BEFORE THE
DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.
______
Application of:
:
AirTran Airways, Inc.:Docket OST-00-7155
Midway Express Airlines, Inc.:
American Trans Air, Inc.:
Great Plains Airlines:
Corporate Airlines, Inc.:
US Airways, Inc.:
:
for an exemption pursuant to :
49 U.S.C. § 41718:
______:
CONSOLIDATED ANSWER OF
AIRTRAN AIRWAYS, INC.
Communication with respect to this document should be sent to:
Kevin P. HealyEdward P. Faberman
Vice President of PlanningUngaretti & Harris
AirTran Airways, Inc.1500 K Street, NW, Suite 250
9955 AirTran Blvd.Washington, DC 20005-1714
Orlando, FL 32827Tel:202-639-7501
Tel:407-251-3750Fax:202-639-7505
Fax:407-251-5567
Richard P. Magurno
Senior Vice President & General Counsel
AirTran Airways
9955 AirTran Blvd.
Orlando, FL 32827
Tel:407-251-5581
Fax:407-251-5571
Date:January 6, 2003
BEFORE THE
DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.
______
Application of:
:
AirTran Airways, Inc.:Docket OST-00-7155
Midway Express Airlines, Inc.:
American Trans Air, Inc.:
Great Plains Airlines:
Corporate Airlines, Inc.:
US Airways, Inc.:
:
for an exemption pursuant to :
49 U.S.C. § 41718:
______:
CONSOLIDATED ANSWER OF
AIRTRAN AIRWAYS, INC.
On December 20, 2002, AirTran Airways, Inc. (“AirTran”) applied for an exemption pursuant to 49 U.S.C. § 41718 to allow it to operate for the first time at Ronald Reagan Washington National Airport (“DCA” or “National Airport”). AirTran seeks authority to operate three nonstop roundtrip flights between National Airport and Fort Lauderdale, Palm Beach, and Fort Myers, Florida.
Background
On March 15, 2000, Congress enacted AIR-21, which was signed by the President on April 5, 2000. Section § 41718(b) of 49 U.S.C., directs the Department of Transportation (“Department”) to grant 12 slot exemptions “to air carriers for providing air transportation to airports that were designated as medium hub or smaller airports” located within the National Airport perimeter (i.e., less than 1,250 statute miles from National Airport). In allocating the exemption slots, the Secretary was directed to distribute the slots in a manner that promotes air transportation-
- by new entrant air carriers and incumbent air carriers;
- to communities without existing nonstop air transportation to Ronald Reagan Washington National Airport;
- to small communities;
- that will provide competitive nonstop air transportation on a monopoly nonstop route to Ronald Reagan Washington National Airport; or
- that will produce the maximum competitive benefits, including low fares.
After an application proceeding, on July 5, 2000, the Department issued Order 2000-7-1, which granted a total of 12 slot exemptions at National Airport for service within the perimeter rule. After six slots were returned and recalled by the Department, the Department issued a Notice dated December 6, 2002 establishing a procedure to allocate these six slots. In addition to AirTran, the other carriers that applied for the six slots were ATA, Midwest Express, Great Plains Airlines, US Airways and Corporate Airlines.
It is Time to Support New Entry
By allocating six slot exemptions for service at National Airport, the Department has an opportunity to promote competition, new entry and low-fare service. At a time that consolidation is continuing and concentration is increasing, it is essential that the Department take all steps that will maximize competitive, low fare service. Awarding these slots to the largest DCA slot holder (US Airways) would not be consistent with promoting new entry or competition. It is also not in the public interest to award any of the slots to carriers proposing to operate small non jet commuter aircraft (Corporate and Great Lakes), particularly when neither of those carriers are a low fare carrier, one is an American Eagle commuter partner and the other is in the process of entering into a codeshare agreement. The other two applicants (Midwest Express and ATA) already operate at DCA. While these carriers may add some beneficial service, the Department should award the slots in a manner that will maximize competition and expand low fare service. Therefore, the six slots should be awarded to AirTran.
Allowing a few large carriers to dominate markets (including National Airport) is in conflict with the Department’s mandates. Competition and new entry are the backbones of the airline deregulation. In order for deregulation to continue, it is essential that the Department of Transportation base its decisions upon the principles behind deregulation, which call for:
(4) The availability of a variety of adequate, economic, efficient, and low-priced services without unreasonable discrimination or unfair or deceptive practices….
(10) Avoiding unreasonable industry concentration, excessive market domination, monopoly powers, and other conditions that would tend to allow at least one air carrier…unreasonably to increase prices, reduce service, or exclude competition in air transportation.
(13) Encouraging entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive airline industry. (49 U.S.C. §40101)
The need to promote entry of new entrants into closed markets was a basic foundation of airline deregulation.
