BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Transcription

1 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. ) ) SLOT ASSIGNMENT PHASE OF THE ) Docket DOT-OST DELTA AEROMEXICO ATI PROCEEDING ) ) ) APPLICATION OF SOUTHWEST AIRLINES CO. FOR MEX SLOTS Communications with respect to this document should be sent to: Mark Shaw Robert W. Kneisley Senior Vice President General Associate General Counsel Counsel and Corporate Secretary Leslie C. Abbott SOUTHWEST AIRLINES CO. Senior Attorney 2702 Love Field Drive SOUTHWEST AIRLINES CO. Dallas, TX th Street, N.W., Suite 600 Washington, D.C Andrew Watterson bob.kneisley@wnco.com Senior Vice President, leslie.abbott@wnco.com Chief Revenue Officer (202) SOUTHWEST AIRLINES CO Love Field Drive Dallas, TX January 23, 2017

2 TABLE OF CONTENTS I. Southwest s Proposed MEX Service Will Benefit Consumers by Providing New, Low-Fare Competition with Delta/Aeromexico in Three Key U.S. MEX Markets... 3 II. Southwest s Proposed HOU-MEX Schedule Will Compete Directly with DL/AM and United, Reduce Fares, and Create Additional Travel Options... 7 III. Southwest s Proposed New FLL-MEX Service Will Benefit Consumers by Reducing Fares and Increasing Passenger Traffic... 9 IV. Southwest s LAX-MEX Flight Will Reduce Fares and Increase Passengers by Providing the Only U.S. LCC Competition in this Important Market V. On Average, Southwest s Proposed New U.S. MEX Services Will Reduce Fares 19% and Increase Passengers 33% CERTIFICATE OF SERVICE DL-AM SLOT REQUEST FORM (Excel Spreadsheet) EXHIBITS APPENDICES

3 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. ) ) SLOT ASSIGNMENT PHASE OF THE ) Docket DOT-OST DELTA AEROMEXICO ATI PROCEEDING ) ) ) APPLICATION OF SOUTHWEST AIRLINES CO. FOR MEX SLOTS On January 6, 2017, the Department of Transportation issued Order (Instituting Order) establishing the Slot Assignment Phase of the Delta-Aeromexico ATI Proceeding to allocate 24 slot pairs at Mexico City s Benito Juarez International Airport (MEX) and four slot pairs at John F. Kennedy International Airport (JFK) being divested by Delta and Aeromexico (the Joint Applicants). 1 Consistent with the terms of DOT s Final Order in the ATI Proceeding (Order , issued December 14, 2016), the Instituting Order in this proceeding invites applications from eligible carriers, including Southwest, to utilize the divested slots. The Instituting Order states that the Department intends to allocate the slots in a manner that provide[s] the maximum competitive benefits possible from new (preferably daily) services to/from JFK and MEX, taking into account a carrier s ability to exercise competitive discipline by: Serving a monopoly and/or nonstop overlap route, including JFK-MEX; Providing network benefits, including behind/beyond connections, as well as service to communities without existing nonstop service to the slot-controlled airport; and/or 1 Common names of carriers are used herein. 1

4 Enhancing the quality of competition, such as by offering additional frequencies in major markets or introducing the benefits of new business models. 2 Consistent with these criteria, Southwest hereby applies for the following four (4) MEX slot pairs, in the order of preference shown below (see Exhibit WN-1 and attached DL-AM Slot Request Excel Spreadsheet): One daily slot pair for Houston (Hobby) Mexico City (HOU-MEX-HOU) o HOU to MEX (2050 arrival), MEX to HOU (0700 departure) One daily slot pair for Houston (Hobby) Mexico City (HOU-MEX-HOU) o HOU to MEX (1045 arrival), MEX to HOU (1140 departure) One daily slot pair for Fort Lauderdale Mexico City (FLL-MEX-FLL) o FLL to MEX (1245 arrival), MEX to FLL (1340 depature) One daily slot pair for Los Angeles Mexico City (LAX-MEX-LAX) o LAX to MEX (2200 arrival), MEX to LAX (0750 departure) Southwest requests that the two HOU-MEX slot pairs be awarded in Phase One of the proceeding and the FLL-MEX and LAX-MEX slot pairs be awarded in Phase Two. If either of the HOU-MEX slots are not awarded in Phase One, Southwest requests they be awarded in Phase Two. Southwest will operate all of its Mexico City service with 143-seat Boeing aircraft and will operate all slots seven days-a-week, year round. The details of Southwest s proposal are summarized in the attached Excel spreadsheet and exhibits. Southwest is prepared to launch these new flights within 90 days of execution of signed 2 Instituting Order at 4. 2

5 slot transfer agreements for the slot pairs in question and any required Mexican regulatory approvals. As shown below, Southwest s proposed new U.S. - MEX services meet the Department s decisional criteria and will: (1) produce enormous consumer benefits by providing high-quality, low-fare service in direct competition with the Joint Applicants and other legacy carriers; (2) maximize the benefits of the slots by offering numerous convenient behind/beyond connections to communities without existing nonstop and/or LCC service to MEX; and (3) permanently enhance the quality of competition in the three MEX transborder markets by providing daily, year-round, large-jet service on the preeminent U.S. low cost carrier. I. Southwest s Proposed MEX Service Will Benefit Consumers by Providing New, Low-Fare Competition with Delta/Aeromexico in Three Key U.S. MEX Markets. Southwest s service proposal will provide new, strong low-fare competition with the Joint Applicants, and other legacy carriers, from three of the most important U.S. gateways to Mexico City. In fact, all three of Southwest s proposed markets are in the top five largest U.S. markets to/from MEX (Exhibit WN-2). As the Department stated in its Final Order: [T]he importance of access to Mexico City cannot be overstated. Approximately two-thirds of all domestic and one-third of all international passengers in Mexico have their origin or destination at MEX. The main contested issue in this proceeding has been the ability, or lack thereof, of new entrant carriers to access the important Mexico City market. The record contains substantial evidence that the Joint Applicants exert significant market power at MEX, control approximately 50% of MEX slots, and are able to use the MEX slot allocation system to their advantage by leveraging its non-standard rules to preclude competitive entry by other carriers (internal citations omitted). 3 3 Order at p. 3. 3

