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American Airlines, Inc.

American Airlines, Inc. hereby applies for the allocation of seven weekly U.S.-Argentina frequencies in order to institute nonstop service between Dallas/Ft. Worth, Texas and Buenos Aires, Argentina, effective December 1, 2001, using 245-seat B777 aircraft (16F/35C/194Y).

On June 21, 2001, Delta Air Lines, Inc. and United Air Lines, Inc. answered in opposition to Continental's deferral application. Delta applied for authority to serve the New York (JFK)-Buenos Aires route, effective December 1, 2001 (OST-2001-9984). United asked for immediate activation of its Los Angeles-Buenos Aires back-up authority, granted by Order 2001-1-14, also effective December 1, 2001. However, United stated that "in the near term" it would not operate the Los Angeles-Buenos Aires route, but instead would operate between Washington (Dulles) and Buenos Aires, contrary to the explicit terms of its back-up award.

American chose not to submit an answer on June 21, 2001 to Continental's deferral application in light of the existence of United's back-up authority for the Los Angeles-Buenos Aires route. If United had sought to activate its backup authority by committing to implement service on December 1, 2001 between Los Angeles and Buenos Aires, that might have precluded the submission of applications by other carriers to replace Continental. Instead, United has made a new proposal to serve the Washington (Dulles)-Buenos Aires route.

Counsel:  American, Carl Nelson, 202.496.5647, carl_nelson@aa.com

1999 U.S.- Argentina Combination Service Case and Continental Airlines, Inc. and American Airlines, Inc.

If given the opportunity, American and DFW Airport will show that they have the superior proposal. DFW has become a major U.S. gateway to South America from the U.S. interior with nonstop flights to Sao Paulo, Santiago, Lima and Caracas (Exhibit 1). DFW-Buenos Aires is already one of the largest U.S.-Buenos Aires O&D markets without nonstop service. DFW would be a new mid-continent U.S. gateway, and the only U.S. carrier gateway west of the Mississippi. Service via the DFW gateway would open up convenient, one-stop service to Argentina for thousands of passengers living in Texas, the Sunbelt States and across the western U.S. American at DFW offers behind gateway travelers 760 daily departures, versus 348 for United at Dulles, and just 71 for Delta at New York/JFK (Exhibit 2). New B-777 daily nonstop service from the DFW gateway to Buenos Aires as proposed by American would bring considerably more benefits to U.S. travelers than would more flights from congested East Coast cities.

Counsel:  Silverberg Goldman, Michael Goldman, 202.944.3305, mgoldman@sgbdc.com  

1999 U.S.-Argentina Combination Service Case / Delta Air Lines, Inc. / Continental Airlines, Inc. / American Airlines, Inc.

The requirement for a carrier selection case is unavoidable: (1) Continental has stated unequivocally that it will default on its route case award by not instituting New York/Newark – Buenos Aires service until December, 2002 -- a full year after the new opportunities become effective. (2) United is unwilling to implement its backup award for Los Angeles service; instead, United has submitted an entirely new proposal for Washington Dulles service -- a route that United has never before proposed, and for which it has never received any backup award. (3) Delta and American have each submitted competing applications for New York and Dallas/Ft. Worth authority, respectively.

The seven frequencies that become available for use on December 1, 2001 are extraordinarily rare and valuable public resources, which the Department should not allow to be wasted. Under the important frequency phase-in schedule negotiated by the United States with the Government of Argentina, the new service opportunities will become available just in time to benefit U.S.-Argentina travelers and shippers during the busy year-end travel season.
To avoid squandering these valuable opportunities – and for the United States to received its bargained-for benefit under the frequency phase-in provisions of the bilateral agreement -- it is vitally important that the Department immediately establish the required selection case and an expedited procedural schedule that will allow for a final decision by no later than September 1, 2001.

Counsel:  Delta and Shaw Pittman, Robert Cohn, 202-663-8060

New U.S.-Argentina Combination Service Opportunities / Delta Air Lines, Inc. / American Airlines, Inc.

American is asking the Department to take a step backward by expanding the Argentina network of one of the two dominant incumbents rather than affirming its decision giving a fourth U.S. airline access to Argentina. Such a proposal may serve American’s private interests but, as the Department has only recently concluded, the public interest would be ill-served by granting such a request. The Department must not place the short-term interest in utilizing frequencies ahead of the long-term interest in providing effective competition by four U.S. airlines on U.S.-Argentina routes. Only by granting Continental’s request for a temporary deferral of its Argentina startup can the Department follow the principles established in the 1999 U.S.-Argentina Combination Service Case and preserve the important public benefits it found would be derived from awarding Continental authority to provide Argentina service as the fourth U.S.-flag network carrier.

If American really believes Dallas/Ft. Worth should receive Argentina service, it could long ago have switched one of its back-to-back daily Miami frequencies to Dallas/Ft. Worth, just as United could have switched its daily JFK frequency to Los Angeles or Washington (Dulles).

