BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC §41718 ) DOT

- OST

- 20 00

- 7182 )

Opposition Of JetBlue Airways Corporation To Motions Of Southwest Airlines And The City of Houston For Leave To File Unauthorized Pleading

Communications with respect to this document should be addressed to:

James Hnat Jonathan B. Hill Execut ive Vice President for J. Parker Erkmann Corporate Affairs & General Counsel Dow Lohnes PLLC JetBlue Airways Corporation 1200 New Hampshire Ave., NW 27

- 01 Queens Plaza North Suite 800 Long Island City, NY 11101 Washington, D.C. 20036 (202) 776

- 2000 jhill@dowlohnes.com perkmann@dowloh n es.com Robert C. Land Senior Vice President for Government Counsel for Affairs & Associate General Counsel JetBlue Airways Corporation JetBlue Airways Corporation P.O. Box 1927 Rockville , Maryland 20849

- 1927 (301) 279

- 9727

January 10 , 20131 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

________________________________________________ ) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC §41718(b) ) DOT

- OST

- 2000

- 7182 ________________________________________________)

Opposition Of JetBlue Airways Corporation To Motion s Of Southwest Airlines And The City of Houston For Leave To File Unauthorized Pleading

JetBlue Airways Corporation (“ JetBlue ”) respectfully files this Opposition to the

Consolidated Reply of Southwest Airlines Co. and Motion for Leave to File (the “Unauthorized

Southwest Reply”) and the Motion for Leave to File and Reply of the City of Houston and the

Greater Houston Partnership (the “Unauthorized HOU Reply” and together with the

“Unauthorized Southwest Reply” the “Unauthorized Replies”)

. In the Notice initiating this

proceeding , the Departmen t established a pleading schedule , requesting applications for the

available pair of slot exemption s on December 5, 2012 and responses by December 19, 2012.

Se e Notice, Establishment of Slot Exemption Proceeding Pursuant to 49 U.S.C. § 41718(b),

Docket DO T

- OST

- 2000

- 7182 (Nov. 13, 2012). The Department did not provide for reply

comments, which it has done in other route proceedings. See, e.g., DOT

- OST Order 2012

- 8

- 20

(issued Aug. 17, 2012), at 5 (requesting reply briefs to answers in the 2010 U.S.

- Haneda

Combination Services Allocation Proceeding )

. Accordingly, Southwest’s filing is

“unauthorized” under the Department’ s rules. See 14 CFR Part 302.6 (b) (“ Except as otherwise

provided, a reply to an answer, reply to a reply, or any further respons ive docum ent is not2 authorized.”). “ The Department will accept otherwise unauthorized documents for filing only if

leave has been obtained from the [Department]

. . . on written motion and for good cause

shown. ” See 14 CFR Part 302.6(c).

Southwest and Houston have failed to show good cause. The Unauthorized Replies do

nothing more th an recycle arguments made in the Southwest A pplication and the subsequent

Answer s and refute straw men created through Southwest’s distortion of JetBlue’s arguments.

Indeed, JetBlue and Southwest are in substantial agreement on the issues in this proceeding.

JetBlue agrees that the primary problem at Ronald Reagan National Airport (“DCA”) is US

Airways’ dominance of the airport and the resulting high fares and artific ially restrained

capacity. See Answer of Southwest Airlines Co. at 8

- 11

. But JetBlue and Southwest disagree on

the solution to the problem

. While Southwest proposes to fly to one of the largest U.S. markets

in competition with United, JetBlue submits th at the public interest is best

- served by promoting

competition against DCA’s dominant carrier, US Airways

, while fulfilling the Congressional

directive to serve mediu m

- hub and smaller communities rather than just the largest c ities.

Because the issues have been adequately briefed, JetBlue does not believe further pleadings are

necessary. Indeed, if past is prologue , Southwest will yet file additional unauthorized pleadings,

seeming to insist on always hav ing the last word. See DOT

- OST

- Order 2012

- 5

- 12 (issued May

14, 2012) , at 14 ( noting that “Southwest filed a second response” after the close of the pleading

cycle).

Accordingly, JetBlue respectfully request s that the Department promptly deny Houston’s

and Southwest’s motions to file the Unauthorized Replies. If, however , the Department grants

those motions and accepts the Unauthorized Replies , JetBlue requests leave to file its own3 response to the inaccuracies contained in the Answer and the Unauthorized Replies , which is

attached hereto pursuant to Part 302.6(c)(2) of the Department’s Rules

.

