BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC ) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC ) DOT-OST ) Consolidated Response of JetBlue Airways Corporation Communications with respect to this document should be addressed to: James Hnat Jonathan B. Hill General Counsel J. Parker Erkmann JetBlue Airways Corporation Dow Lohnes PLLC Queens Plaza North 1200 New Hampshire Ave., NW Long Island City, NY Suite 800 Washington, D.C (202) jhill@dowlohnes.com perkmann@dowlohes.com Robert C. Land Senior Vice President for Government Counsel for Affairs & Associate General Counsel JetBlue Airways Corporation JetBlue Airways Corporation P.O. Box 1927 Rockville, Maryland (301) March 27, 2012

2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC ) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC ) DOT-OST ) Consolidated Response of JetBlue Airways Corporation I. Introduction Of all the Applications submitted in this docket, one stands out from the rest: JetBlue s proposed service to San Juan, Puerto Rico s Luiz Munoz Marin International Airport ( SJU ). While the air carriers seeking the 16 available exemptions intend to fly west from DCA, only JetBlue s primary Application proposes to fly south. Not only will JetBlue s proposal introduce nonstop DCA service to an entire region completely unserved from DCA today, the Caribbean, but it will inject JetBlue s low fare, high service brand of competition into a city pair (WAS-SJU) currently served by a single high cost mainline carrier from Dulles International Airport ( IAD ). Indeed, JetBlue s Application is ground-breaking in several respects: JetBlue s proposed SJU service would be the first and only service between WAS and SJU offered by a low-cost carrier. JetBlue s proposed connecting services would reach cities and regions of the country that no other carrier in this proceeding even proposes to serve, or which any applicant or prior beyond-perimeter exemption recipient has proposed to serve. 1

3 JetBlue proposes to open an entirely new domestic gateway to the Caribbean, driving tourist traffic from the Washington area to domestic resort destinations in Puerto Rico, the U.S. Virgin Islands and the Caribbean, bolstering the U.S. economy. JetBlue proposes to connect the nation s capital to territorial and state capitals, unlike any other carrier in this proceeding. 1 The other Applications in this proceeding offer more of the same, flying to the west coast or to mountain destinations that are at best complimentary and at worst duplicative of what is already available from multiple carriers from the Washington market and DCA in particular, diverting traffic (for the most part) from existing service and not generating new traffic. Figure 1: JetBlue s SJU Proposal is Unique In addition, JetBlue s proposes to introduce its unique product to travelers from the nation s capital to the capital of Texas in a market that is, as also reflected by 1 Southwest s proposed nonstop Austin service duplicates JetBlue s proposed nonstop service to Austin. 2

4 Southwest s Application in the same market, in need of effective and consistent competition. JetBlue is in the best position to deliver this competition. JetBlue has made unprecedented investments in growing its low-fare service at DCA. Indeed, by winning the FAA-directed slot divestiture auction with a $40 million bid, JetBlue has uniquely demonstrated in the boldest fashion possible its long-term commitment to competing and expanding its low-fare DCA service. The Department should not overlook this level of commitment. While the other applicants in this proceeding seek to add services opportunistically that they believe will be profitable due to the constraints on entry imposed by the High Density Rule, only JetBlue has shown such a commitment to DCA and its presence in Washington by investing its money to gain competitive access. JetBlue s proposed services to SJU and AUS represent sustainable services that will provide unique benefits to the traveling public. These proposed routes reflect JetBlue s long term commitment to Washington and will be sustainable in the long-run. Unlike any other carrier, JetBlue has committed valuable assets and a significant amount of cash to acquire a portfolio of slots in two transactions 2 to gain access and establish a meaningful, but still modest, operating base at DCA. Indeed, the only reason JetBlue has access to DCA is its willingness to invest in the airport. The chart below shows that JetBlue would have no DCA slots at all if it had not decided to pay for access. 2 In addition to its winning slot auction bid, JetBlue traded valuable slot interests at John F. Kennedy International Airport ( JFK ) and a commercial agreement for the right to use 8 pairs of DCA slots held by American Airlines. 3

5 Figure 2: JetBlue DCA Slot Holdings To enable JetBlue to continue to grow its DCA presence and offer a meaningful choice to mainline and other incumbent carriers, the Department should recognize this unique commitment as it assesses the merits of the Applications in this proceeding. II. JetBlue s Application Provides the Most Public Interest Benefits. Of all the Applications submitted in this proceeding, JetBlue best satisfies the statutory criteria for the award of these exemptions and provides the most public interest benefits, not just benefits to the carrier itself. A. JetBlue s Proposed DCA-SJU Service Provides Significant Public Interest Benefits Consistent with the Statutory Criteria. Section 414 of FAA directed the Department to consider seven criteria when awarding the exemptions at issue in this proceeding. 4 Upon review of the 3 FAA Modernization and Reform Act of 2012, Pub. L. No , 126 Stat. 11 (Feb. 14, 2012) ( FAA 2012 ). 4

6 competing Applications in this proceeding, it is apparent that JetBlue s Application to San Juan best satisfies them. Indeed, JetBlue s proposal portends public interest benefits that no other Application can deliver. 1. JetBlue s SJU-DCA Service Will Expand the Domestic Network Benefits Like No Other Proposed Service in this Proceeding. In terms of expanding the domestic network and increasing competition in multiple markets, JetBlue s SJU-DCA Application stands alone. JetBlue s proposed capital-to-capital service simply takes beyond-perimeter service in a different direction and proposes to serve a market and region that currently receives no service whatsoever from DCA. 5 The diagram below depicts the service proposed in the competing Applications in this proceeding. 4 The Department summarized the criteria that the granted exemptions must satisfy as: (A) provide air transportation with domestic network benefits beyond the 1,250 mile perimeter; (B) increase competition in multiple markets; (C) not reduce travel options for communities served by small hub airports and medium hub airports within the 1,250 mile perimeter; (D) not result in meaningfully increased travel delays; (E) enhance options for nonstop travel to and from the beyond-perimeter airports that will be served; (F) have a positive impact on the overall level of competition in the markets that will be served; or (G) produce public benefits, including lower fares, higher capacity, and a variety of service options. Order , DOT-OST (Feb. 24, 2012), at 3. 5 The only southern service even resembling JetBlue s proposed SJU service today is US Airways seasonal (10 months per year) service to Nassau ( NAS ) in the Bahamas. JetBlue s proposed DCA-SJU service is far superior. The daily year-round service will be provided on larger aircraft featuring JetBlue s award-winning customer service. In addition, JetBlue s SJU service offers the prospect of connecting service, whereas US Airways offers no connections through NAS. 5