6 Southwest s experience in serving MEX is entirely consistent with the Department s findings in this proceeding. Currently, Southwest s only U.S. - MEX service is limited to a mere three daily roundtrips in the HOU-MEX market. Moreover, one of these slot pairs is not commercially viable, arriving in MEX at 11:30 pm, and departing MEX at 5:30 am. Despite repeated efforts, Southwest has been unsuccessful in acquiring slots at better times. So, effectively, Southwest has been able to provide only two viable daily flights to/from MEX. 4 Southwest s first priority is to use one of the two requested HOU-MEX slot pairs to replace the unmarketable 11:30 pm/5:30 am slot pair with more viable flight times, and add a fourth roundtrip in the market with the other requested HOU-MEX slot pair. Together, these new slot pairs will create an appealing schedule for business travelers and enable numerous behind/beyond connections to/from other U.S. cities in Southwest s extensive domestic network. Southwest s proposed FLL-MEX and LAX- MEX services will be new routes for the Company and will add a low-fare travel option and U.S. LCC competition in two key U.S. gateways, as well as tie into Southwest s extensive domestic networks in each location. Southwest s new flights will provide needed U.S. LCC competition to Delta/Aeromexico and other legacy carriers that currently dominate these important transborder markets. Southwest will integrate these flights into its comprehensive U.S. national and local business development plans, which include print, television and online marketing campaigns, Rapid Rewards frequent flyer outreach, customer engagement activities, 4 One of Southwest s current HOU - MEX flights was transferred to HOU from SAT, and the other was transferred from SNA, because Southwest was unable to obtain marketable slot times for Houston MEX service. 4

7 corporate sales development and inclusion in Southwest Vacations packages. The Company s unique value proposition, centered on its unique policy of no-hidden-fees and Transfarency in pricing, will continue to offer Southwest customers from both countries low fares, no reservation change fees and no fees for two checked bags. Southwest s current U.S. Mexico fares are a remarkable 39% below existing legacy carrier fares (Exhibit WN-3). Southwest s fares for its proposed new MEX services will similarly undercut Delta/Aeormexico and other legacy carrier fares, and stimulate new traffic as a result. Southwest retained the Campbell-Hill Aviation Group to provide a detailed traffic forecast for each of the three routes it proposes to serve using Campbell-Hill s standard econometric models. As summarized below, Campbell- Hill s traffic analysis and forecast methodology show that Southwest will achieve load factors averaging at least 83% in each market (Exhibit WN-4 and Appendix 2): Summary of Southwest s HOU, FLL and LAX - MEX Service Proposal LAX HOU FLL MEX Distance Aircraft Type Aircraft Seat Size WN Daily Round Trip Frequency WN Annual One-Way Flights WN Annual One-Way Seats WN Annual One-Way Passengers Passengers per Flight WN Load Factor HOU-MEX FLL-MEX LAX-MEX Total 742 1,289 1,553 B737-7 B737-7 B , , , , , , ,408 92,559 88, , % 89% 85% 85% See Exhibit WN-4 5

8 Moreover, Southwest s proposal will also offer numerous convenient connections to 50 other cities in Southwest s extensive domestic network behind the HOU, FLL, and LAX gateways, 5 many of which have no nonstop or low-fare service to MEX today: Southwest s Proposed Services at MEX Will Provide Nonstop or Nonstop-to-Nonstop Connecting Service to 50 Airports Across the U.S. SEA PDX RNO SMF OAK SFO SJC LAX LAS SNA SLC ABQ DEN MAF OMA MCI TUL OKC DAL STL MEM MDW IND BNA BHM ATL BUF BOS LGA PVD EWR PIT ISP BWI IAD PHL DCA RDU CLT CHS AUS SAT HOU MSY PNS ECP TPA MCO FLL Southwest s Proposed Service Covers 72% of all U.S. - MEX O&D Passengers Proposed Route Existing nonstop market See Exhibit WN-5 MEX SJU Campbell-Hill has also estimated the consumer benefits that will accrue to passengers in each of the three U.S. - MEX markets where Southwest proposes to add service. These benefits include estimated reductions in market fares, increases in passenger traffic, and annual fare savings to consumers. To be conservative, Campbell-Hill has not included any traffic stimulation or fare savings in the beyond gateway markets. A summary of these benefits is as follows: 5 For this purpose, Southwest considers only connecting markets within a 40% circuity limit and a four hour scheduled connection time. 6