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202-624-2500

The Department should dismiss the Delta and American applications and immediately activate United's backup frequency allocation. No carrier selection proceeding is required in this instance for reasons United has already explained.' Any carrier selection proceeding will deprive the public of a December 1, 2001 start up for these frequencies, as such a proceeding could not realistically be completed in time to allow service to be introduced by that time. Immediate activation of the backup authority is necessary in order to allow United enough time to prepare for a December 1, 2001 start up. Even if the Department were to choose among the proposals of United, Delta, and American, however, United's backup service proposal at Washington Dulles would be chosen as that which would best serve the public interest.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202-663-6670, jmanley@wilmer.com

2001-U.S.-Argentina Combination Service Proceeding

Order 2001-7-12 denies the application of Continental Airlines, Inc. in the captioned docket to delay institution of its authorized New York/Newark-Buenos Aires scheduled combination services, and institue an expedited carrier selection proceeding to determine which carrier should be authorized to use seven weekly frequencies for U.S.-Buenos Aires service that become available on December 1, 2001.

By:  Susan McDermott

2001 U.S.-Argentina Combination Service Proceeding / 1999 U.S.-Argentina Combination Service Case / American Airlines, Inc. / Delta Air Lines, Inc.

Although American and United together experienced losses of $799 million for the second quarter of 2001 alone, they are apparently willing to accept even greater losses instituting seven additional weekly Argentina flights to protect themselves from competition by a new, fourth airline on U.S.-Argentina routes over the long term. Although Delta is apparently facing large losses on its Atlanta-Buenos Aires route despite the termination of LAPA’s flights and codesharing with LAPA, Delta is prepared to add to the $90 million in overall losses it experienced in the second quarter by instituting New York (JFK)-Buenos Aires flights which would divert traffic from its Atlanta flights and lack the support of a true hub at JFK. Why? To protect its Atlanta flights from Continental’s New York/Newark-Buenos Aires competition. Although American, United and Delta have each announced that they anticipate further losses this year and expect to retire aircraft and reduce their planned capacity,3 they each claim to be prepared to institute new Argentina flights December 1, 2001. Rather than abetting these carriers’ plans to limit U.S.-Argentina competition in the long run, the Department should reconsider its decision and grant Continental’s request for an exemption to institute New York/Newark-Buenos Aires service December 1, 2002. Only by granting Continental’s request can a fourth network be added to U.S.-Argentina routes for the benefit of competition in the long run. Even if the Department does not grant Continental’s request on reconsideration, however, it should at least give comparative consideration to Continental’s proposal to institute service December 1, 2002.

Given the complexity of deciding between at least three applicants and at least three gateways, Continental questions whether the Department can lawfully base any decision on the truncated procedures it proposes to use, particularly after it concluded only last year that full evidentiary procedures were required for a virtually-identical Argentina case. Even with truncated procedures, however, history suggests that the Department’s own decision-making process will take so much time that service is unlikely to commence by December 1, 2001, in any event. Nonetheless, the additional information requirements Continental seeks and the additional issue of evaluating the public benefits of deferring the institution of new services for 12 months or less to secure new entry will not delay the proceeding.

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202-624-2615

2001 U.S.-Argentina Combination Service Proceeding; 1999 U.S.-Argentina Combination Service Case; American Airlines, Inc.; and Delta Air Lines, Inc.

Continental presumes that it somehow knows better than American, Delta, or United that new service to Argentina cannot be viable until December 1, 2002. Continental has recently pulled service from markets in South America, including Brazil and Chile, while American and other carriers have kept their service levels intact. American does not need advice from Continental on the "wisdom" of serving Argentina or any other market, nor does the Department. Finally, Continental contends that Order 2001-7-12 "does not explicitly preclude Continental from applying for seven frequencies to institute service on December 1, 2002". That is nonsense. The Department denied Continental's request for an exemption to delay its start-up until December 2002. Order 2001-7-12 set a highly expedited procedural timetable "so that we can complete this case in sufficient time for the selected carrier to promote and commence its services on December 1; withdrew Continental's frequencies "so that they will be available for use by another carrier for services commencing this December"; and stated the Department's desire "to ensure that the selected carrier can commence its services in time for a December start-up" Continental should not be allowed to appear as an applicant with a start-up proposal of December 1, 2002. That would only burden the record in a highly expedited case, and serve no purpose in the Department's process of choosing a replacement carrier willing to start service on December 1, 2001.

