OST-99-5532 / Baton Rouge / Huntsville / High Density Rule - Chicago O'Hare / Answer of Atlantic Coast Airlines / April 27, 1999

Application of

for an Exemption from 14 C.F.R. Part 93, Subparts K and S, under 49 U.S.C. § 41714 to allow nonstop service to Chicago O'Hare International Airport

Application of

for an Exemption from 14 C.F.R. Part 93, Subparts K and S, under 49 U.S.C. § 41714 for nonstop service to Chicago O'Hare

American Eagle has launched an all out assault on the integrity of the authority of the Secretary of Transportation to award slots to small and medium non-hub communities. By forsaking its commitment to the communities of Montgomery, Alabama and Shreveport, Louisiana, and importuning the communities of Baton Rouge, Louisiana and Huntsville, Alabama to seek the slots previously awarded to Montgomery and Shreveport, American Eagle is cynically seeking to manipulate the processes of the Department to its sole advantage.

As a result of the DOT's award of eight slots to American Eagle to serve Shreveport anal Montgomery and the carrier's announcement that it is terminating regional jet service to O'Hare, the DOT is witnessing the spectacle of American Eagle "shopping" the slots, which do not belong to the carrier, by dangling them in front of other communities promising service to O'Hare. if American Eagle could not profitably serve Montgomery and Shreveport, what makes it think it can provide consistent O'Hare service to Baton Rouge and Huntsville? /1 What other Alabama and Louisiana cities will be asked to participate in this shameless process whereby Eagle pits one city against another by offering temporary access to O'Hare?

The plain fact is that, like it is doing with Montgomery and Shreveport by enhancing their access to Dallas/Ft. Worth ("DFW"), American Eagle can best provide connecting service opportunities to more points in the U.S. and to international destinations by connecting Baton Rouge and Huntsville to American's vast network hub at DFW than by offering longer haul routes to O'Hare where American serves 20 less domestic and 6 fewer foreign cities compared to DFW.

Rather than squander the limited nine O'Hare exemption slots that will be available on June 1 when American Eagle's Montgomery

1/ American Eagle has not offered an explanation as to why it cannot continue service to Shreveport and Montgomery. If the service has not been profitable, then what factors will permit it. to profitably serve the smaller Baton Rouge market (compared to Shreveport). On the other hand, if American Eagle's service to Shreveport and Montgomery was profitable, then why is the carrier failing to meet its obligation to the DOT and the communities to continue to provide nonstop service to O'Hare?

and Shreveport service will terminate, the Department should look to make this exemption authority available to communities with more substantial ties to the midwest and which can truly be advantaged if they had access to the largest O'Hare network carrier -- United Airlines -- with which ACA has a longstanding and successful code share relationship.

On the other hand, American Eagle deserves no more chances to serve O'Hare using limited slot exemptions. As the wholly-owned subsidiary of American Airlines, American Eagle should be compelled by the Department to play out its O'Hare route ambitions using its own vast array of O'Hare slots. Contrast this situation with that of ACA, which is neither owned nor controlled by its code share partner, United Airlines, and which must rely on its own resources and access to the capital markets on which to expand its operations. Likewise, ACA must primarily rely on the DOT slot exemption policy to improve access to O'Hare.

ACA has been awarded 16 exemption slots with which to serve the communities of Charleston, West Virginia, Wilkes Barre-Scranton, Pennsylvania and Springfield, Missouri. ACA has not defaulted on its commitment to well and faithfully serve these markets precisely as outlined in its prior application for O'Hare exemption slots. ACA will also commence, on May 17, 1999, regional jet service between Savannah/Hilton Head utilizing three slots awarded to Savannah/Hilton Head for this purpose. Order 99-3-12. Finally, ACA has had transferred to it by Great Lakes Aviation, slot exemptions with which to operate between Fargo and Sioux Falls a-rid O'Hare thereby upgrading turboprop service to the passenger pleasing regional jet aircraft. No community promised and offered jet service by ACA has been disappointed nor lost its service to another community as has Montgomery and Shreveport despite the fact that the O'Hare markets served by ACA are substantially smaller than those served by American Eagle. Exhibit 1. Indeed, American Eagle's preference for serving cities much larger than those characterized as "small non-hub" strongly suggests that the slot exemptions are misdirected when they are made available to American Eagle. ACA has earned the trust of small non-hub and small hub communities for which it offers nonstop regional jet service to O'Hare.

