OST-2007-28567 - 2007/2008/2009 US-China Air Services and Combination Frequency Allocation Proceeding

2007/2008/2009 US-China Air Services and Combination Frequency Allocation Proceeding

Having considered the various comments received and options presented, we have decided to institute a streamlined proceeding for the combination service opportunities available through 2009. Accordingly, we will adopt an approach designed to ensure that all of the valuable rights available now through 2009 can be promptly awarded, and we invite interested U.S. carriers to apply for the authority at issue.

We will be proceeding under several rebuttable presumptions. First, we are strongly inclined to use the August 1, 2007 award for combination rather than all-cargo services. We note that the all-cargo frequencies available to U.S. carriers for China service are currently undersubscribed. Meanwhile, there remains a critical need to add combination services in the U.S.-China market. Against this background, and in light of the opportunities immediately available under the amended agreement, we find that we now have an opportunity to mitigate the impact of the shortage of combination services on the traveling public and to utilize fully valuable rights in the U.S.-China market by awarding the 2007 designation opportunity to a combination carrier.

Should we follow through on our presumption and select a combination carrier, we would allocate the carrier the seven available combination frequencies. Experience in past China eases has shown that new combination services are typically introduced at the level of daily service, and we see no reason to presume a different result would better serve the public interest here.

Finally, we presume that we would take advantage of the opportunities to introduce new entrant combination carriers in 2007 and 2009, rather than forgo either or both opportunities and instead simply award available combination service frequencies to an incumbent. Given that the U.S. Government negotiated for these valuable designation rights, it is our strong sense that the public interest favors that they be fully used to secure the benefits ofexpanded service options and enhanced competition that a new entrant would provide.

Delta respectfully asks the Department to reconsider one significant part of the Instituting Order, namely, its decision to conduct a massive and complicated omnibus proceeding to consider the 2007-2008-2009 designations/frequencies. Delta urges the Department to separate the 2007 and 2009 allocations and to initiate the case for the "2009" frequencies only after the 2007 frequencies have been awarded. Proceeding seriatim and separately will have several fundamental benefits for the Department and the applicants.

Beginning the 2009 case early next year, after the award of the 2007 rights, will enable the Department to make 2009 awards (1) with plenty of time in advance of the start date for the 2009 authority, (2) without delaying the 2007 award, and (3) based on more current and therefore more reliable market conditions.

Evergreen hereby respectfully requests that the DOT, on reconsideration of Order 2007-6-15, to eliminate its stated rebuttable presumption in favor of a combination carrier award and instead issue a strongly worded statement that both all-cargo and combination carrier applications will be entertained on the same basis without any preconceived notion of where the public interest lies until the DOT renders the 2007 award. The Order on Reconsideration must give more than mere lip service to the willingness of the Department to give fair and equal consideration to both all-cargo and combination carrier applications for the 2007 designation. Anything less than a robust and muscular statement on this critical procedural and substantive issue will be viewed with skepticism and will not necessarily induce all-cargo carriers to make the substantial commitment of time and resources to prosecute an application for the 2007 designation, even if the DOT states its intention on reconsideration to give fair and impartial consideration to both types of applications.

Counsel: Silverberg Goldman, Robert Silverberg, 202-944-3300, rsilverberg@sgbdc.com

While United shares the Department's goal of an efficient allocation of these valuable new service opportunities with as little procedural and evidentiary burden placed on the applicants as is consistent with due process, it strongly fears that consolidating three separate annual rounds of new opportunities into a single proceeding will actually undermine the Department's objectives. Because of the number of opportunities that become available in March 2009 (one designation and 28 new weekly frequencies), United expects the 2009 phase to attract the most applications and prove to be the most contentious. By consolidating the more narrowly focused 2007 and 2008 phases with the broader more complicated 2009 phase, the Department will very likely need to delay allocation of the former opportunities as it seeks to resolve the more complex issues that will arise with respect to the latter.

Moreover, any route allocation proceeding involving frequencies to be used more than 20 months in the future would be based on assumptions and extrapolations that are highly uncertain and unreliable. Given the dynamic nature of the U.S. and, especially the Chinese aviation markets, it will be very difficult for the Department to predict market and regulatory conditions two years from now, and any attempts to do so would risk introducing further distortions into this regulated market. Major structural changes, new injections of foreign capital, expanded foreign carrier competition, improved management expertise at foreign carriers, and the delivery of new aircraft, can be expected over the next two years and would all affect the structure of the U.S.-China aviation market. As the Department has seen in the past several years, there have been significant changes in the U.S. airline industry competitive landscape and it would not be surprising if there were more changes in the near future.

Delta and United have submitted petitions for reconsideration asking the Department to reverse its well-founded decision to consolidate into a single expedited proceeding applications for the 2007, 2008 and 2009 U.S.-China frequencies and designations. Their petitions raise no arguments not already considered and rejected by the Department, and the Department should move quickly to deny the Delta and United petitions for reconsideration. The Department's astute decision to expedite consolidated action by the Department on applications for U.S.-China authority available within the next two years should be reaffirmed promptly to ensure that the Department's effort to expand China service efficiently within the next two years is not sabotaged by procedural ploys from carriers that expect to promote their own interests by delaying an expedited, consolidated proceeding.

By filing petitions for reconsideration, Delta and United may already have caused greater delay in making a 2007 award than incorporating the 2008 and 2009 awards in a consolidated proceeding with the 2007 award could cause. Although Delta requests expedition only for applications to institute service in 2007, Delta has not even hinted that it is prepared to start any U.S.-China service in 2007. Evergreen may well be prepared to institute service in 2007 using cargo frequencies currently available, but its petition for reconsideration links its request to additional cargo frequencies available in 2008, implicitly seeking a consolidated proceeding encompassing rights available beyond 2007. United's real objective is to protect its dominant position in the U.S.-China market by delaying new competition from limited incumbent and new entrant carriers by delaying the advance planning, marketing and sales for flights beginning less than two years away in March 2009.

Delta supports United's Petition for Reconsideration. For the reasons set forth in Delta's Petition, the Department should separately consider the 2007 and 2009 allocations. As United correctly observed, "by consolidating the more narrowly focused 2007 and 2008 phases with the broader more complicated 2009 phase, the Department will very likely need to delay allocation of the former opportunities as it seeks to resolve the more complex issues that will arise with respect to the latter." United Petition at 2. United is also correct, as Delta pointed out, that considering allocation of frequencies "to be used more than 20 months in the future would be based on assumptions and extrapolations that are highly uncertain and unreliable", thus compromising the integrity of the record for decision.

Delta opposes Evergreen's Petition. Evergreen disagrees with the Department's determination to establish a "rebuttable" presumption in favor of combination carriers over cargo carriers in awarding the available 2007 U.S. China designation and frequencies. Its protest is without merit, particularly when viewed in light of the current U.S. - China marketplace and the public interest. The Department's "rebuttable" presumption is fully justified on several grounds, and the Department should therefore reject Evergreen's Petition.

Counsel: Delta and Hogan & Hartson, Robert Cohn, 202-637-4999, recohn@hhlaw.com

Northwest hereby answers the Petitions for Reconsideration submitted by Delta, United, and Evergreen in response to the Department's Order Instituting Proceeding and Inviting Applications. (Order 2007-6-15). Northwest strongly supports the Department's decision to combine the allocation of the U.S.-China opportunities for the years 2007-2009 in an efficient and highly expedited carrier selection case.

The Department is right to take a comprehensive look at the options for meeting demand for new service to China, and all of the 2007-2009 combination frequencies at issue are clearly relevant to that public interest determination. The piecemeal approach advocated by United Air Lines and Delta Air Lines in their petitions for reconsideration is not in the public interest. A case that fails to include the 28 combination frequencies available in 2009 would create unnecessary scarcity and could force the Department to turn away beneficial proposals that could be authorized immediately. Conversely, with 42 combination frequencies available in a consolidated case, the Department is in a position to maximize benefits to carriers, communities, and the traveling public. Northwest strongly supports the Department's decision to put enough opportunities at issue to provide interested carriers and communities with a reasonable chance of sharing in the success of the Department's major new liberalizing agreement with China.

There is no merit to Evergreen's suggestion that the Department violated its Ashbacker obligations. Evergreen is free to apply for the new entrant designation in 2007, and there is no reason to expect that the Department will not give full and fair consideration to the arguments presented.

The Port Authority supported the institution of a single, expedited proceeding to consider promptly allocations of the frequencies and designations available in 2007, 2008 and 2009. Rather than burdening potential applicants, their supporters and the Department's staff with multiple proceedings to allocate subsets of the frequencies that become available in 2007, 2008 and 2009, the Department decided to address those frequencies and related designations in a single proceeding as soon as possible. Although two carriers have petitioned the Department to reconsider its decision to expedite allocation of all of the rights available within a two‑year window of opportunity, they have offered no justifications for separating the allocations into multiple proceedings not already considered by the Department when it established a single proceeding.

