Order
2001-6-20 / OST-00-7181 / OST-01-9185 / Order Granting Outside-The-Perimeter
Slot Exemptions at Reagan National / June 22, 2001
Alaska Airlines, Inc.
Alaska
requests two slot exemptions in order to operate one daily round trip between
Seattle and DCA with 120-seat B- 737-700 aircraft. (Alaska also filed a number
of amendments that are discussed in footnote 5 of the order.) Alaska asserts
that it would also provide Anchorage with the first one-stop DCA single plane
beyond service, and that it operates a substantial network of connecting
services at Seattle and Anchorage in conjunction with its code-share partner
Horizon Air, including over 320 daily departures to 68 nonstop destinations.
Alaska
states that its nonstop Seattle-DCA service would provide new or improved
single connection DCA service to 54 communities. Alaska argues that 26 U.S.
communities and one Canadian community would receive their first online single
connecting access to DCA, six communities (five U. S. and one Canadian) would
gain the first competitive online single connecting service to DCA, nine
communities (six U.S. and three Canadian) would gain improved DCA online single
connecting service, and through two Alaska code-share partners 12 small
communities (11 U.S. and one Canadian) would also receive the first ever online
single connecting service. Alaska argues that the Department found previously
that proposals from new entrant carriers should be given significant decisional
weight and that Alaska is a new entrant carrier with no service at DCA. Alaska
argues that its proposed service would offer considerable new competition to United's
Seattle-Washington service where United enjoys an 80 percent market share.
Alaska contends that its proposed service will not reduce travel options for
communities served by small and medium hub airports within the perimeter or
result in any increased travel delays. Alaska argues that its proposal has
received wide support.
Alaska
contends that the other applications provide fewer benefits. According to
Alaska, the DCA-Salt Lake City O&D market is less than one-half of the
DCA-Seattle market, that the Washington-Los Angeles market with 18 flights per
day to Dulles and BWI from American and United already receives substantial
service and thus Los Angeles is less deserving than Seattle, that its strong
presence at Seattle and Anchorage would provide substantially greater network
benefits than the current services granted to TWA and now operated by TWA
Airlines LLC, that virtually every California community enjoys online single
connecting service to DCA as a result of the awards made by Order 2000-7-1 to hubs other than Los
Angeles, and that in combination with existing within perimeter hub connecting
opportunities, California communities enjoy significantly greater access to DCA
than do Pacific Northwest and Alaskan communities.
America West Airlines, Inc.
On
April 4,
2001, America
West requested the two available DCA slot exemptions to enable it to operate
one additional round trip between Phoenix, AZ, and DCA using B-757 aircraft
(190 seats). In the alternative, if the Department determines that preserving
the
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current
DCA-Los Angeles is a primary public interest consideration, America West
requests that it be considered as an applicant for such service.
America
West contends that grant of its application would allow America West to operate
the three daily round trips in nonstop DCA-Phoenix service that it originally
requested last Spring. America West argues that this would provide a frequency
of service necessary to be an effective competitor at DCA and would maximize
the benefits of America West's service recognized by the Department in its
initial decision last July. America West argues that it is the only airline
with both a large network and low fares to compete with large incumbent
carriers in multiple Washington markets. America West argues that its DCA-Phoenix
and Las Vegas services awarded earlier have been successful with 65 percent load factors and
competitive fares to behind-West Coast points. America West argues its
continuing expansion in fleet size and markets served, particularly at Phoenix,
indicates that it will be a vital competitor for the foreseeable future.
America West asserts that a third DCA-Phoenix flight would make America West
eligible to bid for Government contract fares for this route, thus improving
competition and lowering travel expenses for the taxpayers. Finally, America
West argues that its proposed service would benefit small communities and not
reduce travel options for small hub airports and medium hub airports inside the
perimeter.
America
West contends that as a result of the TWA acquisition, American will gain two
gates and 32 slots at DCA and after absorbing TWA's current 11 percent market
share in the DCA-beyond perimeter markets, American will have a 43 percent
market share of DCA-beyond perimeter markets. America West also argues that
Southwest's presence at Baltimore/Washington International Airport has not
disciplined DCA-beyond perimeter fares and cannot be expected to do so in the
future. America West contends that its average fares are 29 percent lower than
the industry average of all other carries in its East Coast-West Coast markets
and that its walk up business fares are 40 to 50 percent lower than the fares offered by the major
incumbent carriers requesting the two available slot exemptions.
Regarding
Los Angeles, America West argues that the Department should reject the
applications of United and American for Los Angeles service since the two
carriers control more than 80 percent of the Los Angeles-Washington market and
both have large DCA presences. America West contends that it would duplicate
the DCA service to the five connecting cities served by TWA by having a
code-share arrangement with American Eagle. America West asserts that
Continental already offers single online connecting service to DCA via hubs at
Newark, Cleveland, and Houston and that Continental now has a considerably
larger presence at DCA than does America West.
American Airlines, Inc.
On
February 12, 2001, American Airlines applied for the two beyond-perimeter slot
exemptions to provide one daily round trip between DCA and Los Angeles
International Airport (LAX). American would use B-757 aircraft (176 seats). American maintains that LAX is the best candidate
for the available two slot exemptions. The applicant argues that
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the reasons
for-selecting Los Angeles in the first proceeding remain in effect: Los Angeles
is the largest U.S. city outside the DCA perimeter and the Washington-Los Angeles
market is much larger than any other proposed beyond-perimeter market.
American contends
that its request should be granted because it has a significant presence at Los
Angeles with 237 daily departures and connecting service, either on its own or through
its code-sharing agreements, to 34 U.S. points and 17 foreign points, that four
California cities--Bakersfield, Monterey, San Luis Obispo and Santa
Barbara--would continue to receive the first one-stop service to DCA gained
from the award to TWA, that numerous other cities would also receive
competitive one-stop service from American and American Eagle, that DCA would
also gain new single connecting online service to several international points
on the Pacific Rim, and that American would operate using the B-757, the
largest aircraft authorized to serve DCA.
