OST-00-6838 / Sun Country / High Density Rule - New York LaGuardia and JFK International / Answer of Queens Borough / March 22, 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

Communications with respect to this document should be addressed to:

Hugh B. Weinberg

Counsel

Queens Borough President's Office

120-55 Queens Boulevard

Kew Gardens, NY 11424-1015

(718) 286-2880

March 20, 2000

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The Office of the President of the Borough of Queens in New York City hereby moves for leave to file a late answer in response to Sun Country Airlines, Inc.'s application for slot exemptions at John F. Kennedy International Airport ("JFK"). Queens County, in New York City, is of course home to two of the busiest airports in the nation, and for this reason, among others, the people of Queens should have a chance to respond to this application; however, this office was never served with Sun Country's application. This office only discovered that such application had been made when informed by representatives of other airlines.

For the reasons stated herein and in the attached answer, the United States Department of Transportation is respectfully requested to accept this answer and, upon due consideration, reject Sun Country's application.

Respectfully submitted,

CLAIRE SHULMAN

President

Borough f Queens

By/ Hugh Weinberg

Counsel to the Borough President

120-55 Queens Boulevard

Kew Gardens, NY 11424

(718) 286-2880

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The President of the Borough of Queens is the highest level county-wide executive in Queens County in New York City. If Sun Country Airlines, Inc.'s application for two slot exemptions at John F. Kennedy International Airport ("JFK") is granted, it would have a significant adverse impact on the residents of Queens County, which is the home of both LaGuardia and JFK Airports, and which has a population of approximately two million individuals. Because the Borough President is elected by and represents the entire county, and works closely with the aviation industry to balance the economic and transportation benefits of that industry with its negative impacts on residents, the Borough President's Office is in the best position to represent Queens County's interests in this proceeding.

While it is true that both airports in Queens generate thousands of jobs and other economic benefits for residents of the county, it is also true that these residents must also bear the burdens resulting from close proximity to the airports, including aircraft noise, air pollution, safety risks, and increased levels of traffic congestion on the airports' access roads, on the airports' tarmacs and runways, and in the skies above and around Queens. These problems are exacerbated near JFK and LaGuardia, which are located in one of the most densely populated residential area of all the airports in the nation.

For the reasons discussed herein, the President of the Borough of Queens in New York City strongly opposes this application seeking two slot exemptions.

Queens County is, as stated above, the home of both LaGuardia and JFK. These two airports together handle over 700,000 flights carrying approximately 50 million passengers per year, and

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these flights impose a tremendous burden upon the two million residents in this borough. Specifically, local residents suffer from a disproportionate amount of aircraft noise, congestion, delays and pollution, and these airport-related impacts have been constant problems in Queens County for many years.

Prior to 1968, there were absolutely no legal or regulatory limits on the number of flights that could be added at LaGuardia and JFK, and eventually the congestion of the aviation system reached a crisis stage. In its 1995 Report to Congress, the United States Department of Transportation ("DOT") described the problems as follows:

The Federal Aviation Administration ("FAA") finally took action against this problem on November 27, 1968 by adopting the "High Density Rule," which limits the number of flights at "high density" airports during particular hours. /2 The High Density Rule provided tremendous relief to both air travellers and local residents from the problems that had been caused by airspace congestion, and the rule remains the only protection that airline passengers and residents have against a complete return to the problems that plagued the air traffic system in the 1960s. /3

1/ Report to Congress: A Study of the High Density Rule, United States Department of Transportation, May 1995, page 22 (footnotes omitted).

2/ 14 C.F.R. Part 93, Subpart K.

