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OST-2001-8726

 


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 Served January 22, 2001 Notice U.S.- Israel Third Country Codeshare

By this notice we invite all U.S. certificated air carriers interested in using third-country code-share opportunities in the U.S.-Israel market to file applications as specified below in the captioned docket.

Under a Memorandum of Consultations (MOC) signed January 10, 2001, representatives of the United States and Israel reached an ad referendum agreement on the text of a Protocol amending the 1950 U.S.-Israel Air Transport Agreement, as amended. Under the terms of the Protocol, the U.S. may authorize, on a phased-in basis, up to four code-share arrangements between U.S. and third-country airlines for service between the U.S. and Israel. Authorized U.S.-Third-country code-share arrangements may provide services in the U.S.-Israel market in phases as follows: Phase 1 -Up to two arrangements until March 31, 2002; Phase 2 - Up to three arrangements from April 1, 2002, through March 31, 2003; and Phase 3 - Up to four arrangements from April 1, 2003, through March 31, 2004.1 The MOC also provides that the code-share opportunity under Phase 2 may be exercised in advance of April 1, 2002, by mutual agreement of both parties. The limitations on the number of third-country code-share arrangements will not. apply to any code-share arrangement in which airlines of the United States, Israel, and a third country are all participants .

As the opportunities under Phase I are available immediately, and given the provisions of the MOC with respect to the Phase 2 opportunity, we will solicit applications here for both the Phase I and Phase 2 codeshare opportunities. The Protocol provides that, until March 31, 2004, designated U.S. airlines may serve Tel Aviv, plus seven additional points to be selected by the United States on a code-share basis only, without local traffic rights between third-country points and points in Israel when the U.S. airline is not the operating carrier.

We request by this notice that all U.S. air carriers interested in making use of the Phase I and Phase 2 third-country code-share opportunities described above file applications with the Department in the newly established docket no later than January 29, 2001. Answers to such applications should be filed February 5, 2001. Replies to answers should be filed February 8, 2001.

Carriers without the requisite operating authority should file exemption/designation applications and requests for statements of authorization to serve the affected markets in conjunction with the foreign code-share carrier(s) involved. Carriers with the requisite underlying authority and statements of authorization need only file requests for the available code-share opportunity. All applications should include, at a minimum, the following information: (a) the proposed startup date; (b) the markets to be served, including the number and identity of U.S. cities that would receive non stop-to- nonstop connections in the U.S.-Israel market, and the total elapsed travel time (including layover time) for each flight between each initial point of origin and each final destination in both directions (i.e. provide a total elapsed round-trip travel time for each city pair and break-out subtotals for the elapsed times on the U.S. to Israel flights and the Israel to U.S. flights); (c) the number of frequencies to be provided between the U.S. and Israel and the duration of service if not provided on a year-round basis for each leg of the flights; (d) type of aircraft, including the number of seats, to be used between the U.S. and the intermediate point(s) and between the intermediate point(s) and Israel; (e) the foreign code-share carrier involved, the country and the specific intermediate point(s) over which the services will be provided, and which carrier would be operating each leg of the flights; (f) existing authority held to conduct the operations, if applicable; and (g) assurance that the U.S. air carrier applicant has provided or will provide the Department with the Compliance Statement referred to in Section IV of the DOT CodeShare Safety Program Guidelines (issued February 29, 2000) concerning a safety audit of the foreign air carrier(s) involved. In addition, carriers must provide as a part of their applications, copies of the relevant cooperative service arrangements, if not already on file with the Department. Applicants are free to submit any additional information that they believe will help us in making our decision.

By:  Paul Gretch


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 January 29, 2001 Application of American Airlines for Third-Country Code-Share Opportunity U.S.- Israel Third Country Codeshare
    Exhibits AA1-4:  Schedule, Equipment, Compliance Statement  
    Service List  

Swissair is Ameri-can's foreign codeshare partner for service to Israel. Ser-vice will be provided via Zurich, Switzerland. Swissair will operate between Zurich and Tel Aviv. American will operate between Zurich, on the one hand, and Chicago (peak season) and Dallas/Ft. Worth, on the other. Swissair will operate between Zurich, on the one hand, and Atlanta, Boston, Chicago, Los Angeles, Miami, New York (JFK), Newark, San Francisco, and Washington (Dulles), on the other.

