Order 2015

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- 6

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 5 th day of June , 2015

Served: June 5 , 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 FINAL ORDER

Summary

By this order the Department makes final its tentative decision , as set forth in Order 2015

- 4

- 10,

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 Ang eles, 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 Angeles

- Mexico City route with its own aircraft, and permit Alaska to display its two

- letter de signator code on American’s flights between Los Angeles and Mexico City.

Background

By application filed February 11, 2015, Alaska and American (collectively, the “Joint Applicants”), request ed the transfer to American of international route authority h eld 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 s tate d that American plan s to commence double

- daily nonstop service between Los Angeles and Mexico City on June 4, 2015, and that Alaska would display its AS* designator code on the American

- operated flights.

By Order 2015

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- 10, issued April 17, 2015, the Department tentatively de cided to (1) grant the joint application of Alaska and American for transfer to American of international route authority held by Alaska authorizing scheduled foreign air transportation between Los Angeles and Mexico City, and (2) grant the requests of Ala ska and American for amended exemption authority to permit American to serve the Los Angeles

- Mexico 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. The Department directed all interested persons to show cause why the Department should not make final the tentative decision.

The Department further tentatively found that the current conditio n of the U.S.

- Mexico market

did not warrant deviating from th e Department’s normal disinclination to consolidate competing route applications with a transfer request , and it tentatively dismissed the application of Delta Air Lines, Inc. (Delta) for exemption authority to serve the Los Angeles

- Mexico City market

.

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

- 20 10

- 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 Ange les, 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 Department allowed 10 calendar days for the filing of objections to its tentative decision and seven calendar days for answers to objections.

Responses to Tentative Decision

On April 2 7, 2015, the Joint Applicants filed comments supporting the Department’s tentative decision, and Delta filed objections

. On May 4, 2015, the Joint Applicants filed an answer to Delta’s objections.

Delta asserts that

, instead of relying on the 1989 Horizon

- San J uan Canadian Transfer Case , the Department should have relied on the more recent 1997 U.S.

- Argentina All

- Cargo Frequency Proceeding

. Delta argues t h at under that later precedent the Department would have been required to hold a compet itive proceeding to determine the best use of the Los Angeles

- Mexico City authority

. Delta asserts that in such a proceeding its thrice

- daily proposal sh ould prevail

over American’s twice

- daily proposal.

Delta also argue s that

, even under the standards of the earlier Horizon case
, contemporaneous consideration of the American and Delta applications would still be required because there are strong policy reasons for reviewing the U.S.

- Mexico market. In this regard, Delta asserts that

American holds 25 percent U.S.

- Mexico market share

, compared to Delta’s 11 percent

. 3 Delta

state s that selecting it to serve the Los Angeles

- Mexico City route would better serve the Department’s competitive objectives.

Finally, Delta contends that if the Department were to approve the transfer without conducting a proceeding, “logic and precedent will compel the same deference to al l future market

- based

transfers

, ” 4 and the Department should straightforwardly announce this policy in its final order.

The Joint Applicants a ssert that Delta merely restate d arguments that were rejected in the show

cause order , and that “Delta offers no basis for the Department to alter its tentative findings and

conclusions

. ” 5 The Joint Applicants argue that the Department applied the proper statutory standard and found that the Joint Applicants have satisfied the prerequisit e s for approval of their proposed route transfer. The Joint Applicants state that they have satisfied the public interest test

and that Delta has failed to persuade the D epartment to deviate from its usual policy of disfavoring comparative consideration of competing applications

. The Joint Applicants urge the Department to finalize its tentative decision without delay.

Decision

After careful consideration of all of the pleadings, the Department has decided to make final its tentative decision to approve the Joint Applicants’ request to transfer to American the international route authority held by Alaska, authorizing scheduled fo reign air transportation of persons, property, and mail between Los Angeles, California, and Mexico City, Mexico, subject to conditions. The Department also makes final its tentative decision to amend American’s and

3 Delta Objections , at page 2.

4 Id . at 3.

5 Joint Answer of Alaska Airlines, Inc. and American Airlines, Inc. to Objections of Delta Air Lines, Inc.

, at page 2.4 Alaska’s respective exemption authoriti es 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.

In Order 2015

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- 10, the Department tent atively concluded that it should decide this exemption transfer application based on certificate transfer policies and precedents. The Department noted that it directly addressed the question of the appropriate decisional framework for an exemption

route transfer case in 1989, and it determined at that time 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. 6 The Department tentatively determined that it should follow a similar approach in deciding this exemption transfer application.

Although Delta, as it did prior to the show

- cause order, has quoted language from the 1997 Argentina Frequency Proc eeding to challenge this position, the Department sees nothing in the Argentina decision that would overrul e the clear findings of the Horizon case
, that in an exemption transfer such as that involved here

, the well

- established statutor y and regulatory

framework for certificate transfers should apply.