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In 1994, the United States Congress ordered DOT to undertake a study of the High Density Rule. In addition, during the time period of the study, Congress authorized DOT to grant exemptions under very narrow circumstances, and established a two-part test for evaluating slot exemption applications. The first part of the statutory test requires a showing that the additional flights are in the ('public interest." To meet this portion of the test, an airline seeking an exemption initially must demonstrate that public benefits would result from the additional flights, such as: (1) the institution of new service, or new non-stop service, where none previously existed; or (2) a substantial reduction in airfares in a market which is dominated by a single carrier or which otherwise lacks meaningful price competition. If the applicant makes this showing, then those potential benefits must be weighed against any potential adverse impacts on the public, including: (1) an increase in aircraft noise; (2) more flight delays; (3) worsening of vehicular traffic congestion; (4) a decrease in safety resulting from more congested airspace; and (5) the adverse health impacts from increased air pollution. If DOT determines that the adverse impacts from the flights outweigh any possible positive benefits, then DOT must deny the slot exemption application. In the alternative, if the applicant demonstrates that the benefits outweigh the burdens of the new service, then DOT must address the second part of the statutory two-part test. The second part of the test requires the applicant to demonstrate that "exceptional" circumstances warrant the granting of the application. In undertaking this analysis, there are several factors that DOT must consider:

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In October 1997, DOT issued a report entitled Environmental Assessment and Finding of No Significant Impact for Exemptions from 14 CFR Part 93, Subparts K and S for Operations at O'Hare and LaGuardia Airport. That report concluded, among other things, that the environmental assessment discussed therein supported the addition of up to 30 slot exemptions at

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LaGuardia because, according to the assessment, that number of additional slot exemptions would have no significant impact on the environment. Implicit in DOT's findings is that, at the very least, additional environmental analysis would be required before DOT could grant any exemptions beyond the 30 sanctioned in the report. Given the unique densely populated nature of the New York City market, what occurs at LaGuardia has an impact on JFK, and vice versa.

It is the understanding of the Borough President's Office that at least 30 slot exemptions have been awarded by DOT since the issuance of the environmental assessment report. Thus, no additional slot exemptions for LaGuardia or JFK should be granted until a meaningful environmental review of the potential impact of any new flights arriving at or departing from LaGuardia has been conducted.

It is also significant that, prior to DOT awarding slot exemptions at JFK to JetBlue Airways in 1999, a comprehensive Environmental Assessment was required. The Borough President believes that, inasmuch as that report was prepared in connection with the JetBlue application, Sun Country should not be allowed to "piggyback" its application on someone else's Environmental Assessment. Thus, another meaningful environmental analysis must be conducted before any new slots are awarded at either LaGuardia or JFK.

In a 1995 order, DOT denied a request by Spirit Airlines ("Spirit") for more flights at LaGuardia because it did not satisfy the exceptional circumstances requirement of the law. While the DOT specifically addressed LaGuardia's congestion and delay problems, it could be seen in the light of similar conditions at JFK. Specifically, DOT found that nonstop service already existed between the New York area and the other markets at issue, the benefits of Spirit's proposal were too speculative in that no quantitative analysis had been provided; and the basics of its operations were considered too risky. The DOT order also suggested that aircraft noise played

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a part in its decision. Even more significant to DOT was the issue of aircraft delay and congestion at LaGuardia, which have been well-documented problems for years:

Note that DOT made this observation five years ago. What was true then with respect to congestion at New York City's airports is certainly true now, a fact to which anyone who has visited LaGuardia or JFK and watched aircraft lining up or idling on the tarmac awaiting clearance for take-off can attest.

Federal legislation is imminent (or by now has been passed) which, among other things, would reauthorize the FAA and affect the High Density Rule by giving what are known as regional jets greater access to high density airports and by easing the standards which must be met by new and

4/ Spirit Airlines Order No. 95-8-38, page 9

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limited incumbent air carriers in order to obtain slot exemptions (before the rule is entirely phased out in 2007). The Borough President's Office urges that DOT not rush to judgment on Sun Country's application, given that the imminent change in the law will open new markets, including the markets at issue in this proceeding, to new and existing airlines, including Sun Country.

