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

_____________________________________ ) Applications of ) ) SOUTHWEST AIRLINES CO. ) JETBLUE AIRWAYS CORP. ) AMERICAN AIRLINES, INC. ) PEOPLE EXPRESS AIRLINES, INC. ) Docket DOT - OST - 2000 - 7182 ) For exemptions from 14 C.F.R. Part 93, ) Subparts K and S, pursuant to 49 U.S.C. ) § 41718(b) ) ) For service from Ronald Reagan ) Washington National Airport (within

- ) pe rimeter slot exemptions) )

_____________________________________ )

CONTINGENT ANSWER OF SOUTHWEST AIRLINES CO. AND MOTION FOR LEAVE TO FILE
Communication with respect to this document should be addressed to:

Ron Ricks Robert W. Kneisley

Executive Vice President

-- Associate General Counsel Chief Legal and Regulatory Officer Leslie C. Abbott Mark Shaw Senior Attorney

Vice President General Counsel & SOUTHWEST AIRLINES CO. Corporate Secretary 919 18 th Street, NW SOUTHWEST AIRLINES CO. Suite 600 2702 Love Field Drive Washington, DC 20006 Dallas, TX 75235

- 1611 bob.kneisley@wnco.com (202) 263

- 6284

April 1 4 , 20141 BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

_____________________________________ ) Applications of ) ) SOUTHWEST AIRLINES CO. ) AMERICAN AIRLINES, INC. ) JETBLUE AIRWAYS CORP. ) PEOPLE EXPRESS AIRLINES, INC. ) Docket DOT - OST - 2000 - 7182 ) For exemptions from 14 C.F.R. Part 93, ) Subparts K and S, pursuant to 49 U.S.C. ) § 41718(b) ) ) For service from Ronald Reagan ) Washington National Airport (within

- ) perimeter slot exemptions) )

_____________________________________ ) CONTINGENT ANSWER OF SOUTHWEST AIRLINES CO. AND MOTION FOR LEAVE TO FILE Southwest Airlines files this Contingent Answer and Motion for Leave to File in response to the unauthorized “ Consolidated Sur

- Reply ” filed by JetBlue Airways in this docket on April 9, 2014 , more than a week after answers were filed in response to the applications of competing carriers

. 1 JetBlue’s Sur

- Reply

- its third pleading in this proceeding

- consists almost entirely of re

- hash and regurgitation of arguments that
JetBlue made (or could have made) in prior pleadings

. The sur

- reply therefore fails to
demonstrate “good cause” as required by 14 CFR 302.6(c)(1) for the acceptance of unauthorized pleadings . Accordingly, we urge the Department to reject it

. If, on the other hand, the Department accept s JetBlue’s S ur - R eply, Southwest seeks leave from the Department to file this Contingent Reply under Rule 6 of the Rules

1 Common names of airlines are used. Unless noted, US Airways and American Airlines are used interchangeably.2 of Practice (14 CFR § 302.6) for goo d cause shown. Southwest’s Reply is narrowly
tailored to address the inaccurate and misleading statements in JetBlue’s filing . It will therefore correct the record in important respects, contributing to a more accurate and informed basis for the Departme nt’s decision.

CONTINGENT REPLY I. JetBlue Cherry - Picked Fare Comparisons to Hide the Fact that It Raised Fares by a Greater Percentage than Any Other Carrier Since 2010

. Throughout this proceeding JetBlue has burdened the record with misleading fare comparisons purporting to show that Southwest has raised fares in recent years
more than JetBlue and other carriers. But t he facts disprove JetBlue’s allegations. In order to compute a higher percentage fare increase for Southwest than others, JetBlue purposefully selected 2008 as the benchmark period. However, t his was a year of
severe recession and correspondingly tumultuous fuel prices, both external events impa cting the airline industry and leading to non

- predictive results

. Chart 1 Severe Volatility in 2008 Makes it Unsuitable as a Base Year for Fare Comparisons
Spot Price per Barrel

Source: U.S. Energy Information Administration. U.S. Recessions 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170

Jan-01 Jul-01

Jan-02 Jul-02

Jan-03 Jul-03

Jan-04 Jul-04

Jan-05 Jul-05

Jan-06 Jul-06

Jan-07 Jul-07

Jan-08 Jul-08

Jan-09 Jul-09

Jan-10 Jul-10

Jan-11 Jul-11

Jan-12 Jul-12

Jan-13 Jul-13

Jan-143 As shown above, a more instructive baseline for fare comparisons is 2010, as jet fuel prices settled to a fairly consistent pattern around $125 per barrel for refined product since that time

