OST-98-4647 / American Eagle / High Density Rule – Chicago O’Hare / Response of United Air Lines / December 1, 1998
Application of
AMERICAN EAGLE AIRLINES, INC. /
Docket OST-98-4647under 94 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)
RESPONSE OF UNITED AIR LINES, INC.
AND MOTION FOR LEAVE TO FILE
United Air Lines. Inc. ("United") submits the following response to the Reply of American Eagle Airlines. Inc. ("American") dated November l9, 1998, in the above-captioned proceeding: /1
1. American once again, as it has in the past, attempts to obtain slots under the "new entrant" standards of § 4171 4(c) by equating its relationship to its wholly-owned commuter subsidiary with the relationship between United and the independent commuter carriers that operate service under contract with United using United's two-letter "UA" designator code and United-owned service mark, "United Express." The Department recently considered and rejected these arguments for reasons which remain equally valid today:
1/ United requests leave to file to address certain new issues and arguments raised by American in its reply that misrepresent United's position. Receipt of United's response will provide the Department with a more complete and balanced record on which to reach a decision.
Response of United
Page 2
[W]e disagree with American's contention that its corporate relationship with Simmons [now American Eagle] has no significance in terms of level of control by comparison to United's degree of control through its franchise arrangements over ACA or Trans States.... There are practical distinctions. Both ACA and Trans States are independent carriers who assume the full economic risk in their own operations. Their code-share arrangements with United are arms-length contracts that are subject to renegotiation. Indeed, Trans States has marketing arrangements with TWA as well as with United. In short, we do regard ACA and Trans States as independent entities and we find that they qualify for exemption eligibility under Section 41714(c) while, [American Eagle] does not.
Order 98-4-21 at 15-16. See also Order 97-10-16 at 10-11.
American cites nothing in its reply to require a contrary conclusion. United, of course, cooperates closely with its United Express commuters in an effort to offer and promote a seamless connecting product to the public. All of the press releases and other actions cited by American (Reply at 9-12) are an integral part of that effort. While United's relationships with these carriers do not contain the legal elements of a "franchise," the Department's legal and factual conclusion that this relationship is distinguishable from American's relationship with its wholly-owned corporate subsidiary, American Eagle, continues to be valid. That fundamental distinction is the reason why the Department is able to award exemption slots to carriers such a ACA as "new entrants" under § 41714(c), while it cannot lawfully do so with respect to American's wholly-owned subsidiary. /2
2/ American suggests (Reply p. 14) that the Department engage in another "slot swap" at EAS points served by American Eagle in order to award it exemption slots at Greenville/Spartanburg. United has already set forth its position that such slot swaps are inconsistent with § 41714(a), and the Department has failed to justify its actions under that section. United will not repeat its arguments on this issue but adopts them herein by reference. See Objections and Answer of United dated May 11 and May 21, 1998, in Docket OST-97-2985.
Response of United
Page 3
American. in fact, was instrumental in having legislation proposed earlier this year that was intended to eliminate any distinction between its wholly-owned commuters and United's independent commuters for purposes of awarding slot exemptions. H.R. 4057 (105th Cong., 2d Sess.), Section 606, proposed §41714(g)(3). That legislation was not adopted, however, further supporting the Department's own interpretation that a meaningful distinction continues to exist under the current law.
2. American's own recent actions with respect to slots at O'Hare, as compared to those of United and its independent United Express commuters, adequately demonstrate why this legal distinction is meaningful. As American has noted, United Express carriers have acted with United's full and unequivocal support, to upgrade O'Hare service to regional jets at several points that were previously limited to propeller services. In some cases, such as Fargo and Sioux Falls, this involved a transfer of exemption slots between two United Express carriers subject to DOT approval. Order 98-10-28. In another case, there was a transfer of slots at Peoria between another United Express carrier (UFS) and ACA. This transfer did not involve exemption slots, however, and was not subject to DOT approval. Nor, contrary to American's suggestion, was there any transfer of slots used for other services (such as American has proposed at GSP) to support regional jet services at Peoria. Indeed, there was no change in the number of slots used for O'Hare services at Peoria. As a result of these transfers among United Express carriers three communities will now enjoy regional jet services to O'Hare, with no net increase in exemption awards to United Express carriers and with no sacrifice of service at other communities.
