OST-00-6957 / America West Airlines / High Density Rule - New York LaGuardia & JFK / Reply of America West / March 13, 2000

Application of

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

Columbus - New York LaGuardia Airport Phoenix/Las Vegas - John F. Kennedy International Airport

America West Airlines, Inc. ("America West") hereby replies to the answers filed by JetBlue Airways Corporation ("JetBlue") and by the Office of the Queens Borough President, City of New York ("Borough of Queens"), in opposition to the above-captioned application by America West for exemptions from the Department's slot rules for high density airports set forth in Subparts K and S of Part 93 of the Federal Aviation Regulations. Neither answer provides a basis for denying America West's application.

On February 18, 2000 America West filed its request for slot slides and exemptions to ensure its ability to continue current service between Columbus, Ohio and New York LaGuardia (LGA), and between Phoenix/Las Vegas and New York Kennedy (JFK) with connecting service to points in the West. America West was compelled to file this application due to its inability to continue slot exchanges and leases from other major incumbents and their commuter affiliates.

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America West requested three exemption slots and authority to slide two slots to times usable for flights to Las Vegas and Phoenix from JFK. At LGA, America West requests two slot slides for Mesa Airlines' America West Express flights to more useable times and four exemption slots to continue four daily Columbus roundtrip flights with connections to points in the West.

JetBlue and the Borough of Queens do not oppose America West's request for slot slides at either JFK or LGA. However, both appear to misconstrue America West's request for exemption slots as a proposal to add new services at JFK and LGA. On the contrary, this application is directed at America West's ability to continue its existing services. As discussed in the application, loss of America West's JFK and LGA service would cause substantial harm to consumers currently flying on America West, through reduced service options and higher fares. America West provides the only competitive service in the substantial LGA-Columbus market, virtually all the non-stop service in the Phoenix - JFK market and much of the competitive service in the chronically underserved JFK - Las Vegas market. Accordingly, America West's request for new entrant slot exemptions amply meets both the public interest and exceptional circumstance requirements of 49 U.S.C. § 41714. However, as noted below under legislation that will likely be enacted this week, Congress has eliminated the "exceptional circumstances" requirement for the grant of slot exemptions.

Additionally, because the exemptions sought by America West are requested for the purpose of maintaining existing services rather than providing new services, the arguments raised by JetBlue and the Borough of Queens based on alleged economic viability and environmental impact issues are completely unfounded. It is clear both from the Department's recent award of 75 JFK slot exemptions to JetBlue that allocating America West its requested slot exemptions to

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continue current JFK and LGA operations would not have any measurable, let alone, significant negative impact on the environment or New York-area noise levels nor would it cause any significant airport congestion or traffic delays during the times at which America West has requested exemption slots. /1

On March 8, 2000, the U.S. Senate passed the Wendell H. Ford Aviation Investment and Reform Act for the 21" Century ("Air 21"). This legislation substantially revises 49 U.S.C § 41714 and creates a new § 41716, which provides interim slot rules for the New York airports pending the abolition of slots at JFK and LGA on January 1, 2007. There are two significant substantive changes to § 41714. First, Air 21 redefines the terms new entrant and limited incumbent by increasing-the slot limits for such carriers from 12 to 20. These limits include both regular slots and exemption slots and combines slots held by carriers operating code share flights. America West's New York slot holdings, even including Mesa Airlines' slots for America West Express flights at LGA, are well below the 20-slot cap at both JFK and LGA. Second, Air 21 deletes the requirement that the new entrant or limited incumbent must show an "exceptional circumstance" to qualify for slots. Thus, under the legislation, which is expected to pass the House and be signed by the President within the next several days, all the Department must find is that the service for which new entrant-limited incumbent exemption slots are requested is in the public interest. See Air 21 at

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§231(a)(4)(B). In evaluating the public interest the Department may consider the benefit of the service to the U.S. economy by jobs created, and "should give equal consideration to the consumer benefits associated with award of such exemptions." Air 21 at §23 1 (b)(2).

