OST-98-4647 / American Eagle / High Density Rule – Chicago O’Hare / Motion and Response of American Eagle / December 4, 1998

Application of :

under 49 USC 41714 for an exemption from the high density rule governing Chicago O'Hare slots (14 CFR Part 93)

(Greenville/Spartanburg, South Carolina)

American Eagle Airlines, Inc. hereby moves for leave to file the following response to the unauthorized pleadings submitted on December 1, 1998 by United Air Lines, Inc. and on December 2, 1998 by United Express (Atlantic Coast Airlines) and Savannah/Hilton Head. American Eagle's response should be accepted in the interest of a complete record for the Department's consideration.

1. Certainly the most telling aspect of United's pleading is the mere fact United has chosen to make yet another submission in a proceeding in which O'Hare slots are being contested between American Eagle and United Express. This once again confirms that the O'Hare slot holdings of United and its United Express carriers should be aggregated for competitive

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purposes, and once again belies any notion that the United Express carriers operate independently of United's worldwide network. As United's recent activities make clear -- involving various United Express services at Decatur, Sioux Falls, Fargo, and Peoria -- United calls the shots. United should no longer be heard to contend that it and United Express are "independent" operators at O'Hare.

Indeed, United does not even try to refute the examples of its control over United Express that American Eagle arrayed in its reply (Exhibits 5, 6, 7, 8, and 9), other than to say that such activities are "an effort to offer and promote a seamless connecting product to the public" (p. 2). They are that and much more. For services at O'Hare, United clearly tells its United Express carriers where to fly and what equipment to use; coordinates the intra-network slot transfers necessary to accomplish United's strategy; and claims the United Express routes as its own.

2. To prop up its theory that there is a meaningful legal distinction between American Eagle and United Express for purposes of slot exemptions, United cites the failure of proposed legislation that American supported in the last Congress (p. 3). We are amazed that United would make such an argument, as it is well-known that the legislation failed principally due to United's insistence on a highly controversial amendment that

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would grant 35 additional O'Hare slots to United. In any event, it is well-established that "[u]nenacted legislation has no interpretative value," United States v. Holmes, 954 F.2d 270, 273 (5th Cir. 1992).

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United attempts to distinguish the self-help used by United Express (Atlantic Coast) to begin O'Hare-Peoria service from American Eagle's proposed self-help to complete its pattern at Greenville/Spartanburg (p. 3). If United Express is able to enter the Peoria market without an award of exemption slots, it can likewise enter the Savannah market. Moreover, United's statement that "United Express carriers have acted... to upgrade O'Hare service" (p. 3) is surely a misstatement of the facts. The United Express carriers did not "act" on their own, but were directed to do so by United, as part of United's O'Hare network strategy.

4. United continues to obfuscate the issues by asserting that "American has 281 commuter slots at O'Hare as compared to United's 128" (p. 5). Of course, the proper comparison is not between the narrow category of commuter slots, but between the overall network holdings of the two carriers and their regional affiliates. As shown by Exhibit 4 to American Eagle's reply of November 19, 1998, the United network has 1,049 O'Hare slots, while the American network has 916, constituting an advantage for the United network of 133 slots, or 62-1/2 daily roundtrips.

5. United devotes almost a third of its pleading to urging that two of seven exemption slots held by Reno Air "should be returned to the Department immediately for realloca

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tion" (p. 6). United goes on to state that it "is confident that one of more of its United Express carriers would seek some of those slots to operate regional jet service to Greenville/ Spartanburg" (p. 7).

An unauthorized pleading by United, in an American Eagle docket proposing service to South Carolina, is hardly the forum for United to be seeking the revocation of O'Hare exemption slots held by Reno Air. If United wants to pursue such a strategy against Reno Air, it should submit and serve a proper petition, to which all interested persons, including Reno Air and the Nevada civic parties, among others, may respond. And while it may be that Reno Air will file a reply in this docket to United's unauthorized response, this is clearly not an issue that should delay a decision here, which is what United is trying to accomplish.

As for United's confidence that a United Express carrier would apply for slots to operate Greenville/Spartanburg regional jet service, we have no doubt that United's confidence is well-placed, since United clearly selects the markets that its United Express affiliates should enter, and dictates what

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equipment they should use. /1 Once again, United is self-condemned by its own statements.

6. On the most important issues in this proceeding, United's unauthorized response is simply silent, obviously because United has nothing to say:

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United is engaged in an unrelenting campaign to preserve and enhance its slot advantage at O'Hare, and to prevent any expansion of O'Hare services by the American network. In order to achieve all of the competitive benefits of connecting Greenville/Spartanburg to American's worldwide network, and to ensure the continuation of two-carrier hub competition at O'Hare, the Department should grant American Eagle's application.

1. United Express (Atlantic Coast Airlines) not only submitted an unauthorized pleading, but did so late. Such action makes hollow its complaint that the Department is unduly delaying its decision. Indeed, when American Eagle filed its application on October 23, 1998, American Eagle called for an expedited answer date, which United Express promptly opposed by letter of October 26, 1998. If United Express wishes to conclude this proceeding, it should have agreed to expedited procedures at the outset, and it should cease filing unauthorized, and untimely, pleadings that add nothing on the merits but merely repeat what United Express already said in its initial answer.

