BEFORE THE OFFICE OF THE SECRETARY DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

____________________________________ _ ) Application of ) ) AIRTRAN AIRWAYS, INC. ) ) Docket No. DOT - OST - 2011 - 0225 for an exemption under 49 U.S.C § 40109 ) ) ( Chicago ( Midway ) , Illinois

- Cancun, Mexico ) )

_____________________________________ )

__________ ___________________________ ) Application of ) ) FRONTIER AIRLINES, INC. ) Docket No. DOT - OST - 2011 - 0214 ) f or an exemption under 49 U.S.C. § 40109 ) ) ( Chicago (O ‟Hare ) , Illinois

- Cancun, Mexico ) )

___________ __________________________ )

REPLY OF AIRTRAN AIRWAYS, INC. Communications with respect to this document should be sent to: Bob Jordan Robert W. Kneisley President Associate General Counsel AIRTRAN AIRWAYS, INC. Leslie C. Abbott 9955 AirTran Boulevard Senior Attorney Orlando, FL 32827 SOUTHWEST AIRLINES CO. 1901 L Street, N.W., Suite 640 Washington, D.C. 20036 bob.kneisley@wnco.com (202) 263

- 6284

December 2 2 , 20112 BEFORE THE OFFICE OF THE SECRETARY DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

_____________________________________ ) Application of ) ) AIRTRAN AIRWAYS, INC. ) ) Docket No. DOT - OST - 2011 - 0225 for an exemption under 49 U.S.C § 40109 ) ) (Chicago (M idway ) , Illinois

- Cancun, Mexico ) )

___________ __________________________ )

__________ ___________________________ ) Application of ) ) FRONTIER AIRLINES, INC. ) Docket No. DOT - OST - 2011 - 0214 ) f or an exemption under 49 U.S.C. § 40109 ) ) ( Chicago (O ‟Hare ) , Illinois

- Cancun, Mexico) )

___________ __________________________ )

R EPLY OF AIRTRAN AIRWAYS, INC. AirTran Airways, Inc. (AirTran) files this Reply in response to the December 15, 2011 Answer filed by Frontier Airlines (Frontier) to AirTran‟s Application for exemption authority to serve the Chicago (Midway)

– Cancun, Mexico market. 1 BACKGROUND Spurred by the recent announcement of USA3000 that it intends to terminate service in the Chicago

– Cancun market at the end of January 2012, AirTran an d Frontier have both f iled applications to assume the one U.S. carrier designation that will become available in that market by virtue of USA3000‟s withdrawal . AirTran‟s

1 Common names of airlines are used herein.3

application seeks authority to serve Cancun from Chicago Midway Airport (MDW) while Frontier proposes to fly from Chicago O‟Hare Airport (ORD) . Frontier‟s December 15 answer to AirTran‟s application contains numerous misleading and inaccurate statements, and AirTran files this Reply in order to correct the record and provide a

mor e accurate basis for the Department‟s decision on the competing applications

. Notwithstanding the predic t able hyperbole in Frontier‟s answer, the facts show overwhelmingly that AirTran would provide far greater public benefits than Frontier in the C hicago

– Cancun market : AirTran and Southwest Airlines combined have a huge 220
- flight

- per - day network at Midway to support Cancun service, while Frontier has zero flights at O

- Hare to support its Cancun proposal

. AirTran would provide the first competitive Cancun service at MDW, which serves the entire Chicago region but is particularly convenient to South Side residents . F rontier would provide redundant service at ORD on top of the many Cancun flights operated at ORD by both U.S. and foreign ca rriers. AirTran would provide year - round daily service between Chicago and Cancun

. Frontier would offer daily service only 19 weeks of the year

. AirTran/Southwest‟s massive presence in the Chicago market ensures that its Cancun service will be stable , competitive, and successful

. Frontier would be dependent on a single customer (Apple Vacations) , with significant seasonality variations and contractual risks that threaten its viability

. There is no need to waste a valuable U.S. designation on Frontier‟ s proposal since Frontier can serve Apple via charter authority that is fully available under U.S.