Swissair operates two daily frequencies between Zurich and Tel Aviv. American and Swissair operate 14 daily peak season frequencies between U.S. gateways and Zurich.

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

OST-01-8726 January 29, 2001 Application of Northwest Airlines for Third-Country Code-Share Opportunity U.S.- Israel Third Country Codeshare
    Exhibits NW1-3:  U.S.- Tel Aviv Service  
    Service List  

Northwest hereby applies for one of the two immediately available opportunities under Phase 1. In the alternative, Northwest applies for the third authorization under Phase 2, and requests that it be permitted to operate its code-share services immediately. Northwest also requests a designation to provide scheduled combination service to Israel.

Northwest intends to provide daily-plus-one nonstop-to-nonstop connecting service between Tel Aviv and 14 U.S. points on a code-share basis via Amsterdam. Based on current schedules, Northwest intends to place its "NW" designator code on eight (8) weekly nonstop flights operated by KLM between Amsterdam and Tel Aviv in each direction.

KLM currently is limited to 8 weekly frequencies under the terms of the Netherlands- Israel bilateral aviation agreement. KLM, however, has a strong interest in increasing Its Amsterdam-Tel Aviv service to fourteen weekly frequencies as soon as possible.

Northwest's proposal will provide travelers and shippers throughout the United States with convenient online connections to daily U.S.-flag departures to and from Tel Aviv. Northwest offers an extensive domestic route system and 14 geographically dispersed U.S. gateways to Amsterdam (Atlanta, Boston, Chicago, Detroit, Houston, JFK, Los Angeles, Newark, Washington (Dulles), Memphis, Miami, Minneapolis, San Francisco and Seattle) providing passengers and shippers throughout the United States with seamless online service to Israel.

Counsel:  Zuckert Scoutt, Charles Simpson, 202.298.8660, cjsimpson@zsrlaw.com  

OST-01-8726 January 29, 2001 Application of United Air Lines U.S.- Israel Third Country Codeshare
    Exhibits UA-1-10:  Daily Frequencies; Summer Schedules  
    Exhibits UA11- 17:  Summer Schedules; Fleet Used  
    Service List  

United and Lufthansa propose to offer code-share service between a total of 15 U.S. gateways and Tel Aviv, Israel, via Frankfurt and Munich, Germany. Those 15 U.S. gateways are: Atlanta, Boston, Chicago, Dallas/Fort Worth, Denver, 3 Detroit, Houston, Los Angeles, Miami, New York (EWR), New York (JFK), Philadelphia, Phoenix,' San Francisco, and Washington (IAD).

United hereby requests that it be designated one of the two opportunities that are available immediately. United intends to use this authority to offer scheduled foreign air transportation of persons, property and mail between the U.S. and Israel, via Frankfurt and Munich, Germany, pursuant to United's code-sharing relationship with Lufthansa. Under these operations, United would place its "UA" designator code on Lufthansa flights operated between Frankfurt and Munich, on the one hand, and Tel Aviv, on the other.

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


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 February 5, 2001 Answer of American Airlines U.S.- Israel Third Country Codeshare
        Exhibits 1-11:  Northwest's Service; American Service Proposals    
      Service List    

As a consequence of the unbearably long ground times in Amsterdam that Northwest and KLM would impose on their east-bound passengers, American will provide shorter total elapsed times in six of the nine gateway markets that the American and Northwest proposals have in common (Exhibit 3). In fact, on a roundtrip basis, American beats Northwest by more than 14 hours at Atlanta, 12 hours at Boston, 11 hours at Chicago, nine hours at Miami, six hours at Washington, and three hours at New York.