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2. United Express continues to assert that the slots it operates at O'Hare should not be aggregated with those of the United Air Lines network because it is not owned or controlled by United, but is tied to United "only" by a codeshare agreement (p. 2). This significantly misrepresents the true situation. For example,

The "common ownership" standard asserted by United Express (p. 3) has no relevance to the fact that Atlantic Coast is an integral part of United's worldwide network. That network commands 1,049 slots at O'Hare, compared to 916 operated by American's network. The key factor is not the ownership

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structure of the regional carriers, but the reality that their services are held out to the public as "UA*" in the case of United Express, and "AA*" in the case of American Eagle.

3. United Express again contends that American Eagle's application for slots to serve Greenville/Spartanburg should not be considered contemporaneously with United Express's application for Savannah/Hilton Head, because American Eagle filed four months later. Confronted with the fact that the Department contemporaneously considered a United Express application in OST-97-3259 that was filed two-and-a-half months later than an American Eagle application in OST-97-2985 (see Order 98-4-21, April 21, 1998), United Express now pretends that there is a decisionally significant distinction between four months and two-and-a-half months (p. 4).

The Department should reject such an untenable argument. Earlier this year, when the shoe was on the other foot, United Express received contemporaneous consideration of its late application. The difference between four months and two-and-a-half months provides no legitimate basis for a different outcome here, particularly where, as noted above, United Express has resisted expedited procedural dates for American Eagle's application, and is continuing to file unauthorized pleadings that are also late.

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4. United Express contends that American Eagle does not merit the award of exemption slots for O'Hare-Greenville/ Spartanburg service since American and American Eagle "abandoned'' Greenville/Spartanburg in 1996 (p. 7). American and American Eagle suspended service as a consequence of the de-hubbing of Raleigh/Durham and Nashville. United Express fails to mention that United Air Lines served the O'Hare-Savannah market with jet aircraft until 1995, when it abandoned service and took its O'Hare slots elsewhere. United now wants to reenter the market, with a United Express carrier, keeping the slots it has transferred to other points, and having the Department award exemption slots to its proxy applicant. If a carrier network should be expected to provide its own slots for proposed O'Hare operations, that network is United/United Express, not American/American Eagle, in light of both United's recent service and the significant slot advantage that the United network enjoys at O'Hare (62-1/2 daily roundtrips ahead of the American network).

5. In attempting to explain away its use of "self-help" slots to enter the O'Hare-Peoria market, United Express asserts that it obtained the slots for serving Peoria not from United, but from "UFS" (p. 9). This assertion is not only inaccurate, but simply exposes the shell game that United and its regional affiliates are able to play with their O'Hare

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slots. "UFS" stands for United Feeder Service, and constitutes the turboprop business that used to be operated by Air Wisconsin, a wholly-owned United Air Lines subsidiary. United Feeder Service is operated by Trans States Airlines, another United codeshare partner, but as far as we know, United Feeder Service does not itself hold or own any slots at O'Hare. United Feeder Service operates slots that are owned either by United itself, or by Air Wisconsin, United's subsidiary.

As far as United is concerned, the slots operated by its network affiliates are interchangeable. When United decided that Peoria should have regional jet service, it obviously orchestrated the substitution of United Express (Atlantic Coast) in place of United Feeder Service (Trans States); arranged for the necessary slot transfers at the FAA; and then took full credit for the service in its own press release (see Exhibit 8 to American Eagle's reply of November 19, 1998).

Once again, the key factor is not the arcane ownership structure of the various United network entities, but the ability of United Air Lines to control and organize its regional affiliates to its maximum strategic advantage at O'Hare, where the United network has a commanding lead in slots.

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The answer submitted by Savannah/Hilton Head on December 2, 1998 is almost a month late. American Eagle's application was filed on October 23, 1998, and answers were due on November 9, 1998. But if the Department entertains such a

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late submission, it should also consider American Eagle's response.

Savannah/Hilton Head is essentially arguing that it should have its second nonstop access to United's worldwide network before Greenville/Spartanburg has its only access to American's worldwide network. American Eagle agrees with the Savannah/Hilton Head parties that it "would prefer an environment in which all markets could secure access to the nation's largest airports" (p. 3.) But given the limited additional O'Hare slots available for an exemption award, the Department would best serve the public interest by ensuring that Greenville/Spartanburg is connected to American's network.

United Express (Atlantic Coast) presently serves both Savannah and Greenville/Spartanburg, with nonstop regional jet operations to United's hub at Washington (Dulles). Moreover, as noted above, United itself served the Savannah-O'Hare market until 1995, providing nonstop jet service with its own slots. Greenville/Spartanburg, by contrast, has never had nonstop service to O'Hare, and has no on-line access to American's network. The Department should remedy this gap by granting American Eagle's application.

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The Department should promptly award three exemption slots to American Eagle for regional jet service between Greenville/Spartanburg and Chicago O'Hare.

Respectfully submitted,

CARL B. NELSON, JR.

Associate General Counsel American Airlines, Inc.

On behalf of American Eagle Airlines, Inc.

December 4, 1998