Dated: January 10, 2013 Respectfully submitted,

Jonathan B. Hill J. Parker Erkmann Counsel for JetBlue Airways Corporation4 Certificate of Service

I, J. Parker Erkmann, hereby certify that a copy of the foregoing Opposition Of JetBlue Airways Corporation To The Motion s Of Southwest Airlines And The City Of Houston For Leave To File Unauthorized Pleading was served this 10th day of January , 201 3 via email transmission on the following persons:

dhainbach@ggh

- airlaw.com john.varley@virginamerica.com jyoung@yklaw.com bob.kneisley@wnco.com leslie.abbott@wnco.com howard.kass@usairways.com robert.wirick@aa.com francis.heil@aa.com Karine.faden@united.com dan.weiss@united.com Sascha.vanderbellen@delta.com john.fredericksen@suncoutry.com robert.cohn@hoganlovells.com marshall.sinick@squiresanders.com charles.donley@squiresanders.com quince.brinkley@mwaa.com Susan.Kurland@dot.gov Esta.Rosenberg@dot.gov Todd.Homan@dot.gov brian.ctr.meehan@ faa .gov fbavent@airlineinfo.com steve.grossman@flyjacksonville.com jegillick@zsrlaw.com jhfoglia@zsrlaw.com rbtrinder@zsrlaw.com jasilversmith@zsrlaw.com

and via First Class Mail:

Arnaldo Deleo General Manager Aviation Bureau Port Authority Government of Puerto Rico PO Box 362829 San Juan, PR 00936

- 2829

s/ Parker Erkmann J . Parker ErkmannBEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC §41718 ) DOT

- OST

- 20 00

- 7182 )

Consolidated Reply Of JetBlue Airways Corporation

Communications with respect to this document should be addressed to:

James Hnat Jonathan B. Hill Executive Vice President for J. Parker Erkmann Corporate Affairs & General Counsel Dow Loh nes PLLC JetBlue Airways Corporation 1200 New Hampshire Ave., NW 27

- 01 Queens Plaza North Suite 800 Long Island City, NY 11101 Washington, D.C. 20036 (202) 776

- 2000 jhill@dowlohnes.com perkmann@dowloh n es.com Robert C. Land Senior Vice President for Government Counsel for Affairs & Associate General Counsel JetBlue Airways Corporation JetBlue Airways Corporation P.O. Box 1927 Rockville, Maryland 20849

- 1927 (301) 279

- 9727

January 10, 20131 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

________________________________________________ ) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC §41718(b) ) DOT

- OST

- 2000

- 7182 ________________________________________________)

Consolidated Reply Of JetBlue Airways Corporation

In the Consolidated Reply of Southwest Airlines Co. (the “Unauthorized Southwest

Reply”) and the Reply of the City of Houston and the Greater Houston Par tnership (the

“Unauthorized HOU Reply

, ” collectively the “Unauthorized Replies”), Southwest and Houston

have constructed a straw man, asserting that JetBlue has argued that “Houston Hobby Airport is

somehow ineligible because it serves a large metropolita n area.” Unauthorized Southwest Reply

at 2; see also Unauthorized HOU Reply at 2. 1 Southwest and Houston have wholly

mischaracterized JetBlue’s argument and missed the point.

JetBlue has not stated or even suggested that Southwest is categorically ineligible for the

award of the available slot exemptions. To the contrary, JetBlue has argued that consideration of

all the statutory factors demonstrates that JetBlue’s application best satisfies the intent of

1 The mischaracterization of JetBlue’s argument in the Unauthorized HOU Reply is egregious because the quote in the heading of Houston’s primary argument is taken from the argument JetBlue made about US Airways’ application in JetBlue’s Consolidated Respon se. Compare Unauthorized HOU Reply at 2 ( “ JETBLUE’S ASSERTION THAT SOUTHWEST’S HOBBY APPLICATION ‘ CONTRAVENES CONGRESSIONAL INTENT AND EXCEEDS THE DEPARTMENT’S DISCRETION ’ IS WHOLLY INCORRECT AND MISS TATES THE CONGRESSIONAL RECORD. ”) to Consolidated Response of JetBlue Airways Corporation at 2 (“First, because three of the statutory criteria are directed at fostering competitive service at DCA, an award of slot exemptions to US Airways , which is DCA’s dominant carrier, contravenes Congre ssional intent and exceeds the Department’s discretion .”) (emphasis added).2 Congress when it created these AIR

- 21 slot exemptions. It is undisputed that Congress directed

the Department to consider five factors in awarding these exemptions. As restated in the

Notice, 2 these factors are:

the Secretar y [shall] distribute within

- perimeter slot exemptions in a manner that promotes air transportation: (1) by new entrant air carriers and limited incumbent air carriers; (2) to communities without existing nonstop air transportation to DCA; (3) to small comm unities; (4) that will provide competitive nonstop air transportation on a monopoly nonstop route to DCA; or (5) that will produce the maximum competitive benefits, including low fares.

