OST-99-6210 / New US-Argentina Combination Service / Answer of United Air Lines / September 29, 1999

Pursuant to the Department's Notice dated September 8, 1999, United Air Lines, Inc. ("United") submits the following consolidated answer to the applications of Delta Air Lines Inc. ("Delta") and Continental Airlines, Inc. ("Continental"), as supplemented and amended.

The Department plans to allocate 14 weekly U.S. -Argentina frequencies available under the first two phases of the U.S. -Argentina transitional agreement: seven frequencies available on September 1, 2000, and seven frequencies available on June 1, 2001.

United has requested the allocation of seven U.S. -Argentina frequencies in order to operate daily nonstop services between Los Angeles and Buenos Aires with B777-200 equipment. /1 United proposes to start these services September 1, 2000, when the first seven frequencies become available. /2 United's daily nonstop services between Los Angeles and Buenos

1/ United has attached a revised Exhibit UA-2 to its Application of September 22, 1999. This revision illustrates seating on United's B777-200 equipment showing the "First Suite" configuration in the first class cabin.

2/ In the alternative, United would accept the seven frequencies available in phase two and

would, in that case, start service on June 1, 2001.

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Aires would benefit passengers throughout the United States served by United's superior U.S. network. This service would be the only nonstop service by any carrier - U.S. or foreign -between Los Angeles and Buenos Aires. It would benefit passengers in Los Angeles and throughout United's system by providing a new and much-needed West Coast gateway to Argentina and by creating new one-stop connections to and from Argentina over Los Angeles. By serving this new U.S. gateway, United's proposal offers passengers and shippers an important alternative to existing services in the U.S. -Argentina market and therefore promotes intergateway competition.

Delta has requested certificate authority and seven U.S. -Argentina frequencies to operate Atlanta-Buenos Aires service starting September 1, 2000. In the event that Delta receives the phase one frequencies, it further requests backup authority for the phase two frequencies to operate daily nonstop service to Buenos Aires from New York in addition to Atlanta. Continental has applied for certificate authority and seven U.S. -Argentina frequencies to operate Newark-Buenos Aires nonstop service starting September 1, 2000, and seven frequencies to operate Houston-Buenos Aires nonstop service starting June 1, 2001, or 120 days after receipt of all necessary government authority, whichever is later.

United's request, unlike those of Delta and Continental, would serve a significant region of the U.S. that is completely devoid of any service - U.S. or foreign - to Argentina. In fact, there is not a single gateway to Argentina west of Chicago. This dramatic service void in the West can be filled by United's Los Angeles-Buenos Aires service. United's is the only proposal that would introduce a new U. S. gateway using frequencies immediately available - a gateway that

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presently has no service to Buenos Aires even though it is the third largest local market to Argentina, and one that will greatly improve competition in the entire U.S. -Argentina market. Allocation of seven U.S. -Argentina frequencies to United will best serve the pubic interest by increasing competition, opening a new U.S. gateway, and facilitating services for West Coast passengers and shippers.

Continental's proposal to initiate New York/Newark-Buenos Aires nonstop service would make Continental the fourth nonstop carrier in the New York-Argentina market. Aerolineas Argentinas, American, and United all offer daily nonstop service from New York to Buenos Aires. The presence of multiple nonstop carriers already ensures competition in the New York metropolitan area market. Continental's proposed Newark-Buenos Aires service would bring neither meaningful additional competition nor demonstrable public benefits to the well-served Northeastern region of the United States.

By contrast, United would offer valuable new nonstop passenger and cargo service to the only large U.S. air service market that lacks nonstop service to Buenos Aires. The proposed new route would add benefits to a customer base that includes U.S. West Coast based corporations doing business in Argentina, including Hewlett Packard, 3Com, Levi Strauss, and Lucent Technologies. /3 Introduction of a new gateway at Los Angeles would also provide

3/ Source: American Chamber of Commerce of Argentina.

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economic benefits to the State of California, which already hosts 59,000 Argentine tourists annually. /4

Continental belatedly adds a request for seven frequencies to serve Houston as its second gateway to Buenos Aires. Continental would, however, offer no service to the new Houston gateway unless it receives all 14 of the U.S.-Argentina frequencies available in both Phases 1 and 2, an extremely unlikely result given the proposal of services at the far larger Los Angeles gateway. There are, in fact, more than 5 times more Buenos Aires passengers at Los Angeles than there are at Houston. See Exhibit UA-3.

