OST-99-5475 / Sioux City / High Density Rule - Chicago O'Hare / April 1, 1999

Application of

The Community of Sioux City, Iowa / Docket No. OST-995475

for an exemption from 14 C.F.R. part 93, Subpart K and S. 49 U.S.C. § 41714 as to allow non-stop service to Chicago O'Hare Airport

Pursuant to 49 USC § 41714, the community of Sioux City, lows (referred to as Siouxland) along with other municipalities and businesses from the state of Iowa, Nebraska and South Dakota /1 ("Parties") respectfully request that the Department grant an exemption from the requirements of Subparts K and S of part 93 of the Federal Aviation Regulations so that they may obtain direct non-stop service to Chicago's O'Hare Airport. The parties request four slots at O'Hare to provide two Sioux City-O'Hare round-trip flights. /2

1/ The parties include the Governor of Iowa, Iowa Department of Economic Development, Siouxland Chamber of Commerce, the Sioux City Area Convention and Visitors Bureau, and civic officials, and businesses from throughout the Siouxland region (copies of letters of support are attached). The major municipalities are Sioux City IA, South Sioux City, NE, North Sioux City, SD, and Dakota Dunes, SD

2/ The specific times when slots are requested are set forth in Attachment A

The High Density Rule ("HDR"), 14 CFR Part 93, Subparts K and S. designates Chicago's O'Hare Airport as a high density traffic airport and prescribes air traffic rules applicable to that airport and at JFK, LaGuardia and Washington National airports. The HDR has been in effect since 1968. Under the HDR, in order to conduct any IFR operation (takeoff or landing) at any of these four airports, the operator must have a slot for the particular time frame during which the operation will be conducted. Also, under the HDR any party, including municipalities or airport authorities may purchase or "own" a slot.

Section 49 U.S.C. §41714 authorizes the Secretary to grant exemptions from the high density rule if the proposed service is in the public interest and the circumstances are exceptional. The "public interest" is statutorily defined to include:

• the availability of a variety of adequate, economic, efficient, and low-priced services without unreasonable discrimination or unfair or deceptive practices

• encouraging entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive airline industry. /3

The DOT has said "in our past approvals and denials of slot exemptions, we have recognized as an exceptional circumstance the existence of markets that were demonstrably large enough to support nonstop service but had no nonstop service. /4

In response to the General Accounting Office study in October 1996 on airline deregulation, the DOT further stated that Pi substantial benefits can be achieved through increasing competition at slot-controlled airports in situations where consumers would be able to obtain significantly lower fares in noncompetitive or underserved markets." /5

3/ 49 U S C 40101()(4), (13). The Secretary has broad authority to grant exemptions from the high density rule. That authority can be exercised even without the authority set forth in Section 49 U S C 41714.

5/ U S Department of Transportation Order 97-10-16 issued October 24. 1997

Sioux Gateway Airport, located in Sioux City, IA, is the main commercial airport for over 230,000 residents in the tri-state area known as Siouxland - northwestern Iowa, northeastern Nebraska, and southeastern South Dakota. The dynamics of this community are unique, especially the cooperation by the three states to further economic development in the area.

Major corporations with significant travel budgets that have their world corporate headquarters in Siouxland are:

These and other corporations based in Siouxland need to access the air transportation system to continue to develop their businesses. Besides the number of employees traveling outbound, there is also a large amount of travel into this community from worldwide locations by suppliers and customers of these corporations. Access to Chicago-O'Hare is critical due to the sheer numbers of connection possibilities and the variety of flight schedules at O'Hare. both domestic and international. Direct non-stop service to O'Hare would allow corporate travelers, as well as the leisure traveler, to go almost anywhere in the world with one stop.

The effects of deregulation have not been consistent among all sizes of communities. The American Association of Airport Executives (AAAE) recently issued its "Statement of Principles on Airline Competition." The document discusses the overall benefits of deregulation but admits that its benefits have not reached ail customers. The task force that put together the report suggested that deregulation should be viewed as an ongoing process Small and medium-sized communities may have actually seen reductions in air service. DOT Secretary Rodney Slater told an airline competition forum in Des Moines in October 1998 that there are communities whose consumers are not benefiting from deregulation. Secretary Slater referred to Iowa as one of these "pockets of pain." Siouxland is a good example.

At one time, Sioux Gateway Airport had jet service to Chicago, Denver, Minneapolis, and St. Louis. Since the advent of deregulation in 1978, air service has deteriorated causing passenger enplanements to decrease while, nationally, total domestic passenger enplanements more than doubled. In 1984, Sioux City had non-stop service to eight markets. In 1998, Sioux City has non-stop service to only two hubs, Minneapolis and St. Louis. Only one carrier provides commercial jet service - Northwest Airlines to their hub in Minneapolis. Northwest Airlink (operated by Mesaba Airlines) provides commuter service to Minneapolis and Trans World Express (operated by Trans States Airlines) provides commuter service to St. Louis.

