. Peoria's projected O&D traffic is similarly smaller, but AccessAir inflated those numbers by including traffic from Springfield, Decatur and Champaign. /20 Moreover, as noted above, AccessAir's attempt to include O&D passenger estimates for Des Moines is unavailing, because at six least airlines already offer connecting service between LaGuardia and Des Moines, and any alleged competitive benefits from the proposed service are speculative at best.

Accordingly, the Borough President respectfully submits that the public benefits from two daily round-trip flights between LaGuardia Airport and Peoria are minimal, and certainly are outweighed by the negative noise, safety, delay, pollution and traffic burdens that would be imposed on the residents of Queens County.

18/ Frontier, pages 15- l 6

19/ 1997 AccessAir Application, Docket Number OST-97-3087, Exhibits 2 and 3.

20/ Id.

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2. AccessAir Has Failed to Demonstrate the Existence of Exceptional Circumstances Warranting the Granting of Slot Exemptions

Although AccessAir's inability to meet the "public interests test requires the denial of its slot exemption application, it is also clear that the application fails to meet the second part of the two-part test, because there are no exceptional circumstances warranting the granting of slots.

AccessAir claims that "exceptional circumstances" exist because: (1) its proposed flights would address a "service void"; and (2) the proposed service will enhance competition. Of course, these factors alone cannot constitute "exceptional circumstances" or else every discount airline seeking to add service from ~ city in the United States not currently served by a discount airline would be automatically entitled to additional slots, and that clearly is not what Congress intended.

A proper analysis of the Exceptional circumstances test also must review issues such as whether the applicant can offer service to a non-slot-controlled airport, whether the applicant can purchase slots on the buy-sell market, and whether slots can be reallocated in order to avoid violating the High Density Rule. Considering all of the relevant factors together, AccessAir wholly fails to meet the "exceptional circumstances test.

a. AccessAir Can Provide Service to an Alternate Airport

First, there is no basis for granting a slot exemption if the applicant is able to serve the intended destination through another airport which is ant covered by the High Density Rule. In the present case, AccessAir can simply operate its proposed four round-trip flights to Newark Airport rather than LaGuardia Airport, or can operate to Kennedy Airport during hours not governed by the High Density Rule.

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AccessAir asserts that the New York airports are "not fungible", and that travelers to most of New York City prefer to fly through LaGuardia. As evidence for these assertions, however, AccessAir refers to USDOT's comments in Frontier regarding the Denver/New York markets.

Contrary to AccessAir's allegations, however, the Department has never made a finding that LaGuardia and Newark Airports serve different markets within the New York metropolitan area for all purposes. Instead, the Department merely quoted assertions by Frontier that some travelers from Manhattan find LaGuardia more convenient than Newark. Moreover, the Department's comments were based upon detailed submissions relating to fare differentials and price elasticities for the Denver-LaGuardia and Denver-Newark markets.

AccessAir has made no similar showings in the present case, and cannot expand narrow comments in a particular case into a sweeping pronouncement that LaGuardia and Newark Airports do not both serve the New York City market. Indeed, in its AccessAir decision the Department stated that airport-specific routes can constitute separate markets if the airline has Come ability to disregard fares and services offered to other airports", and noted that "sizeable fare differentials" would be considered evidence that carriers are competing for different customers. /21 Here, in contrast, AccessAir is proposing the only non-stop service between Peoria and any New York City airport, and thus there is no basis for asserting that the New York City market cannot be served through Newark or Kennedy airports.

21/ AccessAir, Order 98-4-22, page 18. Of course, fare differentials alone are not sufficient to establish the existence of a separate market. Flight availability, quality of service, on-time records, carrier reputation, aircraft size, comfort and frequent flyer bonuses are just some of the many reasons why individuals are willing to pay more for particular flights. As a result, it is common to find significant price differentials between carriers serving the same airports, but that does not mean that the airlines are serving different markets. (Indeed, "sizeable fare differentials" can occur between adjacent seats on the same flight.)

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AccessAir itself acknowledges that New York is a single market, because it is still relying upon the passenger traffic projections from its 1997 application, which include origin/destination data from Kennedy, LaGuardia, Newark, Stewart, Islip and White Plains airports. /22 AccessAir cannot be allowed to justify its service on the grounds that it will draw passengers from all of these airports, but at the same time deny that the airports are part of a single market. Moreover, AccessAir claims that its service is important because Major businesses and other key institutions are located in AccessAir's primary service area, and they find it difficult to fly their personnel and visitors to and from the country's most important financial center". Undoubtedly most of these projected passengers want to travel to Manhattan, and all the Manhattan-bound passengers can be served via Newark Airport.

