Order 2015-4-10

 UNITED STATES OF AMERICA

 DEPARTMENT OF TRANSPORTATION

 OFFICE OF THE SECRETARY

 WASHINGTON, D.C.

Issued by the Department of Transportation 

on the 17th day of April, 2015

 Served: April 17, 2015

Joint Application of

ALASKA AIRLINES, INC.

 and

AMERICAN AIRLINES, INC.

 Docket DOT-OST-2015-0025

 

for transfer of international route authority

pursuant to 49 U.S.C. §§ 40109, 41105

 Docket DOT-OST-2005-20406

 Docket DOT-OST-2010-0222

Docket DOT-OST-2015-0042

Application of 

ALASKA AIRLINES, INC.

for amendment of exemption

Application of 

AMERICAN AIRLINES, INC.

for amendment of exemption

Application of 

DELTA AIR LINES, INC. 

for an exemption pursuant to 49 U.S.C. §40109

(Los Angeles-Mexico City)
2

ORDER TO SHOW CAUSE

Summary

By this order the Department tentatively decides to (1) grant the joint application of Alaska 

Airlines, Inc. (Alaska) and American Airlines, Inc. (American) for transfer to American of 

international route authority held by Alaska authorizing scheduled foreign air transportation 

between Los Angeles, California, and Mexico City, Mexico, and (2) grant the requests of Alaska 

and American for amended exemption authority to permit American to serve the Los AngelesMexico City route with its own aircraft, and permit Alaska to display its two-letter designator code 

on American’s flights between Los Angeles and Mexico City. 

Application

By application filed February 11, 2015, Alaska and American (collectively, the “Joint Applicants”),

request the transfer to American of international route authority held by Alaska authorizing 

scheduled foreign air transportation of persons, property, and mail between Los Angeles, California, 

and Mexico City, Mexico.1 2 

The Joint Applicants state that American plans to commence double-daily nonstop service between 

Los Angeles and Mexico City on June 4, 2015. In this regard, the Joint Applicants further request 

that the Department amend their current exemption authorities to (1) permit American to serve the 

Los Angeles-Mexico City route with its own aircraft, and (2) permit Alaska to display its two-letter 

designator code on American’s flights between Los Angeles and Mexico City. The Joint Applicants 

request that both exemptions be reissued for a two-year period. 

The Joint Applicants state that their proposed transfer satisfies the applicable statutory provisions, 

49 U.S.C. §§ 40109 and 41105, and Department decisional criteria that the Department must use in 

considering international route transfers. They further state that it is clear that the proposed transfer 

to American of the Los Angeles-Mexico City route would satisfy the public interest test under 

section 40109 by, among other things, increasing the number of daily flights in the Los AngelesMexico City market,3 introducing Mexico City service at American’s Los Angeles hub, and

increasing competition in the U.S.-Mexico and Los Angeles-Mexico City markets. The Joint 

Applicants further state that, unlike other route transfer cases where the transferring party abandons 

service, here Alaska would remain an active competitor in the market by placing its AS* code on 

American-operated flights. The Joint Applicants also assert that the proposed transfer would satisfy 

the requirements of section 41105 by enhancing each carrier’s viability, strengthening the domestic 

airline industry, and bolstering the U.S. trade position. 

 1 Alaska holds exemption authority to engage in scheduled foreign air transportation of persons, property, and mail 

between Los Angeles and Mexico City. See Notice of Action Taken dated August 25, 2014 in Docket DOT-OST-2005-

20406. American holds exemption authority to hold out code-share service only between Los Angeles and Mexico 

City. See Notice of Action Taken dated July 19, 2012 in Docket DOT-OST-2010-0222, kept in force pursuant to 

American’s timely filed renewal application. 

2 Under the U.S.-Mexico aviation agreement, two U.S. carriers may be designated to provide scheduled foreign air 

transportation of persons, property and mail between Los Angeles, California, and Mexico City, Mexico. Currently, 

Alaska and United Airlines, Inc. (United) are designated to provide service between Los Angeles and Mexico City, 

meaning that the market is fully subscribed. 3 The Joint Applicants state that Alaska currently operates a single daily service in the market, while American proposes 

to introduce twice-daily service.
3

Responsive Pleadings 

On February 26, 2015, Delta Air Lines, Inc. (Delta) filed an answer opposing the joint application. 

Delta also filed a competing application for Los Angeles-Mexico City exemption authority in 

Docket DOT-OST-2015-0042. 