The key to lower prices and improved efficiency is competition, and the key to competition is competitors. The present act restricts entry into individual markets in a number of ways, which make it very difficult for us to increase competition, and to make credible the threat of competitive entry. The adoption of a zone of reasonableness in which the carriers are free to set prices without government interference cannot do what it is intended to do if it is not accompanied by a corresponding, substantial liberalization of entry. A downward zone, without entry, would not reliably produce lower prices, since the threat of entry — not charitable motives — is the only sure incentive for carriers to reduce their prices. And upward fare freedom — again, absent freedom of entry — poses an immediate threat of exploitation of consumers in all those markets where regulation under the present Act has failed to create competition. The proposed bill would make it easier for carriers to enter new markets in three important ways, and for that reason, more than any other, we support it.
Testimony of Alfred Kahn, Hearings before the Subcommittee on Aviation, House Committee of Public Works and Transportation on HR 11145 (Airline Regulatory and Reform Hearing)
March 6, 1978
To avoid unreasonable concentration, monopoly power and to encourage entry, the Department should award these six slots to AirTran.
The importance of enhancing competition and entry by low fare carriers has been emphasized by several Department of Transportation studies; which describe the impact to consumers when competition does not exist:
“Dominated Hub Fares” Select Quotes
Office of the Assistant Secretary for Aviation and International Affairs at the Department of Transportation, January 2001
Without the presence of effective price competition, network carriers both charge much higher prices and curtail capacity available to price sensitive passengers at their hubs.
*****
The key to eliminating market power and fare premiums is to encourage entry into as many uncontested markets as possible.
*****
Barriers to entry at many non-hub markets have the same effect of discouraging new entry. Barriers to entry at dominated hubs are most difficult to surmount considering the operational and marketing leverage a network carrier has in its hub markets.
“Enforcement Policy Regarding Unfair Exclusionary Conduct in the Air Transportation Industry” Select Quotes Docket OST-98-3713, “Findings and Conclusions on the Economic, Policy, and Legal Issues”
New service by a low-fare airline is therefore likely to be the only way that many hub markets will ever benefit from competitive airline service. Since a hubbing airline will likely have only limited competition in most of its hub markets if it can deter entry by low-fare airlines, it is profitable for an incumbent airline to attempt to eliminate actual competition if it can…If the low-fare airline becomes established in one hub market, it may well expand into other markets at the hub.
*****
Competition gives travelers lower fares and better service, and the lower fares enable many people to fly who otherwise would not have traveled at all. While deregulation has given travelers in the great majority of markets lower fares and better service, some markets have not benefited as much from deregulation since they lack competitive service.
*****
The benefits of deregulation depend on competition. Particularly important for many travelers are the low-fare airlines, since they rely on a strategy of attracting customers by offering low fares.
*****
Travelers are not the only beneficiaries of increased competition. Regions where the lower fares and increased service options created by competition are available are better able to attract new businesses and business expansions; conversely, regions denied access to competitive service suffer economic difficulties.
At a time when fares and concentration continue to increase, new entrants are industry leaders in providing fare competition. The Department emphasized this issue in its landmark 1996 study, “The Low Cost Airline Service Revolution.” In that study, the Department noted:
The rapid expansion of low cost, low fare service in the United States by a growing cadre of carriers is a watershed development in domestic aviation that is having a profound effect on efficiency, competition, consumers and industry structure.
At network hub cities where low cost carriers do not compete, fare premiums are quite high and are increasing.
Therefore, the purposes of this study are... to reaffirm the Department’s resolve that new entrants be given a fair chance to compete and underscore the Department’s resolve that new entrants be given a fair chance to compete and underscore the Department’s determination to examine why low cost new entry is more successful at some cities than others.
This is another way of saying that virtually all domestic traffic growth between 1992 and 1995 is attributable to the influx of low cost service.
Passengers continue to pay substantial fare premiums at most network hubs, particularly where low cost service has not succeeded.
[Office of Aviation and International Economics (April 1996)]
Another Department study emphasized the impact that low-fare carriers have on the business market:
Business travelers have been forced in recent years to bear the brunt of higher fares in markets where network carriers are not exposed to low-fare competition, and business fares in markets where network carriers are not exposed to low-fare competition, and business fares continue to rise.
In city-pair markets of comparable distance it is common to see fares associated with a dominant large carrier at its hub airport that are up to five times higher than fares involving low-fare carriers. Even at hub cities where low-fare service is available in some markets, fares remain very high in other markets where low-fare service is not available.
“Competition in the U.S. Domestic Airline Industry: The Need for a Policy to Prevent Unfair Practices”
Other Applications Submitted
As noted, five other air carriers submitted applications for the six slots to serve National Airport from destinations within the 1,250 mile perimeter rule. In a truly deregulated environment with totally open markets, the Department would not have to choose between the applications submitted for slots. Unfortunately, that is not the case because National Airport remains highly restricted. While the Department can allocate 12 slots (6 roundtrips) under AIR-21, it can accommodate additional operations under its existing authority.