Notice at 1

- 2. Moreover, the Department recently has made clear tha t it retains discretion to

weigh the importance of each of these factors on a case

- by

- case basis. See Order DOT

- OST

2012

- 7

- 26 (Jul

. 24, 2012). As JetBlue stated in all of its authorized pleadings in this docket, an

objective analysis of the merits of the competing applications in light of all these criteria,

divorced from the unhinged rhetoric in the Unauthorized Replies, 3 leads to the conclusion that

JetBlue’s application best satisfies the Congr essional intent. In an effort to cut through the

2 Notice, Establishment of Slot Exemption Proceeding Pursuant to 49 U.S.C. § 41718(b), Docket DOT

- OST

- 2000

- 7182 (Nov. 13, 2012) (the “Notice”).

3 Southwest makes m uch ado about the Department’s 2000 AIR

- 21 slot exemption decision in Order 2000

- 7

- 2, claiming that the order contradicts JetBlue’s supposed position that HOU is ineligible for an award of slot exemptions. Unauthorized Southwest Reply at 2. But the premi se of Southwest’s argument is a mischaracterization of JetBlue’s position. Moreover, the award of slot exemptions to serve Chicago’s Midway Airport over the application of Atlantic Southeast Airline (“ASA”) to serve Jacksonville was not due solely “to th e much greater size of the Chicago market.” Unauthorized Southwest Reply at 3. The Department relied on two key additional factors, concluding (1) that ASA was not a new entrant or limited incumbent and (2) that ASA would not produce the competitive bene fit of low fares because it was not a low

- fare airline. DOT

- OST Order 2000

- 7

- 2 at 21 (listing the market size point last in its analysis). Indeed, due to confusion over the Department’s discretion in making these awards, the Department specifically addre ssed the criteria and how they should or should not be weighted in a 2012 Order. See Order DOT

- OST

- 2012

- 7

- 26 (Jul. 24, 2012) (relying on past precedent the Department concluded it “ has the discretion to premise an award based upon satisfaction of less tha n the greatest number of criteria, or even one criteria, listed in Section 41718(b), based upon the Department’s analysis of the relative merits of each carrier’s proposal when evaluated under the Section 41718(b) criteria ”).3 contrived outrage in the Unauthorized Replies, JetBlue offers the following synopsis of the

reasons why its application best satisfies the statutory factors. 4

1. JetBlue’s Application Provides The Maximum Com petitive Benefits.

An objective examination of the arguments in this proceeding leads to the conclusion that

JetBlue provides the most competitive benefits of all the applicants. First, because only JetBlue

addresses DCA’s primary competitive problem , US Airways’ dominance of the airport , JetBlue’s

application does the most to promote competition at DCA . Second, Southwest’s calculation of

consumer benefits relies on dubious assumptions and must be heavily discounted

.

a. Only JetBlue’s Proposal Addresses DCA’s Chief Competitive Problem.

Although Southwest and JetBlue have identified the same competitive problem at DCA,

only JetBlue has proposed service t o address it . In its Answer, Southwest devoted nearly three

of its eleven pages of text assailing US Airways’ inefficient use of its DCA slot portfolio,

concluding that: “Given this severe (and growing) problem of underutilization of DCA slots, the

Department shoul d take whatever opportunities are available to rectify this unfortunate

situation.” Southwest Answer at 11. JetBlue wholeheartedly agrees. But only JetBlue’s

Jacksonville service addresses this core issue by proposing to compete against US Airways

direc tly . Indeed, because Southwest proposes to compete with United, it does not address the

“unfortunate situation” at all. Southwest’s claim that it provides the “maximum competitive

benefit” is contradicted by its own advocacy

.

4 As has been noted, criteria 2 and 4 are mutually exclusive

.4 b. Southwest’s Claim Of Con sumer Benefit Is Overstated.