More significant with respect to America West's pending application is the interim exemption rule for issuing exemption slots to new entrants and limited incumbents at LGA and John F. Kennedy International Airport, which states:

Air 21 at § 231(c) (emphasis added). The use of the compulsory language "shall grant" is particularly significant since it requires the Department to award these slot exemptions to eligible carriers. The Conference Managers' report on Air 21 states "DOT is also directed to grant exemptions to new entrants and limited incumbents for service to New York. Id. at 40 (emphasis added). Thus, allocation of exemption slots to new entrants at LGA and JFK has been made mandatory. See, Association of Civilian Technicians v. FLRA, 22 F.3d 1150, 1153 (D.C. Cir. 1994) noting that statutory language including, "[t]he word "shall" generally indicates a command that admits of no discretion on the part of the person instructed to carry out the directive,". /2 Accordingly, Air 21 requires allocation of exemption slots at JFK and LGA to America West and moots the answers of JetBlue and the Borough of Queens urging the Department to deny additional

2/ At a minimum even if the Air 21 were interpreted to require new entrant service to be in the public interest, it still limits the Department's inquiry to economic and consumer benefit issues.

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slot exemptions based on bogus arguments about alleged environmental impacts. As discussed below, even if environmental issues remained relevant following Air 21, the points raised by JetBlue and the Borough of Queens would not support denial of the three slots at JFK and four slots at LaGuardia America West seeks to maintain its highly valued service to Phoenix, Las Vegas, Columbus and Western points.

The Borough of Queens questions the public interest and exceptional circumstances grounds for granting America West's application and attempts to minimize the competitive benefits provided by America West's existing service at JFK and LGA. As noted above, America West provides the only competitive service between LGA and Columbus, and also offers substantial savings for passengers traveling from LGA to the West. At JFK, America West carriers approximately 242,000 origin and destination passengers travel in the Las Vegas market, 91,400 in the Phoenix market, and 1,800,000 passengers to points beyond Las Vegas and Phoenix. America West's load factors at JFK average 71 percent on an annual basis and exceed its system-wide load factors by 3 percent. In the peak months of July and August 1999, its load factors at JFK were 80 and 84 percent on flights to Las Vegas and Phoenix respectively, which demonstrates the strong public demand for these services and the public interest in enabling America West to continue operating them. Additionally, America West provides the only real low fare option from JFK to the West Coast. As discussed in the application, America West's average fare between JFK and Los Angeles is 46 percent lower than the major carriers in that market. The likelihood that America West, the only post-deregulation major, full-service, low fare, hub-and-spoke carrier, would be forced to discontinue critically needed competitive service from its hubs to key New York airports

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certainly meets the public interest requirement for the exemptions and would unquestionably be an exceptional and compelling circumstance if that criteria remained relevant.

The Borough of Queens does not oppose America West's request to slide slots at JFK and LGA. However, like JetBlue it appears to base its opposition to America West's application on the assumption America West is proposing to start new services at JFK and LGA rather than maintain existing service. In its answer, the Borough of Queens states it can only speculate that four new operations at LGA and three at JFK would represent a significant increase in America West's operations, and claims there is no guarantee of demand for the services or of America West's financial and operational wherewithal to successfully implement them. However, the application does not propose additional service, and given that America West currently operates approximately 800 flights daily to 80 cities, and it is simply seeking to preserve the viability of its JFK and LGA services in the face of an impending inability to continue leasing slots for those services, it is difficult to believe the Borough of Queens has serious doubts regarding the operational viability of the services that would benefit from America West's requested exemption. America West certainly has the operational capability to continue providing the services, for which, again there has been strong demand.

