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OST-2015-0025 - Alaska Airlines and American Airlines - Transfer of International Route Authority - Los Angeles-Mexico City

 

OST-2015-0042 - Delta - Los Angeles-Mexico City

Undocketed - Delta's Letter to US Air Carrier Licensing, January 21, 2005

 


Alaska Airlines, Inc. and American Airlines, Inc.

OST-2015-0025 - Transfer of International Route Authority
OST-2005-20406 - 2005 Los Angeles-Mexico City Combination Service Proceeding
OST-2010-0222 - American - US-Mexico Codesharing with Alaska Airlines

February 11, 2015

Joint Application for Transfer of International Route Authority and Applications for Amendment of Exemptions

Alaska Airlines, Inc. and American Airlines. Inc. hereby request that the Department of Transportation approve the transfer to American of international route authority held by Alaska authorizing scheduled foreign air transportation of persons, property and mail between Los Angeles. California and Mexico City, Mexico. The Joint Applicants request further that the Department amend their current exemption authorities in the captioned dockets to (i) allow American to serve the Los Angeles-Mexico City route with its own aircraft, and (ii) permit Alaska to display its two-letter designator code on American's flights between Los Angeles and Mexico City. The Joint Applicants request that both exemptions be reissued for a two-year period.

Alaska holds an exemption authorizing it to engage in scheduled foreign air transportation of persons, property and mail between Los Angeles and Mexico City. Notice of Action Taken dated August 25, 2014 (Docket OST-2005-20406). American holds un exemption authorizing it to hold out codeshare service only between Los Angeles and Mexico City. Notice of Action Taken dated July 19, 2012 (Docket OST-2010-0222); renewal currently pending.

The Joint Applicants request also that the United States designate American for service in the Los Angeles-Mexico City market, and that the Department allocate a codcshare authorization to Alaska for its continuing Los Angeles-Mexico City codeshare service.

American intends to commence double-daily service on the Los Angeles-Mexico City route on June 4, 2015. The Joint Applicants therefore request expedited approval of this application so that all necessary government approvals can be obtained in Mexico and so that marketing and sale can begin without delay.

Counsel: Cozen O'Connor, David Heffernan, 202-463-2537 for Alaska Air / Howard Kass, 202-326-5153 for American


 

February 26, 2015

Answer of Delta Air Lines

Delta Air Lines, Inc. hereby answers in opposition to the Joint Application of Alaska Airlines, Inc. and American Airlines, Inc. to transfer Alaska’s Los Angeles-Mexico City exemption authority to American.

American and Alaska inappropriately rely on the certificate transfer provisions of 49 USC 41105 to support their request for transfer of limited term exemption and designation authority. These authorities are limited in nature and are expressly subject to revocation and reallocation provisions. In Order 1997-11-35 the Department made clear that the certificate transfer provisions of section 41105 do not apply to frequency or exemption allocations.

For good reason the Department appropriately and correctly decided that temporary exemption and frequency awards should be subject to reevaluation on their public interests merits. Just as the Department decided in Order 1997-11-35, a route case should be instituted here to decide the merits of which competing application – Delta at three daily frequencies, or American at two daily frequencies – would best serve the public interest. American and Alaska inappropriately rely on merger precedent to support this discrete, one-off transaction of exemption authority. Contrary to these assertions, DOT and Congress have made clear that different rules apply to wholesale mergers; for example, with respect to DCA slot exemptions.

American and Alaska are not merging. American and Alaska are not transferring a certificate as contemplated by section 41105. And, the public interest requires a thorough and thoughtful examination of the disposition of these temporary exemption and designation authorities.

Counsel: Alexander Van der Bellen, 202-842-4184


 

OST-2015-0025 - Transfer of International Route Authority
OST-2005-20406 - 2005 Los Angeles-Mexico City Combination Service Proceeding
OST-2010-0222 - American - US-Mexico Codesharing with Alaska Airlines

March 6, 2015

Joint Reply of Alaska Airlines and American Airlines to Answer of Delta Air Lines

Delta's answer is nothing more than a spurious effort to obstruct and delay implementation of American's new nonstop service on the Los Angeles-Mexico City route. The Joint Applicants' agreement to transfer the route authority is the type of market-based transaction that the Department has routinely approved without consolidating applications from other carriers. There is no legal or practical scenario whatsoever in which the authority at issue will be transferred, or awarded, to Delta. If the Department fails to promptly approve the route transfer application, Alaska (which has consistently operated the route either on a once- or twice-daily basis in full compliance with the terms of the authority) will continue to operate the route.