9 Market MEX - Projected Reduction in One-Way Market Fare Projected Increase in Passengers After New Southwest Service Est. Annual Consumer Fare Savings (Millions) HOU/IAH $32 (21%) 155, % $12.9M FLL/MIA $46 (25%) 223, % $24.3M LAX $21 (10%) 92, % $10.3M Total/Average $35 (19%) 472, % $47.5M Source: Appendix 2, pages 2, 4, 6 and 9. See also Exhibit WN-20. As shown, the Southwest Effect of lowering fares and stimulating new passenger traffic in these markets will save consumers nearly $50 million annually by the grant to Southwest of just four MEX slot pairs. Southwest s service proposal will provide these enormous benefits to consumers by offering robust low-fare competition with the Joint Applicants as well as new LCC service that would not otherwise be possible between the U.S. and Mexico City. Southwest has the extensive network, financial strength, and corporate commitment to serve and grow these markets over the long-term. Its proposed service warrants the modest four MEX slot pairs it is requesting in this proceeding. II. Southwest s Proposed HOU-MEX Schedule Will Compete Directly with DL/AM and United, Reduce Fares, and Create Additional Travel Options. Southwest is requesting two slot pairs for HOU-MEX service. One slot pair will be used to add a fourth daily frequency, and one slot pair will replace a current, nonviable roundtrip flight that operates outside the slot controlled hours. As noted above, this trip arrives MEX at 11:30 pm, and returns from MEX at 5:30 am. 6 The new 6 These flights are outside the slot controlled hours and do not count as slots per se. 7

10 (replacement) flight will arrive at MEX from HOU at 8:50 pm, and leave MEX to return to HOU at 7:00 am (Exhibits WN-6 and WN-7). These times are vastly superior to the flight times that will be replaced, and will allow Southwest to introduce a new, commercially viable low-fare flight into the market. With the two additional HOU-MEX slot pairs that Southwest is requesting, Southwest will have an effective schedule for business travelers with flights spaced conveniently throughout the day (Exhibit WN-7). Having a schedule that appeals to business travelers will allow Southwest to compete with the immunized DL/AM alliance, which is also focused on attracting business passengers. Southwest s low-fare service will force DL/AM to respond by lowering their fares as well. In fact, with four marketable daily flights on this route, Southwest will match DL/AM s capacity (Exhibit WN-8), making Southwest a viable competitor and increasing its ability to place downward pressure on all legacy fares in the market. Because Southwest has provided service in the HOU-MEX market since 2014, data on its market impact is publicly available. In its initial entry in the HOU-MEX market, Southwest reduced average Houston (HOU/IAH) - MEX market fares by a stunning 43% and increased total passengers by 24% (Exhibit WN-9). Southwest will not only continue to exercise this level of market impact (via the Southwest Effect) but will be able to exert even greater competitive influence with a more marketable schedule. Furthermore, Southwest has a significant presence in HOU and with its two requested MEX slot pairs it will connect with 39 behind/beyond destinations in Southwest s domestic network, including cities such as Denver (DEN), Dallas (DAL) and 8

11 Kansas City (MCI) (Exhibit WN-10). 7 Allocation of two slot pairs for expanded and improved Southwest service between HOU and MEX will generate 155,852 additional one-way O&D passengers from HOU/IAH. In addition, two-thirds of Southwest s onboard passengers will be local and one-third will connect at HOU to at least 39 U.S. cities on the Southwest network (Exhibit WN-10 and Appendix 2, p. 2). Of all the eligible carrier applicants, only Southwest is able to leverage the limited MEX slot pairs to passengers in so many U.S. cities, thereby providing convenient, low-fare, online connections to a potential pool of millions of travelers. III. Southwest s Proposed New FLL-MEX Service Will Benefit Consumers by Reducing Fares and Increasing Passenger Traffic. Southwest operates more domestic seat capacity at FLL/MIA than any other sloteligible carrier (Exhibit WN-11). Southwest has built a major network at FLL consisting of 73 daily departures to 37 nonstop destinations (Exhibit WN-12). In fact, Southwest s FLL seat-capacity has increased by 39% during the past year, some of which is attributable to its three new routes to Cuba and its forthcoming new service to Cancun and Grand Cayman plus four other Caribbean markets (Exhibit WN-13). To this end, Southwest is nearing completion of a new five-gate FLL international terminal that will support its Latin American/Caribbean gateway in South Florida. The $333 million terminal is on schedule to open in early June 2017 and will enable Southwest to operate up to 30 international departures per day. Comparing June 2016 to June 2017 schedules, Southwest will increase its number of nonstop Latin America/Carribbean destinations form FLL from one to nine and daily departures from two to twelve (Exhibit WN-13). 7 Note that this includes connections for only the proposed two new MEX slot pairs. 9

12 Southwest does not currently provide service in the FLL-MEX market due to the lack of commercially viable MEX slots. Southwest is proposing to add a daily nonstop flight between Ft. Lauderdale and MEX that will benefit residents of South Florida as well as provide convenient connections to/from Southwest s extensive domestic network, including cities such as BWI, DCA, RDU, PIT and EWR (Exhibit WN-14). Current service in the FLL/MIA-MEX market is concentrated at Miami with four weekday American roundtrips, three by Aeromexico/Delta, and two roundtrips by Interjet. JetBlue and Volaris each have one roundtrip in the FLL-MEX market (Exhibit WN-15). There is a significant need for greater LCC capacity by a U.S. carrier that can leverage its U.S. gateway position to deliver consumer benefits throughout its domestic network. Southwest is best positioned to be that low cost carrier. Southwest s proposal will generate significant stimulation, partly due to its added service, but primarily because of its reduction in average market fares (Appendix 2, pages 4, 5 and 9). Total traffic stimulation in the FLL/MIA-MEX market from Southwest s service and fare proposal is forecast to be 224,000 passengers (Appendix 2, page 9), and 93,000 will fly on Southwest 87% will be local O&D and 13% will be in Southwest markets beyond FLL (Appendix 2, page 4). For its once daily service Southwest projects a first year load factor of 89%. If load factor pressure becomes significant in this market (or any other), Southwest can easily up-gauge to its B aircraft with 175 seats which is 32 seats, or 22% larger than its B The proposed service is worthy of a slot pair allocation as Southwest will have an outsized impact on this important market by leveraging just a single daily roundtrip flight. 10