The Borough of Queens attempts to cast doubt on America West's inability to obtain slots at JFK and LGA through a purchase or long-term lease arrangement, but offers no evidence that even one slot is available on commercially reasonable terms at either airport. Despite its best efforts, America West has been unable to obtain replacement slots for the leased JFK and LGA slots it will soon lose at any price. Slots have been unavailable to new entrant carriers through the buy/sell mechanism for some time. As noted by the Department in, A Report to the Congress: A

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Study of the High Density Rule, May, 1995 ("HDR Report"),

The Department's conclusion has been empirically tested by America West, which despite contacting virtually every carrier operating at JFK and LGA on multiple occasions, has been unable to obtain slots at usable times on commercially reasonable terms. In the rare instances in which slots have been available, America West understands they have sold for as much as $3 million. The FY1998 Securities and Exchange Commission Form 10-K Annual Report for Calair L.L.C., a wholly owned subsidiary of Continental Airlines, notes at page 2,

Thus, only two years ago a large number of slots at high density airports were sold to the subsidiary of an incumbent airline at approximately $1.5 million per slot, in a sale in which the seller had little incentive to maximize the sale price.

The February 22, 2000 application of Midway Airlines Corporation ("Midway") for nine LGA exemption slots only confirms LGA slots currently are unavailable at reasonable times from incumbent carriers on commercially reasonable terms. The inability of Midway, like America

3/ HDR Report at 66. The General Accounting Office (GAO) has confirmed the cost of slots to post-deregulation carriers is prohibitive and that in any event slots are rarely available. GAO, "Airline Deregulation, Barriers to Entry Continue to Limit Competition in Several Key Domestic Markets," GAO/RCED-97-4 (October 18,1996) at pp. 5-6.

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West, to acquire LGA slots confirms there is no marketplace access to LGA slots at any price and confirms the importance of the Air 21 requirements that the Department make slots available outside the buy/sell rule. As noted by Senator John McCain, in his remarks supporting compromise provisions in Air 21, numerous respected studies have shown that "slots and perimeter rules are anticompetitive, unfair, unneeded, and harmful to consumers." 146 Cong. Rec. S12,096 (daily ed. Oct. 6, 1999) (statement of Sen. McCain) (referring to reports by the General Accounting Office, the National Research Council, et al.).

The Borough of Queens' argument that America West should use Newark International Airport as a substitute for LGA misses the point of America West's application, which is to request

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the authority to allow it to continue providing service at LaGuardia. America West already provides service to Newark, but this service is not a substitute for LGA service, nor is it capable of bringing the benefits of competition to customers travelling between LGA and Western points.

America West has been working for years to build a presence at JFK and LGA despite the dominance at these airports by the nation's largest incumbent carriers. American, Delta, United and US Airways have long controlled the vast majority of slots at LGA. They respectively hold 113, 146, 66 and 222, for a total of 417 of the 477 slots currently allocated to and directly held by air carriers for domestic operations. Thus, American, Delta, United and US Airways together hold approximately 87 percent of the domestic slots at LGA /4. Similarly, American, Delta, Northwest and United respectively hold 50, 58, 12 and I I of the 148 currently allocated domestic slots at JFK, giving these four carriers approximately 86 percent of the JFK slots. Allowing a handful of prederegulation incumbent carriers to maintain an oligopoly on slot-controlled operations at New York's two major airports does not serve the Department's stated purpose of promoting competition in the air transportation industry.

4/ The percentages are even higher if slots held by banks and affiliates are included.

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1996). The public interest need to grant limited incumbents and new entrants more access has now been reconfirmed by Congress in Air 21, which requires the grant of additional slots for such access. For America West and the millions of passengers it carriers every year to and from these airports the immediate need is critical.

As discussed in section I above, under the requirements of Air 21 the Department is required to grant the requested slot exemptions to America West. Congress' decision to abolish the slot rules at the New York airports confirms that no additional environmental assessments are required and that new entrants and limited incumbents are entitled to operate up to 20 slots each at both airports. Moreover, the objections to America West's application raised in JetBlue's answer lack any factual or legal basis. /5 JetBlue essentially argues that any new slots belong to JetBlue and can only be used by other new entrants until JetBlue recalls the slots. This argument must be rejected by the Department. The Department's order allocating JetBlue 75 JFK exemption slots did not establish that no other new entrant exemption slots may be allocated at JFK or that JetBlue's exemption should have priority over any exemption slots later allocated to other carriers.- See Order 99-9-11. Based on its answer to America West's application, JetBlue seems to believe that the 75 slots to be allocated according to Order 99-9-11 are JetBlue's property and that the Department lacks the authority to reallocate them or allocate other slots to other carriers until JetBlue has

5/ Ironically, under Air 21 JetBlue would have been limited to 20 slot exemptions at JFK, substantially below the unprecedented land grab JetBlue now claims encompasses all the slot exemptions available at the airport.