Counsel: Port Authority, Bradley Rubenstein, 212-435-3741, brubinst@panynj.gov

US Airways hereby responds to the Petitions for Reconsideration submitted by Delta Air Lines and United Air Lines on June 28, 2007. The Department of Transportation elected in the Instituting Order, after a period of public comment, to consider the award of all newly available 2007, 2008 and 2009 designations and frequencies in one omnibus proceeding, and to conduct the proceeding on a highly-expedited procedural schedule. US Airways supports the Department's decision to hold a consolidated proceeding and is pleased with the expedited timetable established by the Department. The Department's Instituting Order strikes an appropriate balance among varying interests, and ensures that the selection proceeding will be concluded with minimal delay.

US Airways believes this is critical. Affording prospective new entrant carriers maximum lead time to complete infrastructure and logistical preparations, implement advertising and promotional programs and engage in advance selling in both countries should assure that the new entrant carriers are well-positioned to launch a successful new service in the highly competitive U.S. - China air services market. Incumbent carriers also benefit from an early decision by the Department in terms of planning and preparing for new services.

Delta and United, on the other hand, are now asking that the Department bifurcate the proceeding, although in different ways. Delta requests that the omnibus proceeding remain intact‑except for separating the 2007 designation and the presumptive seven associated frequencies. Delta suggests that the 2007 designation and associated frequencies be assigned using the expedited procedural schedule established for the current omnibus proceeding, and that the omnibus proceeding be deferred until after the Department issues its decision on the 2007 rights. United would also separately address the 2007 designation and associated frequencies, but would additionally include in the first proceeding the 2008 Guangzhou frequencies. Consideration of the 2009 designation and related frequencies as well as the presumptive twentyone incumbent carrier frequencies should, according to United, be deferred for some unspecified period of time

Counsel: US Airways and Squire Sanders, Marshall Sinick, 202-626-6600, msinick@ssd.com

The Wayne County Airport Authority fully supports the Department's original decision, announced in Order 2007-06-15, to combine the allocation of the 42 U.S.-China combination frequencies for years 2007- 2009. This is clearly the most efficient and effective means of allocating the new opportunities, and the objecting carriers have failed to show otherwise.

The award of allocations for the years 2007-2009 are all relevant to the immediate public interest question at issue - which is how best to meet greatly underserved U.S. passenger demand for travel to China. New service at Detroit by Northwest would create the largest and most effective new hub gateway to China. Sufficient opporutities should be placed at issue, so that both new entrants and incumbents have the ability to immediately secure frequencies that are necessary to plan and implement beneficial new China services - such as those Northwest wants to provide at Detroit. The Department has set a precedent of conducting multi‑year consolidated cases in the past, such as the recent 2005/2006 China case, and deciding the route awards through 2009 avoids the cost and inefficiency of conducting immediately sequential route cases

We have decided to grant the petitions of Delta, Evergreen and United requesting reconsideration of Order 2007-6-15, and on reconsideration, to affirm the procedures established in Order 2007-6-15, for awarding the various combination service rights available through 2009. We find this approach reasonable in the circumstances presented, and that it will allow the selected carriers the maximum time possible to prepare for and implement these important new rights. We find no persuasive basis in the petitions for following a different approach.

Delta and United essentially assert that an omnibus case will be so complicated as to delay a final decision, and will require applicants to formulate proposals for a forecast year too far into the future. As to their first concern, we have established, and fully intend to proceed under, an expedited procedural schedule and significantly reduced evidentiary requirements. In these circumstances, we are not persuaded that an omnibus proceeding would lead to a delayed final result. As to the ability of applicants to submit meaningful proposals for the latest forecast year, we note that in the case where we awarded China authority for 2005 and 2006, we similarly called upon applicants to present proposals for a future year. Interested applicants in that case were all able to submit the materials for that year, and we gathered a meaningful decisional record. We have seen no persuasive reason why such would not also prove the case here where the timeframes are fundamentally similar. Given the advantages of giving carriers as much time as possible to plan for and introduce new service into a market with established competitors, we conclude that the public interest calls for maintaining our announced approach in the circumstances of this case.

With regard to Evergreen's comments, we explained in the Instituting Order our strong inclination to use the 2007 designation for combination rather than all-cargo services. We said that, in light of the critical need to add combination services in the market, and the under-utilization of available all-cargo frequencies, we now have an opportunity to mitigate the effects of the shortage of combination services and benefit the traveling public by awarding the 2007 designation opportunity to a combination carrier. Evergreen has presented no persuasive argument or factual evidence to persuade us to change our view on the rebuttable presumption. Instead it has asserted denial of due process. We disagree. Our inclination towards a combination award is expressly a rebuttable presumption. Evergreen is free to participate and present its case and have its evidence and arguments weighed and comparatively considered on the record. In these circumstances, we see no violation of fairness, due process or Ashbacker.

We will grant United's request that we waive the confidentiality limitations and allow applicants to reference DOT O&D Survey data, on a non-confidential basis, in their pleadings in this proceeding to the extent that such reference is relevant and the data presented by applicants are not carrier-specific and cannot be identified to their original source. We find that such use will not prejudice or cause commercial harm to any party and that these data are one source of information that carriers may present to help us in making our decision. Applicants may use other sources of non-confidential data, with sufficient attribution to identify the source, in their submissions.

American proposes to institute daily year-round nonstop service on March 25, 2009 between Chicago and Beijing using 245-seat B777 aircraft (16F/35C/194Y), with single flight number change-of-gauge service behind Chicago to Dallas/Ft. Worth using 140-seat MD80 aircraft (124F/16Y).

Will create strong inter-gateway, intra-gateway, and network competition for travelers and shippers between the U.S. and Beijing via the Chicago hub; will add Beijing to American’s network, giving consumers increased choice and competitive options; will provide AA* codeshare connections on China Eastern to cities within China beyond Beijing; and will enhance the competitive position of the oneworld alliance v. Star and SkyTeam.

If Star members United and US Airways and SkyTeam members Northwest, Continental, and Delta achieve additional authority in this proceeding, the imbalance against oneworld would be even greater. To enhance inter-alliance competition, the Department should grant American’s Chicago-Beijing application as one of the four 2009 awards.

Continental proposes to institute daily nonstop flights between its New YorkINewark Liberty International Airport hub and Shanghai March 25, 2009 with 285-seat (50 BusinessFirst, 235 Economy) B-777 aircraft to introduce the first U.S.-flag nonstop New York/Newark-Shanghai service, the first daily nonstop New York/Newark-Shanghai service and the first through-flight Cleveland-Shanghai service. Continental does not currently offer any U.S.-China codeshare service, but Continental plans to offer codeshare service for other points in China through both Beijing and Shanghai pursuant to its codeshare agreement with China Southern.

Travel between New YorkINewark and Shanghai has been stunted by the absence of daily, nonstop U.S.-flag flights to serve the large business communities in both New York/Newark and Shanghai, the large Chinese and Asian populations in the New YorkINewark region, the large American community in Shanghai, and the strong current and potential tourist demand for travel between New York/Newark and Shanghai. Continental's proposed daily, nonstop New York/Newark-Shanghai service will meet the needs of tens of thousands of New York/Newark-Shanghai passengers who are currently forced to use connecting flights through crowded U.S. or Asian hubs on U.S. and foreign-flag airlines or inconsistent, less-than-daily, foreign-flag service at JFK. Without daily, nonstop U.S.-flag service, the nonstop New YorkINewark-Shanghai market will never be able to develop its full potential, and businesses, tourists and American and Chinese families in the New York/Newark region will continue to suffer from inadequate Shanghai service.

Counsel: Continental and Crowell & Moring, Bruce Keiner, 202-624-2615, rbkeiner@crowell.com

An award to Delta to establish a new hub gateway is clearly the preferred public interest choice over additional service at an existing gateway. In terms of service to China, U.S. regions and communities are starkly divided between the "haves" and the "have nots." Passengers originating in the Great Lakes region, the Mideast, and the Far West using the established gateways at Chicago, Detroit, New York, Washington, D.C., San Francisco, and Los Angeles have excellent service options to China. For example, Chicago is already a hub gateway receiving China service by two U.S. carriers, United (Shanghai and Beijing) and American (Shanghai); New York is among the best served China gateways with service offered to both Shanghai and Beijing by Continental (Beijing), China Eastern (Shanghai), and Air China (Beijing); and San Francisco has multiple daily nonstop flights to China. By contrast, the vast Southeast region has no nonstop gateway to China - let alone multiple daily flights. Connecting flights for communities throughout the Southeast to China are limited and/or inconvenient, with dozens of Southeastern communities having no nonstop-to-nonstop China service at all.