Southwest’s argument that it will provide maximum competitive benefit rests on a

dubious assumption. Integral to Southwest’s argument is that it will purportedly generate $19.1

million in consumer benefits. See Unauthorized Southwest Reply at 5, 8

- 9. The inputs to this

calculation, however, are questionable, as stated in JetBlue’s Consolidated Response. See

JetBlue Consolidated Response at 15. Southwest argues fervently that its entry into the DCA

HOU* market will cause U nited to charge only a 16 percent premium over Southwest’s proposed

fare. Given Southwest’s service proposal, this is unrealistic. Southwest only can initiate one

DCA

- HOU* flight, which will compete with 8 daily United DCA

- IAH departures and 6 daily

IAD

- IAH departures. 5 See JetBlue Consolidated Response at 15. In contrast with BWI

- HOU*

where Southwest claims that United charge s a 16 percent premium, Southwest’s 3 daily BWI

HOU departures compete with 3 daily United departures. JetBlue submits that t he disparity in

frequencies, among other reasons, makes its calculation of a 38 percent United fare premium

more accurate. See id. at 14, Exhibit B6

- R

- 102. Indeed, JetBlue’s projection reflects the actual

United fare premium in markets where only Southwe st and United compete head

- to

- head. See

Exhibit B6

- R

- 102. Southwest does not even respond to these calculations, simply asserting that

BWI

- HOU* is “the most relevant predictor of Southwest’s probable impact” without accounting

for the vast discrepancy in the number of flights. Unauthorized Southwest Reply at 7.

Because the model Southwest used to calculate its purported consumer benefit is

sensitive to the fare premium estimate used, Southwest’s calculation of total consumer benefit is

overstated to the extent that its assumption of fare premiums is incorrect. Indeed, Southwest’s

5 Just as the Department’s Bureau of Transportation Statistics con siders IAH and HOU as one market

, see Unauthorized Southwest Reply at 4

, the Department considers IAD and DCA part of the same market.5 purported $19.1 million in consumer benefits falls dramatically when more realistic estimates of

the likely United fare premium are used. In the chart below, JetBlue used S outhwest’s model to

calculate the purported consumer benefit under different assumptions for the fare premium.

Southwest’s Purported Consumer Benefits Slip Away When More Realistic Fare Premium Estimates Are Used 6

WN Estimated UA Premium Midpoint Actual Average UA Premium
16% premium 27% premium 38% premium

Consumer Benefit $19,133,324 $12,488,338 $5,939,164

Accordingly, Southwest’s argument that it provides the maximum competitive benefits is

constructed on a weak foundation that does not withstand scrutiny.

In contrast, JetBlue and Southwest submitted similar estimates of the consumer cost

savings in thei r respective responses to the applications based on JetBlue’s estimate of the impact

of its service on fares and traffic. Compare Southwest Answer at 2, WN

- R

- 10 (estimating $10.4

million) to JetBlue Consolidated Response at 9 (estimating $10.6 million). JetBlue’s estimate

w as made based on its track record of entering US Airways

- dominated markets and lowering

fares while increasing enplanements in those markets

. 7 See JetBlue Application at 4.

6 JetBlue calculated these values using the methodology described in Appendix 1 of Southwest’s Application.

7 Southwest dismisses JetBlue’s argument that its proposed service will have a larger per capita impact on a smaller market as “irrelevant,” Unauthorized Southwest Reply at 5, but doing so requires Southwest to read Congress’s direction to consider service to medium hub airports and small communities out of the statute.6 2. Southwest Does Not Propose To Serve A Small Community

. JetBlue’s application also is superior to Southwest’s because Southwest does not satisfy

the statutory criteria that carriers serve “small communities.” Indeed, Southwest makes quite the

opposite claim, trumpeting the fact that Houston is one of the large st markets in the country:

“First, the Greater Houston region is huge, with a metropolitan population of 6.1 million

residents

– the 9 th largest in the United States.” Southwest Answer at 5; see also Southwest

Application at 1, 7; Unauthorized Southwest Reply at 3. Contrary to the claims in the

Unauthorized HOU Reply, there is no question that Congress wanted service to smaller

communities considered in the allocation of AIR

- 21 slot exemptions. It put the words “small

communities” directly into the lang uage of the statute. See 49 U.S.C. § 41718(b) (3). 8 In

applying to serve Houston, Southwest has proposed exactly the opposite and therefore does not

satisfy this fundamental criterion.

In contrast to Southwest, US Airways and JetBlue propose to serve si milarly

- sized

communities, and both satisfy this statutory factor better than Southwest’s application.

