OST-99-6683 / Pro Air / High Density Rule - LaGuardia / Reply of Pro Air to Detroit City Airport / February 14, 2000

Application of

for an exemption from 14 C.F.R. Part 93, Subparts K and S, 49 U.S.C. § 41714 as to allow nonstop service to and from LaGuardia Airport and Detroit City Airport

Pro Air, Inc. ("Pro Air") hereby seeks leave to file the below reply to the Answer of Detroit City Airport Study Committee (the "Committee"). Pro Air filed an application with the U.S. Department of Transportation (the "DOT") on December 20, 1999, requesting an exemption from the High Density Rule ("HDR") so that it can provide three additional roundtrip flights between LaGuardia Airport ("LGA") and Detroit City Airport ("DET"). The Committee filed a Motion for Leave to File a Late Answer to Pro Air's application on January 13, 2000, but failed to include Pro Air on the service list. The Committee served Pro Air with its filing on January 18, 2000.

Because of the delay in Pro Air receiving the Committee's filing, as well as the need to coordinate a response to the arguments that the Committee poses, the filing of

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this reply is slightly out of time. However, this slight delay will not prejudice the Committee or the Office of the Queens Borough President, the only other party to file an answer to Pro Air's application. In addition, the DOT will benefit by the receipt of the views of Pro Air expressed in this reply. Therefore, for good cause shown, Pro Air seeks leave to file this reply.

The Committee essentially raises three issues in its answer. First, although not directly stating it, the Committee alludes to an argument that allowing Pro Air to increase its operations into LGA will have some type of negative impact on the citizens who reside around DET. However, the exact opposite is true. Allowing Pro Air to operate additional flights between DET and LGA will actually have a net positive effect on the citizens of Detroit.

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The Committee is essentially rehashing the argument that it made in its opposition to Pro Air's initial application for an exemption from the HDR at LGA, in which it asserted that Pro Air's application should not be granted because the Finding of No Significant Impact issued by the Federal Aviation Administration (the "FAA") in July 1997 relating to Pro Air's proposed activities at DET (the "1997 FONSI") was being appealed by the Committee. However, the Court of Appeals subsequently upheld the 1997 FONSI. In addition, the FAA conducted another Environmental Assessment in September 1998 and issued another Finding of No Significant Impact relating to Pro Air's proposal to increase its-activities at DET (the "1998 FONSI"). Pro Airs request to operate additional* flights between DET and LGA clearly falls within the increased activity at DET that the FAA determined in the 1998 FONSI would have no significant impact on the citizens residing around DET.

The small impact, if any, that Pro Air's increased operations between DET and LGA will have on the citizens of Detroit is greatly outweighed by the public interest -of enhanced competition and lower fares that these individuals will gain. As noted in Pro Air's prior filings in this docket, Pro Air's entry into the DET - LGA market with a single daily flight was met with a limited competitive response by its only non-stop competitor, such that the majority of flights currently operated in this market still offer only precompetition fares. Because the existing services in this market do not provide meaningful competition, allowing Pro Air to operate additional flights will result in significantly lower fares, which represents an enormous benefit to the citizens of Detroit, as well as New York.

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The second issue that the Committee raises in its answer is Pro Air's current financial status; While it is true that Pro Air has not shown a profit since its inception, because of the enormous costs associated with starting an airline, it is an extremely rare case when a start-up airline can post a profit within its first two and a half years of operations. One low-fare carrier that is consistently cited as the most profitable airline in the industry is Southwest Airlines. However, Southwest did not actually become profitable until after its third year of operations. Pro Air is close to finallizing additional capitalization which, in conjunction with the major corporate agreements that it currently has with such organizations as General Motors, Daimler Chrysler, Masco Corporation and the United Auto Workers, and the marketing initiatives that it has recently implemented and will implement in the future, should put it in a position to reach profitability in the very near future.