13 IV. Southwest s LAX-MEX Flight Will Reduce Fares and Increase Passengers by Providing the Only U.S. LCC Competition in this Important Market. In 2016 Southwest Airlines expanded its LAX-Mexico service by adding five daily flights to/from CUN, SJD and PVR. 8 It now proposes to further expand its LAX Mexico service by adding one daily roundtrip to/from MEX. Southwest has a very large presence at LAX serving 31 nonstop markets with 125 average daily departures (Exhibit WN-16). In fact, Southwest is by orders of magnitude the largest low cost carrier at LAX and carries three times as many domestic onboard passengers as the next largest eligible carrier (Exhibit WN-17). Legacy carriers (Delta/Aeromexico, American and United) dominate the LAX-MEX market with all nine of the U.S. flag frequencies. Interjet and Volaris each operate two daily roundtrips (Exhibit WN-18). Southwest would be the only U.S. flag LCC serving the market, adding critical competition and travel options for consumers. Southwest s LAX-MEX traffic forecast is presented in Appendix 2, pages 6 and 7. Total market stimulation created by the Company s service (one daily roundtrip) and its low fares will be 93,000 annual passengers (Appendix 2, page 9). Its own volume of annual passengers is forecast to be 89,000, of which 70% will be local LAX, and 30% will be in convenient Southwest connecting markets (Appendix 2, page 6). The forecasted load factor is 85%. Because Southwest has built a robust route network at LAX (Exhibit WN-19), it will be able to market this new service to local consumers as part of its growing LAX - Mexico service portfolio and also extend the benefits of the

14 new low-fare service to/from connecting markets. The grant of one slot pair for this service is clearly in the public interest. V. On Average, Southwest s Proposed New U.S. MEX Services Will Reduce Fares 19% and Increase Passengers 33%. Empirical evidence has shown consistently over many decades that new Southwest low-fare service causes high-fare carriers to reduce their fares in order to remain competitive. Similarly in this case, Southwest s new MEX service will result in a meaningful reduction in market fares thereby stimulating considerable additional passenger travel. The Southwest Effect from Proposed MEX Slots Will Decrease Fares and Increase Passengers Significantly % Change Yr/Yr 40% +33% 30% 20% 10% 0% +472,633-10% -20% -30% See Exhibit WN % -$35 Per Passenger Decrease in Fares Increase in Passengers 12

15 Southwest s low-fare entry generates not only new traffic for itself but also more traffic for other carriers as the market responds to lower fares by all carriers. This is the essence of the Southwest Effect. The volume of new, or stimulated, passengers is shared by Southwest and other carriers. Fare savings accrue to existing passengers (who would still have flown at the old (pre-southwest) fare as well as to newly stimulated passengers (who would not have flown except for the lower fares). Looking at each of Southwest s three proposed MEX markets shows that fares will decrease between 10% and 25% for an average of 19% (Exhibit WN-21): The Proposed Southwest MEX Services Will Reduce Market Fares By 19% on Average Avg. One-Way Fare Including Avg. Fees Paid $225 Market Fare YE Q Market Fare with New WN Nonstops Forecast WN Fare $203 $200 $187 $182 $175 $155 $160 $150 $141 $125 $123 $110 $115 $100 $75 $50 $25 $0 HOU/IAH FLL/MIA LAX Market Fare Change: -21% -25% -10% See Exhibit WN-21 13

16 Naturally, these significantly reduced fares will stimulate new passenger traffic in each market. The Campbell-Hill model projects traffic increases between 18% and 45% in the three markets, for an average increase of 33% (Exhibit WN-22): Passengers in the Proposed Markets Are Forecast to Increase by 33% On Average After Southwest s Service Introduction Total O&D Passengers 800,000 CY 2018 O&D Passengers Before Stimulation CY 2018 Passengers After WN Entry 726, , , , % 552, % 502, % 525, , , , , , ,000 0 HOU/IAH FLL/MIA LAX See Exhibit WN-22 As noted earlier, the Campbell-Hill model estimates that consumers in the three proposed markets will reap annual fare savings of nearly $50 million from Southwest s fare reductions: $12.9 million for Southwest s HOU-MEX proposal, $24.3 million for its new FLL-MEX service, and $10.3 million for the LAX-MEX market. (Exhibit WN-23). These huge savings will be produced by an award of only four MEX slot pairs, demonstrating the power of the Southwest Effect to generate enormous consumer benefits in international markets as it has for decades in domestic markets. 14

17 CONCLUSION For the reasons stated above, Southwest s proposed U.S. MEX service will maximize public benefits by providing new high quality, low-cost travel options for U.S. passengers in direct competition with the Joint Applicants and other high-fare legacy carriers. Given Southwest s proven track record of introducing and maintaining competitive low-fare, large-aircraft service, we urge the Department to grant all four of the slot pairs requested in this Application for new and expanded U.S. MEX service. Respectfully submitted, Robert W. Kneisley January 23,

