J ULIE O ETTINGER M ANAGING D IRECTOR –I NTERNATIONAL & R EGULATORY A FFAIRS (202) 296-2370 (202) 296-2869 FAX

JULIE

. OETTINGER @ UNITED

. COM

March 1, 2010

Susan Kurland Assistant Secretary for Aviation

and International Affairs U.S. Department of Transportation 1200 New Jersey Avenue, SE. Washington, D.C. 20590

Re : Small Community Air Serv ice Development Program 2009, Order 2010-2-12, Docket DOT-OST-2009-0149

Dear Ms. Kurland:

In the referenced order issued last wee k, the Department made a number of grants under the Small Community Air Service (“SCAS ”) program. These included awards of $1 million to Huntsville, AL (“HSV”) which filed an application that included a proposal of service to Washingt on/Baltimore and Orlando and $500,000 to Knoxville, TN (“TYS”) which filed an app lication proposing service to, inter alia

, Washington/Baltimore, Denver or Chicago. 1 Because United serv es the HuntsvilleWashington/Baltimore and Knoxville-Washingt on/Baltimore markets on an unsubsidized basis, United submitted comments to the De partment expressing concern about these applications. See, United letter dated October 2, 2009. In view of the Department’s recent grant awards to HSV and TYS, United is now writing to urge the Department to clarify that any use of these grants to HSV or TYS to s ubsidize additional service to

1 TYS suppressed from the public version of its applic ation any specific identification of the cities

for which it seeks SCAS funds. While it iden tifies Washington/Baltimore, Chicago and Denver as examples of cities for which subsidy might be offered, a supporting letter attached to the application singles out Washington/Baltimore as the top priority for subsidized service. See letter of East Tennesseans for Airfare Competition (ETAC) dated August 27, 2009 and attached as Exhibit 2 to TYS’s application (ETAC is one of the two sponsors of the TYS application, along with the Metropolitan Knoxville Airport Authority) . United offers multiple daily services with its United Express product in all three markets and objects equally to SCAS awards being used to subsidize service from Knoxville to either Chicago or Denver for the same reasons applicable to Washington/ Baltimore. Because of ETAC’s prioritization, United in the text refers only to Washington/Baltimore but objects equally to any u se of SCAS funds to support new subsidized service to Denver or Chicago as well.March 1, 2010 Page 2

Washington/Baltimore (or any other city where existing service is being operated) is inconsistent with the Department’s policies and would be prohibited. 2

United is concerned with the anti- competitive use of SCAS funds.

In its October 2 letter, United raised its co ncern with the grant applications of HSV and TYS to the extent that they sought a gr ant to subsidize the introduction of additional service to Washington/Baltimore. Such a grant would be in cl ear conflict with the Department’s long-standing policy of not aw arding SCAS grants to fund competing service in a city-pair market th at is already served, which w ould be the case of the citypair markets identified above wher e United Express currently operates multiple daily non-stop flights. The Department restated this policy in its order inviting applications for SCAS grants from this year’s appropriation wh en it noted that it “is reluctant to subsidize one carrier but not others in a competitive market.” Order 2009-7-11 at page 3. Based on this concern, the Department has required that communities requesting grants for duplicative service should not onl y meet such basic selection criteria as “insufficient service” and “unreasonably high fares,” but also that they should:

“...explain in detail why the existing service is insufficient or unsatisfactory, or provide other comp elling information to support such proposals. This information is necessa ry for the Department to consider the competitive implications of gi ving financial or other tangible

incentives for one carrier that the ot her carrier is not receiving.”

Id

.

As United noted in its October 2 letter, the grant applications of HSV and TYS made no effort to provide the detailed analysis required by the Department to demonstrate a need for subsidized compe tition in the Huntsville-Washington/Baltimore or Knoxville-Washington/Baltimore markets. In addition, these cities’ concerns with fare levels seemed to be general and had no pa rticular applicability to the Washington/ Baltimore market. Nor did they offer any detailed analysis in an attempt to demonstrate

that the multiple daily nonstop flights by United Expr ess and other carriers were “insufficient or unsatisfactory” to meet the needs of any specific market as required by the Department’s order. 3

The Department’s 2009 SCAS Awards did not address United’s concerns.

Unfortunately, the Department’s Orde r 2010-2-12 makes no reference to the markets for which it is awarding the gran ts to HSV and TYS, and United can only

2 United on this date will be filing a copy of this letter in the above-referenced docket.

3 Additional multiple daily services are operated in the Huntsville-Washington/Baltimore market by Delta and USAirways and in the Knoxville-Washington/Baltimore market by USAirways. The Knoxville-Chicago market is served daily by both United Express and American Eagle.March 1, 2010 Page 3

assume that the Department intended that certain limits exist on grant utilization

consistent with the statement of the De partment’s policy in Order 2009-7-11 quoted above. Specifically, in light of the Depart ment’s repeated policy statements on this matter, United believes that any use of the aw ards to HSV or TYS to subsidize additional service by one carrier where another is al ready operating unsubsidized service would require a detailed discussion by the Department of the “competitive implications” of the award on United’s multiple daily services in the Huntsville-Washington/Baltimore and Knoxville-Washington/Baltimore markets. Absent such a specific earmark of funds for subsidizing additional services in these markets which already have service and a discussion justifying such a subsidy, United as sumes that the Department intended for the grants to HSV and TYS to be wholly devoted to subsidizing services in entirely new markets also identified in their respective ap plications and consiste nt with Departmental policies. 4

For the foregoing reasons, United urges the Department to clarify that using any portion of HSV’s $1 million or TYS’s $500,000 grants to subsidize service to Washington/Baltimore (or Chicago or Denver) is inconsistent with the Department’s policies in this case and is pr ohibited under those policies. Absent such a clarification, the Department should provide a full and detaile d explanation as to how it could find that subsidizing service in these ma rkets would be consistent with its policy quoted above in light of the failure of both HSV’s and TYS’s grant applications to provide the detailed information that would be required to comply with that policy. The Department’s explanation should address specif ically the competitiv e implications of subsidized service by another carrier in these markets and how such service would affect fare levels in these

and other markets.

Respectfully submitted,

Julie Oettinger Managing Dir ector—International & Regulatory Affairs

cc: Docket Section

Todd Homan

4 In the case of HSV, the other market identified where it is considering subsidization of new service is Orlando, where there is today no nonstop service to Huntsville. TYS did not disclose

the markets in which it intended to offer subs idy for new service except to name Washington/ Baltimore as its top priority.