BEFORE THE FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. COMMENTS OF THE CITY OF TALLAHASSEE, FLORIDA TALLAHASSEE REGIONAL AIRPORT

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1 BEFORE THE FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. ) THE CITY OF TALLAHASSEE, FLORIDA ) TALLAHASSEE REGIONAL AIRPORT Petition for Waiver of the Terms of the Order ) Limiting Scheduled Operations at ) LaGuardia Airport ) ) ) Docket No. FAA ) COMMENTS OF THE CITY OF TALLAHASSEE, FLORIDA TALLAHASSEE REGIONAL AIRPORT IN SUPPORT OF THE PETITION OF US AIRWAYS AND DELTA AIR LINES Communications with respect to this document should be sent to: Mr. Kenneth M. Austin Director of Aviation 3300 Capital Circle SW, Ste #1 Tallahassee, FL Dated March 22, 2010

2 BEFORE THE FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. ) THE CITY OF TALLAHASSEE, FLORIDA ) TALLAHASSEE REGIONAL AIRPORT Petition for Waiver of the Terms of the Order ) Limiting Scheduled Operations at ) LaGuardia Airport ) ) ) Docket No. FAA ) COMMENTS OF THE CITY OF TALLAHASSEE, FLORIDA TALLAHASSEE REGIONAL AIRPORT IN SUPPORT OF THE PETITION OF US AIRWAYS AND DELTA AIR LINES The Federal Aviation Administration (FAA) has proposed blocking the proposal of US Airways and Delta Air Lines to swap slots at New York LaGuardia Airport (LGA) for slots at Ronald Reagan Washington National Airport (DCA) unless the petitioners divest a portion of those slots to a particular type of carrier. The City of Tallahassee and the (TLH) are concerned that the proposed restriction could halt the transaction, thereby taking away opportunities for expanded service to communities like ours. The airline industry was deregulated over 30 years ago in part because the regulatory agency had tried unsuccessfully to mold the industry in ways it thought were advisable rather than allowing an essentially competitive industry to respond to market forces. The FAA has picked up the mantle of the long gone Civil Aeronautics Board in seeking to suppress this desirable behavior. FAA rules require that a slot swap affecting New York obtain a waiver determining that the transaction won't worsen airspace and airport congestion. The FAA has found no such effect. In conditioning the waiver in this transaction, without which the slot swap cannot proceed, FAA takes on the role of competition micromanager. It claims to remedy a reduction in competition created by the transaction and at the same time fulfill a Congressional mandate to encourage the growth of new entrant carriers. Unfortunately, FAA fails to appreciate the cost its proposed condition imposes on the numerous small and medium-sized airports and communities that stand to benefit from the swap.

3 Page 2 Because of the operating restrictions at DCA and LGA, any decision to favor one type of carrier or one type of destination airport means that others are disadvantaged. Requiring the petitioning carriers to divest slots will limit their ability to expand service at DCA and LGA and may force them to abandon the transaction altogether. The City of Tallahassee and TLH are innocent parties that will be injured if the airlines cancel the swap because of the penalties proposed in the tentative decision. The FAA in effect threatens to restrict the amount of air service received by airports like ours. [See Exhibit 101, Likely New LaGuardia Destinations] Quite simply, FAA has decided to favor large airports and new entrant carriers over the small and medium size communities who depend on the services provided by network carriers like Delta and US Airways. There is simply no rational public policy that would force our communities to lose valuable new services because of needless regulatory intervention in the market. BENEFITS TO AIRPORTS AT ISSUE One of the CAB s major regulatory failings was its inability to understand the importance of networks in an efficient air transportation system. Because of deregulation, therefore, the traveling public has benefited enormously from the development of carrier hubs. Delta and US Airways already provide some connecting opportunities at the airports, but by expanding their operations they will be able to support services to a wider array of destinations. As a result, both DCA and LGA will be able to operate more like hubs, combining local and connecting traffic to support more TLH service. Cities like Orlando and Ft. Lauderdale, with massive local traffic volumes, don t need hubs, but we do. A large proportion of the flights at small and medium-sized communities involve services to network-carrier hubs. [See Exhibit 102, Small Hub Airports Rely on Legacy/Network Airlines for 66% of Their Service and Exhibit 105, Large-Hub Airports Have Far More Nonstops than Small-Hub Airports, Which Rely Heavily on Connecting Services] The development of hubs, therefore, provides the potential of new nonstop services to the airports serving our communities. We are confident that the transaction would produce new nonstop services for our airport to both DCA and LGA. US Airways put Tallahassee on its list of new DCA destinations [Exhibit 106] and Tallahassee is the largest airport east of the Mississippi River without nonstop New York service (Exhibit 101, Likely New LaGuardia Markets, DOT Database OD1b as reported by OAG). Nonstop New York and Washington services would of course provide enormous benefits to our airport and our communities and to the many passengers wanting to use convenient TLH. Washington and New York are Tallahassee s largest markets without nonstop service. FAA s proposed actions could prevent us from obtaining these benefits.