Counsel:  American, Carl Nelson, 202.4965647, carl.nelson@aa.com 

That American, Delta and United may be losing money and curtailing service on some routes, while proposing to offer new U.S.-Buenos Aires service, is not because each seeks to block Continental's entry into the Argentina market. Rather it reflects the fact that each of these carriers believes that (unlike Continental) it can operate a new Buenos Aires service from the selected U.S. city profitably over the long run. In the case of American's DFW-Buenos Aires proposal, with which DFW Airport is most familiar, this is almost self-evident. American operates its major U.S. hub at DFW, with over 750 daily departures, and it already operates daily nonstop flights most successfully from DFW to four other South America cities - Sao Paulo, Caracas, Santiago and Lima. These flights all experience high load factors. Both DFW Airport and American are confident that American's proposed service in the larger DFW-Buenos Aires market will be similarly successful.

Continental while intimating that carriers should avoid new international services in this time of "huge losses" is itself starting up new international service. Just this week Continental announced that it would resume a second daily nonstop flight between Newark and Tel Aviv.

Counsel:  Silverberg Goldman, Michael Silverberg, 202.944.3305, mgoldman@sgbdc.com 

The most basic requirement for maximizing the public interest benefits from the available frequencies is to ensure that they are fully and promptly used. In that regard, the Department was entirely correct in its determination to place the frequencies resulting from Continental's December 1, 2001 service default at issue, and to consider only December 1, 2001 replacement proposals.

The Department's current evidence request contains all the information that is necessary and relevant to select a new Argentina carrier for December 1, 2001 service. Continental's call for additional evidence concerning alternative aircraft deployments, profitability analysis, and the like are unprecedented and Continental itself admits that "such information has not normally been required in the Department's route proceedings." Petition at 6. Contrary to Continental's contentions, further requirements to gather, submit and debate these superfluous issues will inevitably add complication and delay to the proceeding, and would compromise the Department's ability to reach a final decision by September 1. Since Continental does not appear to be a viable December 1 participant in this proceeding, the Department should not entertain Continental's request to heap additional superfluous evidentiary requests upon the viable applicants.

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202.663.8060

Given its own unwillingness to start service on December 1, 2001, Continental has made its primary goal the delay of any other carrier's efforts to do so in an attempt to secure the benefits for Continental at a later date when that better suits its own corporate purposes. To that end, Continental single-mindedly has advocated in its petition for reconsideration every conceivable measure in its, by now, well-developed repertory of route case delaying tactics aimed at preventing the Department from quickly deciding this case under the aggressively expedited schedule it has adopted in Order 01-7-12.

The Department should confirm the expedited schedule it has adopted and act decisively to deny the various requests of Continental. The Department's schedule provides that the last submissions are due on August 6, 2001. This schedule is designed to enable the Department to reach a final decision in time for the successful applicant to promote new U.S.-Argentina services scheduled to begin on December 1, 2001. There is nothing new in Continental's petition that would support a different and less expedited procedure, and that petition should be denied for the reasons set forth below.

Counsel:  Wilmer Cutler, Jeffery Manley, 202.663.6670, jmanley@wilmer.com  

2001 U.S.-Argentina Combination Service Proceeding; 1999 U.S.-Argentina Combination Service Case; American Airlines, Inc.; and Delta Air Lines, Inc.

We have decided to grant Continental's petition for reconsideration, and, on reconsideration, to affirm our decision to deny Continental's request to delay startup of the New York/NewarkBuenos Aires authority awarded Continental in Order 2001-1-14. We will also deny the other relief sought by Continental in its petition.

As noted in our instituting order, the frequencies at issue constitute valuable rights that we do not believe should be wasted. While Continental is not prepared to use the authority it was awarded when the rights become available, three other carriers have reaffirmed their plans to use the frequencies should they be selected in the 2001 Argentina Proceeding. Moreover, these three carriers have done so with the full understanding of our expectation that the carrier we select implement such service when the rights become available this December. In these circumstances, and given our desire to ensure the maximum levels of service possible to the public and to make full use of the rights available under our agreement with Argentina, we are not persuaded that the public interest is better served by withholding the re-awarding of these rights. Therefore, we affirm our decision to deny Continental's request in the captioned docket for an exemption from the startup conditions on its award in Order 2001-1-14.

These same considerations persuade us that it is not in the public interest to permit Continental's 2002 proposal to compete in this proceeding for either the primary or backup award. Our goal in this case is to authorize service to the public commencing this December, when the frequencies become available under the U.S.-Argentina aviation agreement. Continental's proposal for 2002 service is not consistent with that objective. Further consideration of such a proposal would serve only to complicate and delay unnecessarily a case that is already being processed in an expedited manner to ensure timely reallocation of the frequencies.

We will also deny Continental's request that we expand the evidentiary information requested in this case. We have made clear in the instituting order that we are prepared to consider only proposals for service commencing this December. The supplemental evidentiary material that we requested in our instituting order calls for evidence concerning the carriers proposed routings, traffic forecasts, traffic diversion and service changes, as well as information from the carriers about their aircraft availability and service implementation plans to demonstrate their commitment and ability to commence the services proposed. Continental has not demonstrated that information beyond that which we requested is needed to generate an adequate record for decision.

By:  Susan McDermott

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