This request for slot exemptions at JFK must be denied because Sun Country has completely failed to meet the statutory requirements for the granting of an exemption to the High Density Rule. The additional flights would have a net negative impact and therefore are not in the public interest. Also, Sun Country has failed to make any showing of exceptional circumstances.

Airline passengers seeking to fly between Sun Country's target destination of Minneapolis/St. Paul and New York City have a seemingly infinite number of options from which to choose. Certainly, there are currently enough routes between the New York City area and Minneapolis/St. Paul. Sun Country has offered no analysis to demonstrate that there is anything separate or unique about this market. Rather, the airline erroneously attempts to treat JFK as a market separate and apart from LaGuardia and Newark International Airport. Moreover, while Sun Country suggests that its proposed routes would enhance competition and therefore cause lower fares, the public record of available data demonstrates that there is already an ample range of choices, available at competitive rates.

In addition, Sun Country makes bold claims about the need for and the likelihood of success of this venture; however, it has failed to provide any quantitative analysis by which to gauge even roughly the potential benefits, which are therefore impossible to evaluate. For example, Sun Country provides no information about its ability to offer its proposed expanded service at competitive fares, though it suggests that lower fares could result from the additional flights.

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The speculative nature of the public benefits that would accrue from any new service must be weighed against the significant adverse impact that would result from the granting of this slot exemption application. Specifically, these new flights would exacerbate the already intolerable levels of noise, pollution, congestion and delays in and around JFK.

As noted above, the High Density Rule was initially instituted as the result of a crisis created by congestion at LaGuardia, JFK and other over-utilized airports throughout the country. The existing limits on the number of flights at these high density airports have helped to address the issue to some degree, but congestion is still a significant problem, and every new slot exemption exacerbates the problem and threatens to return us to the crisis situation that existed in the past.

In the past, as noted above, DOT has solicited input from the FAA's ATM as part of its slot exemption application review process. ATM is, of course, responsible for ensuring that the air traffic system operates in a safe and efficient manner. As we also noted above, the ATM made clear in 1995, in connection with a slot exemption application by Spirit, that there should be no increase in the number of flights at LaGuardia because it would undoubtedly increase the delays and congestion at the airport. /5 The problems described in detail in the 1995 Spirit Airlines order continue to exist at LaGuardia and JFK. Indeed, the most significant changes that have occurred since that time involve the addition of more than 30 new slots at LaGuardia and at least 75 new slots (25 per year over the next three years) at JFK.

Many airlines will be observing the progress of this application because they too would like to have more access to New York City's airports. At least six other airlines are seeking a total of 45 new slot exemptions to increase their operations at LaGuardia and/or JFK. These airlines and others will seek to use this case as precedent, if Sun Country is awarded the slot exemptions and, we fear, the High Density Rule will gradually be eroded by new and incumbent airlines seeking slot exemptions one handful at a time. Thus, while each individual airline might claim that its own request would result in only a small percentage increase in the total number of flights at the airport, each application must be assessed based on the already overcrowded nature of the airspace, as well as the impending increase in the number of flights.

5/ Spirit Airlines Order No. 95-8-38, Page 9

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The Borough President's Office specifically noted the importance of considering the cumulative impact of additional flights in its opposition to Spirit's 1995 application. In the resulting decision; DOT agreed with this office:

We find [the Borough President's] arguments regarding increased congestion at LaGuardia persuasive. We cannot accept the characterization of the increase in air traffic as modest based solely on the calculation of Spirit's aircraft operations as a percent of total aircraft operations during the slot period without any consideration being given to the timing of the operation. /6

Assuming for the sake of argument that there is any validity to Sun Country's unsubstantiated claim of the benefits that would result if DOT were to grant the slot exemptions, there are still some questions as to how much the public would actually benefit. Specifically, the decision-makers at DOT should ask how much longer delays, caused by aircraft idling on the tarmac or circling overhead, awaiting clearance to take-off or land, respectively, will the average traveller endure just to save a few dollars?