3. Both JetBlue And Southwest Are Limited Incumbent Carriers.

Southwest and JetBlue are both limited incumbent air carriers at DCA so both satisfy this

statutory criteri on

. Despite this fact, Southwest’s pleadings incorrectly state that 36 DCA slots

8 Indeed, the AIR

- 21 with in perimeter slot exemptions were created as a compromise to resolve competing concerns about DCA’s capacity and the possibility that carriers’ use of slot exemptions to serve beyond perimeter locations would deprive smaller communities of DCA service. 14 5 Cong. Rec. S11891

- 05 (comments of Sen. Byrd), 1999 WL 791277 (“ The Gorton

Rockefeller amendment will reduce by half the increased number of frequencies into [DCA] than was originally sought. It will also reserve half of the additional slots for flights s erving cities within the 1,250 mile perimeter. Most importantly, Mr. President, these additional slots within the perimeter will be reserved for flights to small communities, flights to communities without existing service to Reagan National Airport, and flights provided by either a new entrant airline, or an established airline that will provide new competition to the domina nt carriers at Reagan National. ” ).7 are “held” by JetBlue. See Southwest Answer at 2 ; Exhibit WN

- R

- 6; see also Exhibit WN

- 100

. JetBlue holds 20 DCA slots and operates 16 additional slots purs uant to a lease agreement with

American , meaning that of all the applicants in this proceeding JetBlue is the holder of the

fewest number of DCA slots

. US Airways, on the other hand, is the dominant incumbent at

DCA with slot holdings well above the statu tory threshold for a limited incumbent. See JetBlue

Consolidated Response at 4

- 5.

4. JetBlue Provides More Direct Competition On A Nonstop Monopoly Route.

The Unauthorized Southwest Reply also takes issue with JetBlue’s argument that because

Southwest serves Houston Hobby rather than Houston’s George Bush Intercontinental Airport it

does not truly provide competing nonstop service on a monopoly route. See Unauthorized

Southwest Reply at 3. Again, Southwest has missed JetBlue’s point. Even if Southwe st is

correct that HOU and IAH “serve the same economic market,” Unauthorized Southwest Reply at

4, it is axiomatic that the two airports are not perfect substitutes for one another. As Southwest

pointed out in its Application, HOU and IAH are more conven ient to different portions of the

population of Houston. See Exhibit WN

- 108. As a result, some consumers will select flights

based in part on the appeal of the airport and not the price competition between United and

Southwest. In contrast, JetBlue’s pr oposed Jacksonville service will compete head

- to

- head

against US Airways on the exact same airport pair, providing the more vigorous price and

service competition. Indeed, JetBlue submitted data demonstrating that in markets where only

US Airways and JetB lue compete, fares are lower relative to the domestic average fare curve

than in markets where only United and Southwest compete out of Houston. See JetBlue

Consolidated Response at 13. While both JetBlue and Southwest both technically satisfy the8 statuto ry criterion of competing on a monopoly nonstop route, JetBlue proposes to compete

directly against DCA ’s dominant carrier.

Conclusion

In consideration of the pleadings in this proceeding, JetBlue respectfully requests that the

Department award the singl e pair of available within

- perimeter slot exemptions to its ap plication

to serve Jacksonville

Dated: January 10, 2013 Respectfully submitted,

Jonathan B. Hill J. Parker Erkmann Counsel for JetBlue Airways Corporation9 Certificate of Service

I, J. Parker Erkmann, hereby certify that a copy of the foregoing Consolidated Reply Of JetBlue Airways Corporation was served this 10th day of January , 201 3 via email transmission on the following persons:

dhainbach@ggh

- airlaw.com john.varley@virginamerica.com jyoung@yklaw.com bob.kneisley@wnco.com leslie.abbott@wnco.com howard.kass@usairways.com robert.wirick@aa.com francis.heil@aa.com Karine.faden@united.com dan.weiss@united.com Sascha .vanderbellen@delta.com john.fredericksen@suncoutry.com robert.cohn@hoganlovells.com marshal l.sinick@squiresanders.com charles.donley@squiresanders.com quince.brinkley@mwaa.com Susan.Kurland@dot.gov Esta.Rosenberg@dot.gov Todd.Homan@dot.gov brian.ctr.meehan@ faa .gov fbavent@airlineinfo.com steve.grossman@flyjacksonville.com jegillick@zsrlaw.com jhfoglia@zsrlaw.com rbtrinder@zsrlaw.com jasilversmith@zsrlaw.com

and via First Class Mail:

Arnaldo Deleo General Manager Aviation Bureau Port Authority Government of Puerto Rico PO Box 362829 San Juan, PR 00936

- 2829

s/ Parker Erkmann J. Parker Erkmann