At the three common cities where Northwest would beat American (Los Angeles, Newark, and San Francisco), Northwest's advantage would be far smaller, ranging from less than two hours to just over five hours (Exhibit 3). But at those three cities, neither American nor Northwest would provide effective roundtrip connecting service in any event, since ground times in one or both directions would exceed six hours, as shown in Exhibit 5.

It should also be noted that at Dallas/Ft. Worth, served by American/Swissair to Zurich, but not by Northwest/KLM to Amsterdam, American will provide effective daily connections to Israel in both directions (Exhibit 5). Yet at the U.S. gateways served by Northwest/KLM but not by American/Swissair (Detroit, Houston, Memphis, Minneapolis/St. Paul, and Seattle), Northwest would not provide any effective daily roundtrip connections (Exhibit 5).

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

OST-01-8726 February 5, 2001 Answer of the City of Houston and the Greater Houston Partnership U.S.- Israel Third Country Codeshare
    Service List  

The City of Houston and the Greater Houston Partnership respectfully file this answer in support of the applications of Northwest Airlines and United Airlines to provide third-country code-share services between Houston, as well as other gateways in the United States, and Israel.

Counsel:  Leftwich Douglas, Rebecca Taylor, 202.434.9100, rltaylor@ldpllc.com 

OST-01-8726 February 5, 2001 Consolidated Answer of Northwest Airlines U.S.- Israel Third Country Codeshare
        Exhibits:  Proposed Service    
       Service List   

Counsel:  Northwest, Megan Rosia, 202-842-3193, megan.rosia@nwa.com 

OST-01-8726 February 5, 2001 Opposition of Sun Country Airlines to Application of Northwest Airlines U.S.- Israel Third Country Codeshare
      Service List   

Counsel:  Sun Country, Dennis Barnes, 202.332.8216

OST-01-8726 February 5, 2001 Consolidated Answer of United Air Lines U.S.- Israel Third Country Codeshare
        Exhibits 1-10:  Gateway Links, Proposed Service, Connections, Frequencies   
       Service List   

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


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 February 8, 2001 Reply of American Airlines U.S.- Israel Third Country Codeshare
        Exhibits 1-4:  American Service    
      Service List    

American Airlines, Inc., in response to the Depart-ment's Notice served on January 22, 2001, hereby replies to the answers submitted on February 5, 2001 by Northwest Airlines, Inc. and United Air Lines, Inc. Without question, the Depart-ment should grant one of the immediately available opportuni-ties to the American/Swissair arrangement via Zurich, for all the reasons presented in our application of January 29, 2001 and our answer of February 5, 2001.

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

OST-01-8726 February 8, 2001 Reply of Memphis-Shelby County Airport Authority U.S.- Israel Third Country Codeshare
        Service List    

The Memphis-Shelby County Airport Authority submits this reply in support of the application of Northwest Airlines, Inc. for one of the two U.S.-Israel Phase 1 third-country code-share opportunities that the Department is allocating in this proceeding. The MSCAA supports Northwest's application because Northwest alone has proposed to provide nonstop-to-nonstop connecting service between Memphis and Tel Aviv.

Counsel:  Memphis-Shelby County Airport, Arnold Perl 

OST-01-8726 February 8, 2001 Reply of the Metropolitan Airports Commission U.S.- Israel Third Country Codeshare
        Service List    

The Metropolitan Airports Commission, owner and operator of the Minneapolis-St. Paul International Airport, respectfully files this reply in support of the application of its hometown airline. Northwest Airlines, Inc. is seeking one of the opportunities which recently became available to operate third-country code-share services between the Twin Cities and thirteen other key communities throughout the United States, and Tel Aviv, Israel. The Commission urges the Department of Transportation to grant an early approval of Northwest's application so that services may begin immediately and continue indefinitely from MSP. Even without the advantages and opportunities that the new proposed Northwest service will provide. Tel Aviv is - and has been for some time - one of the top 50 O&D domestic and international markets for MSP. In fact, the MSP-TLV passenger market has experienced a healthy average annual growth rate of almost 6% over the past decade, suggesting that the market continues to have growth potential. MAC believes that the nonstop-to-nonstop connecting service proposed by Northwest, in partnership with KLM Royal Dutch Airlines through its European hub in Amsterdam, will be the catalyst for additional growth in this very important international passenger market.