In fact, travelers to and from Manhattan choose flights from both LaGuardia and Newark Airports on the basis of price and availability, since both airports are equally convenient. Both airports are about 30 minutes from midtown Manhattan by taxicab or bus, and recent efforts by the Port Authority, which operates both airports, will make it easier to get to Newark from Manhattan by rail. Travelers from the Bronx, Westchester, Brooklyn, Staten Island and even Queens use both airports as well, and the remarkable growth and success of Continental Airlines belies any claims that competitive service to New York City cannot be provided to Newark Airport.

Even if AccessAir does not want to fly to Newark Airport, it easily could provide its proposed service to Kennedy Airport during non-slot controlled hours. Kennedy Airport, like LaGuardia Airport, is located in Queens County and within the City of New York, and it competes with both Newark and LaGuardia for domestic passenger traffic. AccessAir is proposing to have one arrival at 9:SO a.m. and one departure at 10:40 a.m., and the High Density Rule does not apply at Kennedy Airport at those hours. AccessAir also proposes to have a second arrival at 4:00 p.m. and a second departure at 4:45 p.m., and would be free to

22/ 1997 AccessAir Application, Exhibit 3.

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do so at Kennedy by simply having those arrivals and departures occur 90 minutes earlier, at 2:30 p.m. and 2:45 p.m.

It is particularly ironic that AccessAir disclaims any competitive benefits from offering service to Newark: Airport and Kennedy Airports, while at the same time claiming that its flights will provide service to "catchment areas" that extend thousands of square miles. AccessAir cannot be permitted, on the one hand, to assert that it will draw tens of thousands of passengers from Peoria, while on the other hand asserting these same passengers cannot be served at an alternate airport in New York City. Stated differently, if AccessAir believes that it cannot operate profitable nonstop flights between Peoria and New York City via Newark or Kennedy Airport, then it is clear that the demand for the proposed service is so weak that AccessAir's application can be denied on that ground alone.

b. AccessAir Failed to Show that it Cannot Purchase Or Lease Slots on the Buy-Sell Market

In its 1997 application, AccessAir admitted that it had retained a consultant to determine the feasibility to purchasing or leasing slots, and in our opposition to the application, the Borough President asserted that the Department should not award free slots to the airline unless a sufficient showing had been made that these slots could not be obtained on the buy-sell market.

The Department subsequently denied AccessAir's application, and AccessAir then obtained slots for its Moline/Quad Cities service. Thus, contrary to the claims made by AccessAir and some other applicants, slots On be obtained by new entrant carriers seeking to offer service to LaGuardia Airport.

Unfortunately, AccessAir has not submitted sufficient information to determine whether it also can obtain four more slots through purchase or lease for its proposed service to Peoria. Indeed, in its most recent submission seeking an extension of the one-year deadline for the

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commencement of operations, AccessAir stated that as a "fullback it will claim two additional unused slots at LaGuardia, and thus apparently AccessAir now needs only two slots from the Department. /23

AccessAir is basing its application, in part, on a promise that it will offer lower fares to New York City, and it therefore must show that the cost of the slots would eliminate that competitive advantage. If, on the other hand, AccessAir can provide competitive prices by spreading the cost of the slots over a number of years, then it should be required to obtain the slots on the buy-sell market, and should not be provided with free slots by the Department.

Accordingly, the Department should require AccessAir to submit documentary information setting forth the terms of any offers that it has made to purchase or lease slots, as well as the responses to those requests. The Department will then be able to determine the impact of the cost of a slot, amortized over a ten-year period, on the fares that would be charged by the applicant. If AccessAir refuses to provide this information, then its application must be denied. See Spirit Airlines, Order No. 95-8-38, page 8 (failure of airline parties to provide any more than "a limited amount of evidence regarding slot availability" made it "impossible for [USDOT] to properly weigh this issue"). /24

23/ Information Submission of AccessAir Holdings. Inc., Docket OST-96-1926 (October 8, 1998)

24/ The Department discussed this issues in its AccessAir Holdings decision, but misconstrued the Borough President's argument on this point. AccessAir Holdings, page 19. The Borough President is aid asserting that the buy-sell market is the "exclusive means" for airlines to obtain slots, nor do we claim that Department can grant slots only if they are "unavailable" on the buy-sell market, nor do we deny that the major carriers have the power to price potential competitors out of the market. To the contrary, the Borough President simply asserts that the Department should require applicants to submit sufficient documentary evidence upon which the Department can determine whether slots are available for purchase, and if so, whether the price of the slots, amortized over time, will prevent the new entrant from offering competitive fares to potential passengers. If the applicant fails to provide that information, or if the evidence submitted shows that the competitive fares can be charged even including the costs of the slots, then the Department should require the applicant to purchase or lease the slots.

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c. The Department Can Reallocate Underutilized Slots to AccessAir

Even assuming that AccessAir were able to demonstrate that it could not simply add flights at Newark Airport, could not add flights at Kennedy Airport during non-slot-controlled hours, and could not feasibly purchase or lease slots and provide competitive service, then the Department still must determine whether it should award a slot exemption or should reallocate a slot from an existing holder.