7 Figure 3: JetBlue s Capital-to-Capital Proposals Provide Unique Benefits Not only is JetBlue s proposed nonstop service unique, but so are the proposed domestic network benefits. While some of the services proposed in the competing Applications will introduce new nonstop routes to DCA, the proposed connections offer nothing new. No existing beyond-perimeter service or application can serve JetBlue s proposed one-stop domestic connections from DCA, including to St. Thomas, VI ( STT ); St. Croix, VI ( STX ); Vieques ( VQS ), PR; and Mayaguez ( MAZ ), PR. Indeed, the one-stop connections from DCA to VQS and MAZ will be the first of their kind. To the extent that these points can be served from connecting points within the DCA perimeter, JetBlue s proposed service will result in shorter travel times to the benefit of the traveling public while simultaneously stimulating demand and growing the capital to capital market of DCA-SJU. 6 See JetBlue Application at Exhibit H. 6 San Juan is a cornerstone of JetBlue s growth in the Caribbean. From San Juan, JetBlue has made public its intention to add frequencies on existing JetBlue routes and initiate service on new routes. 6

8 In addition to the proposed domestic connections, JetBlue and its partner Cape Air will also offer one-stop connections to additional international destinations. Those destinations include Santo Domingo ( SDQ ), Anguilla ( AXA ), Tortola ( EIS ) and Nevis ( NEV ). Given reports that American Eagle has plans to suspend its operations in Puerto Rico next year, 7 there may be multiple additional opportunities for JetBlue and Cape Air connecting service. American Eagle currently serves 10 destinations from SJU without any nonstop competition, including SJU-Barbados ( BGI ), SJU- Dominica ( DOM ), SJU-Martinique ( FDF ), SJU-Grenada ( GND ), SJU-La Romana, Dominican Republic ( LRM ), SJU- Guadeloupe ( PTP ), SJU-Punta Cana, Dominican Republic ( PUJ ), SJU-St. Kitts ( SKB ), SJU-St. Lucia ( SLU ), SJU-Santiago, Dominican Republic ( STI ) JetBlue s Proposed Service Will Increase Competition in Multiple Markets. JetBlue s proposed service will increase competition in multiple markets. First, documented in its Application, JetBlue has a unique and proven track record of entering a market with lower fares that stimulate traffic and demand. 9 JetBlue s addition of nonstop service to SJU not only will increase competition for service to San Juan but also to the connecting markets in the Caribbean. The addition of the attractive connections will increase consumer choice and therefore competition in markets served 7 Associated Press, American Eagle Plans to End Operations in Puerto Rico Next Year (Mar. 25, 2012), 8 See OAG schedules in Diio (captured Mar. 26, 2012). 9 See JetBlue s Entry Decreases Fares and Stimulates Traffic, attached hereto as Exhibit A (depicting fare declines and traffic increases in JAX-SJU and MCO-BOG). 7

9 from DCA across the Caribbean. As noted above, all of these markets are unique to JetBlue s Application and several are first-of-their-kind services. Second, the addition of JetBlue s proposed service will increase competition by creating another domestic hub (SJU) through which DCA customers can reach Caribbean destinations. Currently, travelers from DCA transit through hubs at Charlotte, Atlanta, Fort Lauderdale or Miami to reach Caribbean destinations. JetBlue s service will introduce a new carrier willing to compete aggressively against established hubs on routes from DCA to destinations across the Caribbean with more direct routing than is currently available in the marketplace. Third, in addition to the effect of increased consumer choice inherent to the entry of a low-cost carrier, JetBlue will compete on the basis of its award-winning differentiated coach product. As discussed in its Application, JetBlue offers a bundle of popular services and amenities for which other carriers typically charge, including 1) no overbooking and thus, no denied boarding; 2) first checked bag free; 3) all one-way fares; 4) pre-assigned seats; 5) the most legroom in coach; 6) the youngest all-jet mainline fleet; 7) unlimited snacks and drinks; and 8) 136 channels of free entertainment at every seat on every flight. JetBlue will increase competition on the basis of its superior service as well as price. 3. JetBlue s DCA-SJU Proposal Will Increase Service to Small or Medium Hub Airports. Because SJU is a medium hub airport, JetBlue s proposal necessarily will increase service to such airports. JetBlue s service will also increase service to small hub airports, including STT and STX, by introducing one-stop connecting service from DCA. This increase in service to small-hub airports in competition with hubs up and 8

10 down the east coast is unique to JetBlue s Application in this proceeding. Moreover, because JetBlue s proposed service will be additive to its existing DCA service, there will be no reduction in service to small and medium hub airports within or beyond the DCA perimeter. 4. JetBlue s Proposed DCA-SJU Service will not Increase Travel Delays. JetBlue s proposed SJU-DCA service has a significant advantage over the competing Applications because the proposed arrival (15:05) and departure times (10:00) are at uncongested times at DCA. Indeed, no other limited incumbent has proposed an exemption operation in the 1000 hour and only Alaska s second-choice San Diego service would arrive in the 1500 hour. 10 Because these periods are already times of off-peak usage at DCA, there is no possibility that JetBlue s proposed service will result in increased travel delays. The timing of other carriers exemption requests highlights another problem with the other applications in this proceeding. With the goal of limiting congestion at DCA, Congress expressly directed in FAA 2012 that the Department limit exemptions to five per one hour period. 11 Indeed, the Order initiating this proceeding stated: Applicants should keep these constraints in mind prior to submitting any proposals and should 10 As will be discussed later, US Airways announcement that it will initiate nonstop DCA-SAN service means that Alaska s second-choice Application is not worthy of an award of such a scarce public resource. See Notice of US Airways, Inc. of Beyond- Perimeter Service (DCA-SAN), DOT-OST (Mar. 21, 2012) ( US Notice (DCA-SAN) ). 11 See FAA (b). 9