Delta's Atlanta-Shanghai and Atlanta-Beijing flights will be timed to provide passengers with convenient arrivaltdeparture times and optimal connectivity at its Atlanta gateway. The westbound flights are scheduled to depart Atlanta at 10:30 a.m. (Shanghai and Beijing), permitting connections from Delta's morning flight banks, with an arrival at 1:55 p.m. (Shanghai) and 1:10 p.m. (Beijing). The eastbound flights will depart Shanghai at 3:55 p.m. and Beijing at 3:10 p.m. (permitting nearly a full final day of business or leisure in Shanghai or Beijing), and arrive in Atlanta at 6:10 p.m. and 5:05 p.m., respectively (permitting connections to Delta's evening flight banks).

MAXjet plans to begin non-stop service between Seattle and Shanghai, China, starting on March 25, 2009. MAXjet initially plans on utilizing Boeing 767-200ER aircraft in a 96 seat "deep recline" business class seat configuration provided on a Los Angeles-Seattle-Shanghai routing.

MAXjet intends to provide its high quality business-only class service at an approximate 30% discount from comparable business fares in these markets, in the range of $4,000 for a roundtrip flight. There is not, of course, any existing Seattle - Shanghai service, but by way of example, the comparable roundtrip fares during the period September 12-19, 2007, are $5,401 for Air Canada's Vancouver-Shanghai service, $6,797 for Northwest's Seattle-Narita-Shanghai service, and $4,792 for United's San Francisco - Shanghai service.

Awarding MAXjet authority, frequencies, and designation to commence Seattle-Shanghai service would maximize the public benefits by bringing the first truly new entrant, all-business class air service to the U.S.-China market and introduce unique new service options previously unavailable except to European destinations.

Northwest seeks 14 of the 42 available combination frequencies to provide nonstop Detroit-Shanghai and Detroit-Beijing service from its WorldGateway hub complex. Authorizing new nonstop service at Detroit will establish the largest and most effective hub gateway to China -- creating valuable benefits for U.S.-China passengers throughout the Eastern half of the United States. Northwest’s WorldGateway hub at Detroit offers an unmatched combination of broad network coverage of the entire Eastern U.S., convenient direct routings, and a modern, state-of-the art terminal facility. Northwest would provide attractive connecting service to China from more than 100 U.S. cities. Furthermore, Detroit is the largest new China O&D gateway at issue -- with more than twice as many China passengers as Atlanta and Philadelphia. If DOT wants to benefit the most U.S. passengers and the most U.S. cities, Northwest is the clear first choice among the applicants.

Northwest is extremely eager to offer these benefits to the traveling public, and is ready to start right away. Northwest would accept China frequencies in either or both years (2007 or 2009). Northwest’s first priority and first preference is to begin Detroit-Shanghai service immediately. If selected for the 2007 opportunity, Northwest will commence daily Detroit-Shanghai service within 60 days of a final award using large capacity Boeing 747-400 aircraft. If selected for 2009 service, Northwest plans to use Boeing 787 Dreamliners to serve Shanghai and/or Beijing, effective March 25, 2009. Northwest is the North American launch customer for the 787 -- a revolutionary new aircraft that will usher in a new era of customer comfort and convenience. It is also one of the most environmentally friendly planes in the sky.

Regarding the “rebuttable presumption” in favor of new entrant services in 2007, Northwest will respect DOT’s judgment on the merits -- but strongly believes that DOT and the traveling public should have a choice. The strength of Northwest’s service proposal is sufficient to overcome this presumption. The Department’s Instituting Order observed that there is “a critical need to add combination services in the U.S.-China market,” (Order 2007-6-15) and the massive dose of immediate new capacity that would be added by Northwest’s 747-400 proposal would go a long way to satisfying that unmet need. One of the important benefits secured under the new agreement with China was the right to advance the 2008 frequencies for immediate use. Northwest is best positioned to take advantage of this opportunity by drawing on its experience in China, large capacity aircraft, and optimal hub gateway. Given the unavoidable delay and inefficiency associated with a new entrant startup, the public interest would best be served by awarding two new entrant opportunities in 2009 -- when such carriers have appropriate aircraft and more ample lead time.

United submits this application for the seven weekly U.S.-China combination service frequencies that will be available for allocation on March 25, 2008, and for seven of the 28 weekly frequencies that will be available for allocation on March 25, 2009. United would use these frequencies to introduce daily nonstop service between San Francisco and Guangzhou (SFO-CAN) on March 25, 2008, using B777-200 aircraft, and between Los Angeles and Shanghai (LAX-PVG) on March 25, 2009, using B747-400 aircraft. No community has a greater need for U.S. carrier service to China than Los Angeles, and only United can maximize the public benefits from the operation of such service. However, should the Department select another carrier to provide LAX-China service in 2009, then United proposes, as an alternative, to use seven of the 2009 frequencies to introduce daily nonstop service between Washington, DC and Shanghai (IAD-PVG) on March 25, 2009, using B747-400 aircraft.

The IATA slot filing deadline for Summer 2008 is October 11, 2007. Accordingly, it is imperative that the Guangzhou frequencies, which will become available for use on March 25, 2008, be awarded sufficiently in advance of October 11, 2007 to allow the recipient of the award to prepare its filing in time to meet that deadline.

As a new entrant, US Airways’ proposal will inject significant new competition into the U.S.-China market, particularly from the densely populated East Coast. Integral to its proposal, US Airways will also provide Charlotte-Beijing single flight number widebody service via Philadelphia, assuring seamless connections and the only direct service between US Airways’ two largest hubs and the Chinese capital. Together, these services will form the nucleus of US Airways’ initial China service, and will provide the foundation for US Airways’ future competitive expansion into Asia.

US Airways plans to begin daily scheduled nonstop combination service between Philadelphia and Beijing on March 25, 2009. Service will be operated year round utilizing Airbus A340-300 aircraft seating 269 passengers in two classes of service. US Airways will offer single flight number B767-200 widebody connecting service behind Philadelphia to its Charlotte hub.

Please find enclosed an errata sheet, three revised exhibits, and the corresponding revised application pages. The revision is that the number of first competitive nonstop-to-nonstop points for Delta's Atlanta-Beijing service is 41, not 27 as originally claimed.

In light of the applications submitted last week, the Department's selection decision is now clearly focused on the four opportunities available in 2009.

For 2009, either US Airways or MaxJet will be selected for the new designation based on the presumption favoring new entrants established by the Department in the instituting order. That leaves three opportunities to be allocated among five applicants - American, Continental, Delta, United, and Northwest.

In making its 2009 decision, the Department should without question rank United and Northwest last. It is diffi cult to imagine two applicants that are less deserving of 2009 awards than the two entrenched U.S.‑China duopolists, as we show below.

As all the applicants agree, the unprecedented breakthrough agreement with hina has given the Department an extraordinary opportunity to enhance the service available to U.S. ‑China passengers and expand competition in the U.S.-China marketplace. Thanks to that agreement, the Department has an opportunity to award Continental' seven frequencies to fill the critical service gap in the large New York/New ark-Shanghai market by offering the first nonstop flight between Newark Liberty International Airport and Shanghai and the first daily nonstop and the first U.S. -flag nonstop flight between any New York/Newark area airport and Shanghai as well as the first single-flight-number service between Continental's Cleveland hub and Shanghai. After awarding Continental's modest request for seven frequencies to provide service long sought by the Port Authority of New York and New Jersey and Newark, New Jersey and New York parties, thousands of Continental customers and employees and Continental itself in the largest market at issue in this proceeding lacking daily nonstop service, the Department will still have ample opportunity to satisfy virtually all reasonable requests for U.S.-China authority in 2007-2009, and more authority will become available in 2010-2012.

Counsel: Continental and Crowell & Moring, Bruce Keiner, 202-624-2615, rbkeiner@crowell.com

Delta was the only carrier to apply for the 2007 Opportunities consistent with the Department's rebuttable presumption in favor of granting the 2007 Opportunities to a new entrant airline. Northwest's application should be rejected out of hand. Although Northwest professes to "respect" the Department's determination to award the 2007 frequencies to a new entrant, its 2007 application does just the opposite and is designed to be a "spoiler". Northwest's claim that it could start service within sixty days of a final order is highly disingenuous because Northwest could have started service sixty days ago or sixty months ago, as the Department recently concluded in rejecting Northwest's identical route proposal earlier this year.

Delta's 2009 proposal is far superior to Northwest's in every decisional category. Delta would be a new entrant to Beijing; Northwest would not. Delta would create a new gateway in a large and under-served region. Northwest would not, proposing, in the Department's words, "duplicative" service, in a region that has more U.S. flag China service than any region of the country.

American also proposes duplicative service, in this case at Chicago. Chicago already enjoys three daily nonstop flights to China, by two U.S. airlines, including service to both Beijing and Shanghai. It would not be in the public interest to award Chicago its fourth nonstop China route and the Great Lakes region its sixth, before Atlanta and the Southeast gets their second.