Delta's proposal to serve Atlanta offers nonstop benefits to far fewer passengers in the smaller Atlanta-Buenos Aires market than would benefit from United's service at Los Angeles. Even without nonstop service, the Los Angeles-Buenos Aires market is seven times larger than the Atlanta-Buenos Aires market. With the stimulation introduced by the availability of nonstop service, the number of Los Angeles passengers benefitting would almost undoubtingly widen this gap. Moreover, rather than duplicating service options for passengers east of the Mississippi, United's new Los Angeles service would offer improved connections for passengers in the Western U.S. region who presently lack a convenient regional gateway to Argentina.

In addition, the Atlanta market already has nonstop U.S. -Argentina service provided by the Argentine carrier LAPA. LAPA commenced daily nonstop service between

4/ California Division of Tourism, Sacramento: 1998 figures.

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Atlanta and Buenos Aires in August. In fact, there are indications that LAPA will be code sharing with Delta on that route. /5

United, unlike Continental and Delta, is using its existing frequencies to compete with American and Aerolineas at both Miami and New York. United has opened a new gateway to Argentina from its Chicago hub by moving seven frequencies formerly used at Miami to Chicago. That service was made available by the frequency equivalency formula of the old U.S./Argentina agreement. Under the new agreement, United will now be able to upgrade its Miami-Buenos Aires service by substituting larger B747 equipment for the B777 equipment it now uses. Such a substitution in the peak periods of demand will enable United to offer more competition with American and Aerolineas at the key Miami gateway, while also offering service at the new Chicago gateway.

Continental and Delta offer no services that would compete with American and Aerolineas at Miami Nor would their proposals offer improved services for the large number of Los Angeles-Buenos Aires passengers and shippers or for the large number of consumers in the

5/ In response to United's inquiries about code sharing, LAPA has indicated that it has no interest in pursuing a code-share arrangement with United. The fact that LAPA has chosen Atlanta as its U.S. gateway and is promoting connections on Delta's services in its Argentine advertising provides strong indications that LAPA and Delta have reached some sort of arrangement that will ultimately include code sharing. With an Argentine partner, Delta will be able to provide its passengers U.S. -Argentina online service through Atlanta without the allocation of the seven U.S. carrier frequencies in question.

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Western U. S. that will enjoy new onestop connections via Los Angeles. United's proposal clearly offers competitive benefits that are far superior to those of Continental and Delta.

In order to offer these superior benefits, however, United needs seven additional frequencies. For United to move existing frequencies would require that it either reduce its competitiveness with American and Aerolineas in the major east coast markets by pulling down its service at New York or Miami, or that it eliminate its Chicago service, leaving the major Chicago hub without nonstop service. None of these options is competitively acceptable if United is to continue to challenge American and Aerolineas.

The other applicants have demonstrated no comparable resolve to compete with American and Aerolineas. Continental has, in fact, been unable to compete effectively with American in either Chile or Brazil. Continental was granted seven frequencies in 1997 to serve the U.S. - Chile market. Continental entered a market dominated by American and its future partner, LAN Chile. In the face of those carriers' withering competition, Continental's ability to compete in this market was constrained, and it scaled back its daily Newark-Santiago nonstop services to only five days per week. (OAG, September 1999). Continental also buckled under the pressure of American's large presence in Brazil. First, it reduced its Newark-Rio de Janeiro nonstop service from the daily it proposed to only five days per week. Then, after winning seven more frequencies in the most recent U.S.-Brazil route case, Continental delayed implementation of its planned Houston-Sao Paulo service and ultimately defaulted on its proposal to provide daily nonstop service by offering service only four days per week. (OAG, September 1999)

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With respect to Delta, the Department must consider its proposal in light of that carrier's likely relationship with LAPA. Moreover, while Delta's Atlanta hub offers connections over that carrier's system, those connections are largely duplicated by existing services at Miami and Chicago, where American and United, respectively, operate hubs. In addition, Delta will likely be able to offer online connections to Buenos Aires by code sharing on LAPA's services, an option not open to United at Los Angeles or any of its existing gateways.

United's proposal is the most beneficial to the U.S. consumers as it would serve a significant number of passengers and shippers that presently do not have any nonstop service options in their region of the country. On the basis of the foregoing, United Air Lines, Inc. respectfully requests that the Department allocate seven U.S. -Argentina frequencies to United in order for United to provide scheduled foreign air transportation of persons, property and mail on a nonstop basis between Los Angeles and Buenos Aires, consistent with the public interest.

Respectfully submitted,

Jeffrey A. Manley

KTAAND & ELLIS

655 Fifteenth Street, NW

Washington, D.C. 20005

(202) 879-5161

Counsel for UNITED AIR LINES, INC.

DATED: September 29, 1999