OST-98-4647 / American Eagle / High Density Rule, Chicago O'Hare / Answer of Atlantic Coast Airlines / November 9, 1998

Application of :

under 49 U S.C. 41714 for an exemption from the high density rule governing Chicago O'Hare slots (14 CFR Part 93) (Greenville/Spartanburg, South Carolina)

Atlantic Coast Airlines, d/b/a United Express ("ACA"), hereby answers in opposition to the American Eagle Airlines, Inc. ("AA Eagle") application for an exemption from the provisions of Subparts K and S of 14 CFR Part 93 (the "High Density Airport Rule") to enable the operation of three daily roundtrip flights between Greenville/Spartanburg, South Carolina, and Chicago's O'Hare International Airport.

For several legal and policy considerations, the DOT should reject the AA Eagle application. At the same time the DOT should proceed to grant ACA's longstanding request for an exemption from the High Density Airport Rule to permit it to conduct nonstop, 50seat regional jet flights between Savannah/Hilton Head and O'Hare. See Application of Atlantic Coast Airlines, Docket OST-98-3982, June 24, 1998. Because the Savannah/Hilton Head-O'Hare market is larger than is the Greenville/Spartanburg-O'Hare market, and lacks the access to hub airports to the degree enjoyed by Greenville/ Spartanburg, more passengers will benefit from nonstop service if ACA is granted its requested slot exemption authority, and for this reason alone the AA Eagle application should be denied in view of the shortage of exemption slots available for allocation. 1/

1/ According to Order 98-9-24, only three O'Hare exemption slots remain available for distribution. But, see section III, infra.

Even if AA Eagle were eligible to be granted an exemption under § 4:L714, AA Eagle has not made out a case for doing so. AA Eagle has not asserted in its brief application that its request is supported by the public interest or exceptional circumstances, much less demonstrated that such would be the case. 2/

AA Eagle has not justified its request for relief from the High Density Airport Rule in light of its admission that its proposed Greenville/Spartanburg-O'Hare service will be operated using three slots obtained from American -- slots which American currently holds at O'Hare. It is incumbent upon AA Eagle to explain to the Department precisely why it or its affiliate cannot free up additional slots, or acquire slots in the open market, in order to commence Greenville/Spartanburg service, if not three times daily, then perhaps twice daily. It is unconscionable for a carrier and its affiliate which controls 41 percent of all O'Hare slots (air carrier and commuter) to even ask for, much less to expect to receive, any relief from the Department from the limitations of the High Density Airport Rule.

For these reasons and those additional reasons set forth below, ACA opposes the grant of the relief requested by AA Eagle and urges that its application be denied.

2/ On tile other hand, ACA's well documented request for exemption slots with which to serve Savannah/Hilton Head is ready for immediate and favorable consideration.

The application of AA Eagle cites § 41714 of the federal transportation statute (49 U.S.C. § 41714), but no sub-provision thereof, as legal support for its request. However, as AA Eagle surely knows, there is no subsection in the statute which can be used by the Secretary to grant to AA Eagle the relief it seeks in this Docket.

Subsection (a) of § 41714 authorizes the Secretary to grant exemptions from the High Density Airport Rule for the provision of essential air transportation. AA Eagle has not and cannot plead that Greenville/Spartanburg-O' Hare service would fulfill an essential air service need. The only other statutory basis for granting AA Eagle relief from the High Density Airport Rule would be if AA Eagle were a new entrant air carrier or limited incumbent air carrier as defined in § 41714(h)(2) and in § 93.213(a)(5) of the Federal Aviation Regulations ("FARs"), respectively, and thus qualified to receive such relief under § 41714(c). Beyond any doubt, AA Eagle, which along with American, currently holders of 871 O'Hare slots, constituting 41 percent of the total of all O'Hare air carrier and commuter slots, is neither a new entrant nor a limited incumbent air carrier within the meaning of the statute. 3/ If this statement were not sufficiently self-evident, the DOT ruled in Order 98-4-21 at page 16 that "Simmons [now AA

3/ AA Eagle has conceded it is not a new entrant carrier within the meaning of § 41714(c). Objections of American Eagle Airlines, Inc. to Order 98-4-21, or in the Alternative, Petition for Reconsideration, pp. 6-7, May 11, 1998.

Eagle] does not meet the definition of a new entrant carrier, and thus does not qualify for slot exemptions under § 41714(c)." The legal conclusion was recently reaffirmed by the Department in Order 98-9-24 at p.5.