United should not receive an award of additional frequencies in 2009. It is currently by far the largest China incumbent, and with the uncontested 2008 Guangzhou award, it will hold a staggering forty-two weekly nonstop China frequencies. Thus, United will have six times as many frequencies as Delta even after an award to Delta of the 2007 Opportunities. Moreover, in the most recent China proceeding decided earlier this year, United received a coveted 2007 award for its Washington, D.C.-Beijing flight. For important market structure reasons, United should not receive additional limited entry rights in this proceeding.

Accordingly, the Department should award the 2007 Opportunities and seven of the 2009 frequencies to Delta for nonstop Atlanta-Shanghai and Atlanta-Beijing service.

The record in this proceeding clearly demonstrates that new entrant MAXjet's Los Angeles-Seattle-Shanghai high quality, single-plane all-business class service proposal is vastly superior to the proposals made by each of the other applicants seeking 2009 awards on a service, fare, public benefits, market structure and competitive basis, particularly that of US Airways which proposes to provide additional service from the already saturated Eastern portion of the United States, offer few meaningful new connections or other benefits to the traveling public and operate aircraft which US Airways does not possess and which it has not even formally ordered.

This proceeding is the most important carrier selection case undertaken by the Department in recent decades. The decisions made here will profoundly effect the level and effectiveness of U.S.-China service and competition during the most critical period in U.S.-China aviation history - when demand is surging, yet passenger service opportunities remain very limited. This case also comes at a time when one carrier, United, has built a commanding lead in U.S.-China frequencies, and is seeking to further extend its dominance in the important west coast-China and U.S.-Guangzhou markets. Northwest is the only effective broad spectrum challenger to United in China and throughout the Asia‑Pacific region. Northwest urgently requires the allocation of additional China frequencies so it can match United and other competitors with new nonstop service between the eastern United States and China, while maintaining the only west coast U.S. carrier competition to China against United and its Star Alliance partners.

Delta and Northwest are the only carriers to have applied for the seven frequencies available in 2007, and United is the only carrier to have applied for the seven frequencies designated for service to Guangzhou in 2008. With respect to 2008, because United is the only applicant for those frequencies, the Department should move forward expeditiously to grant the request without waiting to decide on the allocation of the 2007 or 2009 frequencies. As for 2007, because, as explained further below, the award of additional China frequencies to Northwest while the carrier continues to underutilize the 21 frequencies it already holds cannot be reconciled with the public interest, United assumes the Department will award those frequencies to Delta. Thus, United’s Answer will focus on the competing applications for the 28 frequencies that are to be made available in 2009, applying the reasonable assumption that Delta will be an incumbent, not a potential new entrant, for purposes of its application for 2009 frequencies.

Among the applications for 2009 frequencies, United’s Los Angeles-Shanghai proposal would generate substantially greater public benefits than would any other carrier’s. If another carrier cannot match United’s public benefits, that carrier should not receive an award ahead of United, regardless of whether the carrier is a potential new entrant or how many China service frequencies it may or may not already hold. The limited number of China frequencies available are too valuable an asset, and the need for additional China service that will maximize public benefits is too compelling, to justify an award of frequencies to any carrier (new entrant or otherwise) on the basis of entitlement instead of objective merit, as measured by the relative amount of public benefits each carrier’s proposal will generate.

US Airways respectfully responds to the applications of American, Continental, Delta, Maxjet, Northwest and United. A review of those applications confirms that enabling US Airways to enter the China market-by awarding it the new designation and seven frequencies available in 2009-best advances the core public interests in serving underserved US. markets and in building clearly-needed cornpetition.

US Airways' application also offers the Department a unique opportunity to advance a critically important U.S . aviation goal-facilitating truly competitive US. entry into the world's fastest-grow ing aviation market The United States negotiated with great determination to win the right to designate additional U.S. carriers to serve China. Having secured those new designation rights and, in return, having granted the Chinese valuable rights (including the ability to designate an unlimited number of Chinese carriers for U.S. service), it would make no sense to simply throw away these hard won rights and allow designations to go unused. In the face of increasing US. and Chinese carrier competition, as well as the acknowledged unmet need for additional US. carrier service, a failure to use this extremely valuable right in 2009 would constitute a significant loss lo US, consumers subject to artificially constrained service options. US Airways is aware of no comparable circumstances in which the Department failed to take full advantage of the opportunity to designate a new carrier in a limited entry market after bargaining for and receiving such a right.

In its answer supporting American’s application, the City of Chicago urges that “Selecting the world’s largest air carrier to serve one of the world’s fastest growing international gateways [Beijing] from O’Hare” would maximize public benefits, provide both inter-gateway and intra-gateway competition, and promote inter-alliance competition (oneworld v. Star and SkyTeam).

In their answers, the other applicants all but concede that American will receive one of the four 2009 opportunities, either by not addressing American’s bid at all, or by offering only the most cursory rebuttal.

No matter how the Department cuts the deck or deals the cards in this high-stakes China tournament, Continental and its New York/Newark and Cleveland partners should hold a winning hand because Continental's proposed service would offer daily nonstop service in the largest U.S.-China city-pair market that today has no daily nonstop service and no U.S.-flag service, add an entire new route network to the U.S.-Shanghai market and offer through-flight service between Shanghai and Continental's Cleveland hub. Continental's winning hand is far more deserving of a new award in the third round of this tournament than the other applicants, and two of the contestants will have already won the first and second rounds.

Favored by most parties to hold the winning cards in the first hand, Delta and Atlanta expect to win their first China route, to Shanghai, and United and San Francisco seem to hold all the cards in the second round, making them the winners for authority to offer the first nonstop U.S.-Guangzhou service.

In the third round, Continental holds the highest cards as the only airline proposing service in the largest market which has no daily nonstop service and no U.S.-flag single-plane service whatever. Although the Department may face some difficult choices in this proceeding, selecting Continental to operate its proposed Cleveland-New York/Newark-Shanghai service should not be one of them.

The record in this proceeding overwhelmingly demonstrates that Delta's proposals for daily nonstop service between Atlanta and Shanghai and between Atlanta and Beijing should be given the highest priority. None of the Answers has effectively undermined the superiority of Delta's proposals, and the
extraordinary level of inter-carrier competition, inter-gateway competition, market structure optimization, and public interest benefits that would result from the award to Delta of 14 frequencies.

In its previous submissions in this Docket, Delta established the demonstrable superiority of its Atlanta-Shanghai proposal over Northwest's "duplicative" Detroit-Shanghai proposal. Northwest's Consolidated Answer offers nothing that could change that result.

Delta is the only new entrant carrier for the 2007 Opportunities. This fact is decisive because the Department has properly recognized the tremendous market structure, competition, and consumer benefits of new entrant service in this important, restricted-entry market.

Northwest - the only other carrier for the 2007 frequencies - is one of two entrenched incumbents. It already has the right to operate twenty-one weekly nonstop frequencies between the United States and China. It already has all of the rights it needs to operate the daily Detroit-Shanghai services it proposes for the 2007 frequencies; but Northwest squanders those frequencies to feed its Tokyo hub instead.

It would fly in the face of the U.S. Government's objectives in negotiating the U.S.-China MOC to award these hard-won 2007 frequencies to an entrenched incumbent. That alone dictates an award of the 2007 Opportunities to Delta.

MAXjet, the only true new entrant in this case, has, on the other hand, offered a straightforward proposal to simply begin affordable. all-business class Los Angeles-Seattle-Shanghai service on March 25, 2009 utilizing its Boeing 767-200ER aircraft. and thereby provide first time real U.S. carrier service and fare competition to United in the all important and demonstrably undersesved Western region of the United States as well as make these competitive benefits available across the country as passengers seek out MAXjet's high quality and reasonably-priced business class service to China by means of connections at Seattle.

Northwest’s Detroit-China proposal best meets the Department’s stated goal of maximizing public benefits: First, Northwest will provide nonstop service at Detroit, the largest new China gateway at issue in this proceeding. Detroit has twice the number of U.S.-China O&D passengers as Atlanta. Second, Northwest’s large Detroit hub with its ideal geographic location along the Great Circle route to China provides unmatched network coverage for the entire eastern United States with convenient, non-circuitous connections for the most U.S. cities. Atlanta’s primary catchment area is much smaller, and generates only one-fifth the number of passengers to China. Third, Detroit nonstop service is an important and highly complementary addition to the China services Northwest currently offers via its Asia/Pacific hub at Narita. Northwest’s efficient utilization of its existing China frequencies makes Northwest the only carrier, new or incumbent, that can mount a credible challenge to United and the Star Alliance’s growing dominance of U.S.-China routes, particularly on critical west coast-China and U.S.-Guangzhou routes. Delta’s southeast services would do nothing to challenge United in its core regions of geographic market strength.