18 CERTIFICATE OF SERVICE I hereby certify that on January 23, 2017, a copy of the foregoing was served via on the following persons: jeremy.ross@alaskaair.com (Alaska Airlines) dheffernan@cozen.com (Counsel for Alaska Airlines) robert.wirick@aa.com (American Airlines) howard.kass@aa.com (American Airlines) chris.walker@delta.com (Delta Air Lines) alex.krulic@delta.com (Delta Air Lines) matwood@cozen.com (Counsel for Frontier) slachter@cozen.com (Counsel for Frontier) robert.land@jetblue.com (JetBlue Airways) esahr@eckertseamans.com (Counsel for JetBlue Airways) dderco@eckertseamans.com (Counsel for JetBlue Airways) rdavidson@eckertseamans.com (Counsel for JetBlue Airways) jyoung@yklaw.com (Counsel for Spirit Airlines) dkirstein@yklaw.com (Counsel for Spirit Airlines) mathew.friebe@suncountry.com (Sun Country Airlines) dan.weiss@united.com (United Airlines) mwarren@crowell.com (Counsel for United Airlines) robert.cohn@hoganlovells.com (Counsel for Aeromexico) patrick.rizzi@hoganlovells.com (Counsel for Aeromexico) mroller@rollerbauer.com (Counsel for Interjet) Anita.Mosner@hklaw.com (Counsel for Volaris) susan.mcdermott@dot.gov brian.hedberg@dot.gov todd.homan@dot.gov peter.irvine@dot.gov kristen.davis@dot.gov joseph.landart@dot.gov benjamin.taylor@dot.gov brett.kruger@dot.gov bob.goldner@dot.gov jeffrey.gaynes@dot.gov matt.zisman@dot.gov EngleTS@state.gov info@airlineinfo.com Amanda Hoff

19 Phase Rank Carrier Origin Dest Effective Date Days Operated Departure Time (local time) Arrival Time (local time) Arrival Day Aircraft Type Seats on Aircraft Forecasted PPD Min/Max Ground Time Existing Nonstops in Market RON Required? 1 1 of 4 WN HOU MEX see FN :40 20: RON 3 Yes (replace existing) 1 1 of 4 WN MEX HOU see FN :00 9: RON 3 Yes (replace existing) 1 2 of 4 WN HOU MEX see FN :40 10: /65 3 No 1 2 of 4 WN MEX HOU see FN :40 13: /65 3 No 2 3 of 4 WN FLL MEX see FN :10 12: /65 0 No 2 3 of 4 WN MEX FLL see FN :40 18: /65 0 No 2 4 of 4 WN LAX MEX see FN :05 22: RON 0 Yes 2 4 of 4 WN MEX LAX see FN :50 10: RON 0 Yes FN1/ Southwest is prepared to launch these new flights within 90 days of execution of the signed slot transfer agreements and any required Mexican regulatory approvals.

20 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION SLOT ASSIGNMENT PHASE OF THE DELTA/AEROMEXICO ATI PROCEEDING Docket DOT-OST Direct Exhibits Supporting the Application of Washington, D.C. January 23, 2016

21 Southwest s Requested MEX Slot Pairs Exhibit WN-1 Southwest requests the four MEX slot pairs shown below. Southwest requests that the HOU slot pairs be awarded in Phase 1. If either of the HOU-MEX slot pairs are not awarded in Phase 1 Southwest requests they be awarded in Phase 2. Southwest requests the award of FLL and LAX slot pairs in Phase 2. Rank Route MEX Slot Time Desired Phase Back-Up Phase 1 HOU-MEX 2050A/0700D HOU-MEX 1045A/1140D FLL-MEX 1245A/1340D 2 4 LAX-MEX 2200A/0750D 2 1/ See Exhibit WN-6. Source: Southwest s MEX service proposal.

22 Southwest s Proposed Markets of LAX, FLL and HOU Are All in the Top Five Largest U.S. Markets to/from MEX Exhibit WN-2 YE Q MEX O&D Passengers /1 500, , , , , , , , , , , , , , , , , , ,000 50,000 0 LAX FLL/MIA JFK HOU/IAH MDW/ORD MCO SFO LAS DAL/DFW EWR 1/ Excludes Mexican Low Cost carrier data because MIDT data for these carriers is inaccurate. Source: Travelport Adjusted MIDT data, YE Q

23 Southwest s Average U.S. - Mexico Fares (All Markets) Are 39% Below the Legacy Carriers Exhibit WN-3 Avg. One-Way Fare Including Avg. Fees Paid, YE Q $325 $300 $275 $250 American Fares United Fares Delta Fares $225 $200 $175 Southwest Fares $150 $125 $100 $75 $50 $25 At 1200 miles, Legacy Fares are Higher than Southwest by: United $87 Delta $87 American $102 $ Trip Length (One-Way Nonstop Miles) Notes: Fare curves derived by regression analysis. Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Includes U.S.-Mexico O&D markets with at least 5 passengers per day each way. Source: Travelport Adjusted MIDT data and internal WN data, YE Q

24 Summary of Southwest s HOU, FLL and LAX - MEX Service Proposal Exhibit WN-4 LAX HOU FLL MEX Distance Aircraft Type Aircraft Seat Size WN Daily Round Trip Frequency WN Annual One-Way Flights WN Annual One-Way Seats WN Annual One-Way Passengers Passengers per Flight WN Load Factor HOU-MEX FLL-MEX LAX-MEX Total 742 1,289 1,553 B737-7 B737-7 B /1 1, , , , , , ,408 92,559 88, , % 89% 85% 85% 1/ In addition, Southwest will continue to operate two existing HOU-MEX round trips scheduled in viable time periods. Source: Southwest s MEX service proposal.