– Mexico bilateral agreement. Awarding Frontier the single available U.S. carrier scheduled designation would block AirTran/Southwest, and Midway Airport , f rom the Chicago

– Cancun market. Frontier‟s answer contains numerous exaggerations , distractions, and distortions , but does not overcome any of these basic facts.4

I. FRONTIER’S DESCRIPTION OF THE C HICAGO
– CANCUN MARKET IS MISLEADING AND DISPROVEN BY THE FACTS. Frontier‟s A nswer claims that “O‟Hare

- Cancun demand is 30 times larger than that in the tiny Midway

- Cancun market , ” 2 i mplying that only ORD can support nonstop service to Cancun. However, the recorded Chicago

– Cancun O&D is m uch greater at ORD simply because ORD has far better service to Cancun today than does MDW. As attached Exhibit FL

- R

- 101 demonstrates, ORD has six nonstop flights per day while MDW has none , and ORD has 35 daily connecting flights compared to only seven at MDW. In fact, the best roundtrip (nonstop) service to Cancun offered at ORD has an elapsed time under 7.5 hours, compared to more than 12 hours for the best (connecting) service at MDW. Therefore it is not at all surprising that the O&D traffic to Ca ncun a t ORD is much greater than that at MDW. Frontier‟s claim therefore proves nothing about consumer preference for ORD vs. MDW . It simply reflects the reality that passengers prefer nonstop service over connections, and all nonstop Chicago

– Cancun ser vice today is provided at ORD while MDW offers only inconvenient connections. 3 Moreover, far from demonstrating ORD‟s “superiority” in serving Cancun , as Frontier would have the Department believe, the current O&D data illustrate an urgent need for establ ishing competitive Cancun service at MDW and restoring a balance of service within the Chicago region

. In fact, MDW is the airport preferred by a large segment of Chicago passengers. As shown in Exhibit FL

- R

- 102, in large domestic markets with comparabl e nonstop

2 Frontier Answer at 2. 3 As Frontier itself notes, “all U.S. flag service to the Mexican beach destinations is operated from O‟Hare” (Answer at 5). In fact, the concentration of Mexico service at ORD will be even greater once Aeromexico launches its recently

announced ORD

- CUN service. See Notice of Action Taken in Docket DOT

- OST

- 2011
- 0231, December 20,2011 (counsel for Aeromexico has confirmed the carrier‟s intent to serve ORD).5

service, MDW and ORD originate virtually identical volume s of passengers . In addition, as shown in Exhibit FL

- R

- 111, the population within a 60

- minute drive of MDW is 94% of the population within a 60

- minute drive of ORD. Thus, MDW is unquestionably a convenient airport for the vast majority of Chicago

- area passengers. Yet Frontier would have the Department believe that all demand is for ORD service, and that an award to AirTran/Southwest for its MDW service proposal would be wasted. T he history of competition between air service s provided at ORD vs. MDW also illustrates the fallacy of Frontier‟s argument. For example, b efore Southwest entered the MDW

– IAD market, O&D passengers in the ORD

- IAD market were 41 times greater than MDW

- IAD O&D passengers (Exh

. FL

- R

- 104). Currently, however, MDW

- IAD passenger volume is 22% greater than ORD

- IAD

- notwithstanding the fact that United has major hubs at both ORD and IAD. Similarly, prior to Southwest‟s entry into the Chicago

– Buffalo market, the ORD

- BUF O&D volume was 34 times greater than that of MDW

- BUF (Exh

. FL

- R

- 105). Today, the MDW

- BUF passenger volume is 73% the size of the ORD

- BUF (Id.). In addition, Frontier‟s claim that only its proposed ORD

– CUN service will provide “head to head com petition” (Answer at 2) with the network carriers currently serving ORD demonstrates a profound lack of understanding of the Chicago aviation market. Southwest‟s entry into numerous Chicago markets over the years has vividly demonstrated the strong competitive inter

- relationship between ORD and MDW within the Chicago region . For example, Southwes t‟ s low

- fare entry into the MDW

- MSP market in March 2009 reduced fares over 40% at both MDW and ORD, while stimulating total CHI