11 understand that these slot-time constraints may cause some proposals not to be viable. 12 Unlike other Applications in this proceeding, JetBlue s proposal is viable under the Department s articulation of the statutory standard. The chart below depicts the existing beyond perimeter exemptions, exemptions noticed by incumbent carriers pursuant to FAA 2012 and the requested exemptions in this proceeding during each hour of the day. The number of Applications exceeds the statutory threshold in the 1700 and 2100 hour, making the grant of exemptions as requested by Virgin America, Southwest, Alaska, Frontier and Air Canada impossible. 13 Figure 4: Timing of Existing and Requested Beyond Perimeter Exemptions 14 JetBlue Beyond Perimeter Slot Times Applicants Incumbents WN AUS (D) F9 COS (D) AS PDX (D) AC YVR (D) WN AUS (A) AC YVR (A) US SAN (A) AS SAN (D) VX SFO (A) VX SFO (A) US LAS (A) B6 SJU (A) F9 COS (A) US SAN (D) UA SFO (A) AS SEA (D) AS SAN (A) AA LAX (A) AS SEA (D) VX SFO (D) AS SEA (A) US PHX (D) VX SFO (D) B6 SJU (D) DL SLC (A) AS SEA (A) US PHX (D) AS PDX (A) US PHX (A) DL SLC (D) UA SFO (D) AS LAX (D) US PHX (D) SY LAS (D) B6 AUS (A) B6 AUS (D) US PHX (A) DL SLC (D) AA LAX (D) SY LAS (A) US PHX (A) AS LAX (A) US LAS (D) DL SLC (A) Hour Source: FAA Slot Administrator s Office, March While the Department s order in this proceeding placed carriers on notice of this overscheduling possibility, the reality of it, not mere possibility of it, will undoubtedly change the operating times and likely connections and purported network benefits offered by other carriers. This will not, due to the proposed times, be the case with JetBlue s 12 Order , DOT-OST , (Feb. 24, 2012), at Only JetBlue s and Sun Country s Applications do not present issues under FAA 2012 Section 414(b). 14 The congestion at the 1700 hour will be relieved somewhat when US Airways changes the schedule of its noticed DCA-SAN service effective July 11, See US Notice (DCA-SAN), at 1. 10

12 Application. The Department should take this Congressional mandate into consideration in awarding these scarce resources. 5. JetBlue s Proposed Service Will Enhance Nonstop Travel Options in Markets to be Served. JetBlue s proposed DCA-SJU service will necessarily enhance nonstop travel options because the service is the first of its kind. Not all the other applications can make the same claim. The applications of Sun Country, Virgin America and Alaska seek to serve markets that either already have been allocated a beyond perimeter exemption or will receive one in connection with the FAA 2012 s allocation beyondperimeter exemptions to incumbent air carriers JetBlue s Proposed Service will have a Positive Impact on the Overall Level of Competition in the Markets to be Served. JetBlue s proposed DCA-SJU service will increase competition on the proposed route by initiating service between two cities that are currently served by a single carrier, United, from Dulles International Airport. 16 Sun Country and Virgin America propose to 15 On February 27, 2012, United Airlines informed the Department it intends to serve San Francisco ( SFO ) with the slot pair allocated to it by FAA See Notice of Intent of United Air Lines, Inc. DOT-OST (Feb. 27, 2012). US Airways already serves Las Vegas ( LAS ) from DCA. On March 21, 2012, US Airways informed the Department it intends to serve San Diego (SAN) with the exemption pair allocated to it by FAA See US Notice (DCA-SAN). 16 This is a unique aspect of JetBlue s application. Although Southwest proposes to serve Austin in competition with United, JetBlue also proposes to serve that market with fares commensurate with Southwest s and with unparalleled customer service benefits. Moreover, although Alaska s proposed PDX service would also compete with United s IAD-PDX service, all the proposed connection points are already served by Alaska s twice daily DCA-SEA service, reducing the competitive impact to the local market. 11

13 duplicate existing or previously announced service. 17 Accordingly, JetBlue s Application has the most potential to make a substantial competitive impact. JetBlue s entry into the DCA-SJU market will have substantial impacts on competition. As documented in JetBlue s Application, JetBlue has a long history of reducing fares and stimulating traffic on routes served solely by legacy, mainline carriers and not diverting traffic from its own competing flights or other carrier s flights. Growing markets is a core feature and proven result of JetBlue s business strategy. Indeed, JetBlue forecasts that its new low fare service will initially stimulate 41,610 annual new customers between SJU and WAS. In this regard, JetBlue s Application stands alone. So many of the duplicative inter-mountain and west coast beyond markets proposed by the other carriers (Alaska, Frontier, Virgin America) will likely shift existing traffic in very small beyond markets already served with convenient one-stop service rather than generate new traffic like JetBlue s proposed new service will. JetBlue also competes on the basis of its award-winning service. As noted above, JetBlue provides a standard bundle of popular services and amenities for which other carriers typically charge. The introduction of service-based competition will also benefit consumers. 17 As will be discussed below, the applications of Air Canada and Frontier seek to serve routes that lack sufficient O&D traffic to warrant any nonstop mainline jet service, whether from IAD or DCA. 12

