Order 99-7-17 / Order Amending Allocation of Slot Exemptions / High Density Rule - Chicago O'Hare / July 17, 1999

Issued and Served by the Department of Transportation on the 27th day of July, 1999

Order 99-7-17

Applications of

For exemptions from 14 CFR Part 93, under 49 U.S.C. 41714

We will hold in abeyance three additional slot exemptions that we intend to reallocate, to the extent necessary, to enable a carrier to implement nonstop jet service between

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O'Hare and Charleston, SC. /1 That reallocation will follow completion of an expedited procedural schedule, established herein, for pending air carrier applications to serve the Charleston-O'Hare market.

We are deferring action on pending applications for new or additional O'Hare slot exemptions by all other non-airline parties and by National Airlines, Inc.

By Order 98-4-21, April 21, 1998, as amended by Order 98-9-24, September 24, 1998, the Department, inter alia, granted 16 slot exemptions each to Atlantic Coast Airlines (ACA) and Trans States Airlines, and 18 slot exemptions to American Eagle (then referred to as Simmons), for the implementation of nonstop regional jet operations between Chicago O'Hare and a total of ten cities. We found that grant of the exemptions was in the public interest and was consistent with the guidelines on exceptional circumstances as delineated in that and previous orders. ACA and Trans States were designated to serve three cities each, and American Eagle four. /2 We noted that our goal was to enhance the access of underserved, nonhub cities to more responsive air transportation, and that the exemptions could not be used for any purpose other than serving the markets explicitly designated.

As relevant here, we found that ACA met the statutory definition for a new entrant, i.e., it held fewer than twelve slots at O'Hare. We also authorized American Eagle to transfer, for its implementation of regional jet service to four nonhub cities, slots that it was then using to serve Essential Air Service (EAS) points, and concurrently granted American Eagle slot exemptions to replenish its EAS operational needs.

We also noted that each of the three air carrier recipients of the exemptions had a corporate or code-share relationship with either American Airlines or United Air Lines, both of whom are substantial slotholders at O'Hare. Together, American and United hold over 82 percent of all O'Hare slots, for a total of approximately 2,000 operations a day. With that backdrop, we stated that we were allotting "sufficient exemptions to enable each applicant to initiate slightly over two round trips a day to each of three or four cities..." and that "we would encourage American and United ... to assist in enabling the carriers to implement the full three-roundtrip service patterns they have

2/ The ten cities were Charleston, WV, Springfield, MO, and Wilkes-Barre, PA (ACA); Chattanooga, TN, Roanoke, VA, and Tri-Cities TN (Trans States); and Duluth, MN, Fayetteville, AR, Montgomery, AL, and Shreveport, LA (American Eagle).

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proposed." (Order at 19) We noted also that the carrier recipients of the slot exemptions may be able to augment their operations through the use of slots outside tile controlled hours (6:45 a.m. to 9:15 p.m.).

Finally, we noted that our actions were consistent with the environmental assessment performed pursuant to Order 97-10-16, issued October 24, 1997. In that assessment we concluded that an increase of up to sixty additional operations per day at O'Hare would not have a significant impact on the human environment. Since October 1997, in concert with our environmental assessment, we have granted the full complement of sixty O'Hare slot exemptions. We have also stated our intention not to exceed this number of slot exemptions absent significant new environmental review or legislation.

By letter dated April 12, 1999, American Eagle notified the Department that, effective June 1, 1999, it would be discontinuing its regional jet service to two of its exemption points, Montgomery and Shreveport. It correctly noted that, as a result, eight exemption slots are available for reallocation to support Chicago O'Hare nonstop service to other communities. In addition, as explained above (see footnote 1), three more slot exemptions may now be reallocated as a result of Great Lakes Aviation's discontinuance of O'Hare service in certain Essential Air Service markets. By this order we are reallocating eight exemptions to ACA and American Eagle, based on the eligibility findings adopted and explained in Orders 98-4-21 and 98-9-24, and based on a comparative analysis of pending applications. We are also establishing an expedited procedural schedule for disposition of the former Great Lakes slot exemptions that were returned.

We will not at this time consider non-airline applications that are not accompanied by specific air carrier proposals. On the single previous occasion where we allocated slot exemptions for non-airline parties (the communities of Greenville/Spartanburg, SC, and Savannah, GA/Hilton Head, SC, Order 99-3-12), we made clear that we were doing so on an experimental, one-time basis, for a limited (179-day) period. We noted there that "[t]he purpose of this experiment is to determine whether these communities can leverage the availability of slot exemptions to attract a carrier to provide service under the terms presented in this order. " Pending our evaluation of the outcome of that experiment, we will take no further action reserving slot exemptions for non-airline parties.