- MSP traffic by 18% (Exh

. FL

- R

- 106). Similarly, Southwest‟s entry6

into the MDW

- LGA market in June 2009 reduced fares at both MDW and ORD by approximately 20%, and stimulated new traffic at both MDW and ORD (Ex h. FL

- R

- 107). These are just two examples of a pattern that has been rep eated many times , as Southwest ‟s expansion into numerous MDW markets forced fares to decline, and traffic to expand, at both ORD and MDW. This pattern demonstrates c on vincingly that ORD is not a market unto itself, as Frontier argues , but i s part of a broader Chicago market in which the air services at both MDW and ORD compete strongly and continuously with one another for passengers

. The fact that the U.S.

– Mexico bilateral designates Chicago as a single market encompassing both ORD and MDW underscores this point. AirTran/Southwest ‟s service in MDW

- Cancun service will compete vigorously with ORD

Cancun services, and will force competitive responses from the ORD carriers as a result. Daily year

- round service by AirTran/Southwest will also re dress the current imbalance of Cancun traffic between Chicago‟s two airports and will generate a distribution similar to that experienced in competitive domestic markets served by both MDW and ORD

.
II. AIRTRAN WOULD BE A T RUE NEW ENTRANT IN T HE MARKET AND PROVIDE MUCH MORE EFFECTIVE COMPETITIO N THAN FRONTIER. Frontier‟s application is replete with statements that it would be a “ new entrant ” in the CHI

- CUN market and as such would provide a low

- fare alternative at ORD. Upon scrutiny, however, these claims have no merit

. To begin with , Frontier does not disclose its proposed fares, nor does it compare its fare s to those of United and American in the ORD

- CUN market. In actuality, Frontier„s fare s would be a bulk contract price negotiated with Apple Vacations ; Frontier would not determine the seat7

price to the passengers for most if not all of its passengers. There is no evidence whatever that Frontier would provide price competition with the ORD

- CUN i ncumbent s. Beyond this , while Frontier attempts to promote itself as a new entrant, it also makes clear that it will step into the shoes of the current service provider for Apple Vacations, USA3000. 4 Thus, by its own admission , Frontier‟s service would be a continuation of existing vacation package contract lift at ORD, which has not provided vigorous low

- fare competition with incumbent ORD

- CUN carriers in the past

. In contrast, AirTran would be a true new entrant in th e Chica go – CUN market providing service from the Chicago airport currently without any nonstop Cancun flights

. In recent proceedings, the Department has recognized that low fare carriers need a critical mass of service to provide effective competition, particular ly when competing against with dominant legacy carriers. 5 With its extensive network of connections at MDW, AirTran/Southwest is heavily committed to Chicago and has the large market presence to ensure its MDW

- CUN service is a success. 6 In fact, AirTran and Southwest together serve 27 cities with less than 40% circuity from MDW that would provide additional passenger support for service to Cancun (Exhibit FL

- R

- 109). Frontier, by contrast, has exactly zero connections at ORD to support its proposed ORD

- C ancun service (Exhibit F

- R

- 110). Lacking such support, Frontier has ad vanced a self

- serving description of Chicago

- Cancun as “primarily a local O&D market” (Answer at 8). But this characterization would apply to Frontier only

4 Frontier states that it has entered into an a greement with Apple “to replace Apple Vacations’ current allocation of seats on USA3000’s flights” and will “ensure Apple Vacations’ customers a seamless transition from USA3000’s service without disruption...” Frontier Application at 2

- 3. 5 See, e.g , Notic e of grant of petition with conditions (US/DL Slot Swap), affirming 8 slot pair bundles based on DOT/FAA’s finding that “there is likely to be greater overall public benefit if the larger ( i.e., 8 slot pair) bundles are retained” whereas “...smaller bundles of slots ...could make certain new entrants highly vulnerable... and frustrate the competitive responsiveness we are seeking.” 76 Fed. Reg. 63702, 63708 (Oct. 13, 2011).8

because it has no connecting support, and not to other U.S. carriers serving the market which rely heavily on connections: 53% of United‟s ORD