14 7. JetBlue s Proposed DCA-SJU Service will Result in Additional Public Benefits to the People of Puerto Rico as well as the Residents of the District of Columbia and the Surrounding Region. a. JetBlue s SJU-DCA Service will Improve the Connection between Puerto Ricans and the Federal Government. If JetBlue s Application for this DCA-SJU route is granted, it will facilitate significantly improved connection between the federal territory and the federal government. Because of the unique relationship between Puerto Rico and the federal government, this connection is particularly important. Indeed, the offices of no fewer than 30 federal departments and agencies are located in Puerto Rico. See Exhibit B. To support these improved connections, JetBlue will bid for General Services Administration s City Pair Program to carry federal employees on this route, offering non-stop service to DCA. 18 Included among the many beneficiaries of this service would be the military personnel serving at Fort Buchanan, located 12 miles south of San Juan. b. DCA-SJU Service will Enhance a Domestic Tourist Destination. As JetBlue stated in its Application, its proposed service will enhance a domestic tourist destination. First, JetBlue s service will offer first of its kind nonstop service to the Caribbean from DCA. Improving access for the millions of people living in the District of Columbia and surrounding areas will lead more travelers to visit Puerto Rico. JetBlue believes it will stimulate traffic and attract travelers that may have otherwise flown to other destinations in the Caribbean. 18 JetBlue won the fiscal year 2012 government contract to provide service between SJU and IAD with connecting service against United s nonstop service. 13

15 Second, JetBlue s proposed service will benefit the growing cruise industry in Puerto Rico. A growing number of cruise ships line have decided to homeport their ships in San Juan. 19 Since 2007, homeport cruise passenger traffic in San Juan has bucked prevailing economic trends and grown by 20 percent, now exceeding more than half a million passengers annually. 20 With 14 ships opting to make their home port in San Juan, Puerto Rico expects an 8 percent increase in total visitors, 21 and each of those homeport cruise passengers requires air service to travel to and from their cruise. JetBlue s new service can only enhance this growing business. c. DCA-SJU Service will Lead to Unique Public Benefits. With its proximity to downtown Washington DC and the federal government, DCA is unique in the Washington metropolitan area. For example, DCA is much closer and more convenient than IAD to the U.S. Capitol building, drastically reducing ground transportation time. Accordingly, for business travelers between these two capital cities, JetBlue s new service will be invaluable. The proposed DCA service also will both compete with and provide for the first time pricing discipline for United s current nonstop service from IAD to SJU. By introducing DCA-SJU service, JetBlue will increase options for the traveling public. JetBlue will compete on the basis of price and its 19 See JetBlue Application at See Letter of Hon. Jose R. Perez-Riera, Department of Economic Development and Commerce, Government of Puerto Rico (Mar. 7, 2012), attached as Exhibit C-8; Letter of Support of Irene Rocafort, Senior Manager of Air and Maritime Access, Puerto Rico Tourism Company, Government of Puerto Rico (Mar. 26, 2012), attached as Exhibit C See Letter of Support from Cruise Lines Int l Assoc & Florida-Caribbean Cruise Assoc. (Mar. 23, 2012), attached as Exhibit C-10; see also Letter of Support from Eleni P. Kalisch, Vice President, Royal Caribbean Cruise, Ltd. (Mar. 26, 2012), attached as Exhibit C

16 differentiated coach product. But JetBlue will have the added benefit of competing on the basis of convenience for travelers choosing the close-in Reagan Airport. The compelling nature of JetBlue s Application has been widely recognized by public officials, the cruise line industry and the public at large. In addition to the support for JetBlue s initial Application, see JetBlue Application at Exhibit A, the prospect of JetBlue s service to Puerto Rico has led to a groundswell of further support. Congressional leaders, including Chairman John L. Mica of Florida; the Honorable Dan Burton of Indiana; the Honorable Daniel Webster of Florida; the Honorable Bill Posey of Florida; and the Honorable Aaron Schock of Illinois as well as Senators Charles Schumer and Kirsten Gillibrand of New York, have submitted letters supporting JetBlue s application. 22 Recognizing the economic benefits of JetBlue s proposed service, economic development officials and the cruise industry have supported JetBlue s Application. 23 In addition, more than 500 private citizens have thus-far taken the time to write to the Department in support of JetBlue. 24 B. JetBlue s Proposed DCA-AUS Service also Will Provide Significant Public Interest Benefits Consistent with the Statutory Criteria. While JetBlue agrees with Southwest s assessment of the AUS-DCA market as overpriced and need of more competition, 25 it respectfully submits that an award of a beyond perimeter exemptions to JetBlue to serve AUS would better serve the 22 See Exhibits C-1 to C See Exhibits C-8 to C These letters will be submitted to the Department under separate cover. 25 See Application of Southwest Airlines, DOT-OST (Mar. 12, 2012) (hereinafter Southwest Application ), at

17 Congressional goals set forth in FAA JetBlue s proposed service satisfies each of the statutory criteria and is superior to Southwest s service for a number of reasons. First, JetBlue s proposed schedule is more compatible with the statutory requirements imposed by FAA 2012 than the one proposed by Southwest. Second, JetBlue s operating history demonstrates that it is just as effective, if not more so, in reducing fares and stimulating traffic on routes served by mainline carriers and Southwest in particular. Third, JetBlue offers a far more compelling package of standard services to consumers than does Southwest. 1. JetBlue s SJU-AUS Service Will Expand the Domestic Network Benefits. JetBlue s proposed DCA service to Austin expands the domestic network. Although JetBlue s service primarily will cater to the local Austin market, JetBlue s service will open a new destination that is otherwise not served from DCA today and will also provide the opportunity to connect service to Long Beach. Indeed, JetBlue s proposed service will provide more domestic network benefits than Southwest s competing bid for DCA-AUS service. While Southwest proposes to offer connecting service to San Diego, US Airways will provide, and Alaska Airlines has proposed, nonstop service to San Diego. Moreover, Southwest s touting the benefits of future connecting service to cities nearby Austin, including Dallas Love Field ( DAL ) and Houston Hobby Airport ( HOU ) is not worthy of consideration. Dallas and Houston are within-perimeter destinations already competitively served by 34 combined nonstop flights from Washington and 20 combined nonstop flights from DCA in particular, as depicted in the charts below: 16