Having failed to demonstrate the existence of any clear public benefits, and with this lack of benefits greatly outweighed by the burdens that would be imposed upon the community, it is clear that Sun Country has failed to establish that its application would be in the public interest. Accordingly, the application must be denied.

It should also be noted that, to the best of our knowledge, the Port Authority of New York and New Jersey, which operates LaGuardia and JFK, opposes the addition of any new slots. Indeed, if the very entity which manages the airports refuses to support this application, then DOT should not even consider granting the request for slots. After all, some deference must be accorded the Port Authority, which has to deal with the daunting task of managing LaGuardia and JFK on a daily basis.

Although Sun Country's inability to meet the "public interest" test requires the denial of its

6/ Id., page 9

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slot exemption application, it is clear that the applicant has also failed to meet the second part of the two-part test, because there are no exceptional circumstances which justify the granting of this application.

There is no basis for granting a slot exemption if the applicant is able to serve the intended destination through another airport which is not covered by the High Density Rule. In this case, Sun Country has offered no reason why the proposed services must be provided through JFK at slot-controlled hours, as opposed to JFK at non-slot-controlled hours, Newark, and/or other regional airports which might have space available.

Simply put, New York City (and its environs) is a competitive market served by more than one airport. LaGuardia, JFK and Newark all serve the same primary business market in the region - Manhattan - and all three airports have similar travel times and transportation costs to the main Manhattan business districts. If Sun Country is determined to provide more service to Minneapolis/St. Paul, then it is free to explore options available under the existing structure of the I-Egh Density Rule.

Sun Country has failed to demonstrate that it cannot simply purchase or lease slots on the "buy-sell" market, other than making some conclusory statements that opportunities to buy or lease slots are non-existent. As far as can be determined from Sun Country's application, it does not appear that the airline has made a serious attempt to purchase or lease any slots. Sun Country has not indicated what amounts it would be willing to pay for the two requested slots, how much those slots would cost, and what impact those costs would have on its fare structure. As a result, Sun Country has completely failed to provide DOT with a sufficient factual basis to find that slot exemptions are necessary.

As this office has noted previously, DOT must require that the applicant submit evidence setting forth the terms of any offers to purchase or lease slots, as well as the response to those requests. DOT will then be able to determine the impact of the cost of a slot, amortized over a ten-year period, on the fares that would be charged by the applicant. If an applicant has based a

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slot application on a promise of price competition, then it must also show that the cost of the slots would eliminate that competitive advantage. If, on the other hand, the applicant can provide competitive prices by spreading the cost of the slot over a number of years, then the airline should be required to obtain the slot on the buy-sell market, and should not be provided with free slots by DOT.

Sun Country, in contrast, has wholly failed to provide any of the necessary information. Without this essential data, it is impossible to determine whether Sun Country could purchase the necessary slots and still maintain competitive prices. Sun Country's application must therefore be denied. See Spirit Airlines,, Order No. 95-8-38, page 8 (failure of airline parties to provide any more than "a limited amount of evidence regarding slot availability" made it "impossible for [DOT] to properly weigh this issue").

Even assuming that Sun Country was able to demonstrate that it could not simply add flights at Newark, could not add flights at JFK during non-slot-controlled hours, and could not feasibly purchase or lease slots and provide competitive service, DOT still must determine whether it should award a slot exemption or should reallocate a slot from an existing holder. By using its reallocation powers, DOT will be able to achieve all of the benefits that would accrue from the additional service, without increasing the number of flights at the airport, and therefore without adding to the noise, pollution, congestion, safety and delay problems suffered by the community. Only if DOT cannot reallocate slots can a finding of "exceptional circumstances" be made justifying the award of new slots to the applicant.

In its October 24, 1997 decision in Frontier Airlines, DOT appeared to modify the statutory test established by Congress for the evaluation of slot exemption applications, and created a new

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standard of review. /8 The Queens Borough President objected strongly to the Frontier Airlines decision and joined with New York City Mayor Rudolph Giuliani in the filing of a lawsuit challenging the validity of that decision. /9 Nevertheless, Sun Country's application must be denied because it fails to meet even the new standard enunciated in Frontier.