American also argues
that the grant of its proposed service would improve competition at LAX, where
United Air Lines is the largest carrier, and that its application best matches
all four of the AIR-21 selection criteria
Continental
Airlines, Inc.
On January 30, 2001,
Continental applied for the two available DCA slot exemptions to provide one
round trip a day to Los Angeles with B-757 aircraft (183 seats).
Continental argues
that the Department previously rejected applications of carriers that were
already major operators at DCA. Continental contends that its selection would
duplicate the same benefits ascribed to TWA's award, i.e., Continental has a
relatively small DCA presence (43 slots) and would provide single connecting
online service to the five communities served by TWA/Chautauqua plus additional
cities not served by TWA. The applicant argues that granting its application would
provide enhanced competition to the large incumbent carriers at both DCA and
LAX. Continental argues that it would
be a stronger competitor and offer better service benefits in the DCA-Los
Angeles than TWA.
Delta Air Lines,
Inc.
On January 29, 2001,
Delta filed an application requesting the two DCA slot exemptions awarded to
TWA. Delta would provide one daily nonstop round trip to Salt Lake City (SLC)
using B-757 aircraft (183 seats).
Delta argues that
the grant of its proposal would best satisfy the AIR-21 objectives of
maximizing domestic network benefits and improving competition in multiple
markets while operating the largest aircraft authorized for DCA service. Specifically,
the applicant contends that its proposal would provide 33 communities outside
the perimeter with nonstop to nonstop online connecting service to DCA. Delta
states that these would include 18 small and medium-sized communities with 11
communities receiving first ever nonstop to nonstop online single connecting
service to DCA and seven communities receiving first competitive nonstop to
nonstop online single connecting service to DCA.
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Delta argues that
its SLC hub is well located for low circuity DCA connecting service for
numerous communities. Delta asserts that its proposed service would provide
over 8,000 possible daily connecting seats and almost three million annual
single connection seats to DCA. Delta contends that with its partner, Skywest,
it offers connecting service to 65 cities from Salt Lake City and that it
transported almost 15 million passengers to or from SLC last year.
Delta contends that
it would provide the best and strongest competition for the two dominant
Washington area carriers, United and American, that it operates at a
competitive disadvantage to American and United since its principal western
hub, Salt Lake City is outside the DCA perimeter while its competitors operate
significant service between DCA and their within-perimeter hubs to connact
Washington-western cities traffic, and that its selection would be the best
choice to improve market structure in Washington-western cities markets. In
addition, the applicant argues that SLC is a major and rapidly growing business
center of the western United States with significant ties to the Washington,
D.C. area, that there would be no reduction in travel options for communities served
by small hub airports and medium hub airports within the perimeter, as the
carrier has no plans to reduce existing service, and that its proposed service
would not cause additional travel delays. The applicant asserts that Salt Lake
City is among the least congested of the western U.S. hub airports. Delta also
asserts that its proposal has received strong congressional and civic support.
Frontier
Airlines, Inc.
On February 14,
2001, Frontier filed an application for the two available DCA slot exemptions.
/1 Frontier seeks to operate one additional nonstop round trip a day between
Denver and DCA with B- 737-300 aircraft. In support of its application,
Frontier states that its DCA-Denver service authorized by Department Order
2000-7-1 has been successful with an average load factor of 65 percent, but
that with only a single daily round trip, Frontier operates at a significant
disadvantage compared with other carriers operating more flights in the Washington-Denver
market. Frontier contends that operation of this single daily flight is costly and
that passengers have few options if a flight is delayed or cancelled due to
weather, congestion, or airport problems. Frontier argues that it could offer
better service in the market and compete more effectively with a second daily
round trip. Frontier states that there would be no reduction in travel options
for communities served by small hub airports and medium hub airports within the
perimeter, as the carrier does not serve within perimeter cities from DCA. Frontier
asserts that its proposed service would not cause additional travel delays.
Frontier also argues that its original proposed service received strong
congressional and civic support. Finally, Frontier states that its application
most closely meets all of the AIR-21 statutory criteria.
1 Frontier subsequently
filed a series of five amendments to its application. Amendment 1, filed April
30, is a set of letters of support. The remaining amendments, filed between May
7 and June 1, deal with Frontier's code-share agreement with Great Lakes
Aviation, operating limitations of Alaska's B-737 aircraft, assertions
regarding low fare policies of competing applicants, Frontier's recent
operating results, and arguments regarding competition.
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Frontier argues that
due to increasing airline industry concentration it should be awarded the two
available slot exemptions as a way to improve airline competition generally.
Frontier asserts that specifically at DCA carriers such as American, Delta, and
Continental already hold substantial numbers of slots, and therefore should not
be granted additional slots to exacerbate the current competitive imbalance.
Frontier argues that contrary to suggestions made by Continental, the two
available slot exemptions should not be reserved for Los Angeles service, that
Continental already has significant DCA slot holdings and that Continental can
compete for DCA-Los Angeles traffic through its hubs at Houston, Cleveland, and
Newark.
National
Airlines, Inc.
On April 16, 2001,
National applied for two slot exemptions in order to operate one additional
daily round trip between Las Vegas and DCA. National currently serves this
market with 175-seat B-757 aircraft. National states that the AIR-21 statutory
criteria would be best met by the selection of National's proposal. National
argues that by Order 2000-7-1, the Department gave significant weight to
improving competition and providing additional service alternatives by awarding
DCA slot exemptions to carriers with only a limited DCA presence. The applicant
argues that same reasoning behind the Department's award of slot exemptions to
National for DCA-Las Vegas service remains valid for an additional service
award to National. National states that it is a low-fare carrier with a very
small DCA presence. As with its earlier award, National would continue to serve
Los Angeles and San Francisco with online connecting service. National contends
that its DCA-Las Vegas service has succeeded as exemplified by a March 2001
load factor of 76.5 percent, but that the DCA-Las Vegas market continues to be
underserved. The applicant maintains that during the year ended September 2000,
Las Vegas's McCarran International Airport was the fourth largest airport based
on domestic O&D passengers and that Las Vegas traffic has been growing.
