OST-97-3086 / Colgan Air / High Density Rule - LaGuardia / Answer of Colgan Air to Queens Borough / February 26, 1999

Application of

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

New York LaGuardia Airport

On January 15, 1999, Colgan Air, Inc. ("Colgan") requested an exemption from the requirements of Subparts K and S of Part 93 of the Federal Aviation Regulations so that it may continue its service to New York LaGuardia Airport. Colgan requested slots at LaGuardia to provide eight LaGuardia round-trip flights. Colgan would use the slots to serve its existing LaGuardia markets -- Charlottesville, Virginia and Nantucket, Massachusetts.

On February 3, 1999, the Office of the Queens Borough President, City of New York ("Borough President") filed an answer to Colgan, as it has done with all other slot applicants, opposing the re quested LaGuardia slots. Colgan asks for approval to file this response.

The Borough President argues that Colgan has asked for authorization for "15 additional flights." Moreover, the Borough President claims that Colgan has failed to make the showing required for the granting of slots and that Colgan has failed to show that they cannot purchase or lease slots in the open market. Of course, the Borough President provided no evidence to support the proposition that slots are available.

As Colgan stated in its application, it is forced to request an exemption for commuter slots because, although Colgan leases slots, /1 it has been unable to obtain permanent slots under the existing rules to ensure that it can continue existing service. Colgan has not been able to purchase commuter or air carrier slots. It has tried on multiple occasions.

As a result of recent mergers, commuter air carrier slots at LaGuardia are controlled by a few major carriers and their wholly owned regional affiliates, while approximately 98% of the air carrier slots are controlled by the major carriers. Slots are not available for sale and, if they were, would not be sold at prices that would allow Colgan or any independently owned small carrier to operate. As a number of carriers have stated on the record in other slot petition requests, they cannot obtain air carrier slots. If large carriers are unable to purchase slots, Colgan would have no opportunity to obtain any. GAO acknowledges that slots are not being sold except as part of major facility transactions involving millions of dollars. Colgan has also been unable to lease slots on a long-term basis. Some slots are available for short-term leases -- 30 days -- but that

1/ Colgan has already lost some leased slots. Although Colgan has no reason to believe that it will lose all of its leased slots within a short period of time, its operations are based upon short-term leases. Those leases could be terminated at any time leaving Colgan with no alternative. This would leave Colgan without any presence at LaGuardia despite significant investments in facilities and route development.

would not allow permanent service. The Borough President should acknowledge facts. We ask the Borough President to describe one sale of slots to a new entrant or small carrier.

The Borough President seems to believe that no small market is worthy of service to LaGuardia. The grant of Colgan's application is consistent with Congressional intent that the Department increase access to high density airports for small sized communities. As noted in Order 97-1-7, January 13, 1997, p. 1, Congress has directed the Secretary "to make the fullest possible use of existing exemption powers under 49 U.S.C. 41714 . . . 'to improve service to non-hub airports where significant improvements can be achieved,"' citing the Conference Report to the DOT FY 1997 Appropriations Bill, Public Law 104-205.

Colgan Air is asking for the slots necessary to maintain existing services to small communities that have had long-standing service to LaGuardia and have extensive ties to the New York area. While Colgan would like to be in a position to expand its operations to high density airports, its immediate concern is being able to continue service to Nantucket and Charlottesville. The Borough President evidently believes that small and medium communities do not deserve service to LaGuardia and, if residents of those communities want to travel to New York, they should do so in "non-slot controlled" hours or at other airports. Apparently LaGuardia is reserved for certain-sized markets and carriers. That was not the intention of the high density rule although, as a result of consolidation in the industry and the proliferation of large hubs, service to smaller markets is disappearing. As a result of that consolidation, the regional carrier s purchased by the large carriers have shifted operations to larger markets, leaving smaller cities with no service to LaGuardia or National.

Colgan may be one of the last independent East Coast carriers that focuses its service on smaller markets. As a result, if Colgan cannot maintain its most profitable service and is eventually forced out of LaGuardia, it might have to abandon additional smaller markets and would be permanently blocked from using regional jets in these markets.

Without its high density airport routes, Colgan would be placed in a significant competitive disadvantage -- threatening its future economic health and its ability to serve all of its markets. For example, without LaGuardia slots, it might be forced to abandon a number of Virginia markets. This would be inconsistent with the overall interests of small cities in Virginia, Massachusetts, West Virginia and other states depending on commuter service.

Colgan is already in a position where it will be forced to cut back its LaGuardia service this spring when some leased slots are not available. Therefore, one of its LaGuardia markets will lose some or all of its LaGuardia service for a several-week period. One of the carriers leasing slots to Colgan will use those slots for several additional weeks and some of the previous slots Colgan wars utilizing have now been leased to a foreign carrier. Is this in the best interest of American travelers? At the same time, the FAA is proposing to permanently award international slots to Canadian and U.S. carriers serving Canada from LaGuardia. Therefore, service to Canada will increase while service to small and medium communities continues to disappear. While the Department was instrumental in reaching a bilateral agreement to allow for expanded service between Canada and the U.S., it is time for that same type of effort to be undertaken in the United States.

As the Airline Deregulation Act calls for:

• "Avoiding unreasonable industry concentration, excessive market domination, [and] monopoly power";

• "Encouraging 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 essential that the Department of Transportation provide "commuter air carrier markets" with the same benefits and priorities as international and large markets. Small communities must not be blocked from establishing permanent air service to the nation's premier business airports -- particularly LaGuardia. Colgan is the only carrier proposing service to a small community. This is consistent with Congressional intent to open opportunities for small markets and the history of the high density rule that has emphasized the importance of commuter air carrier service.

If the Borough President wants to see less service, perhaps it should oppose additional Canadian service and a freeing-up of slots used to serve Canada. In Docket No. OST-99-5085, the Borough President calls for "reallocation" of slots "in the national interest." That national interest exists in this case. If exemption slots are not available, some slots should be reallocated to Colgan.

It is unfortunate that the Borough President has chosen to ignore facts, the history of the high density rule, and the world's best air traffic control system and employees to suit its own interests by claiming that because of safety interests, all slot requests before the Department should be denied.

It is clearly in the public interest to meet the needs of competition and growth of service at small markets by enabling Colgan to secure a permanent position at LaGuardia during slotted time periods by saying no to Colgan, the Department would be further consolidating market control over this area of the county. For these communities, for other markets served by Colgan and for the air transportation needs of all states in the Northeast, LaGuardia service is essential to secure permanent economic stability and long-term growth. Department approval of Colgan's application is particularly warranted given the exceptional circumstances of Colgan's disadvantage as to other carriers.

The Department should not allow the number of commuter operators at LaGuardia and in the Northeast and Mid-Atlantic to continue to dwindle. Restoring slots to independent operators such as Colgan is necessary if some competition and service to small communities is to serve.

WHEREFORE, for the reasons stated above, Colgan respectfully requests that the Department of Transportation dismiss the arguments made by the Borough President and grant Colgan an exemption from Subparts K and S of Part 93 of the Federal Aviation Regulations for the requested slots at New York LaGuardia Airport.

Respectfully submitted,

Edward P. Faberman

UNGARETTI & HARRIS

1500 K Street, N.W., Suite 250

Washington, D.C. 20005-1714

Tel: (202) 639-7501

Fax: (202) 639-7505

SUBMITTED: February 26, 1999