. Also in 2010 the economy was slowly recovering from the deep
recession of 2008

- 2009. Thus the period 2010 through the latest quarter available ( Year End Q3, 2013 ) , with much less disruption from exogenous events, is more useful
for airl ine fare comparisons . For this period , JetBlue increased its average domestic fare more than any other carrier , almost three percent age points more than Southwest
as shown below

. Chart 2

JetBlue’s fare increases since 2010 are even greater when examined on a fare per

revenue - passenger - mile (yield) basis. As Chart 3 demonstrates, JetBlue ’s average Since the End of the Last Recession, JetBlue Has Raised its Average Domestic Fares More than Any Other Airline

18.8% 17.8% 16.5% 15.9% 15.0% 14.0% 11.5%

4.1%

-10% -5% 0% 5% 10% 15% 20% 25%

B6 UA DL WN US AS AA F9 Change in Average Domestic Fare Since CY 2010

Note: Domestic markets only. Excludes baggage and cancellation/rebooking fees. Does not include an adjustment for inflation

. Source : U.S. DOT Origin

- Passenger Survey, YE Q3 2013 compared to CY 2010, via Diio

. Average Fare YE Q3 2013 $152 $221 $203 $144 $200 $181 $200 $132 B6 UA DL WN US AS AA F94 fare per revenue

- passenger - mile has increased more than twice as much as Southwest’ s since 2 010 : Chart 3

The above information not only places JetB lue’s claims in proper context but reveals that JetBlue has raised its fares significantly more than Southwest over the time frame that is most relevant to this proceeding

.

II. JetBlue's Attacks on Southwest's Competitive Impact are Baseless

. A. Contrary to JetBlue’s Overheated Rhetoric, Southwest ’s Low - Fare DCA MCI Service Has Been Enthusiastically Received by the Local Market

. The Department granted Southwest pendente lite authority to serve the DCA

MCI market on Monday January 27, 2014. 2 Southwest started its service less than a

2 See Order 2014

- 1

- 16, Docket OST

- 2000

- 7182 (Jan. 27, 2014)

.5 week later on Saturday February 1, the day after Frontier ’s exit , in order to avoid any disruption in service to this important market

. Yet w ithout the benefit of any advance marketing or booking period, Southwest has succeeded in stimulating new traffic in the DCA

- MCI market by increasing capacity while offering low fares. After only two months of service, Southwest ’s load factor has grown to an extraordinary 91% for the most recent week (Chart 4 ). This is particularly significant since Southwest’s 143

- seat Boeing 737 is by far the largest aircraft in the DCA

- MCI market, 128% larger than US Airways’ average aircraft and 44% larger than the aircraft used by Frontier

. In fact, Southwest’s single daily flight provides nearly 50% of the total seats in the DCA

- MCI
market. See Application of Southwest, p. 4 and Exhibit WN

- 5

. Chart 4

Southwest also offers low

- fares in the DCA

- MCI market with an average fare of Southwest's Service Has Been Strongly Supported by DCA - MCI Consumers

45% 49% 41% 64% 70% 85% 90% 91%

81%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2/9 2/16 2/23 3/2 3/9 3/16 3/23 3/30 4/3 WN DCA - MCI Load Factor

Note: Based on Southwest internal data for the period February 9, 2014 to April 9, 2014. Source : Southwest Airlines. Week Beginning6 $ 139 for the most recent week. Contrary to JetBlue’s assertion, Southwest’s fare is slightly lower than the comparabl e Frontier fare for YE Q3 of $141. 3 Importantly, without competit ion from Southwest, fares in this market would undoubtedly increase to American’s DCA monopoly level of $207 for this distance , a 49% increase from Southwest’s average fare in the market today. See Southwest Application, p. 3 and
Exhibit WN

- 2. In other words, a forced termination of Southwest’s DCA

- MCI service

- due to reallocation of the slot exemptions elsewhere

- would not only create a new monopoly for US Airways/ American but cause many thousands of customers in that market to pay sharply higher airfares. Chart 5

As explained in Southwest’s Answer and unchallenged by JetBlue, the DCA

- MCI

3 The Frontier fare is the total of its average fare for fare paying passengers of $132 plus $9 average bag & cancellation/rebooking fee s per O&D passenger. U.S. DOT O&D Passenger Survey

.7 local O&D market is 29% larger than the local DCA

- JAX market (Exhibit WN

- R

- 101), and MCI serves a metropolitan population base that is 60% larger than the Jacksonville population (Exhibit WN

- R

- 102). Moreover, JetBlue ignores the fact that the smaller JAX
market is already well

- served with five daily flights to DCA today, compared to only
three American flights for the larger MCI

. Y et , JetBlue demands that another two slots
be dedicated to this much smaller market. 4 Because of the much greater size of the DCA

- MCI market as well as Southwest’s large

- jet capacity and low fares, it is indisputable that Southwest’s service benefits far more consu me rs than would JetBlue’s proposal for the smaller DCA

- JAX market

. JetBlue must know this because its tepid service proposal with a 100

- seat RJ shows its lack of confidence in the DCA

- JAX market as well as its own traffic forecast.
JetBlue’s post hoc suggestion in it s S ur - R eply (p. 10) that it is “ prepared to increase capacity ” by using larger aircraft is not a commitment at all and should be accorded no weight in the Department’s comparison of the competing proposals in this case.