It is unfortunate that O'Hare is subject to the FAA's High Density Airport Rule (14 C.F.R. Subparts K and S of Part 93) But, because it is, communities like Charleston, Mobile, Baton Rouge and Huntsville must compete for the few remaining O'Hare exemption slots. In deciding which communities and carriers are to provide O'Hare service using DOT allocated exemption slots, the DOT has consistently sought to maximize public service benefits. See Order 99-3-12 (" . . . we find it especially important to allocate these slot exemptions where they will produce the maximum transportation benefits."). In the case of the four above-mentioned cities, maximum public benefits will result from the selection of ACA and Charleston and Mobile than from the selection of Baton Rouge and Huntsville.

On the basis of the exchange of local traffic between each of the four communities and O'Hare, the Charleston and Mobile markets, whether or not aggregated with traffic from within their respective catchment areas, are larger than the Baton Rouge and Huntsville markets.

The potential size of the market, as measured by the number of passengers which will benefit from new nonstop O'Hare service has always played a key role in the DOT's carrier/city selection process. Orders 98--4-21 and 99-3-12. This DOT decisional standard is compelling in this case. In ranking the size of markets which lack nonstop O'Hare service, the Charleston and Mobile markets rank number one and seven, respectively. Combined with their realistic catchment areas Charleston/Myrtle Beach and Mobile/Pensacola, they rank one and two. Huntsville ranks twelfth and Baton Rouge ranks seventeenth. /2 This simple ranking is all the analytical analysis the Department need accomplish in order to make the required public benefit determinations.

By this critical measure, Charleston and Mobile are better candidates for selection than Baton Rouge and Huntsville thereby giving the DOT confidence ACA will sustain, both economically and operationally, its proposed O'Hare service. See Order 98-4-21. The DOT can draw this conclusion even if American Eagle did not have a history of withdrawing from O'Hare markets which it represented it could profitably serve if the DOT made exemption slots available for this purpose.

There is simply no question that ACA has a stronger commitment to serving Charleston and Mobile than American Eagle's commitment to Baton Rouge and Huntsville. With ACA's growing base at O'Hare it is establishing itself as willing to offer popular regional jet service to smaller communities which seek access to United's large domestic and international route network. Indeed, ACA forecasts that it will transport over 72,000 Charleston passengers and over

2/ The only way Baton Rouge could catapult itself into fifth place was by including traffic from Alexandria (140 miles away), Lake Charles (132 miles away) and Lafayette (60 miles away) to make up the Baton Rouge catchment area. Baton Rouge is only 91 miles from New Orleans, which, using this logic, must be within the New Orleans catchment area. Since there are six daily large jet flights between New Orleans and Chicago, Baton Rouge would not appear to be as deserving of O'Hare exemption slots as larger communities since it falls within the New Orleans service area. ACA makes this point not to argue Baton Rouge does not deserve access to Chicago, but rather to question the relative merits of the Baton Rouge application.

46,000 Mobile passengers in the first full year of regional jet service and both services will produce a segment operating profit. /3 Neither Baton Rouge nor Huntsville has entered into the record a traffic or financial forecast raising a question about the potential for their markets. /4 The last thing the DOT should do is award slots to communities to be used by American Eagle if it is not certain of the financial viability of the markets thereby possibly leading to a similar display of a start-up and quick termination of O'Hare service using exemption slots. ACA's O'Hare traffic and financial forecast have proven to be conservative and the DOT can and should rely upon them for making its carrier selection decision.

ACA regrets that not all communities deserving nonstop O'Hare service can obtain it. However, there are two principal barriers to such service -- the High Density Airport Rule and the economics of the individual routes. The DOT's slot exemption policy can overcome the first barrier. In the case of Baton Rouge and Huntsville, while both may be under served cities, neither fits the profile of a community the DOT generally considers the best

3/ ACA has forecast Charleston will earn a segment operating profit of over $1.3 million on an annual basis. The comparable result for Mobile is forecast at over $885,000.

4/ It is instructive to note that American Eagle declined to provide the Department any forecast of its results for service to Shreveport or Montgomery when it applied to serve these markets. See Order 98-4-21, page 16, footnote 9 and Application of Simmons Airlines d/b/a American Eagle, October 9, 1997, Docket OST-97-2985. The DOT should be cautious in making additional slots available to American Eagle in the absence of such basic data.

candidates for nonstop O'Hare service. Further, the record lacks any data to permit the Department to conclude that. Baton Rouge and Huntsville service can be sustained. Certainly the track record of American Eagle is poor and lacks the kind of commitment to small community-O'Hare service as demonstrated by ACA.

WHEREFORE, for the reasons set forth above, Atlantic Coast Airlines urges the Department to deny the applications of Baton Rouge and Huntsville for O'Hare slots exemptions.

Very truly yours,

BAGILEO, SILVERBERG & GOLDMAN, L.L.P.

By: Robert P. Silverberg

Dated: April 27, 1999