18 Figure 5: Daily Service from Washington to Dallas (as of March 2012) Carrier Origin Destination Daily Flights American IAD DFW 5 United IAD DFW 3 American DCA DFW 11 US Airways DCA DFW 1 Total 20 Figure 6: Daily Service from Washington to Houston (as of March 2012) Carrier Origin Destination Daily Flights United Airlines DCA IAH 8 United Airlines IAD IAH 6 Total 14 JetBlue, however, can offer connecting service to Long Beach, which is not served from DCA today, and no other airline has applied for a beyond perimeter exemption to serve Long Beach directly. 2. JetBlue s Proposed DCA-AUS Service Will Increase Competition in Multiple Markets. JetBlue s proposed DCA service will compete with United s twice daily service to Austin from IAD. As discussed in JetBlue s Application, the WAS-AUS market has experienced rising fares and decreasing enplanements. See JetBlue Application at JetBlue will offer fares that are substantially lower than the current $246 average fare in the market. As explained in its Application, JetBlue can point to market after market where its entry has resulted in lower fares and increased traffic. See id. at

19 3. JetBlue s DCA-AUS Proposal Will Enhance Travel Options to Small or Medium Airports. By introducing this additional service to Austin, which is a medium-hub airport, and maintaining all its existing DCA within-perimeter service, it is axiomatic that JetBlue s proposal will increase service to small and medium hub airports. 4. JetBlue s Proposed AUS Service Will Not Increase Travel Delays. JetBlue s proposed AUS-DCA service will not increase travel delays at DCA. Neither the proposed arrival time of 12:55 nor departure time of 13:40 are congested times at DCA. There are currently no exemptions allocated to either the 1200 or 1300 hours, and no other carrier in this proceeding has applied for an exemption during these times. Because these periods are already times of off-peak usage at DCA, there is no possibility that JetBlue s proposed service will result in increased travel delays. In this regard JetBlue s AUS Application is far superior to Southwest s proposal. Southwest proposes to conduct both its proposed arrival and departure in the peak congested 1700 hour. This proposal will run afoul of the statutory requirements of FAA 2012, which imposes a limit of 5 exemptions per hour at DCA. As depicted in Figure 4 above, three exemptions have already been allocated in the 1700 hour and US Airways has noticed its intent to use a fourth. Applicants in this proceeding (including Southwest s duplicative request) have sought five additional exemptions. Southwest s proposed schedule is a significant deficiency in its Application. Given the schedule of already-allocated exemptions, Southwest s Application is not... viable, Order , and its purported one-stop connections to the heavily-served markets of Dallas and Houston are thus questionable. In addition, because the 1700 hour is a time of 18

20 peak usage at DCA, Southwest s proposal is also far more likely to increase travel delays at DCA. 5. JetBlue s Proposed DCA-AUS Service will Enhance Options for Nonstop Travel to and from Beyond Perimeter Airports. JetBlue s service from DCA to Austin would be the first of its kind. As noted above, this service would compete with United s current service to Austin from Dulles. JetBlue will do so at lower fares than the incumbent and at least at parity with the fares proposed in Southwest s competing Application. In addition, JetBlue s service offers consumer benefits not available on Southwest, including reserved seating, the most leg room in coach and 136 channels of free entertainment at every seat on every flight. 6. JetBlue Will Have a Lasting Impact on the Overall Level of Competition in Austin. JetBlue projects that its lower fares and increased customer service will stimulate traffic in the Austin to Washington market. At first look, it would appear that Southwest projects that it will project substantially more traffic than JetBlue (146,082 WN passengers vs. 36,500 B6 passengers), but these projections reflect an apples to oranges comparison. When all the factors are considered, the difference between the two companies projections is minimal. First, Southwest s estimate reflects the combined purported stimulation of its AUS and SAN service. Southwest s claims about traffic stimulated by its continuing service to SAN will simply not be realized given US Airways notice that it intends to initiate DCA-SAN service this spring. Excluding the 54,276 projected San Diego passengers, the projected DCA-AUS route stimulation is 91,806 passengers. 19

21 Second, Southwest counted each passenger twice (once in each direction), while JetBlue s projection is an estimate of one-way passengers. On an apples to apples basis, Southwest s projections are cut in half to 45,903, compared to JetBlue s 36,500. Third, JetBlue attributes much of the remaining difference in the projections to the fact that Southwest intends to use a 175-passenger aircraft, while JetBlue s steadystate projections assume a 150-passenger aircraft. 26 Finally, another factor contributing to the discrepancy is that Southwest assumes some of the newly generated passengers will be carried by Southwest and others will be carried by competing carriers who lower fares in response to Southwest. Southwest Application at WN-124. JetBlue s projections assume that the stimulated traffic is carried exclusively on JetBlue. Taking all of these factors into account, JetBlue sees little meaningful difference in its own stimulation projections compared to Southwest s projections. 7. JetBlue s Proposal to Serve DCA-AUS will Benefit the People of Texas as well as the Residents of the District of Columbia and the Surrounding Region. JetBlue s first of its kind service will connect the capital of Texas with the nation s capital. This exciting new service will link two regions that have demonstrated unparalleled economic vitality. This growth should be nurtured by increasing the ease of transportation between the two growing areas. Indeed, the City of Austin has filed 26 JetBlue intends to initiate service with a 100-seat E190 but expects to up gauge its service to a 150-seat A320 when demand warrants it. 20