Applications of American Eagle, Baton Rouge, LA, and Huntsville, AL

On April 12, 1999, the Greater Baton Rouge Airport District and the Huntsville-Madison County Airport Authority filed applications for four slot exemptions each to enable them to obtain two nonstop regional jet roundtrips a day to Chicago O'Hare. On April 27 American Eagle filed an answer in support of both communities' applications and concurrently filed applications of its own for the same markets and the same

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number of exemptions. American Eagle states that it would augment the exemptions with its own slots to provide each market a total of three daily roundtrips.

Baton Rouge notes that it has neither nonstop nor one-stop service to O'Hare, that Chicago is nevertheless Baton Rouge's seventh largest O&D market, and that the market generated 20,450 passengers for the year ended June 1998. For the overall Baton Rouge catchment area, including Alexandria, Lafayette, and Lake Charles, there were 39,030 O&D passengers for the year.

Similarly, the Huntsville-Chicago market has no nonstop service, and generated 25,474 O&D passengers for the year ended June 1998. Chicago is Huntsville's eighth largest O&D market. The community's studies conclude that the market's minimum potential demand is 40,000 passengers a year. The community adds, however, that the latter figure does not include substantial numbers of travelers within the Huntsville service area who prefer connections via Chicago and are currently subjected to the inconvenience of long drives to other airports. With the addition of those potential passengers, Huntsville estimates that a two-round trip, nonstop service pattern between Huntsville and O'Hare with regional jets would generate 58,000 passengers.

On April 22, 1999, Atlantic Coast Airlines filed joint applications with both the Mobile Airport Authority and the Charleston County Airport Authority for slot exemptions to enable it to provide nonstop regional jet service between each of those cities and O'Hare. ACA requests five slots for Charleston service, which it would supplement to provide three roundtrips a day. For the Mobile-O'Hare market it requests four slot exemptions to facilitate two daily roundtrips.

ACA and Mobile state that ACA's proposed schedules would open Mobile's air service market to much needed competition, noting that eighty-five percent of Mobile's passenger traffic is now carried by one carrier, Delta. They note that Mobile has the largest population of any market area in the Alabama/Mississippi/Florida Gulf Coast area, and they forecast 46,188 Mobile-O'Hare O&D passengers during the first year of scheduled nonstop service.

ACA and Charleston state that Charleston-O'Hare now generates the largest number of local passenger enplanements of any O'Hare market without nonstop service. They also note that Chicago is Charleston's fourth largest O&D market.

On July 13, 1999, American Eagle filed an application for four slot exemptions to provide nonstop regional jet service between O'Hare and Charleston, SC. American Eagle represents that it would supplement the four slot exemptions through self-help measures to initiate a schedule of three roundtrips a day. It endorses the community of

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Charleston's comments concerning the size and viability of the Charleston-O'Hare market, and asserts that nonstop regional jet service in the market would provide substantial public benefits.

On April 7, 1999, National Airlines, Inc., a new air carrier based in Las Vegas, NV, filed an application for five slot exemptions to serve the Las Vegas-Chicago O'Hare market. National would operate three roundtrips a day with B-757 aircraft. It asserts that, although the Las Vegas-O'Hare market is served by three airlines (American, America West and United), those services do not produce meaningful competition. It also projects that the market will face a significant shortfall in capacity in light of the ongoing expansion of hotels and other businesses in Las Vegas. National states on that basis that its proposed service would introduce low-fare competition and add needed capacity.

On May 6, American Eagle filed a consolidated answer opposing ACA's Mobile and Charleston applications and the Savannah/Hilton Head application. American Eagle opposes grant of any additional slot exemptions to ACA or any other United Express carrier on the grounds that the United network carriers have access to more O'Hare slots than American and American Eagle, 1,052 compared to 916.

On May 12, 1999, ACA and the Mobile and Charleston communities countered, in a joint consolidated reply, that the paramount consideration in slot exemption cases is improving air service for the nation's smaller, underserved markets, and that American's and United's comparative numbers of O'Hare slot holdings are not relevant.