Counsel:  Minneapolis-St. Paul Airport Commission and Pablo O. Nuesch, Spiegel & McDiarmid

OST-01-8726 February 8, 2001 Reply of Northwest Airlines U.S.- Israel Third Country Codeshare
            Exhibits NW1-5:  Service Proposal    
                Service List      

Northwest Airlines, Inc. submits this consolidated reply to the answers filed by United Air Lines, Inc. and American Airlines, Inc. ("American"), and the opposition of Sun Country Airlines, Inc, in this docket. Neither the answers of United and American nor Sun Country's opposition can alter the conclusion that awarding one of the two immediately available Phase I opportunities to Northwest would maximize the public benefits available under the U.S.-Israel MOC. Awarding the first two Phase I opportunities to United and American would result in fewer U.S. gateway options, less capacity, and fewer frequencies in the U.S.-Israel market.

Counsel:  Northwest, Megan Rosia, 202-842-3193, megan.rosia@nwa.com 

OST-01-8726 February 8, 2001 Consolidated Answer of Port of Seattle to Application of Northwest Airlines for Third-Country Codeshare Opportunity U.S.- Israel Third Country Codeshare
        Service List    

The Port of Seattle, owner and operator of Seattle-Tacoma International Airport (Sea-Tac) submits this Answer in support of the Application of Northwest Airlines, Inc. for third--country code-share authorization to Israel.

Counsel:  Preston Gates, Jonathan Blank, 202-628-1700, jblank@prestongates.com 

OST-01-8726 February 8, 2001 Consolidated Reply of United Air Lines U.S.- Israel Third Country Codeshare
        Service List   

Pursuant to the Department's Notice dated January 22, 2001, United Air Lines, Inc. submits the following consolidated reply in support of its application for designation for an opportunity to immediately introduce third-country code-share service between the United States and Israel in conjunction with Lufthansa. The Department's only task in this proceeding is to decide which two among the three applicants (United, Northwest, and American) will be designated to introduce U.S.-Israel third-country code-share service immediately under Phase I and which one will have to wait until April 1, 2002 under Phase 2 of the schedule set forth in the U.S.-Israel Memorandum of Consultations signed January 10, 2001.

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


U.S.- Israel Third-Country Codeshare Opportunities (2001)

Order 01-4-24
OST-01-8726
Issued April 18, 2001
Served April 18, 2001
Order to Show Cause U.S.- Israel Third Country Codeshare
    Appendix:  Frequencies  

We have tentatively decided to select American to operate third-country code-share service via Zurich with Swissair and United to operate third-country code-share service via Munich/Frankfurt with Lufthansa in the U.S. -Israel market effective upon the issue date of a final order in this proceeding. In addition, we have tentatively decided to select Northwest to operate third-country code-share services in the U.S.-Israel market with KLM, beginning April 1, 2002.

The recent agreement with Israel provides valuable opportunities for U.S. carriers to operate service between the U.S. and Israel on a bilateral code-share basis and with third-country carriers. Currently, one U.S. carrier, Continental Airlines, serves the market with its own aircraft with nonstop services between New York and Tel Aviv. In addition, Delta and El Al have applied to operate bilateral codeshare services in the market under the new agreement. Thus, implementation of the third-country code-share rights here constitutes an important opportunity to maximize the number of carriers serving Israel and the level of competitive services offered travelers and shippers.