In its Frontier Airlines decision, which was issued almost one year ago, the Department referred to GAO's recommendation that the Department periodically withdraw some grandfathered slots to create a pool of available slots that can be made available to new entrant carriers, and the Department stated that it was Assessing this course, as well as other slot-related options, as a means of stimulating new price competition. /25 The Department repeated this statement in AccessAir Holdings, decided almost six months ago, and stated that it was still "assessing that alternative". /26

The Borough President respectfully submits that the time has come for the Department to take affirmative action to institute some form of slot reallocation. It is well known that the existing slots at LaGuardia and Kennedy Airports are not all used to capacity, and that slot holders seek to preserve their slots through leasing agreements with commuter airlines. It simply is not fair to force local residents to bear the burden of an increased number of flights, when the exact same benefits of increased service and reduced fares can be achieved by reallocating existing slots.

25/ Frontier Airlines, page 5, footnote 12.

26/ AccessAir Holdings, page 17.

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By using its reallocation powers, the Department will be able to achieve all of the benefits that would accrue from the additional service, without increasing the number of flights at the airport, and therefore without adding to the noise, pollution, congestion, safety and delay problems suffered by the community. As a result, before determining that Exceptional circumstances" exist warranting the granting of new slots, the Department must first seek to reallocate those slots that are not being used to capacity.

d. AccessAir's Proposed Service Will Not Be Operationally or Financially Viable

In its October 24, 1997 decision in Frontier Airlines, the Department expanded the statutory test established by Congress for the evaluation of slot exemption applications, and held that it would consider three additional factors in evaluating the "public interests and Exceptional circumstances" tests, including whether there was a Reasonable expectations that the proposed service would be operationally and financially viable. /27

AccessAir has clearly failed to make this showing. As noted above, AccessAir claims that the new slots will provide service for Nearly three million people, /28 but that "catchment area" includes areas that are not subject to the slot exemption request. Indeed, AccessAir's application seeks to provide non-stop service only to Peoria, which even AccessAir admits has a "catchment area" of no more than 590,000 individuals.

AccessAir also has failed to provide updated projections for O&D passenger traffic, instead relying upon its 1997 application, which in turn was based upon 1994 and 1995 data. AccessAir's 1997 application included O&D projections not just for Peoria, but also Des Moines, Moline/Quad Cities, Bloomington/Normal, Springfield, Decatur and Champaign.

27/ Frontier Airlines, page 4.

28/ 1998 AccessAir Application, page 7.

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Even those passenger numbers were clearly inadequate, however, so AccessAir claimed that "service stimulation" and "price stimulation" increases would triple the potential O&D traffic.

Moreover, the four slots sought by AccessAir were previously awarded to AirTran Airways for service between LaGuardia Airport and Knoxville, and even though the potential O&D traffic for Knoxville is much larger than the potential O&D traffic for Peoria, /29 AirTran still was not able to establish viable operations from that market. Indeed, a review of the Department's recent decisions makes clear that the size of the O&D market to LaGuardia Airport is a very important consideration in deciding whether to grant or deny exemptions for non-stop service. Attached as Exhibit A is a list of the applications for LaGuardia Airport slot exemptions that have been decided during the past two years, including the annual and daily origin and destination traffic for the airports to be served nonstop. As Exhibit 1 shows, Knoxville is the smallest market for which a slot exemption has been granted, and AirTran was unable to maintain viable service and has resumed the slots. As a result, it is even more unlikely that AccessAir, which has yet to operate a single flight, will be able to establish operationally and financially viable service to Peoria, which is even smaller than Knoxville.

29/ See Frontier Airlines, page 15.

21

For the reasons set forth above, the time period for the granting of exemptions from the High Density Rule has expired. Even if USDOT still has the power to award additional slots, the application submitted by AccessAir fails to meet the "public interest" test because the proposed service would provide minimal benefits, and any such benefits would be outweighed by the adverse impacts on the local community. In addition, the application fails to meet the Exceptional circumstances" test because: (1) AccessAir could offer the same service to Newark Airport; (2) AccessAir could provide service to Kennedy Airport during non-slot controlled hours; (3) AccessAir has not demonstrated that it cannot purchase or lease the requested slots on the open market; (4) the Department does not need to grant new slots because it can simply reallocate existing underutilized slots; and (5) the proposed service will not be operationally or financially viable. Finally, if USDOT believes that the statutory test has been met, then it must hold an Ashbacker hearing to compare AccessAir's request with other slot requests that have been filed.

Accordingly, the request by Access for an exemption from the High Density Rule to expand its existing service to LaGuardia Airport during slot-controlled hours should be denied in its entirety. Respectfully submitted,

CLAIRE SHULMAN

President

Borough of Queens

David M. Nocenti

Counsel to the Borough President

120-55 Queens Boulevard

Kew Gardens, New York 11424

(718) 286-2880

October 16, 1998