The only other possible means to consider AA Eagle a candidate for slot exemption authority would be to invoke § 41714(a) -- the essential air service provision -- in the manner employed by the DOT in Order 98-4-21 granting Simmons (now AA Eagle) 16 O'Hare slots by allowing AA Eagle to transfer slots used for serving EAS points and replenishing an equal number of the EAS slots with which to serve Greenville/Spartanburg. 4/ However, AA Eagle made no such request in its latest application. Perhaps this is because AA Eagle itself has objected to the DOT's use of the EAS section of the statute in order to grant it authority in Order 98-4-21. 5/ If the applicant has not invoked § 41714(a) as legal justification for its request, and indeed, objects to its use, it is not up to the Department to craft for it the form of relief necessary to meet the strictures of the applicable law. 6/

4/ See also, Order 98-9-24 granting AA Eagle two additional slots using the same legal justification.

5/ "The Department should use direct procedures to award 20 permanent ORD exemption slots to American Eagle to provide small community service . . . without creating an indirect process of reassigning and replenishing slots. . . ." American Eagle Objections to Order 98-4-21 or, in the Alternative, Petition for Reconsideration dated May 11, 1998.

6/ There is no indication that AA Eagle has sufficient EAS slots to transfer to Greenville/Spartanburg flights. Moreover, the EAS slots the DOT recently replenished on behalf of AA Eagle cannot be used twice to grant AA Eagle additional and unwarranted access to O'Hare.

Finally, it is crystal clear that the Conference Report language relied upon by AA Eagle in support of its application is not available to it in accordance with the DOT's prior decisions not to apply this provision to AA Eagle. See, Order 98-4-21, Order 98-9-24. The Conference Report urged the Department to exercise its § 41714(a) exemption authority to improve non-hub airport access to O'Hare. Therefore, even if the Department were inclined to reverse itself and rely on the Conference Report in considering AA Eagle's application, it would not warrant favorable treatment for, as AA Eagle acknowledges, Greenville/Spartanburg is a small hub, not a non-hub airport. Accordingly, the AA Eagle application should be denied as there is no legal basis available to the Department to grant the carrier's request.

American and AA Eagle hold a total of 871 O'Hare slots. It is significant that for the first time in a slot exemption proceeding the applicant proposes to exercise self-help by employing three American slots in order to build the three round trip Greenville/Spartanburg-O'Hare flight schedule.

In the view of ACA, it was never appropriate to grant exemption slots to AA Eagle -- the largest O'Hare commuter slot holder. Now that AA Eagle has acknowledged its ability to exercise self help, the question becomes, under what DOT policy should scarce exemption slots be awarded to the largest commuter slot holder at O'Hare? The answer is, no competition-related, public interest or exceptional circumstances factors support the award exemption slots to AA Eagle. Indeed, the DOT has already answered this policy question when it observed (in response to the argument of ACA in Docket OST-98-3259 that AA Eagle should be expected to use self-help means at O'Hare so as not to crowd out new entrant or limited incumbent carriers from the slot exemption process) that American has the ability to support its affiliate through its "very substantial slot holdings at O'Hare." Order 98-9-24, p.4. Likewise, the Department stated in Order 97-10-16 at p.l0, that its exemption powers under § 41714 only contemplated a limited pool of additional capacity would be made available and that it "was not intended to benefit an airline group with large slot holdings such as American and its corporate affiliates."

While AA Eagle may have been granted exemption slots in the past under the theory that it could not free up slots in order to enhance regional jet service at O'Hare, that rationale for DOT's prior action has been exploded by AA Eagle's belated admission and willingness to obtain slots from American to build up its proposed Greenville/Spartanburg schedule. The DOT no longer has any reason to exercise its limited exemption authority in favor of the largest O'Hare commuter slot holder which now concedes that it can and will exercise self-help in order to start-up new O'Hare service.

Indeed, the DOT on its own initiative should revoke the recent grant of two exemption slots to AA Eagle in Order 98-9-24 based on the now clearly misguided judgment that American lacked the means to contribute slots to AA Eagle. In Order 98-9-24, the DOT commented on the ability of American to support AA Eagle's slot ambitions, but, nonetheless, awarded two additional exemption slots based on AA Eagle's insistence that it needed relief from the High Density Airport Rule in order to serve certain non-hub communities. AA Eagle did not disclose at that time that American could provide the support the Department urged it to provide and now that we see American's, willingness to do so, the DOT should reverse its decision to award scarce slot exemption authority to the single largest O'Hare commuter slot holder. By American now agreeing to free up three slots for Greenville/Spartanburg, there can be no justification for continuing the prior award to AA Eagle. Similarly, the request of AA Eagle in this Docket should be denied since self-help means are clearly available to it.