22 comments in this proceeding endorsing the Applications of both JetBlue and Southwest. 27 III. None of the Competing Applications Offer the Public Interest Benefits Offered by JetBlue s Application. A. Alaska s does not Propose to Increase the Overall Level of Competition in the Washington Market. Alaska s Application to serve DCA from either Portland or San Diego is unequaled in this proceeding as an exercise in skimming the cream at DCA for the benefit of the airline and not the traveling public. Alaska s commitment to the Washington market is minimal. For years, despite having every opportunity to do so, it has refused to begin serving IAD, where it would face competition from other carriers. Instead, Alaska only flies to DCA from beyond-perimeter hubs (LAX and SEA) on routes made possible by the Department s grant of exemptions, free from competition by the entry constraints imposed by the perimeter rule. The only reason Alaska does not serve greater Washington from PDX or SAN is because Alaska has chosen not to do so. In its Application, Alaska has come calling to the Department again, only willing to initiate more service to Washington if it can be free from the threat of competitive entry on its preferred route. Alaska s Application boasts that the previous award of beyond perimeter exemptions for service to SEA have allowed it to build a dominant market share of 61 percent in the DCA-SEA market. 28 The Department must not 27 See Comments of the City of Austin in Support of the Applications of Southwest Airlines, Inc. & JetBlue Airways, Inc., DOT-OST (Mar. 27, 2012). 28 See Application of Alaska Airlines, Inc. for Exemptions, DOT-OST (Mar. 12, 2012), at 7 ( Alaska Application ). 21

23 sanction Alaska s commitment to the avoidance of competition in the Washington market to the detriment of the traveling public. In contrast, JetBlue has invested heavily in the Washington market. JetBlue has traded valuable slot assets at other airports and paid $40 million to acquire a total of 16 pairs of DCA slots. These slots have been and will be used to compete head-to-head against incumbents in large, robust markets like Boston ( BOS ), Orlando ( MCO ), Fort Lauderdale ( FLL ) and soon Tampa. The Department has recognized expressly the procompetitive effects of JetBlue s entry, resulting in substantial benefits to consumers. 29 Together with its longstanding operations at IAD, JetBlue is building a network to compete against the entrenched incumbents in Washington. This commitment to the overall level of competition at DCA must be recognized by the Department, and these precious beyond perimeter exemptions should be awarded to carriers like JetBlue willing to submit themselves to a competitive Washington market. Alaska s first-choice Application to serve PDX also simply duplicates the domestic network benefits of its existing DCA-SEA service. Although Alaska s Application proposes to connect to 10 beyond cities, these cities can and are served from SEA, which Alaska already serves twice daily from DCA. 30 The lack of any new network benefits is further demonstrated by the fact that Alaska proposed departure 29 Notice of Petition for Waiver and Other Relief, 76 Fed. Reg. 45,313, 45,437 (Jul. 28, 2011) ( JetBlue entered the [DCA-BOS] market aggressively in October 2010, carrying over 48,000 passengers that quarter with highly competitive fares that yielded only 24 cents per mile. US Airways yield that same quarter... dropped from 55 cents to 44 cents, with overall average passenger weighted yields in the market falling from 52 to 38 cents.... This data demonstrates JetBlue s entry enhanced competition and significantly reduced fares. ). 30 See Alaska Application at 6, 22

24 time for its DCA-PDX (17:35) service is almost identical to the time of departure for one of its DCA-SEA flights (17:40). Figure 7: AS s Proposed PDX Departure Time is Identical to its Current SEA Departure Time 31 Airline From To Depart Arrive AS DCA SEA 07:55 10:33 AS DCA SEA 17:40 20:37 AS DCA PDX 17:35 20:25 Proposed Airline From To Depart Arrive AS SEA DCA 08:40 16:34 AS SEA DCA 14:05 21:59 AS PDX DCA 10:10 18:10 Proposed Considering that PDX is only 150 miles away from SEA and that the two airports are served by a full 23 daily trips in each direction, the new domestic network benefits are non-existent. 32 Indeed, there is nothing new in Alaska s Application, as it proposes to connect to the same airports in this Application that it did when it applied for SEA service in This comparison demonstrates that this DCA-PDX Application is completely duplicative of its existing SEA service and the award of an exemption a waste of a valuable public resource. 34 Alaska s second choice Application is unattractive and fails to meet the statutory tests for many reasons not the least of which is US Airways announced service DCA to 31 See OAG schedules in Diio (captured Mar. 24, 2012) (depicting departure date July 20, 2012). 32 See OAG Schedules on Diio Mi (Mar. 23, 2012) (reflecting peak summer service June 4, 2012-August 24, 2012). 33 See Application of Alaska Airlines, Inc. for Exemption, OST (Apr. 16, 2001), at Exhibit AS Alaska s proposed PDX schedule suffers from the same infirmity as Southwest s AUS service. It proposes to serve the congested 1700 hour, for which the number of exemption requests exceeds the statutory limit of 5. 23

25 SAN. See US Notice (DCA-SAN). The award of this route would create redundant service and waste a valuable beyond perimeter exemption on a market that will soon enjoy nonstop DCA service. B. Virgin America Proposes Redundant Service that Fails to Satisfy the Statutory Criteria. Virgin America s proposal to serve San Francisco ( SFO ) is redundant and fails to satisfy several of the statutory criteria. First, Virgin America s proposed service would not enhance options for non-stop travel to and from the beyond-perimeter airports. On February 27, 2012, United announced that it intends to serve SFO from DCA. Not only is Virgin America s service itself duplicative, but so is the timing. One of Virgin America s two proposed departure times is in the 0800 hour, the same hour United intends its flight to depart. One of Virgin America s two proposed arrival times is in the 2100 hour, the same hour United intends its flight to arrive. Second, Virgin America s own Application makes the case that SFO is already well-served from the Washington market. Virgin America serves SFO from IAD four times a day. This is in addition to United s 11 daily flights from IAD. Figure 8: United Provides Ample WAS-SFO Service 35 Airline From To Frequency UA IAD SFO 11x daily UA DCA SFO 1x daily 35 See OAG schedules in Diio (captured Mar. 24, 2012) (depicting departure date July 20, 2012). 24

