OST-99-4979 / Eastwind / High Density Rule - LaGuardia and Washington National / Answer of Air Carrier Association of America / February 1, 1999

Application of

for an exemption pursuant to 49 U.S.C. §41714

New York LaGuardia-Boston

New York LaGuardia-Ronald Reagan

Washington National

The Air Carrier Association of America ("ACAA") hereby moves that these comments be accepted by the Department although filed late. The ACAA submits these comments in support of the application of Eastwind Airlines, Inc. for slots at LaGuardia and Ronald Reagan Washington National Airports.

The ACAA moves to file these comments late under 14 C.F.R. § 302.4(f). These comments are submitted after review of comments submitted and latest airport data. No party should be prejudiced by the delay in submission of these comments.

The Secretary of Transportation has broad statutory authority to allocate slots at the high density airports. The Secretary may allocate slots or adjust slot procedures under the general authority contained in the Federal Aviation Act of 1958 as amended, the high density regulations, 49 U.S.C. § 4171(c) and the Department of Transportation Act.

Eastwind's petition is identical to a request made approximately 20 years ago by New York Air to add competition in the shuttle markets. That low-cost competition has disappeared as that shuttle and the slots allocated to it, along with all others, are now controlled by a few large carriers.

The high density slot regulations were adopted in the late 1960s to control traffic and alleviate congestion at busy airports. When the slot regulations were first implemented, the incumbent carriers were given the slots they were operating and needed to support their operations. During the 1970s and 1980s, the large carriers distributed slots among themselves through "scheduling committees."

The Department of Transportation has in the past taken steps to provide for new entry at high density airports. As new entrants attempted to enter the high density airport markets, the scheduling committee process broke down, leaving new entrants without access. This was the first action by the large carriers to block new entrants from entering high density airports. To counter the large carriers' refusal to provide slots for new entrants, in 1980, Secretary of Transportation Goldschmidt decided that new entry was so crucial to deregulation efforts that the Department issued Special Federal Aviation Regulation 43 ("SFAR 43"). SFAR 43 allocated 18 slots to new entrant New York Air at National Airport, enabling New York Air to enter the Shuttle market. /1 [45 FR 72637. Nov. 3, 1980]. The promotion of new entry was deemed so important the,: the slots provided to New York Air were withdrawn from all carriers including smaller carriers such as Air Florida.

The preamble to SFAR 43 made it clear that a primary objective of the Secretary of Transportation was to promote competition, even in routes that were already served. The preamble stated:

The preamble also made it clear that the Department had a significant amount of authority to withdraw and allocate slots and that slots were not property that belonged to the carriers. The preamble stated:

Secretary Goldschmidt's quick action to allocate slots under his general statutory authority was vigorously contested by the large carriers -- who hoped to avoid increased competition. Ultimately, the Secretary's decision was upheld by the United States Court of Appeals in Northwest v Goldschmidt, 645 F.2d 1309 (1981).

In order to replace the anticompetitive scheduling committee process, the Department issued the buy-sell slot rules in December, 1985 (Amendment 93-49, 50 FR 52195). Under these

1/ Delta operates its shuttle with the slots granted to New York Air by SFAR 43. If Secretary Goldschmidt had not decided to allow badly needed new entry by New York Air back in 1980, Delta would not likely be in the shuttle business today and would probably be complaining about the need for increased competition in that lucrative market.

2/ The slots given to New York Air were for service between New York and Washington -- a route already served by the Eastern Shuttle.

rules. carriers were grandfathered their existing slots and allowed to buy or lease additional slots. At the time that this rule was issued, a large majority of the slots were given to the incumbent carriers. A limited number of slots were distributed to new entrants. Since that time. however, the large carriers have gradually re-acquired all of the slots intended for new entrants, thus increasing their stranglehold on the high density airports. Through mergers, alliances, and transactions involving significant airport assets, the dominant carriers continue to obtain additional slots and control the high density airports.

The buy-sell rules contain several provisions which set forth the authority of the Secretary to withdraw and distribute slots requested by the affordable fare carriers. These key provisions emphasize that:

The preamble to the regulation adds, "This amendment does not create proprietary rights in slots."

3/ Carriers have always known that slots could be withdrawn. To avoid possible loss of slots, carriers have traded or sold slots with high withdrawal numbers and have had affiliates operate slots to meet use-or-lose requirements.

Despite this broad authority and mandate to promote competition and entry, the Department has taken very limited actions to promote competition at high density airports, granting a few slot exemptions. Today, the large carriers and their affiliates and partners control 98% of the slots at high density airports. As previously noted, it has been 13 years since the Department provided new entrants with permanent slots.

As noted by various parties, including the General Accounting Office, it is difficult if not impossible to purchase or even enter into long-term leases for slots. Large carriers control the high density airports, opening the doors to some, but keeping the doors locked to most who wish to compete and to all new entrants.

At LaGuardia Airport, there are approximately 720 air carrier slots and 210 commuter slots. Of the 720 air carrier slots, slots are controlled as follows:

Other large carriers control about 18% of the slots with 4 operated by America West and 12 operated by Midwest Express (.02% of total).

New entrants ( Frontier, AirTran, and Spirit) have 94 exemption slots which is approximately .03 % of the air carrier slots at the airport.

There are approximately 210 commuter slots at LaGuardia. Of those commuter slots, American is buying Business Express which operates 82 slots (39% of total) while its alliance partner USAirways operates 42 commuter slots (20% of total), giving the AA/US alliance 60% of total commuter slots. The Delta and United marketing alliance operates most of the remainder of the slots including 6 held by Air Canada.