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received all 75 slots to which it feels entitled. However, as Order 99-9-11 itself makes clear, at page 14, the 75 slots allocated to JetBlue "do not represent a property right but represent an operating privilege subject to absolute FAA control," and the Department explicitly reserved the right to modify or terminate JetBlue's exemption authority based on changed circumstances or JetBlue's unsatisfactory use of its exemption authority. If other carriers are allocated new entrant exemption slots at JFK before JetBlue receives all 75 of its anticipated slots, the increased operations may well constitute changed circumstances such that JetBlue's exemption authority should be modified or at least in part terminated. However, America West's position is that there is no congestion, environmental, noise or operational basis on which to deny its application for three exemption slots at JFK since the application meets the Department's public interest test. Indeed as noted in Section I under Air 2 1, the Department is required to approve the exception request.

JetBlue's position, which is echoed by the Borough of Queens, that America West's application should not be granted without a new environmental impact statement, also is unsupported. First, JetBlue's own environmental assessment essentially confirms that the three additional slots requested by America West at JFK would have no impact on noise or congestion at JFK. This is equally true of the four slots requested at LGA. Second, while the Department can only award slots for Stage 3 jet aircraft for any approved exempt operations,' there is no authority supporting JetBlue's contention that applications proposing operations with particular types of Stage 3 aircraft with particular engines should be given preference over other applications proposing operations with other types of Stage 3 aircraft. Indeed, in the context of the controversy over the European Union's proposed hush-kit ban, the Department and the U.S. Government have

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made clear that a Stage 3 aircraft is a Stage 3 aircraft. Moreover, Air 21 makes clear that slot exemptions are available to any new entrant or limited incumbent operating Stage 3 aircraft as defined by the Secretary. JetBlue questions whether America West's Stage 3 aircraft currently in use or to be used in the future at JFK are as quiet and environmentally friendly as the aircraft proposed by JetBlue but offers absolutely no evidence to indicate they are not.

Since deregulation, America West, despite its minuscule slot pool, has demonstrated its commitment to maximizing its presence at high-density airports where possible through slot trades and leases. It is clearly in the public interest to meet consumer demand by enabling America West to continue service at JFK and LGA during slotted time periods. The slot slides and exemptions requested at JFK and LGA will allow America West to continue its highly successful, low fare full service to Columbus, Phoenix, Las Vegas and 37 other points in the West. If America West were forced to withdraw from these two airports the traveling public would lose an important competitive force in the New York area and fares to Columbus, Phoenix, Las Vegas and the West would surely increase. The benefits that deregulation has brought to these markets would be lost, and the Department's procompetitive policies would suffer a severe setback.

These substantial competitive benefits should not be sacrificed to arbitrary operational restrictions unfounded on any legitimate environmental, operational or safety issues. Additionally, these issues are now moot in light of Air 21's mandate for the allocation of JFK and LGA slots to limited incumbent new entrants such as America West. As discussed above, the answers filed by JetBlue and the Borough of Queens raise no basis on which to deny the application. America West

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respectfully renews its request that the Department quickly grant it an exemption allowing it to slide two slots at JFK and two Mesa slots at LGA, and allocating it three exemption slots at-JFK and four exemption slots at LGA, and granting such other and further relief as the Department deems appropriate.

Respectfully submitted,

Joanne W. Young

David M. Kirstein

BAKER & HOSTETLER, L.L.P.

Washington Square, Suite 1100

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036-5304

(202) 861-1532

Counsel for America West Airlines

Dated: March 13, 2000