In Frontier, DOT expanded the "exceptional circumstances" test by "recognizing the need for competitive service in a market, especially low-fare competitive service." DOT also determined that slot exemption applications seeking to provide "significantly lower fares in noncompetitive or underserved markets ... can meet the exceptional circumstances criterion, " thus essentially merging the "exceptional circumstances" test with the "public interest" test. /10

• DOT attempted to clarify its new decisional guidelines by stating that it would consider the following three factors in evaluating the "public interest" and "exceptional circumstances" tests: DOT will "favor" proposals from airlines that will use Stage 3 aircraft;
• DOT will require a "reasonable expectation" that the proposed service is operationally and financially viable; and
• DOT will "place a premium" on the introduction of (a) new nonstop service; and (b) new service by airlines that "have the demonstrated potential to offer low-fare competition," where there is "single carrier service and the market can support entry," or where existing services do not produce "meaningful price competition." /11

The first of the foregoing requirements is that the applicant airline use Stage 3 aircraft for its proposed slots. Now that the federal law requiring Stage 3 aircraft is in effect, we respectfully request that the DOT apply this condition so that it makes sense. Accordingly, DOT should not approve slot exemption requests in which the applicant airline is seeking to use older, noisier aircraft such as the 727-200's which Sun Country wants to use.

9/ City of New York v. Slater, No. 97-43 5 8 (2d Cir.).

10/ Frontier Airlines, pages 3-5.

11/ Id., page 4.

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Concerning the second of the above considerations, it is not clear that Sun Country's proposed service is "operationally and financially viable." In rejecting Spirit's exemption application in 1995, DOT held that the application was too speculative and too risky. Likewise, Sun Country's application gives rise to a number of questions about both its operations and finances. We cannot comment on Sun Country's financial circumstances, except to speculate that two new operations at JFK would represent a not insignificant increase in Sun Country's operations (and a commensurate increase in its spending). At the same time, there is no guarantee either that there is enough demand for the additional service or that, even assuming there is, that Sun Country has the financial and operational wherewithal to successfully implement the service or to compete effectively with the other airlines which service these frequently-travelled routes.

The issues raised by the third component of the new DOT standards discussed in the Frontier Airlines decision (i.e., whether the proposed service represents new, non-stop service or whether the airlines have the potential to offer low-fare competition, in an area where only one carrier is providing service or where existing services do not produce meaningful price competition) have been discussed elsewhere in this submission. Specifically, there is already adequate service to Sun Country's target markets, and, further, Sun Country has not demonstrated an ability to offer the proposed service at competitive fares.

B. The Proposed Slot Exemptions Would Negatively Impact Airline Operations and the Environment.

The congestion at LaGuardia and JFK, as has been discussed elsewhere in this submission, puts great strain on the airport's (and other airports') operations, on the airlines attempting to run on schedule, and on the surrounding community (both in terms of increased traffic levels and with respect to more noise and pollution.)

In light of the problems particular to LaGuardia, the Borough President's Office urges DOT to carefully assess this application, applying the current legal standards. Otherwise, flight delays will continue to get longer, thereby frustrating all airlines, first at an operational level and, eventually, financially, as travellers decide they can no longer tolerate the delays at LaGuardia and

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JFK and begin to explore other options.

We urge Sun Country to seek other commercially viable options, including the possibility of using another of the region's airports, such as Newark, or utilizing JFK during non-slot-controlled hours. Also, Sun Country should await implementation of Congress' FAA reauthorization bill, which should have the effect of providing more access to local airports.

The Queens Borough President's Office's position on noise and pollution caused by aircraft passing over the densely populated residential neighborhoods near LaGuardia and JFK is well known. While we appreciate the need for a vital aviation industry, both in terms of providing jobs to New Yorkers and in terms of providing revenue to the economy we also believe that there should be some minimal consideration given to the quality of life of those who live near the airport.