In its answer, Delta argues that the Joint Applicants inappropriately rely on the certificate transfer 

provisions of 49 U.S.C. § 41105 in support of their request to transfer limited term exemption and 

designation authority. In support, Delta cites the Department’s decision to institute the 1997 U.S.-

Argentina All-Cargo Frequency Proceeding.

4

 There, Delta argues, the Department stated that the 

certificate transfer provisions of section 41105 do not apply to frequency or exemption allocations. 

Delta also argues that the Joint Applicants improperly rely on merger precedent to support their 

arguments, when the Joint Applicants are not merging. Delta contends that the Department should 

open a route case to consider the merits of the competing Los Angeles-Mexico City applications 

and asserts that, in such a proceeding, the Department should select Delta, which would provide 

thrice-daily service in the market. 

On March 6, 2015, the Joint Applicants filed a reply. The Joint Applicants state that their 

agreement to transfer route authority is the type of market-based transaction that the Department has 

routinely approved without consolidating applications from other carriers and without opening 

carrier selection proceedings. 

The Joint Applicants also argue that the Department has used certificate transfer criteria to decide 

exemption route transfer cases and that the 1997 U.S.-Argentina All-Cargo Frequency Proceeding

cited by Delta is inapposite, as that case involved the transfer of under-utilized frequencies, which is 

not the case here. They add that, in any case, there is no scenario in which the authority would be 

transferred or awarded to Delta, because if the Department fails to promptly approve the transfer, 

Alaska will continue to operate the route. 

On March 13, 2015, Delta filed a motion for leave to file and surreply. Delta states that the route 

transfer sought by Alaska and American is directly contrary to the Department’s original public 

interest determination to award Los Angeles-Mexico City authority to Alaska instead of American. 

Delta contends that the Department should conduct a route case to take a fresh look at the respective 

merits of the competing applications. 

On March 15, 2015, the Joint Applicants filed a response to Delta’s surreply.5 They state that the 

Department has found repeatedly that market-based transactions involving the sale of international 

route authority – such as this one – should be approved promptly and without consideration of 

competing applications. The Joint Applicants strongly urge the Department to apply these 

precedents, and approve their application without further delay. 

Tentative Decision

The Department has tentatively decided to approve the Joint Applicants’ request to transfer to 

American the international route authority held by Alaska, authorizing scheduled foreign air 

 4 Order 97-11-35. 5 American and Alaska request leave to file their response. We will grant the request. 
4

transportation of persons, property, and mail between Los Angeles, California, and Mexico City, 

Mexico, subject to conditions. The Department also tentatively approves the request to amend 

American’s and Alaska’s respective exemption authorities to (1) allow American to serve the Los 

Angeles-Mexico City route with its own aircraft, and (2) permit Alaska to display its two-letter 

designator code on American’s flights between Los Angeles and Mexico City. 

As a threshold matter, the Department has examined the proper regulatory framework for 

considering the proposed transaction. The Joint Applicants cite two statutory provisions that they 

regard as dispositive: 49 U.S.C. §§ 40109 and 41105. The first sets forth the Department’s 

authority to issue exemptions and the second addresses the Department’s power to transfer 

certificates. The exemption statute imposes a public interest test. The Joint Applicants assert that 

the public interest test in this context incorporates the Department’s public interest test for deciding 

certificate transfer cases. That assertion, combined with the Joint Applicants’ express reliance on 

the certificate transfer provision of the statute, means that the Department should decide the present 

exemption transfer application based on certificate transfer policies and precedents. Furthermore, 

they contend that when those policies and precedents are applied to the facts of this case, their 

application warrants approval without the need for the Department to consider competitive 

applications for the route.

Delta, on the other hand, asserts that the certificate transfer precedents are not applicable here 

because no certificate authority is actually being transferred. Delta cites the Department’s

instituting order in the 1997 U.S.-Argentina All-Cargo Frequency Proceeding, Order 97-11-35, in 

support. Delta argues that, because the certificate precedents are inapplicable, the Department 

should consider competitive applications and that, if it did so, it would select Delta’s application.

The Department tentatively decides that the Joint Applicants’ position is the more persuasive. In 

1989 the Department directly addressed the question of the appropriate decisional framework for an 

exemption route transfer case.6

 The Department decided that the proper regulatory framework for 

exemption route transfers was the same as for certificate transfers, namely section 401(h) of the 

Federal Aviation Act, the predecessor provision to 49 U.S.C. § 41105.7

The Department does not view the 1997 Argentina instituting order cited by Delta as persuasive. 