Response of United
Page 4
American, on the other hand, attempts to game its regional jet services so as to leverage the Department into awarding it even more exemption slots. For example, American offers three of its own slots as "bait" in the Greenville/Spartanburg application in order to obtain more exemption slots from the Department. American is willing to offer these three slots from its base, even though it could have used them to fulfill its promise to operate three daily regional jet services to O'Hare from Shreveport and Montgomery, two of the points it serves pursuant to slot exemption, awarded by Orders 98-9-24 and 98-4-21. If the United Express carriers had followed American's example. they would have demanded more exemption slots as a precondition for upgrading service to regional jets at points such as Sioux Falls, Fargo and Peoria rather than resorting to self-help measures by using existing slots. American should be required to use its three "self-help" slots to fulfill its promises to Shreveport and Montgomery before it is awarded even more slots to serve a new point. /3
3. American also urges the Department not to grant any more exemption slots to the independent United Express carriers to support additional commuter service until American reaches slot parity with United at O'Hare. American cites (p. 9) United's position urging parity in the allocation of frequencies to serve international markets under bilateral agreements limiting
3/ Indeed, United urges the Department to revoke the two slot exemptions awarded to American by Order 98-9-24 unless that carrier offers the three daily services it proposed at Shreveport and Montgomery. American attempts to disparage United's position by describing it variously (pp. 3, 16-18) as "bizarre", "preposterous", "outlandish", "ridiculous", "utter nonsense" and an "absurdity." No amount of such adjectival excess can hide the fact, however, that American hoodwinked the Department into two additional exemption slots while reneging on its promises to two of the four exemption points it proposed to serve.
Response of United
Page 5
entry as supporting American's claim for slot parity at O'Hare. The situation at O'Hare is, of course, quite different. Slots at O'Hare are available under the buy/sell rule. That marketplace mechanism is not available for frequencies that are governed by international agreements. In the absence of a marketplace mechanism, the Department has adopted parity among competitors as one of the factors it considers in making allocations of such frequencies. Such a regulatory standard is out of place at an airport such as O'Hare where United and American have the ability to resort to the marketplace to improve their competitive positions. In its allocations of slot exemptions at O'Hare between American and United commuters, the Department's focus has properly been on benefits to communities to be served with those slots, rather than on the more narrow calculus of whether United or American would benefit more from the Department's action.
In any event, American can hardly claim to suffer from an unfair allocation of the type of slots needed at O'Hare to support the regional jet commuter services that would be operated pursuant to pending exemption applications. American has 281 commuter slots at O'Hare as compared to United's 128. In these circumstances, American's hypocritical calls for parity have a particularly hollow ring.
4. Finally, the Department should recognize that the award of the presently available slots for ACA's proposed regional jet service to Savannah will not necessarily deprive Greenville/Spartanburg of regional jet service to O'Hare. American last week announced its intention to acquire Reno Air. That company has been awarded seven exemption slots at O'Hare to support low-fare service to Reno. Those exemption slots are subject to a condition that Reno
Response of United
Page 6
Air cannot "sell, trade. transfer or convey" them to American or any other carrier. Orders 97-10-16 at 11 and 94-9-30 at 5
According to Reno Air's present schedules, that carrier is only using five of the seven O'Hare exemption slots it has been allocated. Since Reno Air cannot "sell, trade, transfer or convey" its two dormant slots. they should be returned to the Department immediately for reallocation. These slots should be used, together with the three unallocated slots, to enable ACA to operate its preferred schedule to Savannah pursuant to ACA's pending application in Docket OST-98-3982.
If the American/Reno Air transaction were consummated, /4 the Department would then have to consider the disposition of the five other exemption slots that Reno Air is currently using. The Department has already concluded that a carrier such as American, which had previously served the nonstop O'Hare-Reno market, could not sustain service in such a "lecture, low-yield and long distance market" because its "available capacity is directed toward the higher yield and potentially more profitable markets." Order 94-9-30 at 4. In light of that conclusion, the Department awarded five slots to Reno Air which it found would be able to operate the low fare services required in the Chicago-Reno nonstop market.
American cannot be relied upon to continue such low fare services for the reasons the Department has already cited. To the extent that American may plan to continue to serve the Chicago-Reno nonstop market as part of the Reno Air transaction, notwithstanding the
4/ United takes no position at this time on whether this transaction can or should be allowed to go forward.
Response of United
Page 7
Department's findings and conclusions quoted above, American has the ability to offer those services without an exemption by using slots from its own substantial O'Hare slot base. The Department cannot, however, award exemption slots to a carrier such as American consistent with the terms of §41714 as the Department has interpreted them in administering the exemption program.
The five slots awarded to Reno Air by exemption which that carrier has actually used must, therefore, be made available for reallocation to another carrier. In the event that no low-fare carrier comes forward to continue nonstop service in the O'Hare-Reno market, these five slots would be available to support new regional jet service between Chicago and a point such as Greenville/Spartanburg. /5 In that event, United is confident that one or more of its United Express carriers would seek some of those slots to operate regional jet service to Greenville/Spartanburg. Denial of American's belated application in this proceeding will not, therefore, necessarily leave Greenville/Spartanburg bereft of regional jet service to O'Hare, as American claims.
Respectfully submitted,
JEFFREY MANLEY
KIRKLAND & ELLIS
655 Fifteenth Street, NW
Washington, DC 20005
(202) 879-5161
Counsel for UNITED AIR LINES, INC.
DATED: December 19 1998
5/ The slot exemptions awarded to Reno Air were limited to service to Reno. Neither Reno nor American can use those O'Hare slots for service to another city.