BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. COMMENTS OF WESTJET

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1 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. In the Matter of Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport Docket FAA COMMENTS OF WESTJET Communications with respect to this document should be sent to: John MacLeod Vice President Network Management & Alliances WestJet 22 Aerial Place NE Calgary, Alberta T2E 3J1 Andrew Kay Senior Legal Counsel WestJet 22 Aerial Place NE Calgary, Alberta T2E 3J1 Don H. Hainbach Garofalo Goerlich Hainbach PC 1200 New Hampshire Ave NW Washington, DC Tel (202) Counsel for WestJet August 29, 2011

2 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. In the Matter of Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport Docket FAA COMMENTS OF WESTJET WestJet hereby submits these comments in response to the Notice of a Petition for Waiver and Solicitation of Comments on Grant of Petition With Conditions (the Notice) published in the Federal Register on July 28, 2011 (76 Fed Reg 45313). INTRODUCTION WestJet is a Canadian flag carrier that has successfully operated low cost service since it was formed in WestJet currently operates scheduled service to 18 points in the United States. Although WestJet has demonstrated its ability to compete against established carriers in transborder as well as Canadian markets, and although it has made repeated efforts to serve the Toronto-LaGuardia (LGA) market, regulatory and operational constraints have thus far prevented WestJet from sustaining competitive service at LGA. 1 1 WestJet made its initial attempt to operate Toronto-LaGuardia service beginning on September 28, At that time, WestJet was only able to obtain two slot pairs and for that reason was only able to operate two daily services between Toronto and LGA. WestJet was also unable to obtain the slots required to operate favourably timed Toronto-LGA service and it could not obtain optimal gate space at LGA. Due in large part to its inability to obtain additional and better timed slots, WestJet was forced to discontinue its Toronto-LGA service on July 4, WestJet made a second attempt to enter the market when it contracted with Delta Air Lines in March 2010 to purchase five LaGuardia slot pairs. That attempt was contingent on FAA approval in this proceeding.

3 WestJet meets the specified criteria for bidding on the divested slots. It does not currently hold any LGA slots, it does not codeshare to or from LGA with any carrier that has five percent or more of the total LGA slots and it is not a subsidiary of any company holding greater than five percent of the total LGA slots. Moreover, Section 1 of Annex II of the Air Transport Agreement between the United States and Canada dated March 12, 2007 specifically provides that Canadian carriers such as WestJet shall be subject to the same system for slot allocation at United States high density airports as are U.S. airlines for domestic service. Perhaps most significantly, WestJet has an established record of successfully introducing competitive service in transborder markets. WestJet started its first transborder service in October 2004 and during the upcoming winter season will operate 15% of total transborder seats. WestJet currently is the third largest U.S.-Canada carrier measured by seats operated on the transborder routes. Given its demonstrated interest in serving the Toronto-LaGuardia market, WestJet welcomes the decision to require the divestiture of sixteen LaGuardia slot pairs and the opportunity to bid for a portion of those slot pairs. However, WestJet respectfully submits that three modifications to the proposed divestiture procedures are required to maximize competitive benefits and the public interest. First, the FAA should modify the proposed requirement that participating carriers bid for a minimum of eight slot pairs. Second, the FAA should do everything possible to ensure that carriers planning to use LGA slots for service to Canada are provided with the opportunity to pre-clear their flights at the applicable Canadian airport. Third, the FAA should make it clear that Southwest and AirTran will be considered to constitute a single carrier for purposes of the bidding process. 2

4 THE PROPOSED SLOT BUNDLES SHOULD BE RECONFIGURED TO ALLOW BIDS FOR LESS THAN EIGHT SLOTS As stated in the Notice, the FAA s determination in this proceeding must be based on a public interest finding. As further stated: The term public interest encompasses, at a minimum, the policy objectives listed by Congress in Section of Title 49 U.S. Code. Among other things, these include maximizing reliance on competitive market forces, avoiding unreasonable industry concentration and excessive market domination, and encouraging entry into air transportation markets by new carriers. 49 U.S.C (a)(4), (6), (9), (10), (12)-(13) and (d). (76 Fed. Reg ) There can be no question but that WestJet s ability to obtain LGA slots would further the public interest. WestJet would use those slots to introduce new competitive service into the Toronto-New York market, and it would be the first low cost carrier to operate between Canada and LGA. Such service would also introduce the only low cost connecting service between LGA and the rest of Canada via WestJet s hub at Toronto. WestJet s low costs primarily result from its operating a single type of aircraft having all coach seating and that enables it to offer lower prices than most of its competitors. WestJet s Toronto-LGA service would be operated with seat Boeing 737 aircraft, thereby maximizing both the potential use of the limited available LGA slots and the potential competitive benefits. Those Boeing 737 aircraft would be among the largest equipment in the Toronto-LGA market. The introduction of WestJet s low cost structure and efficient Boeing 737s would enable WestJet to increase competition in the Toronto-LGA market. Among other benefits, it is reasonable to assume that WestJet s entry into the Toronto- New York market would serve to lower fares in that market. As demonstrated by Exhibit 1, the range of WestJet fares in the Vancouver-Los Angeles, Toronto-Miami, Calgary-Los Angeles and 3