Clearly, all the activity at an airport has some impact on the surrounding community's environment. The Borough President's Office believes that, throughout the years, parts of Queens have been overwhelmingly affected by their proximity to the airports or to flight paths to or from the airports. Residents have nearly reached a saturation point and surely are entitled to a meaningful environmental review before one more flight is added at LaGuardia or JFK. Therefore, in accordance with the 1997 DOT report discussed above, which found that no significant impact on the environment would result from up to 30 more flights per day (a number which already has been attained) and the 1999 JetBlue Environmental Assessment, we respectfully request that a meaningful and comprehensive environmental impact study be conducted before any new flights are added at LaGuardia or JFK.

In Ashbacker Radio Co. v. F.C.C., (326 U.S. 327 (1945), the United States Supreme Court held that where multiple parties have applied for a limited federal right and the applications are mutually exclusive, the federal agency may not grant the right to one applicant without providing

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a consolidated review of all applications. The Ashbacker doctrine has been followed by DOT in other contexts, such as the grant of international route authority, where a comparative review occurs before any awards are made. In the Frontier Airlines decision cited above, DOT decided to expand upon its existing statutory authority for review of slot exemption applications by applying a more relaxed scope of review than the standard set forth by Congress. In doing so, DOT made clear that some applicants who meet the new standard would still not receive exemptions, because only a limited number of slots were available. As stated by DOT:

Thus, it is clear that slot exemptions at JFK and LaGuardia are a limited federal right, and that competing applications for such slots are mutually exclusive under Ashbacker. Simultaneous with the issuance of its decision in Frontier Airlines, DOT also released the above-mentioned environmental assessment report which made a finding of no significant impact based upon an analysis of 30 additional flights. As stated above, DOT already appears to have granted 30 slot exemptions since the issuance of the report, and thus there should be, at most, only a minimal number of slots available, and then only in the most compelling cases. Spirit Airlines, Midwest Express (in a joint application with the Des Moines International Airport), Pro Air, America Trans Air, Inc., America West, Midway, Continental and Sun Country all now have pending applications seeking a total of 45 slot exemptions at LaGuardia and JFK. Accordingly, in the unlikely event that DOT determines that Sun Country has demonstrated that the additional flights would be in the public interest and that exceptional circumstances exist, then DOT would have to analyze all of the other pending requests, and determine which airlines have made similar showings. If the airlines which have met the statutory test, if any, are seeking to add too many more daily flights, then the requests ought to be mutually exclusive, and DOT must undertake a comparative proceeding to choose the best applications before it can grant any slots. If DOT instead grants some applications without deciding others, or without comparing the

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relative benefits and burdens of the different proposed flights, then it will have acted in a manner inconsistent with the Supreme Court's mandate in Ashbacker.

For all the reasons stated above, the Borough President's Office requests that Sun Country's application for slot exemptions be denied in its entirety. The applicant has not presented a compelling case under the controlling laws in support of its application, particularly when one considers the negative impact that any new flights at LaGuardia or JFK would have. While a strategy to add flights at JFK might fit within Sun Country's business plans, that strategy is not necessarily consistent with the slot exemption requirements imposed by Congress.

If DOT is not inclined to deny the application outright on the grounds that Sun Country has simply failed to meet the applicable statutory requirements, then the Borough President's Office requests in the alternative that DOT do the following: postpone a decision until Congress acts on the FAA reauthorization bill and, in any case, commission a substantive and comprehensive environmental impact study with respect to LaGuardia and JFK.

Again, the Borough President's Office concedes that the aviation industry is a vital component of the economic well-being of New York City and Queens, but also believes that the quality of life of the borough's citizens is at least equally important.

Respectfully submitted,

CLAIRE SHULMAN

President

Borough of Queens

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