- CUN passengers are connecting, and 25% of American‟s ORD

- CUN passengers are connecting , while USA3000 (into whose shoes Frontier w ishes to step) has zero connecting passengers. In addition, 43% of Southwest‟s passengers at MDW are connecting. Thus, Frontier‟s description of the Chicago

- Cancun market as “primarily local O&D” simply reflects that carrier‟s own lack of network support and exposes a serious weakness in its proposal. Without passenger support from behind

- ORD destinations, Frontier cannot hope to provide daily service outside of the peak season, and its proposal for daily flights in only 41⁄2 months of the year reflects that fa ct. AirTran/Southwest, on the other hand, can support at least daily service all year - round in MDW

- CUN due to its extensive network at MDW and large numbers of connections to behind

- gateway cities. 7

III. FAR FROM A “ PROVEN TRACK RECORD, ” FRONTIER HAS TERMINATED OVER HALF ITS MEXICO ROUTES AND DOES NOT PROVIDE DAILY SERVIC E IN ANY OF THOSE THAT REMAIN
. Frontier first began serving Mexico from its Denver hub in 2003 . In 2004 it began a long series of experiments with 21 other Mexico route s . Frontier has since abandoned 13 of those routes (Exhibit FL

- R

- 108)

. Moreover, in all eight of its remaining Mexico markets, Frontier provides less than daily year

- round service ( Id. ). This is Frontier‟s “proven track record” ( see Frontier Answer at 2 ). Frontier‟s history of

7 Frontier notes that AirTran provides less

- than

- daily service in the BWI

- CUN market for two months of the year (September and October). That level of service reflects the relatively limited connecting support that AirTran has at BWI standing alone, however. As Southwest and AirTran schedules are integrated, service levels will increase to at least daily year

- round. In September 2012, for example, AirTran will offer daily service plus two flights on Saturdays in this market and in October 2012 will offer 12 weekly flights.9

unreliable service to Mexico should not be rewarded with the grant of yet another limited

- entry route award. That is especially true i n this case, where Frontier has no existing service at its proposed gateway and no passenger fe ed at ORD, and stakes the entire success of its service on one c ustomer (Apple Vacations), wh ich would be in a position to drive any price bargain that could easily cause Frontier to abandon yet another Mexico route. With no connecting market support at ORD, and very little market identification in all of Chicago, it is clear that Frontier would be a very weak competitor in the ORD

- CUN market. To survive it must have the Apple Vacations contract which could easily be served by charter authority. For all these reasons the Department should not squander limited entry authority on Frontier and block AirTran/Southwest (and Midway Airport) from the market by doing so.

IV. DESPITE CLAIMS TO TH E CONTRARY, FRONTIER’S BUSINESS INTEREST IN THE CHI CAGO - C ANCUN MARKET CAN BE WELL SERVED WITH CHARTER AUTHORITY
. Despite belated protest ations that it requires scheduled authority, Frontier has offered no evidence that it would generate a single individually ticketed passenger on its ORD

- CUN flights

. Instead, the only passengers Frontier credibly asserts it will carr y are those provided via a single contra ct with Apple Vacations. B ecause Apple will control the marketing and distribution as well as much if not all of the schedule , Frontier can supply th is contractual lift via charter service that is permitted under the U.S.

- Mexico bilateral agreement

. The refore, as we noted previously, the competing applications of AirTran/Southwest and Frontier present the D epartment with a “win

- win” opportunity.10

Awarding scheduled authority to AirTran/Southwest would provide reliable and competitive year - round daily service at Midway Airport, while allowing Apple Vacations ‟ customers to continue to avail themselves of travel packages with the air portion operated by Frontier at ORD, alongside the service s of both United and American. AirTran/Southwest would compete at MDW against the scheduled services of United and American, as well as the charter services by Frontier at ORD , allowing four U.S. carriers to share and compete in this important aviation market

.
CONCLUSION For the reasons given above and in our prior pleadings , w e urge the Department to grant AirTran‟s application for MDW