United and American offer the most frequencies on the critical segment between Europe and Israel. American/Swissair would operate 14 weekly flights and United/Lufthansa 17 weekly flights. On the other hand, NorthwesVKLM would offer only eight weekly flights. In addition, overall, United and American offer the best elapsed flight times, providing the most convenient connections between the U.S. and Israel. For example, in the nine city-pair markets proposed by all three applicants (Atlanta, Boston, Chicago, Los Angeles, Miami, Newark, New York (JFK), San Francisco, and Washington DC), United would offer the fastest roundtrip elapsed time in five of the nine common markets while American would offer the fastest roundtrip elapsed time in the remaining four markets. Northwest would not offer the fastest roundtrip elapsed time in any of the nine common city-pair markets.

Under our proposed allocation, American and United would offer double-daily or better service between 15 geographically dispersed U.S. cities and Israel with each carrier offering comparable elapsed flight times in most cornmon city-pair markets. We tentatively conclude that this outcome provides the greatest overall service and competitive benefits in this case. In light of these facts, and given our goal of increasing the level of competitive service in the market, we have tentatively concluded that the proposals of American and United would provide greater public benefits than Northwest and should be awarded the two third-country authorizations that are available now.

In reaching this tentative decision, we have fully considered Northwest's arguments that it should be awarded one of the two currently available code-share opportunities based on the large number of geographically diqxrsed U.S. gateways (14) it would serve, including three not served by the other applicants, and tht high level of transatlantic frequencies its provides. However, as mentioned above, we note that Northwest’s total daily elapsed flight times would be less competitive and convenient than those offered by American and United. Moreover, Northwest would offer far fewer Europe-Israel frequencies (8) than American (14) and United (17), meaning that Northwest would be able to offer significantly less capacity and fewer practical connecting options. Against this background, we have tentatively concluded that the public benefits offered by Northwest's proposal do not outweigh the service and competitive benefits offered by the proposals of American and United for award of one of the first two authorizations for third-country code-share service.

That said, we tentatively conclude that Northwest's proposal would offer an additional service option for travelers and shippers and that Northwest should be awarded the service opportunity available in April 1, 2002. Even if KLM does not secure a capacity increase, Northwest would still offer eight weekly flights with KLM between Amsterdam and Tel Aviv with nonstop-to-nonstop connections to cities throughout the United States. Moreover, as noted earlier, since Northwest does not now serve Israel, its service would provide consumers further choice for. service in the market. We, therefore, conclude that the benefits of Northwest's proposal wan-ant its selection for the service opportunity available April 1, 2002.

By:  Susan McDemott


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 April 30, 2001 Objection of the Metropolitan Airports Commission to the Departments Tentative Findings and Conclusions in it Order to Show Cause U.S.- Israel Third Country Codeshare
    Service List  

MAC is concerned that by overlooking MAC's filing, DOT did not take into consideration the important benefits that would accrue from an early Northwest service opportunity between Minneapolis and Tel Aviv. MAC's concerns are twofold. First, although the Department makes references in its Order to the responsive pleadings filed by a number of cities, airport authorities and civic organizations (as well as those filed by the three applicants and Sun Country Airlines, Inc.), it makes no mention of MAC's timely filing or any of the important issues discussed therein. This omission implies that DOT did not properly consider all of the issues raised by all of the parties to this proceeding. Accordingly, DOT should reconsider its decision in light of the earlier arguments made by MAC, and should grant an immediate service opportunity to Northwest to serve Israel from MSP (and other deserving gateways).

Secondly and more fundamentally, reversing this tentative decision based on MAC's pleadings would honor the Department's own policy of focusing attention on cities' needs for international air service opportunities. DOT's goal of enhancing the 41 access of U.S. cities to the international air transportation system',4 requires that it consider the views of the cities it purports to assist, as the Department recognized when it pledged to "increase [its] efforts to reach out to Congress and constituent groups, such as ... cities [and] airports ... to learn their anticipated needs"5 for the future. Because failing to take MAC's views into account is contrary to the Department's stated goals with respect to international air service issues, the Department should reconsider its tentative allocation of service opportunities in this case and should reassess its decision in light of all the issues, including those raised by MAC.