Delta argues Northwest should be precluded from an award in this case, because Northwest “squanders” existing frequencies via Tokyo. There is no merit to Delta’s claim, which is both hypocritical and wrong. Northwest and Delta are network carriers, and both of them derive their primary U.S. passenger benefits from the services they offer in nonstop-to-nonstop connecting markets. There are very few local China passengers at Atlanta or in the southeast region – and 40 percent of the traffic on Delta’s Atlanta-Tokyo services is coming from third countries in Latin America. Delta has repeatedly stated that its Atlanta-Tokyo experience is a “good predictor” of how its Atlanta-China flights would perform. The level of third country traffic Delta would carry from foreign points behind Atlanta is highly relevant to Delta’s claimed U.S. public interest benefits in this case.

Based on the Applications and Answers filed by the various applicants and their supporters, it is clear that the only significant controversy in this proceeding involves the allocation of the 28 weekly U.S.-China frequencies that become available in March 2009. United Air Lines, Inc. has applied for seven of those frequencies to introduce the first daily nonstop service by a U.S.-flag carrier between Los Angeles and Shanghai using 374-seat Boeing 747-400 aircraft.

In selecting the four proposals, the Department has acknowledged that its “principal objective will be to maximize the public benefits that will result from the various awards of authority in this case.” In order to accomplish that objective, the Department must answer one simple question: Which proposals will “best address the most significant unmet service needs of the market and thereby maximize public benefits in the still restricted [U.S.-China air transportation] environment”? If public benefits are to be maximized, one of the four awards must be given to the carrier whose proposal does indeed “best address the most significant unmet service needs of the market,” and that carrier – without question – is United.

Whatever the Department may decide to do with 21 of the 28 frequencies available in 2009, seven of the 28 frequencies should be awarded to United, whose LAX-PVG proposal is the only one that credibly serves the Western U.S. and offers public benefits that none of the other applicants even begins to match.

None of the answers submitted to the Department of Transportation raise a legitimate question as to US Airways’ commitment or ability to bring new and important competitive China service to the eastern United States. US Airways’ application to provide daily scheduled service between Charlotte/Philadelphia and Beijing should be approved without delay.

US Airways has demonstrated that its proposed Charlotte-Philadelphia-Beijing service would generate maximum public benefits, in keeping with the objectives established in the Department’s Instituting Order. This unique array of benefits compels selection of US Airways, which should be authorized to serve Philadelphia-Beijing before the other 2009 applicants.

Nor has any applicant met the threshold necessary to rebut the Department’s wellfounded presumption favoring new entrant applicants for 2009. Indeed, only one applicant—United—continues to question the wisdom of the Department’s rebuttable presumption favoring award of the 2009 designation and associated frequencies to a new entrant. Even Northwest, the second largest China frequency holder, acknowledges that “a number of frequencies in this case will be awarded to new entrant carriers.” Acting on the presumption by making the 2007 and 2009 awards to new entrants will allow the Department to achieve the core goal of United States aviation policy: increased consumer benefits through greater competition.

On September 14, 2007, I spoke to Governor Arnold Schwarzenegger regarding the applications of United Airlines for the San Francisco-Guangzhou and Los Angeles to Shanghai routes to China. Governor Schwarzenegger expressed his support for the applications by that carrier to provide air service from California to China.

I explained that we could not discuss the substance of the case, and that our discussion would be summarized and placed in the docket.

By final order, we award to Delta Air Lines, Inc. certificate authority to provide combination services in the Atlanta-Shanghai market and allocate to Delta seven weekly combination frequencies for its proposed Atlanta-Shanghai services. The rights become available to Delta immediately.

By this final order, we allocate to United Air Lines, Inc. seven weekly combination frequencies for its proposed San Francisco-Guangzhou combination services. The rights become available on March 25, 2008.

By the show-cause portion of this order, we tentatively decide to award US Airways, Inc. certificate authority to provide combination services in the Philadelphia-Beijing market and to allocate to US Airways seven weekly combination frequencies for its proposed Philadelphia-Beijing services. We also tentatively decide to allocate the remaining 21 weekly combination frequencies as follows: seven weekly frequencies each to American Airlines, Inc. for its proposed Chicago-Beijing services, Continental Airlines, Inc. for its proposed New York/Newark-Shanghai services, and Northwest Airlines, Inc. for its proposed Detroit-Shanghai services. These rights become available on March 25, 2009.

We also tentatively decide to modify, from one year to five years, the length of time a carrier must hold operating authority before it is permitted to sell or transfer U.S.-China routes and/or frequencies newly-awarded in this proceeding. Our proposed condition would not apply in the case of a merger or acquisition by another carrier of all or a substantial part of the assets of the carrier holding the certificate or frequencies containing this condition.

Delta was disappointed by the Department's tentative decision to delay Delta's implementation of nonstop service to Beijing from Atlanta, based solely on the fact that Delta will have been operating its Atlanta-Shanghai nonstop service for only a year at the time it would have commenced the Atlanta-Beijing service with the 2009 frequencies. Delta has ample experience in launching new intercontinental services, including recent start-ups to a number of highly challenging new international markets. For example, Delta has successfully launched recent new service to Inchon, South Korea; Dubai, United Arab Emirates; Dakar, Senegal; Accra, Ghana; Johannesburg, South Africa, Kiev, Ukraine; Bucharest Romania, among others. The carrier has announced plans for new service to, among others, Lagos, Nigeria; Nairobi, Kenya; Cairo, Egypt; Amman, Jordan; and (subject to the Department's approval) Capetown, South Africa. Delta is confident of its ability to successfully implement Atlanta-Beijing nonstop service in 2009. Just as with Atlanta-Shanghai, Delta's Atlanta-Beijing proposal would have generated substantial public benefits by injecting a new entrant in the U.S.-Beijing market and opening a new gateway to Beijing from the under-served southeast region.

Nevertheless, Delta recognizes that the Department is unlikely to alter this result, and therefore, Delta will not object to its decision. However, Delta reaffirms its strong interest in expanding its access to China at the earliest possible opportunity. Delta urges the Department to institute the 2010 carrier selection case in 2008 to provide the successful applicants with ample lead time to begin advance preparation for implementation, marketing and fleet allocation, similar to the lead time the Department afforded the 2009 winners in this current proceeding. Delta intends to be an applicant for the 2010 frequencies.

MAXjet Airways, Inc. respectfully objects to the tentative findings and conclusions set forth in pages 15-16 and Ordering Paragraph Nos. 4, 5 and 9 of Order 2007-9-25 insofar as the Department of Transportation failed to select MAXjet for the new 2009 designation opportunity and allocate MAXjet seven weekly frequencies to serve between Seattle and Shanghai.

Before seeking to finalize the show cause order in this case, it is very important for the Department to pause and consider which carriers have provided the innovative service and low fares in the U.S. domestic market since the advent of deregulation. It is the legacy carriers. Instead, it has been the real new entrant carriers, such as the likes of JetBlue, Southwest, premerger America West, Frontier, Air Tran, Spirit and now Virgin America, that have introduced low-cost, innovative, high-quality services (most of which are point-to-point) whose passengers build their own connections via the internet, that have provided the traveling public with the benefits of deregulation. And, the very same thing will happen in the international markets if the Department will let it happen, where MAXjet, EOS, Silverjet and others have shown that there is a market for innovative, low fare, high quality services in competition with the otherwise high business class fare and economy service that characterizes so much of international air travel today. It is, indeed, more than ironic that MAXjet was able to begin its low-fare, high quality services under the restrictive U.S.-UK bilateral aviation agreement, while being stymied by the Department in its efforts to bring these very same innovative services to the U.S.-China market, where MAXjet would have a significant impact on the prices paid by the traveling public in the U.S.-China market for both business & economy class fares.

The Department needs to stop and consider the impact of its proposed allocations of the 2009 designation and frequencies on the already legacy carrierdominated U.S.-China market, and reconsider the pro-competitive benefits that selection of MAXjet, rather than US Airways, would have on service and fares in the entire U.S.-China market.

Given the numerous and substantial benefits of Northwest service at Detroit, it is regrettable that the frequencies Northwest was allocated do not become effective until 2009. It is also regrettable that the Department was not able to allocate in this proceeding the seven additional frequencies for nonstop Detroit-Beijing service. For the reasons identified in this Order 2007-9-25 regarding Detroit-Shanghai, Detroit- Beijing should be authorized as soon as possible. That said, Northwest recognizes the difficult choices faced by the Department in allocating scarce China opportunities. Additional and more immediate China service at its key heartland hubs remains a top priority for Northwest.