National asserts that according to the 2000 Census Las Vegas was the fastest
growing area in the nation for the past decade. National contends that its
single DCA-Las Vegas flight is costly since the aircraft must be parked
overnight at DCA and that National cannot mount effective competitive service
without additional flights.
National also
contends that its proposed additional Las Vegas-DCA service would not reduce
travel options for communities within the DCA perimeter and would not result in
meaningfully increased travel delays.
United Air Lines,
Inc.
On February 26,
2001, United applied for the two available DCA slot exemptions to allow it to
operate one nonstop round trip a day between Los Angeles and DCA using 182-seat
B- 757 Stage 3 aircraft. United argues that all of the applicants satisfy the
AIR-21 criteria regarding no reduction in travel options for communities served
by small and medium hub airports within the perimeter and that the proposed
service would not result in meaningfully increased travel delays. United argues
that grant of its request would not only allow the benefits of TWA's DCA-Los
Angeles service to be preserved, but also to be significantly expanded. The
applicant contends it can offer online connections at LAX
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to 33 California and
western U.S. cities. United asserts that its proposed service will provide nine
communities with first service to DCA and 21 California communities with
single-connecting service to or from DCA via LAX. United argues that although it
is not a new entrant, its proposed service would best address the AIR-21 goals
of maximizing domestic network benefits and beyond perimeter competition in
multiple markets. In particular, United argues that along with its commuter
partners, it offers between 350 and 400
daily departures at LAX to 51 U.S. and 10 international cities. United contends
that this hub network is superior to that of any other LAX applicant, and thus
United would provide connecting service to more passengers in small and medium-sized
communities than any other carrier. United contends that maintaining the
DCA-LAX service should be given priority since Los Angeles has the largest
population, greatest commercial center and largest connecting hub of any
beyond-perimeter community.
Vanguard
Airlines, Inc.
On April 11, 2001,
Vanguard requested the two available slot exemptions to provide one daily round
trip flight between DCA and Kansas City with beyond service to Los Angeles.
Vanguard did not specify the aircraft type for its proposed service.
Vanguard
acknowledges that Kansas City is within the perimeter, but asserts that a
literal reading of AIR-21 statute allows for consideration of its application
because its Kansas City hub would provide network benefits to passengers and
communities beyond the perimeter. Vanguard states that it has made this
application because it has been unable to secure DCA slots by any other means
and the current proceeding is the only opportunity available for the carrier to
gain entry at DCA. Vanguard argues that its selection would best meet the
AIR-21 selection criteria since it is a new entrant airline that provides
connecting service beyond the DCA perimeter. Vanguard argues that its proposed
service would bring low fares to the beyond perimeter markets that Vanguard
serves from Kansas City. Vanguard argues that approximately one half of its La
Guardia traffic connects through its Kansas City hub and that the La Guardia
market is similar to DCA. Vanguard argues that its New York-Los Angeles walkup
fare is 64 percent lower than the comparable fare offered by American and other
major carriers and that Vanguard can offer similar savings for DCA passengers.
Vanguard contends that its proposed service would have a minimal impact on
congestion since Kansas City is a non-congested airport.
Pleadings in
Support of Various Applications
Denver
On April 30, 2001,
the City and County of Denver filed an answer in support of Frontier's
application. Denver argues that it is the largest beyond-perimeter true
east-west hub and the principal airport in the Rocky Mountain and Great Plains
regions. Denver asserts that in 2000 it was the sixth largest U.S. airport with
38 million passengers and an extensive hub network of connecting cities. Denver
asserts that next to the Washington, D.C. area it has the largest number of
civilian federal government employees and this strong
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community
of=interest indicates a need for increased lower-fare service to DCA with its
closer-to-downtown location. Denver contends that of all the applicant cities,
it is the closest to DCA and, therefore, selecting Denver service would be the
outcome most consistent with the intent of the Perimeter Rule to give priority
to closer cities in granting additional DCA access. Denver asserts that
Frontier has substantially improved competition at Denver, but the selection of
Frontier's proposal is critical to the full development of Frontier's
DCA-Denver service and Frontier's continued growth generally as a new entrant
carrier. Denver argues that Frontier's proposal will provide important
additional service to many small communities in the region, particularly given
Frontier's proposed new code-share agreement with Great Lakes Aviation. Denver
argues that with only two slot exemptions Frontier continues to be a new
entrant/limited incumbent at DCA, an important consideration in the
Department's initial decision last year and that selection of Frontier would
also increase competition by new entrant carriers, one of the AIR-21 selection
criteria. Denver contends that an award to
Frontier would also increase the attractiveness of its DCA-Denver service for
business travelers and permit Frontier to spread some of the high costs of its
single daily DCA-Denver service. Denver argues that Alaska Airlines, unlike
Frontier, has no eastern U.S. presence, and that Alaska has demonstrated little
interest in developing eastern markets.
On April 30, 2001,
the Port of Seattle filed an answer in support of Alaska's application. Seattle
contends that it is the largest Pacific Northwest market as well as a gateway
to other Northwest cities and that the region is growing economically and in
population. Seattle argues that Alaska is the only new entrant carrier in this
proceeding in contrast to other larger applicants that have DCA service to
their hubs. Seattle argues that selection of Alaska would bring competition to
the monopoly Washington-Seattle market. Seattle contends that it is the only
proposed airport that does not receive nonstop competitive service to the
Washington area and therefore Alaska's selection would have a greater
competitive impact than any other applicant. Seattle argues that Alaska's
proposed service is likely to be successful given Alaska's strong Seattle
presence, Alaska's competitive track record, and the demonstrated high load
factors of current WashingtonSeattle service. Seattle asserts that Alaska's
selection would result in significant network benefits, and that Alaska's
selection would provide a wider geographic distribution of the benefits,
therefore increasing competition in multiple markets.