In a pplying the certificate transfer framework , the Department tentatively found that the transfer met the standards for approval. Specifically, the Department noted that American’s prop osed Los Angeles

- Mexico City service will exceed the frequency levels currently operated by Alaska, and that American would provide new intragateway competition at Los Angeles and intergateway competition in the western United States. The Department also noted that, despite the transfer, Alaska would remain a presence in the market by virtue of its code

- sharing on American’s flights. The Department tentatively found that these benefits would not conflict with important international aviation policy object ives or otherwise be inconsistent with the public

interest.

T he Department finds nothing in Delta’s objections that persuades us to change those tentative findings. Instead, Delta concentrates on asserting that

, whichever of the two precedents the Depar tment applies, the Horizon case or the Argentina case, Delta should receive a competitive proceeding, and in such a proceeding its proposal should prevail.

In its tentative decision t he Department noted that while it can, and generally does, elect to treat transfer applications on their own merits, it is not precluded from consolidating route transfer applications with competing route applications ; however, it has done so only in certain carefully

defined cir cumstances. Usually those circumstances involve cases where there are strong public policy reasons for reviewing the general service needs and status of a market. 7

Delta contends that there are strong policy reasons to conduct such a review here. Delt a states
that in the U.S.

- Mexico market, American commands a 25 percent market share compared to

6 In re : j oint r equest of Horizon Air Industries, Inc. d/b/a Horizon Air and San Juan Airlines, Inc. to transfer

transborder commuter des ignations and related authority in four U.S.

- Canada markets, Undocketed, Orders 89

- 3

- 22

and 89

- 5

- 14.

7 Order 2015

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- 10, at 6

.5 Delta’s 11 percent. Delta contends that relative competitive benefits were primary considerations in the selection of Alaska for Los Angeles

- Mexico City service in 2005. 8

Notwithstanding Delta’s market share assertions, t he Department does not find that the transfer of this single route triggers “strong public policy reasons” for the Department to deviate from its

normal disinclination to consolidate co mpeting route applications with a transfer request and

review the overall needs of the market

. 9 A s noted in the s how

- c a use o rder, however, the Departmen t is sensitive to the recent negotiation of a modernized air transport agreement with

Mexico that could result in substantial changes in th e market within the next year. It was against this background that the Department tentatively decided to limit its approval of the Joint Applicants’ requests for amended exemption authorities to a period of one year. The Department

said that a timely renewal application would provide an appropriate vehicle for consideration of whether the situation prevailing in the market at that time might call for a different regulatory

treatment

. The Department, having now weighed all of the responses to the tentative decision, continues to hold that position. 10

ACCORDINGLY,

1. The Department makes final its tentative findings and conclusions set forth in Order 2015

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- 10; 11

2. The Department grants American Airlines, Inc. amended e xemption 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; 12

3. The Department 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 o n a code

- share basis only

, effective upon the inauguration

of own

- metal service in the market by American Airlines, Inc., under the authority set forth in ordering paragraph 2 above ; 13

8 Delta Objections , at 2.

9 As the Department discussed in Order 2015

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- 10, at 5 n10, a variety of considerations were involved in its decision to select Alaska for the Los Angeles

- Mexico City route

-- considerations going well beyond the single question of

market share.

10 The Department is not persuaded to grant Delta’s request for a generic Department policy pronouncem ent about future transfers. Any future applications seeking the transfer of international route authority will be considered on

the record and in the circumstances presented at that time.

11 The Department will address the designation requests for this mar ket through normal diplomatic channels, consistent with its established practice.

12 Consistent with the Department’s standard practice for U.S.

- Mexico licensing authority, the Department will require American to institute service in the market within 90 days after the service date of this order. In addition, the exemption authority granted is subject to the 90

- day dormancy condition and dormancy notice requirements set forth

in condition 7 of Appendix A of Order 88

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- 2.

13 Consistent with the Department’ s standard practice for U.S.

- Mexico licensing authority, the Department will require Alaska to institute code

- share service in the market within 90 days after the service date of this order. In addition, the exemption authority granted is subject to the 9 0

- day dormancy condition and dormancy notice requirements set forth in condition 7 of Appendix A of Order 88

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- 2.6 4. The Department dismisses the application of Delta Air Lines, Inc. in D ocket DOT

- OST

2015

- 0042, for exemption authority under 49 U.S.C. § 40109 to engage in scheduled foreign air transportation of persons, property, and mail between Los Angeles, California, and Mexico City, Mexico;

5. The Department will serve a copy of this or der 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:

SUSAN L. KURLAND 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