The FAA and the Department can take various actions to address this total imbalance at the high density airports.

The large carriers continue to demand even greater access and control of international markets. At the same time, they have opposed all attempts to increase competition, at high density airports. Apparently, these carriers believe that it is important to have once competition in international markets if it means they can increase operations, but it is not important to provide consumers and businesses access to affordable fares into and out of the high density airports.

The hypocrisy of this position was best summarized by Bob Crandall, former Chairman and CEO of American Airlines, Inc., before the Senate Aviation Subcommittee on June 4, 1997 when he stated:

The large carriers have made numerous public statements in response to proposals to increase access to foreign markets, including Heathrow. Those comments all cry for increased access and slots at foreign airports, citing, ironically, the benefits of increased competition. The U.S. carriers argue that the U.S. government must insist that slots be pulled from foreign carriers to accommodate their expansion plan. When that doesn't occur, those same large U.S. carriers ask for retribution against the foreign carriers in the U.S. For example, USAirways has recently asked the Department to deny slot grants to foreign carriers with restrictive domestic markets so that U.S. carriers like itself, American, and Delta are not placed at a competitive disadvantage. (Consolidated Response of USAirways, Inc. to Answer of Delta Airlines and American Airlines, OST-98-4890 and 4902.) Yet those same carriers oppose the opening of O'Hare, National, and LaGuardia to new entry and true competition, although those airports are more constrained than London's Heathrow. /4 In short, while the large carriers support "open skies" throughout the world, they oppose "open skies" in the United States. At the same time, they continue to demand even additional domestic slots. Claiming that "American's network at Chicago . . . is at a significant slot disadvantage, compared to United's at Chicago," American has urged the

4/ In his testimony, Mr. Crandall noted, "Since the spring of 1991, 54 new airlines have been able to secure viable slots and begin operations at Heathrow. In 1995, seven new carriers commenced Heathrow operations and in 1996, five more did so. Between 1992 and 1996, 546 weekly peak-hour slots were added at Heathrow. Between 1992 (American's first full year of Heathrow operations) and 1997, American has been able to increase its slot holdings by over one-third." (Testimony of Bob Crandall, Senate Aviation Subcommittee, June 4, 1997.)

In contrast, not one affordable fare carrier has been able to, "secure viable permanent slots" at LaGuardia during the same time period and have no slots at National, although Canadian carriers have permanent slots at all high density airports.

Department to give it all available slots. United s network has a total of 1 049 O'Hare slots. All American has is 916 (Aviation Daily, November 23. 1998.) Poor disadvantaged American. If American is disadvantaged, what is a new entrant with no slots? In terms of allowing new entry, National Airport may be the most restrictive airport in the world, with LaGuardia a close second.

It is time for the Department of Transportation to open "restrictive" domestic markets as they have opened some foreign markets and attempted to open others.

To understand why Eastwind and other new entrant carriers need access to the high density airports, one only need examine comments made by the representatives of the large carriers on the issue of access to international airports:

The number of high density slots that should be made available, the large carriers have requested the following from Heathrow:

Once again, the Office of the Queens Borough President raises questions of noise and safety in opposition to Eastwind's request. Noise at LaGuardia and all airports is declining as Stage II aircraft are phased out. At airports throughout the country, flights are being added by incumbent carriers. Considering that new entrants control approximately 2% of the nation's enplanements, increased noise will not result from new entrant flight activity, even in New York. The Borough President's comments about safety are totally without any merit. As the Borough President knows, the high density airport rules are not safety rules. To argue otherwise is a disservice to all those involved in the aviation system.

The Department has sufficient authority to provide slots to new entrants. The number of slots that should be distributed is less than foreign carriers hold at those same airports or large carriers have asked for at Heathrow.

As Secretary Goldschmidt did in 1980, the Department could take appropriate regulatory action to allow Eastwind to enter the shuttle market. New entry was important in 1980 and it is as important today. It is time that the Department take steps so that airline competition will continue to exist.

Under the Deregulation Acts the Department is required to:

• place maximum reliance on competitive market forces and on actual and potential competition.

• encourage entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive airline industry.

It is time to fulfill the principles set forth in the Deregulation Act. To meet these statutory mandates, the Department should take one of the following actions:

Without access to the nation's most important airports, new entrants will not be able to offer competitive service and continue to serve smaller markets.

5/ Bob Crandall's written testimony before the Senate Aviation Subcommittee, June 4, 1997, stated that, 'U.S. carriers with European partners can obtain slots for transatlantic use by the reallocation of slots within these partnerships to more valuable economic uses. United alone has sufficient slots for two more daily round-trip Heathrow-U.S. services; instead, it has leased excess slots to Lufthansa. Both the Delta-Swissair-Sabena-Austrian and Northwest-KLM alliances have a number of Heathrow slots deployed on very low value operation. Northwest's partner, KLM, operates 40 weekly round-trip departures with 50-seat aircraft, and Sabena, one of Delta's European partners, operates a number of weekly round-trip departures at Heathrow using 46-seat aircraft."

The position advocated by Mr. Crandall should apply to slots utilized by Canadian Airlines (owned in part and allied with American) and by Air Canada (allied with United).

Respectfully submitted,

Edward P. Faberman

Michelle M. Faust

AIR CARRIER ASSOCIATION OF AMERICA

1747 Pennsylvania Avenue, NW

Suite 900

Washington, DC 20006-4604

Tel: (202) 778-4462; 778-4442

Fax: (202) 331-1486

SUBMITTED: February 1, 1999