On April 30, 2001,
the Utah Air Travel Commission and the Salt Lake City Department of Airports
(Utah and the Salt Lake City Parties) filed an answer in support of Delta's
application. The Utah and the Salt Lake City Parties contend that Delta's
selection would maximize new and additional benefits for passengers and would
best comply with the criteria of AIR-21. They argue that Delta's selection
would bring new and expanded DCA connecting benefits to 33 beyond-perimeter
cities, as well as increased competition in both the Washington-Salt Lake City
market and in the beyond-Salt Lake City markets. The Utah and the Salt Lake
City Parties argue that these domestic network benefits include 18 small and
medium sized cities in seven states with 11 of these communities
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receiving
first nonstop to nonstop connecting service to DCA and seven communities
receiving first competitive nonstop to nonstop connecting service to DCA. They
assert that an award to Delta would provide 133,500 nonstop seats a year for new DCA services
to Salt Lake City and these beyond communities and would significantly improve
traveling convenience for thousands of passengers. The Utah and Salt Lake City
Parties contend that Delta's selection would result in significantly less
connecting circuity for DCA service to more points than would the selection of
another applicant. They argue that Delta's strong Salt Lake City presence
serving 65 cities with over 254 daily departures and the
excellent geographic position of Salt Lake City for low-circuitous routings to
DCA make Delta's proposal the superior choice. In
contrast, the Utah and Salt Lake City Parties argue that the West Coast
proposals for Los Angeles and Seattle offer fewer domestic connecting
opportunities. They argue that the remaining proposals offer substantially
fewer connecting cities than does Delta's proposal. The Utah and the Salt Lake City
Parties assert that Delta's proposal has received strong congressional and civic
support.
Northwest Airlines, Inc.
On
April 30, 2001, Northwest Airlines, Inc. filed a consolidated answer in support
of Alaska's application.2 Northwest contends that while the
Department did not select a similar Seattle proposal made by Northwest last
year, Alaska's proposed service provides two distinct advantages--Alaska's new
entrant status at DCA and the significant domestic network advantages of its
Anchorage- Seattle-DCA service. Northwest argues that Seattle is the second largest
beyond-perimeter city, after Los Angeles, which does not receive nonstop DCA
service and that Los Angeles-Washington already receives ample nonstop service.
Northwest asserts that the enplanements of Alaska and Horizon Air at Seattle
and Anchorage exceed those of six of the other applicants at their proposed hub
cities, that Alaska's combined Seattle and
Anchorage proposed service would result in more first ever and first
competitively significant single carrier benefits than any other proposal, that
Alaska, unlike Northwest, has no alternative inside-perimeter hubs where
Seattle-connecting passengers could also receive online single connecting
service, and that Alaska's strong Seattle presence and market identity would
ensure that Alaska would not duplicate TWA's difficult experience in the
DCA-Los Angeles market.
On
April 30, 2001, America West filed consolidated comments. America West argues
that the Department should consider the growing market power of the large carrier
networks and the need to foster alternative competing networks by carriers such
as America West. Due to its significant network and low fares, America West
claims to be the only applicant that can offer significant competition in the
Washington/DCA-western communities markets. America West asserts that the
recent loss of TWA makes this competition more urgent.
2 Northwest has code-share and reciprocal frequent flyer agreements with
Alaska in several West Coast markets.
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America West contends
that a third DCA-Phoenix round trip would add almost 139,000 seats a year to
the market and at this service level, passengers would save approximately $11.6
million. America West acknowledges that an additional award now would cause it
to hold eight of the 12 slot exemptions authorized by AIR-21. Nonetheless,
America West asserts that AIR-21 does not preclude this result nor does it
require that the potential competitive impact of new DCA slot exemptions should
be diluted through awards to multiple carriers.
America West argues
that its fares between the North and the West are 3 5 percent lower than the
industry average and $136 lower than the average fares for United, Continental,
American and Delta.
America West argues
that the Department faces an almost identical set of choices in the current
proceeding as previously and the Department should apply the same selection
standards in this case. According to America West this would preclude an award
to United, American, Delta, or Continental since all operate significant
numbers of DCA slots, and all already have substantial one-stop connecting
service to DCA or significant nonstop Los Angeles service to Dulles or BWI.
America West contends that it already serves 14 of the 33 single connecting
online markets claimed by Delta. America West states that its selection would
benefit 16 times more network passengers than would Delta's proposal. America West argues that the established DCA
incumbents could operate DCA flights with larger aircraft thus increasing
available seats without requiring additional slots. America West asserts that
last year the Department mistakenly awarded two slot exemptions each to
financially troubled carriers TWA and National with the result that TWA was
absorbed by American and National has filed for Chapter 11 bankruptcy
protection. America West asserts that the Frontier and National proposals did
not justify more than two slot exemptions previously and these carriers have
not demonstrated changed circumstances supporting additional awards now. America
West argues that both these carriers offer only limited network benefits as
compared to America West. America West argues that its fares to Northeast
markets are on average 20 percent lower than those of Frontier and that
Frontier's smaller aircraft size would offer many fewer seats than America
West's B-757. America West recognizes that Alaska is a new entrant at DCA, but
argues that Alaska proposes to use a smaller aircraft on a long-haul route and
that most of its points south of Seattle are already served more directly by
America West. America West contends that the remainder of Alaska's claimed
connecting points generate very little traffic. America West argues that
Alaska's proposed service is questionable in light of the DCA available slot
times. America West contends that Vanguard's proposed Kansas City service makes
it ineligible under AIR-21.
America West asserts
that the Washington-Los Angeles market is among the best-served in the nation
and that an additional DCA-Phoenix flight from America West would provide much
greater public benefits than DCA-Los Angeles service. Nonetheless, if the
Department determines that the DCA-Los Angeles market should receive service,
the selection of America West would be the best and most pro-competitive
choice.