5 Montreal-Fort Lauderdale markets are significantly lower than fares sold by legacy carrier competitors and those competitors have been forced to match WestJet s lowest structural fares. That pattern is illustrative of WestJet s experience in other transborder markets and it is confident that its entry into the Toronto-New York market would similarly increase price competition in that market and benefit the traveling public. However, the current proposal to (1) require bidders to bid on a minimum of eight slot pairs and (2) prohibit successful bidders from selling or leasing excess slots to other carriers during the twelve months following purchase would make it difficult if not impossible for many proven competitors, including WestJet, to participate in the bidding process. The Notice cites the FAA s belief that packaging more slots in fewer bundles, rather than fewer slots in more bundles would maximize the potential competitive discipline of the slots as the basis for the 4

6 proposal to create two bundles of eight slots at LGA (76 Fed. Reg ). However, the Notice provides no analytic or other support for that belief and WestJet respectfully submits that it is misplaced. Exhibit 2 shows that the median number of departures per carrier, serving LGA is four in each market served from LGA. That suggests it would be more appropriate to construct smaller bundles of four to five slots than the larger eight slot bundles proposed in the Notice. As illustrated by Exhibit 3, if WestJet were required to obtain eight slot pairs and if it used all of those slots for Toronto-LGA service using its existing B737 equipment, that new service would increase market capacity by 62 percent. Although WestJet is confident that its new service will stimulate market demand, an immediate 62 percent increase in market capacity would not be sustainable. 5

7 The proposed divestiture of two bundles of eight slot pairs each most likely will result in increased competition in two city pair markets. By contrast, creating two bundles of five slot pairs and one bundle of six would ensure increased competition in at least three city pairs and maximize competition benefits. Decreasing the size of the slot bundle could also increase the participation of smaller low cost carriers such as WestJet. Alternatively, the proposed prohibition on successful bidders selling or leasing slots to other carriers should be modified to allow carriers such as WestJet to mitigate the costs of acquiring excess slots that they are unable to use immediately. The cash only blind auction procedures proposed in the notice implicitly assume that market forces will lead to the optimal allocation of available slots. By limiting slot packages to 6

8 two bundles of eight slots, the FAA would unnecessarily restrict market forces and unnecessarily limit the public interest benefits. THE SLOT PACKAGE SHOULD INCLUDE U.S. GOVERNMENT ASSURANCES OF TIMELY PRE-CLEARANCE PROCEDURES WestJet fully agrees with the FAA s acknowledgement that eligible carriers may be unable to use the slots if they cannot obtain access to gates, ticket counters, baggage handling services, loading bridges, and other ground facilities at LGA. Accordingly, WestJet fully supports the proposal to require the selling carrier to make those available to the purchaser under reasonable terms and rates. Similarly, any carrier proposing to serve LGA from Toronto or any other Canadian point would require access to Customs and Border Protection (CBP) pre-clearance procedures given the lack of CBP facilitation at LGA. The U.S.-Canada Air Transport Agreement requires that Canadian carriers have an equal opportunity to utilize LGA slots as U.S. carriers. Just as any new entrant carrier would be unable to use an LGA slot without access to gates, ticket counters, baggage handling services, etc., any Canadian carrier would be unable to utilize LGA slots without access to pre-clearance procedures at the applicable Canadian airport. Given the FAA s stated intention of specifying individual slots for inclusion in the divested slot bundles, the Air Transport Agreement requires that the U.S. Government provide equal opportunity to any successful Canadian carrier bidder by ensuring the availability of pre-clearance at the appropriate times necessary to operate those slots. Alternatively, to the extent any successful bidder intends to use its LGA slots for service to Canada, the FAA should extend the six-month grace period for implementation of such service until the applicable carrier is able to obtain the required preclearance privileges. 7