This selection proceeding confronted the Department with a series of choices concerning competing proposals, which were complicated by the restrictive nature of the U.S.-China bilateral aviation agreement. The Department’s decision early in this proceeding to establish a presumption favoring new entrant carriers, however, left it with a simple choice for the 2009 designation and associated frequencies: US Airways or Maxjet. Faced with a choice between a network carrier with extensive connecting and codeshare services, on the one hand, and a carrier proposing only limited point-to-point service, on the other, the Department rightly selected US Airways. Only US Airways has the ability to gather at two hub airports thousands of passengers from scores of markets, transport these passengers across the Pacific, and provide them with dozens of codeshare connecting choices in China. Maxjet has neither the ability to gather passengers from multiple U.S. markets, nor to provide connecting options to markets throughout China.

Throughout this proceeding, US Airways has demonstrated that it is the best choice for the 2009 designation and associated frequencies. US Airways’ strong network connections and significantly greater capacity will make it a more effective competitor in the U.S.-China market. Certainly, the limited-entry, capacity-constrained U.S.-China market is not an appropriate venue in which to test Maxjet’s niche service proposal. US Airways looks forward to bringing the first-ever China service to Philadelphia in March 2009, and urges the Department to promptly finalize its Order.

By this motion, United Air Lines, Inc. requests that Order 2007-9-25, allocating to United seven weekly U.S.-China combination frequencies, be amended to allow United to begin San Francisco-Guangzhou service no later than June 30, 2008, the start of the peak summer 2008 travel season, rather than by March 25, 2008.

As the first U.S. carrier to provide nonstop service between the United States and Guangzhou, United will need to invest a significant amount of time and resources to develop its service on this route. Shifting the start-up date for its San Francisco-Guangzhou service from March 25, 2008 (the technical beginning of the IATA Summer 2008 traffic season) to June 30, 2008 (the beginning of the peak travel season) will provide United with additional time to develop its service and promote this new route and destination.

Even though United is seeking a change in the start up date until June 30, United anticipates starting nonstop service on the route during the first two weeks in June. Setting the date at the end of the month, however, will provide United additional planning flexibility to coordinate the start up with other flight and crew scheduling changes to be implemented in June of next year, while still ensuring that the new service is up and running throughout the peak summer travel season.

On behalf of United, I have polled the representatives of all carriers on the service list attached to the Motion of United Air Lines, Inc., filed October 19, 2007, in the above-referenced docket, with regard to United's request to shift its start-up date for its SFO-CAN service to June 30, 2008. All carriers' representatives have advised me that they have no objection to the granting of this request.

We acted on this application without awaiting expiration of the answer period with the consent of all parties served with the application.

On Wednesday, November 7, 2007, The Philadelphia Inquirer published an article entitled "US Airways Plays Its China Card," stating that (a) "US Airways threatened yesterday to scuttle its plans to provide nonstop flights between Philadelphia and Beijing if airport officials allow Delta Air Lines to move into a disputed terminal, (b) confirming that US Airways had not yet acquired the A-340 aircraft necessary to operate the PhiladelphiaBeijing route and (c) revealing that US Airways, "because of what it considers a shortage of gates at Philadelphia," had begun considering using its Charlotte and Phoenix hubs for more of its international service. Each of these three issues calls into question the Department's tentative decision to select US Airways to provide Philadelphia‑Beijing service, and MAXjet, therefore, seeks leave to file this Supplement to its previously‑filed Objections to address the effect of these statements on the Department's tentative decision to select US Airways for Philadelphia‑Beijing service.

The three matters raised in The Philadelphia Inquirer article - US Airways' threatened abandonment of its Philadelphia-Beijing service if Delta is permitted to move as scheduled next week to Terminal A-East at the Philadelphia International Airport, the failure, to date, of US Airways to acquire the aircraft necessary to operate the Philadelphia-Beijing route and the commitment of US Airways to provide its proposed Philadelphia-Beijing service – provide specific and explicit reinforcement of the issue which MAXjet has been raising throughout this proceeding: whether US Airways is committed to actually acquiring the necessary equipment and operating Philadelphia-Beijing service if it is finally selected by the Department to provide China service.

Continental urges the Department to re-confirm immediately its tentative award of seven frequencies and certificate authority for New York/Newark-Shanghai authority while it considers MAXjet's supplement to its objections to the tentative award of Philadelphia-Beijing authority to US Airways and its motion for leave to file its supplement. MAXjet continues to contest the award of authority to US Airways and has tendered new information regarding an apparent US Airways threat to abandon its proposed China service, US Airways concerns about the adequacy of international gates at Philadelphia and an admission by US Airways that it has not acquired any aircraft capable of serving the Philadelphia-Shanghai route. Continental urges the Department to make final immediately the uncontested tentative 2009 awards while it considers MAXjet's supplement and any responses to it by US Airways or other parties.

On September 25, 2007, we issued a show-cause order in the captioned proceeding. Objections to the Department’s tentative decision were due on October 5, 2007, and answers to objections were due on October 12, 2007. On November 9, 2007, MAXjet Airways, Inc. filed a motion to supplement its objections to the tentative findings and conclusions set forth in Order 2007-9-25, to the extent that the Department failed to tentatively select MAXjet for the 2009 designation opportunity and to allocate it seven weekly frequencies to operate between Seattle and Shanghai. Continental filed an answer on November 13, 2007.

In the interest of expedition and to ensure a complete record, we will shorten the answer period to MAXjet’s motion and require answers to be filed no later than noon on Friday, November 16, 2007.

Therefore, acting under authority assigned in 14 CFR 385.13(p), answers to MAXjet’s November 9 motion will be due no later than noon on Friday, November 16, 2007. Persons entitled to petition the Department for review of the action set forth in this Notice under the Department’s regulations, 14 CFR 385.30, may file their petitions within seven days after the date of issuance of this Notice. This action was effective when taken (November 14, 2007), and the filing of a petition for review will not alter such effectiveness.

Delta takes no position on whether the Department should grant or deny MAXjet's motion for leave to supplement its Objections. However, Delta opposes MAXjet's request that it be awarded backup authority in the event US Airways defaults on its service proposal. The Department quite clearly decided not to issue any backup authority in connection with any of the awards made in this proceeding. Delta believes that decision was a correct one. Given the dynamic nature of the aviation marketplace, and particularly the U.S.-China marketplace, much could change between now and March 2009. If there is a default by US Airways, the Department should evaluate an award based on circumstances that exist at that time. However, if the Department decides to issue a backup award, Delta, not MAXjet should receive that award. Delta submits that the consumer and competitive benefits of its Atlanta-Beijing proposal are vastly superior to MAXjet's in every key decisional criterion (capacity, service to underserved regions, and nonstop-to-nonstop connecting benefits, among others), and overcome the Department's rebuttable presumption to award that route opportunity to a new entrant.

MAXjet, the only new entrant applicant that is eligible for an award, must be awarded backup authority so that MAXjet will be in a position to provide service in the increasingly likely event that US Airways abandons its prior commitment to provide Philadelphia-Beijing service. Indeed, the developments of the past several days, in which Delta has, in fact, moved terminals and US Airways has simply deferred its threat to abandon Philadelphia-Beijing service to an undefined point in the future, compel the Department to consider awarding MAXjet, rather than US Airways, the 2009 designation and associated seven frequencies to permit MAXjet to begin its Seattle-Shanghai service in March 2009.

Of the two eligible applicants for the 2008 designation and frequencies, US Airways' interest in providing Philadelphia-Beijing service is, at best, uncertain. It does not presently have the necessary equipment to operate the Philadelphia-Beijing service in its fleet and it recently passed up the opportunity to acquire the equipment in its most recent aircraft order. Based on this week's press reports, it has postponed a decision on whether to operate the route for several months (at least) as part of an effort to use the route as a pawn to stifle competition provided by Delta and Southwest at Philadelphia - an unseemly circumstance to be injected into a comparative route proceeding.

In short, the present record in this case, in which US Airways' threat to not operate Philadelphia-Beijing service remains clearly on the table, compels an award of this important route to MAXjet rather than US Airways in order to assure that these valuable and hard-fought route rights are, in fact, utilized beginning in March 2009 and sufficient time is provided to plan, advertise and market the route and obtain the necessary facilities in China with which to begin the service rather than use the authority as a bargaining chip in negotiations for facilities at Philadelphia. The public interest is not served by permitting US Airways to bully Philadelphia with valuable rights obtained by the U.S. government at the bargaining table with China.

Northwest urges the Department to carefully monitor US Airways' plans for service implementation. If a default becomes apparent, the Department should invite new applications for 2009 authority from interested carriers. Northwest opposes MAXjet's suggestion that it be granted backup authority to US Airways after the fact, when the Department declined to do so in the Show Cause Order. The Department should reserve the option of selecting the applicant that will best serve the public interest based on the most current facts and evidence.