It should be noted that Delta once held the authority to serve Los Angeles-Mexico City but returned it to the Department, which ultimately led to Alaska securing the route. See Order 2005-2-8, Feb. 14, 2005, at 2. In the Los Angeles-Mexico City market, two US carriers, Delta and United Air Lines, Inc., held underlying authority and designation under the US-Mexico bilateral agreement to provide direct carrier (own aircraft) services. However, by letter submitted January 21, 2005, Delta notified the Department that it would terminate service in this market on January 31, 2005.

In addition to answering the joint application, Delta filed an Application for Exemption (in Docket OST-2015-0042). The Joint Applicants hereby reserve the right to file a separate answer to Delta's application. The Joint Applicants will not address here that contingent application's lack of comparative merit because the Department's rejection of Delta's answer and prompt approval of the joint application would render moot Delta's application. In fact, Delta's application is not only contingent but wholly theoretical because, as discussed above in text, either the Department will promptly approve the Joint Applicants' route transfer application or the Joint Applicants will withdraw the application and Alaska will continue to operate the Los Angeles-Mexico City route. Of course, if the Department approves the joint application before the 15 calendar day period for filing answers to the Delta application expires, the Joint Applicants will have no need to submit an answer to the Delta application.

Counsel: Cozen O'Connor, David Heffernan, 202-463-2537 for Alaska Air / Howard Kass, 202-326-5153 for American


 

March 13, 2015

Motion for Leave to File and Surreply of Delta Air Lines

The transfer sought by Alaska and American is directly contrary to the Department’s original public interest determination to award LAX-MEX authority to Alaska instead of American. When the Department chose Alaska to operate the route it stated:

American brings none of the competitive advantages that come with the selection of Alaska in this case. American currently offers significant foreign scheduled air transportation services in the US-Mexico market, and direct-carrier services in the US-Mexico City market. More specifically, American offers direct-carrier service to 11 Mexican cities from nine US cities (four of which are American hubs), and serves Mexico City from three US points.

The proposed route transfer would eviscerate the Department’s public interest determination to award LAX-MEX route to Alaska over American. American continues to be the dominant carrier on US-Mexico routes and is the largest hub carrier at Los Angeles. Delta is a strong and growing challenger at Los Angeles and to Mexico, but needs important limited entry authority on this route to compete.

The Department has maintained the importance of its carrier selection proceedings and has even refused to allow carriers to migrate frequency and exemption authority within their own portfolios. For example, when Delta sought flexibility to migrate frequencies from the JFK-Bogota route to Atlanta-Bogota the Department declined because “doing so would defeat the Department’s rationale for selection of Delta over other competing applicants,” Order 2009-11-3.

Here, the transfer of route authority from Alaska to American would defeat the Department’s rationale for selecting the same carrier over the other. Delta has proposed a superior application offering three daily flights on the LAX-MEX route, versus the one daily frequency operated by Alaska and the two daily frequencies proposed by American. This is a discrete, simple case, and contrary to the protestations of American and Alaska will not cause unnecessary delay. A fresh look at the respective merits of the competing applications is necessary and appropriate to maximize the public interest benefits on this important US-Mexico route.

Counsel: Delta, Alexander Van der Bellen, 202-842-4184


 

March 15, 2015

Re: Response of Alaska Airlines and American Airlines to Surreply of Delta Air Lines

Unlike Delta, American and Alaska do not wish to prolong this proceeding and delay the Department of Transportation’s decision through the filing of unnecessary pleadings. Our joint reply cites decades of precedent supporting prompt approval of the pending transfer application, including the Horizon Air-San Juan Airlines route transfer case which involved neither certificate authority nor an airline merger. Delta’s references in its surreply are distinguishable and unavailing.

The Department has found repeatedly that market-based transactions involving the sale of international route authority—such as this one—should be approved promptly and without consideration of competing applications. American and Alaska strongly urge the Department to apply these precedents, and approve their pending application without further delay.