25 Exhibit WN-5 Southwest s Proposed Services at MEX Will Provide Nonstop or Nonstop-to-Nonstop Connecting Service to 50 Airports Across the U.S. SEA PDX RNO SMF OAK SFO SJC LAX LAS SNA SLC ABQ DEN MAF OMA MCI TUL OKC DAL AUS SAT HOU STL MEM MSY MDW IND BNA BHM ATL PNS ECP TPA BUF PIT MCO IAD RDU CLT CHS EWR BWI PHL DCA LGA ISP BOS PVD FLL Southwest s Proposed Service Covers 72% of all U.S. - MEX O&D Passengers Proposed Route Existing nonstop market MEX SJU Source: Southwest s MEX service proposal and Travelport Adjusted MIDT data, YE Q (Excludes Mexico LCCs due to lack of accurate MIDT data.)

26 Southwest Will Offer Four Total HOU - MEX Round Trips if Awarded the Requested Slots Exhibit WN-6 Current Summer 2017 Schedule Seats Equip Flight Orig Dep Time MEX Time Arr Time Dest Flight Equip Seats HOU W W 2302 HOU HOU W W 953 HOU HOU W W 943 HOU Not Commercially Viable Timing Not Commercially Viable Timing Proposed Summer 2017 Schedule Seats Equip Flight Orig Dep Time MEX Time Arr Time Dest Flight Equip Seats HOU W W 9003 HOU HOU W W 2302 HOU HOU W W 953 HOU HOU W W 9001 HOU Proposed New Slots Proposed New Slot Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, and Southwest s proposed MEX schedules.

27 Exhibit WN-7 Proposed Southwest Daily Flight Schedules to/from MEX HOU - MEX FLL - MEX LAX - MEX Flight # / / Elapsed Time 2:05 2:10 2:10 2:10 3:35 3:25 3:55 4:10 Local Time HOU FLL LAX MEX MEX MEX 0750 Aircraft Type Seats / Represents retime of Southwest s existing RON service at MEX (23:30 arrival; 05:30 departure) to commercially viable times. Note: Excludes Southwest s existing flights operated to/from HOU.

28 Southwest will be Better Able to Compete Against the Legacy Carriers at Houston with One Net New Slot Pair and Better-Timed Slots Weekday HOU/IAH-MEX Round Trips 8 Exhibit WN Proposed Net New United Aeromexico Southwest InterJet Volaris Note: HOU includes HOU and IAH airports. Source: Innovata Schedules for Wednesday June 7, 2017.

29 In Its Initial Entry in the Houston - MEX Market, Southwest Reduced Average Fares 43% and Increased Passengers 24% Exhibit WN-9 One-Way Average Fare HOU/IAH-MEX O&D Passengers HOU/IAH-MEX $300 $ ,000 $250 $200-43% $ , , , , % 329,894 $ ,000 $ , ,000 $50 50,000 $0 0 Before Southwest Entry After Southwest Entry Before Southwest After Southwest Entry (YE Q3 2015) (YE Q3 2016) Entry (YE Q3 2015) (YE Q3 2016) Avg. Daily DL WN Round Trips: Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Houston includes HOU and IAH airports, FLL includes FLL and MIA airports. Market Fare is the weighted average fare of all carriers in the market. Mexican LCCs are excluded due to lack of accurate MIDT data. Source: Travelport Adjusted MIDT and WN internal data, YE Q3 2016; U.S. DOT T-100 data, via Diio.

30 SNA SNA SNA SNA SNA SNA SNA SNA SNA LAX LAX LAX LAX LAX LAX LAX LAX LAX HOU HOU HOU HOU HOU HOU HOU HOU HOU DAL DAL DAL DAL DAL DAL DAL DAL DAL BWI BWI BWI BWI BWI BWI BWI BWI BWI BHM BHM BHM BHM BHM BHM BHM BHM BHM CLT CLT CLT CLT CLT CLT CLT CLT CLT PNS PNS PNS PNS PNS PNS PNS PNS PNS MEX MEX MEX MEX MEX MEX MEX MEX MEX SAT SAT SAT SAT SAT SAT SAT SAT SAT AUS AUS AUS AUS AUS AUS AUS AUS AUS MAF MAF MAF MAF MAF MAF MAF MAF MAF LAS LAS LAS LAS LAS LAS LAS LAS LAS OAK OAK OAK OAK OAK OAK OAK OAK OAK SEA SEA SEA SEA SEA SEA SEA SEA SEA PDX PDX PDX PDX PDX PDX PDX PDX PDX ABQ ABQ ABQ ABQ ABQ ABQ ABQ ABQ ABQ SLC SLC SLC SLC SLC SLC SLC SLC SLC DEN DEN DEN DEN DEN DEN DEN DEN DEN OKC OKC OKC OKC OKC OKC OKC OKC OKC TUL TUL TUL TUL TUL TUL TUL TUL TUL OMA OMA OMA OMA OMA OMA OMA OMA OMA MCI MCI MCI MCI MCI MCI MCI MCI MCI STL STL STL STL STL STL STL STL STL ATL ATL ATL ATL ATL ATL ATL ATL ATL BNA BNA BNA BNA BNA BNA BNA BNA BNA DCA DCA DCA DCA DCA DCA DCA DCA DCA ECP ECP ECP ECP ECP ECP ECP ECP ECP MCO MCO MCO MCO MCO MCO MCO MCO MCO MDW MDW MDW MDW MDW MDW MDW MDW MDW MEM MEM MEM MEM MEM MEM MEM MEM MEM MSY MSY MSY MSY MSY MSY MSY MSY MSY RDU RDU RDU RDU RDU RDU RDU RDU RDU SJU SJU SJU SJU SJU SJU SJU SJU SJU TPA TPA TPA TPA TPA TPA TPA TPA TPA BOS BOS BOS BOS BOS BOS BOS BOS BOS CHS CHS CHS CHS CHS CHS CHS CHS CHS FLL FLL FLL FLL FLL FLL FLL FLL FLL IND IND IND IND IND IND IND IND IND LGA LGA LGA LGA LGA LGA LGA LGA LGA PIT PIT PIT PIT PIT PIT PIT PIT PIT Southwest s Proposed Daily HOU - MEX Service Will Connect Conveniently to 39 U.S. Airports Proposed nonstop route Connecting market Note: Only includes points with a maximum connect time of 4 hours. Source: Appendix 1, pages 1-4. Exhibit WN-10