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On April 30, 2001,
American filed an answer opposing the competing applications. American argues
that due to the size and importance of the community of Los Angeles and the
Washington-Los Angeles market, DCA-Los Angeles service should be retained.
American argues that this is reflected in the four applications made for Los
Angeles service while no other city received more one application. American
asserts that of the four applicants for LAX service, it should be ranked first
since it is the applicant best able to challenge the position of United, the
dominant carrier in the Washington-Los Angeles market. American asserts that it
and its partner American Eagle operate 211 daily
departures at LAX to 3 5 U.S. points and 18 foreign points. American argues
that its proposal would give five U.S. cities first single-connecting access to
DCA. American notes that it has instituted a $260
million expansion and improvement program at LAX's Terminal 4 scheduled
to be completed in August 2001. American
asserts that its proposed service would benefit more passengers than any
non-LAX proposal. American argues that its proposal has received widespread
public support. American contends that America West has already been granted
more DCA slot exemptions than any other carrier and that America West's primary
interest is in Phoenix, rather than Los Angeles. The applicant contends that
Continental does not have the necessary presence at either LAX or DCA to
effectively compete against United, that Continental's frequent flyer program at
DCA and LAX is much weaker than comparable programs offered by American and
United, and that Continental has never provided nonstop service in the
Washington-Los Angeles market. American also argues that with only a single
daily round trip flight, DCA-LAX passengers require alternative connecting
opportunities in case of flight delays or cancellations. American asserts that
Continental does not offer the number of intermediate online connecting flights
or hubs as does American. American argues that its more spacious seating
configuration would provide passengers more comfort than would Continental's
service or United's coach service. American contends that while Continental
would also code-share with American Eagle, American Eagle's connecting flights
are designed to more closely match American's service. Also, American argues
that United should not be selected because it already enjoys the dominant
position and its selection would not further competition. American asserts that
Vanguard's application should be dismissed since it is outside the scope of
this proceeding. American also cites a 1999 GAO report that concluded that
authorization of additional slots at DCA would not create significant delays. Finally,
American argues that the Department should allow a 60-day transition period for
the winning carrier to inaugurate service and TWA Airlines LLC to cease
service.
Alaska filed a
consolidated answer on April 30, 2001, arguing that the Department should select
its proposal based on the superiority of its domestic network benefits and its
DCA new entrant status. Alaska asserts that industry consolidation as well as
increased DCA consolidation requires that the Department give increased
decisional weight to new entrant status in making its award. Alaska argues that
it has a proven competitive track record
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against
larger-rivals and has successfully inaugurated service in longer haul routes.
While acknowledging that its B-737-700 is smaller than the aircraft proposed by
other applicants, Alaska contends that the B-737-700 is among the most quiet of
available jet aircraft and that the width of the B-737-700 is identical to
competing B-757 proposals. Alaska contends that the B-737-700 has been operated
successfully in longer-haul routes comparable to DCA-Seattle, and that its
proposal has received wide public support.
Alaska
asserts that it and Vanguard are the only true new entrants at DCA and that the
award of additional slot exemptions to previous winners--America West,
Frontier, and National--would provide no new competitive benefits. Alaska
argues that the other applicants-American, Continental, Delta and
United-already enjoy strong DCA presences. Alaska contends that American and
United dominate Los Angeles and both serve the Los Angeles-Washington market
through Dulles and through DCA via inside-perimeter connecting hubs. Alaska
argues that Continental also can serve DCA via inside-perimeter connecting hubs
and that Continental's modest LAX presence makes it vulnerable to strong
competitive pressures. In particular, Alaska contends that in 2000 TWA had only
a 46.5 percent load factor in the DCA-Los Angeles market and that Continental's
modest LAX presence is similar to TWA's position. Alaska asserts that Delta's
Salt Lake City-Dulles service and inside perimeter connecting opportunities to
DCA diminish Delta's network benefits. Alaska contends that only it and
National have requested slot times that closely match the times available
consistent with the AIR-21 restrictions.
Alaska
argues that its proposal is significantly better than the DCA-Seattle service
proposed by Northwest last year since Alaska has a stronger presence at Seattle
and Anchorage and Alaska does not claim benefits for communities such as those in
the Southwestern United States that would require circuitous routings. Alaska
argues that it would offer more first ever and first competitive one-stop
single carrier benefits to more communities than any other applicant.
Responding
to specific assertions by competing applicants, Alaska argues that America West
does not require a third DCA-Phoenix nonstop flight to qualify for
participation in GSA's government contract fare program. Alaska asserts that
American's large size and modest network benefits in terms of number of
communities preclude it from serious consideration for an award of DCA slot
exemptions. Alaska contends that contrary to suggestions by American, Los
Angeles has no special claim to the DCA slot exemptions awarded to TWA. Rather,
Alaska argues that the awards were made to airlines rather than to communities.
Alaska contends that even if comparison of communities were relevant, Seattle
should be preferred since Los Angeles now receives ample nonstop competitive
service to Dulles and BWI whereas only United serves Seattle-Dulles nonstop and
USAirways serves Seattle-BWI nonstop only on a seasonal basis.
Alaska
asserts that Continental operates even more DCA slots than carriers such as
Northwest and United that were described as major operators at DCA in the
Department's initial DCA slot decision. Alaska argues that the network benefits
of Continental's proposed service are small compared with Alaska's proposal.
Regarding Delta's proposal,
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Alaska contends that
not only does its proposal provide network benefits to more communities, but
also the 32,020 DCA O&D passengers
at the Alaska-connecting communities are substantially more numerous than the
comparable 7,910 DCA O&D passengers at the Delta DCA connecting communities.
Alaska asserts that the DCA-Salt Lake City O&D market is one-half the size
of the DCA-Seattle market. Alaska states that its combined hub strength at
Anchorage and Seattle with 6.6 million
enplanements exceeds the 6.3 million
enplanements by Delta at Salt Lake City.