26 Virgin America will not stimulate additional traffic but simply divert traffic from its and others existing flights. In light of the existing service, the award of a single exemption to Virgin America, let alone two, is a waste of these scarce public resources. Third, Virgin America s proposal lacks any domestic network benefits beyond the direct DCA-SFO flight. All of its proposed connections to LAX, LAS, SEA and SAN already have nonstop service from IAD, and, once US Airways initiates its announced DCA-SAN service this spring, all will be served from DCA on a nonstop basis. Fourth, the award of exemptions to Virgin America is also not in the public interest given the airline s precarious financial situation. Virgin America s financial struggles are well documented. Indeed, the company has had only one profitable quarter in its nearly five years of operation and earned yet another net loss in its most recent quarter. 36 In the most-recent full fiscal year for which it has announced results, Virgin America had a net loss of more than $68 million. 37 In the past, the Department has awarded exemptions to struggling airlines, only to have that service fail. 38 These unfortunate facts will not provide the traveling public the assurance of the benefits required by Congress to award these scarce assets nor assure the public of competitive 36 See Press Release, Virgin America, Virgin America Reports Third Quarter 2010 Financial Results (Nov. 9, 2010); Press Release, Virgin America, Virgin America Reports Third Quarter 2011 Financial Results (Dec. 21, 2011). 37 See Press Release, Virgin America, Virgin America Reports Fourth Quarter and Full Year 2010 Financial Results (Apr. 21, 2011). 38 In 2000, the Department awarded TWA a beyond perimeter exemption to LAX. Ultimately, TWA filed for bankruptcy, and the exemption had to be reallocated. See Order (Jun. 22, 2001). Also in 2000, the Department allocated National Airlines an exemption to serve LAS, but that exemption too had to be reallocated when National failed. See Order (Nov. 27, 2001). 25

27 discipline of a low cost carrier in a market that is already amply served. Virgin America s Application will not benefit the public nor comply with the decisional criteria. C. Frontier s Proposed Service will not Create Public Benefits. Frontier s Application must be rejected because it has proposed service that is both unneeded and not sustainable. Frontier has proposed to serve Colorado Springs ( COS ) directly from DCA. But COS is only 90 miles from Denver ( DEN ), the beyond perimeter airport that enjoys the most nonstop service from DCA. Frontier itself flies three daily round trips DCA-DEN, and United flies an additional round trip. United and Southwest provide an additional 11 daily nonstop flights between IAD and DEN. Figure 9: Capacity between Washington and Denver is Abundant 39 Airline From To Frequency UA IAD DEN 9x daily WN IAD DEN 2x daily F9 DCA DEN 3x daily UA DCA DEN 1x daily In addition, Frontier and its affiliate Republic Airways serve COS from DEN four times per day. 40 It would be a waste of a valuable beyond-perimeter exemption to allocate yet more service to this portion of Colorado. 41 Frontier is not able to offer any other compelling justification for its service. Although Frontier proposes to serve SAN with single plane service, US Airways has 39 See OAG Schedules in Diio (Mar. 23, 2012) (for departure date Jul. 20, 2012). 40 See OAG Schedules in Diio (Mar. 23, 2012) (for departure date Jul. 20, 2012). 41 Frontier makes the absurd claim that one of the advantages of its Application is that it will provide connecting service to DEN. See Application of Frontier Airlines, Inc., DOT- OST (Mar. 12, 2012), at 14. This claim is of no benefit to the public in light of the existing DCA-DEN nonstop service as well as nonstop service from IAD on Southwest and United. 26

28 already noticed its intention to serve SAN with nonstop service later this spring. See US Notice (DCA-SAN). Alaska also has proposed nonstop SAN service in this proceeding. In addition, similar to Virgin America, Frontier s severe financial problems and uncertain future cloud its Application and the viability of its claimed public benefits. As Frontier s parent company, Republic Airways Holdings, Inc. ( Republic ) continues to post wider and wider losses attributable to Frontier s poor performance, 42 Republic has announced plans to spin off or sell Frontier. Valuable exemptions should not be allocated into such uncertain circumstances. It cannot be predicted whether an independent Frontier, whether spun off to Republic shareholders or under new ownership will be committed to this route of dubious public benefit. D. Air Canada Proposes to Serve a Market that is Insufficiently Large to Warrant Nonstop Service from DCA. Air Canada s proposed service to Vancouver is not sustainable because the local market is not large enough to support daily nonstop service. Indeed, Air Canada, or any other carrier, could have initiated service to YVR from IAD at any point but decided against it. Indeed, the traffic between YVR and WAS is minimal, and it is questionable at best whether the proposed service is viable. Figure 10: O & D Traffic Between WAS and YVR is Minimal 43 YE Q PDEW s Average Fare DCA-YVR 21.8 $303 IAD-YVR 26.2 $348 Total 48 $ See Republic Airways Holdings, Inc., Current Report (Form 8-K) (Mar. 1, 2012), at See O & D Survey, as provided by Diio (Mar. 23, 2012). 27

29 Air Canada offers no reason why the initiation of DCA service will create demand that currently does not exist. Despite Air Canada s claims, it is far from clear that FAA 2012 authorizes applications from Canadian carriers. Section 414(a) states: In administering this section, the Secretary shall... (3) consider Applications from foreign air carriers that are certificated by the government of Canada if such consideration is required by the bilateral aviation agreement between the United States and Canada and so long as the conditions and limitations under this section apply to such foreign air carriers. FAA (a) (emphasis added). The bilateral agreement between the United States and Canada does not clearly require consideration of Air Canada s Application. Indeed, the relevant portion relating to the access of Canadian air carriers to DCA states that such access is subject to... the prevailing perimeter rule. 44 Because Air Canada s access to DCA is conditioned on its compliance with the perimeter rule, there is an open legal question as to whether the Department has the authority to grant Air Canada s Application for beyond perimeter service. Congress appeared to recognize ambiguity when it directed the Secretary to consider the applications of Canadian carriers if such consideration is required. In any event, it is abundantly clear that Air Canada s Application does not satisfy the first statutory criteria of this proceeding that the proposed service create domestic network benefits for the public and, in particular, travelers within the United States. Even if Air Canada s Application for beyond perimeter service is authorized, it will not create any domestic network benefits. All of the points identified as connecting points 44 Air Transport Agreement Between the Government of the United States of America and the Government of Canada, Annex II 2(a). 28