4 Page 3 One way to gauge air service benefits is through the use of QSI models. A QSI model generally projects an increase in traffic of 80 percent or more from the introduction of nonstop service on a route. A carrier would have to cut fares by 50 percent or more to achieve similar traffic growth. Tallahassee is not asking for cut-rate fares but for compensatory fares on convenient service in its important markets. In addition to the benefit of convenient nonstop access to New York and Washington, our passengers to and from a variety of connecting destinations beyond DCA and LGA would receive new travel options. The added convenience of these options would further stimulate air traffic. Tallahassee s most obvious characteristic is that it is the capitol of America s fourth largest state. It is also home to three institutions of higher education, Florida State University, Florida A&M University and Tallahassee Community College. The FAA should not stand in the way of convenient connections between TLH and the nation s Capital and its financial center and largest city. THE PROPOSED SLOT SWAP EXPANDS OUTPUT The proposed slot swap is output expanding, which is the hallmark of a competitive transaction. Delta and US Airways have made it clear that with this transaction they will expand output at the affected airports. The number of flights would not increase, because no new slots would be created, but seats would be added and a significant number of destinations would receive new or expanded service small-hub airports like ours. Delta projects it will add more than two million annual passengers at LaGuardia. Without the swap, the 125 LaGuardia slot pairs will continue in use for small-aircraft services, substantially underutilizing scarce airfield capacity in the country s most congested airspace. Competitive analysis in the airline industry generally involves examining the effect a proposed transaction will have on particular airports, routes or metropolitan areas. FAA in this proceeding, however, does not identify a single airport-pair or city-pair that would become less competitive through the proposed transaction. Nor has FAA explained how or where its slot divestiture proposal would solve an anti-competitive problem. Indeed, the entire reason for the proposed transaction is to give Delta and US Airways the critical mass that would enable them to expand services. Because of capacity restrictions at the airports, they simply cannot provide the proposed services absent the transaction. FAA makes no effort refute the contention that Delta and US Airways will expand service. Thus, a discussion of the effect on airport shares at DCA and LGA is simply