Counsel: American, Howard Kass / Alaska Air, Jeremy Ross


 

Order 2015-4-10
OST-2015-0025
- Transfer of International Route Authority
OST-2005-20406 - 2005 Los Angeles-Mexico City Combination Service Proceeding
OST-2010-0222 - American - US-Mexico Codesharing with Alaska Airlines
OST-2015-0042 - Delta - Los Angeles-Mexico City

Issued and Served April 17, 2015

Order to Show Cause

By this order the Department tentatively decides to (1) grant the joint application of Alaska Airlines, Inc. and American Airlines, Inc. for transfer to American of international route authority held by Alaska authorizing scheduled foreign air transportation between Los Angeles, California and Mexico City, Mexico, and (2) grant the requests of Alaska and American for amended exemption authority to permit American to serve the Los Angeles-Mexico City route with its own aircraft, and permit Alaska to display its two-letter designator code on American’s flights between Los Angeles and Mexico City.

As a threshold matter, the Department has examined the proper regulatory framework for considering the proposed transaction. The Joint Applicants cite two statutory provisions that they regard as dispositive: 49 USC §§ 40109 and 41105. The first sets forth the Department’s authority to issue exemptions and the second addresses the Department’s power to transfer certificates. The exemption statute imposes a public interest test. The Joint Applicants assert that the public interest test in this context incorporates the Department’s public interest test for deciding certificate transfer cases. That assertion, combined with the Joint Applicants’ express reliance on the certificate transfer provision of the statute, means that the Department should decide the present exemption transfer application based on certificate transfer policies and precedents. Furthermore, they contend that when those policies and precedents are applied to the facts of this case, their application warrants approval without the need for the Department to consider competitive applications for the route.

Delta, on the other hand, asserts that the certificate transfer precedents are not applicable here because no certificate authority is actually being transferred. Delta cites the Department’s instituting order in the 1997 US-Argentina All-Cargo Frequency Proceeding, Order 1997-11-35, in support. Delta argues that, because the certificate precedents are inapplicable, the Department should consider competitive applications and that, if it did so, it would select Delta’s application.

The Department tentatively decides that the Joint Applicants’ position is the more persuasive. In 1989 the Department directly addressed the question of the appropriate decisional framework for an exemption route transfer case. The Department decided that the proper regulatory framework for exemption route transfers was the same as for certificate transfers, namely section 401(h) of the Federal Aviation Act, the predecessor provision to 49 USC § 41105.

The Department does not view the 1997 Argentina instituting order cited by Delta as persuasive. The Department’s 1997 order stated quite clearly that what was involved in the 1997 Argentina situation was a “frequency allocation case” and that “frequency allocations are not certificate awards.” That 1997 case did not involve the traditional type of route transfer that was before the Department in 1989, and that is before the Department here.

Having tentatively determined that the Department should decide this transfer as it would decide a certificate transfer under § 41105, the Department must now determine whether the transfer satisfies the standards set forth in the statute.

In this case, the Department tentatively finds that the transfer meets the standards for approval. Specifically, the Department notes that American’s proposed Los Angeles-Mexico City service will exceed the frequency levels currently operated by Alaska (American plans to offer two daily flights, as opposed to Alaska’s single daily). Furthermore, American would provide new intragateway competition at Los Angeles to existing service offered by United, codeshare service offered by Delta, and the services of Mexican carriers. Moreover, as Los Angeles is already an American hub, its Los Angeles-Mexico City service will provide new online connecting options to passengers in the western United States, thereby increasing intergateway competition. Finally, the Department notes that, despite the transfer, Alaska will remain a presence in the market by virtue of its codesharing on American’s flights. The Department tentatively finds that these benefits would not conflict with important international aviation policy objectives or otherwise be inconsistent with the public interest.

The Department tentatively finds that the current condition of the US-Mexico market does not warrant deviating from our normal disinclination to consolidate competing route applications with a transfer request. Saying that, the Department is cognizant that the United States and Mexico recently concluded negotiations on a modernized air transport agreement, and the Department anticipates that there could be substantial changes in the market within the next year. Against this background, the Department tentatively finds it in the public interest to limit its approval of the Joint Applicants’ requests for amended exemption authorities to a period of one year. A timely renewal application will provide an appropriate vehicle for consideration of whether the situation prevailing in the market at that time might call for a different regulatory treatment.

By: Brandon Belford


 

April 27, 2015

Objections of Delta Air Lines

Delta Air Lines, Inc. Objects to the findings of Show Cause Order 2015-4-10, which tentatively decided to transfer Los Angeles-Mexico City exemption and designation authority from Alaska Airlines, Inc. to American Airlines, Inc. without considering Delta’s contemporaneous application for same route.