Prior to the Deregulation Act of 1978, Sioux Gateway Airport received frequent service by Ozark Airlines and North Central Airlines with DC-9 jet aircraft and F-27 turbo prop aircraft to the key markets of Chicago, Denver, Minneapolis, and St. Louis. In the 1980s, Ozark was acquired by TWA and North Central was merged into Republic Airlines who later was acquired by Northwest Airlines. In 1986, United Airlines began jet service to Chicago and Denver, and America West Airlines started service to Phoenix. In 1990, TWA ended jet service and was replaced by TW Express with flights to St. Louis. In 1991, America West ceased all operations at Sioux Gateway Airport. United Airlines canceled its jet service in 1993 with United Express remaining to provide commuter service to Chicago and Denver. After United Airlines ceased its jet operations, Northwest Airlines saw an opportunity and commenced jet service to Sioux Gateway Airport from Minneapolis in 1994

During the summer of 1997, United Express, operated by Great Lakes Aviation, ceased operations due to maintenance problems. They resumed flights later that year but left the Sioux Gateway market in October 1997. Their departure left Siouxland without direct connections to Chicago.

The grant of this request for slots is consistent with Congressional intent and statements by DOT officials The Department of Transportation's Fiscal Year 1997 appropriation bill, enacted on September 30, 1996, contains language that strongly encourages the DOT to afford increased access to Chicago O'Hare Airport for small and medium-sized communities. Also, as noted in Order 97-1-7, Congress has directed the Secretary "to make the fullest possible use of existing exemption powers under 49 U.S.C. 41714 . . . to improve service to non-hub airports where significant improvements can be achieved."

The importance of airline service to small communities has also been the subject of a number of conferences conducted by the Boyd Consulting Group in the past year. In February 1998, a Boyd Group conference held in Denver, CO concentrated on "The Future of Regional Air Service". The focus of the conference was to discuss the trends in air service and how airports and communities can deal with the challenges ahead. Mike Boyd stated that " the real issue is assuring access to the national and international air transportation system." /6

In statements at the Forecast '99 conference in Washington, DC, Boyd said that "competitive, quality network access is just as important, if not more important, than service from a 'low-fare' carrier." /7

6/ Mike Boyd, President, The Boyd Group, ASRC, " The Future of Regional Air Service" conference held February 4-6, 1998 in Denver. CO

7/ Mike Boyd, President, The Boyd Group ASRC, "forecast '99 " conference held January 29, 1999 in Washington, DC

The reduction in air service at Sioux Gateway Airport does not correspond with the robust economic growth of the Siouxland region. Since 1988, over 20,000 jobs have been created and unemployment has dropped from 5.2% to 2.6%. Median household income increased from $21,900 to $34,600, retail sales increased by 58%, and numerous small businesses have been started. Total personal income has risen dramatically - 6.3% in Woodbury County (Iowa), 9.8% in Dakota County (Nebraska), and 21.9% in Union County (South Dakota). /8

The Siouxland community requests the four slot exemptions to allow access to Chicago O'Hare as a destination or connecting airport. O'Hare, one of the nation's primary business airports, is an important hub for the three-state area. Yet access is limited due to federally imposed regulations. For those communities without O'Hare service -including Sioux City - the options are for travelers to drive several hours to markets with non-stop service or to board connecting flights to one of the hubs with service. This adds costs and time to any trip, making it expensive and inconvenient for travelers.

8/ The increase in TPI for the United States from 1995 to 1996 was 56%

Source: Survey of Current Business, May 1998, U S Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis

Aspen filed Chapter 11 bankruptcy on August 11, 1998. Speaking about the Fling, Ron Stone, CEO of Aspen Mountain Air said, "I'm reasonably sure that had we attained slots at O'Hare we probably would not have reached this point. It definitely would have added to our game plan."

The residents of Siouxland face many challenges in securing air service to Chicago-O'Hare due to the slot restrictions. The Siouxland community has approached several airlines regarding Sioux City-O'Hare service only to be told that if we were able to secure slots we would rise to the top of the list. Slots are a valuable commodity, allowing communities access. Granting the control of slots to communities gives them an important tool for attracting air carriers to provide service and allows communities to retain access if a carrier decides to leave the market.

With this in mind, we are applying for the slots as a community. Unfortunately, because of limitations imposed by the FAA on the number of additional operations that can be added, not enough slots will be awarded to allow every community that has applied to receive service. The residents of this tri-state community want competition and will support new service The plethora of connecting service available at O'Hare would offer Sioux City passengers significantly improved access to myriad domestic and international destinations. As service grows, business people and leisure travelers from other areas will drive to Sioux City and use it as an alternate airport. It is appropriate that DOT facilitate additional growth by opening government-imposed slot restrictions.

The economic growth of small and medium communities is directly related to convenient and competitive airline service. Economic development for the three-state area cannot exist when air service is limited. and those wishing to travel to or do business in the area do not have reasonable access to major parts of this country and to the world. True deregulation can only exist when all markets can take part in the international transportation system.