As demonstrated above, there is no legal basis available to the Department to grant the holder of 289 O'Hare commuter slots an exemption so as to conduct three additional O'Hare flights.7/ However, even if a legal basis could be found to grant the relief sought by AA Eagle, the Secretary could not find that such a grant is in the public interest and is supported by exceptional circumstances. For starters, AA Eagle never once refers to the statutorily mandated decisional standards in its application. Whether the applicant can satisfy the test or not, it is unusual for applicants for slot exemptions not to at least claim in their

7/ American and AA Eagle hold a total of 871 O'Hare slots.

applications that they meet the applicable statutory standard for approval.

One aspect of AA Eagle's proposal that is highlighted in its application is the carrier's proposal to charge an average nonstop one-way fare of $135.00. However, the Department has reason to be skeptical of AA Eagle's offer. According to DOT data, the actual average fares charged by American in nonstop O'Hare markets of similar stage length to the 577 mile Greenville/Spartanburg-O'Hare market is $180 or 33 percent higher than that being proposed by AA Eagle in this matter. See Exhibit 1. And, the average fare would be 41 percent higher or $190.00, if one excluded from the calculation the O'Hare-Atlantic market in which the DOT reported American's average fare of $93.00. This average fare is so low as to suggest either the corruption of the data as reported by the carrier or existence of high levels of competition. Since AA Eagle would be the monopoly nonstop carrier in the Greenville/ Spartanburg-O' Hare market were the DOT to grant its application, there is no reason to suggest that AA Eagle will set fares in this market as it does in more competitive markets. In short, the actual fares charged by American in similar markets undercuts the AA/Eagle claim of offering low fares in the Greenville/Spartanburg-O'Hare market.

First:, based on the most recent traffic data, the Savannah/ Hilton Head-O'Hare market is 68 percent larger than is the Greenville/Spartanburg-O'Hare market. 8/ Indeed, the Savannah/ Hilton Head market is the largest O'Hare market without nonstop service while Greenville/Spartanburg ranks seventh. Not surprisingly, ACA has forecast that it will carry more traffic in the Savannah/Hilton Head market than will AA Eagle in the Greenville/Spartanburg market. It has been the Department's steadfast policy to grant slot exemptions in a manner that will make service to High Density Airports available to the highest number of users. See, Order 98-4-21 at p.4. Therefore, even if the public benefits that would flow from approval of the ACA and AA Eagle applications were perfectly balanced (both carriers propose to offer nonstop service where none exists, and both carriers propose to provide service with Stage 3 regional jet equipment) the greater number of passengers that would benefit from ACA's Savannah/Hilton Head-O'Hare service would easily tip the decision in favor of ACA. Undoubtedly this fact explains the many expressions of public and Congressional support for the application of ACA in Docket OST-98-3982.

8/ Exhibit 2.

In addition to the fact that the Savannah/Hilton Head market is larger than the Greenville/Spartanburg market, the later market enjoys mere nonstop- access to major hub airports than does Savannah/Hilton Head. The communities of Savannah/Hilton Head have nonstop service to five hub airports (Atlanta, Charlotte, Raleigh/ Durham, Washington Dulles, and Newark). While this level of service is not insubstantial, Greenville/Spartanburg enjoys even better access to the nation's major hub airports with nonstop service available to twelve air carrier hubs; namely, Houston, Atlanta, Memphis, Charlotte, Raleigh/Durham, Cincinnati, Pittsburgh, Washington Dulles, Philadelphia, Newark, LaGuardia and Detroit. Greenville/Spartanburg's superior access to the nation's air transport network must be considered in deciding in which markets to deploy scarce slot resources and on this basis, Savannah/Hilton Head is more deserving of enhanced access to O'Hare than is Greenville/Spartanburg, which already has access to two very large midwest hub airports, Cincinnati and Detroit and ten other hub airports.

In considering the merits of AA Eagle's request the DOT should also take into account AA Eagle's track record in the markets for which it recently obtained 18 exemption slots. 9/ AA Eagle had proposed to operate three round trip flights between O'Hare and each of the non-hub airports for which it applied. However, to date this level of service is not being provided at either Shreveport: or Montgomery. Clearly, the DOT's expectation was that

9/ Duluth, Fayetteville, Montgomery and Shreveport.

AA Eagle would provide a minimum of three round trip flights in each of the four markets for which it received exemption slots to operate in Order 98-4-21 at p. 19. However, Shreveport and Montgomery are presently receiving only twice daily service.

On the other hand, ACA is providing each of the three communities what it said it would provide -- that is, three times daily service. Indeed, in the case of Springfield, and by using self-help means, four times daily service is offered by ACA. The relative ability of the carriers to keep their commitments to the communities and to the Department is an important factor in deciding which carriers are worthy of additional relief from the High Density Airport Rule and on this point, the facts favor an award to ACA to conduct Savannah/Hilton Head-O'Hare service over the proposal of AA Eagle to serve the Greenville/Spartanburg market.