First, Delta’s application is clearly superior on the merits. American proposes two daily flights with B-737-800 aircraft, whereas Delta would operate three daily flights with the same aircraft type, both configured with 160 seats. Delta’s additional flight represents 117,000 more annual round-trip seats – a major public interest benefit on this important limited entry route.

Second, Delta respectfully disagrees that the much older Horizon-San Juan Canadian Transfer Case (Order 1989-3-22 and Order 1989-5-15) is controlling over the Department’s more recent pronouncement regarding exemption and frequency transfers in the 1997 US-Argentina All-Cargo Frequency Proceeding. There, the Department clearly and unequivocally stated that frequency awards were akin to exemptions and that a comparative selection case was required for the transfer of such authorities.

In the Argentina case, the Department found that the transfer of authorities “deemed to be in the nature of exemption authority” required a route case to determine the best public interest use of the authorities. Delta respectfully submits that a similar inquiry is appropriate here.

Third, even if the Department were to decide that the Horizon case is controlling, contemporary consideration of the competing Delta and American applications is still required. In the Horizon case, the Department stated that it would conduct a comparative route case proceeding where “there are strong reasons of policy for reviewing the needs and status of the market.” There are strong policy reasons at play here. In the US-Mexico marketplace, American commands a 25% market share to Delta’s 11%. (OAG Seat Shares, March 2015). The competitive benefits of Alaska over American were primary considerations in the selection of Alaska for this award.

Finally, should the Department nonetheless approve the transfer of LAX-MEX authorities from Alaska to American without conducting a comparative public interest proceeding, logic and precedent will compel the same deference to all future market-based transfers of designations, frequencies, slots and exemptions. While such a declared policy change works to Delta’s detriment in this matter, the Department should straightforwardly acknowledge that it will henceforth permit all carriers to enjoy the same degree of certainty in future market-based transactions for international frequencies, slots and exemptions.

Counsel: Delta, Alexander Van der Bellen, 202-842-4184


 

OST-2015-0025 - Transfer of International Route Authority
OST-2005-20406 - 2005 Los Angeles-Mexico City Combination Service Proceeding
OST-2010-0222 - American - US-Mexico Codesharing with Alaska Airlines
OST-2015-0042 - Delta - Los Angeles-Mexico City

April 27, 2015

Joint Comments of American and Alaska Air

The Joint Applicants intend to start service this summer, as soon as they are able to obtain the requisite authority in Mexico. To meet this commencement date and still allow sufficient time for marketing and sales of their new services, the Joint Applicants must begin advertising and selling tickets as soon as possible. The Joint Applicants therefore respectfully request that the Department promptly issue its order finalizing the findings and conclusions of its Show Cause Order, and affirming the transfer of the Los Angeles-Mexico City route to American on the conditions set forth therein.

Counsel: Cozen O'Connor, David Heffernan, 202-463-2537 for Alaska Air / Howard Kass, 202-326-5153 for American


 

OST-2015-0025 - Transfer of International Route Authority
OST-2005-20406 - 2005 Los Angeles-Mexico City Combination Service Proceeding
OST-2010-0222 - American - US-Mexico Codesharing with Alaska Airlines

May 4, 2015

Joint Answer of Alaska Airlines and American Airlines to Objections of Delta Air Lines

Delta offers no basis for the Department to alter its tentative findings and conclusions. Rather, Delta merely restates arguments that the Department, with sound reasoning, rejected in the show cause order. The core of Delta's legal argument is that the Department should disregard the precedent reflected in the Horizon-San Juan Canadian Transfer Case that "the proper regulatory framework for exemption route transfers [i]s the same as for certificate transfers." Delta continues to insist that the 1997 US-Argentina All-Cargo Frequency Proceeding supports the proposition that carrier selection is required in this case. The Department, however, sensibly rejected that argument in the show cause order, noting "[t]hat 1997 case did not involve the traditional type of route transfer that was before the Department in 1989 [in the Horizon case], and that is before the Department here."