However, the Committee's concerns regarding viability are actually misplaced in that it focuses on Pro Air's overall viability rather than the actual requirement contained in the DOT's three-pronged test that the proposed service should offer a reasonable expectation that it will be operationally and financially viable. As mentioned in Pro Air's prior filings in this docket, Pro Air has had great success with the single daily flight that it has been operating in the DIET - LGA market for the last year. Indeed, Pro Air has found that the highest load factors in its system are in this market. Based on Pro Air's current experience with its existing operations in this market, along with the pent-up demand that exists because the majority of flights still offer only pre-competition fares, there is a strong expectation that additional flights operated between DET and LGA by Pro Air will be operationally and financially viable. Furthermore, the high load factors

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that Pro Air, will have on these additional flights will improve its overall financial performance, thereby quickening the rate of its impending profitability.

Finally, the Committee claims that Pro Air does not meet the public interest and exceptional circumstances criteria because it is no longer a low fare carrier. The Committee bases its claim entirely on an article that was published in The Detroit News on January 6, 2000, which erroneously reported that Pro Air was ending its discount strategy. This article focused on the percentage increase associated with Pro Air's transition from a one-price per cabin strategy to a simplified system of yield management. However, the new fare structure retains Pro Air's affordable rates and is in fact similar to comparable fare structures at other low-fare carriers, such as Southwest Airlines, Frontier Airlines and Jet Blue, just to name a few.

The Committee cites a report contained in this article that Pro Air increased its roundtrip fare between DET and Seattle by 400%. However, this information was incorrect in that Pro Air entered this market with a tiered fare structure and never raised its fares from $198 to $992. In fact, Pro Air has reduced the unrestricted fare in this market by approximately 42% when it announced service with an unrestricted one-way economy class fare of $496, compared with the only direct competitor's fare of $841.

The overall focus of this article, and thus the Committee's argument, is misplaced. The Committee completely ignores the fact that the 14-day advance purchase fares that Pro Air now offers are actually less than the fares that Pro Air previously offered in its markets. For example, Pro Air previously offered a $99 oneway fare in the DIET - LGA market. However, it currently offers a $89 one-way, 14-day advance purchase, economy fare in this market. Furthermore, Pro Air's unrestricted

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fares in each of the markets that it serves are significantly lower that those of its major competitor. For example, Pro Air's current one-way, unrestricted, economy fare between DET and LGA is $159, which is 65% lower than the $451 fare of its major competitor. For all of the reasons described above, the Committee has absolutely no basis to assert that Pro Air is not a low-fare carrier.

From its inception, Pro Air has been dedicated to bringing low fares to Detroit, a city that has been consistently recognized as one of the nation's "pockets of pain". Pro Air remains committed to this goal. Granting Pro Air's request for six additional slots at LGA will only serve to further this objective. Pro Air's initial entry in the DET - LGA market with a single daily flight received a limited competitive response by its only nonstop competitor, which did result in an overall decrease in the average fares. However, if Pro Air were allowed to operate additional flights between DET and LGA, these increased operations would almost certainly be met with a more comprehensive competitive response, which would in turn result in a drastic decrease in the average fares. Only then would truly meaningful competition exist.

The DOT should not let the Committee's indignant views of Pro Air's operations at DET distract it away from the facts in this matter. As demonstrated above and in its prior filings in this docket, Pro Air clearly meets the three-pronged test used by the DOT to determine if an applicant seeking an exemption from the HDR has met the statutory public interest and exceptional circumstances criteria. First, no one has (or can) refute that Pro Air will operate the additional flights with Stage 3 aircraft. Second, as shown by the success of Pro Air's single daily flight over the last year and the significant amount

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of pent-up demand that clearly exists in the DET - LGA market, there can be no doubt that the proposed service offers a reasonable expectation of operational and financial viability. Finally, because the majority of flights in this market still offer only precompetition fares, and Pro Air is absolutely willing and able to continue to provide its low fares to the citizens of Detroit and New York, allowing Pro Air to increase it operations as requested will introduce new competitive services where existing services do not produce meaningful competition. For these reasons, Pro Air once again reasserts its request that the DOT grant the relief sought in its application.

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