- Cancun exemption authority, and to designate AirTran for such service under the U

. S

. - Mexico Agreement.
Respectfully submitted ,

____________________ Robert W. Kneisley

December 2 2 , 2011CERTIFICATE OF SERVI CE

I hereby certify that on December 22 , 2011, a copy of the foregoing was served via e

- mail on the following persons:
msinick@ssd.com (Alaska Airlines) carl.nelson@aa.com (American Airlines) sascha.vanderbellen@delta.com (Delta Air Lines) jeff.morgan@delta.com (Delta Air Lines) robert.cohn@hoganlovells.com (Frontier Airlines) patrick.rizzi@hoganlovells.com (Frontier Airlines jhill@dowlohnes. com (JetBlue Airways) dkirstein@yklaw.com (Spirit Airlines) jyoung@yklaw.com (Spirit Airlines) John.Fredericksen@suncountry .com (Sun Country Airlines) dan.weiss@united.com (United Air Lines) howard_kass@usairways.com (US Airways) pmurphy@lopmurphy.com (USA3000) barbara.russell@virginamerica.com (Virgin America) susan.kurland@dot.gov paul.gretch @dot.gov brian.hedberg@dot.gov brett.kruger@dot.gov todd.homan@dot.gov esta.rosenberg@dot.gov john.allen@faa.gov ursk@dos.gov Rosemarie S. Andolino Commissioner City of Chicago Department of Aviation rosemarie.sandolino@cityofchicago.org Erin O’Donnell Managing Deputy Commissioner City of Chicago Department of Aviat ion, Midway Airport Erin@cityofchicago.org

__________________________ Leslie C. Abbott

## Recorded O&D Traffic to Cancun is Much Higher at ORD than MDW

Because ORD Has Much Better Service to Cancun than MDW Exhibit FL - R - 101



### Nonstop Flights Connecting Flights

Note: Includes only intra

- alliance connections and uses a minimum connect time of 1 hour and a maximum connect time of 3 hours. Source : Official Airline Guide schedules for December 17, 2011. ORD MDW ORD MDW Best ORD - CUN Roundtrip Elapsed Time = 7:25 Best MDW - CUN Roundtrip Elapsed Time =12:07 Daily Roundtrip Nonstops Average Daily Online Roundtrip Connections

## In Large Markets With Similar Nonstop Service MDW Originates



# 99.4% As Many Chicago Passengers As ORD

Domestic Chicago Originating O&D Passengers Exhibit FL - R - 102

MDW ORD Average Daily Departures per Market 5.8 6.5

Note: Includes all markets that had 3 or more roundtrip daily nonstops from both MDW and ORD and had similar total departures (plus or minus 2). Source : DOT, Origin

- Destination Passenger Survey, YE Q2 2011; Official Airline Guide, schedules for YE Q2 2011.

## The AirTran/Southwest Proposal Would Bring First Competitive Service to MDW While Frontier Could Easily Serve Apple Vacations with Charter Authority

AirTran/Southwest Proposal Exhibit FL - R - 103

AA Annual Roundtrips

UA F9 FL/WN

ORD Service MDW Service Frontier Proposal

AA UA F9 FL/WN ORD Service MDW Service



## C 

# H A R T E 

# R Annual Roundtrips

Source : F9 frequencies calculated from page 7 of Frontier’s Reply and Answer. AA and UA frequencies from OAG, YE Q2 2012. NONE

## Before Southwest Served MDW - IAD the ORD Originating Passengers

Were 41 Times the MDW Originating Passengers But Today MDW is 22% Larger than ORD Traffic

41 Times IAD Chicago Originating O&D Passengers

2003 Exhibit FL - R - 104

MDW ORD MDW= 1.22 Times ORD

MDW ORD IAD Chicago Originating O&D Passengers

YE Q2 2011

Source : DOT, Origin

- Destination Passenger Survey.