Alaska argues that
Frontier is no longer a new entrant at DCA and therefore no new communities
would receive single connecting online service. Alaska argues that Frontier's
hub strength at Denver with an eight percent market share is substantially less
than Alaska's 42 percent market at Seattle and 61 percent market share at Anchorage. Regarding National's service
proposal, Alaska asserts that Las Vegas does not deserve a third daily round
trip to DCA when larger markets such as Seattle lack nonstop DCA service.
Alaska argues that United's proposed service should be rejected for the same
reasons that United's proposal was not accepted previously--United's dominance
in the Washington-Los Angeles market and United's strong DCA presence. Alaska
argues that in any event its network benefits exceed the nine DCA first ever
online single connecting services offered by United's proposal. Alaska contends
that Vanguard's proposal does not comply with AIR-21 criteria since Kansas City
lies within the perimeter and that the Department previously rejected a similar
proposal by Vanguard last year.
On April 30, 2001,
Continental filed comments. Continental asserts that only its selection would
provide the benefits that led the Department to select Los Angeles and TWA last
year. Continental contends that even Delta, a competing applicant, recognized
the public benefits of Los Angeles service. Continental argues that American,
United, and Delta need more competition, not more slots, and that the Department
should reject their applications for the same reasons as was done previously,
i. e., selection would not improve competition or the proposed domestic
benefits are not sufficient. Continental asserts that America West, Frontier,
and National already serve their hubs from DCA. Continental contends that
Alaska should not be selected because it cannot offer effective competition at
DCA and that its proposed domestic network benefits are inadequate. Continental
asserts that Vanguard's proposed service is non-responsive and should be
rejected out of hand. Continental argues for its selection as a smaller network
carrier capable of competing with larger rivals holding large numbers of DCA
slots. Continental asserts that its selection will also improve competition in
the concentrated Washington-Los Angeles market. Continental contends that due
to their large size the city of Los Angeles and particularly the Washington-Los
Angeles market require selection for nonstop DCA service. Continental argues
that America West is not a serious candidate for a Los Angeles selection since it
would prefer to operate additional DCA-Phoenix service rather than DCA-Los
Angeles service.
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On April 30, 2001,
Delta filed a consolidated answer to the competing applications. Delta argues
that the two TWA slot exemptions must be reallocated to a new beyond-perimeter
hub in order to maximize domestic network benefits and to increase competition
in multiple markets as prescribed by AIR-21. Delta contends that 96 percent of
the DCA-Los Angeles traffic carried by TWA were local passengers and therefore
the service award did not meet the goals of AIR-21. Delta contends that the
current proceeding is not a local service case or a replacement carrier selection
case for Los Angeles service. Delta argues that the current Los Angeles
applicants would rely on similar connecting services as were offered by TWA and
therefore would have similar results. Instead, Delta contends that the decision
should focus on which proposal would provide the greatest benefits to the greatest
number of beyond-perimeter communities. In this regard, Delta argues that its
proposed service is superior to other applications in that it would provide
more communities (34 cities) and more states (11) outside the perimeter with
effective nonstop to nonstop connections to DCA and more new network service
and competitive benefits for 28 small and medium-sized communities.
Delta argues that
western communities across the northern tier received no new DCA slot access as
a result of the Department's selection last year and that this service void can
best be addressed with Delta's selection. Delta argues that its selection would
benefit a greater portion of the western U.S. traffic base than any other
applicant. Delta contends that Los Angeles's extreme location in the far
southwestern corner of the United Stares limits its effectiveness as a domestic
connecting hub, especially when compared to the number of communities served by
Delta at Salt Lake City. In particular Delta asserts that at Salt Lake City it
would serve four times the number of communities as would American, five times
the number of communities as would Continental and one third more communities
than would United at Los Angeles.
Delta asserts that
it carries 4.3 million domestic connecting passengers at Salt Lake City-more
than the applicants at Los Angeles combined. Delta also contends that it has a
higher percentage of connecting passengers to total traffic than any of the Los
Angeles applicants. Delta argues that while American's proposal would add a few
more connecting points to the set of points served by TWA, nonetheless most of
these communities can receive DCA single online connecting service via other
intermediate hubs such as Dallas/Ft. Worth or Chicago. Delta argues that the
five connecting points listed in America West's Los Angeles proposal are
already served through America West's DCA-Phoenix or DCA-Las Vegas services.
Delta argues that the last year's selection of TWA for DCA-Los Angeles service
was based on a foundering carrier rationale that is no longer valid since none
of the Los Angeles applicants are in financial or operational distress.
Instead, Delta
argues that American and United dominate both the Los Angeles-Washington
market with a market share in excess of 80 percent and the Western U.S.-Washington
market with a combined 67 percent market share. In contrast Delta contends that
it has a Western U.S. -Washington market share of 10 percent. Delta also argues
Continental operates three times the number of DCA slots as did TWA at the time
of its
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selection. Delta
argues that an award to a Los Angeles applicant would create a nonstop monopoly
route that could greatly disadvantage other carriers operating connecting
service between Los Angeles and DCA. In contrast, Delta argues that it would
carry a much higher proportion of connecting traffic at Salt Lake City, traffic
for which Delta would have to compete with other carriers operating at
alternative hubs both outside and within the perimeter. Delta contends that
this result would be consistent with the goals of AIR-21.
Delta contends that
Alaska's proposed Seattle service has the same drawback that the Department
noted in a similar Seattle proposal made by Northwest in the previous case, i.
e., Seattle is not well located as a geographic hub for connecting services to
eastern points. Delta argues that in terms of geographic catchment area,
nonstop cities served, or network passengers carried, its Salt Lake City hub
surpasses Alaska's Seattle hub. Delta argues that it would serve 34 connecting cities as compared to 19
cities served by Alaska, and with far less circuity. Delta asserts that the
average circuity of its 34 communities is one half the median circuity of
Alaska's 19 communities. Delta argues that its proposal would serve 64 percent more underserved small and medium
sized communities along the northern tier than would Alaska's proposal. Delta
argues that Alaska's claimed single connections at Anchorage are exaggerated
since passengers must effectively fly two stop service to DCA. Delta asserts
that only three of Alaska's Anchorage connecting cities can make same day
connections in both directions to DCA. In terms of aircraft Delta argues that
its B-757 aircraft would offer 50 percent more seats than Alaska's B-737 aircraft. Delta contends that in 86 percent of connecting markets commonly
served by Alaska and Delta, Delta had the lower average fare.