Counsel:  Spiegel Mcdiarmid, Pablo Nuesch, 202.879.4000

OST-01-8726 April 30, 2001 Objection of the Memphis- Shelby County Airport Authority U.S.- Israel Third Country Codeshare
    Service List  

If the Department does adopt its tentative decision, we request that the Department take whatever steps it deems necessary to make the 2002 designation available as soon as possible. The Memorandum of Consultations signed on January 10, 2001, between the United States and Israel provides that by mutual agreement the designation available on April 1, 2002, may be exercised prior to that date. The United States should take advantage of this provision and urge the Government of Israel to allow the third designation be used prior to April 1, 2002.

Counsel:  Memphis- Shelby Aiport, Arnold Perl

OST-01-8726 April 30, 2001 Objection of Northwest Airlines U.S.- Israel Third Country Codeshare
    Service List  

In urging the Department to change its decision, Northwest is not asking the Department to exclude 2001 service to any market that would receive 2001 service under the Department's Order. That is unnecessary. If the Department grants the immediately available awards to Northwest and United, every market that American proposes to serve will still receive service. In addition, as stated, Northwest will offer service to Israel in three additional markets: Minneapolis-St. Paul, Memphis, and Seattle. The traveling public is best served by adding new service options to Israel, rather than by doubling service from certain communities and leaving others with no service at all. Given the availability of a third code-share opportunity in 2002, the public interest will be better served by creating service to the maximum number of U. S. points in 2001 and then adding the duplicative American service in 2002.

Counsel:  Northwest, Megan Rae, Rosia, 202.842.3193

Index


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 May 3, 2001 Consolidated Answer of United Air Lines U.S.- Israel Third Country Codeshare
    Exhibits UA-CA-1, 2:  Summer Traffic, Service  
        Service List   

The objections raised by Northwest and its civic supporters are not new but have already been considered and rejected by the Department in Order 01-4-24. Northwest is obviously motivated in filing these objections by its disappointment at being awarded the designation that becomes available only on April 1, 2002. Northwest now seems intent, however, in turning that disappointment into a "leveling" effort aimed at seriously eroding the value of the immediately available designations awarded to United and American. A carrier such as Northwest, with extensive experience in these codeshare proceedings, must know that such repetitious objections will not likely achieve a modification in the tentative decision but will surely delay the final order.

Delay in this instance has a particularly damaging effect. The primary benefit of new U.S. carrier competition in the U.S.-Israel market under phase I of the recent bilateral amendments was intended to be felt in the peak Summer 2001 traffic season. Bookings for that season have already begun in earnest. As shown in Exhibit UA-CA-1, the U.S.-Israel market is characterized by a pronounced peak travel period in June-August when traffic exceeds the average month by up to 36%. Failure to have the U.S.-Israel product open for sale before the peak begins will result in a severe loss in traffic for the year. Indeed, in a market with such pronounced seasonality as U.S.-Israel, to lose the Summer is to lose the year.

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


U.S.- Israel Third-Country Codeshare Opportunities (2001)

OST-01-8726 May 4, 2001 Answer of American Airlines to Objections U.S.- Israel Third Country Codeshare
          Service List    

Northwest starts its objections by re-arguing the point that Northwest's selection would mean service to more U.S. gateways. This is hardly compelling. The relevant issue is the amount of effective connecting service that the applicants can offer between the U.S. and Israel via their respective European gateways. As shown in detail in Exhibit R1 to American's reply of February 8, 2001, Northwest and KLM would not provide effective daily roundtrip nonstop-to-nonstop service (that is, within a six-hour connecting window) to a single one of their U.S. cities, due to excessive ground times (in some cases exceeding 12 hours) that their passengers would be required to endure in Amsterdam in the eastbound direction.