The Department’s 1997 order stated quite clearly that what was involved in the 1997 Argentina 

situation was a “frequency allocation case” and that “frequency allocations are not certificate 

awards.”8

 That 1997 case did not involve the traditional type of route transfer that was before the 

Department in 1989, and that is before the Department here. 

Having tentatively determined that the Department should decide this transfer as it would decide a 

certificate transfer under § 41105, the Department must now determine whether the transfer satisfies 

the standards set forth in the statute.

Section 41105 provides that no certificate may be transferred unless the Department approves the 

transfer as being consistent with the public interest. The Department has adopted as its public 

 6 In re joint request of Horizon Air Industries, Inc. d/b/a Horizon Air and San Juan Airlines, Inc. to transfer transborder 

commuter designations and related authority in four U.S.-Canada markets, Undocketed, Orders 89-3-22 and 89-5-14. 7 Id. 8 Order 97-11-35, at 5.
5

interest standard in such cases a policy of allowing proposed transfers, provided that they do not 

conflict with important international aviation policy objectives and are not otherwise inconsistent 

with the public interest.9

 In determining whether a transfer of route authority is consistent with the 

public interest, the Department must consider three additional specific criteria: the effect of the 

transfer on (1) the viability of each of the carriers involved, (2) competition in the domestic airline 

industry, and (3) the trade position of the United States in the international air transportation market. 

In this case, the Department tentatively finds that the transfer meets the standards for approval. 

Specifically, the Department notes that American’s proposed Los Angeles-Mexico City service will 

exceed the frequency levels currently operated by Alaska (American plans to offer two daily flights, 

as opposed to Alaska’s single daily). Furthermore, American would provide new intragateway 

competition at Los Angeles to existing service offered by United, code-share service offered by 

Delta, and the services of Mexican carriers. Moreover, as Los Angeles is already an American hub, 

its Los Angeles-Mexico City service will provide new online connecting options to passengers in 

the western United States, thereby increasing intergateway competition. Finally, the Department 

notes that, despite the transfer, Alaska will remain a presence in the market by virtue of its codesharing on American’s flights. The Department tentatively finds that these benefits would not 

conflict with important international aviation policy objectives or otherwise be inconsistent with the 

public interest.10

The Department tentatively finds that approval of the transfer would also be consistent with the 

additional criteria that it must consider. Regarding the transfer’s effect on the carriers’ viability, the 

Joint Applicants assert that American will be strengthened through the addition of an important new 

route at its Los Angeles gateway, and Alaska will remain a competitor in Mexico City while 

obtaining the flexibility to deploy its aircraft in support of its service elsewhere on its network. 

Regarding the transfer’s effect on competition in the domestic airline industry, the Joint Applicants 

assert that the addition of an important international route at American’s west coast Los Angeles 

hub will enhance American’s ability to grow its domestic services at that hub, providing greater 

competition to other airlines serving the Los Angeles region, as well as increased benefits for 

consumers resulting from more options. Regarding the transfer’s effect on the U.S. trade position, 

the Joint Applicants assert that approval of the transfer will immediately inject a strong, new 

competitor into the Los Angeles-Mexico City market, generating enhanced competition with 

Mexican carriers and thereby strengthening the U.S. trade position. The Department tentatively 

finds no evidence in the record to rebut these arguments, or that otherwise demonstrates that the 

proposed transfer would produce adverse effects.

 9 Joint Application of Delta Air Lines, Inc. and United Air Lines, Inc. for approval of the transfer of certificate authority 

pursuant to 49 U.S.C. § 41105 (New York-London), Order 2006-9-5, at 3. 10 Delta claims that “the proposed route transfer would eviscerate the Department’s public interest determination to 

award the LAX-MEX route to Alaska over American.” Delta Surreply at 2. We tentatively disagree. In the 2005 Los 

Angeles-Mexico City Combination Service Proceeding, Docket OST-2005-20406, the case to which Delta refers (and a 

case which resulted from Delta’s termination of its Los Angeles-Mexico City services), the Department selected Alaska 

over three other applicants, including American, based on the particular circumstances of that record and, especially, the 

particular elements of Alaska’s proposal. Notably, these included that Alaska was proposing twice-daily service (as 

opposed to the once-daily service it is now providing and equivalent to the twice-daily service that American would 

now provide), that it was the only applicant in the proceeding to be proposing single-plane service behind the Los 

Angeles gateway, and that it would be a new entrant in the Mexico City market, a market it had long sought to enter. 