Next, Delta argues that, "even if the ... Horizon case is controlling," comparative consideration of the Delta and American applications is "still required." Delta then contradicts this assertion by implicitly conceding what is indisputably true: that the decision whether to initiate a carrier selection proceeding in these circumstances is a matter of discretion for the Department. As the Department explained, its longstanding policy is to presumptively allow route transfers (and not grant comparative consideration of competing applications except in rare and exceptional circumstances) as long as the Joint Applicants satisfy the statutory public interest test. In this case, the Department tentatively determined that American's proposed service and Alaska's continued presence in the Los Angeles-Mexico City market via codesharing satisfy that test. The Department again noted its longstanding "general policy disfavoring consolidation" absent "strong public policy reasons for reviewing the service needs and status of the market." The Department then concluded that "the current condition of the US-Mexico market does not warrant deviating from our normal disinclination to conso lidate competing route applications with a transfer request."

In short, the Department, applying the correct statutory standard, tentatively found that the Joint Applicants have satisfied the prerequisites for approval of their proposed route transfer and that Delta failed to persuade the Department that it should deviate from its general policy disfavoring comparative consideration of competing applications. Delta's repetition of arguments that the Department soundly rejected in the show cause order provides no basis for the Department to question the merits of its tentative decision. Therefore, the Department should finalize its tentative decision without delay.

In order to facilitate a smooth transfer from Alaska to American and for the Joint Applicants to begin advertising and selling tickets as soon as possible, the Joint Applicants respectfully request that the Department promptly issue an order finalizing the findings and conclusions of the show cause order, and affirming the transfer of the Los Angeles-Mexico City route to American subject to the conditions set forth in the show cause order.

Counsel: Cozen O'Connor, David Heffernan, 202-463-2537 for Alaska Air / Howard Kass, 202-326-5153 for American


 

Order 2015-6-6
OST-2015-0025
- Transfer of International Route Authority
OST-2005-20406 - 2005 Los Angeles-Mexico City Combination Service Proceeding
OST-2010-0222 - American - US-Mexico Codesharing with Alaska Airlines
OST-2015-0042 - Delta - Los Angeles-Mexico City

Issued and Served June 5, 2015

Final Order

By this order the Department makes final its tentative decision, as set forth in Order 2015-4-10, to (1) grant the joint application of Alaska Airlines, Inc. and American Airlines, Inc. for transfer to American of international route authority held by Alaska authorizing scheduled foreign air transportation between Los Angeles, California, and Mexico City, Mexico; and (2) grant the requests of Alaska and American for amended exemption authority to permit American to serve the Los Angeles-Mexico City route with its own aircraft, and permit Alaska to display its two-letter designator code on American’s flights between Los Angeles and Mexico City.

Although Delta, as it did prior to the show-cause order, has quoted language from the 1997 Argentina Frequency Proceeding to challenge this position, the Department sees nothing in the Argentina decision that would overrule the clear findings of the Horizon case, that in an exemption transfer such as that involved here, the well-established statutory and regulatory framework for certificate transfers should apply.

In applying the certificate transfer framework, the Department tentatively found that the transfer met the standards for approval. Specifically, the Department noted that American’s proposed Los Angeles-Mexico City service will exceed the frequency levels currently operated by Alaska, and that American would provide new intragateway competition at Los Angeles and intergateway competition in the western United States. The Department also noted that, despite the transfer, Alaska would remain a presence in the market by virtue of its code-sharing on American’s flights. The Department tentatively found that these benefits would not conflict with important international aviation policy objectives or otherwise be inconsistent with the public interest.

The Department finds nothing in Delta’s objections that persuades us to change those tentative findings. Instead, Delta concentrates on asserting that, whichever of the two precedents the Department applies, the Horizon case or the Argentina case, Delta should receive a competitive proceeding, and in such a proceeding its proposal should prevail.

Notwithstanding Delta’s market share assertions, the Department does not find that the transfer of this single route triggers “strong public policy reasons” for the Department to deviate from its normal disinclination to consolidate competing route applications with a transfer request and review the overall needs of the market. As noted in the show-cause order, however, the Department is sensitive to the recent negotiation of a modernized air transport agreement with Mexico that could result in substantial changes in the market within the next year. It was against this background that the Department tentatively decided to limit its approval of the Joint Applicants’ requests for amended exemption authorities to a period of one year. The Department said that a timely renewal application would provide an appropriate vehicle for consideration of whether the situation prevailing in the market at that time might call for a different regulatory treatment. The Department, having now weighed all of the responses to the tentative decision, continues to hold that position.

By: Susan Kurland

 


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