## Before Southwest Served MDW - BUF the ORD Originating Passengers

Were 34 Times the MDW Originating Passengers But Today MDW is 73% the Size of ORD Traffic

34 Times BUF Chicago Originating O&D Passengers

2003 Exhibit FL - R - 105

MDW ORD MDW = 0.73 x ORD

MDW ORD BUF Chicago Originating O&D Passengers

YE Q2 2011

Source : DOT, Origin

- Destination Passenger Survey.

## Southwest’s Entry in MDW - MSP Stimulated Total Chicago

Traffic And Lowered Fares at Both ORD and MDW Exhibit FL - R - 106

Before WN Nonstop ORD

Note: Before Period = CY 2008. After Period = YE Q1 2010. Source : DOT, Origin

- Destination Passenger Survey. MDW Average Fare

After WN Nonstop Before WN Nonstop After

WN Nonstop Before WN Nonstop ORD MDW O&D Passengers

After WN Nonstop Before WN Nonstop After

WN Nonstop

## Southwest’s Entry in MDW - LGA Stimulated Total Chicago Traffic And Lowered Fares at Both ORD and MDW Exhibit FL - R - 107

Before WN Nonstop ORD

Note: Before Period = YE Q2 2009. After Period = YE Q2 2010. Source : DOT, Origin

- Destination Passenger Survey. MDW Average Fare

After WN Nonstop Before WN Nonstop After

WN Nonstop Before WN Nonstop ORD MDW O&D Passengers

After WN Nonstop Before WN Nonstop After

WN Nonstop $0

## Frontier Has Abandoned 13 of 21 Mexico Routes It Started Since 2004 and Doesn’t Provide 

# Daily Year - Round Service in Any of the Remaining Markets

Source : Official Airline Guide schedules for Frontier from January 2004 to June 2012. Exhibit FL - R - 108

Market Start Date End Date Total Months Category 1 ABQ - PVR December 2007 May 2008 6 Dropped 2 AUS - CUN November 2004 March 2005 5 Dropped 3 BNA - CUN November 2004 June 2008 41 Dropped 4 DEN - ACA December 2005 April 2007 11 Dropped 5 DEN - GDL December 2006 January 2008 14 Dropped 6 DFW - MZT June 2007 April 2008 10 Dropped 7 LAX - SJD December 2006 April 2008 17 Dropped 8 SAN - CUN December 2006 August 2007 9 Dropped 9 SJC - PVR December 2007 January 2008 2 Dropped 10 SJC - SJD March 2007 January 2008 11 Dropped 11 SMF - PVR December 2007 December 2007 1 Dropped 12 SMF - SJD March 2007 January 2008 11 Dropped 13 STL - PVR December 2010 April 2011 5 Dropped 14 DEN - CZM 61 Not Daily Year - Round 15 IND - CUN 44 Not Daily Year - Round 16 MCI - CUN 89 Not Daily Year - Round 17 MCI - PVR 50 Not Daily Year - Round 18 MCI - SJD 21 Not Daily Year - Round 19 MKE - CUN 15 Not Daily Year - Round 20 SLC - CUN 78 Not Daily Year - Round 21 STL - CUN 45 Not Daily Year - Round

## AirTran/Southwest Would Connect 27 Markets At MDW With Less Than 40% Circuity

Current FL/WN Markets Proposed FL/WN Market Current FL/WN Service (<40% Circuity ) Destinations 27 Weekly Departures 776 Weekly Seat Departures 105,292

Source: OAG schedule for the week of November 14, 2011. Exhibit FL - R - 109

## Frontier Would Not Connect Any Markets at ORD to Support Its Proposed Cancun Service

Current Frontier Market Proposed Frontier Market Current Frontier MDW Capacity Destinations 1 Weekly Departures 23 Weekly Seat Departures 2,994

Source: OAG schedule for the week of November 14, 2011. Exhibit FL - R - 110

## The MDW Population within a 60 minute Drive is 94%

of the ORD Population within a 60 minute Drive

Source: Targetpro

. Exhibit FL - R - 111



### MDW

MDW 60 Minute Drive ORD 60 Minute Drive ORD MDW MDW % of ORD

= 100 residents 

### ORD 8.8 million 8.3 million 94% Population Within 60 Minutes