9 As indicated by Exhibit 4, the LGA-Toronto market experiences relatively consistent service/capacity throughout the day with morning and afternoon service peaks. It is the early morning and late afternoon flights that enable, same-day round trip service for business travellers. WestJet has determined that its competitive impact would be maximized by providing two morning services, one mid-day service, and two late afternoon or early evening services. Indeed, that service pattern would be required to enable WestJet to provide competitive service. As currently structured, both slot bundles would require two peak morning departures from Canada, the precise time when pre-clearance capacity is most difficult to obtain. A smaller 8

10 slot bundle of five slots could easily be structured to include only one peak morning departure thereby alleviating the potential pre-clearance problem. SOUTHWEST AND AIRTRAN SHOULD BE CONSIDERED AS ONE CARRIER AND SHOULD NOT BE ALLOWED TO PURCHASE MORE THAN ONE SLOT BUNDLE AT LGA WestJet supports the proposal that an eligible carrier may purchase only one slot bundle at LGA (76 Fed. Reg ). However, although the Notice repeatedly cites the Southwest- AirTran merger (76 Fed. Reg , 45328), it also names both Air Tran and Southwest as among the incumbent carriers that would be eligible to bid on the divested LGA slot bundles. The Notice indicates that the FAA has structured its proposed aviation process with the intent of ensuring that at least two carriers obtain the available slots (76 Fed. Reg ). Absent clarification that Southwest and AirTran will be considered to constitute a single carrier, that objective may not be achieved. Southwest acquired AirTran on May 2, 2011 and has announced it anticipates receiving a single FAA operating certificate during the first quarter of 2012 ( Southwest Airlines Closes Acquisition of AirTran Holdings, Inc., Southwest.com, May 2, 2011). For all intents and purposes Southwest and AirTran already are one carrier. The merged carrier will have a fleet of 685 aircraft ( Southwest Airlines to Acquire AirTran; Spreading Low Fares Farther, Southwest.com, Sept. 27, 2010) and combines AirTran s 5.7% LGA seat share with Southwest s 7.6% share. Moreover, as stated in the Notice, Southwest will have the option of increasing seat capacity per flight by 15 seats over AirTran s average aircraft seating if it chooses to upgrade to its 737 aircraft in LGA markets currently served by AirTran. Southwest/AirTran is manifestly not in need of any special consideration that could enable it to acquire all of the available LGA 9

11 slots. Accordingly, the FAA should clarify that it will be treated as a single carrier eligible to purchase only one LGA slot bundle. CONCLUSION When the FAA issued its May 11, 2010 Notice in this proceeding it articulated four required components of an effective remedy: The first component is a sufficient number of divested slots to allow other carriers to mount an effective competitive response to the increased dominance and reduction of competition that would occur as a result of the transaction. The second remedy component is to define the pool of competitors eligible to take up the remedy based on the carriers that would have the greatest economic incentive to use slots obtained as intensively as possible, thereby exerting the most competitive discipline per slot (by operating larger capacity aircraft and offering the most price competition at the affected airports) The third remedy component is to ensure that the bundles of slots for divestiture are both suitable for a commercially viable pattern of scheduled service in the types of markets affected by the transaction and are constructed proportionate to the slots that were being transferred between the parties to the transaction. The fourth component is to ensure that a process for distributing the divested slot packages is not left to the parties themselves, given the overwhelming incentive for them to structure the divestitures to minimize the competitive impact on themselves and thereby the benefits to consumers. (75 Fed. Reg ) Although the July 28, 2011 Notice reiterated those objectives (76 Fed. Reg ), as currently structured, the proposed procedures would fall short. As more fully discussed above, they would not define the pool of eligible carriers to include those, such as WestJet, with the greatest economic incentive to use the slots as intensively as possible and exert competitive discipline. Nor would they ensure that the bundles of divested slots are suitable for a commercially viable service pattern and structured proportionate to the slots that are part of the slot swap. Accordingly, WestJet respectfully requests that the FAA should (1) modify the proposed requirement that participating carriers bid for a minimum of eight slot pairs; (2) do everything 10

12 possible to ensure that any carrier planning to use LGA slots for service to Canada is provided with the opportunity to pre-clear its flights at the applicable Canadian airport at times that will support a competitive schedule pattern and is consistent with the proposed slot package times.; and (3) clarify the Notice to specify that Southwest and AirTran must be considered to constitute a single carrier for purposes of the bidding process. Respectfully submitted, Don H. Hainbach GAROFALO GOERLICH HAINBACH PC August 29, 2011 Counsel for WestJet 11