BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C Application of : : SOUTHWEST AIRLINES CO. : : Docket DOT-OST for an exemption pursuant to 49 U.S.C : to engage in foreign scheduled air transportation : of persons, property and mail between Houston : Hobby International Airport and Cancun, Mexico City, : Puerto Vallarta, and San Jose del Cabo, Mexico : CONSOLIDATED SURREPLY OF UNITED AIRLINES, INC. AND SKYWEST AIRLINES, INC. AND MOTION FOR LEAVE TO FILE Communications with respect to this document should be sent to: Steve Morrissey Vice President-Regulatory & Policy UNITED AIRLINES, INC New York Avenue, NW Suite 1100 DCAIZ Washington, DC (202) steve.morrissey@united.com Daniel A. Weiss Managing Director-International Affairs and Regulatory UNITED AIRLINES, INC. 233 South Wacker Drive 10th Floor HDQIZ Chicago, IL (872) dan.weiss@united.com January 10, 2015 Thomas Newton Bolling Vice President and Deputy General Counsel Abby L. Bried Associate General Counsel-Regulatory, Alliances & International James Conneely Counsel-Regulatory UNITED AIRLINES, INC. 233 South Wacker Drive 11th Floor HDQLD Chicago, IL (872) (872) (872) thomas.bolling@united.com abby.bried@united.com james.conneely@united.com Gerald F. Murphy Steven J. Seiden CROWELL & MORING LLP 1001 Pennsylvania Avenue, NW Washington, DC (202) gmurphy@crowell.com sseiden@crowell.com Counsel for United Airlines, Inc. and SkyWest Airlines, Inc.

2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C Application of : : SOUTHWEST AIRLINES CO. : : Docket DOT-OST for an exemption pursuant to 49 U.S.C : to engage in foreign scheduled air transportation : of persons, property and mail between Houston : Hobby International Airport and Cancun, Mexico City, : Puerto Vallarta, and San Jose del Cabo, Mexico : CONSOLIDATED SURREPLY OF UNITED AIRLINES, INC. AND SKYWEST AIRLINES, INC. AND MOTION FOR LEAVE TO FILE I. INTRODUCTION. Unlike Southwest, 1 United, SkyWest and the City of Houston ( Houston ) are focused on a solution that will allow all carriers to serve the Houston-Mexico City/San Jose del Cabo markets without delay and without disrupting existing services and harming consumers. 2 Southwest, in its Reply: (i) continues to ignore well-established DOT precedent requiring carrier selection proceedings; (ii) argues against the Department using extra-bilateral authority to grant Southwest s Application while not disputing that doing so would allow all carriers to serve the markets in question; and (iii) fails to provide concrete assurances that Southwest will actually be 1 Common names are used for airlines. 2 United and SkyWest move, pursuant to Rule 6(c) of the Department s Rules of Practice, for leave to file an otherwise unauthorized document. Good cause exists to allow this Surreply because it will clarify the position of United and SkyWest in light of information offered by Southwest and Houston in their Replies and provide a more complete record on which the Department will render a decision on Southwest s Application.