31 FLL/MIA Domestic Weekly Seat-Departures 80,000 Southwest Has the Most Domestic Seat-Departures at FLL/MIA Among the Eligible Carriers Exhibit WN-11 70,000 68,807 67,102 60,000 57,392 50,000 40,000 30,000 20,000 10, ,159 3,540 3,108 Southwest JetBlue Spirit Allegiant Frontier Virgin America 1, Alaska Hawaiian Sun Country VivaAerobus Volaris % Share 33% 32% 27% 4% 2% 1% 1% 0% 0% 0% 0% Note: Includes all nonstop service from FLL and MIA airports to points within the United States. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017.

32 Southwest Has A Very Large Presence at FLL Exhibit WN-12 MDW BUF ALB BDL PVD DEN MCI STL IND CMH PIT EWR PHL IAD BWI DCA ISP LAS BNA RDU PHX DAL ATL AUS HOU MSY TPA MCO WN has grown its Seat- Departures at FLL by 39% during the past year FLL NAS Pending Government Approval HAV VRA SNU CUN Nonstop Destinations 37 Avg. Daily Departures 73 Avg. Daily Seat-Departures 11,181 BZE GCM MBJ SJU WN Annual Onboard Passengers = 4.8 million Source: Innovata schedules, via Diio, for the week of June 5-11, 2017, and U.S. DOT T-100 data, YE Q

33 FLL Has Been A Key Element to Southwest s Latin America/Caribbean Growth Plan Exhibit WN-13 June 2016 June 2017 FLL FLL NAS HAV VRA SNU SJU MEX CUN BZE GCM MBJ SJU Pending Government Approval Nonstop Destinations 1 Avg. Daily Departures 2 Avg. Daily Seat-Departures 350 Nonstop Destinations 9 Avg. Daily Departures 12 Avg. Daily Seat-Departures 1,889 Source: Innovata schedules, via Diio, for the week of June 2-12, 2016 and June 5-11, 2017.

34 Southwest s Proposed Daily FLL - MEX Service Will Connect Conveniently to 13 U.S. Airports Exhibit WN-14 PIT BUF EWR ISP PHL DCA BWI IAD PVD RDU MCO TPA FLL MEX SJU Proposed nonstop route Connecting market Note: Only includes points with a maximum connect time of 4 hours. Source: Appendix 1, pages 5-6.

35 An Award of One Slot Pair to Southwest Will Provide Needed Competition in the FLL/MIA - MEX Market Exhibit WN-15 Weekday FLL/MIA-MEX Round Trips Proposed American Aeromexico InterJet Southwest JetBlue Volaris Source: Innovata Schedules for Wednesday June 7, 2017.

36 Southwest Has A Very Large Presence at LAX Exhibit WN-16 PDX MKE SMF OAK SFO SJC RNO LAS SLC DEN OMA MCI STL MDW IND BNA PIT BWI ABQ LAX PHX TUS ELP DAL ATL AUS SAT HOU MSY Nonstop Destinations 31 SJD Avg. Daily Departures 125 Avg. Daily Seat-Departures 18,284 PVR CUN WN Annual Onboard Passengers = 9.2 million Source: Innovata schedules, via Diio, for the week of June 5-11, 2017, and U.S. DOT T-100 data, YE Q

37 LAX Domestic Onboard Passengers 10,000,000 Southwest Carries By Far the Most Domestic Onboard Passengers at LAX Among the Eligible Carriers Exhibit WN-17 9,000,000 9,171,895 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,137,691 3,000,000 2,697,102 2,000,000 1,949,597 1,299,895 1,000,000 0 Southwest Virgin America 829, , , , Alaska Spirit JetBlue Hawaiian Frontier Allegiant Sun Country VivaAerobus Volaris % Share 45% 16% 13% 10% 6% 4% 3% 2% 1% 0% 0% Note: Includes passengers carried on nonstop flights between LAX and points within the United States. Source: U.S. DOT T-100 data, via Diio, for YE Q

38 An Award of One Slot Pair to Southwest Will Inject the First U.S. LCC Competition into the LAX - MEX Market Exhibit WN-18 Weekday LAX-MEX Round Trips Proposed Aeromexico InterJet American Volaris Southwest United Source: Innovata Schedules for Wednesday June 7, 2017.

39 Southwest s Proposed Daily LAX - MEX Service Will Connect Conveniently to 7 U.S. Airports Exhibit WN-19 SLC SMF RNO OAK SFO SJC LAS LAX Proposed nonstop route Connecting market MEX Note: Only includes points with a maximum connect time of 4 hours. Source: Appendix 1, pages 7-8.