Aviation in this part of the country is concentrated. Small communities receive service through only a very few large hubs. While those hub operators provide important service, it leaves most small communities with little or no flight options or price competition. At the current time, Sioux City has service to only two hubs with primary service to Minneapolis by Northwest Airlines alone.

As the Siouxland region continues to grow, quality air service becomes even more critical. Siouxland's ability to continue developing as a business center depends on frequent, reliable passenger service at Sioux Gateway Airport. A July 1997 Air Service Survey conducted by Tri-Star Marketing in Long Beach, CA showed that the Sioux Gateway market could support two daily jet flights to each of four hubs: Chicago, Denver, Minneapolis, and St. Louis. The estimated annual potential to Chicago alone for origin and destination traffic combined with connecting traffic was 68,580 enplaned passengers.

Attachment B is the historical passenger traffic data for Sioux City for the periods ended December 31, 1997 and June 30, 1998. The Chicago market comprised over 12,000 annual origin-and-destination (O&D) passengers in both periods. Connecting markets representing logical traffic flow over Chicago accounted for another 45,350 passengers for the year ended June 30,1998.

As can be seen in Attachment C, Chicago was the second most popular destination market from Sioux City in both 1996 and 1997. Minneapolis was the top destination but this market had non-stop jet service. Through the first half of 1998, Chicago remained the second even without the benefit of non-stop service to the hub.

In the most recent DOT order, the Department acknowledged that " slot constraints at the affected airports are a barrier to the marketplace's ability to meet the air transportation demands of many city-pair markets." /10

Given the vitality of the Siouxland market, as well as the preeminence of Chicago as an O&D point, the only plausible explanation for the absence of non-stop Chicago service in this market is the existence of slot restrictions at O'Hare. Existing Sioux City O&D traffic is substantial. with significant untapped potential constrained by the O'Hare slot restrictions. As such, this market represents precisely the situation that led to establishment of "the Congressional goal of enabling such communities to obtain convenient service to slot-controlled airports" pursuant to DOT exemption authority. If sufficient slots were available, deserving communities, such as Sioux City, would have access to O'Hare, a critical element for their economic development.

In short, service via O'Hare would result in enhanced interhub competition benefiting an extensive array of Sioux City connecting markets.

By awarding slots to Sioux City, the Department would acknowledge the direct link between air service and the economic development of small and medium communities. The Department should also consider survival of competition as a factor in granting slot exemptions. As Assistant Secretary Charles Hunnicutt stated before the Senate Commerce, Science and Transportation Subcommittee on Aviation, on May 13. 1997, New entry has almost completely stopped. We have received no new low-fare applications this calendar year and we have licensed only one new low-fare competitor since May of 1996" Awarding slots to Sioux City would be consistent with these principles and would provide additional competitive options for the three-state area by bringing new carriers into this region of the country.

By denying new competitive service from the growing business and tourism markets of Sioux City, DOT would tighten the dominant hub carriers' grip on this three-state region and lessen the likelihood that competition will come to this part of the country.

Based upon the data passenger traffic and the robust economy in the three-state area, the Sioux City-O'Hare market has great potential and is underserved. This demand justifies an exemption to allow O'Hare service.

The Parties are asking the Department of Transportation to award four slots to the community of Sioux City, IA. Allocation could be conditioned on start-up within twelve months and the community could be subject to the " use it or lose it rule," similar to that for Savannah/Hilton Head and Greenville/Spartanburg. If Sioux City were unable to secure a carrier to serve the route, the slots would be returned to the FM. Awarding these slots to Sioux City would provide the residents of the three-state area with the assurance that if they support O'Hare service, it will not disappear from use so that the carrier using the slot may serve other markets. Awarding slots to the community is consistent with the high density regulations and with actions taken by this Administration to work with local and state governments to promote tourism and economic growth.

Barriers to entry, including slot restrictions, must be opened to ensure competition in the next century. Small communities such as Sioux City must be given opportunities to receive service to high density airports.

Sioux Gateway Airport, the primary airport for the three-state area, is an example of a non-hub airport. The DOT has been encouraged to use exemption authority to improve service at nonhub airports. /11

11/ U S Department of Transportation Order 97-1-7 issued January 16. 1997

The above information demonstrates that we have the passenger potential to make a Sioux City-Chicago route profitable. We are being denied air service due to the lack of available slots at Chicago O'Hare and several airlines have expressed interest in providing that service if we were able to obtain slots.

We believe that if the DOT grants this application for four slot exemptions, it will:

Combined with existing service by established and affordable fare carriers, Sioux City would then have the potential to become an alternative airport for thousands of passengers traveling to and from the three-state area. Moreover, economic development, including job creation, will be stimulated by the availability of convenient and competitive air service.

It is time for the Department to empower the Community of Sioux City and the three-state area with the ability to directly guide its future economic growth.

For all these reasons, the Parties respectfully the Department grant it an exemption from the high density slot regulations to allow two nonstop Sioux City-Chicago O'Hare roundtrips.

Respectfully submitted,

C. Maurice Rawe

City of Sioux City

PO Box 447

Sioux City, IA 51 102