3 Page 2 of 8 able to commence its proposed services on October 15, Nevertheless, the fact remains that granting extra-bilateral authority to Southwest is the only alternative that will truly benefit all carriers, consumers and communities on both sides of the border, and is in the public interest. II. SOUTHWEST CANNOT ESCAPE DEPARTMENT PRECEDENT OR DUE PROCESS THAT REQUIRES A CARRIER SELECTION PROCEEDING The Department cannot simply withdraw and reallocate United s and/or SkyWest s designations without instituting a carrier selection proceeding. And there is clear and ample Department precedent to support that fact. See, e.g., Order (Tokyo Haneda slot allocations); Order (U.S.-Colombia frequencies); and Notice of Action Taken dated Feb. 13, 2004 in Docket DOT-OST (Phoenix-Puerto Vallarta/San Jose del Cabo designations). Ironically, Southwest cites two Department decisions examining factors in carrier selection proceedings in an attempt to demonstrate that a carrier selection proceeding is not required here. See Southwest Answer at 5. This is nonsensical and does nothing to advance Southwest s position. Southwest is free to argue the relative merits of its proposed services versus those already being provided by United and/or SkyWest in a carrier selection proceeding, 3 but the Department may not forego holding such a proceeding and due process just because Southwest deems it an unnecessary formality. Southwest also conveniently conflates its own words with those of the Department when referring to the decision granting SkyWest exemption and designation authority for the Houston-Mexico City/San Jose del Cabo routes. See id. (internal citations omitted). 3 While United and SkyWest reserve their rebuttal to the economic study Southwest cites in support of its Application for a proper carrier selection proceeding, if necessary, they point out that the study appears to have been done before Spirit entered the Houston-San Jose del Cabo market. Southwest Reply at 3 (citing Southwest Application at 4-5 and Exhibits 1-7). Accordingly, the study cannot accurately portray the purported effects of Southwest s proposed services.

4 Page 3 of 8 Southwest s proposed course of action would affect tens of thousands of passengers and is not something the Department can or should accomplish by fiat. Approximately half of United s Houston-Mexico City passengers flew on United in one direction and its United Express partner in the other direction in 2014, with that figure increasing to nearly two-thirds in the Houston-San Jose del Cabo market. Yet Southwest would have the Department act as if SkyWest is not an airline that holds its own designations and United could simply conjure up its own regional jet aircraft and the crews to operate them at will: United is and will continue to be able to provide an unlimited number of daily flights, using any gauge of aircraft, with the one designation it will retain on each route. Southwest Answer at 3 (emphasis in original). As the nation s largest regional airline having nearly 11,000 employees, nearly 400 aircraft, and carrying approximately 27 million passengers each year SkyWest resents Southwest s implication that it s a non-entity. It is SkyWest that operates the important regional jet services that consumers have come to rely on as a competitive and flexible alternative in the Houston- Mexico City/San Jose del Cabo markets competition that Southwest clearly wants to eliminate. Southwest may not like it, but due process dictates that the Department consider the significant attributes that SkyWest s service brings to these markets in its own right in the context of a carrier selection proceeding. As United has made clear, however, a carrier selection proceeding is a distant secondbest option that will unduly harm consumers. It makes little sense for the Department to hold such an unnecessary and costly proceeding when there is a viable alternative that will allow Southwest to serve these markets alongside United, SkyWest, and Spirit, and better satisfy the public interest. Arguing otherwise demonstrates callous disregard for the customers, coworkers and communities that would be impacted by needlessly withdrawing the designations held by United and/or SkyWest.

5 Page 4 of 8 III. GRANTING EXTRA-BILATERAL AUTHORITY TO SOUTHWEST WOULD PRESERVE LONGSTANDING UNITED AND UNITED EXPRESS SERVICES AND IS IN THE PUBLIC INTEREST The Department should grant extra-bilateral authority 4 to Southwest to maximize competition and preserve longstanding United and United Express service offerings for consumers. Southwest s anticipated startup date for its Houston-Mexico City/San Jose del Cabo services is just two and one-half months before the new U.S.-Mexico air transport agreement that will remove the designation limits in transborder markets is scheduled to go into effect. By contrast, United and its United Express partners have together been providing unparalleled network connecting opportunities, fare and booking class options, and flexible time-of-day coverage in the Houston-Mexico City/San Jose del Cabo markets for well over a decade. See Orders and (United); and Notice of Designation dated Oct. 7, 2004 (undocketed) and Dep t. Action dated May 7, 2003 (undocketed) (United Express). Southwest may be a new entrant, but it is also a Johnny-come-lately. See, e.g., Southwest Answer at n. 6 (bemoaning the fact that Spirit was first to the remaining Houston-San Jose del Cabo designation in September 2014). United and SkyWest welcome the competition that Southwest will bring, and make this point simply to illustrate that longstanding United and/or United Express services shouldn t be disrupted to accommodate Southwest for a period of what may be less than 11 weeks. 4 United commends the creative suggestion of Houston and the Southwest Airlines Pilots Association ( SWAPA ) that the Department should persuade the Mexican Government to withdraw its [informal] historic interpretation of the existing bilateral that a mainline carrier and its regional partner must each hold a designation even where all services are operated under the name of the mainline carrier. Houston Answer at 3; see also SWAPA Answer at 3-4. Although the Mexican Government might characterize such action as extra-bilateral in any event, United and SkyWest support any alternative that will preserve their existing services and allow all competitors to serve the markets at issue.