Northwest next asserts that it is "irrational" and "unfair" for Minneapolis/St. Paul, Memphis, and Seattle "to be shut out of the Israel market. What Northwest fails to mention is that two of these cities, Memphis and Seattle, will have better double-connection elapsed times to Tel Aviv on American and Swissair, via Chicago and Zurich, than the single-connection elapsed times proposed by Northwest and KLM via Amsterdam. See Exhibit 4 to American's answer of February 5, 2001. Moreover, Minneapolis/St. Paul (at 9,189), Memphis (at 2,536), and Seattle (at 13,989) account for relatively small annual passenger bookings to Israel. See Exhibit 7 to American's answer of February 5, 2001. Finally, these three cities have not been "shut out," but will gain Northwest/KLM codeshare service to Israel effective April 1, 2002, less than a year from now.

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com


U.S.- Israel Third-Country Codeshare Opportunities (2001)

Order 01-5-24
OST-01-8726
Issued May 17, 2001
Served May 17, 2001
Final Order U.S.- Israel Third Country Codeshare

We have decided to make final our tentative decision to select American/Swissair and United/Lufthansa for the two third-country code-share authorizations currently available in the U.S.-Israel market. In addition, we have decided to make final our tentative decision to select Northwest/KLM for the third authorization that becomes available April 1, 2002.

This case stems from an important new agreement reached earlier this year that provides, among other things, for U.S. carrier service in the U.S.-Israel market under code-share arrangements with third-country airlines. This agreement provides a valuable opportunity to increase the number of U.S. carriers serving Israel and the level of competitive services available to travelers and shippers. In our tentative decision, we recognized that all three applicants in this case would offer important services in the market, increasing the price and service options to consumers. None now serves Israel and each would offer at least daily connecting service to numerous cities throughout the United States. As three opportunities are available (two now and one in April 2002), we concluded that all three should be authorized. Of the three applications before us, the proposals of United and American provided the most frequencies to Israel, offered the best overall elapsed travel times, and provided the highest level of immediate competition. Given the limited number of services now provided by U.S. carriers in the market, we tentatively found that the proposals of United and American provided the greatest overall service and competitive benefits and should be awarded the Phase I service opportunities, and that Northwest should be awarded the Phase 2 opportunity.

None of the objecting parties has provided any new arguments or evidence that persuades us to modify our tentative decision. Rather, the objecting parties have reiterated arguments already raised and considered in our show-cause order.

In particular, Northwest contends that the services of United and American are largely duplicative and, thus, that authorization of both for the Phase I opportunities does not best serve the public interest. While Northwest is correct that American and United would serve many of the same U.S. cities with comparable levels of service and similar elapsed times, such services involve many of the largest U.S.-Israel origin and destination markets and will provide the most competitive options for the greater number of travelers and shippers.4 Northwest also proposes service to many of the same cities--Atlanta, Boston, Chicago, Miami, Newark, New York, San Francisco, and Washington, D.C. However, while its service would provide an additional service option, its service would be less competitive because it would offer fewer Europe-Israel frequencies and less convenient connections. Thus, we are unpersuaded that the commonality of U.S. cities in the United and American proposals detracts from either carrier's selection in this case for one of the Phase I opportunities.

As we stated in our show-cause order, we are not persuaded that the larger number of gateways that Northwest would serve, including three not served by the other applicants-Minneapolis, Memphis, and Seattle--justifies award of one of the two Phase I opportunities to Northwest. While this is clearly a benefit of Northwest's proposal, on balance, given the fewer frequencies and less competitive connecting service offered by Northwest, we do not find that the benefits of Northwest's proposal warrant its selection over the other applicants for one of the Phase I opportunities.

This being said, we have nevertheless recognized the benefits offered by Northwest's proposed services and awarded it one of the code-share opportunities at issue. Thus, Northwest will have the authority needed to offer the three cities unique to its proposal, as well as the others included in its proposal, nonstop-to-nonstop service under its code-share with KLM at the latest by spring of next year. Prior to that time, the Department will take steps, in recognition of the pleadings filed by Northwest and its civic supporters, to seek to accelerate the effective date of the Phase 2 code-share opportunity, consistent with the terms of the U.S.-Israel agreement.

By:  Susan McDermott


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