B. Across its S ystem, Southwest Competes Vigorously Against US Airways/ American Airlines and Has Done So Throughout its Entire History. JetBlue touts its competition against American at DCA (Sur

- Reply , p. 2) , even going so far as to claim that “In sharp contrast to Southwest, JetBlue chooses to use its limited slot portfolio [at DCA] to compete vigorously against American” (Consolidated Answer, at p

. 14). JetBlue conveniently ignore s the fact that Southwest’s thriving DCA

MCI service is currently competing against A merican

– which would otherwise be a monopoly carrier in a significantly larger market than DCA

- JAX. And as shown above,

4 See Answer of Southwest, pp. 4

- 5 and Exhibits WN

- R

- 106 and 107

. .8 Southwest’s competition is keeping fares far below the level that American would charge on a monopoly basis. Furthermore, Southwest has competed , and continues to compete, successfully head

- to

- head with US Airways/ American at six of their current and former hubs

– Dallas, Chicago, Nashville, Raleigh/Durham, San Jose and St. Louis. It is indisputable that Southwest provides more compe tition against US Airways/ American (and other legacy airlines for that matter) than any other LCC by a wide margin

. 5

C. JetBlue’s Repeated References to the Flawed MIT Study are Entirely Re hash and Improper Sur - Reply Material. JetBlue’s discussion of the MIT paper in its Sur

- Reply simply repeats arguments
that JetBlue already made in its application and answer. As explained in detail in Southwest’s Answer, th e MIT paper is based on a flawed methodology that produces
untenable results and has no bearing on this proceeding. See Southwest Answer, pp. 6

- 7 and Exhibits WN

- R

- 11 0 through 11 6

. JetBlue’s extraordinary reliance on such an irrelevant and inaccurate paper seems intended to divert attention from its own weak
prop osal in this proceeding. Regardless, regurgitating the same fallacious points in a third pleading does not make the m any less fallacious

. T his discussion adds nothing to
the record and should be completely disregarded.

5 Answer of Southwest Airlines, p.7 and Exhibit WN

- R

- 111.9 C ONCLUSION Nothing in JetBlue’s Sur

- R eply changes the overriding fact s that Southwest ’s proposal for DCA

- MCI

- OAK service will have by far the greatest impact on competition, generate the highest level of public benefits, and produce the most efficient use of scarce DCA slot exe mptions of all applications in this proceeding

. Respectfully submitted,

____________________ Robert W. Kneisley

A pril 14, 2014CERTIFICATE OF SERVI CE I hereby certify that on April 1 4 , 201 4 , a copy of the foregoing was served via e

mail on the following persons: msinick@ssd.com (Alaska Airlines) howard.kass@aa.com (American Airlines) francis.heil@aa.com (American Airlines) sascha.vanderbellen@delta.com (Delta Air Lines) robert.cohn@hoganlovells.com ( Republic Airways ) patrick.rizzi@hoganlovells.com ( Republic Airways) robert. land@jetblue.com (JetBlue Airways) jhill@dowlohnes.com (JetBlue Airways) perkmann@dowlohnes.com (JetBlue Airways) shawn. voyles@flypex.com (People Express) mike.morisi@flypex.com (People Express) dkirstein@yklaw.com (Spirit Airlines) jyoung@yklaw.com (Spirit Airlines) John.Fredericksen@suncountry.com (Sun Country Airlines) dan.weiss@united.com (United Air Lines) pmurphy@lopmurphy.com (USA3000) john.varley@virginamerica.com (Virgin America) susan.kurland@dot.gov bob.goldner@dot.gov todd.homan@dot.gov peter.irvine@dot.gov brian.ctr.meehan@faa.gov Mark D. VanLoh, A.A.E. Director of Aviation Kansas City International Airport Mark.VanLoh@kcmo.org
Deborah Ale Flint Aviation Director for the Port of Oakland Oakland International Airport dale@portoakland.com
John E. Potter President and Chief Executive Officer Metropolitan Washington Airports Authority john.potter@mwaa.com info@airlineinfo.com

__________________________ Leslie C. Abbott