6 Page 5 of 8 And Houston agrees. Houston has expressed its strong support for authority to be made available to all carriers that wish to provide services. For the benefit of consumers and the public interest, the City also strongly supports new market entry, low-fare services and maximizing competition, while wishing not to disrupt or lose existing services. Houston Reply at 2. Further, Houston supports the grant of extra-bilateral rights where necessary to enable all carriers to provide the services they wish in all Houston-Mexico markets without delay [and] hopes that the Department will explore with Mexico all options available to secure additional rights needed, including extra-bilateral authority. Id. at 3. This strong sentiment is also shared by the Chairman of the Subcommittee on Trade of the House Ways and Means Committee: It is not in the best interest of Houston or the traveling public to withdraw long-held rights granted to United or its United Express partners, and which benefit U.S. consumers who use IAH as an airport to access Mexico, for a period of only 2.5 months. Letter from Congressman Kevin Brady (TX-8) to Anthony Foxx, Sec y, U.S. Dept. of Transp. (Dec. 29, 2014) (Exhibit A to the United and SkyWest Answer). Southwest does not dispute that a grant of extra-bilateral authority would allow all carriers wishing to serve the Houston-Mexico City/San Jose del Cabo markets to do so. See Southwest Reply at 6-7. Moreover, the Department has demonstrated its willingness to use extra-bilateral authority no less than fifteen times in recent years to the benefit of both U.S. and Mexican carriers, including specifically to allow them to take early advantage of codeshare opportunities that would become available under the 1999 U.S.-Mexico aviation agreement. See United and SkyWest Answer at 5-6 (citations omitted). Southwest offers nothing more than selfserving speculation by suggesting that the Mexican Government would be unwilling to entertain using extra-bilateral authority in these unique circumstances or that the new U.S.-Mexico air transport agreement may not go into effect on January 1, See Southwest Answer at 6-7.

7 Page 6 of 8 But the very recent history of the Department granting extra-bilateral authority to two Mexican carriers for 12 transborder routes (see United and SkyWest Answer at 5-6 (citations omitted)) and a freshly-signed air transport agreement intended to expand opportunities for passenger carriers to provide service between the United States and Mexico, and strengthen economic ties between the two countries (Press Release, U.S. Dep t. of Transp., United States, Mexico Reach Modernized Aviation Agreement (Nov. 21, 2014) at 1) stand in stark contrast to Southwest s unfounded assertions. Against this backdrop, United and SkyWest submit there could be no better opportunity for the Department to seek extra-bilateral authority to benefit U.S. carriers. The Department would also be hard pressed to explain to the hundreds of communities that have connecting service via United s hub at Houston s George Bush Intercontinental Airport why the extra-bilateral authority that has been readily granted to Mexican carriers was not available to assist U.S. carriers in these circumstances. IV. SOUTHWEST MUST DEMONSTRATE THAT HOBBY WILL BE READY FOR INTERNATIONAL OPERATIONS IF IT MEANS DISRUPTING EXISTING UNITED AND/OR SKYWEST SERVICES Southwest conspicuously fails to provide any confirmation that that construction on the new international terminal and Federal Inspection Facility ( FIS ) at Houston s William P. Hobby Airport ( HOU ) will be completed, and that the FIS can be staffed with Customs and Border Protection ( CBP ) Officers, by October 15, The lack of such confirmation leads United and SkyWest to believe that there is no viable plan in place. If plans are indeed confirmed, Southwest would not dance around the issue as it does. The Department cannot possibly move forward with stripping away designations from United or SkyWest without definitive confirmation as to when HOU will be ready for international operations. But Southwest somehow deems this significant concern outside the scope of this proceeding. See Southwest Reply at 7. While Southwest and Houston may arguably be able to assert that