On the same date, Atlantic Coast and United also filed separate answers to American Eagle's application for Huntsville and Baton Rouge. Both argue that American Eagle is not eligible to receive O'Hare slot exemptions as a new entrant under 49 U.S.C. 41714(c). United argues that American Eagle's cessation of Shreveport and Montgomery operations reflects negatively on its service record at smaller communities, and should weigh negatively on its case for new allocations at Baton Rouge or Huntsville. Finally, United argues that American and American Eagle can provide better connecting opportunities for Huntsville and Baton Rouge at American's larger Dallas/Ft. Worth hub than at O'Hare.

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On May 21, American Eagle filed a reply. American Eagle reiterates its position that as a matter Of Public interest the Department should seek to attain slot access parity between the two largest carrier groups at O'Hare, United and American, in order to promote competition.

In accordance with the terms of Order 98-4-21 and 98-9-24, we are withdrawing from American Eagle the eight slot exemptions authorized in that order for Chicago O'Hare nonstop regional jet services to Montgomery, AL, and Shreveport, LA. We have decided to reallocate those slot exemptions between American Eagle (two slot exemptions to serve Baton Rouge and three to serve Huntsville) and ACA (three slot exemptions to serve Mobile). /4 We find that reallocation of these exemptions is in the public interest and is consistent with our guidelines on exceptional circumstances as delineated in Order 98-4-21 and other previous orders.

We recognize that the reallocations designated here will not by themselves enable the full implementation of the service patterns that ACA and American Eagle have proposed for the various markets at issue. Because of the limited number of exemptions available for reallocation, we are not in a position to facilitate, solely through our own actions, the introduction of optimum service patterns in each deserving market. However, air carrier recipients of slot exemptions, including ACA

3/ In Order 99-2-6, February 2, 1999, the Department dismissed America West's application in Docket OST 99-5030 "without prejudice to the carrier's filing for this authority in the future". We do not agree with America West's position that there remains pending in that docket a request for Las Vegas-O'Hare slot exemptions.

4/ The slot exemption authorizations for American Eagle in Orders 98-4-21 and 98-9-24 were for specified Essential Air Service operations at Bloomington, IL, Champaign, IL, and La Crosse, WI, provided that the carrier transfer an equal number of slots from those EAS markets to enable implementation of nonstop, regional jet services between O'Hare and specified cities. The five slot exemptions reallocated to American Eagle here are similarly for specified EAS operations, as necessary, at the named EAS communities, provided that American Eagle transfer an equal number of slots from those EAS markets for the implementation of nonstop, regional jet service between O'Hare and Baton Rouge and Huntsville.

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and American Eagle, have in the past supplemented their exemptions by adding operations outside the slot-controlled hours, and may do so here. Moreover, 'Aye stress again, as we did in Order 98-4-21, that both American and United are in a position, through their substantial slot holdings at O'Hare, to assist their code-sharing subsidiaries or affiliates to structure a more fully responsive service pattern for each of the designated markets. American Eagle and United Express carriers have been the recipients of a total of 50 slot exemptions at O'Hare, far more than any other air carrier. We again commend American and United for their endorsement of their commuter air carrier affiliates' proposals to deploy regional jet aircraft in underserved markets. Both major carriers have underscored their commuter affiliates' optimistic traffic projections, and urged the Department's favorable consideration of their exemption requests. Our action in this order, i.e., our reallocation of all currently available slot exemptions, reflects our concurrence with that optimism and is consistent with the policy goal of maximizing transportation benefits for as many consumers as possible. The successful realization of that goal will depend in large part on the major carriers' willingness to be partners to our action through a sharing of a small number of their substantial slot holdings at O'Hare.

In the event that either carrier fails to initiate or discontinues the regional jet services specifically enabled under the slot exemptions allocated here, the effectiveness of the exemptions will terminate. In American Eagle's case, suspension of the regional jet services it will be operating under slots transferred from its existing EAS markets (see fn. 4) will likewise result in termination of the effectiveness of its EAS exemptions, but would not relieve it of any of its EAS obligations.

To assure the most beneficial implementation of the slot exemptions we are reallocating in this order, we direct ACA and American to submit in the relevant dockets, no later than September 15, a full service schedule, including date of inauguration, for each designated market. If either carrier responds by that date that it is unable to implement a full schedule, i.e., at least two round trips a day, in any of the designated markets, we would intend to withdraw the relevant slot exemptions for further reallocation.