United agrees with MAXjet that, in light of this dispute, the Department should award backup authority for the 2009 frequencies awarded to US Airways to guard against the risk the carrier will be unable to operate its proposed Philadelphia-Beijing service as required by the Department. As the Department previously recognized, these are "valuable but limited resources" that should not be allowed to go unused when there are carriers ready, willing and able to operate new nonstop U.S.-China ~ervice.~U' S Airways' on-going dispute with the Philadelphia Airport Authority over gate access raises a legitimate concern about the carrier's intent or ability to use these frequencies in a timely manner. To ensure that such dispute does not have an adverse impact on the traveling public, the public interest requires the Department to issue backup authority now to avoid a time consuming and expensive last-minute scramble as March 2009 nears, and to protect against the possibility of a delay in the use of these frequencies.

United disagrees, however, with MAXjet's request to suspend or delay the issuance of a final order in this case and to provide for additional filings by interested parties. The Department already has sufficient information at hand to make a backup award to one of the other applicants in this proceeding whose request for 2009 frequencies was denied without creating needless procedural steps that will cause undue delay and expense to all concerned.

Finally, while United agrees with MAXjet that the public interest mandates the award of backup authority in this proceeding, it does not agree that such authority should be awarded to MAXjet. Rather, as the record in this case amply demonstrates, United's proposed Los Angeles-Shanghai service would generate far more public benefits than any of the other proposals for 2009 frequencies that the Department was unable to grant due to the limitations of the US-China bilateral agreement, including MAXjet's proposal to operate a single-class service between Seattle and Shanghai catering to a very small number of premium-fare passengers. In short, United's proposed Los Angeles-Shanghai Boeing 747-400 service would offer significantly more capacity than any other carrier, establish Los Angeles as a new US. carrier gateway to China, serve the largest U.S.-China market without nonstop U.S. carrier service, and address the greatest unmet service need in the most underserved region of the country.

US Airways believes that an agreement with the City of Philadelphia on gates can and will be reached long before 2009. US Airways urges the Department not to take any precipitous action that might keep the company and the City of Philadelphia from successfully concluding their discussions. Plainly, US Airways and the City of Philadelphia are and will continue to be invested heavily in one another, and both have powerful incentives to ensure that agreement is reached on gates for the Beijing service.

Maxjet’s assertion that US Airways is not committed to the City of Philadelphia and Philadelphia-Beijing service is wrong. US Airways’ discussions with the City of Philadelphia are intended to ensure that sufficient gates are available so that the company can operate current and future international services from Philadelphia, including service to China. It would make little sense for US Airways, or any carrier, to bargain for additional international gates to support a service it does not wish to operate. Nor are US Airways’ discussions with Philadelphia intended in any way to prevent or limit competition at Philadelphia. The discussions stem from US Airways’ legitimate need for international gates to support the company’s existing and growing international service commitment at Philadelphia—including Philadelphia-Beijing—and nothing more.

Maxjet is also incorrect in suggesting that US Airways has not begun efforts to obtain the aircraft necessary to operate its Philadelphia-Beijing service. In fact, even though the Department has not issued a final order in this case, US Airways has had discussions with lessors and other carriers regarding terms under which aircraft could be acquired. As US Airways noted in its August 2, 2007, Consolidated Reply, it deliberately did not seek the 2007 designation so that it would have sufficient time to acquire appropriate aircraft for the Philadelphia-Beijing route.

US Airways, Inc. respectfully requests that the Department of Transportation (i) deny the motion of Maxjet Airways, Inc. and (ii) finalize its Final Order and Order to Show-Cause and grant it a certificate of public convenience and necessity and frequencies to provide daily service in the Charlotte-Philadelphia-Beijing market, and that it be designated in accordance with the terms of the U.S.-China bilateral, and grant such other or further relief as the Department deems necessary and appropriate.

MAXJet moves for leave to file this Supplemental Reply to respond to the argument that these non‑"new entrant" 2009 applicants, rather than MAXjet, should be awarded seven 2009 frequencies in the increasingly likely event that US Airways does not provide Philadelphia Beijing service. MAXjet respectfully requests that it be given an opportunity to provide this Supplemental Reply in order that the Department will have a more complete record upon which to decide this matter raised now by three non-"new entrant" carriers.

Where MAXjet disagrees with United, Delta and Northwest, however, is over the extremely important issue as to which carriers are eligible to be awarded the 2009 designation and frequencies. As MAXjet demonstrated in its November 16, 2007 Reply, the Department's Show Cause Order determined that the non-new entrant 2009 applicants had failed to rebut the Department's presumption (contained in the Instituting Order) that the award of the 2009 designation and seven frequencies should be made to a new entrant. Since the non-new entrant 2009 applicants, including Delta, United and Northwest, did not file any Objections to the Department's Show Cause Order, US Airways and MAXjet, the only two applicants which qualify for "new entrant" status in this proceeding, are the only 2009 applicants which can be awarded the 2009 designation and the seven frequencies reserved by the Department for a new entrant. Indeed, MAXjet respectfully submits, in light of the Department's unrebutted presumption that the 2009 designation and award of seven 2009 frequencies should be made to a new entrant and the failure of the non-new entrant 2009 applicants to file timely objections to the Department's Show Cause Order, that it would be reversible error for the Department to award the seven 2009 frequencies specifically set aside by the Department for a new entrant to Delta, United or Northwest rather than to US Airways or MAXjet, the only two carriers eligible for such an award.

The Department should immediately strike in its entirety Maxjet's pleading. Not only does it appear the pleading was filed outside the clear time limit established by the Department in its November 14 Notice (observed by every other submitting party), it is outside the scope of the Notice and seeks to re-argue the Department's Final Order and Order to Show-Cause--something Maxjet and every other party had an opportunity to do in October.

Not only is Maxjet's reply late and repetitive, it exceeds the scope of the Department's Notice. In the guise of an unauthorized reply to Continental's answer, Maxjet seeks to re‑argue the merits of its inferior niche service proposal, and attempts anew to lay claim to the 2009 designation and frequencies. The deadline for such arguments has long past, and Maxjet must live with the arguments made in its objection to the Final Order and Order to Show‑Cause. The Department should end Maxjet's delaying tactics by striking its November 16 pleading.

Counsel: US Airways and Squire Sanders, Charles Donley, 202-626-6600, cdonley@ssd.com

As US Airways is well aware, it was not possible for MAXjet to make these arguments concerning US Airways' commitment to serve the Philadelphia-Beijing route in its Objections, because US Airways did not threaten the City of Philadelphia and Philadelphia International Airport officials with not providing Philadelphia-Beijing service until long valuable Philadelphia-Beijing air service rights as a "bargaining chip" in its dispute with the Philadelphia International Airport officials that now legitimately stands in the way of the issuance of a final decision by the Department in this case. To the extent that a final award is delayed in this proceeding, it is a delay entirely self-inflicted by US Airways' bullying of the City of Philadelphia and Philadelphia International Airport officials, not due to any act of MAXjet, which merely brought US Airways' lack of commitment to serve the Philadelphia-Beijing route to the Department's attention. Indeed, as stated by United:

In short, none of the arguments made by US Airways in support of its Motion to Strike has any, much less a compelling, basis in fact, the Department's Notice or the Departments Rules of Practice and its Motion to Strike must, therefore, be denied by the Department

By this Order we make final our tentative findings and conclusions set forth in Order 2007-9-25, and award US Airways certificate authority to provide combination services in the Philadelphia-Beijing market and allocate to US Airways seven weekly combination frequencies for its Philadelphia-Beijing services. We also make final our tentative decision to allocate seven weekly combination frequencies each to American Airlines for its proposed Chicago-Beijing services, Continental Airlines for its proposed New York/Newark-Shanghai services, and Northwest Airlines for its proposed Detroit-Shanghai services. All of these rights become available on March 25, 2009.

We also make final our tentative proposal to modify, from one year to five years, the length of time a carrier must hold operating authority before it is permitted to sell or transfer U.S.-China routes and/or frequencies newly-awarded in this proceeding. Our condition would not apply in the case of a merger or acquisition by another carrier of all or a substantial part of the assets of the carrier holding the certificate or frequencies containing this condition.

United respectfully requests that the Department further amend Order 2007-9-25 to extend the start-up date by which United must inaugurate nonstop San Francisco-Guangzhou service from June 30, 2008, to June 30, 2009, and that the Department grant it such other and further relief as the Department may deem to be consistent with the public interest.

United now forecasts that demand for travel to Guangzhou this summer is likely to be lower than previously forecast principally due to the sub-prime debt crisis in the U.S. and its impact on the domestic economy. Faced with both a significant (and unexpected) increase in operating costs and a forecast decline in demand for travel over the route, United now expects to incur a far more substantial operating loss (and for a much longer period of time) from instituting the first ever US-flag nonstop service on this developmental route than it expected when it proposed to start daily nonstop service in June of this year. In order to avoid that loss while retaining the ability to start service over the route when anticipated economic conditions improve, United requests that the date by which it is required to start its service be shifted to June 30, 2009, the start of next year's peak travel season.