40 The Southwest Effect from Proposed MEX Slots Will Decrease Fares and Increase Passengers Significantly Exhibit WN-20 % Change Yr/Yr 40% +33% 30% 20% 10% 0% +472,634-10% -20% -30% -19% -$35 Per Passenger Decrease in Fares Increase in Passengers Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Houston includes HOU and IAH airports, FLL includes FLL and MIA. Market Fare is the weighted average fare of all carriers in the market. Mexican LCCs are excluded due to lack of accurate MIDT data. Assumes an 8.5% annual growth rate based on historical trends (See Appendix 2). Source: Travelport Adjusted MIDT and WN internal data, YE Q

41 The Proposed Southwest MEX Services Will Reduce Market Fares By 19% on Average Exhibit WN-21 Market Fare YE Q Avg. One-Way Fare Including Avg. Fees Paid Market Fare with New WN Nonstops $225 Forecast WN Fare $203 $200 $187 $182 $175 $155 $160 $150 $141 $125 $123 $110 $115 $100 $75 $50 $25 $0 Market Fare Change: HOU/IAH FLL/MIA LAX -21% -25% -10% Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Market Fare is the weighted average fare of all carriers in the market. Mexican LCCs are excluded due to lack of accurate MIDT data. Source: Travelport Adjusted MIDT and WN internal data, YE Q

42 Passengers in the Proposed Markets Are Forecast to Increase by 33% On Average After Southwest s Service Introduction Exhibit WN-22 Total O&D Passengers 800,000 CY 2018 O&D Passengers Before Stimulation CY 2018 Passengers After WN Entry 726, , , , % 552, % 502, % 525, , , , , , ,000 0 HOU/IAH FLL/MIA LAX Notes: Mexican LCCs are excluded due to lack of accurate MIDT data. Assumes an 8.5% annual growth rate based on historical trends (See Appendix 2) from YE Q to CY Source: Travelport Adjusted MIDT and WN internal data, YE Q

43 Annual Fare Savings (Millions) The Proposed Southwest Daily MEX Round Trips Will Generate $48 Million in Annual Fare Savings Exhibit WN-23 $50 $45 $40 Savings to Newly Generated Passengers (Stimulation) Savings to Existing Passengers $47.5 Million $8.6 Million $35 $30 $25 $20 $24.3 Million $5.1 Million $38.9 Million $15 $12.9 Million $10 $2.5 Million $19.2 Million $10.3 Million $1.0 Million $5 $10.4 Million $9.3 Million $0 HOU/IAH-MEX FLL/MIA-MEX LAX-MEX Total 1/ See Appendix 2 for calculations. Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Consumer Benefits for existing passengers equals the total fare savings. Consumer Surplus for new passengers equals fare savings for new passengers x 0.5 (see Appendix 2). Mexican LCCs are excluded due to lack of accurate MIDT data. Source: Travelport Adjusted MIDT and WN internal data, YE Q

44 Appendices

45 Appendix 1 Detailed Connecting Schedules

46 Proposed HOU-MEX Flight Schedules (Southbound) Total Trip Time (mins) Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days 555 LAS H MCI C ABQ W OKC W ATL H DAL W DAL W MDW 40 73W BWI C ECP C DAL 33 73W MAF W DCA W DCA W MSY 42 73W MCO W STL W DAL 35 73C DAL C DAL W MDW W OKC C MDW W SEA W BNA W OKC W PDX H SJU H MCI C SJU H SNA 44 73W SNA W AUS W PNS W SAT W AUS H DAL DAL 37 73C SAT W STL C STL W DEN W PDX 46 73H SEA W LAX H SJU H LAS W MAF W DEN W MSY C BNA C DAL 39 73C DAL C DAL W MSY W BWI C LAX W SNA W ABQ W ATL C LAX H DEN H LAS W DAL 41 73W DAL W LAS H MCI H TUL W MAF W OAK W SAT W TPA W AUS W CLT C SLC W MEX W Note: Only includes points with a maximum connect time of 4 hours. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, plus proposed new service. Appendix 1 Page 1 of 8

47 Proposed HOU-MEX Flight Schedules (Southbound) Appendix 1 Page 2 of 8 Total Trip Time (mins) Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days 380 CLT H DAL DAL C TUL W BHM W CLT W SAT H TPA W AUS W BNA C BNA W OKC W RDU H ATL W BHM W BNA C CLT H MCI W STL H STL W TUL W AUS W DAL DAL W MCO W MEM W MSY W RDU W SAT C MCO W SAT H STL W MSY W ATL W AUS W MEM H MEX W Note: Only includes points with a maximum connect time of 4 hours. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, plus proposed new service.

48 Proposed HOU-MEX Flight Schedules (Northbound) Appendix 1 Page 3 of 8 Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days Total Trip Time (mins) MEX W ATL H BHM C DCA W FLL H LAS H MDW H MEM C TPA H ATL W CLT W MCI MCO H PIT W SAT 9 73C SEA W TPA W FLL H FLL H IND C LGA H OKC C PDX H SAT C AUS C ATL W DAL C DAL 20 73W OKC W TPA H MSY C DAL H OKC C DEN 15 73W MDW W LAX W MCO W DAL 24 73W DAL W DEN H LAX W DEN W STL C MAF W ATL 17 73W ATL W MSY C DAL C DAL 28 73W DAL W Note: Only includes points with a maximum connect time of 4 hours. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, plus proposed new service.

49 Proposed HOU-MEX Flight Schedules (Northbound) Appendix 1 Page 4 of 8 Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days Total Trip Time (mins) MEX W MSY C AUS W DAL 38 73C MSY W RDU H BOS W CHS W BNA C DAL C DAL H DAL 40 73W LAS W DEN W DAL 42 73W MSY W ATL W LAX W STL 35 73C TPA C SJU W STL C FLL W DAL H BWI W DAL C DAL 44 73W LAS W MSY W AUS C MCO W MDW W OMA W SAT W BOS H DEN H IND RDU H TPA C LAX W OKC W OMA W IND W DAL 46 73H DAL W LAX H MDW H BOS H MSY C OKC W MSY W PNS 39 73C TPA C BWI W BHM C Note: Only includes points with a maximum connect time of 4 hours. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, plus proposed new service.