5 Page 4 irrelevant. The proposed transaction does not reduce competition, and FAA cannot justify its restrictions as an attempt to maintain competition at the airports. NEW ENTRANT CARRIERS ARE STRONG IN NEW YORK AND WASHINGTON FAA seems to concede that competitive concerns do not justify conditioning grant of the waiver by arguing that it has a statutory requirement to promote new entrant airlines. If it still does have such a requirement, exercising it here is simply misplaced. Low-cost carriers and new entrants (LCC/New Entrant) in the United States have been growing over the last five years while Legacy/Network airlines and the industry as a whole have been shrinking. [Exhibit 103] First, post-deregulation airlines have good access and successful operations at airports in both the Washington and New York areas. Regardless of what FAA says, these airlines have had wide reaching effects on fares and services in the respective metropolitan areas. [Exhibit 104, LCC/New Entrants Are Strong at the Washington and New York Area Airports]. Clearly both metropolitan areas enjoy ample access to new entrants and there is simply no reason to deprive our airports of added service in order to transfer slots to those carriers. Moreover, it is entirely possible that slots obtained by the new entrants would not result in expanded service at all. Carriers that gain new slots may simply elect to shift services to DCA or LGA from other airports in the New York and Washington areas. Even if an LCC were to add service, it probably would be to a market already receiving nonstop service from DCA as well as new entrant service from another airport in the metropolitan area. What cities does LCC/Limited Incumbent JetBlue serve from LGA? Ft. Lauderdale, Orlando and West Palm Beach. Southwest Airlines? Baltimore/Washington, Chicago and Denver. (Source: OAG, Airline Schedules Database, March 2010). Those are huge markets and deserving of extensive air service, but do they need FAA intervention to get more service at the expense of smaller markets? Tallahassee s answer is No. CONCLUSION The proposed slot swap between Delta Air Lines and US Airways has great promise for expanded service to our airport and similar airports throughout the Northeast and Southeast. The FAA should grant the requested waiver without jeopardizing the transaction through the imposition of restrictions that are not necessary and are contrary to important public policy objectives.

6 Exhibit 101 Likely New LaGuardia Markets Tallahassee is the largest unserved LaGuardia market east of the Mississippi River Largest Unserved LaGuardia Markets Within 1500 Miles Ranked by YE3Q2009 LaGuardia O&D Traffic Rank Code Market NYC Traffic LGA-Only Traffic 1 OKC Oklahoma City 80,300 52,590 2 LIT Little Rock 68,240 47,780 3 TUL Tulsa 59,810 37,160 4 TLH Tallahassee 56,000 34,350 5 JAN Jackson MS 50,850 32,070 6 MLI Moline 44,140 30,480 7 SBN South Bend 43,510 29,820 8 PNS Pensacola 53,810 27,590 9 ICT Wichita 43,450 25, HSV Huntsville 43,550 20, CID Cedar Rapids 34,860 19, SRQ Sarasota 166,900 19, MOB Mobile 27,380 17, EYW Key West 52,250 16, DAB Daytona Beach 32,790 12,830 Source: OAG Aviation O&D-lux inet (Based on U.S. DOT OD1b Carrier Filings) Small Hub Airports Rely on Legacy/Network Airlines for 66% of Their Service

7 Exhibit 102 March 2010 Domestic Seats (Lower 48) Share by Carrier Type at Washington D.C. and New York Area Airports Monthly Seats Share LCC/ Legacy/ Grand LCC/ Legacy/ Market New Entrant Network Other Total New Entrant Network Other All Domestic Services Washington D.C. 1,076,646 2,028,700 2,511 3,107, % 65.3% 0.1% New York 834,453 2,937, ,771, % 77.9% 0.0% Services to Florida Airports Only Washington D.C. 243, , , % 47.6% 0.0% New York 353, , , % 57.8% 0.0% Notes: LCC/New Entrant includes Southwest, JetBlue, AirTran, Frontier etc. Legacy/Network includes Delta/Northwest, Alaska, American, United, Continental and US Airways. Other includes Allegiant, which operates an unconventional leisure-market service, and certain other small airlines flying EAS and point to point services. Washington D.C. includes Baltimore, Dulles and Reagan National New York includes JFK, LaGuardia and Newark Source: OAG Aviation Schedules inet as of 3/16/2010

