OST-99-6683 / Pro Air / High Density Rule - New York LaGuardia / DETember 21, 1999

Application of

Pro Air, Inc. / Docket No. OST-99-6683

For an exemption from 14 CFO. Part 93, Subparts K and S, 49 U.S.C. § 41714 as to allow nonstop service between:

LaGuardia Airport and Detroit City Airport

On March 5, 1998, Pro Air, Inc. ("Pro Air") filed an application with the U.S. Department of Transportation (the "Department" or "DOT") requesting an exemption from the High Density Rule ("HER"), 14 COFER. Part 93, Subparts K and S, 49 U.S.C. § 41714, so that it could provide nonstop service between LaGuardia Airport ("LGA") and Detroit City Airport ("DET"). Specifically, Pro Air requested eight slots at LGA to allow four roundtrip flights between these airports.

On October 27, 1998, the Department issued an order (Order 98-10-29) granting Pro Air an exemption from the HER to conduct two flight operations a day at LGA during the slot-controlled period. The Department determined that such a grant was in the public interest and met the statutory public interest and exceptional circumstances criteria. /1 Specifically, the Department found that Pro Air would use Stage 3 jets for the service and would provide DET - LGA with its first low-fare competition. /2

Unfortunately, due to the limited number of slot exemptions available at LGA-, the Department was able to grant Pro Air only two of the eight slot exemptions that it had requested. By this filing, Pro Air reasserts its request for the six slot exemptions that the Department previously was unable to grant and supplies information in support of its request.

Pursuant to the Department's grant to Pro Air of two slot exemptions in Order 9810-29, Pro Air commenced service between DET and LGA on January 17, 1999. Pro Air has utilized these slots by operating a midday roundtrip flight. This flight also provides the convenience of one-stop service to Chicago Midway Airport ("MDW") and Indianapolis International Airport (CINDY). Even though this single daily flight does not operate at the most convenient time (midday versus morning or evening), the service has been highly successful. Since Pro Air commenced service in the first quarter of 1999, it has seen its load factors in the DET - LGA market increase each quarter (46% in the first quarter, 61% in the second quarter, and 76% in the third quarter).

1/ As the Department described, these criteria are as follows:

Order 98-10-29, at 4 (footnote emitted). 

2/ Id. at 9-10.

Pro Air's inauguration of service in the DEALT - LGA market has resulted in lower fares for customers. As noted in Pro Air's prior application for an exemption at LGA, the one-way, non-stop coach fares that existed prior to Pro Air's entry into the market ranged from $115 for a highly restricted 21-day advance purchase fare to a $455 walkup fare. As part of Pro Air's simplified pricing structure, it introduced a one-way unrestricted fare of $99 for coach and $174 for first class. This fare structure is still in place and has afforded passengers with an opportunity to purchase unrestricted tickets at a price over 78% lower than the price that existed prior to Pro Air's entry into the market.

Pro Air's service between DEALT and LGA has prompted a competitive response by its only non-stop competitor. This competitor has matched Pro Air's fares on a capacity-controlled basis on its first flight of the day and the flights that depart immediately before and immediately after Pro Airs single daily flight. However, on the other six flights that this carrier operates throughout the day, it offers essentially the same fares that were available on all of its flights between LGA and Detroit's Wayne County Airport prior to Pro Air's limited entry into the market.

The Department has authority to grant an exemption from the HDTV if it finds that such a grant would be in the public interest and that exceptional circumstances exist. /3 As noted above, the Department has established a three-pronged test to determine whether to grant or deny an exemption: (1) proposals that are based on jet aircraft that

3/ 49 U.S.C. § 41714(c)

meet Stage 3 noise requirements are favored; (2) the proposed service should offer a reasonable expectation that it will be operationally and financially viable; and (3) a premium is placed upon the introduction of new nonstop services where none exist-and new competitive services, particularly by low-fare carriers, where there is single carrier service and the market could support entry or where existing services do not produce meaningful price competition. /4 Pro Air's request for an exemption clearly meets each of these criteria.

A. Pro Air's Aircraft Meet Stage 3 Noise Requirements.

Pro Air currently operates its single daily flight between DET and LGA with a Boeing 737-400 aircraft that meets Stage 3 noise requirements. Pro Air will continue to operate flights in this market with both Boeing 737-300 and Boeing 737-400 aircraft that each meet Stage 3 noise requirements.

B. The Proposed Service Offers a Reasonable Expectation of Viability.

As noted above, Pro Air has been operating its single daily flight in the DET LGA market with great success. As demonstrated by the significant load factors that Pro Air has experienced in this market, it is clear that there is a large demand for low-fare service. However, Pro Air cannot adequately serve this market with-just one flight per day.

Based on traditional patterns of passenger demand, Pro Air has determined that four round trips per day in this market are the minimum number of flights necessary to provide the services that passengers need. Granting Pro Air authority to operate a total of four round trips per day will allow it to create a more optimal flight schedule, including

4/ See infra footnote 1.

peak morning and evening departures, and will provide passengers with the assurance that they have multiple options to complete their trips. Furthermore, these additional flights will enable Pro Air to facilitate more connecting traffic through its DEALT hub, thereby giving passengers further competitive choices in other markets such as LGA - DET - IND. and LGA -DET - IND.

With the success of its single daily flight, Pro Air has clearly shown the service is operationally and financially viable. However, Pro Air cannot adequately accommodate the pent-up demand in the DET - LGA market without being allowed to operate additional flights. Because of the demand that clearly exists, there is not only a reasonable expectation, but a strong expectation that four daily round trips in this market will be operationally and financially viable.

C. Existing Service Does Not Provide Meaningful Competition.

As discussed above, Pro Air's entry into the DET - LGA market with a single daily flight has prompted a limited competitive response from the only other carrier offering non-stop service. This response has taken the form of fare matching on a capacity-controlled basis, but has been limited to just three out of the nine flights that the carrier operates. Accordingly, the vast majority of passengers flying in this market are still paying the same fares that they paid when there was only single carrier service.

It is therefore clear that the existing services in the DET - LGA market do not provide meaningful competition. Most passengers will continue to pay exorbitant fares unless Pro Air is given the opportunity to expand its services. Only by granting the additional slots that Pro Air requests in this application can the DOT ensure that meaningful competition exists in this market. In addition, such action by the DOT will enhance competition in other markets where Pro Air will provide one-stop service to and from LGA.

The success of Pro Air's single daily flight in the DET - LGA market has resulted in the traveling public realizing, on a limited basis, the advantage of competitive airline services. However, passengers cannot reap all of the benefits of meaningful competition unless Pro Air is allowed to operate additional flights in this market. Accordingly, for the reasons described in this application, Pro Air requests that the Department, under 49 U.S.C. § 41714(c), grant an exemption to the High Density Rule to enable Pro Air to conduct six additional flight operations a day at LGA.

Respectfully submitted,

Bradley D. Toney

Director of Legal Affairs & Employee Relations

Pro Air, Inc.

101 Elliott Avenue West, Suite 500 _

Seattle, Washington 98119

(206) 623-2000

Date: December 17, 1999