All five of the proposals under consideration appear to have sufficient traffic potential to justify the carrier applicants' desire to serve them, and each of the service proposals would meet our guidelines for exceptional circumstances. With regard to the American Eagle and ACA requests, they would introduce new nonstop service in markets where none now exists; they would use Stage 3 aircraft; and they reasonably appear to be financially and operationally viable. National's Las Vegas proposal would also use Stage 3 aircraft, and would enhance low-fare competition in a market that clearly should be financially viable.

We have decided to select Baton Rouge, Huntsville and Mobile for immediate reallocations, and Charleston for a designation promptly following completion of remaining procedural requirements. We are deferring action on National's proposal to serve Las Vegas.

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Mobile, as it noted in its pleadings, has the largest population, over 1.4 million, of' um market area in the Alabama/ Mississippi/ Florida Gulf Coast area. In 1998 it generated over 834,000 passengers, and ACA forecasts that the first year of Mobile-O'Hare nonstop service will generate over 46,000 O&D passengers. Mobile's reliance on a single airline, Delta, for 85 percent of its total traffic limits the community's access to the national air transportation market. For example, despite Delta's dominant presence at Mobile, there are almost no single carrier connecting services published between Mobile and O'Hare. These considerations strongly support ACA's confidence in its ability to stimulate substantial additional traffic in this market and warrant prime consideration for slot exemptions.

Similarly, Huntsville notes in its pleadings that its International Airport serves over a million passengers a year, and is experiencing impressive growth. Chicago and Huntsville have strong business ties, with common facilities by major industrial corporations. Consequently, Chicago is one of Huntsville's largest O&D markets. Moreover, Huntsville notes that available data do not accurately reflect the historical travel patterns of many consumers within its overall service area. For example, a very high percentage of the Huntsville-Chicago O&D traffic in calendar year 1998 connected via Atlanta, despite the 151-mile backhaul that that routing entails. /5 In addition, the community points out that an indeterminate number of travelers drive to alternate airports to gain direct access to service to Chicago. Based on these additional considerations, it forecasts 58,000 to 76,000 passengers in the first year of nonstop schedules to O'Hare, depending on the number of frequencies American Eagle provides. We find reasonable Huntsville's position that nonstop regional jet service to O'Hare would have a substantial stimulative impact on traffic and that its circumstances warrant the slot exemptions we have decided to reallocate to American Eagle for such service.

Baton Rouge generated over 20,000 O&D passengers to and from Chicago in 1998; including other cities within its catchment area (Alexandria, Lafayette and Lake Charles) it generated nearly 40,000 Chicago O&D passengers. In discussing its decision to end its service to Shreveport and Montgomery, American Eagle stated in its Reply document of May 21 that "we fully expect demand to be far stronger at Baton Rouge and Huntsville." We accept American Eagle's marketplace assessment that Baton Rouge will support regional jet service, and we are reallocating two slot exemptions for that city-pair service. We note in that respect American Eagle's statement in Docket OST-99-5959 that, in conjunction with its proposal to inaugurate regional jet service in the Charleston-O'Hare market, it "will provide the balance of the slots required (in that case, three) through self-help means." As we have discussed above, we strongly encourage not only American, but United as well, to do so with regard to all of the markets we are designating for reallocated slot exemptions in this order. We are assuming that American's statement of willingness to undertake such a

5/ Traffic data in the Department's Calendar Year 1998 O&D Survey show 76 percent of the Huntsville-Chicago market connecting via Atlanta.

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commitment in one market is reflective of a similar willingness concerning any market it has sought to enter with the help of slot exemptions. That assumption is a cornerstone to our ability to act, as we are in this order, in a manner that maximizes the transportation benefits we are able to help facilitate through the cooperative commitments of the Department and the private sector.

There are two airline applications pending for slot exemptions to serve Charleston, one of which, American Eagle's, is recent and remains subject to responsive pleadings. Consequently, selection and designation of a carrier applicant for Charleston slot exemptions at this time would be premature. It is clear, however, that the Charleston-O'Hare market would support nonstop jet service. In 1998 Charleston enplaned nearly 700,000 passengers, and the Charleston-O'Hare market itself generated 63,350 O&D passengers, an average of 173 a day. Charleston, in fact, is now the single largest O'Hare market without nonstop service. Both ACA and American Eagle have enthusiastically projected that the market would be profitable. In brief, we find that Charleston warrants nonstop jet service to O'Hare and, to the extent necessary, we will hold in abeyance the three currently available slot exemptions toward enabling the implementation of such service.