Delta argues that it
carried over 4.3 million western U.S.
connecting passengers at Salt Lake City as compared to 1.4 million passengers
at Seattle for Alaska. Delta contends that Alaska carries largely local O&D
traffic in its markets with only 18 percent
connecting traffic as compared to 48 percent
connecting passengers for Delta at Salt Lake City. Delta argues that Alaska
mistakenly places emphasis on serving the local DCA-Seattle market rather than
serving connecting passengers and communities as required by AIR-21. Delta
argues that if Alaska is interested in serving the local Seattle-Washington
market it should inaugurate Seattle-Dulles service rather than seek an unfair
advantage over a competitor already serving the Seattle-Dulles market.
Delta argues that the
Department should not give additional DCA slot exemptions to carriers and
communities that have already received past awards while Salt Lake City does
not yet receive nonstop DCA service. Delta contends that to maximize the
competitive and network service benefits contemplated by AIR-21, the Department
should select a new carrier/city combination. In particular, Delta argues that
the proposals of Frontier, America West, and National should not be selected
given the limited network benefits of each as compared to Delta's Salt Lake
City proposal.
-15-
On April 30, 2001,
Frontier filed comments. Frontier argues that the major east-west hubs are
dominated by a few large carriers and that passengers do not have low-fare
travel options. Frontier argues that with its Denver hub, it is one of the few
new entrant carriers to operate an east-west hub. Frontier argues that the
Department should take a broader perspective in its selection process toward
preserving new entrant air carriers and with them, true competition and service
choices. Frontier contends that all of the applicants except it and National
were in existence prior to the implementation of the 1985 Buy-Sell rule and
therefore these larger carriers had a prior opportunity to acquire slots. Frontier
contends that its selection would allow a new entrant, affordable-fare carrier
to expand its DCA services and increase service opportunities for a new entrant
carrier competing against a larger, dominant carrier at a beyond-perimeter hub.
Frontier argues that its proposal would benefit the only true beyond-perimeter
east-west hub, expand low-cost service to western markets, increase fare
competition in a region where industry concentration is growing, and provide
lower fare options for business passengers. Frontier asserts that with a new
code-share agreement with Great Lakes Aviation it serves 3 7 destinations from
Denver, including many small communities. Frontier argues that multiple
frequencies in a market are critical for business passengers and a second DCADenver
round trip would allow it to expand service to these and other communities and
build additional code-share relationships. Frontier argues that due to high
costs, even with the 65 percent load factor it currently experiences in the
DCA-Denver market, it may be difficult to maintain service in the market
without a second DCA round trip.
Frontier argues that
America West was given multiple frequencies in the original decision even
though it already served DCA. Frontier asserts that it should be given equal
treatment. Frontier argues that Department's selection of TWA in the first case
does not mandate another Los Angeles selection, particularly given that all of
the Los Angeles applicants are sufficiently larger than TWA prior to its acquisition.
Frontier argues that its DCA-Denver service with a 65.9 percent load factor and
significant connecting passengers passengers has been more successful than TWA's
DCA-Los Angeles service with a 52 percent load factor. Frontier contends that
hubs such as Los Angeles or Seattle provide only limited connecting
opportunities. Frontier asserts that American and United have dominant
positions at Los Angeles, at DCA, in Washington area airports, in the Los
Angeles-Washington market, in transcontinental markets, and in domestic markets
generally, and selection of either would not promote the pro-competitive goals
of AIR-21.
Given America West's
multiple DCA slot exemption awards and its resulting opportunities to flow
traffic in DCA-Western U.S. markets, as a matter of equity Frontier contends
that America West should not be given additional slot exemptions while Frontier
has only two DCA slot exemptions. Frontier asserts that America West has used a
variety of aircraft in serving its DCA-Phoenix and DCA-Las Vegas nonstop
markets resulting in 159 average seats per departure for DCA-Phoenix and 139 average
seats per departure for DCA-Las Vegas, rather than the 190-seat aircraft it
committed to use in its proposal last year. Frontier argues that America West
can provide additional online east-west connections through its code-share
relationship with Continental and that in contrast Frontier is the
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only independent new
entrant operating an east-west network. Frontier argues that selection of Delta
would not enhance competition since Delta's large size (16 percent domestic
market share), numerous east-west connecting hubs, and substantial (94) DCA
slot holdings would allow Delta to simply extend its dominance over smaller
rivals. Frontier claims that in the Atlanta-Denver-Salt Lake City markets
Delta's average fares are 23 percent higher than Frontier's average fares.
Frontier argues that Continental's claim that it has a relatively small DCA
presence is misleading given Continental's alliance with Northwest. Frontier
also asserts that this arrangement also provides Continental with substantial
additional interior hubs for transcontinental online connecting services.
Frontier argues that
Alaska's application should not be seriously considered since Alaska has not
shown interest in serving markets east of Seattle, as these markets can be
served by its partner Northwest. Further, Frontier contends that Alaska is not
an independent carrier because of its affiliation with Northwest, and Alaska does
not initiate low fares. Frontier argues that contrary to the goals of AIR-21,
selection of Alaska would increase market concentration at Seattle since Alaska
and its partner Horizon dominate the hub with a 44 percent passenger market
share as compared to Frontier's eight percent market share at Denver. Frontier asserts that Alaska is not a true
new entrant carrier and does not have a pro-competitive or low-fare history.