This proceeding only allows for the allocation of these six slots. Of those applying for the slots, only AirTran would bring new levels of low-fare competition to a highly concentrated market.
US Airways
On October 2, 2002, the Department advised United and US Airways that they could proceed with the largest domestic alliance in the airline industry. This alliance includes, United, the largest carrier operating at Dulles International Airport, and US Airways, the largest carrier operating at National Airport. Together, these two carriers have the largest share of the total Washington, DC market.
In its filing, US Airways clearly acknowledges that it has an “extensive….route network at DCA.” It also asks the Department to recognize “US Airways substantial DCA operations.” US Airways also notes that “it is not a new entrant or limited incumbent.” Therefore, US Airways recognizes that it should not be awarded the six available slots. US Airways is already the largest DCA slot holder. As a result of its new alliance with United, it has even additional access to DCA. With over 340 total slots, if US Airways truly wanted to serve Mobile, Pensacola or Savannah it could shift some of the slots and flights it currently utilizes to serve its domestic and international DCA markets. Moreover, US Airways is not currently utilizing all of its DCA slots. It could immediately utilize those unutilized slots to serve Mobile, Pensacola, and Savannah if it really wanted to do so. This raises questions about its qualifications to obtain these slots.
Midwest Express
Midwest Express seeks two slots to add on to its existing Kansas City service. In its application, Midwest Express acknowledges that, “Midwest Express and its affiliated carrier, Skyway Airlines, operate a total of nineteen slots and slot exemptions at DCA.” Midwest Express also operates three DCA flights outside of the 0659-2200 time period for a total of 22 DCA slots. Under this proposal, Midwest Express would not be adding new competitive or low-fare service at DCA. They would be adding on to existing service. Since they already control 19 slots, it would not appear that they could add to their slot holdings and remain a limited incumbent. We also note that they utilize smaller regional jets in some of their slots. With a very limited number of AIR-21 slots, the available slots should not be allocated to a carrier with this level of existing service.
American Trans Air, Inc.
American Trans Air, Inc. (“ATA”) asks the Department to allow it to add a fourth roundtrip between DCA and Chicago (Midway Airport). In its application, ATA acknowledges that it has brought savings to Chicago bound customers through its Midway flights. The service is to the Chicago area. Considering the limited number of slots made available under AIR-21, it would not be in the public interest to increase service to Chicago when low fare DCA service has been blocked from being initiated to all other large markets (including Atlanta where Delta has been allowed to operate 18 daily high fare roundtrips with no low fare competition) and other low fare carriers have not been able to add service to any markets. Before ATA is provided with additional slots, other carriers should be given the opportunity to bring true cost savings to Washington area travelers.
Great Plains Airlines
Great Plains Airlines is seeking slots to operate “32 seat Fairchild Dornier 328 Regional Jet” between Tulsa/Oklahoma City and DCA. In its application, Great Plains acknowledges that it is in discussion with major airlines for codeshare arrangements.” It would not be in the public interest to award these very limited DCA slots to a non low fare carrier that operates 32 seat aircraft. Such an operation will not provide significant benefits to the marketplace. Great Lakes should look to its potential codeshare partner to help it enter the DCA market.
Corporate Airlines
Corporate Airlines is seeking DCA slots to serve Wilmington, Fayetteville, and Jacksonville with 19 seat British Aerospace Jetstream 32 Turboprop aircraft under a “codeshare” agreement/arrangement with American Airlines. Considering its partnership with American Airlines, a major DCA slot holder and its extremely small aircraft, there is no basis to award these limited and important slots to Corporate.
Conclusion
Throughout the past decade, multiple Department studies and reports have noted that the key to success of deregulation is competition, particularly when provided by low-cost new entrants. At the same time, those studies have noted the significant barriers to entry that limit the growth of competition.
Steps have been taken to add low fare competition at LaGuardia, O’Hare, and JFK to new entry. AIR-21 allows some limited new entry. If AirTran can add to its DCA service, it will bring the same type of fare savings it has brought to the markets it currently serves as highlighted by various DOT reports and studies.
The Department has on numerous occasions noted AirTran’s impact on fares:
“The negative effects of high hub fares reach beyond hub cities. Spoke communities whose service is predominantly to network hubs by hub dominant carriers may also be subjected to high prices. Buffalo, New York provides a good example of this, and also the benefits of low-fare competitive alternatives. People at Buffalo, and their elected representatives, worked hard to attract low-fare service and they have succeeded. The benefits, in terms of increased service and lower prices, are enormous. For example, average fares declined by 36%, from $185 to $119, in the Atlanta-Buffalo market after AirTran’s entry, and the number of passengers in the market increased by 65%.”