Finally, the Department should consider that ACA has existing stations at both Savannah/Hilton Head and O'Hare and, if awarded exemption slots with which to serve the route, it will be able to promptly commence service. On the other hand, and as AA Eagle notes, the grant of exemption authority to it would require the carrier to open a new airport facility and conduct marketing activities in a local market which it has not previously served. Since it is not the practice of the Department to impose start-up conditions on slot exemption orders, the DOT can have no assurance that AA Eagle will commence service within a reasonable period of time after the award of exemption slots, or that after an award is made, AA Eagle will actually offer three round trip flights per day in the Greenville/Spartanburg-O' Hare market as we have seen is the case in the Montgomery and Shreveport markets. /10

In short, there are numerous reasons for selecting ACA to provide Savannah/Hilton Head service before considering the merits of the AA Eagle application.

As noted, since June, 1998, ACA has had on file with the Department: a request for an exemption from the High Density Airport Rule to permit ACA to conduct five controlled hour operations at O'Hare in the Savannah/Hilton Head-O'Hare market. AA Eagle's application was not filed until four months later.

To the extent the DOT wishes to consider the AA Eagle application, it should do so only after the earlier-filed application of ACA is acted upon. The order in which the applications can be considered is compelled by the fact that the DOT would be required to perform an additional environmental evaluation of operations at O'Hare to grant an exemption for more than three additional opera

10/ The use-or-lose provisions of Subpart S of Part 93 (§ 93.227) do not begin to apply until the exempted carrier commences service. Therefore, as long as flights are not started, AA Eagle is not at risk of losing exemption slots as it takes whatever time it chooses to commence three daily round trip flights.

tions, /1l and as such favorable consideration of the application of AA Eagle would preclude approval of ACA's request.

It would be grossly unfair to the Savannah/Hilton Head communities, which along with ACA, filed for relief from the High Density Airport Rule four months before AA Eagle acted to request similar relief were the Department to delay considering the merits of ACA's application or otherwise proceeding by giving comparative consideration to both requests. While ACA believes that any such comparative proceeding would demonstrate that service between Savannah/Hilton and O'Hare would generate greater public benefits than would service between Greenville/Spartanburg-O' Hare (as demonstrated above) it would nonetheless be inequitable not to first consider the application of those that were first to make a request for O'Hare access. DOT evaluation of subsequently filed applications should only be considered by the Department when the subsequent applicant makes a timely request for consolidation. Alternatively, AA Eagle should have answered the ACA application to the extent it objected to the grant of an exemption to permit ACA to provide regional jet service in the Savannah/Hilton Head O'Hare market. AA Eagle did neither. Its [aches cannot now justify any

11/ By Order 98-9-24, the DOT granted American Eagle two additional O'Hare slots (despite the fact that Eagle currently holds 281 O'Hare slots), leaving three exemption slots available to be awarded within the 60 slot exemptions for which the DOT conducted an environment assessment. To this extent, and assuming the DOT does not reverse itself and withdraw the two slots from AA Eagle awarded by Order 98-9-24, ACA hereby states that it will accept an award in Docket OST-98-3982 of three exemption. slots at O'Hare with which to serve the Savannah/Hilton Head-O'Hare market with the balance of the slots being obtained by self-help means.

further delay in consideration of the merits of the ACA Savannah/Hilton Head application.

Indeed, consideration of AA Eagle's request would be inconsistent with recent DOT precedent. In Order 97-10-16, the Department refused to consider the four months later in time application of Simmons Airlines (now American Eagle) with the earlier filed application of Trans States for O'Hare slot exemption authority. The Department noted that the filing of an application four months late without stating any reason for doing so justified deferral of the Simmons' request and the Department then proceeded to grant the Trans States slot application. Order 97-10-16, p.7. A similar procedure should be employed by the Department in considering AA Eagle's request, the late filing of which was likewise not justified by the applicant.

For legal and policy considerations the AA Eagle application should be denied. Further, before the Department proceeds to considering the AA Eagle application, it must first consider the application of the DOT that has long been ready for final consideration. Although there is no basis for simultaneously considering the ACA and AA Eagle applications, if they were so evaluated, ACA's application would produce greater public benefits than would the grant of AA Eagle's application.

WHEREFORE, for the reasons set forth above, Atlantic Coast Airlines respectfully urges the DOT to deny the application of AA Eagle and to promptly decide the merits of ACA's long-standing application in Docket OST-98-3982 for limited relief from the High Density Airport Rule.

Respectfully submitted,

BAGILEO, SILVERBERG & GOLDMAN, L.L.P.

Attorneys for ATLANTIC COAST AIRLINES

Robert P. Silverberg

November 9, 1998