Frontier argues that National would use the two available slot exemptions to
simply provide additional capacity for local DCA-Las Vegas passengers rather
than to provide any new network benefits. Frontier contends that the DCA-Las
Vegas market already has adequate low-fare service from America West and
National.
On April 30, 2001, United
filed comments. United argues that nonstop DCA service to Los Angeles must be
maintained as Los Angeles is the largest beyond-perimeter U.S. city with the
most O&D passengers beyond the perimeter and that United's proposed service
would provide the best network benefits of any Los Angeles applicant. United
argues that with its selection of TWA last summer the Department recognized the
importance of Los Angeles and the need to establish DCA-Los Angeles service.
United argues that none of the non-LAX applications can convenience more
passengers or create greater network benefits than United's proposal. United
contends that of the competing Los Angeles applicants only it operates a Los
Angeles hub and therefore it is the only carrier that could offer the domestic
network benefits contemplated by AIR-21.
United argues that
TWA's experience in the DCA-Los Angeles market is instructive. United contends
that less than one percent of TWA's onboard passengers came from the beyond-LAX
points that TWA had proposed due to TWA's poor LAX network. As a result of
their limited LAX networks, Continental and America West are also not likely to
succeed. United asserts that its LAX network is superior to American's network
and that it would offer first one-stop non-circuitous routings to nine
additional communities as well as the four first one-stop connections offered
by American. United argues that it would also offer additional one-stop
connections to 20 other cities as compared to nine
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comparable cites for
American. United contends that its set of connecting cities generate 56 percent
more DCA passengers than do the American connecting cities.
United argues that the
Department should give no weight to arguments that the Los Angeles hub is too
concentrated or that the Los Angeles-Washington market is not competitive.
United asserts that with its 25 percent LAX enplanement share, its position is
significantly less dominant than the position of competing applicants at Salt
Lake City, Seattle, or Phoenix.
United argues that
Continental is a major carrier with a large DCA presence and a weak hub at Los
Angeles thus making it a poor candidate for DCA AIR-21 slot exemptions. United
contends that America West would offer connecting service to only seven cities
as compared to United's 33 cities.
United argues that
grant of America West's application would result in America West gaining two
thirds of the beyond-perimeter exemption authority which would be contrary to
AIR-21's objective of fostering alternative beyond-perimeter services. United
asserts that America West's characterization of itself as a post-deregulation
carrier is not relevant as a consideration for its selection in the instant proceeding.
United contends that Delta currently provides one-stop DCA-Salt Lake City
service and that there is already adequate service between Salt Lake City and
Dulles and BW1. United argues that Salt Lake City is the smallest city in this
proceeding and that Salt Lake City generates less than half as many DCA
passengers as does Los Angeles. United contends that it would also provide
greater network benefits than Delta's proposal in that United would provide
single-connecting service to the four communities served by TWA plus nine new
cities whereas Delta would provide new single connections to 11 communities.
United argues that the 22 other DCA connecting cities claimed by Delta would not
generate significant benefits since many of these cities already receive
substantial alternative single connecting service via other hubs. United
contends that one-third of historical DCA passengers from Delta's proposed
behind cities can now be served via Las Vegas, Los Angeles, and Phoenix.
United argues that
Frontier's proposed service would be operated to only the fourth largest city
in this proceeding with the smallest capacity aircraft of any applicant, thus
limiting the potential benefits of its proposal. United contends Frontier
operates only a small network at Denver and that all of Frontier's claimed nine
connecting cities are already served by Frontier's current DCA-Denver flights. United
argues that, despite Frontier's higher DCA-Denver load factor, TWA carried a
greater number of passengers per flight in its DCA-Los Angeles service. United
contends that contrary to Frontier's assertion, United has only 37 DCA slots,
fewer than the other major incumbent applicants.
United contends that
the Department has previously rejected America West's request for more slots
and that the DCA-Phoenix market should not now be granted a third daily round
trip at the expense of the much larger DCA-Los Angeles market. United argues
that its Phoenix-Washington fare offerings are identical to America West's fare
offerings in the same market. United also contends that as a result of the six DCA
slot exemptions
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granted to America
West last year, America West's DCA-Columbus, OH, load factors have declined
below break-even levels, thus jeopardizing America West's DCA-Columbus service
in contravention to AIR-21.
United argues that
National's proposed Las Vegas service would serve only two connecting points,
Los Angeles and San Francisco, both of which receive multiple one-stop options
to DCA. United asserts that Las Vegas already receives two daily DCA round
trips, and an additional round trip would give Las Vegas one-half of the
available DCA AIR-21 slot exemption authority, an inequitable result,
particularly given National's 48 percent load factor in the first three months
of its DCA-Las Vegas service.
Regarding Alaska's
proposed Seattle service, United argues that last year the Department rejected
a similar proposal by Northwest, in part due to the limitations of Seattle's
geographic location. United concedes that Alaska is a new entrant carrier at
DCA but questions Alaska's commitment to serving the Washington, D.C. area
given that Alaska's closest service point to DCA is Chicago.
On April 30, 2001,
Midwest Express Airlines, Inc, filed comments in opposition to Vanguard's
application. Midwest Express argues that the Department should not consider the
merits of Vanguard's application since Vanguard's proposed Kansas City service is
within the 1,250 mile perimeter described in Department's Notice of April 6,
2001, and therefore the request is beyond the scope of the instant proceeding
and is procedurally defective. Midwest Express also argues that the Department
does not have the statutory authority to grant Vanguard's application. Midwest
Express asserts that while Kansas City as an inside-perimeter city would be
eligible to receive DCA slot exemption service under 49 U.S. C. §41718(b), the
awards of DCA slot exemptions under §41718(x) and §41718(b) are mutually
exclusive. Midwest Express asserts that the statutory crossreferencing of 49
U.S. C. §49109 (DCA Perimeter Rule) in §41718(x) indicates the clear
Congressional intent to exclude inside-perimeter cities from consideration for
awards under §41718(x). In conclusion Midwest Express urges that the Department
dismiss Vanguard's application without consideration of its merits.