8 Page 7 of 8 [c]onstruction of the new FIS facility is on schedule for a 2015 opening (Houston Reply at 2; see also Southwest Reply at 8), they do not, and cannot, make any commitment on CBP staffing and resources, particularly when the agency has yet to be funded past February 27, See Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. No As Southwest well knows, granting Southwest s application without extra-bilateral authority would also mean that United and/or SkyWest services would be needlessly sacrificed even if Southwest were unable to commence operations before the new U.S.-Mexico air transport agreement goes into effect on January 1, See, e.g., Notice of Action Taken dated Sep. 3, 2014 in Dockets DOT-OST and DOT-OST (requiring a 90-day dormancy startup condition). The public interest cannot abide such a result. Southwest would also apparently have the Department withdraw United s and/or SkyWest s designations and force them to stop marketing, ticket sales and associated services immediately, regardless of HOU s readiness for international service or Southwest s actual ability to commence operations. But even assuming arguendo that the Department were to grant Southwest s application without extra-bilateral authority, that would not be the case. Granting Southwest the underlying exemption authority to begin marketing and sales in the Houston-Mexico City/San Jose del Cabo markets would have no effect on United s and SkyWest s designations or exemption authorities through October 15, 2015, regardless of the Department s ultimate decision on Southwest s application. See, e.g., Notice of Action Taken in Dockets DOT-OST and DOT-OST at 2 (noting United could begin marketing and selling SkyWest-operated Houston- Mexico City services five months before SkyWest s designation allowing operations would become effective).

9 Page 8 of 8 V. CONCLUSION For the foregoing reasons, United urges the Department to grant Southwest extra-bilateral authority for Southwest to commence its proposed Houston-Mexico City/San Jose del Cabo operations and preserve existing United mainline and SkyWest (d/b/a United Express) regional jet services to the benefit of United s customers, coworkers and communities. Doing so is clearly in the public interest, as it is the only viable alternative that would enhance competition on these important U.S.-Mexico routes, provide a net gain in consumer benefits, and further the intent of the new U.S.-Mexico air transport agreement. Respectfully submitted, CROWELL & MORING LLP Gerald F. Murphy Steven J. Seiden gmurphy@crowell.com sseiden@crowell.com Counsel for United Airlines, Inc. and SkyWest Airlines, Inc. January 10, 2015

10 CERTIFICATE OF SERVICE I certify that I have this date served the foregoing document on the following persons in accordance with the Department s Rules of Practice. robert.wirick@aa.com howard.kass@aa.com nssparks@fedex.com gbleopard@fedex.com kevin.montgomery@polaraircargo.com rpommer@atlasair.com rsilverberg@sgbdc.com jjohnson@sgbdc.com msinick@ssd.com stephen.lachter@cozen.com robert.land@jetblue.com jhill@cooley.com perkmann@cooley.com dkirstein@yklaw.com jyoung@yklaw.com bob.kneisley@wnco.com leslie.abbott@wnco.com pjackson@swapa.org matwood@cozen.com anita.mosner@hklaw.com jennifer.nowak@hklaw.com sascha.vanderbellen@delta.com chris.walker@delta.com robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com thomas.ting@suncountry.com john.varley@virginamerica.com rbtrinder@zsrlaw.com paul.gretch@dot.gov brett.kruger@dot.gov susan.kurland@dot.gov brian.hedberg@dot.gov reese.davidson@dot.gov todd.homan@dot.gov peter.irvine@dot.gov cristinasa@state.gov info@airlineinfo.com Steven J. Seiden January 10, 2015