8 Exhibit 103 LCCs and New Entrants Have Grown and Taken Market Share from the Legacy Carriers ( ) Monthly Domestic Seats (Lower 48) by Carrier Type Growth March 2005 March Change Carrier Type Seats Share Seats Share Seats Share LCC/New Entrant 18,785, % 20,363, % 1,577, % Legacy/Network 58,667, % 45,777, % (12,889,841) -7.0% Other 378, % 769, % 391, % Grand Total 77,831,031-66,910,768 - (10,920,263) - Notes: LCC/New Entrant includes Southwest, JetBlue, AirTran, Frontier etc. Legacy/Network includes Delta/Northwest, Alaska, American, United, Continental and US Airways. Other includes Allegiant, which operates an unconventional leisure-market service, and certain other small airlines flying EAS and point to point services. Source: OAG Aviation Schedules inet as of 3/16/2010

9 Exhibit 104 LCC/New Entrants Are Strong at the Washington and New York Area Airports March 2010 Domestic Seats (Lower 48) Share by Carrier Type at Washington D.C. and New York Area Airports Monthly Seats Share LCC/ Legacy/ Grand LCC/ Legacy/ Market New Entrant Network Other Total New Entrant Network Other All Domestic Services Washington D.C. 1,076,646 2,028,700 2,511 3,107, % 65.3% 0.1% New York 834,453 2,937, ,771, % 77.9% 0.0% Services to Florida Airports Only Washington D.C. 243, , , % 47.6% 0.0% New York 353, , , % 57.8% 0.0% Notes: LCC/New Entrant includes Southwest, JetBlue, AirTran, Frontier etc. Legacy/Network includes Delta/Northwest, Alaska, American, United, Continental and US Airways. Other includes Allegiant, which operates an unconventional leisure-market service, and certain other small airlines flying EAS and point to point services. Washington D.C. includes Baltimore, Dulles and Reagan National New York includes JFK, LaGuardia and Newark Source: OAG Aviation Schedules inet as of 3/16/2010

10 Exhibit 105 Large-Hub Airports Have Far More Nonstops Than Small-Hub Airports, Which Rely Heavily on Connecting Services Nonstop vs. Connecting Service by FAA Hub Classification* YE3Q2009 Domestic (Lower 48) Passenger Itineraries Airport Number of Passengers Shares Classification Nonstop Connecting Total Nonstop Connecting Large Hub 181,500,590 52,532, ,033, % 22.4% Medium Hub 62,398,900 38,835, ,234, % 38.4% Small Hub 18,184,190 26,231,460 44,415, % 59.1% Non-hub 4,147,410 12,272,690 16,420, % 74.7% Grand Total 266,231, ,872, ,103, % 32.8% Notes: *Hub classification based on CY2008 enplanements Source: OAG Aviation O&D-lux inet (Based on U.S. DOT OD1b Carrier Filings)

11 Exhibit 106 On October 28, 2009, US Airways issued a press release announcing its proposed transaction with Delta: US Airways Announces Strategic Plan to Strengthen Core Network Focus Continues to Center around Core Network Strengths of Its Three Hubs, Focus City in Washington, D.C. and Shuttle Service The press release included the following section, listing Tallahassee with seven other markets to receive new nonstop service as a result of the proposed transaction (emphasis added): Ronald Reagan Washington National Airport: US Airways maintains a significant presence at Ronald Reagan Washington National Airport and recently announced plans to increase that presence. When its slot transaction with Delta Air Lines is complete, the airline will operate nearly 230 daily flights to over 60 destinations. Eight markets will receive non-stop service that do not have it today, including Birmingham, Ala., Islip, N.Y., Ithaca, N.Y., Little Rock, Ark., Myrtle Beach, S.C., Pensacola, Fla., Savannah, Ga. and Tallahassee, Fla. The added service will also create additional jobs at Washington National, and the airline will ultimately have a total staff of approximately 550 at the airport. "We are extremely proud to build on our heritage at Washington National," Parker noted. "By continuing to serve smaller communities with the right size aircraft and increasing seats in communities where demand dictates, our plans to provide more non-stop service to our nation's capital are well on track."