Because we are announcing our commitment to assure that Charleston will be enabled to receive nonstop jet service to O'Hare, we will afford all interested air carriers an opportunity to file applications on an expedited basis for the three slot exemptions being held in abeyance for that market. We will then give equal consideration to all such pending applications. The procedural schedule for further filings regarding Charleston is:

National Airlines operates no service at Chicago O'Hare and therefore qualifies as a new entrant airline under the provisions of 49 U.S.C. 41714 (c). The Las Vegas-O'Hare market is served nonstop by American Airlines (four roundtrips per day), America West (two roundtrips per day), and United Air Lines (five roundtrips per day). For the year ended December 31, 1997, there were 562,260 Las Vegas-O'Hare O&D passengers, or 1,558 per day. Although this very large market would benefit from new services from a low-fare carrier such as National, the need for additional service is less compelling than that presented by the other pending proposals. Therefore, we will defer acting on National's application at this time.

6/ We will not entertain applications in this proceeding for any markets other than Charleston, SC.

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As the FAA slot regulation makes clear "slot(s) do not represent a property right but represent an operating privilege subject to absolute FAA control (and) slots may he withdrawn at any time to fulfill the Department's operating needs..." 14 CFR 93.223(a). This order should not be construed as conferring on these carriers any ability to sell, trade, transfer, or convey the operating authorities granted by the subject exemptions.

The Department is allocating slot exemptions by this order on the ground that the services proposed by the applicants meet the statutory public interest and exceptional circumstances criteria. The Department reserves the right to modify or terminate such exemption authority if the Department determines that, due to changed circumstances, these criteria are no longer satisfied by an applicant's use of the authority.

This Order is issued under authority delegated in 49 CFR 1.56(a).

1. The Department amends ordering paragraph 2 of Order 98-4-21 to read as follows: The Department grants an exemption from 14 CFR Part 93, Subparts K and S, to Atlantic Coast Airlines, Inc., to enable it to conduct 19 flight operations a day (departures or arrivals) at Chicago O'Hare Airport during the slot-controlled hours of 6:45 a.m. to 9:15 p.m. This authority may be used only to provide nonstop service with regional jet aircraft between Chicago O'Hare Airport and the cities of Charleston, WV, Mobile, AL, Springfield, MO, and Wilkes-Barre, PA;

2. The Department amends ordering paragraph 4 of Order 98-4-21 to read as follows: The Department grants an exemption from 14 CFR Part 93, Subparts K and S, to American Eagle Airlines, Inc., to enable it to conduct 15 flight operations a day (departures or arrivals) at Chicago O'Hare Airport during the slot-controlled hours of 6:45 a.m. to 9:15 p.m. This authority may be used only to provide Essential Air Service operations, comparable in quality to existing services, between Chicago O'Hare Airport and the cities of Bloomington, IL, Champaign, IL, and La Crosse, WI, and only to the extent that American Eagle performs an equal number of flight operations during the slot-controlled hours each day with regional jet aircraft between Chicago O'Hare Airport and the cities of Baton Rouge, LA, Duluth, MN, Fayetteville, AR, and Huntsville, AL;

3. The Department directs Atlantic Coast Airlines and American Eagle to contact the Airspace and Traffic Law Branch of the Office of Chief Counsel in the Federal Aviation Administration as soon as possible following issuance of this order to determine with the FAA the actual times for arriving and departing flights authorized by this order;

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4. The Department directs Atlantic Coast and American Eagle to submit in the appropriate dockets, no later than September 15, their complete schedules and dates of inauguration for the markets designated in this order;

5. The Department directs any interested air carriers to file on or before August 6, 1999, applications for as many as three slot exemptions to enable the implementation of nonstop service, with Stage 3-compliant jet aircraft, between Chicago O'Hare Airport and Charleston, SC;

6. The Department directs interested parties to file Answers to any pending Chicago O'Hare-Charleston, SC slot exemption applications by close of business August 13, 1999, and Replies to such Answers by close of business August 20, 1999,

7. The authority granted under these exemptions is subject to all of the other requirements delineated in 14 CFR Part 93, Subparts K and S, including, but not limited to, the reporting provisions and use or lose requirements; and

8. We will serve this order on all parties in Dockets OST-97-2368, 97-2970, 97-2985, 97-3259, 98-3603, 98-3671, 98-3982, 98-4604, 99-5475, 99-5521, 99-5532, 99-5533, 99-5581, 99-5583, 99-5587, 99-5614, and 99-5959.

By:

1. BRADLEY MIMS

Acting Assistant Secretary for Aviation and International Affairs

(SEAL)