Order 2005-05-01, at 5-6. The Department determined that those collective attributes justified a finding that Alaska’s 

proposal was superior to the other three proposals then under consideration. The Department tentatively finds no basis 

to conclude that the comparative determination made then dictates the public interest determination to be made now.
6

Therefore, consistent with §§ 41105 and 40109, and Department policy and precedent concerning 

route transfers, the Department tentatively finds that the route transfer proposed by American and 

Alaska is consistent with the public interest.

The Department nevertheless recognizes that the certificate transfer framework does not fully 

resolve the issue of how to treat competing applications. Therefore, the Department will address 

Delta’s assertion that, rather than consider the transfer request independently, the Department must 

instead undertake a comparative evaluation of the transfer application with Delta’s own application 

for Los Angeles-Mexico City authority. While the Department can, and generally does, elect to 

treat transfer applications on their own merits, it is not precluded from consolidating them with 

competing route applications, and it has done so in certain carefully defined circumstances. Usually 

those circumstances involve cases where there are strong public policy reasons for reviewing the

general service needs and status of a market. See, for example, Order 91-8-1,11 where the 

Department noted, as an exception to its general policy disfavoring consolidation, a case where 

there were strong public policy reasons for reviewing the service needs and status of the market. 

The Department tentatively finds that the current condition of the U.S.-Mexico market does not 

warrant deviating from our normal disinclination to consolidate competing route applications with a 

transfer request. Saying that, the Department is cognizant that the United States and Mexico 

recently concluded negotiations on a modernized air transport agreement, and the Department 

anticipates that there could be substantial changes in the market within the next year. Against this 

background, the Department tentatively finds it in the public interest to limit its approval of the 

Joint Applicants’ requests for amended exemption authorities to a period of one year. 12 A timely 

renewal application will provide an appropriate vehicle for consideration of whether the situation 

prevailing in the market at that time might call for a different regulatory treatment.

ACCORDINGLY,

1. The Department directs interested persons to show cause why it should not issue an order 

making final the tentative findings and conclusions set forth in this order; 

2. The Department tentatively grants American Airlines, Inc. amended exemption authority under 

49 U.S.C. § 40109 for one year to engage in scheduled foreign air transportation of persons, 

property, and mail between Los Angeles, California, and Mexico City, Mexico;

3. The Department tentatively grants Alaska Airlines, Inc. amended exemption authority under 49 

U.S.C. § 40109 for one year to engage in scheduled foreign air transportation of persons, property, 

and mail between Los Angeles, California, and Mexico City, Mexico, subject to the condition that 

the services may be provided on a code-share basis only;

4. The Department tentatively dismisses the application of Delta Air Lines, Inc. in Docket DOTOST-2015-0042, for exemption authority under 49 U.S.C. § 40109 to engage in scheduled foreign 

 11 Finalized by Order 91-10-35. 12 If this decision is made final, consistent with Department policy regarding U.S.-Mexico authorizations, the 

Department will grant the requested amended exemption authorities, subject to the standard dormancy notice 

requirements set forth in condition 7 of Appendix A of Order 88-10-2.
7

air transportation of persons, property, and mail between Los Angeles, California, and Mexico City, 

Mexico;

5. The Department directs any interested parties having objections to its tentative findings and 

conclusions set forth in this order and in ordering paragraphs 1 through 4 above, to file their 

objections, in the above-captioned dockets, with the Department’s Docket Section, U.S. Department 

of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 

New Jersey Avenue, SE, Washington, DC 20590, no later than ten (10) calendar days after the date 

of service of this order; answers thereto shall be filed no later than seven (7) calendar days 

thereafter; 13

6. If timely and properly supported objections are filed, the Department will accord full 

consideration to the matters or issues raised by the objections before it takes further action; if no 

objections are filed, the Department will deem all further procedural steps to be waived and will 

make final its tentative findings and conclusions proposed in this order; 

7. The Department grants all motions for leave to file otherwise unauthorized documents in this 

proceeding; and 

8. The Department will serve a copy of this order on Alaska Airlines, Inc.; American Airlines, Inc.; 

Delta Air Lines, Inc.; the Mexican Ambassador to the United States in Washington, DC; the Federal 

Aviation Administration; and the U.S. Department of State (Office of Aviation Negotiations).

By:

BRANDON M. BELFORD

Deputy Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at:

http://www.regulations.gov

 13 The original filing should be on 81⁄2" x 11" white paper using dark ink and be unbound without tabs, which will 

expedite use of the Department’s docket imaging system. In the alternative, filers are encouraged to use the electronic 

filing submission capability available through the Dockets/FDMS Internet site (http://www.regulations.gov) by 

following the instructions at the web site.