We will grant United's request to further amend its startup deadline for San Francisco-Guangzhou combination air transportation. We will require the carrier to institute service no later than June 30, 2009. We note that no party opposed United's request.

In taking this action, however, we put United on notice that should other U.S. carriers currently authorized to serve the U.S.-China market file applications for San Francisco-Guangzhou authority, we reserve the right to reconsider our decision here to determine whether or not that decision continues to be in the public interest.

US Airways intended to institute Philadelphia-Beijing service in March 2009 in accordance with the Department's order. As the foregoing confirms, US Airways has made significant strides in establishing the foundation for successful 2009 China service. No carrier, however, including US Airways, could have anticipated the rapid and extreme increase in fuel prices that the airline industry has experienced since the United States and China's May 2007 aviation agreement. Today, fuel prices exceed $4.00 per gallon, representing a doubling in price since May 2007. There is no sign that fuel prices will decrease significantly in the foreseeable future. At the time of its application, the fuel burn projected by US Airways for its Philadelphia-Beijing service-approximately 23 million gallons annually--would have required an expenditure of approximately 550 million. Today, the cost would be over $90 million, US Airways' fuel costs increased by $260 million year over year in the first quarter alone. With the recent dramatic increase in the price of crude oil, the full year impact is expected to be more than $1.5 billion on a year over year basis. This enormous cost increase must be taken into account when planning for a new service as important as the company's first scrvice to China.

In addition to unforeseen fuel price increases, there renlains continuing concern that the global economy may be slowing and that travel between the United States and foreign points, including Asia, could decrease over the coming months and into 2009. Although Asia remains among the strongest of regions economically, the downturn in business conditions in the United States and elsewhere could affect US Airways' ability to successfully launch new Philadelphia‑Beijing service in 2009. Although US Airways is optimistic about the long‑term prospects for success in the Philadelphia‑Beijing market, short‑term economic conditions could make it difficult to successfully institute service.

Delta’s award was subject to a start-up condition requiring that Delta begin its proposed Atlanta-Shanghai service no later than March 30, 2008. This condition imposed challenges for Delta as it initiated its first-ever U.S.-China service, given the complexity of negotiating a maze of Chinese regulatory requirements, business and operational requirements, and slot restrictions at Shanghai’s Pudong International Airport. Despite these challenges, Delta fully complied with the start-up deadline, commencing daily Atlanta-Shanghai service with its flagship B-777 aircraft on March 30, 2008.

Unfortunately, the market conditions for air transportation in general and for U.S.-China services in particular have radically deteriorated since the 2007/2008/2009 U.S.-China proceedings occurred. The most dramatic change has been the unprecedented increase in jet fuel costs during that period. As noted in US Airways’ recent motion requesting a one year delay in its start up condition, jet fuel prices have essentially doubled since the 2007/2008/2009 U.S.-China proceedings were conducted in May 2007.. The fuel cost increases have had disastrous financial consequences for U.S. carriers, forcing all of them to reevaluate and restructure their route networks. Several carriers have already been forced into bankruptcy and/or liquidation in recent months.

In contrast to these requests by other carriers for lengthy extensions of the start-up conditions applicable to their awards – which deprive the traveling public of the benefits of the proposed services entirely during the interim – Delta seeks only the flexibility to adjust its U.S.-China service schedule seasonally to reflect fluctuations in demand as a result of the deterioration in market conditions and skyrocketing cost of fuel. Delta remains committed to offering daily Atlanta-Shanghai service during the peak summer season, but requests permission to reduce its schedule to five (5) weekly flights during the winter to better match capacity to the reduced market demand. Specifically, Delta currently intends to reduce its daily service to 5x weekly service beginning November 7, 2008, returning to daily Atlanta-Shanghai service for the summer season in May 2009.

American Airlines hereby answers the motion submitted on May 22, 2008 by US Airways for a dormancy waiver until March 25, 2010 to commence service between Philadelphia and Beijing, China. By Order 2007-12-26, December 28, 2007, the Department imposed a start-up deadline of March 25, 2009.

Earlier today, American joined US Airways and five other U.S. carriers with substantial international operations (Alaska Airlines, Inc., Continental Airlines, Inc., Delta Air Lines, Inc., Northwest Airlines, Inc., and United Air Lines, Inc.) in seeking an industry-wide temporary blanket dormancy waiver for a two-year period in light of the fuel cost crisis (DOT-OST-2008‑0181).

Instead of processing route-specific waiver requests such as that presented by US Airways, the Department should promptly approve the blanket joint application, which when granted will cover the individual relief being sought here.

US Airways, together with Northwest and all other U.S. carriers with substantial international operations today filed a joint application for a temporary blanket dormancy waiver (Docket OST-2008-0181), which would cover US Airway's instant waiver request. For the reasons stated in the joint filing, Northwest urges the Department to immediately approve the blanket waiver request, rather than proceeding in an ad hoc fashion.

According to US Airways, the delay is necessary as the cost of fuel has significantly deviated from the original estimates used to assess the profitability of this route. It is our understanding that the route is not economically feasible at current fuel costs.

Despite this current impediment, I maintain my support for US Airways' service between Philadelphia and Beijing. This flight will produce economic benefits for the Commonwealth of Pennsylvania and will continue to span a geopolitical divide between the two countries. It is my understanding that Philadelphia is the nation's largest metropolitan area without direct service to China. Philadelphia ought to have the capability to promote the interests of Pennsylvania and the United States through direct flights to Beijing.

I urge DOT to grant US Airways a one-year extension to commence its planned flight service between Philadelphia and Beijing in 2010 rather than 2009 so it does not lose the authorization to fly to China because of increases in the price of fuel.

By Order 2007-9-25, the Department allocated to Delta seven frequencies to operate daily Atlanta-Shanghai service, commencing March 2008. Delta now seeks the flexibility to adjust its U.S.-China service schedule such that it will offer daily Atlanta-Shanghai service during the peak summer season but reduce its schedule to five weekly flights during the winter to better match capacity to the reduced market demand. Delta intends to reduce its daily service to five times a week beginning November 7, 2008, returning to daily Atlanta-Shanghai service for the summer season in May 2009.

We will grant US Airways' request to amend its startup deadline for Philadelphia-Beijing combination air transportation. We will require the carrier to institute service no later than March 25, 2010. We note that American Airlines, Inc. and Northwest Airlines, Inc. filed comments making reference to a temporary blanket waiver request in Docket OST-2008-0181. Neither American nor Northwest opposed the US Airways waiver request.

Despite the extraordinarily adverse market and operating conditions affecting air transportation, Continental is looking forward to instituting daily nonstop New York/Newark-Shanghai service on March 25, 2009, the date the authority awarded to it in this proceeding becomes effective, to complement the New York/Newark-Beijing service Continental has been operating since June 15, 2005. In light of these difficult conditions, however, Continental requests authority to operate two of its seven Shanghai frequencies and two of its seven Beijing frequencies on a seasonal basis so it will have the flexibility to reduce its U.S.-China schedules to five or six weekly flights on a seasonal basis as needed.

Continental's request to convert two of its China frequencies on each of its two China routes from year-round service to seasonal service is based on the same factors as the applications of US Airways, United, Northwest and Delta which have been granted by the Department. The extraordinary increase in the price of fuel, coupled with global economic concerns, require airlines to tailor their schedules more carefully than ever to adjust to these conditions, and Continental has decided that the flexibility to suspend the operation of up to two of its seven weekly flights on each of its China routes during off-peak seasons will enable it to meet demand and to operate its flights on as economic a basis as possible.

OST-2004-1907 - Conversion of two New York/Newark-Beijing frequencies from year-round service to seasonal service.

OST-2007-28567 - By Order 2005-3-24, the Department allocated to Continental seven frequencies to operate daily New York/Newark-Beijing service. Continental has been operating this service since June 15, 2005. By Order 2007-12-26, the Department allocated to Continental seven frequencies to operate daily New York/Newark-Shanghai service, commencing March 2009. Continental requests authority to operate two of its seven Shanghai frequencies and two of its seven Beijing frequencies on a seasonal basis so that it will have the flexibility to reduce its U.S.-China schedules to five or six weekly flights on a seasonal basis as needed.

American Airlines, Inc. hereby requests a temporary dormancy waiver with respect to its Chicago-Beijing certificate, Route 826, condition (13), awarded by Order 2007-12-26 in this docket on December 28, 2007. We are seeking authorization to defer inauguration of service for approximately one year, from April 9, 2009 to April 4, 2010.

This motion is being submitted in light of the extraordinarily adverse market and operating conditions affecting the airline industry. As a result of unprecedented levels in the price of fuel and economic conditions generally, other carriers in the U.S.-China market have been granted (or are seeking) authorization to defer start-up, suspend service, or operate frequencies on a seasonal basis.

We will grant American's request to amend its startup deadline for Chicago-Beijing combination air transportation. We will require the carrier to institute service no later than April 4, 2010.