30 are Canadian. See Application for Beyond Perimeter Slot Exemptions, DOT-OST at AC-4. E. Sun Country s Proposed Service to Las Vegas ( LAS ) Does Not Offer Sufficient Public Benefits to Warrant the Award of a Beyond- Perimeter Exemption. In its Application, Sun Country proposes to serve LAS from DCA. This proposed service does not offer any domestic network benefits. First, LAS is already served by a US Airways nonstop service from DCA. In addition, there is ample nonstop service from IAD. Figure 11: Nonstop Service to LAS from WAS is Abundant 45 Airline From To Frequency UA IAD LAS 2x daily Airline From To Frequency US DCA LAS 1x daily SY DCA LAS 1x daily Proposed With abundant service already in the market and no connecting service, JetBlue respectfully submits that a scarce beyond perimeter exemption would be put to better use by a different carrier. 45 See OAG Schedules, as provided by Diio (Mar. 23, 2012). 29

31 IV. Conclusion Based on the forgoing, the Department should award JetBlue both of its requested route applications by providing beyond perimeter exemptions for its service to San Juan, Puerto Rico and to Austin, Texas. Dated: March 27, 2012 Respectfully submitted, Robert C. Land Senior Vice President for Government Affairs and Associate General Counsel 30

32 Certificate of Service I, J. Parker Erkmann, hereby certify that a copy of the foregoing Consolidated Response of JetBlue Airways Corporation was served this 27 th day of March, 2012 via transmission on the following persons: john.varley@virginamerica.com jegillick@zsrlaw.com jhfoglia@zsrlaw.com leslie.abbott@wnco.com bob.kneisley@wnco.com howard.kass@usairways.com benjamin.slocum@usairways.com carl.nelson@aa.com jonathan.linde@united.com steve.morrissey@united.com dan.weiss@united.com lhalloway@crowell.com rbkeiner@crowell.com gmurphy@crowell.com anita.mosner@hklaw.com Sascha.vanderbellen@delta.com john.fredericksen@suncountry.com robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com marshall.sinick@squiresanders.com edward.sauer@squiresanders.com quince.brinkley@mwaa.com Jim.Smith@austintexas.gov Susan.Kurland@dot.gov Esta.Rosenberg@dot.gov Todd.Homan@dot.gov brian.ctr.meehan@faa.gov fbavent@airlineinfo.com and via First Class Mail: Arnaldo Deleo General Manager Aviation Bureau Port Authority Government of Puerto Rico PO Box San Juan, PR s/ Parker Erkmann J. Parker Erkmann 31

33 Index of Exhibits for Consolidated Response of JetBlue Airways Corporation Description JetBlue s Entry Decreases Fares and Stimulates Traffic Federal Departments Located in Puerto Rico Exhibit A B Letter of Support of Chairman John L. Mica C-1 Letter of Support of the Honorable Dan Burton C-2 Letter of Support of the Honorable Daniel Webster C-3 Letter of Support of the Honorable Bill Posey C-4 Letter of Support of the Honorable Aaron Schock C-5 Letter of Support of Senator Charles E. Schumer C-6 Letter of Support of Senator Kirsten Gillibrand C-7 Letter of Support of Hon. Jose R. Perez-Riera, Department of Economic Development and Commerce, Government of Puerto Rico Letter of Support of Irene Rocafort, Senior Manager of Air and Maritime Access, Puerto Rico Tourism Company, Government of Puerto Rico Letter of Support from Cruise Lines Int l Association & Florida-Caribbean Cruise Association Letter of Support from Eleni P. Kalisch, Vice President, Royal Caribbean Cruise, Ltd. C-8 C-9 C-10 C-11

34 Exhibit A JetBlue s Entry Decreases Fares and Stimulates Traffic

35 Exhibit A JetBlue s Entry Decreases Fares and Stimulates Traffic JAX-SJU JAX SJU Industry Average Passenger Fare JAX SJU Industry Passengers Per Day $200 $160 $120 $80 $40 $0 (22%) $187 $165 $146 (12%) (11%) 2011 Q Q Q3 B6 enters % % % 2011 Q Q Q3 B6 enters MCO-BOG MCO BOG Industry Average Passenger Fare MCO BOG Industry Passengers Per Day $300 $250 $200 $150 $100 $50 $0 (41%) $252 $139 $ Q1 B6 enters 2009 Q Q % Q1 B6 enters 2009 Q Q1

36 Exhibit B Federal Departments Located in Puerto Rico

37 Exhibit B Federal Departments & Agencies in Puerto Rico: USDA- Forest Service USDA- Food Safety and Inspection Service USDA- FNS USDA- APHIS USDA- NRCS USDOJ- FBI, DEA Department of Justice DEA DHS- Customs and Border Protection DHS- ICE DHS- TSA DHS- FEMA Department of Health and Human Services- FDA Department of Veterans Affairs- Veterans Health Administration Department of the Army- Army Installation Management Command Department of the Interior- National Park Service Department of Commerce National Oceanic and Atmospheric Administration Department of the Air Force- National Guard Department of Transportation- FHA SBA Department of Housing- FHWA Marine Corps Reserve Department of the Navy Social Security Administration U.S. Census Bureau USPS Department of Labor- NLRB USCIS FAA FWS IRS

38 Exhibit C-1 Letter of Support of Chairman John L. Mica

39 Exhibit C-1

40 Exhibit C-2 Letter of Support of the Honorable Dan Burton

41 Exhibit C-2

42 Exhibit C-3 Letter of Support of the Honorable Daniel Webster

43 Exhibit C-3

44 Exhibit C-4 Letter of Support of the Honorable Bill Posey

45 Exhibit C-4

46 Exhibit C-5 Letter of Support of the Honorable Aaron Schock

47 Exhibit C-5

48 Exhibit C-6 Letter of Support of Senator Charles E. Schumer

49 Exhibit C-6

50 Exhibit C-7 Letter of Support of Senator Kirsten Gillibrand

51 Exhibit C-7